<PAGE>
 
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               UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549
 
                               ----------------
 
                                   FORM 10-K
 
(MARK ONE)
  [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
      EXCHANGE ACT OF 1934 (FEE REQUIRED)
  FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
                            -----------------      
  [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
      EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
 
  FOR THE TRANSITION PERIOD FROM     TO
                                -----  -----
  COMMISSION FILE NUMBER 1-5851
                         ------ 

                            RHONE-POULENC RORER INC.
  ----------------------------------------------------------------------------
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
 
          PENNSYLVANIA                                  23-1699163
  -----------------------------                -----------------------------
    (STATE OF INCORPORATION)                         (I.R.S. EMPLOYER
                                                    IDENTIFICATION NO.)
 
         500 ARCOLA ROAD
   COLLEGEVILLE, PENNSYLVANIA                              19426
  -----------------------------                -----------------------------
      (ADDRESS OF PRINCIPAL                             (ZIP CODE)
       EXECUTIVE OFFICES)
 
  REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 610-454-8000
                                                      ------------ 
  SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
 
                                                                           
                                                   NAME OF EACH EXCHANGE   
       TITLE OF EACH CLASS                          ON WHICH REGISTERED     
       -------------------                         ---------------------    
   Common shares (without par                     New York Stock Exchange   
    value), stated value                           Paris Stock Exchange     
         $1 per share                                               
      Flexible Money Market                                                 
         Preferred Stock
      (without par value),
           liquidation
     preference $100,000 per
              share
 
  Securities registered pursuant to Section 12(g) of the Act: None
 
  Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
 
  Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [ ]
 
  As of January 31, 1996, the aggregate market value of the voting stock held
by non-affiliates of the registrant was approximately $2,554,966,558.
 
  Common shares outstanding as of January 31, 1996 were 134,617,086.
 
                               ----------------
 
                      DOCUMENTS INCORPORATED BY REFERENCE
 
  The following documents have been incorporated by reference in this report:
 
            DOCUMENT                           PARTS INTO WHICH INCORPORATED
            --------                           ----------------------------- 
Proxy Statement dated March 22,
 1996 in connection with the May
 3, 1996 Annual Meeting of                               Part III
 Shareholders
 
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                   The Exhibit Index is located on page 61.
<PAGE>
 
                           RHONE-POULENC RORER INC.
                          ANNUAL REPORT ON FORM 10-K
                     FOR THE YEAR ENDED DECEMBER 31, 1995
 
                                    PART I
 
ITEM 1. BUSINESS
 
 Description of the Business
 
  Rhone-Poulenc Rorer Inc. (the "Company" or "RPR"), a Pennsylvania
corporation, is the business formed in the 1990 combination of Rorer Group
Inc. and substantially all of the Human Pharmaceutical Business of Rhone-
Poulenc S.A. ("RP"). RP, based in Paris, France, owns approximately 68 percent
of the Company's common shares and controls the Company.
 
  The Company is primarily engaged in the discovery, development, manufacture
and marketing of a broad line of pharmaceutical products for human use. On the
basis of sales, RPR is the leading pharmaceutical group in France, among the
top three in Europe and among the largest in the world. The Company also has a
growing presence in North America, in developing markets, and in Japan. The
Company has commercial operations in the major markets of the world and its
products are manufactured in 30 countries.
 
  Through recent selected acquisitions and alliances, the Company has sought
to solidify its position in targeted therapeutic areas and to strengthen its
geographic presence in strategic markets. In the second quarter of 1995, the
Company acquired from RP the businesses of Cooperation Pharmaceutique
Francaise ("Cooper") and Rhodia Farma, a pharmaceutical business in Brazil.
Cooper has an extensive pharmacy distribution network in France and promotes
the Company's self-medication products. The acquisition of Rhodia Farma
strengthens the Company's presence in Brazil and increases access to other
South American markets.
 
  In September 1995, the Company's Armour Pharmaceutical Company subsidiary
("Armour") completed the formation of a 50/50 global joint venture ("Centeon")
with Behringwerke AG ("Behring"), a subsidiary of Germany's Hoechst AG, in the
plasma proteins business. Armour and Behring have complementary plasma
proteins offerings and geographic strengths which position the joint venture
as a global market leader. The arrangement also provides for increased
investment in research and development activities. Centeon's Board of
Directors was formally established on January 1, 1996, at which time joint
control and profit-sharing provisions took effect.
 
  In the fourth quarter of 1995, the Company acquired the U.K.-based
pharmaceutical company Fisons plc ("Fisons"). Fisons has a strong respiratory
product portfolio with established positions in the U.S., Europe and Japan.
The combination of Fisons with RPR creates the fourth largest company
worldwide in asthma/allergy with a comprehensive range of complementary
products, expanded presence in major geographic markets and innovative
inhalation delivery technologies. In early 1995, Fisons announced its decision
to divest its non-pharmaceutical operations, principally the Laboratory
Supplies and Scientific Instruments Divisions. The sale of the Laboratory
Supplies Division was substantially completed in October 1995; sale of
substantially all of the Scientific Instruments Division received clearance
from the Federal Trade Commission and is expected to be completed in the first
quarter of 1996.
 
  In 1993, the Company launched a long-term cell and gene therapy research and
development collaboration with Applied Immune Sciences, Inc. ("AIS"), a
pioneer in cell therapy. The companies also entered into an arrangement to
provide cell manipulation services worldwide. By mid-1995, RPR had acquired a
47% interest in AIS and in the fourth quarter of 1995, the Company purchased
the remaining outstanding shares of AIS that it did not own. The acquisition
of AIS enhances the development and commercialization of ex-vivo cell and gene
therapies and provides increased access to vector research. AIS is the
cornerstone of the RPR Gencell Division, created in 1994 and dedicated to the
discovery, development, manufacture and commercialization of both in-vivo and
ex-vivo cell and gene therapy products. Through associations with various
biotechnology companies and
 
                                       1
<PAGE>
 
research organizations worldwide, the Gencell Division hopes to optimize
existing technologies to accelerate the development of effective cell and gene
therapies in the areas of oncology, cardiovascular diseases and central
nervous system disorders.
 
 Financial Information about Industry Segments and Foreign and Domestic
Operations
 
  See note 20 to the consolidated financial statements, "Industry Segment and
Operations by Geographic Area" appearing on page 48 of this report.
 
 Principal Offerings
 
  The Company's pharmaceutical offerings are primarily comprised of
prescription medicines, plasma proteins and over-the-counter ("OTC") medicines
categorized in the following major therapeutic areas:
cardiovascular/thrombosis; anti-infectives/oncology; plasma proteins; central
nervous system/analgesics; respiratory; gastrointestinal and bone
metabolism/rheumatology. In addition, the Company manufactures and sells
certain bulk chemicals, OTC products, other medical supplies and
pharmaceuticals in other therapeutic areas including dermatology. No single
product or offering contributed more than 6% of sales in 1995, and the ten
largest as a group contributed 35% of the Company's sales (1994--35%, 1993--
36%). The following principal therapeutic areas accounted for the indicated
percentages of the Company's total net sales:
 
<TABLE>
<CAPTION>
                                                       PERCENTAGE OF NET SALES*
                                                      --------------------------
                  THERAPEUTIC AREA                      1995     1994     1993
                  ----------------                    -------- -------- --------
<S>                                                   <C>      <C>      <C>
Cardiovascular/thrombosis products, including
 Clexane(R)/Lovenox(R), Dilacor(R) XR,
 Lozol(R)/Indapamide and Selectol(R)/Selecor(R)......      19%      19%      19%
Anti-infectives/oncology products, including
 Flagyl(R) and Granocyte(R)..........................      13%      13%      13%
Plasma proteins, including Albuminar(R) and Factor
 VIII offerings......................................      12%      11%      10%
Central nervous system/analgesic products, including
 Imovane(R)/Amoban(R) and Doliprane(R)...............      12%      11%      11%
Respiratory products, including Azmacort(R) and
 Nasacort(R).........................................      11%      10%      10%
Gastrointestinal products, including Maalox(R).......       8%      11%      12%
Bone metabolism/rheumatology products, including
 Orudis(R)/Profenid(R)/Oruvail(R) and
 Calsynar(R)/Calcimar(R).............................       7%       8%      10%
All other, including DDAVP(R)........................      18%      17%      15%
                                                      -------- -------- --------
  Total net sales....................................     100%     100%     100%
                                                      ======== ======== ========
</TABLE>
--------
* Certain reclassifications among therapeutic areas have been made from
  amounts shown in prior periods for therapeutic areas to conform to
  classifications now used by the Company.
 
  The Company's principal offerings include the following:
Clexane(R)/Lovenox(R) (enoxaparin), a low molecular weight heparin used in the
prevention and treatment of deep vein thrombosis after certain surgery;
Azmacort(R) (triamcinolone acetonide), an inhaled corticosteroid for asthma;
Monoclate-P(R), a pasteurized anti-hemophilic Factor VIII:C concentrate;
Orudis(R)/Profenid(R)/Oruvail(R) (ketoprofen), a non-steroid anti-inflammatory
agent used in the treatment of rheumatoid arthritis; Albuminar(R), a protein
replacement agent and plasma volume expander for loss of intra-vascular
volume; Maalox(R), a magnesium and aluminum hydroxide-based antacid for
treatment of gastric hyperacidity; Dilacor(R) XR (diltiazem), a calcium
channel blocker used for treatment of hypertension and chronic stable angina;
Doliprane(R) (paracetamol), an analgesic; Imovane(R)/Amoban(R) (zopiclone), a
non-benzodiazepine sleeping agent; Flagyl(R) (metronidazole), an antiparasitic
used in the treatment of trichomoniasis, amebiasis and anaerobic bacterial
infections; Calsynar(R)/Calcimar(R) (calcitonin) for the treatment of
metabolic bone diseases such as post-menopausal osteoporosis; DDAVP(R)
(desmopressin acetate), primarily for treatment of nocturnal enuresis in
children; Sermion(R) (nicergoline), a cerebral vasodilator used in the
treatment of memory disturbance due to aging and cognitive disorders; Lozol(R)
(indapamide), a diuretic used to treat hypertension; Rovamycine(R)
(spiramycine), a macrolide anti-infective; Nasacort(R) (triamcinolone
 
                                       2
<PAGE>
 
acetonide), an inhaled corticosteroid for allergic rhinitis; Sectral(R)
(acebutolol), a beta-blocker used in the treatment of hypertension and angina;
Peflacine(R) (pefloxacine), an anti-infective quinolone product; Selectol(R)
(celiprolol), a highly cardioselective vasodilating beta-blocker used in the
treatment of hypertension; and Granocyte (lenograstim), a recombinant GCSF for
treatment of chemotherapy-induced neutropenia.
 
  In 1995, the Company obtained regulatory approvals in certain markets for
key new products including: Taxotere(R) (docetaxel), a semi-synthetic taxoid
for solid tumors for the treatment of advanced metastatic breast cancer and
non-small cell lung cancer; Campto(R) (irinotecan/CPT-11), a topoisimerase-1
inhibitor for colorectal cancer; Rilutek(R) (riluzole) for treatment of
Amyoptrophic Lateral Sclerosis; Menorest(R) (17 beta estradiol) for treatment
of postmenopausal symptoms and osteoporosis; and Kestine(R) (ebastine), a non-
sedating antihistaminic compound for treatment of seasonal or perennial
allergic rhinitis.
 
  Principal products acquired as part of the acquisition of Fisons in 1995
include Intal(R) (sodium cromoglycate) and Tilade(R) (nedocromil sodium) for
treatment of bronchial asthma. Two months of sales of these and other Fisons
products included in RPR's 1995 reported sales approximated $125 million.
 
  While the above offerings as well as others are important to the Company's
strategy and focus in specific geographic markets, not all are marketed by the
Company in all three of the largest pharmaceutical markets of the world
(Europe, United States and Japan).
 
 Customers, Marketing and Distribution
 
  The Company markets certain of its offerings in more than 140 countries
throughout the world. The Company's prescription medicines are sold primarily
to drug wholesalers, retail pharmacies, hospitals and government authorities,
while OTC products are sold, in addition to the foregoing, to food chains and
other retail outlets. Prior to the formation of the Centeon joint venture,
plasma proteins were marketed by the Company to hospitals and home health care
organizations. The Company's customer base is diverse, and no one customer
accounted for as much as 10 percent of the Company's consolidated net sales in
1995.
 
  Promotion of the Company's prescription medicines is directed primarily to
physicians, hospitals, pharmacists, and managed-care organizations through
personal visits by professional sales representatives. In addition, this
activity is supported by the Company's participation in scientific seminars,
medical journal advertising and by direct distribution of samples and other
printed material. Promotion of OTC products includes advertising directed at
the end consumer through media such as television, radio or print.
 
  In 1995, approximately 26 percent of the Company's sales were in the United
States. The Company conducted its 1995 marketing efforts in the U.S. through
three divisions: Rhone-Poulenc Rorer Pharmaceuticals (prescription
pharmaceuticals and generic versions of RPR products marketed by Arcola
Laboratories); Armour Pharmaceutical Company (plasma proteins); and Dermik
Laboratories (prescription dermatological products). In 1996, the Centeon
joint venture will market the plasma protein offerings of its partners, Armour
and Behring. In 1994, due to lack of critical mass, the Company transferred
its U.S. OTC business to Ciba-Geigy Ltd. through an asset sale and royalty
arrangement.
 
  The U.S. pharmaceutical industry continues to experience fundamental changes
in the way health care is administered and provided. These changes necessitate
the development of relationships with managed-care organizations and other
large customers in addition to the traditional marketing focus on the
individual physician. In 1995, the Company established HealthWorx(TM), RPR
Healthcare Management Services. The division encompasses the operations of the
managed-care/emerging markets unit created in 1993 in response to the
emergence of nationally-organized managed-care plans. HealthWorx(TM) is also
responsible for the Company's new initiatives in the area of disease state
management. The initial focus of the HealthWorx(TM) disease management program
will be on creating value-added, outcomes-based programs and services to
better manage asthma. In 1994, the Company entered into an alliance with
Caremark International Inc. ("Caremark"), a pharmaceutical benefit management
company, to enhance the delivery of cost-effective drug therapies through a
shared investment in outcomes research.
 
                                       3
<PAGE>
 
  In Europe, the Company established an OTC/self-medication business unit in
1994 to meet the needs of the expanding non-reimbursed self-medication market.
The unit works closely with the Company's European prescription
pharmaceuticals business to meet the specific challenges of prescription-to-
OTC switches and to effectively leverage the Company's existing sales and
marketing resources.
 
  In 1995, approximately 35 percent of the Company's sales were in France,
where the Company enjoys the leading position. Marketing of prescription
products in France is conducted through three subsidiaries: Bellon, Specia and
Theraplix. Prescription medicines are marketed to hospitals by Bellon and to
non-hospital specialists and general practitioners by Specia and Theraplix.
Theraplix also promotes self-medication products to physicians, pharmacists
and patients. The Cooper subsidiary has an extensive pharmacy distribution
network in France and assists in the promotion of the Company's self-
medication products. The recently acquired Biogalenique subsidiary markets
generic products to general practitioners and non-hospital specialists.
Through the French subsidiaries, the Company is party to certain arrangements
with affiliates of Bristol-Myers Squibb, Bayer, and Astra to co-market such
products as Vasten(R), a cholesterol-lowering agent; Captea(R), a combination
ACE inhibitor and diuretic; Captolane(R), an ACE inhibitor; Nidrel(R), a
calcium channel blocker and Zoltum(R), a proton pump inhibitor. In 1994 in
France, the Company, with its joint venture partner, Chugai, launched
Granocyte(R) for chemotherapy-induced neutropenia.
 
  Operations in Other Europe (excluding France) contributed approximately 23
percent of 1995 worldwide sales. The Company's largest operations are in
Germany, the United Kingdom and Italy. In Germany, the Company conducts its
prescription products business under the names of Nattermann, Rorer and Rhone-
Poulenc Pharmaceuticals. The OTC business in Germany is conducted through the
Nattermann and Dr. Schieffer units. In the United Kingdom, the Company markets
branded prescription pharmaceuticals through its Rhone-Poulenc Rorer and May &
Baker divisions. Generic pharmaceuticals are marketed and distributed in the
U.K. under the name of APS-Berk, and OTC products are distributed by the
Family Health Division. In Italy, the Company conducts business through its
Rhone-Poulenc Rorer S.p.A. subsidiary under the names Rhone-Poulenc and Rorer.
The Company is strengthening its operations in Central and Eastern Europe
through local production, warehousing and distribution arrangements and the
expansion of its sales force network. In 1995, the Company received approvals
to market three of its key products, Azmacort(R), Nasacort(R) and Dilacor(R)
XR in Russia.
 
  In the aggregate, geographic regions comprising the Rest of World area
accounted for just under 16 percent of RPR's 1995 sales. The Company has
operations in Latin America, Japan, Asia, Canada, Australia and Africa. The
Company's operations in Japan are conducted primarily through its subsidiary
Rhone-Poulenc Rorer Japan Inc.; in addition, the Company has several licensing
arrangements with Chugai, Yakult, Dainippon, Yamanouchi and other Japanese
companies for the sale of RPR products in Japan. In 1995, the Company acquired
rights to market products formerly licensed to a third party in Argentina, and
acquired a pharmaceutical business in Brazil from RP.
 
  Fisons has a marketing presence in the major pharmaceutical markets of the
world. In 1995, the more significant marketing activities with respect to
Fisons' prescription and OTC respiratory products were conducted by
subsidiaries in the U.S., the U.K., Germany, France and Italy. Intal(R) is
marketed in Japan through a joint venture arrangement with Fujisawa
Pharmaceutical Company Ltd. The Company is in the process of integrating a
large portion of the Fisons sales and marketing organization into its existing
operations.
 
 Raw Materials and Manufacturing
 
  The Company manufactures a substantial amount of the active ingredients
contained in its prescription and OTC medicines at its bulk pharmaceutical and
chemical facilities at Villeneuve la Garenne and Vitry-sur-Seine (near Paris,
France); Dagenham (near London, England); Cologne (Germany); Lewes, Delaware
(United States); and Marseilles (France). Raw materials related to products
based on sodium cromoglycate (Intal(R)) and nedocromil sodium (Tilade(R)) are
produced at Holmes Chapel, England and, with respect to nedocromil sodium,
also at Jurong, Singapore. Certain chemicals and botanicals are purchased from
third parties and are processed, compounded and packaged in facilities which
the Company operates. See "Properties."
 
                                       4
<PAGE>
 
  The Company does not depend to any significant degree on outside suppliers
for its active ingredients. Other raw materials and packaging supplies for the
Company's products generally are available in ample quantities under normal
conditions. Such supplies were adequate in 1995 and no shortages are
anticipated in the near-term.
 
  In 1995, Armour's Plasma Alliance subsidiary, through the plasmapheresis
process, collected all of the plasma used in the U.S. and substantially all of
the plasma used worldwide at 24 collection centers throughout the southern and
mid-western United States. Armour also operated a fractionation facility in
France.
 
 Patents, Trademarks and Licenses
 
  The Company has obtained patents in France, the United States, and other
countries for the significant products discovered or developed through its
research and development activities. Patent protection is available in the
United States, France and most other developed countries for new active
ingredients, as well as for pharmaceutical formulations or manufacturing
processes. In some other countries, patent protection is available only for
manufacturing processes. The Company also licenses patents and other know-how
from third parties. The Company maintains numerous trademarks protected by
registrations in the countries where its products are marketed.
 
  As no single product or offering contributes more than 6% of total sales, no
single patent or trademark is considered material to the Company as a whole.
Certain of the Company's licensed and owned products are covered by patents
principally in the United States, France and/or other countries. These patents
cover such principal offerings as Nasacort(R), Monoclate-P(R),
Clexane(R)/Lovenox(R), Peflacine(R) and Selectol(R). The Company's licensed or
owned patents expire at various times through the next twenty years. The U.S.
Azmacort(R) patent expired in 1993 and U.S. FDA exclusivity of Dilacor(R) XR
and Lozol(R) expired in 1995 and 1993, respectively. The 1994 General
Agreement on Tariffs and Trade ("GATT") led to numerous changes in U.S. patent
law. Provisions of GATT affect the life of both newly-issued and currently in-
force U.S. patents. Certain RPR U.S. patents in force today will benefit from
an extended patent term, but not with respect to those that were scheduled to
have expired before late 1999. The Company has been granted Supplementary
Certificates of Protection to extend the patent terms of several of its
products in Europe.
 
  Product patent protection is no longer available in nearly all major markets
for the active ingredients (such as ketoprofen, metronidazole, calcitonin,
acebutolol and spiramycine) used in a number of the Company's leading
products. The basic chemical patents for sodium cromoglycate have already
expired, and such patents for nedocromil sodium expire principally between
1998 and 2006. The Company does not believe that the expiration of patent
protection for the active ingredients used in its products has generally had a
significant adverse effect on the Company because of the ability thus far to
develop and patent new processes, formulations and uses and to position many
of its products in specific market niches.
 
  The Company is routinely engaged in disputes over its patented products and
processes, the more significant of which are discussed in "Legal Proceedings"
herein. There are currently no significant disputes concerning its trademarks.
 
 Competition
 
  The Company operates in an intensely competitive global environment,
encountering competition in all of its geographical markets from large
national and international competitors. The Company's chief competitors
include such companies as American Home Products Corp.; Bristol-Myers Squibb
Co.; Ciba-Geigy Ltd.; Eli Lilly and Co.; Glaxo Wellcome p.l.c.; Hoechst Marion
Roussel, Inc.; Johnson & Johnson; Merck & Co., Inc.; Pfizer Inc.; Roche
Holdings; Sandoz Ltd.; Schering-Plough Corp.; SmithKline Beecham; Pharmacia
and Upjohn, Inc. and Warner-Lambert Co. These and other competitors have
substantial resources available for research, development and marketing
activities.
 
  In general, a pharmaceutical offering may be subject to competition from
alternative therapies during the period of patent protection and thereafter it
may also be open to competition from generic offerings. The launch
 
                                       5
<PAGE>
 
by other companies of new products or processes with therapeutic advantages
can result in obsolescence and/or significant price erosion despite the
existence of patent protection or recognized trademarks. Medical utility,
product quality and marketing are other major competitive factors.
Manufacturers of generic products typically do not invest as heavily in
research and development and, consequently, are able to offer generic products
at considerably lower prices than brand equivalents. A research-based
pharmaceutical company may therefore seek to achieve a sufficient margin and
sales volume during the period of patent protection to recover the original
investment and to fund research for the future. There are, however, a number
of factors that can enable products to remain viable once all forms of patent
protection (product, process, formulation and use) have ceased. These include
creating for the prescriber or the consumer a strong brand identification
supported by an active trademark registration and enforcement policy; offering
a range of alternative formulations that generic manufacturers typically
cannot produce; or the manufacturing complexity of the active compound.
 
  Increasing governmental and other pressures in many countries in favor of
the dispensing of generic products in substitution for brand-name products may
increase competition for some of the offerings which are no longer covered by
patents.
 
  The Company believes that its competitive position in the medium- to long-
term depends largely on its ability to discover and develop innovative
therapies, as well as on increasing productivity through improved
manufacturing methods and marketing efforts, building leadership positions in
targeted therapeutic areas, and maximizing the benefits of new business
acquisitions and alliances.
 
 Research and Development
 
  The Company invests heavily in research and development, which management
believes is critical to growth and competitiveness in the pharmaceutical
industry. Research and development expenditures were $766 million in 1995,
$606 million in 1994 and $561 million in 1993. Such expenditures represented
15% of net sales in 1995 and 14% of net sales in 1994 and 1993.
 
  The Company has concentrated research efforts at five research centers, in
France (1), the United States (2), and the United Kingdom (2). See also
"Properties."
 
  The Company has centralized its research in selected areas deemed by
management to be of long-term market potential. Research and development
programs are concentrated in several therapeutic areas: cardiovascular
diseases, cancer, infectious diseases, respiratory diseases, bone
metabolism/rheumatology, and central nervous system disorders/pain. The
Company has development projects in various stages which include, but are not
limited to, the following:
 
  Filed for registration in certain major markets:
 
  .  Taxotere(R)*, an antitumor agent with potential therapeutic benefit
     against breast, lung and other forms of cancer;
 
  .  Kestine(R)*, a non-sedating antihistaminic compound for treatment of
     seasonal or perennial allergic rhinitis;
 
  .  Menorest(R)*, an estrogen patch for female hormone replacement therapy;
 
  .  Zagam(R)*, a broad spectrum anti-infective compound useful in treating
     respiratory tract infections (being developed in North America and co-
     developed in Europe through a joint venture with Dainippon);
 
  .  Campto(R)*, a novel anticancer agent which is cytotoxic against a
     variety of solid tumors, notably colorectal cancer; and
 
  .  Rilutek(R)*, a novel compound for the treatment of Amyotrophic Lateral
     Sclerosis (ALS).
 
