-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, SBhqUWnUN2t2IhC25kAoXAHjpSlf/qT95wUDsOo4QrFTehLY0Ox0txC0ReXNm7u6 A0s9nN2i+lCLT1pV3r8BEw== 0000310158-94-000003.txt : 19940308 0000310158-94-000003.hdr.sgml : 19940308 ACCESSION NUMBER: 0000310158-94-000003 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19931231 FILED AS OF DATE: 19940307 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SCHERING PLOUGH CORP CENTRAL INDEX KEY: 0000310158 STANDARD INDUSTRIAL CLASSIFICATION: 2834 IRS NUMBER: 221918501 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 34 SEC FILE NUMBER: 001-06571 FILM NUMBER: 94514770 BUSINESS ADDRESS: STREET 1: ONE GIRALDA FARMS CITY: MADISON STATE: NJ ZIP: 07940-1000 BUSINESS PHONE: 2018227000 10-K 1 FORM 10-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Form 10-K 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, 1993 Commission file number 1-6571 SCHERING-PLOUGH CORPORATION Incorporated in New Jersey 22-1918501 One Giralda Farms (I.R.S. Employer Identification No.) Madison, New Jersey 07940-1000 201-822-7000 (telephone number) Securities registered pursuant to section 12(b) of the Act: Name of each exchange Title of each class on which registered Common Shares, $1 par value New York Stock Exchange Preferred Share Purchase Rights* New York Stock Exchange *At the time of filing, the Rights were not traded separately from the Common Shares. Indicate by check mark whether the registrant 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 and has been subject to such filing requirements for the past 90 days. YES_X__ NO____ 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.__X_ Common shares outstanding as of January 31, 1994: 193,606,197 Aggregate market value of common shares at January 31, 1994 held by non-affiliates based on closing price: $12.1 billion. Documents incorporated Part of Form 10-K by reference incorporated into Schering-Plough Corporation 1993 Annual Report to Shareholders Parts I, II, and IV Schering-Plough Corporation Proxy Statement for the annual meeting of shareholders on April 26, 1994 Part III Part I Item 1. Business General Schering-Plough*, incorporated in 1970, is a worldwide company engaged in the research, development, manufacturing and marketing of pharmaceutical and health care products. Products include prescription drugs, vision care, animal health, over-the-counter (OTC), foot care and sun care products. Business Segment and Other Financial Information The "Business Segment Data" as set forth in the Notes to Consolidated Financial Statements in the Company's 1993 Annual Report to Shareholders is incorporated herein by reference. Sales by major product groups for each of the three years in the period ended December 31, 1993 were as follows (dollars in millions): 1993 1992 1991 Respiratory $1,185 $1,063 $ 986 Anti-infective and Anticancer 1,032 906 629 Dermatologicals 443 451 416 Cardiovasculars 316 267 238 Other Pharmaceuticals 399 405 345 OTC 312 346 376 Foot Care 240 214 218 Animal Health 154 157 141 Sun Care 131 117 113 Vision Care 112 111 140 Other Health Care Products 17 19 14 Consolidated Sales $4,341 $4,056 $3,616 Pharmaceutical Products The Company's pharmaceutical operations include prescription drugs, vision care products and animal health products. Principal prescription products include: CELESTAMINE, CLARITIN, POLARAMINE, PROVENTIL, THEO- DUR, TRINALIN, VANCENASE and VANCERIL, respiratory; CEDAX, EULEXIN, GARAMYCIN, INTRON A, ISEPACIN and NETROMYCIN, anti-infective and anticancer; DIPROLENE, DIPROSONE, ELOCON, FULVICIN, LOTRIMIN, LOTRISONE, QUADRIDERM and VALISONE, dermatologicals; K-DUR, NITRO-DUR and NORMODYNE, cardiovascular; CELESTONE, DIPROSPAN, LOSEC, NOIN, PALACOS and TRILAFON, other pharmaceuticals. * As used herein, the term "Schering-Plough" or "Company" refers to Schering-Plough Corporation and its consolidated subsidiaries unless the context indicates otherwise. Item 1. Business (continued) The Company's major vision care product line is contact lenses sold under the DURASOFT trademark. The leading product within the DURASOFT line is DURASOFT Colors, a soft lens that can alter the appearance of eye color. Also, in early 1994 the Company received marketing clearance from the U.S. Food and Drug Administration for its FRESHLOOK line of disposable contact lenses. Animal health biological and pharmaceutical products include antibiotics, vaccines, anti-arthritics, steroids and nutritionals. Major animal health products are: GENTOCIN and GARASOL, antibiotics, and BANAMINE, an anti-arthritic. Pharmaceutical products also include pharmaceutical chemical substances sold in bulk to third parties for production of their own products. Prescription drugs are introduced and made known to physicians, pharmacists, hospitals and managed care organizations by trained professional service representatives, and are sold to hospitals, managed care organizations and wholesale and retail druggists. Pharmaceutical products are also promoted through journal advertising, direct mail advertising and by distributing samples to physicians. Vision care products are promoted and sold by a separate sales force to practitioners and retail outlets. Animal health products are promoted and sold by a separate sales force to veterinarians, distributors and animal producers. To meet the anticipated worldwide need for its biotechnology-based pharmaceutical compounds, the Company is expanding its manufacturing facility in Brinny, Ireland. The total cost of the expansion is expected to be approximately $160 million. The Company is also expanding its Rathdrum, Ireland manufacturing operation to meet increasing demands. The overall cost of this project is expected to approximate $78 million. The Company's subsidiaries own (or have licensed rights under) a number of patents and patent applications, both in the United States and abroad. In the aggregate, patents and patent applications are believed to be of material importance to the operations of the pharmaceutical segment. In December 1989, the U.S. patent covering PROVENTIL, an asthma product, expired. The PROVENTIL formulations of the tablet, syrup and solution have been subject to generic competition. In January 1994, the Food and Drug Administration issued bioequivalence standards for generic albuterol metered dose inhalers, which may result in generic inhaler entries late in 1994. The introduction of a generic inhaler will negatively affect the sales and profitability of PROVENTIL. Raw materials essential to this segment are available in adequate quantities from a number of potential suppliers. Energy was and is expected to be available to the Company in sufficient quantities to meet operating requirements. Worldwide, the Company's pharmaceutical products are sold under trademarks. Trademarks are considered in the aggregate to be of material importance to the pharmaceutical business and are protected by registration or common law in the United States and most other markets where the products are sold or likely to be sold. Item 1. Business (continued) Seasonal patterns do not have a pronounced effect on the combined activities of this industry segment. There is generally no significant backlog of orders since the Company's business is normally conducted on an immediate shipment basis. The pharmaceutical industry is highly competitive and includes other large companies with substantial resources for research, product