    *  approvals received in certain markets
 
                                       6
<PAGE>
 
  Phase III in certain major markets:
 
  .  Synercid(TM), an injectable streptogramin antibiotic for serious
     bacterial infections; and
 
  .  Combi-patch, an estrogen/progestin combination transdermal patch for the
     relief of postmenopausal symptoms.
 
  Phase II in certain major markets:
 
  .  a potent and selective inhibitor of the enzyme phosphodiesterase type IV
     indicated in inflammatory processes such as asthma and rheumatoid
     arthritis; and
 
  .  an oral streptogramin antibiotic useful for community-acquired
     infections and potentially for pediatric use.
 
  Line extensions, in various stages of development, of marketed products:
 
  .  new indications such as the treatment of unstable angina for the
     antithrombotic drug, Lovenox(R);
 
  .  new formulations that are free of chlorofluorocarbons for Nasacort(R)
     (allergic rhinitis) and Azmacort(R) (asthma), as well as an aqueous
     formulation of Nasacort(R); and
 
  .  new formulations for Fisons' asthma products, Tilade(R) and Intal(R).
 
  There can be no assurance that the above compounds will ultimately be
approved for commercial sale in those markets where no approval currently
exists.
 
  In 1994, the Company formally created the RPR Gencell Division dedicated to
the discovery, development, manufacture and commercialization of both in-vivo
and ex-vivo cell and gene therapy products. Through associations with various
biotechnology companies and research organizations worldwide, the division
hopes to optimize existing technologies to accelerate the development of
effective cell and gene therapies in the areas of oncology, cardiovascular
diseases and central nervous system disorders.
 
 Governmental Regulation
 
  The worldwide pharmaceutical industry is subject to various governmental
regulations with respect to the testing, approval, manufacture, labeling,
marketing, efficacy and safety of pharmaceutical products. Such regulation
significantly affects the time and expense associated with bringing new
pharmaceutical products to market. In the United States, under the Food, Drug
and Cosmetic Act, the Company's products are subject to pre-market approvals,
strict standards regarding manufacture and safety, and detailed labeling and
promotion requirements. Generic substitution laws at the state level permit,
or in some instances mandate, the dispensing pharmacist to substitute a lower
cost generic equivalent version of the drug prescribed. In Europe, the
European Medicines Evaluation Agency ("EMEA") established new procedures for
drug approvals in 1995 whereby a single approval could become effective
throughout the entire European Union. EMEA initiatives should generally speed
access to the market of new chemical entities and result in better
harmonization of prescribing information.
 
  In recent years, governments in many of the Company's major markets have
instituted programs aimed at reducing overall health care costs through
control of pharmaceutical prices, reimbursement levels or prescription
volumes. In the United States, a variety of legislative proposals regarding
health care costs, program access and prescription drug pricing have been
discussed in recent years. Although major health care reform initiatives have
not been adopted, federal and state governments will continue to explore
incremental health care measures including appropriate drug utilization and
pricing through such vehicles as managed-care programs. U.S. federal and state
governments also continue to seek means to reduce the cost of pharmaceuticals
paid for with federal and state funds. Under programs currently in place, the
Company is required to pay to the states certain statutorily-prescribed
rebates on Medicaid purchases in order for its prescription drugs to be
eligible for reimbursement under state Medicaid plans. The form and extent of
future Medicaid/Medicare reform measures is yet to be determined; however,
there will be increasing government incentives to capitate public sector
beneficiaries from traditional fee for service coverage into managed-care
plans.
 
                                       7
<PAGE>
 
  In France, the government regulates prices on new prescription
pharmaceuticals and price increases on existing medicines. These direct price
controls have traditionally maintained prices at a comparatively low level
relative to other markets and slowed the emergence of generic competition.
Government measures to reduce the nation's health care deficit have therefore
focused on limiting the volume of prescriptions written by physicians. In
1994, the French government and certain pharmaceutical manufacturers,
including the Company's three major ethical subsidiaries, signed individual
three-year policy agreements aimed at reducing the annual growth of
reimbursable pharmaceuticals through a better mix of prices and volumes. In
the fourth quarter of 1995, the French government announced a special levy on
pharmaceutical companies payable in 1996. The government also introduced
measures to increase the development of generic medications.
 
  In the Company's other major markets, including Germany, the U.K., Italy and
Japan, national governments exert controls over pharmaceutical prices
directly, by controlling admission to or levels for reimbursement programs, or
through limits on profitability levels. The nature of such controls and their
effect on the pharmaceutical industry vary greatly from country to country. It
is not possible to predict the extent to which the Company or the
pharmaceutical industry might be affected in the future by legislative or
regulatory developments related to the matters discussed above.
 
 Environmental Matters
 
  The Company believes that its operations comply in all material respects
with applicable environmental laws and regulations including those of U.S.
federal, state and local authorities. The Company routinely makes, and expects
that from time to time it will continue to make, capital expenditures for
environmental compliance. It does not, however, anticipate that such future
expenditures will materially affect its earnings or competitive position.
 
  Like many manufacturers, the Company has been advised of its potential
responsibility relating to past waste disposal practices, including potential
involvement at three sites on the U.S. National Priority List created by the
Comprehensive Environmental Response Compensation and Liability Act
(Superfund). The Company believes its share of liability, if any, for such
matters to be negligible.
 
 Employees
 
  As of January 31, 1996, the Company and its subsidiaries had approximately
28,000 employees. In general, the Company considers its relations with
employees worldwide to be satisfactory.
 
 Non-U.S. Operations
 
  Non-U.S. operations of the Company and its subsidiaries are subject in
varying degrees to a number of risks inherent in conducting business outside
of the United States. These include fluctuating currency exchange rates and
the possibility of nationalization, expropriation or restrictive actions by
local governments. The Company, in general, does not currently consider these
factors to be deterrents to maintaining or expanding such operations.
 
                                       8
<PAGE>
 
 Executive Officers of the Company
 
  The Company's current executive officers and certain biographical information
concerning such individuals are set forth below.
 
<TABLE>
<CAPTION>
 NAME (AND AGE) OF EXECUTIVE
OFFICER, POSITIONS AND OFFICES
    HELD WITH THE COMPANY                     BUSINESS EXPERIENCE
------------------------------                -------------------
<S>                             <C>
Robert E. Cawthorn (60).......  Mr. Cawthorn has served as Chairman since 1986
 Chairman                        and served as Chief Executive Officer from 1985
                                 to April 1995. He previously served as
                                 President of the Company from 1988 to 1991.
Michel de Rosen (45)..........  Mr. de Rosen has served as Chief Executive
 President and Chief Executive   Officer since April 1995. Mr. de Rosen was
 Officer                         appointed President and Chief Operating Officer
                                 in 1993, having served as Chief Executive
                                 Officer of the Fibers and Polymers sector of RP
                                 since 1988.
Timothy Rothwell (45).........  Mr. Rothwell joined the Company as Executive
 Executive Vice President and    Vice President in January 1995. Previously, he
 President, Pharmaceutical       served as Chief Executive Officer and President
 Operations                      of the U.S. pharmaceutical business of Sandoz
                                 Pharmaceuticals from 1992 to 1994 and then as
                                 Senior Vice President of Worldwide Business
                                 Development and Licensing. In 1991, Mr.
                                 Rothwell was Vice President, Marketing and
                                 Sales at Burroughs Wellcome.
Alain Audubert (52)...........  Mr. Audubert joined the Company in his present
 Senior Vice President and       position in 1994, having served as Chief
 President, Worldwide            Executive Officer of Pasteur Merieux Connaught
 Industrial Operations           since 1990.
Richard T. Collier (42).......  Mr. Collier was appointed to his present
 Senior Vice President and       position effective January 1995, having served
 General Counsel                 as Vice President and General Counsel, U.S.
                                 since October 1992. Since joining the Company
                                 in 1986, Mr. Collier has held several positions
                                 in the legal organization including Vice
                                 President and Assistant Secretary and also
                                 served as Assistant to the Chairman of the
                                 Company.
Richard Forrest (47)..........  Mr. Forrest was appointed to his present
 Senior Vice President and       position in October 1995. Before that, he had
 General Manager, Europe         been General Manager, DOMA, since 1991. Mr.
                                 Forrest was Managing Director in Portugal from
                                 1988 to 1991.
Manfred E. Karobath, MD (55)..  Dr. Karobath joined the Company in 1992, having
 Senior Vice President and       served as Senior Vice President, Research and
 President, Research and         Development at Sandoz Pharma Ltd. in Basle,
 Development                     Switzerland since 1989.
Patrick Langlois (50).........  Mr. Langlois has served in his current position
 Senior Vice President and       since 1990. Previously, he served as Senior
 Chief Financial Officer         Vice President, Corporate Finance and
                                 Acquisitions of RP from 1988 to 1990.
</TABLE>
 
 
                                       9
<PAGE>
 
<TABLE>
<CAPTION>
 NAME (AND AGE) OF EXECUTIVE
OFFICER, POSITIONS AND OFFICES
    HELD WITH THE COMPANY                     BUSINESS EXPERIENCE
------------------------------                -------------------
<S>                             <C>
Hadia Lefavre (52)............  Ms. Lefavre joined the Company in October 1995,
 Senior Vice President and       having held various positions at Honeywell Bull
 General Manager, Human          since 1993, including Human Resources Vice
 Resources                       President of Top Executive Management. Ms.
                                 Lefavre also served as European Director for
                                 Human Resources and Quality for Oracle France
                                 in 1992 and as Director, Human Resources for
                                 Compaq Computer France from 1988 to 1992.
John D. Michelmore (53).......  Mr. Michelmore was appointed to his current
 Senior Vice President and       position in October 1995, having served as
 General Manager, Asia/Pacific   General Manager, Europe since 1993. Prior to
                                 that, he had served as Senior Vice President,
                                 Northern Europe since 1990.
Bernard Reculeau (45).........  Mr. Reculeau was appointed to his present
 Senior Vice President and       position in October 1995. Mr. Reculeau was
 General Manager, Emerging       General Manager, France and Benelux, from 1994
 Markets                         to 1995, and before that, Senior Vice
                                 President, Worldwide Industrial Operations
                                 since 1990.
Joseph C. Scodari (43)........  Mr. Scodari was appointed to his present
 Senior Vice President and       position in October 1995 having served as
 General Manager, Americas       Senior Vice President and General Manager,
                                 North American Ethicals since 1993. Mr. Scodari
                                 joined the Company in 1989, becoming Vice
                                 President and General Manager of U.S.
                                 Pharmaceuticals in 1991.
Philippe Maitre (39)..........  Mr. Maitre was appointed to his current position
 Vice President and Corporate    effective March 1, 1996, having served as Vice
 Controller                      President and Treasurer since 1994. Mr. Maitre
                                 joined the Company as Group Vice President,
                                 Finance and Planning for North America and
                                 Pacific Rim countries in 1993. Prior to that,
                                 he held various finance positions within RP,
                                 including General Manager, Finance and Planning
                                 of Rhone-Poulenc Japan from 1991 to 1993.
</TABLE>
 
  No executive officer of the Company has any family relationship with any
other.
 
                                       10
<PAGE>
 
ITEM 2. PROPERTIES
 
  A substantial portion of the Company's pharmaceutical production in most
product categories is conducted in France, the United States, Germany, and the
U.K. The Company has a total of 59 pharmaceutical plants throughout the world:
in France (12), United States (4), elsewhere in Europe excluding France (14),
Africa (8), Japan (1), other Asia (11) and Latin America (9). Included in the
above are eight plants dedicated solely or partially to the production of bulk
pharmaceuticals and chemicals. These plants are located in France (3), the
United Kingdom (2), the United States (1), Germany (1) and Singapore (1). The
Company is assessing plant rationalization programs which may include
disposals of certain of the foregoing facilities.
 
  Research and development activities are conducted in facilities in Vitry-
sur-Seine, France; Collegeville, Pennsylvania, United States; Dagenham, United
Kingdom; Holmes Chapel, United Kingdom and Santa Clara, California, United
States.
 
  The Company generally either owns its facilities or leases them under long-
term leases. In 1992, the Company sold its U.S. research center/corporate
office facility to a third party and leased it back on a triple net basis for
an initial term of thirty years with options to renew for a longer period. The
Company also leased the underlying land to the third party for sixty years and
subleased it back with the facility.
 
  The Company's facilities are well maintained and generally adequate to meet
its near-term needs. The Company is reviewing measures which would increase
productive capacity with respect to certain recently approved products.
 
  Capital expenditures were $282 million in 1995, $230 million in 1994 and
$250 million in 1993.
 
ITEM 3. LEGAL PROCEEDINGS
 
 Diethylstilbestrol ("DES") Litigation
 
  There are approximately four hundred and seventy legal actions pending
against one or more current and/or former subsidiaries of the Company and
various groupings of more than one hundred pharmaceutical companies, in which
it is generally alleged that "DES daughters" and/or their offspring were
injured as a result of the development of various reproductive tract
abnormalities in the "DES daughters" because of their in utero exposure to
DES. Typically, the Company's subsidiaries are named as defendants, along with
numerous other former DES manufacturers, when the claimant is unable to
identify the manufacturer of the DES to which she was exposed. While the
monetary damages sought in all of these DES actions are substantial, the
Company believes that it has adequate defenses to DES claims. In May 1994, a
proposed class action was filed on behalf of persons alleging injuries caused
by DES and living in the state of Ohio (Kurczi, et al. v. Eli Lilly, et al.,
United States District Court for the Northern District of Illinois). The
Company and certain of its current and former subsidiaries were named among
the 192 defendants. Class certification was denied in February 1995. The
Company was named in a putative class action, Ballo et al., v. Abbott
Laboratories, et al., No. 96-CV-0774, filed in the United States District
Court for the Eastern District of New York on February 21, 1996. The case,
brought on behalf of all women in the United States exposed to DES while in
utero, seeks compensation for future medical expenses allegedly associated
with the exposure, as well as financial support for educational and research
efforts related to DES. The class does not seek compensation for existing DES-
related injuries. All pending cases are currently being defended by insurance
carriers, sometimes under a reservation of rights.
 
 AHF Litigation
 
  There are approximately three hundred and sixty-six lawsuits in the United
States, seven in Canada and fifty-six in Ireland pending against the Company's
Armour Pharmaceutical Company ("Armour") subsidiary, and in some instances,
the Company and certain of its other subsidiaries, in which individuals with
hemophilia and infected with the Human Immunodeficiency Virus ("HIV"), or
their representatives claim that such infection and, in some cases, resulting
illnesses, including Acquired Immune Deficiency Syndrome-related
 
                                      11
<PAGE>
 
conditions or death therefrom, may have been caused by administration of anti-
hemophilic factor ("AHF") concentrates processed by Armour in the early and
mid-1980s. None of these cases involves Armour's currently distributed AHF
concentrates. In most of these suits, Armour is one of a number of defendants,
including other
fractionators who supplied AHF during that period. To date, approximately one
hundred and fifteen cases and claims have been resolved either by dismissal by
the plaintiffs or the Court or through settlement. A majority of the currently
pending lawsuits were filed in 1993, and management expects additional
lawsuits will be filed. It is not possible, however, to predict with certainty
the number of additional lawsuits that may eventually be filed alleging HIV-
related claims.
 
  In January 1993, a jury in Florida held that Armour was liable to the
parents of a deceased HIV-infected hemophiliac for damages of approximately $2
million. Armour believed this verdict to be inconsistent with evidence
specific to the case and, accordingly, filed motions with the trial court
seeking reversal or, alternatively, a new trial. The trial court denied both
motions and Armour appealed the judgment to the United States Court of Appeals
for the Eleventh Circuit. In June 1995, the Court of Appeals issued an opinion
reversing the verdict and remanding the case for a new trial because of
prejudicial error in the district court's instruction concerning the learned
intermediary doctrine. The court affirmed in respect to Armour's contentions
regarding an absence of sufficient evidence of causation. Both parties'
petitions for rehearing were denied, and the case was returned to the district
court for retrial. In early January 1996, prior to retrial, the parties
settled in this matter.
 
  In October 1993, Armour obtained a directed verdict dismissing it from a
lawsuit pending in a state court in Louisiana on the basis that the plaintiff
had not presented evidence sufficient to maintain an action against Armour.
That decision has been appealed by plaintiff to the state appellate court in
Louisiana and was argued in March 1995. Additionally, in November 1993, a jury
verdict in favor of Armour and the other plasma fractionators was obtained in
an action pending in the United States District Court for the Northern
District of Illinois. The jury concluded that the fractionators of Factor VIII
concentrate in the early 1980s were not negligent as alleged and accordingly
were not liable to the claimant. In March 1995, the United States Court of
Appeals for the Seventh Circuit granted the plaintiffs' appeal in this action
and remanded the case for a new trial because of improper closing argument by
counsel for one of the other defendants. After the court issued its opinion in
March, Armour reached an out of court settlement with the plaintiffs. Armour
reasonably expects that other cases may proceed to trial in the future.
 
  In December 1993, the Federal Multi-District Litigation Panel ("MDL")
authorized the consolidation of all AHF litigation pending in U.S. Federal
Courts for purposes of pre-trial discovery and the transfer of such cases to
the U.S. District Court for the Northern District of Illinois for this
purpose. Five proposed federal class action lawsuits (Richard Roe and his
mother, Jane Roe v. Armour Pharmaceutical Company, et al., United States
District Court, Idaho District; Jose Alvarez, Jr. et al. v. Armour
Pharmaceutical Company, et al., United States District Court for the Eastern
District of Louisiana; Timmy Dale Martin, et al. v. Armour Pharmaceutical
Company, et al., United States District Court for the Northern District of
Alabama; Thorne v. Alpha Therapeutic, et al., United States District Court for
the Eastern District of Lousiana and Morabito v. Rhone-Poulenc Rorer, et al.,
United States District Court for the District of Wyoming [removed from state
Colorado court]), and two proposed state court class actions (Jeffrey Stanger,
et al. v. Armour Pharmaceutical Company, et al., Superior Court, Pima County,
Arizona and Jones v. Bayer Corporation et al, Florida), discussed further
below, have been filed against several fractionators, including Armour. The
federal actions are part of the MDL proceeding in Chicago.
 
  In an August 1994 bench ruling and Memorandum Opinion, the Court in a
proposed federal class action lawsuit captioned Wadleigh, et al. v. Armour
Pharmaceutical Company, et al. (United States District Court, Northern
District, Illinois) stated that it intended to certify the issue of negligence
in that action for class action treatment, but that it would deny plaintiffs'
motion for certification of an all-purpose class action and plaintiffs' motion
for certification of the issues of strict liability, breach of warranty,
proximate cause, and punitive damages. In September 1994, the Court denied the
defendants' motion for reconsideration, and also denied
 
                                      12
<PAGE>
 
defendants' request that it certify the issues for immediate consideration by
the Court of Appeals. In an order entered in October 1994, the Court ruled
that it would not certify plaintiffs' concert of action claim for class
treatment. In November 1994, the Court entered its formal class certification
order, and in December 1994 entered further orders regarding notice to the
class and also denied class certification in the federal actions other than
Wadleigh. Under the issue certification contemplated by the Court in Wadleigh,
only the issue of negligence would have been tried on a class-wide basis. In
the event of a defense verdict, all class members would have been bound
thereby; in the event of a plaintiffs' verdict, it would have been necessary
for each class member to attempt to utilize that favorable outcome in his own
separate litigation. The class trial would not have involved any issues of
causation or damages, or a determination as to any defenses such as the
statute of limitations.
 
  As the facts in each individual lawsuit vary widely, Armour did not believe
that class action status was warranted in the Wadleigh action. In December
1994, Armour and the other fractionator/defendants in Wadleigh filed a
petition for a writ of mandamus in the Seventh Circuit Court of Appeals in
Chicago seeking to have the class certification order vacated. In March 1995,
the Court of Appeals granted the writ of mandamus and directed the District
Court to decertify the plaintiff class. The plaintiffs thereafter filed a
petition for rehearing and suggestion for rehearing en banc with the Court of
Appeals. Plaintiffs' petition for rehearing was denied in April 1995. In June
1995, the Court of Appeals entered an order staying its mandate so as to
permit the plaintiffs to seek a writ of certiorari from the United States
Supreme Court. In July 1995, plaintiffs filed their petition for a writ of
certiorari with the U.S. Supreme Court. In October 1995, the Supreme Court
denied plaintiffs' petition. As a result, the negligence class previously
certified by the District Court in Wadleigh was decertified in January 1996.
 
  As noted above, in May 1995, an additional purported "nationwide" class
action (Jones) was filed in a Florida state court against the same defendants
as in Wadleigh, together with a Florida plasma provider; plaintiffs' counsel
consist of a subgroup of counsel from Wadleigh. The Jones action seeks
certification of a nationwide class and a Florida subclass. Defendants removed
the action to federal court. Plaintiffs' motion to remand the action was
granted, and the case is now pending in state court in Dade County, Florida.
Hearings on plaintiffs' motion for class certification are in progress.
Defendants are vigorously opposing certification.
 
  With respect to this litigation, the Company has contractual rights to
certain insurance coverage provided by carriers that insured Revlon, Inc., the
party from whom it purchased Armour in 1986 ("Revlon carriers"). The Company
also has access to "excess" liability insurance coverage from other carriers,
effective in 1986, for certain of these cases if self-insured retention levels
from relevant insurable losses are exceeded.
 
  From late 1988 until November 1995, the Company was involved in litigation
with a principal insurance carrier ("the principal carrier"), an umbrella
insurance carrier ("the umbrella carrier") and many of the Revlon carriers,
relative to carrier defense and indemnity obligations associated with the AHF
litigation ("the insurance coverage litigation"). In late 1994, the Company
settled the dispute being litigated with the principal carriers by entering
into an agreement which defines the principal carrier's obligations with
respect to the underlying AHF litigation. The Company also settled its
disputes with the umbrella carrier and many of the Revlon carriers. After
lengthy discussions, the Company and the remaining Revlon carriers in the
insurance coverage litigation agreed in November 1995 regarding the extent and
other conditions of coverage of those carriers, and the litigation was
concluded. Based upon the above, the Company believes that there is a
substantial level of coverage (including substantial coverage for legal
defense expenditures) for the Company's estimated liability determined in
accordance with Statement of Financial Accounting Standards No. 5 ("SFAS 5").
 
 Commercial Litigation
 
  Rhone-Poulenc Rorer Pharmaceuticals Inc. ("RPRP"), a subsidiary of the
Company, has been named as a defendant in two related arbitration proceedings
in Zurich, Switzerland initiated by Boehringer Mannheim GmbH and its American
affiliate, Boehringer Mannheim Pharmaceuticals Corporation (collectively,
"BM"), seeking substantial compensatory damages for alleged breach of contract
by RPRP. Specifically, BM commenced
 
                                      13
<PAGE>
 
arbitration proceedings in Switzerland and litigation in the state court of
Maryland alleging that RPRP breached an agreement related to the development
of BM's bisphosphonate compound and a copromotion agreement pertaining to the
Company's licensed product Lozol(R). RPR filed a counterclaim in the Maryland
litigation against BM for fraud related to representations made by BM and its
agents prior to the execution of the agreements. In March 1995, the parties
agreed to dismiss the Maryland litigation and to transfer all of those claims
to final and binding arbitration in Switzerland. At present, two arbitration
proceedings before the same panel are underway. The Company believes that the
claims asserted by BM are without merit and RPRP is vigorously defending its
position.
 
 Antitrust Litigation
 
  The Company has been named as a defendant in 130 antitrust lawsuits. It is
presently a party to ten state court actions pending in California, two in
Alabama and one each in Wisconsin, Washington, Minnesota, Colorado, Arizona,
Maine, New York and Michigan. Additionally, the Company has been named in 109
antitrust actions brought in several federal courts which have been
coordinated before a judge in the U.S. District Court for the Northern
District of Illinois (Chicago). Eight of the cases brought in California state
court have similarly been coordinated before a judge in the San Francisco
Superior Court. Two remaining California state court actions are also expected
to be coordinated in San Francisco Superior Court. The suits allege that many
pharmaceutical companies (including RPR) and wholesalers, in conjunction with
certain pharmacy benefits managers, discriminated against independent
community pharmacist plaintiffs and/or retail chains with respect to the
prices charged for brand name pharmaceutical products and further conspired to
maintain prices at artificially high levels to the detriment of these
pharmacies. Three of the California actions allege injury to classes of
California residents who are consumers of brand name prescription products.
The cases in New York, Arizona, Colorado, Washington, Maine and Michigan
allege proposed consumer class claims. An Alabama state court has
conditionally certified a consumer class action on behalf of Alabama residents
and consumers in seven other states and the District of Columbia. On October
4, 1995, the Washington state court action was dismissed with prejudice with
the court holding that Washington law did not permit a consumer action in this
instance. This ruling is currently on appeal. The Colorado state court action
was dismissed on January 23, 1996. Many of the federal actions were brought on
behalf of an alleged class of retail pharmacies throughout the United States;
three of the state cases similarly allege classes of pharmacists within those
states. Plaintiffs in these lawsuits seek injunctive relief and a monetary
award for past damages alleged. The federal class plaintiffs have filed an
amended consolidated Complaint so that issues affecting the class are pleaded
consistently. The coordinating federal court certified the class alleged in
the amended consolidated Complaint in November 1994. Notice to the class was
given and the opt-out period ended March 10, 1995. The trial of the class case
is scheduled for May 7, 1996. The coordinating California state court
certified retail and consumer classes in June 1995. These cases have been
stayed pending resolution of the federal litigation. Notice to the retailer
class was given and the opt-out period has expired; notice to the consumer
class has not yet been provided.
 
  Motions for summary judgment have been filed in the class conspiracy case
and are awaiting decision by the judge. In addition, several of the companies
named as defendants in the federal class action, excluding RPR, have entered
into a tentative settlement with independent and chain pharmacies who are
members of that class. A federal judge will decide whether to approve the
settlement following a hearing at the end of March 1996. The Company believes
that none of the claims against it have any merit and is vigorously defending
these lawsuits.
 
 Environmental Litigation
 
  Fisons plc has been named along with other defendants in a U.S. Federal
Court action (Olin Corporation v. Fisons plc, et al., United States District
Court for the District of Massachusetts) in which Olin Corporation is seeking
to recover its response costs for environmental contamination resulting from
operations at a Wilmington, Massachusetts facility. The facility was operated
during the late 1960's by a separate Fisons entity. Fisons plc and another
subsidiary, Fisons Finance Ltd., are named in a cross-claim and third-party
complaint, respectively,
 
                                      14
<PAGE>
 
filed by one of the co-defendants in the Olin action, NOR-AM Chemical Company
("NOR-AM"). NOR-AM is asserting claims for indemnification and/or contribution
if it is found liable in Olin. Fisons plc has filed a motion to dismiss the
Complaint for lack of personal jurisdiction. The Court has not yet ruled on
this motion.
 
  The Company and/or its subsidiaries, including the recently acquired Fisons
companies, have been named as potentially responsible parties at three sites
on the U.S. National Priority List created by Superfund legislation.
 
 Patent and Intellectual Property Litigation
 
  In February 1993, Tanabe Seiyaku Company ("Tanabe") of Japan and their U.S.
licensee, Marion Merrell Dow Inc. ("MMD") initiated an action before the
International Trade Commission ("ITC"), the administrative agency responsible
for handling complaints of imports which allegedly infringe U.S. intellectual
property rights. The complaint names ten domestic and foreign respondents,
including the Company, and alleges infringement of a Tanabe U.S. patent,
claiming a process for preparing bulk diltiazem, the active ingredient in the
Company's Dilacor(R) XR product. In January 1995, the ITC Administrative Judge
ruled that Dilacor(R) XR does not infringe the MMD/Tanabe patent under any
circumstances and that the MMD/Tanabe patent is invalid and unenforceable. An
appeal was taken and the Commission effectively affirmed the ITC Judge's
rulings. MMD/Tanabe has appealed to the Court of Appeals for the Federal
Circuit.
 
  The Company is a plaintiff in a patent infringement lawsuit with Chiron
Corporation filed in the United States District Court in California involving
the patent licensed exclusively to the Company by the Scripps Research
Institute ("Scripps") covering the anti-hemophilic Factor VIII:C. The Court is
considering pending summary judgment motions. If this case goes to trial, such
trial is likely to be scheduled to commence within the six to twelve months
after the Court's decision on the summary judgment motions.
 
  The outcomes of the referenced litigation cannot be predicted with
certainty. The defense of these matters and the defense of expected additional
lawsuits may require substantial legal defense expenditures. The Company
follows SFAS 5 in determining whether to recognize losses and accrue
liabilities relating to such matters. Accordingly, the Company recognizes a
loss if available information indicates that a loss or range of losses is
probable and reasonably estimable. The Company estimates such losses on the
basis of current facts and circumstances, prior experience with similar
matters, the number of claims and the anticipated cost of administering,
defending and, in some cases, settling such claims. The Company has also
recorded as an asset insurance recoveries that are probable of occurrence as a
result of the insurance coverage litigation settlement previously described.
If a contingent loss is not probable, but is reasonably possible, the Company
discloses this contingency in the notes to its consolidated financial
statements if it is material. Based on the information available, the Company
does not believe that reasonably possible uninsured losses in excess of
amounts recorded for the referenced matters of litigation would have a
material adverse impact on the Company's financial position, results of
operations or cash flows.
 
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
  None.
 
                                      15
<PAGE>
 
                                    PART II
 
ITEM 5. MARKET PRICE OF AND DIVIDENDS ON COMMON EQUITY
 
  The price range at which the Company's common stock traded and the quarterly
dividends paid per share during the last eight quarters are as follows:
 
<TABLE>
<CAPTION>
                  QUARTER ENDED                     HIGH     LOW   DIVIDEND PAID
                  -------------                    ------- ------- -------------
<S>                                                <C>     <C>     <C>
December 31, 1995................................. $54.500 $43.750     $.30
September 30, 1995................................  45.875  40.500      .30
June 30, 1995.....................................  43.125  40.375      .30
March 31, 1995....................................  43.500  36.250      .30

December 31, 1994................................. $42.625 $35.250     $.28
September 30, 1994................................  39.125  30.500      .28
June 30, 1994.....................................  39.500  30.500      .28
March 31, 1994....................................  37.000  32.000      .28
</TABLE>
 
  Rhone-Poulenc Rorer Inc. (RPR) common shares are listed and traded on the
New York and Paris Stock Exchanges and are traded, unlisted, on the
Philadelphia, Boston, Pacific and Midwest Stock Exchanges.
 
  On January 31, 1996, there were approximately 6,712 holders of record of
Rhone-Poulenc Rorer Inc. common shares.
 
                                      16
<PAGE>
 
ITEM 6. SELECTED FINANCIAL DATA
 
                   RHONE-POULENC RORER INC. AND SUBSIDIARIES
                 TEN-YEAR SELECTED FINANCIAL DATA (UNAUDITED)
            (DOLLARS AND SHARES IN MILLIONS EXCEPT PER SHARE DATA)
 
<TABLE>
<CAPTION>
                                                           YEAR ENDED DECEMBER 31,
                          ------------------------------------------------------------------------------------------
                                   RESTATED
                            1995     1994     1993     1992     1991     1990     1989     1988     1987      1986
                          -------- -------- -------- -------- -------- -------- -------- -------- --------  --------
<S>                       <C>      <C>      <C>      <C>      <C>      <C>      <C>      <C>      <C>       <C>
INCOME STATEMENT DATA:
Net sales...............  $5,142.1 $4,486.6 $4,019.4 $4,095.9 $3,824.3 $2,917.4 $1,182.2 $1,041.6 $  928.8  $  844.6
Operating income........     639.3    597.7    675.3    675.0    558.5     88.9    125.5    144.1    122.7      52.9
Income from continuing
 operations.............     356.5    367.1    421.1    423.3    326.5      1.0     86.5     61.8     54.3       3.5
Discontinued operations,
 net of tax:
 Gain on sale...........       --       --       --       --       --       --       --       --       --      122.1
Cumulative effect of
 change in accounting
 for income taxes.......       --       --       --      15.0      --       --       --       --     (35.5)      --
Net income available to
 common shareholders....     337.8    347.9    408.7    428.2    326.1      1.0     85.0     61.8     18.8     125.6
Primary earnings per
 common share:
 Continuing operations..      2.50     2.50     2.96     2.99     2.37      .01     1.33      .98      .84       .05
 Discontinued
  operations:
 Gain on sale...........       --       --       --       --       --       --       --       --       --       1.88
 Cumulative effect of
  change in accounting
  for income taxes......       --       --       --       .11      --       --       --       --     (0.55)      --
Primary earnings per
 common share...........      2.50     2.50     2.96     3.10     2.37      .01     1.33      .98      .29      1.93
Fully diluted earnings
 per common share.......      2.50     2.50     2.96     3.10     2.37      .01     1.21      .97      .29      1.93
Cash dividends per
 common share...........      1.20     1.12     1.00      .68     .445      .42     .405      .40     .386      .376
Research and development
 expenses...............     766.2    606.1    561.2    521.3    444.5    350.1    121.8    104.0     82.7      69.7
BALANCE SHEET DATA:
Working capital.........     384.5    591.7    446.6    667.1    407.0    391.3    436.9    312.4    226.6     155.7
Property, plant &
 equipment, at cost.....   2,876.5  2,310.9  1,958.6  1,855.9  2,027.8  1,930.7    488.2    395.7    363.5     333.0
Capital expenditures:
 U.S. corporate offices,
  research center and
  site..................       --       --       --      63.1    102.1     92.1     29.3     10.8      --        --
 Other..................     281.5    229.9    250.4    221.2    181.6    124.8     82.1     59.9     45.1      36.7
Total assets............   8,987.1  4,652.3  4,050.2  3,858.3  4,115.5  4,085.0  1,791.7  1,388.0  1,240.5   1,110.1
Long-term debt
 (including payable to
 RP)....................   2,684.4    439.9    432.2    779.7    960.5  1,634.3    882.5    564.6    509.7     444.3
Shareholders' equity....   2,357.2  2,110.4  1,821.2  1,568.3  1,298.6    693.5    439.9    414.2    368.8     390.4
Common shares
 outstanding at year-
 end....................     134.5    134.1    137.0    138.3    137.9    137.4     63.1     63.6     62.9      65.4
Book value per common
 share..................     12.50    12.75    10.37     9.17     7.24     5.05     6.97     6.51     5.86      5.97
OTHER DATA:
Employees...............    28,000   25,000   22,300   22,900   22,500   23,500    8,500    8,400    7,400     7,500
Sales per employee (in
 thousands).............       186      180      180      180      170      150      140      132      124       103
</TABLE>
-------
Results for the first quarter of 1995 and for the full year 1994 have been
restated to include the accounts of Cooperation Pharmaceutique Francaise
("Cooper") and a pharmaceutical business in Brazil from April 1, 1994 and
January 1, 1994, respectively. Both businesses were acquired from Rhone-
Poulenc S.A. ("RP") in 1995.
Results for 1995 include the operations of Fisons plc ("Fisons") from November
1, 1995.
Results include the accounts of the Human Pharmaceutical Business ("HPB") of
RP from May 5, 1990.
Pretax restructuring and other charges totaled $60.0 million in 1995, $121.2
million in 1994, $93.8 million in 1993, $73.6 million in 1991 and $289.3
million in 1990 and $10.0 million in 1989. Results for 1995 also include $22.9
million of Fisons-related integration and other costs. Results for 1993
include $105.0 million proceeds from litigation settlement.
Acquired research and development expense charged to operations associated
with the acquisitions of Fisons and Applied Immune Sciences, Inc. ("AIS")
totaled $43.6 million in 1995. Acquired research and development expense
included in equity losses of affiliates associated with AIS totaled $13.0
million, $11.0 million, and $27.0 million in 1995, 1994 and 1993,
respectively.
Pretax gains on sales of product rights and investments totaled $49.5 million
in 1995, $46.2 million in 1994, $30.2 million in 1993, $23.1 million in 1992,
$95.7 million in 1991, $78.8 million in 1990 and $30.9 million in 1989.
Results for 1989 also include a $19.9 million pretax gain on contract
termination fee.
Pretax charges included in other expense, net related to the reassessment of
the carrying values of certain investments totaled $25.4 million in 1995 and
$30.6 million in 1994.
Effective January 1, 1992, the Company adopted SFAS 109, "Accounting for
Income Taxes," and recorded a cumulative effect adjustment increasing 1992
income by $15.0 million. Prior years reflect the application of SFAS 96,
"Accounting For Income Taxes," effective January 1, 1987.
Sales per employee for the years 1995 and 1990 have been restated on a pro
forma basis to include Fisons and HPB, respectively, as if they were part of
the Company from the beginning of the year reported.
Earnings per share for 1994 and 1995 reflect pro forma adjustments giving
effect to interest and preferred dividends relative to the Cooper and
Brazilian business acquisitions.
All share and per share data have been adjusted to reflect a two-for-one
common stock split effective June 7, 1991.
 
                                      17
<PAGE>
 
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
        FINANCIAL CONDITION
 
  Rhone-Poulenc Rorer Inc. ("RPR" or "the Company") is one of the largest
research-based pharmaceutical companies in the world. RPR was formed in 1990
by the combination of Rorer Group Inc. and substantially all of the Human
Pharmaceutical Business of Rhone-Poulenc S.A. ("RP"), based in Paris, France.
RP owns approximately two-thirds of RPR's common stock and controls the
Company.
 
STRATEGIC BUSINESS DEVELOPMENTS
 
  Through recent selected acquisitions and alliances, the Company has sought
to solidify its position in targeted therapeutic areas and to strengthen its
geographic presence in strategic markets:
 
  In the second quarter of 1995, the Company acquired from RP the businesses
of Cooperation Pharmaceutique Francaise ("Cooper") and Rhodia Farma, a
pharmaceutical business in Brazil. Cooper has an extensive pharmacy
distribution network in France and promotes the Company's self-medication
products. Rhodia Farma strengthens the Company's presence in Brazil and
increases access to other South American markets. The acquisitions of entities
under common control were treated for accounting purposes on an "as-if
pooling" basis and, accordingly, RPR restated its first quarter 1995 and full
year 1994 results to include the accounts of Cooper and the Brazilian business
as of April 1, 1994 and January 1, 1994, respectively. Earnings per share for
the restated periods reflect pro forma adjustments giving effect to interest
on indebtedness and preferred dividends relative to the acquisition
transactions. The discussion that follows reflects the effect of such
restatements.
 
  In September 1995, the Company's Armour Pharmaceutical Company subsidiary
("Armour") completed the formation of a 50/50 global joint venture ("Centeon")
with Behringwerke AG ("Behring"), a subsidiary of Germany's Hoechst AG, in the
plasma proteins business. Armour and Behring have complementary plasma
proteins offerings and geographic strengths which position the joint venture
as a global market leader. The joint venture's Board of Directors was formally
established on January 1, 1996 at which time joint control and profit-sharing
provisions took effect.
 
  In the fourth quarter of 1995, the Company acquired the U.K.-based
pharmaceutical company Fisons plc ("Fisons"). Fisons has a strong respiratory
product portfolio with established positions in the U.S., Europe and Japan.
The combination of Fisons with RPR creates the fourth largest company
worldwide in asthma/allergy with a comprehensive range of complementary
products, expanded presence in major geographic markets and innovative
inhalation delivery technologies. Two months of Fisons pharmaceutical
operations are included the Company's 1995 results. Management anticipates
that the impact of Fisons will be earnings-neutral in 1996 and accretive in
1997.
 
  In the fourth quarter of 1995, the Company also acquired the remaining
outstanding shares that it did not own of Applied Immune Sciences, Inc.
("AIS"), a pioneer in cell therapy. The acquisition of AIS enhances the
Company's ability, through its Gencell Division, to develop and commercialize
ex-vivo cell and gene therapies and provides increased access to vector
research.
 
INDUSTRY TRENDS
 
  In recent years, the worldwide pharmaceutical industry has been affected by
government and private payor initiatives to reduce pharmaceutical prices and
limit the volume of prescriptions written by physicians. In certain cases,
companies may be able to negotiate terms or conditions which can minimize the
effect of legislation on revenues. The degree to which pharmaceutical
companies are individually affected depends upon each company's product
portfolio and its ability to manage in the environment specific to each
country.
 
  In the U.S., payment of rebates to state Medicaid programs, as required by
existing legislation, reduced the Company's sales by $47 million in 1995, $40
million in 1994 and $34 million in 1993. Even without major
 
                                      18
<PAGE>
 
government-mandated health care reform and government intervention, the U.S.
marketplace continues to experience growth and consolidation of managed-care
organizations which, on behalf of payors, seek to reduce health care costs.
RPR, along with most pharmaceutical manufacturers, has reorganized its sales
and marketing organizations to adapt to managed-care initiatives.
 
  In France, the Company's largest market, the government has continued its
efforts to reduce the nation's health care deficit through such initiatives as
special levies on pharmaceutical manufacturers coupled with compliance with
individual three-year convention agreements and encouragement of more
widespread generics offerings.
 
  In the Company's other major markets, including Germany, the U.K., Italy and
Japan, national governments exert controls over pharmaceutical prices either
directly, or by controlling admission to or levels for, government
reimbursement or by limiting overall profitability levels. In Germany, a two-
year government moratorium on price increases was lifted in 1995. Elsewhere,
in Japan, a government-imposed biannual price reduction takes effect in April
1996.
 
  Whether initiated by governments or by private payors, the above measures
tend to restrict future revenue and profit growth derived from existing
products and, as a result, companies in the industry must look increasingly to
achieve profitability objectives through more rapid commercialization of
highly innovative therapies; integrated prescription, over-the-counter and
generic product strategies; aggressive cost reduction; mergers or strategic
alliances with others and creative marketing solutions to meet the needs of
payors.
 
RESULTS OF OPERATIONS
 
 1995 Compared with 1994
 
  At $338 million, net income available to common shareholders was comparable
with the prior year ($2.50 per share in both years). Results for 1995 included
$127 million ($.75 per share) of charges associated with acquisitions,
including pretax restructuring charges totaling $60 million, acquired research
and development of $44 million and $23 million of integration and other costs.
Results for 1994 included pretax restructuring charges of $121 million ($.58
per share).
 
 Sales
 
  At $5,142 million, reported sales for the full year 1995 increased 15%. The
favorable effects of currency fluctuations due to a weaker U.S. dollar (+5%)
were partially offset by product divestitures (-4%), principally the Company's
U.S. and Canadian over-the-counter businesses. Operational sales growth of 14%
resulted from volume increases (+12%), including new product introductions
(+1%) and two months of Fisons' sales (+3%), and net higher prices in Europe
and in the U.S. prescription pharmaceuticals and plasma proteins businesses
(+2%). No single product or offering contributed more than 6% of worldwide
sales in 1995 and the ten largest products contributed approximately 35%.
 
  In the tables and discussion which follow, percentage comparisons of sales
are presented excluding the effects of currency fluctuations unless otherwise
noted. Certain reclassifications have been made from amounts shown in prior
periods for therapeutic area totals to conform to classifications now used by
the Company.
 
  Sales by geographic area were as follows (% change excludes the effects of
product divestitures and currency fluctuations):
 
<TABLE>
<CAPTION>
                                               1995    %     1994    %     1993
                                              SALES  CHANGE SALES  CHANGE SALES
                                              ------ ------ ------ ------ ------
                                                       ($ IN MILLIONS)
<S>                                           <C>    <C>    <C>    <C>    <C>
U.S.......................................... $1,314  +17%  $1,262  +13%  $1,120
                                              ------  ---   ------  ---   ------
France.......................................  1,820  + 9%   1,507  +10%   1,375
Other Europe.................................  1,207  +11%   1,016  + 3%     978
Rest of World................................    801  +24%     702  +30%     546
                                              ------  ---   ------  ---   ------
Total Non-U.S................................  3,828  +13%   3,225  +11%   2,899
                                              ------  ---   ------  ---   ------
Total Sales.................................. $5,142  +14%  $4,487  +12%  $4,019
                                              ======  ===   ======  ===   ======
</TABLE>
 
                                      19
<PAGE>
 
  In the United States, sales of prescription pharmaceuticals (Azmacort(R),
Lovenox(R), Dilacor(R) XR and DDAVP(R)) grew at double-digit rates from 1994
which was affected by trade inventory reductions in the first half of the
year. Sales of plasma proteins (Albuminar(R) and recombinant Factor VIII
offerings) also performed well, although growth rates were somewhat reduced
from those recorded in the prior year. Fisons products also contributed to
U.S. sales growth in the fourth quarter. Sales in France reflected improved
performance of the analgesic Doliprane(R) and higher sales of Clexane(R),
Maalox(R) and Granocyte(R). Sales also benefitted from inclusion of a full
year of Cooper sales compared with nine months in 1994. In Other European
markets, before the impact of Fisons sales, sales of prescription
pharmaceuticals increased in Germany (+12%) and in Italy (+8%) where
Granocyte(R) was launched in the second quarter. Sales of ethical products,
particularly Frumil(R) and Orudis(R), continued to be impacted by generic
competition in the U.K. (-3%). Expansion in Central and Eastern European
markets added to regional sales results. Two months of Fisons product sales
contributed approximately five percentage points to sales growth in Other
European countries, primarily in the U.K., Germany and Italy. Sales growth in
the Rest of World area reflected continued expansion in South American
markets, particularly Brazil and Argentina, and increased sales in Japan
(+14%). Growth in Japan in 1996 will be affected by government price
reductions to be imposed in April.
 
  Sales by therapeutic area were as follows:
 
<TABLE>
<CAPTION>
                                                1995     %    1994    %    1993
     THERAPEUTIC AREA/PRINCIPAL OFFERINGS       SALES CHANGE* SALES CHANGE SALES
     ------------------------------------       ----- ------- ----- ------ -----
                                                        ($ IN MILLIONS)
<S>                                             <C>   <C>     <C>   <C>    <C>
TOTAL CARDIOVASCULAR/THROMBOSIS................ $979     +7%  $866   +15%  $743
Clexane(R)/Lovenox(R)..........................  300    +30%   214   +38%   153
Dilacor(R) XR..................................  146    +15%   128  +150%    51
Lozol(R)/Indapamide............................   91    -12%   104   -12%   118
Selectol(R)/Selecor(R).........................   70    +18%    55    +8%    50
--------------------------------------------------------------------------------
TOTAL ANTI-INFECTIVES/ONCOLOGY.................  686    +13%   572    +4%   542
Flagyl(R)......................................  118    +24%    97   +28%    77
Granocyte(R)...................................   47   +134%    18    N/A   --
--------------------------------------------------------------------------------
TOTAL CENTRAL NERVOUS SYSTEM/ANALGESICS........  608    +16%   488    +5%   457
Doliprane(R)...................................  143    +21%   107    +2%   102
Imovane(R)/Amoban(R)...........................  125    +24%    94    +7%    85
--------------------------------------------------------------------------------
TOTAL PLASMA PROTEINS..........................  592    +13%   510   +26%   400
Albuminar(R)...................................  199     +9%   179   +14%   154
Factor VIII....................................  205    +25%   158   +37%   114
--------------------------------------------------------------------------------
TOTAL RESPIRATORY..............................  578    +31%   433    +6%   407
Azmacort(R)....................................  208    +42%   147    +3%   143
Nasacort(R)....................................   87     -4%    90   +14%    79
--------------------------------------------------------------------------------
TOTAL GASTROINTESTINAL.........................  397    -20%   474    -4%   490
Maalox(R)......................................  170    -34%   249    +4%   239
--------------------------------------------------------------------------------
TOTAL BONE METABOLISM/RHEUMATOLOGY.............  369     +2%   344   -10%   381
Orudis(R)/Profenid(R)/Oruvail(R)...............  204     +2%   192   +10%   173
Calcitonins....................................  102     -2%    98   -39%   163
--------------------------------------------------------------------------------
OTHER THERAPEUTIC AREAS........................  933     +9%   800   +33%   600
DDAVP(R).......................................   96    +14%    84   +16%    73
--------------------------------------------------------------------------------
</TABLE>
* Percentage change calculation excludes effects of currency fluctuations.
 
  Sales of the thrombosis product Clexane(R)/Lovenox(R), a low molecular
weight heparin, reached $300 million in 1995, fueled by continued strong
performance in the U.S., France and Germany. In 1995, Lovenox(R), available in
the U.S. since 1993 for the prevention of deep vein thrombosis following hip
replacement surgery, was approved by the U.S. Food and Drug Administration
("FDA") for use following knee replacement surgery. The
 
                                      20
<PAGE>
 
cardiovascular product Dilacor(R) XR, a once-daily calcium channel blocker,
recorded good growth despite the loss of FDA exclusivity in midyear.
Management does not anticipate that sales of Dilacor(R) XR will be affected by
generic competition before 1997. Dilacor(R) XR, available in the U.S. since
1992 for the treatment of hypertension, received FDA approval in 1995 for the
management of chronic stable angina. Although brand sales of Lozol(R), a
diuretic for treatment of hypertension, were up slightly from 1994, total
indapamide product sales declined due to reduced sales of the Company's
generic form.
 