development and promotion. There are numerous domestic and international competitors in this industry. Some of the principal competitive techniques used by the Company for its pharmaceutical products include research and development of new and improved products, product quality, varied dosage forms and strengths, and educational services for the medical community. Health Care Products The principal product categories in the health care segment are the Company's over-the-counter (OTC) medicines, foot care and sun care products primarily sold in the United States. Principal products include: AFRIN and DURATION nasal decongestants; CHLOR-TRIMETON antihistamine; CORICIDIN and DRIXORAL cold and decongestant tablets; CORRECTOL laxative; CLEAR AWAY and DUO BRAND wart remover; DI-GEL antacid; GYNE-LOTRIMIN and FEMCARE for vaginal yeast infections; DR. SCHOLL'S foot care products; LOTRIMIN AF and TINACTIN antifungals; COPPERTONE, QT, SHADE, SOLARCAINE and TROPICAL BLEND sun care products; A and D ointment; and PAAS egg coloring and holiday products. Business in this segment is conducted through wholesale and retail drug, food chain and variety outlets, and is promoted directly to the consumer through television, radio, print and other advertising media. Raw materials essential to this segment are available in adequate quantities from a number of potential suppliers. Energy was and is expected to be available to the Company in sufficient quantities to meet operating requirements. Trademarks for the major products included in this segment are registered in the United States and most overseas countries where these products are marketed. Trademarks are considered to be vital to the operations of this segment. Principally due to the seasonal sales of sun care products, operating profits in this segment are relatively higher in the first half of the year. There is generally no significant backlog of orders since the Company's business is normally conducted on an immediate shipment basis. The health care products' industry is highly competitive and includes other large companies with substantial resources for product development and promotion. There are several dozen significant competitors in this industry. The Company believes that in the United Item 1. Business (continued) States it has a leading position in the foot care and sun care industries, with its DR. SCHOLL'S lines of foot pads, cushions, wart removal and other treatments and its brands of sun care products. In addition, the Company's brands are among the leaders in nasal sprays, laxatives, antifungals and vaginal yeast infection treatments sold OTC. The principal competitive techniques used by the Company in this industry segment include switching prescription products to OTC medicines, the development and introduction of new and improved products, and product promotion methods to gain and retain consumer acceptance. Foreign Operations Foreign activities are carried out primarily through wholly-owned subsidiaries wherever market potential is adequate and circumstances permit. In addition, the Company is represented in some markets through joint ventures, licensees or other distribution arrangements. There are approximately 11,200 employees outside the United States. Foreign operations are subject to certain risks which are inherent in conducting business overseas. These risks include possible national- ization, expropriation, importation limitations and other restrictive governmental actions. Also, fluctuations in foreign currency exchange rates can significantly impact the Company's consolidated financial results. For additional information on foreign operations, see "Management's Discussion and Analysis of Operations and Financial Condition" and "Business Segment Data" in the Company's 1993 Annual Report to Shareholders which is incorporated herein by reference. Operations in Puerto Rico The Company has operations in Puerto Rico that manufacture products for distribution to both domestic and foreign markets. These businesses operate under tax-relief and other incentives granted by the government of Puerto Rico that expire at various dates through 2018. The Company has also been exempt from U.S. tax on certain income derived from its operations in Puerto Rico. The Omnibus Budget Reconciliation Act of 1993 will phase down this exemption over the next five years to 40 percent of the pre-amendment level. The Company will be partially impacted by this change in 1994. Under present U.S. tax laws, accumulated funds generated from operations in Puerto Rico can be remitted tax-free to the parent company. Under recently revised Puerto Rico tax laws, remittance of these funds, with the exception of certain amounts qualifying for tax free distribution, will result in a tollgate tax of from 5 percent to 10 percent based upon prescribed dividend and investment restrictions. For additional information relating to the Puerto Rico operations, see "Income Taxes" in the Notes to Consolidated Financial Statements in the Company's 1993 Annual Report to Shareholders which is incorporated herein by reference. Item 1. Business (continued) Research and Development The Company's research activities are primarily aimed at discovering and developing new and enhanced pharmaceutical products of medical and commercial significance. Company sponsored research and development expenditures were $577.6 million, $521.5 million and $425.9 million in 1993, 1992, and 1991, respectively. Research expenditures represented approximately 13 percent of consolidated sales in 1993 and 1992 and 12 percent in 1991. The Company's pharmaceutical research activities are concentrated in the therapeutic areas of allergic and inflammatory disorders, infectious and cardiovascular diseases, oncology and central nervous system disorders. The Company also has substantial efforts directed toward biotechnology and immunology. While several pharmaceutical compounds are in varying stages of development, it cannot be predicted when or if products will become available for commercial sale. Government Regulation Most products manufactured or sold by the Company are subject to varying degrees of governmental regulation in the countries in which operations are conducted. In the United States, the drug industry has long been subject to regulation by various federal, state and local agencies, primarily as to product safety, efficacy, advertising and labeling. Compliance with the broad regulatory powers of the Food and Drug Administration (the "FDA") requires significant amounts of Company time, testing and documentation, and corresponding costs to obtain clearance of new drugs. Similar product regulations also apply in many international markets. In the United States, many of the Company's pharmaceutical products are subject to competitive pricing as managed care groups, institutions and the government seek price discounts. President Clinton's health care reform proposal includes several measures that, if enacted, will have an impact on operations of the Company. These measures include, but are not limited to, the requirement of all health plans to offer prescription drug coverage, the extension of Medicare coverage to include outpatient drugs, and rebates on Medicare sales. In addition, prices of new drugs would be reviewed with the Secretary of Health and Human Services, who would be empowered to deny Medicare reimbursement for those drugs deemed too expensive. In most international markets, the Company operates in an environment of government-mandated cost containment programs. In addition, several markets have enacted across-the-board price reductions or directly control selling prices as a further method of cost control. Currently, a number of other international markets are reviewing the implementation of additional programs to contain health care costs. For additional information on prescription drug pricing, see "Management's Discussion and Analysis of Operations and Financial Condition" in the Company's 1993 Annual Report to Shareholders which is incorporated herein by reference. Item 1. Business (continued) The Company has and will continue to comply with the government regulations of the countries in which operations are conducted. Environment To date, compliance with federal, state and local environmental protection laws has not had a materially adverse effect on the Company. The Company has and will continue to make necessary expenditures for environmental protection. Worldwide capital expenditures during 1993 included approximately $31.7 million for environmental control purposes. It is anticipated that continued compliance with such environmental regulations will not significantly affect the Company's financial condition, results of operations or its competitive position. For additional information on environmental matters, see "Legal and Environmental Matters" in the Notes to the Consolidated Financial Statements in the Company's 1993 Annual Report to Shareholders which is incorporated herein by reference. Employees There were approximately 21,600 people employed by the Company at December 31, 1993. Item 2. Properties The Company's corporate headquarters are located in Madison, New Jersey. Principal manufacturing facilities are located in Kenilworth and Union, New Jersey, Des Plaines, Illinois, Miami, Florida, the Commonwealth of Puerto Rico, Argentina, Australia, Belgium, Canada, Colombia, France, Ireland, Italy, Japan, Mexico and Spain (pharmaceutical products); Cleveland and Memphis, Tennessee (health care products). The Company's principal research facilities are located in Kenilworth and Union, New Jersey and Palo Alto, California (DNAX Research Institute). The major portion of properties is owned by the Company. These properties are maintained in good operating condition, and the manufacturing plants have capacities considered appropriate to meet the Company's needs. Item 3. Legal Proceedings Schering Corporation and White Laboratories, Inc., which are Company subsidiaries, are defendants in approximately 95 lawsuits, involving approximately 140 plaintiffs, arising out of the use of synthetic estrogens by the mothers of the plaintiffs. In many of these lawsuits, a substantial number of other drug companies are also defendants. The female plaintiffs claim various injuries, including cancerous or precancerous lesions of the vagina and cervix and a multiplicity of pregnancy problems. A number of suits involve infants with birth defects born to daughters whose mothers took the drug. The total amount claimed against all defendants in all the suits amounts to approximately $750 million. While it is not possible to precisely predict the outcome of these proceedings, it is management's opinion that the ultimate liability, if any, will not have a material impact on the Company's consolidated financial position or results of operations. Item 3. Legal Proceedings (continued) The Company has been named as a potentially responsible party ("PRP") by the government under the Comprehensive Environmental Response, Compensation and Liability Act, commonly known as Superfund. The Company is also a party to a number of proceedings brought under Superfund. These proceedings seek to require the owners or operators of facilities that treated, stored or disposed of hazardous substances and transporters and generators of such substances to clean up contaminated facilities or reimburse the government for its clean up costs. The Company has been named a PRP or a party to these proceedings as an alleged generator of hazardous substances found at certain facilities. In each proceeding, the government or private litigants allege that the Company is jointly and severally liable for clean up costs. Although joint and several liability is alleged, a company's share of clean up costs is frequently determined on the basis of the type and quantity of hazardous substances sent to a facility by the generator. However, this allocation process varies greatly from facility to facility and can take years to complete. The Company's potential share of clean up costs also depends on how many other parties are involved in the proceedings, insurance coverage, available indemnity contracts and contribution rights against other parties. While it is not feasible to predict or determine the outcome of these proceedings, in the opinion of management, such proceedings should not ultimately result in a liability which would have a material adverse effect on the Company's consolidated financial position or results of operations. The Company is a defendant in approximately sixty antitrust lawsuits filed in several states and federal courts, including California, Georgia, Illinois, Louisiana, Minnesota, New York, Pennsylvania, South Carolina and Texas. More than fifty of these are class action lawsuits. These actions were commenced in the second half of 1993 and in 1994 by independent and chain pharmacies against the Company and other pharmaceutical manufacturers, and in some instances, wholesalers and mail order pharmacies, alleging (1) conspiracy to restrain trade by jointly refusing to sell pharmaceuticals at discounted prices to plaintiffs, and/or (2) price discrimination. The federal cases have all been consolidated in the United States District Court for the Northern District of Illinois for pretrial and discovery purposes. Plaintiffs seek treble damages in an unspecified amount and an injunction against the allegedly unlawful conduct. The Company has not conspired to restrain trade and believes that its pricing practices have been and are in compliance with the law. The Company will defend itself vigorously against the claims in all these actions. While it is not feasible to predict or determine the outcome of these actions, management believes that such actions should not result in any liability which would have a material adverse effect on the Company's consolidated financial position or results of operations. Item 4. Submission of Matters to a Vote of Security Holders Not applicable. Executive Officers of the Registrant The following information regarding executive officers is included herein in accordance with Part III, Item 10. Officers are elected to serve for one year and until their successors shall have been duly elected. Name and Current Position Business Experience Age Robert P. Luciano Present position 1986 60 Chairman and Chief Executive Officer Richard J. Kogan Present position 1986 52 President and Chief Operating Officer David E. Collins Present position 1989; President 59 Executive Vice President and Chief Operating Officer - Galen and President Associates, Inc. 1988-1989 Schering-Plough HealthCare Products Donald R. Conklin Present position 1989; Executive 57 Executive Vice President Vice President - Pharmaceutical and President Operations 1987-1989 Schering-Plough Pharmaceuticals