  Increased sales of anti-infectives reflected continued expansion in South
American markets, particularly of the antiparasitic Flagyl(R). While overall
performance of anti-infectives in France improved from 1994, the French
antibiotics market has become increasingly competitive. Sales in France were
also negatively impacted by the loss of sales of the quinolone antibiotic
Zagam(R) in the second half of the year due to labeling restrictions following
photosensitivity concerns. Zagam(R) remains a second line therapy in France
for community-acquired pneumonia.
 
  The Company's portfolio of oncological products grew significantly during
1995. As a result of additional approvals received during the year,
Granocyte(R), a recombinant GCSF for chemotherapy-induced neutropenia, is now
available in all European Union countries. Taxotere(R), a semi-synthetic
taxoid for solid tumors, was approved in more than 20 countries for the
treatment of advanced metastatic breast cancer and in six countries for the
treatment of non-small cell lung cancer. In October 1995, the Company received
an approvable letter from the FDA with respect to Taxotere(R) for use in the
treatment of advanced breast cancer. Campto(R), a topoisimerase-1 inhibitor
for colorectal cancer, was approved in France for second-line therapy; the
Company has the rights to Campto(R) in over 120 countries excluding the U.S.
and Japan.
 
  Sales of each of the Company's principal central nervous system/analgesic
products, Doliprane(R) and Imovane(R)/Amoban(R), exceeded $100 million in
1995. Doliprane(R), which is marketed in France, performed favorably compared
with the prior year which was affected by weak demand. Imovane(R)/Amoban(R), a
non-benzodiazepine sleeping agent registered sales increases in Europe
(France, Germany, and the U.K.) and in Japan. In the fourth quarter, the FDA
approved the Company's product Rilutek(R) (riluzole) for treatment of
Amyotrophic Lateral Sclerosis ("ALS"). Rilutek(R) is the first approved drug
shown to be effective in the treatment of ALS.
 
  The major plasma proteins (Factor VIII offerings and Albuminar(R)) marketed
by Armour Pharmaceutical Company performed consistently well throughout the
year. Albuminar(R) registered double-digit growth in the U.S. with sales also
above prior year levels in Japan. Sales of Monoclate(R) increased modestly as
higher sales in Europe were partially offset by slight declines in the U.S.
due to increased sales of the recombinant brands, Bioclate(R) and Helixate(R).
Sales of Armour's U.S. immune globulin offerings (Gammar(R) IV) experienced
shortfalls as a result of a voluntary withdrawal in the first half of the year
in response to the FDA's industry-wide request that such products undergo a
new testing technique. In the second half of the year, Armour received FDA
approval for Gammar(R) IV-P pasteurized immunoglobulin which replaces
Gammar(R) IV. Joint control provisions of the Centeon joint venture took
effect on January 1, 1996 at which time Armour sales were no longer reflected
in the Company's reported sales.
 
  Sales of Azmacort(R), an inhaled steroid for asthma sold in North America,
surpassed $200 million and registered growth over the prior year which was
negatively affected by trade inventory reductions. The impact of a competitive
entry kept North American sales of Nasacort(R), an inhaled steroid for
allegeric rhinitis, below prior year levels. The fourth quarter acquisition of
Fisons enhances the Company's global respiratory franchise, providing a more
comprehensive respiratory product portfolio and an improved geographic
presence. Two months of Fisons respiratory products sales included in the
Company's reported sales approximated $89 million, a significant portion of
which represented sales of sodium cromoglycate-based products, principally the
bronchial asthma product Intal(R) and nedocromil sodium-based products,
principally the bronchial asthma product Tilade(R).
 
  The antacid Maalox(R) performed well in Europe (France, Poland and Germany).
In Japan, Maalox(R) sales, fueled by the late 1994 launch of Maalox(R)
granules, grew at a rate that exceeded that of the overall antacid
 
                                      21
<PAGE>
 
market. In January 1995, the Company completed the transfer of its Canadian
Maalox(R) product rights to Ciba-Geigy Ltd. ("Ciba"); the Company's U.S.
rights were tranferred to Ciba in December 1994. Reported sales for 1994
included approximately $114 million of U.S. and Canadian Maalox(R) sales.
 
  Increased sales of Orudis(R)/Profenid(R)/Oruvail(R), a ketoprofen-based
anti-inflammatory agent, resulted principally from growth in South American
countries. Elsewhere, Orudis(R) experienced declines in the U.K. and in
France. Sales of calcitonin products for bone disorders were slightly below
1994 levels as higher sales in Japan and Brazil were offset by overall
declines in the U.S. due to generic competition and in European markets,
particularly Italy, where calcitonins continue to be affected by governmental
programs. In 1995, the Company received approval in more than ten countries
for Menorest(R), a hormone replacement skin patch for treatment of
postmenopausal symptoms and the prevention of osteoporosis.
 
  Sales increases in other therapeutic areas were partially attributable to
sales of the Cooper and Rhodia Farma subsidiaries in addition to increased
sales of dermatological products. Other therapeutic area sales included
U.S. sales of DDAVP(R) for nocturnal enuresis. In 1995, DDAVP(R) tablets for
the treatment of central diabetes insipidus received FDA approval.
 
 Operating Income
 
<TABLE>
<CAPTION>
                                        YEAR ENDED DECEMBER 31,
                          -------------------------------------------------------
                                                       1995                 1994
                                                       VS.                  VS.
                              1995          1994       1994      1993       1993
                          ------------  ------------  ------ ------------  ------
                                 % OF          % OF     %           % OF     %
                            $    SALES    $    SALES  CHANGE   $    SALES  CHANGE
($ IN MILLIONS)           ------ -----  ------ -----  ------ ------ -----  ------
<S>                       <C>    <C>    <C>    <C>    <C>    <C>    <C>    <C>
Gross margin............  $3,396 66.0%  $2,931 65.3%    16%  $2,693 67.0%      9%
Selling, delivery and
 administrative
 expenses...............   1,864 36.2%   1,606 35.8%    16%   1,468 36.5%      9%
Research and development
 expenses...............     766 14.9%     606 13.5%    26%     561 14.0%      8%
Operating income........     639 12.4%     598 13.3%     7%     675 16.8%  (11.5)%
</TABLE>
 
  Increased gross profit as a percentage of sales in 1995 reflected the
favorable impact of price and benefits of plant rationalization and
productivity improvement programs, partially offset by the impact of the
lower-margin Cooper business and unfavorable product mix. The Company hopes to
achieve further margin improvements in 1996 and beyond through continued cost
containment efforts coupled with the favorable margins associated with
internally developed global new products.
 
  Commercial expenses increased as a percentage of sales as a result of higher
selling and promotional costs in the U.S. pharmaceuticals business associated
with new products, sales force expansions in support of South American
markets, and increased selling expenses due to volume improvements in Japan,
Germany and Italy. Commercial expense ratios in 1995 benefitted from the
absence of the higher advertising and promotional costs associated with the
Company's North American over-the-counter business in 1994. Administrative
expenses declined slightly as a percentage of sales in 1995 as a result of the
Company's ongoing cost containment programs. Amortization of goodwill and
intangibles related to the Fisons acquisition contributed to higher 1995
selling, delivery and administrative expense ratios. Management anticipates
that selling, delivery and administrative expenses as a percentage of sales
before the effect of amortization will be favorably impacted in 1996 and
thereafter as the synergies from the integration of the Fisons business and
further benefits of cost structure improvement programs are realized.
 
  The Company's investment in research and development approached 15% of sales
in 1995, reflecting the higher costs associated with bringing late-stage
projects (Taxotere(R), Campto(R), Rilutek(R), Menorest(R) and Lovenox(R) new
indications) to market. The Company anticipates that research and development
expenses will stabilize as a percentage of sales over the next two years.
Among the Company's more significant Phase III projects are Synercid(TM), an
injectable streptogramin antibiotic for serious bacterial infections and
Combi-patch, an estrogen/progestin combination transdermal patch for relief of
postmenopausal symptoms.
 
                                      22
<PAGE>
 
  In 1995, the Company recorded $44 million of acquired research and
development expense in connection with the Fisons and AIS acquisitions,
representing research and development activities of the acquired companies for
which technological feasibility has not yet been established and for which no
alternative future use exists.
 
  In December 1995, the Company recorded a $60 million pretax charge related to
the restructuring of RPR operations as a direct result of the Fisons
acquisition. As part of the Fisons purchase price allocation, the Company has
also recorded an estimated $100 million liability for the restructuring of
Fisons operations; management is in the process of finalizing the programs
specific to the Fisons business. The combined $160 million liability represents
expected cash outlays, which will be principally severance-related, associated
with eliminating approximately 1,900 positions primarily in the marketing,
administrative and manufacturing functions. Many of these positions are based
in the U.S. and the U.K., although other locations will also be affected.
Additional workforce reductions associated with selected divestitures are also
expected, bringing the total number of positions affected to approximately
2,900 by the end of 1997. Average annual cost savings and sales synergies
associated with the Fisons acquisition are expected to approximate $200
million, with an estimated 65% of that amount expected to be realized in 1996.
 
  In 1994, the Company recorded a $121 million charge related to a global
restructuring plan. Current year cash outlays associated with the plan
approached $48 million; asset writeoffs were not significant. Pretax savings as
a result of the restructuring program approximated $34 million in 1995 and over
1,070 positions have been affected by the 1994 plan. In 1993, the Company
recorded pretax charges of $94 million for the cost of certain restructurings,
principally in Europe, and increased provisions for certain litigation. The
1993 program was substantially completed in 1995 with current year cash outlays
totaling $10 million. Over 800 positions were affected by the 1993 plan.
 
  Excluding restructuring in both years and other acquisition-related items in
1995, operating income margin declined approximately one percentage point from
1994 as a result of significant investment in research and development
activities and increased marketing efforts associated with the introduction of
new products.
 
 Interest, Other Expense and Taxes
 
  Net interest expense increased 80% to $85 million in 1995, primarily as a
result of increased borrowings principally in support of the fourth quarter
acquisition of Fisons. Interest expense in 1996 will be significantly higher
due to higher average net debt balances throughout the year. At December 31,
1995, approximately 85% of the Company's debt was at variable rates of interest
after the effect of interest rate swap contracts as compared to year-end 1994
when substantially all the Company's debt was variable-rate. The Company has
increasingly used interest rate swaps to fix certain pieces of U.S. dollar-
denominated debt due to the attractive U.S. interest rate environment.
 
  In December 1995, the Company issued $500 million of undated capital equity
notes to RP. Semiannual remuneration on the unpaid principal balance of the
notes is based on the London Interbank Offering Rate plus a margin.
 
  Despite higher short-term interest rates in the U.S. in early 1995, year-on-
year preferred dividends declined slightly due to the third quarter redemption
of the Company's outstanding Market Auction Preferred Shares.
 
  Gains on sales of assets, including the sale of assets related to the
Company's Canadian over-the-counter business and certain European product
rights, totaled $50 million in 1995. Similar gains, including the sale of the
Company's U.S. over-the-counter business, totaled $46 million in 1994.
 
  Other expense-net included $13 million of first quarter acquired research and
development expense related to an additional investment in AIS and charges of
$25 million related to the reassessment of the carrying value of certain
assets, including those associated with the Company's prior investment in The
Immune Response Corporation. In 1994, the Company recorded $11 million of AIS-
related acquired research and development and $31 million for asset carrying
value reassessments.
 
                                       23
<PAGE>
 
  The Company's reported effective income tax rate was 33.7% in 1995 compared
with 28.4% in 1994 as a result of certain one-time items in 1995 including
non-deductible acquired research and development expense and the estimated
impact of a special levy in France. The impact of the French levy on the
effective income tax rate was moderated to approximately one percentage point
by other favorable changes resulting from corporate tax planning strategies.
 
 1994 Compared with 1993
 
  On sales of $4,487 million, net income available to common shareholders in
1994 was $348 million ($2.50 per share on a pro forma basis), 15% below the
prior year. Results included pretax restructuring charges of $121 million
($.58 per share) in 1994 and pretax income of $11 million ($.03 per share) in
1993 from the net effects of settlement of litigation less restructuring and
other charges.
 
  Full year 1994 reported sales increased 12% primarily due to volume gains;
approximately 8 percentage points of growth was due to the effect of acquired
businesses. The impact of favorable currency fluctuations (+1%) was offset by
product divestitures (-1%); price changes had no material effect on sales
growth.
 
  Sales increases in the United States reflected growth of the Company's
prescription pharmaceuticals (Dilacor(R) XR, Lovenox(R), DDAVP(R) and
Nasacort(R)) following trade inventory adjustments in the first half of the
year. Sales growth in France reflected the inclusion of nine months of Cooper
sales in 1994; on a basis before contributions from Cooper, sales in France
declined 3%, largely as a result of lower sales of anti-infectives. In Other
European markets, sales of prescription pharmaceuticals in Germany recovered
14% from depressed prior year levels while ethical product sales in Italy (-
16%) and the U.K. (-11%) continued to be impacted by restrictive government
programs. Higher sales in Eastern Europe and sales of generics in the U.K.
contributed to the modest sales improvement in the Other Europe region. The
Rest of World area benefited from the inclusion in 1994 of nine months of
sales from a Cooper subsidiary and a full year of Rhodia Farma sales. On a
basis before sales of the acquired businesses, regional sales increased 6% as
declines in Japan stemming primarily from government-imposed price reductions
were more than offset by sales growth in South America and the rest of Asia.
 
  Cardiovascular/thrombosis product sales were led by Clexane(R)/Lovenox(R)
and Dilacor(R) XR. Sales of Clexane(R)/Lovenox(R) exceeded $200 million in
1994, with solid performance in the U.S. and Europe. Sales of Dilacor(R) XR
more than doubled from the prior year. Despite higher sales of the Company's
generic indapamide which partially mitigated the impact of reduced Lozol(R)
brand sales, total indapamide product sales were below prior year levels as
anticipated.
 
  Sales of anti-infectives were below prior year levels in France due to an
increasingly competitive antibiotics market and comparison with strong prior
year sales related to a high incidence of influenza. Sales of anti-infectives
increased in South American countries, including contributions from Rhodia
Farma, and in Asian markets.
 
  Sales of oncology products increased over the prior year driven by the 1994
launch of Granocyte(R) in France, Germany and other European markets. In 1994,
the Company also acquired the U.S. and Canadian marketing rights to
Oncaspar(TM) for use in the treatment of acute lymphoblastic leukemia.
 
  The major plasma proteins (Albuminar(R), Monoclate-P(R), Gammar(R) IV and
Mononine(TM)) achieved double-digit sales growth, with particularly good
performance in the United States. Monoclate-P(R) and Mononine(TM) also
registered sales increases in European markets including France and Germany.
 
  Sales of Doliprane(R) improved in the second half of 1994 but remained
essentially level year-on-year following a particularly strong 1993 influenza
season. Increased sales in France and Japan of Imovane(R)/Amoban(R) were
partially offset by reduced sales in the U.K. due to government-imposed price
reductions.
 
 
                                      24
<PAGE>
 
  Respiratory product sales improved as U.S. ex-factory sales of the inhaled
steroids Nasacort(R) and, to a lesser extent, Azmacort(R) recovered from the
negative impact of trade inventory reductions in the first half of the year.
 
  A decline in sales of bone metabolism/rheumatology products included lower
1994 sales of calcitonin products in Italy, Spain and Japan. Generic
competition in the United States also contributed to reduced calcitonin sales.
Sales of Orudis(R)/Profenid(R)/Oruvail(R) improved on higher sales in Italy
and South America offset by sales declines in Japan.
 
  Despite lower sales and declining market share in the U.S., worldwide sales
of the antacid Maalox(R) increased modestly with good performance in European
markets, particularly Germany, and Japan, where Maalox(R) granules were
launched at the end of 1994. Reduced sales of Zoltum(R), a peptic ulcer
medication co-marketed in France, and the daily fiber therapy product
Perdiem(R) contributed to an overall sales decline of gastrointestinal
products.
 
  Sales in other therapeutic categories included higher sales of DDAVP(R) and
of dermatological products. The increase in other therapeutic area sales also
reflected the integration of the Cooper business.
 
  Gross profit as a percentage of sales declined as the effect of
manufacturing expense reductions was offset by the integration of the lower
margin Cooper business. Despite increased spending in support of new products
and in certain markets (Germany, Japan and South America), selling, delivery
and administrative expenses decreased as a percentage of sales due to benefits
of cost reduction initiatives. Selling, delivery and administrative expenses
also reflected the lower commercial expense ratios of the Cooper business.
 
  Net interest expense declined 23% to $47 million in 1994 due to lower
average worldwide net debt balances and lower average interest rates in
Europe. Preferred dividends of $19 million were higher than the prior year due
to a net increase in average outstanding preferred shares and the effect of
higher U.S. short-term interest rates.
 
  At $84 million, other expense, net increased by $30 million in 1994,
primarily due to the reassessment of the carrying value of certain of the
Company's investments, including AIS call options. Equity losses associated
with AIS, including acquired research and development, were $29 million. Other
expense, net also reflected higher 1994 foreign exchange losses, including the
effects of translation and financing in high inflation economies.
 
  The Company's reported effective tax rate was 28.4% in 1994 compared with
28.7% in 1993.
 
FINANCIAL CONDITION
 
 Cash Flows
 
  Net cash provided by operating activities was $502 million in 1995 compared
with $685 million in 1994 and $721 million in 1993. The reduction in 1995
operating cash flows reflects increased working capital needs and higher
payments for income taxes, including a $42 million tax payment related to the
sale of the Company's over-the-counter business to Ciba. Prior year cash flows
also benefited from the prepayment of a royalty associated with the Ciba
transaction. The reduction in 1994 operating cash flows compared with 1993
reflected lower earnings and higher cash outlays for income taxes due to the
1993 deferral of tax payments. Operating cash flows in 1993 included the
receipt of $105 million proceeds from the settlement of litigation.
 
  Net cash outflows of $3,093 million for 1995 investing activities included
outlays of $3,238 million, before the effect of cash acquired, related to the
acquisitions of Fisons, AIS, Rhodia Farma and Biogalenique. Of the $3,238
million, $2,961 million represented 1995 cash outflows associated with the
acquisition of Fisons. Investments in technologies totaled $80 million and
included the purchase of two million common shares of AIS in the first half of
1995 for $43 million. Proceeds from the sales of assets totaled $120 million
and $163 million in 1995 and 1994, respectively, and included the transfers of
the Company's Canadian (1995) and U.S. (1994)
 
                                      25
<PAGE>
 
over-the-counter businesses to Ciba. Proceeds in 1995 also reflected the
fourth quarter sale of a portion of Fisons' Laboratory Supplies Division for
$35 million. The Company expects to complete the sale of a substantial portion
of Fisons' Scientific Instruments Division in the first half of 1996. Capital
expenditures totaled $281 million in 1995 as compared with $230 million in
1994 and $250 million in 1993. Outlays for capital expenditures in 1996 are
expected to exceed 1995 levels due, in part, to investments in support of new
products. Net cash outflows associated with net investment hedging totaled $15
million in 1995, of which $10 million related to settlement of hedging
activities initiated by Fisons; net investment hedging cash outflows totaled
$30 million in 1994.
 
  Financing activities provided cash of $2,588 million, reflecting a net cash
inflow of $2,479 million provided by borrowings to finance the acquisition of
Fisons and other businesses and the redemption of preferred shares. Cash
inflows also included the issuance of $500 million of capital equity notes to
RP. Financing cash outlays in 1994 and 1993 included the open market purchases
of the Company's common shares for the Employee Benefits Trust totaling $110
million and $76 million, respectively. Cash dividends paid to common
shareholders were $161 million ($1.20 per share) in 1995, $152 million ($1.12
per share) in 1994 and $138 million ($1.00 per share) in 1993. In February
1996, the Company paid shareholders a first quarter cash dividend of $.30 per
share.
 
 Liquidity
 
  The Company's net debt (short- and long-term debt including notes payable to
RP, less cash and cash equivalents, short-term investments and time deposits)
to net debt plus equity ratio increased to .56 to 1 at December 31, 1995
compared with .16 to 1 at December 31, 1994 as a result of increased
borrowings principally in support of the Fisons acquisition. The ratio of
current assets to current liabilities was 1.16 to 1 compared with 1.40 to 1 a
year ago primarily as a result of an increase in short-term borrowings. In
1996 and further into 1997, the Company expects to achieve net debt reduction
using cash flows from operations which should benefit from synergistic cost
savings, and proceeds from selected divestitures.
 
  At December 31, 1995, the Company had total committed lines of credit of
$4,145 million. Of this amount, $1,820 million represented short-term
facilities with borrowings of $137 million outstanding; these facilities
expired in February 1996. Of the remaining $2,325 million, $1,825 million
represented multicurrency medium-term facilities with fourteen banks expiring
in the year 2000. An additional $500 million represented two medium-term
credit agreements with Rhone-Poulenc S.A. expiring in 2000 and 2002. At
December 31, 1995, borrowings outstanding under the Company's medium-term
arrangements totaled $1,930 million at a weighted average annual effective
interest rate of 6.0%. These borrowings plus an additional $395 million of
short-term borrowings were classified as long-term debt at December 31, 1995
as the Company had the ability and intent to finance these amounts on a long-
term basis under the above medium-term facilities.
 
  In 1995, the Company issued $500 million of undated capital equity notes to
RP. Pursuant to the remaining portion of a $500 million shelf registration,
the Company has the ability to issue $325 million in public debt securities
and/or preferred shares.
 
  In October 1995, Moody's Investors Service ("Moody's") and Standard & Poor's
("S&P") lowered the Company's senior unsecured debt and preferred share credit
ratings, attributing the change to the acquisition of Fisons. The Company's
senior unsecured debt is now rated Baa1 by Moody's and BBB by S&P. The
Company's preferred shares are now rated Baa2 by Moody's and BBB- by S&P.
 
  Management believes that cash flows from operations, supplemented by
proceeds from selected divestitures and financing expected to be available
from external sources, will provide sufficient liquidity to meet its needs for
the foreseeable future. Long-term liquidity is dependent upon the Company's
competitive position, including its ability to discover, develop and market
innovative therapies, build leadership positions in targeted therapeutic areas
and maximize the benefits of business acquisitions and alliances. In 1995, the
important new products Taxotere(R), Rilutek(R) and Campto(R) as well as new
indications for Lovenox(R) received approvals in certain markets. With the
acquisition of Fisons, the Company has established a strong respiratory
franchise with increased geographic presence and the Centeon joint venture is
positioned to become a global market leader in the plasma proteins business.
The Company believes that the combination of these, as well as other,
innovative products and business alliances will contribute to the Company's
long-term liquidity.
 
                                      26
<PAGE>
 
 Insurance and Litigation
 
  The Company maintains significant levels of excess catastrophic general and
products liability insurance obtained from independent third-party insurers.
In light of the risks attendant to the Company's business activities, the
limits and coverage terms of such insurance are believed reasonable in amount
and scope and comparable to the insurance carried by others in the industry.
 
  The Company is involved in litigation incidental to its business including,
but not limited to: (1) approximately 429 pending lawsuits in the United
States, Canada and Ireland against the Company and its Armour Pharmaceutical
Company subsidiary ("Armour"), in which it is claimed by individuals infected
with the Human Immunodeficiency Virus ("HIV") that their infection with HIV
and, in some cases, resulting illnesses, including Acquired Immune Deficiency
Syndrome-related conditions or death therefrom, may have been caused by
administration of anti-hemophilic factor ("AHF") concentrates processed by
Armour in the early and mid-1980's. Armour has also been named as a defendant
in certain proposed class action lawsuits filed on behalf of HIV-infected
hemophiliacs and their families. None of these cases involve Armour's
currently distributed AHF concentrates; (2) legal actions pending against one
or more subsidiaries of the Company and various groupings of more than one
hundred pharmaceutical companies, in which it is generally alleged that
certain individuals were injured as a result of the development of various
reproductive tract abnormalities because of in utero exposure to
diethylstilbestrol ("DES") (typically, two former operating subsidiaries of
the Company are named as defendants, along with numerous other DES
manufacturers, when the claimant is unable to identify the manufacturer); (3)
antitrust actions alleging that certain pharmaceutical companies, including
the Company, engaged in price discrimination practices to the detriment of
certain independent community pharmacists, retail chains and consumers; (4)
alleged breach of contract by a subsidiary of the Company with respect to
agreements involving a bisphosphonate compound and Lozol(R); and (5) potential
responsibility relating to past waste disposal practices, including potential
involvement at three sites on the U.S. National Priority List created by
Superfund legislation.
 