Hugh A. D'Andrade Present position 1984 55 Executive Vice President Administration Harold R. Hiser, Jr. Present position 1986 62 Executive Vice President Finance Joseph C. Connors Present position 1992; Vice 45 Senior Vice President President and General Counsel and General Counsel 1991; Staff Vice President and Deputy General Counsel 1987-1991 Allan S. Kushen Present position 1981 64 Senior Vice President Public Affairs Daniel A. Nichols Present position 1991; Vice 53 Senior Vice President President Taxes 1983-1991 Taxes Executive Officers of the Registrant (continued) Name and Current Position Business Experience Age Gordon C. O'Brien Present position 1988 53 Senior Vice President Human Resources J. Martin Comey Present position 1991; Vice 59 Vice President President and Treasurer Administration and Business 1979-1990 Development John T. Fogarty Present position 1990; Staff 64 Vice President, Secretary Vice President and Secretary and Associate General Counsel 1980-1989 Geraldine U. Foster Present position 1988 51 Vice President Investor Relations Domenic Guastadisegni Present position 1990; Staff 63 Vice President Vice President - Corporate Audits Corporate Audits 1980-1989 Thomas H. Kelly Present position 1991; Partner, 44 Vice President and Deloitte & Touche 1982-1990 Controller Robert S. Lyons Present Position 1991; Staff 53 Vice President Vice President - Corporate Corporate Information Information Services 1988-1990 Services Jack L. Wyszomierski Present position 1991; Staff 38 Vice President and Vice President - Planning Treasurer and Business Development 1987-1990 Part II Item 5.Market for Registrant's Common Equity and Related Stockholder Matters The Common Share Dividends and Market Data as set forth in the Company's 1993 Annual Report to Shareholders are incorporated herein by reference. Item 6.Selected Financial Data The Six-Year Selected Financial and Statistical Data as set forth in the Company's 1993 Annual Report to Shareholders is incorporated herein by reference. Item 7.Management's Discussion and Analysis of Financial Condition and Results of Operations Management's Discussion and Analysis of Operations and Financial Condition as set forth in the Company's 1993 Annual Report to Shareholders is incorporated herein by reference. Item 8.Financial Statements and Supplementary Data The Consolidated Balance Sheets as of December 31, 1993 and 1992, and the related Statements of Consolidated Income, Consolidated Retained Earnings and Consolidated Cash Flows for each of the three years in the period ended December 31, 1993, Notes to Consolidated Financial Statements, the Independent Auditors' Report of Deloitte & Touche and Quarterly Results of Operations, as set forth in the Company's 1993 Annual Report to Shareholders, are incorporated herein by reference. Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Not applicable. Part III Item 10.Directors and Executive Officers of the Registrant The information concerning directors and nominees for directors as set forth in the Company's Proxy Statement for the annual meeting of share- holders on April 26, 1994 is incorporated herein by reference. Information required as to executive officers is included in Part I of this filing under the caption "Executive Officers of the Registrant." Item 11.Executive Compensation Executive compensation information as set forth in the Company's Proxy Statement for the annual meeting of shareholders on April 26, 1994 is incorporated herein by reference. Item 12.Security Ownership of Certain Beneficial Owners and Management Information concerning security ownership of certain beneficial owners and management as set forth in the Company's Proxy Statement for the annual meeting of shareholders on April 26, 1994 is incorporated herein by reference. Item 13.Certain Relationships and Related Transactions Information concerning certain relationships and related transactions as set forth in the Company's Proxy Statement for the annual meeting of shareholders on April 26, 1994 is incorporated herein by reference. Part IV Item 14.Exhibits, Financial Statement Schedules, and Reports on Form 8-K (a) 1.Financial Statements The following consolidated financial statements and independent auditors' report, included in the Company's 1993 Annual Report to Shareholders, are incorporated herein by reference. Statements of Consolidated Income for the Years Ended December 31, 1993, 1992 and 1991 Statements of Consolidated Retained Earnings for the Years Ended December 31, 1993, 1992 and 1991 Statements of Consolidated Cash Flows for the Years Ended December 31, 1993, 1992 and 1991 Consolidated Balance Sheets at December 31, 1993 and 1992 Notes to Consolidated Financial Statements Independent Auditors' Report (a) 2.Financial Statement Schedules Page in Form 10-K Independent Auditors' Report . . . . . . . . . . . . 18 Schedule I - Marketable Securities - Other Investments. . . . . . . . . . . . . . . . . . . . 19 Schedule V - Property, Plant and Equipment . . . . . 20 Schedule VI - Accumulated Depreciation of Property, Plant and Equipment. . . . . . . . . . . 21 Schedule VIII - Valuation and Qualifying Accounts. . 22 Schedule IX - Short-term Borrowings. . . . . . . . . 23 Schedule X - Supplementary Income Statement Information. . . . . . . . . . . . . . . . . . . . 24 Item 14. (continued) (a) 2.Financial Statement Schedules (continued) Schedules not included have been omitted because they are not applicable or not required or because the required information is set forth in the financial statements or the notes thereto. Columns omitted from schedules filed have been omitted because the information is not applicable. Financial statements of fifty percent or less owned companies accounted for by the equity method have been omitted because, considered individually or in the aggregate, they do not constitute a significant subsidiary. (a) 3. Exhibits Exhibit Method Number Description of Filing 3(a) A complete copy of the Certificate Incorporated by of Incorporation as amended and reference to Exhibit currently in effect. 3(a) to the Company's Annual Report for 1989 on Form 10-K 3(b) A complete copy of the By-Laws Incorporated by as amended and currently in effect. reference to Exhibit 4(b) to the Company's Form S-8 (No. 33- 19013) 4(a) Rights Agreement between the Incorporated by Company and The Bank of New York reference to Exhibit 4 dated July 25, 1989. to the Company's Quarterly Report for the period ended June 30, 1989 on Form 10-Q 4(b) Indenture dated as of November 1, Incorporated by 1982 between the Company and The reference to Exhibit Chase Manhattan Bank, N.A. as 4(a) to the Company's Trustee. Registration Statement on Form S-3, File No. 2-80012 4(c) Supplemental Indenture No. 1 Incorporated by dated as of November 1, 1991 reference to Exhibit 4.1 to Indenture dated as of to the Company's Report November 1, 1982. on Form 8-K dated November 20, 1991 4(d) LYNX Equity Unit Agreement Incorporated by reference to Exhibit 10.1 to the Company's Report on Form 8-K dated October 1, 1991 Item 14. (continued) (a) 3. Exhibits (continued) Exhibit Method Number Description of Filing 4(e) LYNX Equity Unit Guarantee Incorporated by Agreement reference to Exhibit 10.1 to the Company's Report on Form 8-K dated October 1, 1991 10(a) The Company's Executive Incentive Plan incorporated by Plan (as amended) and Trust related reference to Exhibit thereto 10(a) to the Company's Annual Report for 1991 on Form 10-K. Trust Agreement incorporated by reference to Exhibit 10(a) to the Company's Annual Report for 1988 on Form 10-K 10(b) The Company's 1983 Stock Incentive Incorporated by Plan (as amended) reference to Exhibit 10(c) to the Company's Annual Report for 1988 on Form 10-K 10(c) The Company's 1987 Stock Incentive Incorporated by Plan (as amended) reference to Exhibit 10(d) to the Company's Annual Report for 1990 on Form 10-K 10(d) The Company's 1992 Stock Incentive Incorporated by Plan (as amended) reference to Exhibit 10(d) to the Company's Annual Report for 1992 on Form 10-K 10(e)(i) Employment agreement between the Incorporated by Company and Robert P. Luciano reference to Exhibit 10(e)(i) to the Company's Annual Report for 1989 on Form 10-K 10(e)(ii) Employment agreement between the Incorporated by Company and Richard J. Kogan reference to Exhibit 10(e)(ii) to the Company's Annual Report for 1989 on Form 10-K 10(e)(iii) Employment agreement between the Incorporated by Company and David E. Collins reference to Exhibit 10(e)(iv) to the Company's Annual Report for 1989 on Form 10-K Item 14. (continued) (a) 3. Exhibits (continued) Exhibit Method Number Description of Filing 10(e) Agreements between the Company and Incorporated by (iv) certain executive officers related reference to Exhibit to termination payments 10(e)(v) to the Company's Annual Report for 1989 on Form 10-K 10(f) Directors Deferred Compensation Plan incorporated by Plan and Trust related thereto reference to Exhibit 10 (f) to the Company's Annual Report for 1991 on Form 10-K. Trust Agreement incorporated by reference to Exhibit 10(a) to the Company's Annual Report for 1988 on Form 10-K 10(g) Pension Plan for Directors Plan incorporated by and Trust related thereto reference to Exhibit 10(g) to the Company's Annual Report for 1987 on Form 10-K; Trust Agreement incorporated by reference to Exhibit 10(g) to the Company's Annual Report for 1988 on Form 10-K; Amendment to Trust Agreement filed with this document 10(h) Supplemental Executive Retirement Plan incorporated by Plan and Trust related thereto reference to Exhibit 10(h) to the Company's Annual Report for 1987 on Form 10-K; Trust Agreement incorporated by reference to Exhibit 10(g) to the Company's Annual Report for 1988 on Form 10-K; Amendment to Trust Agreement filed with this document in 10(g) above 10(i) Directors Stock Award Plan Incorporated by reference to Exhibit 10(i) to the Company's Annual Report for 1988 on Form 10-K 11 Computation of Earnings Per Filed with this document Common Share Item 14. (continued) (a) 3. Exhibits (continued) Exhibit Method Number Description of Filing 12 Computation of Ratio of Filed with this document Earnings to Fixed charges 13 The Financial Section of the Filed with this document Company's 1993 Annual Report to Shareholders. With the exception of those portions of said Annual Report which are specifically incorporated by reference in this Form 10-K, such report shall not be deemed filed as part of this Form 10-K 22 Subsidiaries of the registrant Filed with this document 24 Consents of experts and counsel Filed with this document 25 Power of attorney Filed with this document All other exhibits are not applicable. Copies of above exhibits will be furnished upon request. (b) Reports on Form 8-K None 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, thereunto duly authorized. Schering-Plough Corporation (Registrant) Date March 4, 1994 By /s/ Thomas H. Kelly Thomas H. Kelly Vice President and Controller 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 date indicated. By * By * Robert P. Luciano Regina E. Herzlinger Chairman and Chief Executive Director Officer and Director By * By * Richard J. Kogan H. Barclay Morley President and Chief Operating Director Officer and Director By * By * Harold R. Hiser, Jr. Richard de J. Osborne Executive Vice President - Finance Director and Principal Financial Officer By * By * Thomas H. Kelly William A. Schreyer Vice President and Controller Director and Principal Accounting Officer By * By * Hans W. Becherer Robert F. W. van Oordt Director Director By * By * Hugh A. D'Andrade R. J. Ventres Director Director By * By * Virginia A. Dwyer James Wood Director Director By * David C. Garfield Director *By /s/ Thomas H. Kelly Date March 4, 1994 Thomas H. Kelly Attorney-in-fact INDEPENDENT AUDITORS' REPORT Schering-Plough Corporation: We have audited the consolidated balance sheets of Schering-Plough Corporation and subsidiaries as of December 31, 1993 and 1992 and the related statements of consolidated income, retained earnings and cash flows for each of the three years in the period ended December 31, 1993, and have issued our report thereon dated February 15, 1994; such financial statements and report are included in your 1993 Annual Report to Shareholders and are incorporated herein by reference. Our audits also included the financial statement schedules of Schering-Plough Corporation and subsidiaries, listed in Item 14. These financial statement schedules are the responsibility of the Company's management. Our responsibility is to express our opinion based on our audits. In our opinion, such financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein. /s/DELOITTE & TOUCHE Parsippany, New Jersey February 15, 1994 Schedule I SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES MARKETABLE SECURITIES - OTHER INVESTMENTS DECEMBER 31, 1993 (Dollars in millions)
Name of Issuer Amount at Which Market Value or Title of Principal Carried in at Balance Each Group Amount Balance Sheet Sheet Date Short-Term Investments: Santander Federal Savings Bank certificates of deposit (a) $100.0 $100.2 $100.2 Municipal obligations 85.0 92.0 92.0 Other investments 15.0 15.0 15.0 Total $200.0 $207.2 $207.2 (a) Collateralized by United States government obligations.
SCHEDULE V SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES PROPERTY, PLANT AND EQUIPMENT FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(Dollars in millions) BALANCE AT BALANCE BEGINNING ADDITIONS RETIREMENTS TRANSLATION AT END CLASSIFICATION OF YEAR AT COST OR SALES ADJUSTMENTS OF YEAR 1993 Land $ 47.5 $ - $ (.2) $ (.2) $ 47.1 Buildings and improvements 978.0 402.3 (56.2) (4.3) 1,319.8 Equipment 1,007.2 182.2 (35.8) (7.0) 1,146.6 Construction in progress 546.8 (219.3) (1.6) (.5) 325.4 TOTAL $2,579.5 $ 365.2 $ (93.8) $(12.0) $2,838.9 1992 Land $ 44.2 $ 4.9 $ (1.2) $ (.4) $ 47.5 Buildings and improvements 922.3 77.3 (13.3) (8.3) 978.0 Equipment 952.3 120.7 (54.4) (11.4) 1,007.2 Construction in progress 349.2 200.3(a) (.5) (2.2) 546.8 TOTAL $2,268.0 $ 403.2 $ (69.4) $(22.3) $2,579.5 1991 Land $ 43.2 $ .9 $ - $ .1 $ 44.2 Buildings and improvements 884.5 51.1 (14.0) .7 922.3 Equipment 887.7 100.8 (36.6) .4 952.3 Construction in progress 165.1 186.6(a) (2.6) .1 349.2 TOTAL $1,980.5 $ 339.4 $ (53.2) $ 1.3 $2,268.0 (a) Additions to construction in progress are net of transfers to other plant and equipment classifications for those construction projects completed during the year. Depreciation is provided over the estimated useful lives of the assets, generally by use of the straight-line method. Service lives used in the determination of depreciation expense are as follows: buildings and improvements - 20 to 50 years; manufacturing equipment - 10 to 15 years; furniture and fixtures (equipment) - 6 to 12 years; and automotive equipment - 3 to 10 years.