  The eventual outcomes of the above matters of pending litigation cannot be
predicted with certainty. The defense of these matters and the defense of
expected additional lawsuits related to these matters may require substantial
legal defense expenditures. The Company follows Statement of Financial
Accounting Standards ("SFAS") No. 5 in determining whether to recognize losses
and accrue liabilities relating to such matters. Accordingly, the Company
recognizes a loss if available information indicates that a loss or range of
losses is probable and reasonably estimable. The Company estimates such losses
on the basis of current facts and circumstances, prior experience with similar
matters, the number of claims and the anticipated cost of administering,
defending and, in some cases, settling such claims. The Company has also
recorded as an asset certain insurance recoveries which are determined to be
probable of occurrence. If a contingent loss is not probable but is reasonably
possible, the Company discloses this contingency in the notes to its
consolidated financial statements if it is material. Based on the information
available, the Company does not believe that reasonably possible uninsured
losses in excess of amounts recorded for the above matters of litigation would
have a material adverse impact on the Company's financial position, results of
operations or cash flows.
 
 Recently Issued Accounting Standards
 
  In March 1995, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to Be Disposed Of", effective for fiscal years beginning after
December 15, 1995. The Statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of the asset may not be
recoverable. The Company adopted SFAS No. 121 effective January 1, 1996, and
is not aware of any events or circumstances which indicate the existence of an
impairment which would be material to the Company's quarterly or annual
financial statements.
 
  In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation", effective for fiscal years beginning after December 15, 1995.
The Statement encourages employers to account for stock compensation awards
based on their fair value on the date of grant. Entities may choose not to
apply the new accounting method but instead, disclose in the notes to the
financial statements the effects on net income and earnings per share as if
the new method had been applied. The Company adopted the disclosure-only
approach of the Standard effective January 1, 1996.
 
                                      27
<PAGE>
 
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
                   RHONE-POULENC RORER INC. AND SUBSIDIARIES
 
                       CONSOLIDATED STATEMENTS OF INCOME
                  (DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
 
<TABLE>
<CAPTION>
                                            FOR THE YEARS ENDED DECEMBER 31,
                                            ----------------------------------
                                                         RESTATED
                                               1995        1994        1993
                                            ----------  ----------------------
<S>                                         <C>         <C>         <C>
Net sales.................................. $  5,142.1  $  4,486.6  $  4,019.4
Cost of products sold......................    1,746.4     1,555.8     1,326.3
Selling, delivery and administrative ex-
 penses....................................    1,863.7     1,605.8     1,467.8
Research and development expenses..........      766.2       606.1       561.2
Restructuring and other charges............      126.5       121.2        93.8
Proceeds from litigation settlement........        --          --        105.0
                                            ----------  ----------  ----------
  Operating income.........................      639.3       597.7       675.3
Interest expense...........................      105.2        55.3        71.2
Interest income............................      (20.3)       (8.2)      (10.4)
Gain on sales of assets....................      (49.5)      (46.2)      (30.2)
Other expense, net.........................       65.9        83.9        54.2
                                            ----------  ----------  ----------
  Income before income taxes...............      538.0       512.9       590.5
Provision for income taxes.................      181.5       145.8       169.4
                                            ----------  ----------  ----------
  Net income...............................      356.5       367.1       421.1
Dividends on preferred stock...............       18.7        19.2        12.4
                                            ----------  ----------  ----------
  Net income available to common sharehold-
   ers..................................... $    337.8  $    347.9  $    408.7
                                            ==========  ==========  ==========
Primary earnings per common share:
  Net income available to common sharehold-
   ers.....................................                         $     2.96
                                                                    ==========
  Net income available to common sharehold-
   ers, pro forma.......................... $     2.50  $     2.50
                                            ==========  ==========
</TABLE>
 
                See Notes to Consolidated Financial Statements.
 
                                       28
<PAGE>
 
                   RHONE-POULENC RORER INC. AND SUBSIDIARIES
 
                          CONSOLIDATED BALANCE SHEETS
                             (DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
                                                               DECEMBER 31,
                                                             ------------------
                                                                       RESTATED
                                                               1995      1994
                                                             --------  --------
<S>                                                          <C>       <C>
ASSETS
Current:
Cash and cash equivalents..................................  $  115.4  $  118.8
Trade accounts receivable less reserves of $87.3 (1994:
 $78.6)....................................................     956.8     812.1
Inventories................................................     765.6     612.5
Assets held for sale.......................................     228.8       --
Other current assets.......................................     723.0     543.3
                                                             --------  --------
    Total current assets...................................   2,789.6   2,086.7
Time deposits, at cost.....................................      83.0      55.8
Property, plant and equipment, net.........................   1,621.0   1,199.8
Goodwill, net..............................................   2,953.5     705.9
Intangibles, net...........................................     866.8     170.5
Other assets...............................................     673.2     433.6
                                                             --------  --------
    Total assets...........................................  $8,987.1  $4,652.3
                                                             ========  ========
LIABILITIES
Current:
Short-term debt............................................  $  384.2  $   90.5
Notes payable to Rhone-Poulenc S.A. & affiliates...........     127.6      37.3
Accounts payable...........................................     601.8     470.5
Income taxes payable.......................................      91.0      70.6
Accrued employee compensation..............................     137.8     150.9
Other current liabilities..................................   1,062.7     675.2
                                                             --------  --------
    Total current liabilities..............................   2,405.1   1,495.0
Long-term debt.............................................   2,159.0     408.6
Notes payable to Rhone-Poulenc S.A. & affiliates...........     525.4      31.3
Deferred income taxes......................................     365.5      31.6
Other liabilities..........................................   1,174.9     575.4
                                                             --------  --------
    Total liabilities......................................   6,629.9   2,541.9
                                                             --------  --------
Contingencies..............................................
SHAREHOLDERS' EQUITY
Market Auction Preferred Shares, without par value
 (liquidation preference $1,000 per share); authorized,
 issued and outstanding in 1994: 225,000 shares............       --      225.0
Money market preferred stock, without par value
 (liquidation preference $100,000 per share); issued and
 outstanding: 1,750 shares.................................     175.0     175.0
Capital equity notes.......................................     500.0       --
Common stock, without par value; stated value $1 per share;
 authorized 200,000,000 shares; issued and outstanding:
 134,528,487 shares (1994: 134,095,649 shares).............     139.5     139.1
Capital in excess of stated value..........................     153.2     412.2
Retained earnings..........................................   1,580.3   1,403.7
Employee Benefits Trust....................................    (185.7)   (185.7)
Cumulative translation adjustments.........................      (5.1)    (58.9)
                                                             --------  --------
    Total shareholders' equity.............................   2,357.2   2,110.4
                                                             --------  --------
    Total liabilities and shareholders' equity.............  $8,987.1  $4,652.3
                                                             ========  ========
</TABLE>
 
                See Notes to Consolidated Financial Statements.
 
                                       29
<PAGE>
 
                   RHONE-POULENC RORER INC. AND SUBSIDIARIES
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
                                        FOR THE YEARS ENDED DECEMBER 31,
                                        -------------------------------------
                                                       RESTATED
                                           1995          1994        1993
                                        ------------  -----------------------
<S>                                     <C>           <C>          <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................. $      356.5  $    367.1   $    421.1
Adjustments to reconcile net income 
 to net cash provided by operating 
 activities:
  Depreciation and amortization........        225.2       193.2        167.9
  Provision for deferred income taxes..        (15.8)      (67.5)       (40.8)
  Gain on sales of assets..............        (49.5)      (46.2)       (30.2)
  Deferred royalty income..............          --         24.0          --
  Equity losses of unconsolidated
   affiliates, net.....................         35.4        21.1         26.6
  (Increase) decrease in trade accounts
   receivable, net.....................        (35.2)       47.3        (33.0)
  (Increase) decrease in inventories...       (104.1)      (37.6)         2.5
  Increase in accounts payable.........         83.5        19.6         39.4
  Increase (decrease) in income taxes
   payable.............................        (81.4)       13.3         83.7
  Restructuring charges, net...........          3.5        68.3         44.6
  Other items, net.....................         83.8        82.8         39.0
                                        ------------  ----------   ----------
    Net cash provided by operating
     activities........................        501.9       685.4        720.8
                                        ------------  ----------   ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures...................       (281.5)     (229.9)      (250.4)
Businesses acquired, net of cash
 acquired of $474.7....................     (2,763.3)        --           --
Equity investment in Applied Immune
 Sciences, Inc. .......................        (42.5)        --        (117.3)
Investment in time deposits, net.......        (29.9)        8.5        (13.8)
Proceeds from sales of assets..........        120.4       162.6         52.0
Purchase of assets and investments.....        (81.6)      (35.3)       (15.0)
Net investment hedging, net............        (14.8)      (29.8)        (1.1)
                                        ------------  ----------   ----------
    Net cash used in investing
     activities........................     (3,093.2)     (123.9)      (345.6)
                                        ------------  ----------   ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term borrowings, net.............        420.3      (223.1)      (240.0)
Proceeds from issuance of long-term
 debt..................................      2,231.3        67.9        108.2
Repayment of long-term debt............       (173.0)      (47.4)      (133.0)
Shares repurchased for Employee
 Benefits Trust........................          --       (109.9)       (75.8)
Dividends paid.........................       (179.9)     (170.7)      (149.2)
Issuance of money market preferred
 stock.................................          --          --         171.9
Redemption of Market Auction Preferred
 Shares................................       (225.0)        --         (75.0)
Issuance of capital equity notes.......        500.0         --           --
Issuances of common stock..............         14.0         2.6         17.8
                                        ------------  ----------   ----------
    Net cash provided by (used in)
     financing activities..............      2,587.7      (480.6)      (375.1)
                                        ------------  ----------   ----------
Effect of exchange rate changes on
 cash..................................           .2         2.5         (4.2)
                                        ------------  ----------   ----------
Net increase (decrease) in cash and
 cash equivalents......................         (3.4)       83.4         (4.1)
Cash and cash equivalents at beginning
 of year...............................        118.8        35.4         39.5
                                        ------------  ----------   ----------
Cash and cash equivalents at end of
 year.................................. $      115.4  $    118.8   $     35.4
                                        ============  ==========   ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS
 INFORMATION:
CASH PAID DURING YEAR FOR:
  Interest, net of amounts
   capitalized......................... $       99.2  $     61.7   $     82.4
  Income taxes......................... $      259.3  $    201.0   $    133.0
RECONCILIATION OF ASSETS ACQUIRED AND
 LIABILITIES ASSUMED:
  Fair value of assets acquired........ $    4,505.2  $    280.1          --
  Liabilities assumed..................     (1,348.2)     (173.0)         --
                                        ------------  ----------   ----------
    Net assets acquired................ $    3,157.0  $    107.1          --
                                        ============  ==========   ==========
  Cash paid for acquisitions........... $    3,238.0         --           --
  Capital contribution from RP S.A. ...       (273.2) $    107.1          --
  Preferred stock of subsidiary
   issued..............................        131.6         --           --
  Other non-cash items.................         60.6         --           --
                                        ------------  ----------   ----------
    Total consideration................ $    3,157.0  $    107.1          --
                                        ============  ==========   ==========
</TABLE>
                See Notes to Consolidated Financial Statements.
 
                                       30
<PAGE>
 
                   RHONE-POULENC RORER INC. AND SUBSIDIARIES
 
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
NOTE 1. ACCOUNTING POLICIES
 
 Principles of Accounting
 
  The Company's consolidated financial statements are prepared on a basis in
conformity with U.S. generally accepted accounting principles ("U.S. GAAP").
The preparation of the financial statements in conformity with U.S. GAAP
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent liabilities at
the dates of the financial statements and the reported amounts of revenues and
expenses during the reporting periods. Actual results could differ from those
estimates.
 
 Principles of Consolidation
 
  The consolidated financial statements include the accounts of Rhone-Poulenc
Rorer Inc. and subsidiaries which are more than 50 percent owned and/or
controlled. All subsidiaries are consolidated on the basis of twelve-month
periods ending December 31. Investments in corporate joint ventures and other
companies in which the Company has a 20 to 50 percent ownership are accounted
for by the equity method. Cost investments, less than 20 percent owned, are
carried at their original cost.
 
 Cash and Cash Equivalents, Time Deposits and Restricted Cash
 
  The Company considers cash on hand, cash in banks, certificates of deposit,
time deposits and U.S. government and other short-term securities with
maturities of three months or less when purchased as cash and cash
equivalents. Investments with a maturity period of greater than three months
but less than one year are classified as short-term investments. Certain
mortgage-backed certificates, repurchase obligations and certificates of
deposit with maturities of more than one year are classified as long-term time
deposits. At December 31, 1995, the Company has $109.6 million of restricted
cash, of which approximately $53.7 million is classified as a current asset,
representing funds on deposit with a bank in an interest-bearing escrow
account for payment of future operating lease obligations.
 
 Inventories
 
  Inventories are valued at the lower of cost or market, using the first-in,
first-out (FIFO) or average cost methods.
 
 Property, Plant and Equipment
 
  Property, plant and equipment are recorded at cost. For financial accounting
purposes, depreciation is computed principally on the straight-line method
over the estimated useful lives of the assets (generally, 20 to 30 years for
buildings and 5 to 15 years for machinery and equipment). For income tax
purposes, certain assets are depreciated using accelerated methods. Effective
January 1, 1993, the Company extended the depreciation lives for certain
production machinery and equipment. The change in estimate increased 1993 net
income by $11.1 million.
 
 Goodwill and Intangible Assets
 
  Goodwill represents the excess of cost over the fair market value of net
assets of businesses acquired. Goodwill is amortized on a straight-line basis
over a period not to exceed forty years, and is reported net of accumulated
amortization of $241.6 million in 1995 and $210.2 million in 1994. The Company
assesses potential impairment of goodwill by comparing the carrying value of
goodwill at the balance sheet date with anticipated undiscounted future
operating income before amortization. Intangibles, which principally represent
the cost of acquiring patents and product lines, are amortized over their
estimated useful lives and are reported net of accumulated amortization of
$106.3 million in 1995 and $121.2 million in 1994.
 
                                      31
<PAGE>
 
                   RHONE-POULENC RORER INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 Income Taxes
 
  The Company and substantially all of its United States subsidiaries file a
consolidated federal income tax return. No provision has been made for United
States income taxes or withholding taxes on the unremitted earnings of non-
U.S. subsidiaries which are intended to be indefinitely reinvested. The
Company follows Statement of Financial Accounting Standards ("SFAS") No. 109,
"Accounting for Income Taxes."
 
 Advertising
 
  Advertising costs are generally expensed within the fiscal year that the
costs are incurred, except for direct response advertising, which is
capitalized and amortized over the expected period of future benefit.
Advertising expenses primarily associated with the use of public media,
medical publications and symposia totaled $200.3 million for the year ended
December 31, 1995.
 
 Foreign Currency Translation
 
  Financial information relating to the Company's subsidiaries located outside
the United States is translated using the current rate method. Local
currencies are considered the functional currencies except in countries with
highly inflationary economies.
 
 Recently Issued Accounting Standards
 
 SFAS No. 121
 
  In March 1995, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to Be Disposed Of," effective for fiscal years beginning after
December 15, 1995. The Statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of the asset may not be
recoverable. The Company adopted SFAS No. 121 effective January 1, 1996, and
is not aware of any events or circumstances which indicate the existence of an
impairment which would be material to the Company's quarterly or annual
financial statements.
 
 SFAS No. 123
 
  In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation," effective for fiscal years beginning after December 15, 1995.
The Statement encourages employers to account for stock compensation awards
based on their fair value on the date of grant. Entities may choose not to
apply the new accounting method but instead, disclose in the notes to the
financial statements the pro forma effects on net income and earnings per
share as if the new method had been applied. The Company adopted the
disclosure-only approach of the Standard effective January 1, 1996.
 
NOTE 2. ACQUISITIONS FROM RHONE-POULENC S.A.
 
  In 1995, the Company acquired from Rhone-Poulenc S.A. ("RP") the businesses
of Cooperation Pharmaceutique Francaise ("Cooper"), primarily in France, and a
pharmaceutical business in Brazil for cash and preferred stock of a French
subsidiary aggregating approximately $273.2 million. The preferred shares,
accounted for as minority interest in other liabilities at December 31, 1994,
have a liquidation preference approximating 645.0 million French francs and
pay dividends of 7.5% per annum on a stated value of 145.0 million French
francs. The acquisition agreements call for potential adjustments to the
purchase price of the businesses based on several factors, including earnings
performance.
 
                                      32
<PAGE>
 
                   RHONE-POULENC RORER INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
  For accounting purposes, the acquisitions of these entities under common
control were treated on an "as-if pooling" basis and, accordingly, the Company
restated its 1994 results to include the accounts of Cooper and the Brazilian
business as of April 1, 1994 (the date that Cooper was acquired by RP) and
January 1, 1994, respectively. The effect of restatements in periods prior to
1994 was not material. The assets and liabilities of the acquired businesses
were recorded by the Company at the carrying values used by RP as of the
restatement dates. Earnings per share for the restated periods reflect pro
forma adjustments giving effect to interest on indebtedness and preferred
dividends relative to the acquisition transactions.
 
NOTE 3. FISONS
 
  On October 20, 1995, the Company acquired the outstanding shares of Fisons
plc ("Fisons"), a U.K.-based pharmaceutical company, for a total purchase
price, including expenses, approximating $3.0 billion. The acquisition was
accounted for under the purchase method and, accordingly, the purchase price
will be allocated based upon the fair values of the assets and liabilities
acquired. Preliminary purchase price allocations have resulted in goodwill of
approximately $2.3 billion and intangibles of approximately $600.0 million
that will be amortized on a straight-line basis over lives of 40 years and 15
to 30 years, respectively. The purchase price allocation also includes $562.0
million related to estimated net deferred tax and other liabilities, including
restructuring of the Fisons business. In connection with the acquisition, the
Company also recorded in 1995 a charge of $21.0 million for acquired research
and development related to Fisons research and development activities for
which technological feasibility has not yet been established and no
alternative future use exists.
 
  In addition to its pharmaceutical operations, the Fisons business included
certain discontinued operations, namely the Laboratory Supplies Division, a
distributor of laboratory equipment and supplies and clinical diagnostic
products, and the Scientific Instruments Division, a manufacturer of
instruments used in surface science and in elemental spectrometry and
analysis. Substantially all of the Laboratory Supplies Division was sold prior
to completion of the acquisition with related proceeds of $336.2 million. A
smaller unit of the Division was sold in November 1995 for approximately $35.0
million. The sale of a substantial portion of the Scientific Instruments
Division to Thermo Instrument Systems Inc. has received clearance from the
Federal Trade Commission and is expected to be completed in the first quarter
of 1996. The net assets of the Scientific Instruments Division are recorded at
their estimated net realizable value and classified as assets held for sale at
December 31, 1995. Results of operations of the Scientific Instruments
Division from the date of acquisition to the date of sale are not expected to
be material.
 
NOTE 4. APPLIED IMMUNE SCIENCES, INC.
 
  In 1993, the Company acquired for $117.3 million, including expenses, a 37%
interest in Applied Immune Sciences, Inc. ("AIS") and call options to purchase
up to six million additional shares. The companies also established joint
ventures related to cell therapy products and services. In connection with the
acquisition, the Company recorded a pretax charge for acquired research and
development expense in equity losses of affiliates totaling $27.0 million in
1993. In both 1994 and 1995, AIS achieved a development milestone, each
requiring RPR to purchase an additional one million AIS shares approximately
equal to an additional 5% interest. In connection therewith, in the fourth
quarter of 1994 and in the first quarter of 1995, the Company recorded pretax
charges for acquired research and development expense of $11.0 million and
$13.0 million, respectively.
 
  In the fourth quarter of 1995, the Company purchased for a cash price of
$91.6 million, including expenses, the remaining 53%, or 7.2 million
outstanding shares, of AIS not previously owned by RPR. Under the step-
purchase method, the Company recorded additional intangible assets of
approximately $73.5 million, to be amortized on a straight-line basis over
eight years. The Company also recorded a charge to operations of $22.6 million
for acquired research and development related to research and development
activities for which technological feasibility has not yet been established
and no alternative future use exists.
 
                                      33
<PAGE>
 
                   RHONE-POULENC RORER INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
  The Company's 1995 reported research and development expenses include
approximately $5.6 million representing December 1995 operations of AIS.
Equity losses recorded prior to the acquisition of AIS' remaining outstanding
shares totaled $25.3 million in 1995 and $17.6 million in 1994.
 
NOTE 5. JOINT VENTURE
 
  Under terms of a September 28, 1995 Amendment to the Joint Venture Agreement
(the "Amendment"), the Company's Armour Pharmaceutical Company subsidiary
("Armour") and Behringwerke AG ("Behring"), a subsidiary of Germany's Hoechst
AG, completed the formation of Centeon, a 50/50 global joint venture in the
plasma proteins business. The joint venture's Board of Directors was formally
established on January 1, 1996, at which time joint control and profit-sharing
provisions also took effect. Accordingly, the Company deconsolidated Armour's
net assets at December 31, 1995. The operations of the Armour plasma
businesses are included in the Company's reported results for the twelve
months ended December 31, 1995.
 
NOTE 6. PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
 
  The following unaudited pro forma financial information has been prepared as
if the acquisitions of Fisons and AIS and the formation of Centeon had
occurred at the beginning of the periods presented. The results of operations
of Fisons' Laboratory Supplies Division and Scientific Instruments Division
are not included in the pro forma results for 1995 and 1994. The pro forma
information presents the results of the Armour businesses contributed to
Centeon as non-operating income from equity affiliates; sales recorded by
these businesses approximated $489.0 million and $415.1 million in 1995 and
1994, respectively. The pro forma information also reflects 100% of the
operating results of AIS as research and development expenses and eliminates
the equity losses associated with the Company's prior equity investment in
AIS. The pro forma information does not purport to be indicative of the
Company's results of operations had the transactions actually occurred on the
dates presented nor is it necessarily indicative of future operating results.
 
<TABLE>
<CAPTION>
                                                     FOR THE YEARS ENDED
                                                        DECEMBER 31,
                                               -------------------------------
                                                    1995            1994
                                               --------------- ---------------
                                               (IN MILLIONS, EXCEPT PER SHARE)
   <S>                                         <C>             <C>
   Net sales.................................. $       5,316.1 $       4,799.3
   Operating income...........................           607.5           162.0
   Net income (loss) from continuing
    operations before
    nonrecurring charges available to common
    shareholders..............................           341.6           (66.4)
   Earnings (loss) per common share, restated
    pro forma................................. $          2.53 $          (.56)
   Average common shares outstanding..........           134.2           135.3
</TABLE>
 
  Pro forma operating income for the year ended December 31, 1995 excludes
$126.5 million of acquisition-related charges recorded by the Company
including pretax restructuring charges of $60.0 million, acquired research and
development expense of $43.6 million, and integration and other costs related
to the Fisons acquisition of $22.9 million.
 
  Pro forma operating income for the year ended December 31, 1994 includes
charges of $259.3 million recorded by Fisons in connection with the
restructuring of its pharmaceutical operations and charges of $121.2 million
for an RPR global restructuring plan.
 
  Pro forma net income (loss) from continuing operations before nonrecurring
charges excludes a $133.4 million pretax gain on Fisons' sale of the greater
portion of its research and development operations in the second quarter of
1995. Research and development expenses associated with the activities sold
approximating $23.9 million are also excluded from the 1995 pro forma results.
Pro forma net income (loss) from continuing
 
                                      34
<PAGE>
 
                   RHONE-POULENC RORER INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

operations before nonrecurring charges also excludes one-time charges related
to the Company's investments in AIS, including acquired research and
development expense and the reassessment of call option values, totaling $13.0
million and $31.4 million in 1995 and 1994, respectively.
 
NOTE 7. RESTRUCTURING AND OTHER CHARGES
 
  In December 1995, the Company recorded a $60.0 million pretax charge related
to the restructuring of RPR operations as a direct result of the Fisons
acquisition. As part of the Fisons purchase price allocation, the Company has
also recorded an estimated $100.0 million liability for the restructuring of
Fisons operations; management is in the process of finalizing the programs
specific to the Fisons business. The combined $160.0 million liability
represents expected cash outlays, which will be principally severance-related,
associated with eliminating approximately 1,900 positions primarily in the
marketing, administrative and manufacturing functions. Many of these positions
are based in the U.S. and the U.K., although other locations will also be
affected. Additional workforce reductions associated with selected
divestitures are also expected, bringing the total number of positions
affected to approximately 2,900 by the end of 1997. Workforce reductions and
associated cash outlays related to the program were not significant in 1995.
 
  In 1994, the Company recorded a $121.2 million pretax charge in connection
with a global restructuring plan that was substantially completed in 1995.
Workforce reductions approximated 1,100 positions and were primarily from
manufacturing, sales/marketing and administrative functions in North America
and in France, although other locations in Europe and elsewhere were also
affected. Total cash outlays related to the plan through December 31, 1995
exceeded $81.7 million, of which $47.6 million pertained to 1995. Asset
writeoffs in conjunction with certain production facilities totaled $26.9
million, of which $7.5 million occurred in 1995.
 