PAGE SCHEDULE VI SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES ACCUMULATED DEPRECIATION OF PROPERTY, PLANT AND EQUIPMENT FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991 (Dollars in millions)
ADDITIONS BALANCE AT CHARGED TO BALANCE BEGINNING COSTS AND RETIREMENTS TRANSLATION AT END DESCRIPTION OF YEAR EXPENSES OR SALES ADJUSTMENTS OF YEAR 1993 Buildings and improvements $ 338.7 $ 35.3 $ (51.0) $ (1.4) $ 321.6 Equipment 492.3 91.6 (31.4) (2.9) 549.6 TOTAL $ 831.0 $ 126.9 $ (82.4) $ (4.3) $ 871.2 1992 Buildings and improvements $ 323.2 $ 36.2 $ (17.6) $ (3.1) $ 338.7 Equipment 454.4 83.6 (40.6) (5.1) 492.3 TOTAL $ 777.6 $ 119.8 $ (58.2) $ (8.2) $ 831.0 1991 Buildings and improvements $ 293.9 $ 39.1 $ (10.3) $ .5 $ 323.2 Equipment 402.2 75.7 (23.9) .4 454.4 TOTAL $ 696.1 $ 114.8 $ (34.2) $ .9 $ 777.6 _______________________________________________________________________________ /TABLE SCHEDULE VIII SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1993, 1992, AND 1991 (Dollars in millions)
Valuation and qualifying accounts deducted from assets to which they apply: Allowances for accounts receivable: RESERVE RESERVE RESERVE FOR DOUBTFUL FOR CASH FOR CLAIMS ACCOUNTS DISCOUNTS AND OTHER TOTAL 1993 Balance at beginning of year $ 32.5 $ 9.0 $ 1.8 $ 43.3 Additions: Charged to costs and expenses 5.1 54.3 16.1 75.5 Total 37.6 63.3 17.9 118.8 Translation adjustment (1.1) (.1) - (1.2) Deductions from reserves (6.0) (55.3) (11.4) (72.7) Balance at end of year $ 30.5 $ 7.9 $ 6.5 $ 44.9 1992 Balance at beginning of year $ 33.4 $ 6.8 $ 4.3 $ 44.5 Additions: Charged to costs and expenses 20.5 50.9 5.0 76.4 Total 53.9 57.7 9.3 120.9 Translation adjustment (1.6) (.1) (.1) (1.8) Deductions from reserves (19.8) (48.6) (7.4) (75.8) Balance at end of year $ 32.5 $ 9.0 $ 1.8 $ 43.3 1991 Balance at beginning of year $ 39.1 $ 5.9 $ 2.6 $ 47.6 Additions: Charged to costs and expenses 4.6 46.2 10.3 61.1 Total 43.7 52.1 12.9 108.7 Translation adjustment (.1) (.1) - (.2) Deductions from reserves (10.2) (45.2) (8.6) (64.0) Balance at end of year $ 33.4 $ 6.8 $ 4.3 $44.5 /TABLE SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES SCHEDULE IX SHORT-TERM BORROWINGS (a) FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991 (Dollars in millions)
WEIGHTED MAXIMUM AVERAGE WEIGHTED CATEGORY OF AVERAGE AMOUNT AMOUNT AVERAGE AGGREGATE INTEREST OUTSTANDING OUTSTANDING INTEREST RATE SHORT-TERM BALANCE AT RATE AT DURING THE DURING THE DURING THE BORROWINGS DEC. 31 DEC. 31 YEAR YEAR (b) YEAR (c) 1993 Commercial paper $961.4 3.3 % $1,025.9 $996.1 3.1 % Bank loans and notes payable $112.0 5.7 % $ 202.9 $163.0 7.8 % 1992 Commercial paper $715.8 3.4 % $1,153.0 $840.2 3.7 % Bank loans and notes payable $229.6 9.8 % $ 345.5 $153.1 9.0 % 1991 Commercial paper $396.0 4.8 % $ 692.3 $559.7 6.1 % Bank loans and notes payable $209.6 8.5 % $ 245.8 $225.9 9.3 % ____________________________________________________________________________________ (a)Excludes the current portion of long-term debt. (b)For commercial paper, represents average of daily balances outstanding; for bank loans and notes payable, represents average of quarterly balances outstanding. (c)Computed by dividing interest costs for the year by the average balance outstanding during the year. /TABLE SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES SUPPLEMENTARY INCOME STATEMENT INFORMATION FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991 (Dollars in millions)
CHARGED TO COSTS AND EXPENSES 1993 1992 1991 Maintenance and repairs $ 84.1 $ 77.2 $ 71.4 Royalties 101.9 92.9 45.3 Advertising costs 317.1 308.4 289.8
________________________________________________________________ EX-10 2 EXHIBIT 10(G) Exhibit 10(g) SCHERING-PLOUGH CORPORATION RESOLVED, That the Trust Agreement dated March 31, 1987 by and among Schering-Plough Corporation, The Chase Manhattan Bank (National Association) as Trustee, and the Wyatt Company, as Trustee's Agent, be and it hereby is amended, effective October 1, 1993, as follows: 1. By deleting the fourth sentence of Section 2.1 and substituting therefor the following: "If the Trust Department of the Trustee receives written allegations of an event of insolvency from a third party, the Trustee shall request that the Company's independent auditors determine whether the Company is insolvent; the Trustee may conclusively rely on written certification of solvency or insolvency received from such auditors." 2. By deleting the phrase "so long as said firm continues to be the Company's independent consulting actuary" from the second sentence of Section 3.1. 3. By deleting from the last sentence of Section 3.1 the phrase "actions or omissions of said Trustee's Agent and shall" and substituting therefor the following: "liability, loss, suit or expense (including attorney's fees) in connection with or arising out of actions or omissions of said Trustee's Agent (including any direction to or failure to direct the Trustee) and shall" 4. By deleting from Section 4.3 the phrase "otherwise administering the Fund, other than by its negligence or willful misconduct" and substituting therefor the following: "otherwise administering the Fund or carrying out its duties hereunder, except to the extent that such liabilities or expenses arise from actions constituting gross negligence or willful misconduct by the Trustee under this Agreement." 5. By deleting from Section 5.1 the phrase "and any applicable Federal or state laws, rules or regulations" and substituting therefor the phrase "with respect to the Trustee's responsibilities under this Agreement." 6. By deleting from the sixth sentence of Section 5.3 the phrase "one year" and substituting therefor the phrase "fifteen months." 7. By adding the following language to the seventh sentence of Section 5.3: ", or solely as a result of the performance by the Trustee or its officers, employees or agents, of any custodial, reporting, recording or bookkeeping functions with respect to any such investment account, except to the extent that such performance constituted gross negligence or willful misconduct on the part of the Trustee." 