  A rollforward of the remaining 1994 restructuring provision is as follows:
 
<TABLE>
<CAPTION>
                                             PAYMENTS/ TRANSLATION
                                  JANUARY 1,   ASSET   ADJUSTMENTS/ DECEMBER 31,
                                     1995    WRITEOFFS    OTHER         1995
                                  ---------- --------- ------------ ------------
                                              (DOLLARS IN MILLIONS)
   <S>                            <C>        <C>       <C>          <C>
   Social costs..................   $ 52.8    $ (41.6)    $ 2.4        $ 13.6
   Third parties.................      8.4       (6.0)       .5           2.9
   Asset writeoffs...............      8.2       (7.5)      --             .7
                                    ------    -------     -----        ------
     Total.......................   $ 69.4    $ (55.1)    $ 2.9        $ 17.2
                                    ======    =======     =====        ======
</TABLE>
 
  In 1993, the Company recorded a pretax charge of $93.8 million for the cost
of certain restructuring and manufacturing streamlining programs and increased
provisions for certain litigation. The 1993 restructuring programs,
principally in Europe, included restructuring of marketing and manufacturing
operations in the Company's German and Italian prescription pharmaceutical
businesses following governmental actions aimed at reducing prices and
limiting prescription volume. The programs also included the divestment of a
portion of a manufacturing facility in Monts, France which was completed in
1995. Total workforce reductions associated with the plan exceeded 800
positions.
 
  A rollforward of the remaining 1993 restructuring provision from January 1,
1995 is as follows:
 
<TABLE>
<CAPTION>
                                             PAYMENTS/ TRANSLATION
                                  JANUARY 1,   ASSET   ADJUSTMENTS/ DECEMBER 31,
                                     1995    WRITEOFFS    OTHER         1995
                                  ---------- --------- ------------ ------------
                                              (DOLLARS IN MILLIONS)
   <S>                            <C>        <C>       <C>          <C>
   Social costs..................   $12.2     $ (9.9)      $ .7         $3.0
   Asset writeoffs...............     9.0       (8.6)        .7          1.1
                                    -----     ------       ----         ----
     Total.......................   $21.2     $(18.5)      $1.4         $4.1
                                    =====     ======       ====         ====
</TABLE>
 
                                      35
<PAGE>
 
                   RHONE-POULENC RORER INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
NOTE 8. GAIN ON SALES OF ASSETS AND PROCEEDS FROM LITIGATION SETTLEMENT
 
  In 1995, the Company recorded pretax gains of $49.5 million on sales of
assets, principally the transfer of the Company's Canadian over-the-counter
business to Ciba Geigy Ltd. ("Ciba"), and the sale of certain European product
rights.
 
  In 1994, similar gains, including the gain on the sale of certain assets
related to the Company's U.S. over-the-counter business to Ciba, totaled $46.2
million. Under terms of the U.S. transfer agreement with Ciba, the Company
received a one-time payment totaling $178.0 million which included a prepaid
royalty of $24.0 million for the year 1995. Additional royalties of $24.0
million are expected per year for six years. At the end of the seven-year
period, Ciba has the option to purchase the U.S. product intellectual property
assets for approximately $143.0 million.
 
  In 1993, pretax gains from asset sales including sales of product rights and
certain investments totaled $30.2 million. In 1993, the Company also received
$105.0 million cash proceeds from the settlement of a longstanding patent
lawsuit with Baxter International concerning Factor VIII:C concentrates for
the treatment of hemophilia.
 
NOTE 9. OTHER EXPENSE, NET
 
<TABLE>
<CAPTION>
                                                        1995     1994    1993
                                                       -------  ------- -------
                                                        (DOLLARS IN MILLIONS)
   <S>                                                 <C>      <C>     <C>
   Equity losses of affiliates........................ $  44.4  $  46.5 $  50.0
   Minority interest..................................     4.9      3.3     3.8
   Foreign exchange (gains) losses....................    (4.7)    10.5    (2.5)
   Other, net.........................................    21.3     23.6     2.9
                                                       -------  ------- -------
                                                       $  65.9  $  83.9 $  54.2
                                                       =======  ======= =======
</TABLE>
 
  Other, net for 1995 and 1994 includes charges of $25.4 million and $30.6
million, respectively, related to the reassessment of the carrying value of
certain assets including those associated with the Company's prior investment
in The Immune Response Corporation (1995) and AIS call options (1994).
 
NOTE 10. EARNINGS PER SHARE
 
  Earnings per common share were computed by dividing net income available to
common shareholders by the weighted average number of shares of common stock
outstanding. For purposes of earnings per share calculations, net income
available to common shareholders in 1995 and 1994 was adjusted for the pro
forma effects of interest on indebtedness and preferred dividends relative to
the acquisitions of businesses from RP totaling $1.6 million and $9.1 million,
respectively. The weighted average number of shares used to compute primary
earnings per common share was 134,228,677; 135,254,692 and 138,168,739 for the
years 1995, 1994 and 1993, respectively. Common share equivalents in the form
of stock options were excluded from the calculation as their dilutive effect
was not material.
 
NOTE 11. INVENTORIES
 
<TABLE>
<CAPTION>
                                                             1995       1994
                                                          ---------- ----------
                                                          (DOLLARS IN MILLIONS)
   <S>                                                    <C>        <C>
   Finished goods........................................ $    346.2 $    323.2
   Work in process.......................................      140.6      125.0
   Raw materials and supplies............................      278.8      164.3
                                                          ---------- ----------
                                                          $    765.6 $    612.5
                                                          ========== ==========
</TABLE>
 
                                      36
<PAGE>
 
                   RHONE-POULENC RORER INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
NOTE 12. PROPERTY, PLANT AND EQUIPMENT, NET
 
<TABLE>
<CAPTION>
                                                             1995       1994
                                                          ---------- ----------
                                                          (DOLLARS IN MILLIONS)
   <S>                                                    <C>        <C>
   Land.................................................. $     62.2 $     66.3
   Buildings.............................................      880.0      658.2
   Machinery and equipment...............................    1,604.0    1,416.6
   Construction in progress..............................      330.3      169.8
                                                          ---------- ----------
                                                             2,876.5    2,310.9
   Less accumulated depreciation.........................    1,255.5    1,111.1
                                                          ---------- ----------
   Property, plant and equipment, net.................... $  1,621.0 $  1,199.8
                                                          ========== ==========
</TABLE>
 
  The Company incurred $109.9 million and $58.7 million in interest cost in
1995 and 1994, respectively, of which $4.7 million and $3.4 million,
respectively, was capitalized as part of the cost of additions to property,
plant and equipment.
 
NOTE 13. DEBT
 
  Short-term debt consisted of the following:
 
<TABLE>
<CAPTION>
                                                            1995        1994
                                                         ----------- ----------
                                                         (DOLLARS IN MILLIONS)
   <S>                                                   <C>         <C>
   Notes payable to banks............................... $     354.7 $     68.5
   Current portion of long-term debt....................        29.5       22.0
                                                         ----------- ----------
                                                         $     384.2 $     90.5
                                                         =========== ==========
   Notes payable to Rhone-Poulenc S.A. and affiliates... $     127.6 $     37.3
                                                         =========== ==========
</TABLE>
 
  The weighted average interest rate of total outstanding short-term debt was
7.9% at December 31, 1995 (1994: 9.3%).
 
  Long-term debt, net of current portion, consisted of the following:
 
<TABLE>
<CAPTION>
                                                              1995       1994
                                                           ----------- ----------
                                                           (DOLLARS IN MILLIONS)
   <S>                                                     <C>         <C>
   Notes payable at variable rates averaging 5.9% at 1995
    year-end (expected to be refinanced long-term).......  $   1,825.0 $   233.3
   9.15% Series A Senior Notes due 2004, with interest
    payable quarterly (guaranteed by Rhone-Poulenc
    S.A.)................................................         52.7      56.6
   8.95% Series B Senior Notes due 1997, with interest
    payable quarterly (guaranteed by Rhone-Poulenc
    S.A.)................................................          4.3       8.6
   Yen-denominated variable rate notes (1994 year-end
    rate 2.8%)...........................................          --       28.0
   Notes, mortgages and capitalized lease obligations at
    rates averaging 8.1% (1994: 8.1%)....................        277.0      82.1
                                                           ----------- ---------
                                                               2,159.0     408.6
   Notes payable to Rhone-Poulenc S.A. at rates averaging
    6.0% at 1995 year-end (expected to be refinanced
    long-term)...........................................        500.0       --
   Notes payable to Rhone-Poulenc S.A. and affiliates
    principally due in 2000 at rates averaging 8.4%
    (1994: 6.2%).........................................         25.4      31.3
                                                           ----------- ---------
                                                           $   2,684.4 $   439.9
                                                           =========== =========
</TABLE>
 
                                       37
<PAGE>
 
                   RHONE-POULENC RORER INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

  At December 31, 1995, the Company had total committed lines of credit of
$4,145.0 million. Of this amount, $1,820.0 million represented short-term
facilities with borrowings of $137.0 million outstanding; these facilities
expired in February 1996. Of the remaining $2,325.0 million, $1,825.0 million
represented multicurrency medium-term facilities with fourteen banks expiring
in the year 2000. An additional $500.0 million represented two medium-term
credit agreements with Rhone-Poulenc S.A. expiring in 2000 and 2002.
Borrowings under the $2,325.0 million medium-term credit facilities bear
interest at the London Interbank Offering Rate ("LIBOR"), plus any applicable
margin and commitment fee. At December 31, 1995, borrowings outstanding under
the Company's medium-term arrangements totaled $1,930.0 million. These
borrowings plus an additional $395.0 million of short-term borrowings were
classified as long-term debt at December 31, 1995 as the Company had the
ability and intent to finance these amounts on a long-term basis under the
above medium-term facilities. The $2,325.0 million of borrowings were in
various currencies with interest rates as follows: $2,185.0 million in U.S.
dollars at 6.0%, $69.0 million in French francs at 5.0%, $41.1 million in
German marks at 4.4%, $16.6 million in Japanese yen at .9% and $13.3 million
in British pounds at 7.2%. Amounts available under unused uncommitted lines of
credit approximated $624.0 million at December 31, 1995.
 
  The aggregate maturities of all long-term debt at December 31, 1995,
including related party debt, were: $29.5 million in 1996, $40.8 million in
1997, $38.6 million in 1998, $190.9 million in 1999, $2,347.3 million in 2000
and $66.8 million thereafter.
 
  The weighted average interest rate of total debt outstanding at December 31,
1995 was 6.4% (1994: 7.0%). At December 31, 1995, approximately 85% of the
Company's debt was at variable rates of interest after the effect of interest
rate swap contracts as compared to year-end 1994 when substantially all the
Company's debt was variable-rate.
 
  Pursuant to the remaining portion of a U.S. shelf registration for $500.0
million, the Company has the ability to issue $325.0 million in public debt
securities and/or preferred shares.
 
NOTE 14. LEASE COMMITMENTS
 
  The Company's capital lease arrangements pertain primarily to certain
administrative and research facilities. The Company also occupies certain
facilities and leases certain equipment and large-load vehicles under
operating lease agreements. In 1992, the Company sold its U.S. corporate
offices and research facility to a third party and leased it back for an
initial term of thirty years with options to renew for a longer period. The
Company also leased the underlying land to the third party for sixty years and
subleased it back for thirty years with the facility. Related average annual
accounting rent is $22.5 million.
 
                                      38
<PAGE>
 
                   RHONE-POULENC RORER INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
  Rent expense under operating leases was $104.2 million, $55.0 million and
$49.4 million in 1995, 1994 and 1993, respectively. Related rental income
totaled $37.7 million in 1995. Future minimum lease commitments under all
leases with initial or remaining noncancelable lease terms in excess of one
year at December 31, 1995 and related rental income under operating leases are
as follows:
 
<TABLE>
<CAPTION>
                                                              OPERATING LEASES
                                                             ------------------
                                                    CAPITAL     LEASE    RENTAL
                                                    LEASES   COMMITMENTS INCOME
                                                    -------  ----------- ------
                                                      (DOLLARS IN MILLIONS)
   <S>                                              <C>      <C>         <C>
   1996............................................ $  6.2     $128.8    $ 55.4
   1997............................................    5.9      115.5      41.4
   1998............................................    4.1       73.2      19.7
   1999............................................    3.8       58.3      11.0
   2000............................................    3.8       44.5       --
   Thereafter......................................   20.5      557.1       --
                                                    ------     ------    ------
   Minimum lease payments..........................   44.3     $977.4    $127.5
                                                               ======    ======
   Less imputed interest...........................  (13.3)
                                                    ------
   Present value of minimum lease payments
    (current--$3.9, noncurrent--$27.1)............. $ 31.0
                                                    ======
</TABLE>
 
NOTE 15. INCOME TAXES
 
  The components of income before income taxes are:
 
<TABLE>
<CAPTION>
                                                          1995    1994    1993
                                                         ------- ------- -------
                                                          (DOLLARS IN MILLIONS)
   <S>                                                   <C>     <C>     <C>
   United States........................................ $ 241.3 $ 241.0 $ 289.1
   Non-U.S..............................................   296.7   271.9   301.4
                                                         ------- ------- -------
                                                         $ 538.0 $ 512.9 $ 590.5
                                                         ======= ======= =======
</TABLE>
 
  The provisions for income taxes are:
 
<TABLE>
<CAPTION>
                                                       1995     1994     1993
                                                      -------  -------  -------
                                                       (DOLLARS IN MILLIONS)
   <S>                                                <C>      <C>      <C>
   Current:
     United States................................... $  96.9  $ 103.4  $ 100.2
     Non-U.S.........................................   100.4    109.9    110.0
                                                      -------  -------  -------
                                                        197.3    213.3    210.2
                                                      -------  -------  -------
   Deferred:
     United States...................................   (22.6)   (51.7)   (31.0)
     Non-U.S.........................................     6.8    (15.8)    (9.8)
                                                      -------  -------  -------
                                                        (15.8)   (67.5)   (40.8)
                                                      -------  -------  -------
                                                      $ 181.5  $ 145.8  $ 169.4
                                                      =======  =======  =======
</TABLE>
 
                                      39
<PAGE>
 
                   RHONE-POULENC RORER INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
  Deferred income taxes are provided for temporary differences between book
and tax bases of the Company's assets and liabilities. Temporary differences
giving rise to a significant portion of the deferred tax assets and
liabilities at December 31 are:
 
<TABLE>
<CAPTION>
                                                          1995         1994
                                                       -----------  ----------
                                                       (DOLLARS IN MILLIONS)
   <S>                                                 <C>          <C>
   Assets (liabilities):
     Depreciation and amortization.................... $    (328.2) $    (64.5)
     Pension..........................................        69.2        50.2
     Distributable earnings...........................       (66.9)      (26.2)
     Intercompany profit in ending inventory..........        60.8        36.2
     Net operating loss carryforwards.................        57.5        15.4
     Restructuring....................................        35.8        36.4
     Cost and equity investments......................        10.6        30.9
     Other, including nondeductible accruals..........       178.0       108.7
                                                       -----------  ----------
                                                              16.8       187.1
     Less valuation allowance.........................       (91.9)      (11.2)
                                                       -----------  ----------
     Deferred income taxes, net....................... $     (75.1) $    175.9
                                                       ===========  ==========
</TABLE>
 
  The portion of the above net deferred tax assets (liabilities) classified as
current was $211.1 million and $161.7 million at December 31, 1995 and 1994,
respectively. At December 31, 1995, total deferred tax assets were $587.0
million and total deferred tax liabilities were $570.2 million before netting.
At December 31, 1994, similar temporary differences gave rise to total
deferred tax assets of $364.9 million and total deferred tax liabilities of
$177.8 million. The increase in the valuation allowance at December 31, 1995
as compared with December 31, 1994 was primarily related to the Fisons
acquisition.
 
  The differences between the U.S. statutory income tax rate and the Company's
effective income tax rate are:
 
<TABLE>
<CAPTION>
                                                          1995    1994    1993
                                                         ------  ------  ------
                                                          (PERCENT OF INCOME
                                                         BEFORE INCOME TAXES)
   <S>                                                   <C>     <C>     <C>
   U.S. statutory income tax rate.......................   35.0%   35.0%   35.0%
   Puerto Rico operations...............................   (3.1)   (5.0)   (3.6)
   Acquired research and development....................    2.8     --      --
   Non-U.S. tax rate differential.......................   (2.2)   (1.8)   (1.7)
   Research and development tax credits.................   (1.0)   (1.4)   (1.8)
   Other, net...........................................    2.2     1.6     0.8
                                                         ------  ------  ------
   Effective income tax rate............................   33.7%   28.4%   28.7%
                                                         ======  ======  ======
</TABLE>
 
  The Company has subsidiaries in Ireland, Puerto Rico and Singapore, where
earnings are either exempt or substantially exempt from income taxes under
local government incentive programs, the latest of which expires in the year
2010.
 
  The Company has net operating loss carryforwards of $156.6 million for tax
return purposes which expire principally through the years 1996-2010.
 
  The Company's U.S. tax return has been audited through 1989. The Company
believes that potential adjustments from any open years would not have a
material impact on the Company's financial position.
 
                                      40
<PAGE>
 
                   RHONE-POULENC RORER INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
  Unremitted earnings of subsidiaries which are intended to be indefinitely
reinvested were $1,122.0 million at December 31, 1995. Withholding taxes
payable if the entire amount of these earnings were remitted would be $67.5
million. U.S. income taxes payable if these earnings were remitted would be
substantially offset by available foreign tax credits.
 
NOTE 16. PENSIONS AND OTHER POSTRETIREMENT BENEFITS
 
 Pensions
 
  The Company has several defined benefit pension plans which cover a majority
of its employees throughout the world. In the United States, the Company's
funding policy is to contribute funds to a trust as necessary to provide for
current service and for any unfunded projected benefit obligation over a
reasonable period. To the extent that these requirements are fully covered by
assets in the trust, a contribution may not be made in a particular year.
Obligations under non-U.S. plans are systematically provided by depositing
funds with trustees, under insurance policies or through book reserves.
 
  The funded status of the Company's plans at December 31 was as follows:
 
<TABLE>
<CAPTION>
                                     1995                        1994
                          --------------------------- ---------------------------
                           PLANS WHOSE   PLANS WHOSE   PLANS WHOSE   PLANS WHOSE
                          ASSETS EXCEED  ACCUMULATED  ASSETS EXCEED  ACCUMULATED
                           ACCUMULATED    BENEFITS     ACCUMULATED    BENEFITS
                            BENEFITS    EXCEED ASSETS   BENEFITS    EXCEED ASSETS
                          ------------- ------------- ------------- -------------
                                           (DOLLARS IN MILLIONS)
<S>                       <C>           <C>           <C>           <C>
Vested benefit
 obligations............     $(716.5)      $(428.6)      $(141.7)      $(330.7)
Nonvested benefits......        (3.5)        (87.8)         (4.2)        (71.1)
                             -------       -------       -------       -------
Accumulated benefit
 obligation.............      (720.0)       (516.4)       (145.9)       (401.8)
Projected future salary
 increases..............        (6.8)        (65.5)        (12.2)        (55.1)
                             -------       -------       -------       -------
Projected benefit
 obligation.............      (726.8)       (581.9)       (158.1)       (456.9)
Fair value of plan
 assets (invested
 primarily in equities
 and bonds).............       782.0         184.3         186.1         122.4
                             -------       -------       -------       -------
Plan assets in excess of
 (less than) projected
 benefit obligation.....        55.2        (397.6)         28.0        (334.5)
Unrecognized net
 transition (asset)
 liability..............         (.8)          2.5            .7           1.6
Unrecognized net (gain)
 loss...................       (27.1)         86.6         (30.3)         59.9
Unrecognized prior
 service cost...........        20.1          (3.8)         20.7           6.7
Adjustment required to
 recognize minimum
 liability..............         --          (63.5)          --          (52.4)
                             -------       -------       -------       -------
Prepaid (accrued)
 pension cost...........     $  47.4       $(375.8)      $  19.1       $(318.7)
                             =======       =======       =======       =======
</TABLE>
 
  The accumulated benefit obligation of U.S. plans included in the above table
was $186.1 million in 1995 and $132.8 million in 1994. U.S. plan assets were
$165.4 million and $122.7 million at December 31, 1995 and 1994, respectively.
Of the net accrued pension cost, $359.4 million and $306.2 million are
included in other noncurrent liabilities in 1995 and 1994, respectively.
 
  The following items are the components of net periodic pension cost for the
years ended December 31:
 
<TABLE>
<CAPTION>
                                                       1995     1994     1993
                                                      -------  -------  -------
                                                       (DOLLARS IN MILLIONS)
   <S>                                                <C>      <C>      <C>
   Service cost...................................... $  21.3  $  19.5  $  16.9
   Interest cost.....................................    56.7     46.2     42.7
   Actual return on plan assets......................   (39.7)   (26.6)   (49.9)
   Amortization and deferral.........................     8.2      5.7     27.2
                                                      -------  -------  -------
   Net periodic pension cost......................... $  46.5  $  44.8  $  36.9
                                                      =======  =======  =======
</TABLE>
 
 
                                      41
<PAGE>
 
                   RHONE-POULENC RORER INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

  Net periodic pension cost for U.S. plans included in the above amounts is
$9.0 million, $12.2 million and $8.5 million for 1995, 1994 and 1993,
respectively.
 
  The following weighted average assumptions, which are based on the economic
environment of each applicable country, were used to determine the return on
plan assets and benefit obligations:
 
<TABLE>
<CAPTION>
                                                               1995  1994  1993
                                                               ----  ----  ----
   <S>                                                         <C>   <C>   <C>
   Discount rate.............................................. 8.1%  7.9%   7.7%
   Expected return on plan assets............................. 9.1%  9.6%  10.4%
   Rate of future compensation increases...................... 4.7%  3.8%   4.6%
</TABLE>
 
  For U.S. plans, the discount rate was 7.75% in 1995, 8.5% in 1994 and 7.5%
in 1993. The expected return on plan assets of 9.5% remained constant from
1993 through 1995. The rate of future compensation increases was 4.5% in 1995
and 1994 and 5% in 1993.
 
 Savings Plans
 
  The Company sponsors defined contribution savings plans covering
substantially all U.S. employees. Company contributions to the plans may not
exceed three thousand dollars per employee. Amounts charged to expense were
$7.1 million, $7.3 million and $6.2 million in 1995, 1994 and 1993,
respectively.
 
 Postretirement Benefits Other Than Pensions
 
  Effective January 1, 1993, the Company adopted SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other than Pensions" and is amortizing
the $6.0 million accumulated postretirement benefit obligation over twenty
years. The Company's non-U.S. affiliates generally contribute to government
insurance programs during the employees' careers and do not sponsor additional
postretirement programs. In the United States, the Company grants retirees
access to its medical, prescription and life insurance programs for a premium
targeted to equal the cost of such benefits.
 
 Postemployment Benefits
 
  Effective January 1, 1994, the Company adopted SFAS No. 112, "Employers'
Accounting for Postemployment Benefits." The new standard did not materially
affect the Company's financial position or results of operations.
 
NOTE 17. STOCK PLANS
 
  Stock options and restricted shares have been granted to employees under
plans approved by the shareholders in 1982 and 1985, as amended and restated
in 1988 and 1990 ("the Stock Plan"). The aggregate number of shares originally
available for issuance or transfer to employees under these plans was
7,000,000. Option prices are equal to the fair market value of the shares on
the date of grant. Options are exercisable during a period determined by the
Company, but in no event later than ten years from the date granted. Shares
issued under a restricted grant may not be sold or otherwise disposed of for a
period designated by the Company. Restricted shares are returned to the
Company if the grantee's employment terminates during the period of
restriction. During the restriction period, the grantee is entitled to vote
the shares and receive any dividends paid. The Stock Plan, as amended and
restated, permits the Company to grant stock appreciation rights in tandem
with stock options. As of December 31, 1995, no such rights have been granted.
The Equity Compensation Plan adopted in 1990 supplements the Stock Plan by
providing for an additional 6,000,000 shares that may be issued to
participants after all shares authorized pursuant to the terms of the Stock
Plan have been utilized. The terms
 
                                      42
<PAGE>
 
                   RHONE-POULENC RORER INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

of the Equity Compensation Plan are substantially the same as those of the
Stock Plan. The 1995 Equity Compensation Plan adopted in 1995 supplements the
Stock Plan by providing for an additional 5,000,000 shares that may be issued
to participants after all shares authorized pursuant to the terms of the Stock
Plan and Equity Compensation Plan have been utilized. The terms of the 1995
Equity Compensation Plan are substantially the same as those of the Stock Plan
and the Equity Compensation Plan.
 
  Effective January 1, 1993, the Company substantially curtailed the granting
of restricted shares to employees. Due to employee terminations 1,678 and 2,228
restricted shares were returned to the Company in 1995 and 1994, respectively.
 
  Stock option activity is shown below:
 
<TABLE>
<CAPTION>
                                     1995            1994            1993
                                --------------  --------------  --------------
                                (IN THOUSANDS, EXCEPT PRICE PER SHARE DATA)
   <S>                          <C>             <C>             <C>
   Shares under option at Jan-
    uary 1....................           7,147           5,815           4,999
   Additions (deductions):
     Granted..................           1,702           1,898           2,342
     Exercised................            (433)           (116)           (662)
     Canceled.................            (425)           (450)           (864)
                                --------------  --------------  --------------
   Shares under option at De-
    cember 31.................           7,991           7,147           5,815
                                ==============  ==============  ==============
   Options exercisable at De-
    cember 31.................           4,693           3,443           2,455
                                ==============  ==============  ==============
   Shares reserved for future
    grants....................           6,551           2,862           4,272
                                ==============  ==============  ==============
   Price range of options ex-
    ercised...................  $   4.67-46.38  $   8.24-30.18  $   7.92-41.63
   Price range for all options
    outstanding...............  $   4.67-64.00  $   4.67-64.00  $   4.67-64.00
   Price range for all options
    exercisable...............  $   4.67-64.00  $   4.67-64.00  $   4.67-63.00
</TABLE>
 
                                       43
<PAGE>
 
                   RHONE-POULENC RORER INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 18. SHAREHOLDERS' EQUITY
 
<TABLE>
<CAPTION>
                           MARKET     MONEY            COMMON  CAPITAL IN
                           AUCTION   MARKET   CAPITAL STOCK AT EXCESS OF            EMPLOYEE  CUMULATIVE
                          PREFERRED PREFERRED EQUITY   STATED    STATED   RETAINED  BENEFITS  TRANSLATION
                           SHARES     STOCK    NOTES   VALUE     VALUE    EARNINGS   TRUST    ADJUSTMENT
                          --------- --------- ------- -------- ---------- --------  --------  -----------
                                          (DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S>                       <C>       <C>       <C>     <C>      <C>        <C>       <C>       <C>
Balance, December 31,
 1992...................   $ 300.0   $  --    $  --    $138.3    $269.0   $  936.9  $   --      $ (75.9)
Net income--1993........       --       --       --       --        --       421.1      --          --
Cash dividends, $1.00
 per common share.......       --       --       --       --        --      (138.3)     --          --
Dividends on preferred
 shares.................       --       --       --       --        --       (12.4)     --          --
Issuance of money market
 preferred stock........       --     175.0      --       --       (3.1)       --       --          --
Redemption of Market
 Auction Preferred
 Shares.................     (75.0)     --       --       --        --         --       --          --
Shares repurchased for
 Employee Benefits
 Trust..................       --       --       --       --        --         --     (75.8)        --
Issuance of shares under
 employee benefit
 plans..................       --       --       --        .7      24.1        --       --          --
Translation adjustments,
 including hedging (net
 of $11.6 million tax
 effect)................       --       --       --       --        --         --       --        (63.4)
                           -------   ------   ------   ------    ------   --------  -------     -------
Balance, December 31,
 1993...................     225.0    175.0      --     139.0     290.0    1,207.3    (75.8)     (139.3)
Net income--1994........       --       --       --       --        --       367.1      --          --
Cash dividends, $1.12
 per common share.......       --       --       --       --        --      (151.5)     --          --
Dividends on preferred
 shares.................       --       --       --       --        --       (19.2)     --          --
Capital contributions
 from Rhone-Poulenc
 S.A....................       --       --       --       --      107.1        --       --          --
Shares repurchased for
 Employee Benefits
 Trust..................       --       --       --       --        --         --    (109.9)        --
Issuance of shares under
 employee benefit
 plans..................       --       --       --        .1      15.1        --       --          --
Translation adjustments,
 including hedging (net
 of $1.0 million tax
 effect)................       --       --       --       --        --         --       --         80.4
                           -------   ------   ------   ------    ------   --------  -------     -------
Balance, December 31,
 1994...................     225.0    175.0      --     139.1     412.2    1,403.7   (185.7)      (58.9)
Net income--1995........       --       --       --       --        --       356.5      --          --
Cash dividends, $1.20
 per common share.......       --       --       --       --        --      (161.2)     --          --
Dividends on preferred
 shares.................       --       --       --       --        --       (18.7)     --          --
Redemption of Market
 Auction Preferred
 Shares.................    (225.0)     --       --       --        --         --       --          --
Issuance of capital
 equity notes to Rhone-
 Poulenc S.A............       --       --     500.0      --        --         --       --          --
Adjustment of capital
 contributions for
 acquisition
 liabilities............       --       --       --       --     (273.2)       --       --          --
Issuance of shares under
 employer benefit
 plans..................       --       --       --        .4      14.2        --       --          --
Translation adjustments,
 including hedging (net
 of $2.5 million tax
 effect)................       --       --       --       --        --         --       --         53.8
                           -------   ------   ------   ------    ------   --------  -------     -------
Balance, December 31,
 1995...................   $   --    $175.0   $500.0   $139.5    $153.2   $1,580.3  $(185.7)    $  (5.1)
                           =======   ======   ======   ======    ======   ========  =======     =======
</TABLE>
 
  In 1991, the Company issued $300.0 million of Market Auction Preferred
Shares ("MAPS") represented by four series, each consisting of 75,000 shares.
Dividend rates, determined at separate auctions for each series, averaged
5.98% during 1995 (1994: 4.63%, 1993: 3.01%). In 1993, $75.0 million of MAPS
Series B was redeemed with a portion of the proceeds from the issuance of
money market preferred stock (see discussion below). In the third quarter of
1995, the Company redeemed the remaining outstanding MAPS Series A, C and D
for $225.0 million plus accrued dividends.
 
  In 1993, the Company issued $175.0 million of money market preferred stock.
The money market preferred stock was issued in three series, consisting of 750
shares, 500 shares and 500 shares, respectively. The initial dividend period
for all series commenced on August 1, 1993 at initial dividend rates of 4.7%
per annum for a two-year period for Series 1; 5.125% per annum for a three-
year period for Series 2; and 5.84% per annum for a five-year period for
Series 3. After the initial dividend periods expire, dividends are determined
at separate auctions for each series. The average dividend rate in 1995 on the
Series 1 stock was 5.11% per annum. The money market preferred stock ranks
prior to common shares of the Company as to dividends. Holders have no voting
rights except in the event that preferred dividends are in arrears for at
least 180 consecutive days. In such
 
                                      44
<PAGE>
 
                   RHONE-POULENC RORER INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

event, the authorized number of the Company's Board of Directors would be
increased by two and the holders of record of the preferred shares may elect
these additional directors. The preferred stock is not convertible into common
stock or other shares of the Company and holders thereof have no preemptive
rights. Upon the liquidation, dissolution, or winding up of the Company, or
upon redemption of the preferred stock at the Company's option, holders would
be entitled to a liquidation preference of $100,000 per share plus any
accumulated and unpaid dividends thereon.
 
  In December 1995, the Company issued $500.0 million of undated capital
equity notes to Rhone-Poulenc S.A. The notes have a liquidation preference
that ranks senior to all RPR common stock, but junior to all existing and
future RPR preferred stock. Semiannual remuneration on the unpaid principal
balance of the equity notes is based on LIBOR plus a margin. If the Company is
unable to meet statutory standards for dividend payments on outstanding common
or preferred stock, the Company may satisfy the equity note remuneration
requirements with the issuance of additional capital equity notes
("remuneration notes"). Terms of the remuneration notes would be similar to
the equity notes except for a higher rate of remuneration. The capital equity
notes are redeemable only at the Company's option, but not earlier than five
years after issuance, subject to certain exceptions.
 
  At December 31, 1995, there were 2,676,800 preferred shares without par
value authorized and unissued (1994: 2,451,800). In 1994, the Company
completed the open market repurchase of five million of its common shares as
authorized by the Board of Directors in March 1993. During 1994, the Company
acquired 3.1 million shares at a cost of $109.9 million; share repurchases
during 1993 were 1.9 million shares at a cost of $75.8 million. These shares
are being held in an Employee Benefits Trust to fund future benefits in the
United States.
 
  In 1995, the Company acquired Cooper and a pharmaceutical business in Brazil
from Rhone-Poulenc S.A. For accounting purposes, the acquisitions of these
entities under common control were treated on an "as-if pooling" basis and,
accordingly, the Company restated its 1994 results to include the accounts of
Cooper and the Brazilian business as of April 1, 1994 and January 1, 1994,
respectively. The assets and liabilities of the acquired businesses were
recorded by the Company at the carrying values used by RP as of the
restatement dates and the value of net assets acquired was reflected in the
1994 capital in excess of stated value account as a capital contribution from
RP. The Company subsequently reduced capital in excess of stated value to
reflect the purchase obligations related to the acquisition transactions of
approximately $273.2 million.
 
NOTE 19. FINANCIAL INSTRUMENTS
 
  The Company's financial instruments consisted of the following:
 
<TABLE>
<CAPTION>
                                     DECEMBER 31, 1995     DECEMBER 31, 1994
                                    ---------------------  -------------------
                                    CARRYING      FAIR     CARRYING     FAIR
                                     AMOUNT       VALUE     AMOUNT     VALUE
                                    ---------   ---------  ---------- --------
                                       [ASSET (LIABILITY) IN MILLIONS]
   <S>                              <C>         <C>        <C>        <C>
   Cash and cash equivalents......  $   115.4   $   115.4  $  118.8   $  118.8
   Time deposits, generally matur-
    ing in 1-5 years..............       83.0        83.0      55.8       55.8
   Cost investments:
     Practical to estimate........        9.0        13.6      17.9       13.0
     Not practical to estimate....       19.9         N/A      17.5        N/A
   Other investments, including
    restricted cash...............      112.6       118.7       9.8       12.9
   Long-term debt.................   (2,713.9)   (2,722.7)   (461.9)    (465.4)
   Foreign exchange contracts.....       (7.6)*      (7.6)      4.0*       4.0
   Interest rate swap contracts...       (3.7)*      (3.8)      2.0*      (0.7)
</TABLE>
  --------
  * The carrying amount represents the net unrealized gain (loss) or net
    interest receivable (payable) associated with the contracts at the end
    of the period.
 
                                      45
<PAGE>
 
                   RHONE-POULENC RORER INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
  None of the Company's financial instruments are held for trading purposes.
 
  The following methods and assumptions were used to estimate the fair value
of each class of financial instrument:
 
 Cash and cash equivalents
 
  The carrying amount approximates the fair value due to the short-term
maturity of these instruments.
 
 Time deposits
 
  The carrying amount approximates the fair value due to the variable rate
nature of the long-term deposits.
 
 Cost and other investments
 
  For those investments for which it was practicable, fair value was estimated
using quoted or best estimates of market prices or pricing models. An estimate
of fair market value could not be reasonably made for certain cost investments
for which there are no quoted market prices.
 
 Long-term debt
 
  The majority of the Company's long-term debt is at variable rates of
interest and therefore the Company believes that the carrying amount
approximates fair value. For long-term debt at fixed interest rates, fair
value was determined by discounting future cash flows based on interest rates
currently available to the Company for debt with similar terms and maturities.
 
 Foreign exchange contracts
 
  The fair value of foreign exchange contracts was estimated by valuing the
contracts at current exchange rates.
 
 Interest rate swap contracts
 
  The fair value of interest rate swap contracts reflects the amount at which
they could be settled based on bank pricing models.
 
 Credit Risk
 
  The Company places its cash investments and time deposits with credit-
worthy, high quality financial institutions and, by policy, limits the amount
of credit exposure to any one institution. The Company therefore does not
anticipate nonperformance by any of the counterparties to these financial
instruments.
 
  Concentrations of credit risk with respect to trade receivables is limited
due to a large customer base in a wide geographic area.
 
  Foreign exchange contracts do not expose the Company to accounting risk due
to exchange rate movements as gains and losses on the contracts offset gains
and losses on the transactions being hedged. Management believes that the risk
of incurring losses on these contracts due to default by the other party is
remote as the contracts are entered into with major financial institutions.
 
  As interest rate swap contracts involve exchanges of fixed and floating
interest payment obligations without exchanges of underlying principal
amounts, the Company's exposure to credit loss is significantly less than the
 
                                      46
<PAGE>
 
                   RHONE-POULENC RORER INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

notional amounts of the contracts. Management believes that the risk of
incurring losses due to default by the other party is remote as the contracts
are entered into with major financial institutions.
 
 Financial Instruments with Off-Balance Sheet Risk
 
  Foreign Exchange Contracts--Net Investment Hedges
 
  Unhedged net investment positions fluctuate with currency movements with
corresponding translation adjustments recorded in shareholders' equity. The
Company may enter into foreign exchange contracts to limit the exposure of its
net investments in foreign subsidiaries to such currency fluctuations and
limit the volatility of reported equity. Gains and losses from these contracts
which are designated as hedges of the Company's net foreign investments are
recorded as translation adjustments in shareholders' equity and offset the
gains and losses on the related net investments. For the year ended December
31, 1995, the reduction to shareholders' equity, net of tax effects,
associated with net investment hedging contracts totaled $5.2 million (1994:
$21.7 million).
 
  In determining which, if any, net investment positions to hedge, the Company
considers such factors as the magnitude of the exposed position and the cost
of financing hedging instruments. In 1994, the French franc net investment
approximated one-third of shareholders' equity. The Company therefore hedged a
portion of its net investment in France and at December 31, 1994 was a party
to foreign currency exchange contracts maturing in the first quarter of 1995
with a combined notional amount of FF 179.5 million ($33.1 million) to sell
French francs. The Company is currently assessing the impact of recent
acquisitions on its net investment exposures and had no net investment hedging
contracts outstanding at December 31, 1995.
 
  Foreign Exchange Contracts--Foreign Currency Transaction Hedges
 
  The Company also enters into foreign exchange contracts to minimize exposure
of foreign currency transactions (such as export sales, raw materials
purchases, and short-term intercompany financing) and firm commitments to
fluctuating exchange rates. Gains or losses from these contracts are
recognized in the basis of the transaction being hedged. Cash flows from these
contracts are classified in the same category as the hedged transactions.
 
  The Company's principal net transactional exposures by major currency before
the effects of foreign exchange contracts were as follows:
 
<TABLE>
<CAPTION>
                                     DECEMBER 31, 1995     DECEMBER 31, 1994
                                    --------------------- ---------------------
                                     LOCAL    U.S. DOLLAR  LOCAL    U.S. DOLLAR
                                    CURRENCY  EQUIVALENT  CURRENCY  EQUIVALENT
                                    --------  ----------- --------  -----------
                                         [ASSET (LIABILITY) IN MILLIONS]
<S>                                 <C>       <C>         <C>       <C>
U.S. dollars*......................     139      $ 139         52      $ 52
FF.................................    (332)       (68)     1,679       310
GBP................................    (158)      (246)         1         2
DEM................................      73         51        (24)      (15)
Yen................................   4,312         42      1,408        14
All other (each (less than)
 $40 million)...................... various         40    various        39
                                    -------      -----    -------      ----
    Total..........................     N/A      $ (42)       N/A      $402
                                    =======      =====    =======      ====
</TABLE>
--------
* Represents U.S. dollar-denominated transactions of affiliates with
  functional currencies other than the U.S. dollar.
 
                                      47
<PAGE>
 
                   RHONE-POULENC RORER INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
  The Company's policy is to hedge substantially all of its foreign currency
transactional exposures. At December 31, 1995, the Company had entered into
multiple forward contracts maturing in the first quarter of 1996 to buy and
sell various currencies with notional amounts totaling $478.3 million and
$445.7 million, respectively. Similar contracts which matured in the first
quarter of 1995 totaled $112.6 million and $508.4 million, respectively, at
December 31, 1994. At the acquisition date, Fisons had certain foreign
exchange contracts in place that were speculative in nature to sell various
currencies totaling $238.0 million. These contracts were effectively closed
out at December 31, 1995 through the purchase of opposite contracts and the
$9.2 million cost of settlement was fully accrued. A substantial portion of
the contracts were settled in January 1996.
 
 Interest Rate Swaps
 
  The Company enters into interest rate swap contracts to manage its interest
rate exposures and minimize its overall cost of borrowings. The net receivable
or payable under the interest rate swap arrangements is recognized as an
adjustment to interest expense over the life of the underlying contracts. In
1995 and 1994, the Company was party to contracts to convert certain floating
rate obligations into fixed rate instruments and contracts to convert certain
fixed rate debt into floating rate debt as determined by the interest rate
environment of the currency in which the underlying obligation was
denominated. The Company's weighted average interest rate for the year ended
December 31, 1995 was reduced by six basis points or approximately $.5 million
(1994: 17 basis points or $1.3 million; 1994: 45 basis points or $3.5 million)
as a result of interest rate swap contracts.
 
  Interest rate swap contracts outstanding at December 31, 1995 were as
follows:
 
<TABLE>
<CAPTION>
 NOTIONAL    U.S. DOLLAR FIXED OR CARRYING FAIR MARKET
  AMOUNT     EQUIVALENT  VARIABLE  AMOUNT     VALUE       TERM               AVERAGE RATE
 --------    ----------- -------- -------- ----------- -----------           ------------
                                   [RECEIVABLE (PAYABLE) IN MILLIONS]
<S>          <C>         <C>      <C>      <C>         <C>         <C>                               <C>
$80(/1/)        $ 80     Variable  $  .2      $ 4.6     7/92- 7/99 Pay LIBOR 3 months; Receive 7.1%
$300             300     Fixed       --        (5.1)   11/95-11/00 Pay 5.81%; Receive LIBOR 3 months
(Pounds)100      155     Variable   (4.0)      (3.4)    1/94- 1/00 Pay LIBOR 6 months; Receive 7.5%
FF250(/1/)        51     Variable     .2         .9    10/94-10/96 Pay TAM(/2/); Receive 7.04%
(Yen)3,000        29     Fixed       (.1)       (.8)    4/95- 4/98 Pay 2.01%; Receive LIBOR 3 months
</TABLE>
--------
(/1/) The Company was party to similar contracts at December 31, 1994.
(/2/) French money market rate.
 
NOTE 20. INDUSTRY SEGMENT AND OPERATIONS BY GEOGRAPHIC AREA
 
  The Company is primarily engaged in the discovery, development, manufacture
and marketing of a broad line of pharmaceutical products for human use. Among
the Company's principal markets are France, currently the Company's largest
market, the United States, Germany, the United Kingdom and Italy. The Company
also has an expanding presence in Japan and South American countries. The
Company has twelve pharmaceutical plants in France, four in the U.S., fourteen
in Other Europe and twenty-nine in the Rest of World region.
 
  The principal markets in which the Company conducts its business are subject
to various governmental regulations with respect to the approval, manufacture
and marketing of pharmaceutical products. In many markets, governments have
instituted programs that impact pharmaceutical prices, reimbursement levels or
prescription volumes. The nature of these regulations and their effect vary
greatly from country to country. It is not possible to predict the extent to
which the Company or the pharmaceutical industry might be affected by future
legislative or regulatory developments.
 
                                      48
<PAGE>
 
                   RHONE-POULENC RORER INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
  Information about the Company's operations for the years 1995, 1994 and 1993
by geographic area is shown below. Inter-area affiliated sales are not
significant. Corporate loss before income taxes includes corporate
administrative expenses incurred in the U.S., worldwide net interest expense
and worldwide equity losses from unconsolidated affiliates.
 
<TABLE>
<CAPTION>
                                                     1995      1994      1993
                                                   --------  --------  --------
                                                     (DOLLARS IN MILLIONS)
   <S>                                             <C>       <C>       <C>
   Net sales:
     United States................................ $1,314.2  $1,261.9  $1,119.9
     France.......................................  1,819.6   1,506.7   1,374.8
     Other Europe.................................  1,207.4   1,015.5     977.8
     Rest of World................................    800.9     702.5     546.9
                                                   --------  --------  --------
       Total net sales............................ $5,142.1  $4,486.6  $4,019.4
                                                   ========  ========  ========
   Income before income taxes:
     United States................................ $  351.9  $  356.9  $  385.2
     France.......................................    245.9     172.6     280.7
     Other Europe.................................    132.0      92.8      64.6
     Rest of World................................     62.5      77.6      62.1
     Corporate....................................   (254.3)   (187.0)   (202.1)
                                                   --------  --------  --------
       Total income before income taxes........... $  538.0  $  512.9  $  590.5
                                                   ========  ========  ========
   Identifiable assets:
     United States................................ $4,105.9  $1,107.2  $1,148.3
     France.......................................  1,928.9   1,519.6   1,290.2
     Other Europe.................................  1,140.4   1,001.7     875.6
     Rest of World................................    787.4     518.6     405.9
     Corporate....................................  1,024.5     505.2     330.2
                                                   --------  --------  --------
       Total identifiable assets.................. $8,987.1  $4,652.3  $4,050.2
                                                   ========  ========  ========
</TABLE>
 
  In 1995, U.S. income before income taxes ("IBT") includes $13.1 million of
restructuring charges and $35.6 million of AIS-related acquired research and
development. France IBT includes $22.8 million from gains on sales of certain
product rights. Other Europe IBT includes $46.9 million of restructuring
charges and $37.3 million of other charges related to the Fisons plc
acquisition, including acquired research and development expense.
 
  In 1994, U.S. IBT for the U.S. includes gains on asset sales, net of
restructuring charges, of $15.1 million. France and Other Europe IBT includes
$49.0 million and $28.8 million, respectively, of restructuring charges, net
of gains on sales of assets. The Rest of World area IBT includes restructuring
charges of $13.2 million.
 
  In 1993, U.S. IBT includes income of $68.0 million from litigation
settlement proceeds and gains on asset sales, net of restructuring charges.
France IBT includes $19.5 million of restructuring charges, net of gains on
asset sales. Other Europe IBT includes restructuring charges, net of gains on
asset sales, totaling $30.2 million.
 
  For presentation purposes, goodwill and intangibles totaling $2.9 billion
and related amortization expense recorded in connection with the acquisition
of Fisons have been allocated to the U.S. at December 31, 1995.
 
                                      49
<PAGE>
 
                   RHONE-POULENC RORER INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
NOTE 21. RELATED PARTY TRANSACTIONS
 
  The entities comprising the Company manage their cash separately. In the
largest countries such as the U.S., France, the U.K. and Germany, the local
entities have access to RP cash pooling arrangements whereby they can, at
their own request, lend to or borrow from RP at market terms and conditions.
 
  Amounts receivable from RP and affiliates totaled $61.3 million and $67.3
million at December 31, 1995 and 1994, respectively. The 1995 balance included
$8.5 million of accounts receivable from sales of products and services to RP
(1994: $6.8 million) and $52.8 million classified as other current assets
(1994: $60.5 million).
 
  Accounts payable related to purchase of materials and services from RP and
affiliates were $12.2 million at December 31, 1995 (1994: $7.0 million);
accrued and other liabilities due to RP at December 31, 1995 were $20.9
million (1994: $30.5 million). In 1995, sales to RP and affiliates were $31.1
million (1994: $29.7 million; 1993: $34.5 million). Materials purchased from
RP totaled $41.4 million in 1995 (1994: $36.8 million; 1993: $44.4 million).
In 1993, RP also compensated the Company $1.7 million in cost of products sold
related to the transfer of certain production activities.
 
  At December 31, 1995, debt with RP and affiliates totaled $653.0 million
(1994: $68.6 million). Interest expense incurred with respect to RP
indebtedness in 1995 was $12.4 million (1994: $15.8 million; 1993: $24.9
million).
 
  RP charges the Company for expenses incurred on its behalf, including
research, data processing, insurance, legal, tax, advertising, public
relations and management fees. Such charges are reflected in the financial
statements and amounted to approximately $23.6 million in 1995 (1994: $24.5
million; 1993: $20.2 million). Management believes that the expenses so
charged are representative of amounts that the Company would have incurred if
it had been operated as an unaffiliated entity.
 
  In the 1995 second quarter, the Company acquired Cooper and a pharmaceutical
business in Brazil from RP for cash and preferred stock of an RPR subsidiary
aggregating approximately $273.2 million. The preferred shares, accounted for
as minority interest in other liabilities, have a liquidation preference
approximating 645.0 million French francs (approximately $131.6 million) and
pay dividends of 7.5% per annum of a stated value of 145.0 million French
francs. The acquisition agreements call for potential adjustments to the
purchase price of the businesses based on several factors, including earnings
performance.
 
  In December 1995, the Company issued $500.0 million of undated capital
equity notes to RP. Semiannual remuneration on the unpaid principal balance of
the equity notes is based on LIBOR plus a margin.
 