8. By deleting from the first sentence of Section 7.2 the phrase "(or, in the Company's or Trustee's discretion, at more frequent intervals)" and substituting therefor the phrase "(or, as agreed to by the Company and Trustee)." 9. By deleting the words "New York" and substituting therefor the word "Illinois" in Section 11.1. 10. By adding to the second sentence of Section 11.8 the phrase "from the Company or the Trustee's Agent indicating that an amount to the credit of a Participant's account is subject to Federal income tax." FURTHER RESOLVED That the Officers of the Corporation be and each of them hereby is authorized, in the name and on behalf of the Corporation to execute and deliver, or cause to be executed and delivered, all such agreements and documents, and to do or cause to be done all such other things as may in their discretion be necessary or desirable, to carry out the intent and purposes of the foregoing resolution. EX-11 3 EXHIBIT 11 SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES COMPUTATION OF EARNINGS PER COMMON SHARE (In millions, except per share figures)
Year Ended December 31, 1993 1992 1991 Earnings per Common Share, As Reported: Net Income Applicable to Common Shares . . . . . . . . . . . $ 730.8 $ 720.4 $ 645.6 Average Number of Common Shares Outstanding. . . . . . . . . . . . . 195.1 200.2 214.5 Earnings Per Common Share. . . . . . . $ 3.75 $ 3.60 $ 3.01 Earnings per Common Share, Assuming Full Dilution: (a) Average Number of Common Shares Outstanding . . . . . . . . . . . . 195.1 200.2 214.5 Shares Contingently Issuable for Stock Incentive Plans . . . . . . . 2.2 2.8 3.1 Average Number of Common Shares and Common Share Equivalents Outstanding . . . . . . . . . . . . 197.3 203.0 217.6 Earnings Per Common Share Assuming Full Dilution . . . . . . . . . . . $ 3.70 $ 3.55 $ 2.97 (a) This calculation is submitted in accordance with the regulations of the Securities and Exchange Commission although not required by APB Opinion No. 15 because it results in dilution of less than 3%.
EX-12 4 EXHIBIT 12 SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (Dollars in millions)
Year Ended December 31, 1993 1992 1991 1990 1989 Income Before Income Taxes . . . . . $1,078.4 $953.9 $860.8 $768.9 $645.6 Add : Fixed Charges Interest Expense . . . . . . . . . 48.2 55.4 65.3 82.4 95.4 1/3 Rentals. . . . . . . . . . . . 9.0 8.5 7.9 7.7 6.6 Capitalized Interest . . . . . . . 12.7 15.8 11.8 6.3 4.7 Total Fixed Charges. . . . . . . 69.9 79.7 85.0 96.4 106.7 Less: Capitalized Interest . . . . . 12.7 15.8 11.8 6.3 4.7 Add : Amortization of Capitalized Interest. . . . . . . . 3.5 4.1 4.0 3.8 3.7 Earnings Before Income Taxes and Fixed Charges (other than Capitalized Interest) . . . . . . . $1,139.1 $1,021.9 $ 938.0 $862.8 $751.3 Ratio of Earnings to Fixed Charges . 16.3 12.8 11.0 9.0 7.0 "Earnings" consist of income before income taxes and fixed charges (other than capitalized interest). "Fixed charges" consist of in believes to be a reasonable estimate of an interest factor on leases.
EX-13 5 EXHIBIT 13 Exhibit 13 Financial Section of the Company's 1993 Annual Report to Shareholders Management's Discussion and Analysis of Operations and Financial Condition Sales Consolidated sales in 1993 totaled $4.34 billion, an increase of $285.6 million, or 7 percent, over 1992. Volume growth contributed 7 percent and price increases added 2 percent, while unfavorable foreign exchange of 2 percent moderated the comparison. This performance reflects sales gains for INTRON A, the Company's alpha interferon anticancer and antiviral agent, to more than $570 million, and the domestic introduction of CLARITIN, a once-daily nonsedating antihistamine, which recorded worldwide sales of $295 million. Consolidated 1992 sales of $4.06 billion grew $440.1 million, or 12 percent, over 1991, reflecting volume growth of 9 percent, price increases of 2 percent and favorable foreign exchange of 1 percent. This growth resulted primarily from significant INTRON A sales gains, due to the March 1992 approval for treatment of chronic hepatitis C in Japan, and the July 1992 approval for treatment of chronic hepatitis B in the United States. Worldwide 1993 pharmaceutical sales of $3.64 billion advanced $281.2 million, or 8 percent, over 1992, as volume growth of 8 percent and price increases of 2 percent were partially offset by unfavorable foreign exchange rate fluctuations of 2 percent. Worldwide sales of pharmaceutical products in 1992 increased $464.4 million, or 16 percent, over 1991, reflecting volume growth of 12 percent, price increases of 2 percent and favorable foreign exchange of 2 percent. Domestic prescription pharmaceutical product sales rose 10 percent in 1993. Sales of respiratory products increased 10 percent, led by strong introductory sales of CLARITIN, following Food and Drug Administration (FDA) approval in April 1993. The respiratory product growth also reflects gains for the VANCENASE line of allergy products. The sales advance for respiratory products was mitigated by a 17 percent decline in sales of the PROVENTIL (albuterol) line of asthma products to $353 million. The PROVENTIL formulations of solution, syrup and tablets have been subject to generic competition. In January 1994, the FDA issued bioequivalence standards for generic albuterol metered dose inhalers, which may result in generic entries late in the year. The introduction of a generic inhaler will further negatively affect sales and profitability of PROVENTIL. Respiratory growth was also moderated by lower sales of THEO-DUR, a sustained-action theophylline, reflecting continued shrinkage of the theophylline market, increased generic usage and price reductions. Domestic sales of cardiovascular products rose 20 percent, reflecting growth for K-DUR potassium supplements and NITRO-DUR transdermal nitroglycerin patches, as well as the August 1993 FDA approval of IMDUR, an oral nitrate for angina. Sales of anti- infective and anticancer products grew 13 percent, due to gains for EULEXIN, a therapy for advanced prostate cancer, and INTRON A. Sales of domestic vision care products declined 15 percent, due to lower sales of colored lenses and the sale of the contact lens solutions business in May 1992. Excluding