NOTE 22. CONTINGENCIES
 
  The Company is involved in litigation incidental to its business including,
but not limited to: (1) approximately 429 pending lawsuits in the United
States, Canada and Ireland against the Company and its Armour Pharmaceutical
Company subsidiary ("Armour"), in which it is claimed by individuals infected
with the Human Immunodeficiency Virus ("HIV") that their infection with HIV
and, in some cases, resulting illnesses, including Acquired Immune Deficiency
Syndrome-related conditions or death therefrom, may have been caused by
administration of anti-hemophilic factor ("AHF") concentrates processed by
Armour in the early and mid-1980's. Armour has also been named as a defendant
in certain proposed class action lawsuits filed on behalf of HIV-infected
hemophiliacs and their families. None of these cases involve Armour's
currently distributed AHF concentrates; (2) legal actions pending against one
or more subsidiaries of the Company and various groupings of more than one
hundred pharmaceutical companies, in which it is generally alleged that
 
                                      50
<PAGE>
 
                   RHONE-POULENC RORER INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)

certain individuals were injured as a result of the development of various
reproductive tract abnormalities because of in utero exposure to
diethylstilbestrol ("DES") (typically, two former operating subsidiaries of
the Company are named as defendants, along with numerous other DES
manufacturers, when the claimant is unable to identify the manufacturer); (3)
antitrust actions alleging that certain pharmaceutical companies, including
the Company, engaged in price discrimination practices to the detriment of
certain independent community pharmacists, retail chains and consumers; (4)
alleged breach of contract by a subsidiary of the Company with respect to
agreements involving a bisphosphonate compound and Lozol(R); and (5) potential
responsibility relating to past waste disposal practices, including potential
involvement at three sites on the U.S. National Priority List created by
Superfund legislation.
 
  The eventual outcomes of the above matters of pending litigation cannot be
predicted with certainty. The defense of these matters and the defense of
expected additional lawsuits related to these matters may require substantial
legal defense expenditures. The Company follows Statement of Financial
Accounting Standards No. 5 in determining whether to recognize losses and
accrue liabilities relating to such matters. Accordingly, the Company
recognizes a loss if available information indicates that a loss or range of
losses is probable and reasonably estimable. The Company estimates such losses
on the basis of current facts and circumstances, prior experience with similar
matters, the number of claims and the anticipated cost of administering,
defending and, in some cases, settling such claims. The Company has also
recorded as an asset certain insurance recoveries which are determined to be
probable of occurrence. If a contingent loss is not probable but is reasonably
possible, the Company discloses this contingency in the notes to its
consolidated financial statements if it is material. Based on the information
available, the Company does not believe that reasonably possible uninsured
losses in excess of amounts recorded for the above matters of litigation would
have a material adverse impact on the Company's financial position, results of
operations or cash flows.
 
  As of December 31, 1995, the Company had unused standby letters of credit
outstanding of $86.8 million. The letters of credit are issued primarily in
the form of guarantees or performance bonds.
 
                                      51
<PAGE>
 
                    RESPONSIBILITY FOR FINANCIAL STATEMENTS
 
  The management of Rhone-Poulenc Rorer Inc. is responsible for the
information and representations contained in this report. Management believes
that the financial statements have been prepared in conformity with generally
accepted accounting principles and that the other information in this annual
report is consistent with those statements. In preparing the financial
statements, management is required to include amounts based on estimates and
judgments which it believes are reasonable under the circumstances.
 
  In fulfilling its responsibilities for the integrity of the data presented
and to safeguard the Company's assets, management employs a system of internal
accounting controls designed to provide reasonable assurance, at appropriate
cost, that the Company's assets are protected and that transactions are
appropriately authorized, recorded and summarized. This system of control is
supported by the selection of qualified personnel, by organizational
assignments that provide appropriate delegation of authority and division of
responsibilities, and by the dissemination of written policies and procedures.
This control structure is further reinforced by a program of internal audits
including a policy that requires responsive action by management.
 
  Coopers & Lybrand L.L.P., the Company's independent accountants, performs
audits in accordance with generally accepted auditing standards. The
independent accountants conduct a review of internal accounting controls to
the extent required by generally accepted auditing standards and perform such
tests and procedures as they deem necessary to arrive at an opinion on the
fairness of the financial statements presented herein.
 
  The Board of Directors, through the Audit Committee comprised solely of
directors who are not employees of the Company, meets with management, the
internal auditors and the independent accountants to ensure that each is
properly discharging its respective responsibilities. Both the independent
accountants and the internal auditors have free access to the Audit Committee,
without management present, to discuss the results of their work, including
internal accounting controls and the quality of financial reporting. The Audit
Committee met two times in 1995.
 
       /s/ Robert E. Cawthorn
-------------------------------------
         ROBERT E. CAWTHORN
              CHAIRMAN
 
         /s/ Michel de Rosen
-------------------------------------
           MICHEL DE ROSEN
    PRESIDENT AND CHIEF EXECUTIVE
               OFFICER
 
        /s/ Patrick Langlois
-------------------------------------
          PATRICK LANGLOIS
      SENIOR VICE PRESIDENT AND
       CHIEF FINANCIAL OFFICER
 
                                      52
<PAGE>
 
                       REPORT OF INDEPENDENT ACCOUNTANTS
 
To the Shareholders of Rhone-Poulenc Rorer Inc.:
 
  We have audited the accompanying consolidated balance sheets of Rhone-
Poulenc Rorer Inc. and subsidiaries as of December 31, 1995 and 1994, and the
related consolidated statements of income and cash flows for each of the three
years in the period ended December 31, 1995. 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 generally accepted auditing
standards. 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 consolidated financial position of Rhone-Poulenc
Rorer Inc. and subsidiaries as of December 31, 1995 and 1994, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1995, in conformity with
generally accepted accounting principles.
 
    /s/ Coopers & Lybrand L.L.P.
-------------------------------------
      COOPERS & LYBRAND L.L.P.
 
Philadelphia, Pennsylvania
January 26, 1996
 
                                      53
<PAGE>
 
                   RHONE-POULENC RORER INC. AND SUBSIDIARIES
 
                          QUARTERLY DATA (UNAUDITED)
                 (DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
 
<TABLE>
<CAPTION>
                                     QUARTER ENDED 1995                         QUARTER ENDED 1994
                         ------------------------------------------- -----------------------------------------
                          RESTATED                                                   RESTATED
                          MARCH 31   JUNE 30    SEPT. 30   DEC. 31   MARCH 31  JUNE 30    SEPT. 30   DEC. 31
                         ---------- ---------- ---------- ---------- -------- ---------- ---------- ----------
<S>                      <C>        <C>        <C>        <C>        <C>      <C>        <C>        <C>
Net sales............... $1,098.4   $1,241.3   $1,212.7   $1,589.7   $882.0   $1,064.6   $1,137.3   $1,402.7
Gross profit............    694.4      813.6      792.8    1,094.9    583.9      688.9      740.9      917.1
Net income (loss)
 available to common
 shareholders...........     89.5       85.7      107.3       55.3     74.5       (4.0)     109.6      167.8
Earnings (loss) per
 common share, pro
 forma..................       .66        .64        .80        .41      .53       (.05)       .80       1.23
Market price per common
 share:
 High...................     43.500     43.125     45.875     54.500   37.000     39.500     39.125     42.625
 Low....................     36.250     40.375     40.500     43.750   32.000     30.500     30.500     35.250
Common dividends paid...       .30        .30        .30        .30      .28        .28        .28        .28
</TABLE>
--------
Results for the first quarter of 1995 and for each quarter of 1994 are
restated to include the results of Cooperation Pharmaceutique Francaise and a
pharmaceutical business in Brazil as of April 1, 1994 and January 1, 1994,
respectively.
 
Results for the first quarter of 1995 include pretax income of $11.1 million
($.04 per share) from gains on sales of certain assets and product rights
($49.5 million), including the Company's U.S. and Canadian over-the-counter
businesses, net of charges for acquired research and development expense
($13.0 million) and the reassessment of certain asset carrying values ($25.4
million).
 
Results for the fourth quarter of 1995 include $126.5 million ($.75 per share)
of acquisition-related restructuring and other charges, including $60.0
million of pretax restructuring charges, $43.6 million of acquired research
and development charged to operations and $22.9 million of integration and
other costs.
 
Results for the second quarter of 1994 include pretax restructuring charges of
$121.2 million ($.58 per share) related to a global restructuring plan.
 
Results for the fourth quarter of 1994 include pretax income of $4.0 million
($.02 per share) from gains on sales of assets ($37.6 million), including the
Company's U.S. over-the-counter business, net of charges for acquired research
and development ($11.0 million) and the reassessment of certain asset carrying
values ($30.6 million).
 
Earnings per common share for restated periods reflect pro forma adjustments
giving effect to interest and preferred dividends relative to acquisitions
from Rhone-Poulenc S.A. of Cooperation Pharmaceutique Francaise and a
pharmaceutical business in Brazil.
 
Earnings per common share amounts for each quarter are required to be computed
independently and, therefore, the sum of the four quarters does not
necessarily equal the amount computed for the total year.
 
Rhone-Poulenc Rorer Inc. (RPR) common shares are listed and traded on the New
York and Paris Stock Exchanges, and are traded, unlisted, on the Philadelphia,
Boston, Pacific and Midwest Stock Exchanges. On January 31, 1996, there were
6,712 holders of record of RPR common shares.
 
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE
 
  None.
 
                                      54
<PAGE>
 
                                   PART III
 
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
 
  Information relating to the directors of the Company entitled "Election of
Directors" in the Company's Proxy Statement dated 1996 is incorporated herein
by reference. For information relating to the executive officers of the
Company, refer to "Executive Officers of the Company" on pages 9 through 10 of
this report.
 
ITEM 11. EXECUTIVE COMPENSATION
 
  Information relating to executive compensation immediately before "Certain
Relationships and Related Transactions" of the Company's Proxy Statement dated
1996 is incorporated herein by reference.
 
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
 
  Information relating to security ownership of certain beneficial owners and
management entitled "Ownership of Shares" immediately before "Control of the
Company" of the Company's Proxy Statement dated 1996 is incorporated herein by
reference.
 
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 
  Information entitled "Certain Relationships and Related Transactions" in the
Company's Proxy Statement dated 1996 is incorporated herein by reference.
 
                                      55
<PAGE>
 
                                    PART IV
 
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
 
  (a) Documents filed as part of this report:
 
<TABLE>
<CAPTION>
                                                                    PAGE IN THIS
                                                                     FORM 10-K
                                                                    ------------
<S>                                                                 <C>
1.Consolidated financial statements:
  Consolidated Statements of Income................................       28
  Consolidated Balance Sheets......................................       29
  Consolidated Statements of Cash Flows............................       30
  Notes to Consolidated Financial Statements.......................    31-51
  Responsibility for Financial Statements..........................       52
  Report of Independent Accountants................................       53
 
2.Financial statement schedules:
  Valuation and Qualifying Accounts (Schedule II)..................       60
</TABLE>
 
  Schedules not listed above have been omitted because they are not
  applicable.
 
3.Exhibits:
 
  A complete listing of exhibits required is given in the exhibit index which
  precedes the exhibits filed with this report.
 
  (b) The Company filed the following Current Reports on Form 8-K during the
      fourth quarter of 1995:
 
    .  Current Report on Form 8-K dated October 5, 1995 containing the
       Company's press releases announcing a final cash offer for Fisons
       plc, certain open market purchases of Fisons ordinary shares, and
       the recommendation of the offer by Fisons' Board to its
       shareholders.
 
    .  Current Report on Form 8-K dated October 18, 1995 containing the
       press release announcing a definitive agreement and plan of merger
       between the Company and Applied Immune Sciences, Inc.
 
    .  Current Report on Form 8-K dated October 20, 1995 containing the
       Company's press release declaring the Company's offer for Fisons plc
       unconditional and announcing beneficial ownership over 90%.
 
    .  Current Report on Form 8-K dated November 22, 1995 containing the
       Company's press releases announcing completion of the Applied Immune
       Sciences, Inc. tender offer and merger.
 
    .  Current Report on Form 8-K/A (Amendment to Form 8-K dated October
       20, 1995) containing Fisons plc historical financial statements and
       Company pro forma financial information.
 
                                      56
<PAGE>
 
                                  SIGNATURES
 
  PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THERETO DULY AUTHORIZED.
 
                                          Rhone-Poulenc Rorer Inc.
 
                                            
                                          By      /s/ Michel De Rosen
                                             ----------------------------------
                                                      MICHEL DE ROSEN
                                               PRESIDENT AND CHIEF EXECUTIVE
                                                          OFFICER
 
  PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
 
                NAME                           TITLE                 DATE
 
       /s/ Robert E. Cawthorn          Chairman                 March 18, 1996
-------------------------------------
         ROBERT E. CAWTHORN
 
         /s/ Michel De Rosen           Director, President      March 18, 1996
-------------------------------------   and Chief Executive
           MICHEL DE ROSEN              Officer
 
        /s/ Patrick Langlois           Senior Vice              March 18, 1996
-------------------------------------   President and Chief
          PATRICK LANGLOIS              Financial Officer
 
         /s/ Philippe Maitre           Vice President and       March 18, 1996
-------------------------------------   Controller (Chief
           PHILIPPE MAITRE              Accounting Officer)
 
       Jean-Jacques Bertrand*          Director                 March 18, 1996
-------------------------------------
        JEAN-JACQUES BERTRAND          

                                       Director                 March 18, 1996
-------------------------------------  
           JEAN-MARC BRUEL
 
       Charles-Henri Filippi*          Director                 March 18, 1996
-------------------------------------
        CHARLES-HENRI FILIPPI
 
           Claude Helene*              Director                 March 18, 1996
-------------------------------------
            CLAUDE HELENE
 
                                      57
<PAGE>
 
                NAME                           TITLE                 DATE
 
         Michael H. Jordan*            Director                 March 18, 1996
-------------------------------------
          MICHAEL H. JORDAN
 
                                       Director, Senior         March 18, 1996
-------------------------------------   Vice President and
       MANFRED E. KAROBATH, MD          President, Research
                                        and Development
 
            Igor Landau*               Director                 March 18, 1996
-------------------------------------
             IGOR LANDAU
 
           Peter J. Neff*              Director                 March 18, 1996
-------------------------------------
            PETER J. NEFF
 
           James S. Riepe*             Director                 March 18, 1996
-------------------------------------
           JAMES S. RIEPE
 
       Edward J. Stemmler, MD*         Director                 March 18, 1996
-------------------------------------
       EDWARD J. STEMMLER, MD
 
       Jean-Pierre Tirouflet*          Director                 March 18, 1996
-------------------------------------
        JEAN-PIERRE TIROUFLET
 
*  By his signature set forth below, Richard B. Young, pursuant to duly
   authorized powers of attorney filed with the Securities and Exchange
   Commission, has signed this report on behalf of the persons whose
   signatures are printed above, in the capacities set forth opposite their
   respective names.
 
        /s/ Richard B. Young           Vice President,          March 18, 1996
-------------------------------------   Secretary and
          RICHARD B. YOUNG              Deputy General
                                        Counsel (Attorney-
                                        in-fact)
 
                                      58
<PAGE>
 
                       REPORT OF INDEPENDENT ACCOUNTANTS
 
To The Shareholders of Rhone-Poulenc Rorer Inc.:
 
  Our report on the consolidated financial statements of Rhone-Poulenc Rorer
Inc. and subsidiaries is included on page 53 of this Form 10-K. In connection
with our audits of the financial statements, we have also audited the related
financial statement schedule listed in the index on page 56 of this Form 10-K.
 
  In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information required to be
included therein.
 
    /s/ Coopers & Lybrand L.L.P.
-------------------------------------
      COOPERS & LYBRAND L.L.P.
 
Philadelphia, Pennsylvania
January 26, 1996
 
                                      59
<PAGE>
 
                                                                     SCHEDULE II
 
                   RHONE-POULENC RORER INC. AND SUBSIDIARIES
                       VALUATION AND QUALIFYING ACCOUNTS
                       FOR THE YEARS 1995, 1994 AND 1993
                             (DOLLARS IN MILLIONS)
 
<TABLE>
<CAPTION>
                                            ADDITIONS
                                 BALANCE AT CHARGED TO
                                 BEGINNING  COSTS AND               BALANCE AT
          DESCRIPTION            OF PERIOD   EXPENSES  DEDUCTIONS* END OF PERIOD
          -----------            ---------- ---------- ----------- -------------
<S>                              <C>        <C>        <C>         <C>
Year ended December 31, 1995
 Accounts receivable reserves..    $78.6      190.1       181.4        $87.3
Year ended December 31, 1994
 Accounts receivable reserves..    $68.3      182.3       172.0        $78.6
Year ended December 31, 1993
 Accounts receivable reserves..    $66.6      129.7       128.0        $68.3
</TABLE>
--------
* Accounts charged off, net of recoveries, and the effect of foreign currency
  rate changes.
 
                                       60
<PAGE>
 
                                 EXHIBIT INDEX
 

(3)a. The By-laws of the Company are incorporated herein by reference to the
      Company's Annual Report on Form 10-K for the year ended December 31,
      1990.
 
   
   b. The Amended and Restated Articles of Incorporation of the Company as of
      January 31, 1992 are incorporated herein by reference to the Company's
      Annual Report on Form 10-K for the year ended December 31, 1993.
 
   
   c. Articles of Amendment dated July 16, 1993 to The Amended and Restated
      Articles of Incorporation of the Company as of January 31, 1992 are
      incorporated herein by reference to the Company's Annual Report on Form
      10-K for the year ended December 31, 1993.
 
   
   d. Statement of Change of Registered Office dated April 4, 1995 related to
      the Amended and Restated Articles of Incorporation of the Company as of
      January 31, 1992.
 

(4)a. Deposit Agreement dated July 19, 1993 among Rhone-Poulenc Rorer Inc.,
      Bankers Trust Company as Depository, and the holders from time to time
      of the Depository Receipts is incorporated herein by reference to the
      Company's Current Report on Form 8-K dated July 12, 1993.
 
(10)Material Contracts.
 
   
   a. Agreement and Plan of Merger dated October 18, 1995 among Rhone-Poulenc
      Rorer Inc., GCT Acquisition, Inc. and Applied Immune Sciences, Inc. is
      incorporated herein by reference to the Company's Schedule 14D-1 and
      Amendment No. 2 to Schedule 13D, filed with the Securities and Exchange
      Commission on October 24, 1995.
 
   
   b. Amendment No. 1 dated September 28, 1995 to the Joint Venture Agreement
      among Armour Pharmaceutical Company and Plasma Enterprises, Inc. and
      Behringwerke AG is incorporated herein by reference to the Company's
      Current Report on Form 8-K dated September 28, 1995.
 
   
   c. Joint Venture Agreement dated February 22, 1995 among Armour
      Pharmaceutical Company and Plasma Enterprises, Inc. and Behringwerke AG
      is incorporated herein by reference to the Company's Annual Report on
      Form 10-K for the year ended December 31, 1994.
 
   
   d. Amended and Restated Asset Purchase Agreement dated as of December 22,
      1994 among Rhone-Poulenc Rorer Pharmaceuticals Inc., Rhone-Poulenc
      Rorer Caribbean Inc. and Ciba Self-Medication, Inc. is incorporated
      herein by reference to the Company's Annual Report on Form 10-K for the
      year ended December 31, 1994.
 
   
   e. Intellectual Property Agreement dated as of December 30, 1994 between
      Rorer Pharmaceuticals Products Inc. and Ciba Self-Medication, Inc. is
      incorporated herein by reference to the Company's Annual Report on Form
      10-K for the year ended December 31, 1994.
 
   
   f. Form of Lease Agreement among the Company, Rhone-Poulenc Rorer
      Pharmaceuticals Inc. and the Owner Trustee is incorporated herein by
      reference to Exhibit 4.2.2 of the Company's Registration Statement No.
      33-53378 on Form S-3, filed with the Securities and Exchange Commission
      on October 16, 1992.
 
   
   g. Armour Pharmaceutical Company Pension Program as Amended and Restated
      effective January 1, 1989 is incorporated herein by reference to the
      Company's Annual Report on Form 10-K for the year ended December 31,
      1994.
 
   
   h. Pension Plan of Rhone-Poulenc Rorer Inc. as Amended and Restated
      effective January 1, 1989 is incorporated herein by reference to the
      Company's Annual Report on Form 10-K for the year ended December 31,
      1994.
 
   
   i. Amendment 1995-1 to the Pension Plan of Rhone-Poulenc Rorer Inc. as
      Amended and Restated effective January 1, 1989.
 
   
   j. Rhone-Poulenc Rorer Employee Savings Plan as Amended and Restated
      effective January 1, 1992 is incorporated herein by reference to the
      Company's Annual Report on Form 10-K for the year ended December 31,
      1994.
 
                                      61
<PAGE>
 
      
   k. Amendment 1996-1 to the Rhone-Poulenc Rorer Employee Savings Plan as
      Amended and Restated effective January 1, 1992.
 
      
   l. The Rorer Group Inc. Amended and Restated Stock Plan is incorporated
      herein by reference to the Company's Proxy Statement dated March 18,
      1988, filed in connection with the April 26, 1988 Annual Meeting of
      Shareholders.
 
   
   m. Amendments to the Rhone-Poulenc Rorer Inc. Amended and Restated Stock
      Plan, adopted March 12, 1990, are incorporated herein by reference to
      the Company's Proxy Statement dated June 29, 1990, filed in connection
      with the July 31, 1990 Annual Meeting of Shareholders.
 
   
   n. The Rhone-Poulenc Rorer Inc. Equity Compensation Plan is incorporated
      herein by reference to the Company's Proxy Statement dated June 29,
      1990, filed in connection with the July 31, 1990 Annual Meeting of
      Shareholders.
 
   
   o. The Rhone-Poulenc Rorer Inc. 1995 Equity Compensation Plan is
      incorporated herein by reference to the Company's Proxy Statement dated
      March 21, 1995, filed in connection with the April 25, 1995 Annual
      Meeting of Shareholders.
 
   
   p. The Rhone-Poulenc Rorer Senior Partner Long-Term Capital Plan,
      effective January 1, 1994, is incorporated herein by reference to the
      Company's Quarterly Report on Form 10-Q for the quarter ended March 31,
      1994.
 
   
   q. The Rhone-Poulenc Rorer Inc. Executive Deferral Plan, effective
      December 1, 1993, is incorporated herein by reference to the Company's
      Quarterly Report on Form 10-Q for the quarter ended March 31, 1994.
 
   
   r. The Rhone-Poulenc Rorer Inc. Annual Performance Incentive Plan is
      incorporated herein by reference to the Form 8, Amendment No. 1 to the
      Company's Annual Report on Form 10-K for the year ended December 31,
      1989.
 
   
   s. The Rhone-Poulenc Rorer Inc. Retirement Plan for Outside Directors,
      adopted January 1, 1988, is incorporated herein by reference to the
      Form 8, Amendment No. 1 to the Company's Annual Report on Form 10-K for
      the year ended December 31, 1989.
 
   
   t. The Rhone-Poulenc Rorer Inc. Supplemental Executive Retirement Plan,
      adopted January 1, 1988, is incorporated herein by reference to the
      Form 8, Amendment No. 1 to the Company's Annual Report on Form 10-K for
      the year ended December 31, 1989.
 
   
   u. The Rhone-Poulenc Rorer Inc. Director Deferred Compensation Plan,
      effective March 1, 1987, is incorporated herein by reference to the
      Form 8, Amendment No. 1 to the Company's Annual Report on Form 10-K for
      the year ended December 31, 1987.
 
   
   v. Acquisition Agreement, dated as of March 12, 1990, between Rorer Group
      Inc. and Rhone-Poulenc S.A., is incorporated herein by reference to the
      Company's Current Report on Form 8-K dated March 12, 1990.
 
   
   w. Employment agreement with Robert E. Cawthorn dated March 18, 1994 is
      incorporated herein by reference to the Company's Quarterly Report on
      Form 10-Q dated May 13, 1994.
 
   
   x. Employment agreement with Timothy Rothwell dated January 3, 1995 is
      incorporated herein by reference to the Company's Annual Report on Form
      10-K for the year ended December 31, 1994.
 
   
   y. The Indemnification Agreements between Rorer Group Inc. and Indemnified
      Representatives, effective July 1, 1987, are incorporated herein by
      reference to the Company's Annual Report on Form 10-K for the year
      ended December 31, 1987.
 
   
   z. Supplemental Benefit and Deferred Compensation Trust Agreement, dated
      May 10, 1988, between Rorer Group Inc. and Philadelphia National Bank,
      as Trustee, is incorporated herein by reference to the Company's Annual
      Report on Form 10-K for the year ended December 31, 1989.
 
 
                                      62
<PAGE>
 
(11)Statement re: Computation of Earnings per Share.
 
(12)Statement re: Computation of Ratios.
 
(21)Subsidiaries of the Registrant.
 
(23)Consent of Independent Accountants.
 
(24)Powers of Attorney.
 
(27)Financial Data Schedule.
 
                                       63