the contact lens solutions business, vision care sales were down 8 percent compared with 1992. Domestic prescription pharmaceutical sales in 1992 increased $92.4 million, or 7 percent, over 1991, reflecting advances in the anti-infective and anticancer, respiratory, and cardiovascular product groups. In 1993, international sales of pharmaceutical products grew $163.4 million, or 9 percent. Excluding the impact of foreign currency exchange rate fluctuations, sales would have increased approximately 13 percent. The higher sales reflect a 16 percent advance in anti-infective and anticancer products, due to continued strong sales for INTRON A in Japan resulting from the March 1992 approval for the treatment of chronic hepatitis C. Sales of INTRON A in Japan approximated $300 million in 1993, but are expected to moderate in 1994 due to an anticipated government-mandated price reduction. Anti-infective and anticancer sales were also aided by growth of EULEXIN in major European markets, and introductory sales of CEDAX, a third- generation cephalosporin. International sales of respiratory products grew 18 percent, due to worldwide gains for CLARITIN, and higher sales of asthma and allergy products in Japan. Sales of cardiovascular products rose 22 percent, reflecting increases for NITRO-DUR and a calcium channel blocker licensed from AB Astra. Also contributing to the overall international sales growth were gains for LOSEC, an anti-ulcer treatment licensed from AB Astra, and higher sales of vision care products following the launch of FRESHLOOK disposable lenses in Canada and major European markets. In 1992, international pharmaceutical sales, excluding foreign exchange, increased $346.5 million, or 24 percent, over 1991, led by significant gains for INTRON A in Japan, coupled with respiratory and cardiovascular product growth. Sales of health care products in 1993 increased $4.4 million, or 1 percent, over 1992, as price increases of 2 percent were moderated by volume declines of 1 percent. Foot care sales rose 12 percent, primarily due to higher sales of the upgraded and repackaged DR. SCHOLL'S insoles line. Sun care sales advanced 12 percent following the introduction of COPPERTONE KIDS sunblock and SHADE UVAGUARD, a broad-spectrum sunscreen that protects against UVA and UVB rays. Over-the-counter (OTC) product sales declined 10 percent, principally the result of lower sales of female health products, caused by the intensely competitive nature of the vaginal antifungal category. OTC sales were further moderated by reduced sales of allergy/cold products, the result of pressures exerted by the 1993 introductions of several competitive brands. In 1992, health care product sales decreased $24.3 million, or 3 percent, reflecting volume declines of 6 percent, tempered by price increases of 3 percent. The sales shortfall was largely due to lower sales of female health products. Income Before Income Taxes Income before income taxes totaled $1,078.4 million in 1993, an increase of $124.5 million, or 13 percent, over 1992. In 1992, income before income taxes of $953.9 million grew $93.1 million, or 11 percent, over the $860.8 million in 1991. Summary of Costs and Expenses: (Dollars in millions)
% Increase/(Decrease) 1993 1992 1991 1993/92 1992/91 Cost of sales . . . . . . $ 908.8 $ 900.6 $ 816.4 1 % 10 % % of sales . . . . . . . 20.9 % 22.2 % 22.6 % Selling, general and administrative . . . . . $1,747.4 $1,629.8 $1,503.5 7 % 8 % % of sales . . . . . . . 40.3 % 40.2 % 41.6 % Research and development. $ 577.6 $ 521.5 $ 425.9 11 % 22 % % of sales . . . . . . . 13.3 % 12.9 % 11.8 % Other expense, net $ 29.1 $ 49.9 $ 9.0 (42)% - % of sales . . . . . . . .7 % 1.2 % .2 % ________________________________________________________________________________________
Cost of sales as a percentage of sales declined to 20.9 percent in 1993 from 22.2 percent in 1992 and 22.6 percent in 1991. The improvements reflect a change in sales mix to higher margin ethical pharmaceutical products in several international markets, and the 1993 launch of CLARITIN in the United States. Cost of sales percentages also improved as a result of continuing cost containment efforts. Selling, general and administrative expenses represented 40.3 percent of sales in 1993, 40.2 percent in 1992 and 41.6 percent in 1991. The increase as a percent of sales in 1993 from 1992 reflects higher promotional and selling expenses for the launch of CLARITIN in the United States. The decline as a percent of sales between 1992 and 1991 was due to lower promotional spending following the 1991 launch of GYNE-LOTRIMIN, an antifungal for vaginal yeast infections. Research and development expenditures increased $56.1 million, or 11 percent, in 1993, representing 13.3 percent of sales, compared with 12.9 percent of sales in 1992 and 11.8 percent in 1991. These increases reflect the Company's ongoing commitment to provide the resources necessary to ensure a steady flow of innovative products and line extensions. In 1993, research and development spending dedicated to the discovery and development of pharmaceutical products increased 13 percent over 1992, and represented 15.1 percent of total pharmaceutical sales compared with 14.4 percent in 1992. Other expense, net consists of interest income, interest expense, foreign exchange gains and losses, and non-recurring items. In 1993, the net expense declined $20.8 million, reflecting favorable foreign exchange in Japan and Ireland, and reduced interest expense, moderated by lower interest income. The 1992 change resulted from lower interest income and higher foreign exchange losses, tempered by lower interest expense. Income Taxes The Company's effective tax rate was 23.5 percent in 1993, 24.5 percent in 1992 and 25.0 percent in 1991. The effective tax rate for each period was lower than the U.S. statutory income tax rate, primarily due to tax incentives in Puerto Rico and lower foreign tax rates. For additional information, see "Income Taxes" in the Notes to Consolidated Financial Statements on page 31. The Omnibus Budget Reconciliation Act of 1993 (the "Act") increases the U.S. corporate tax rate from 34 percent to 35 percent, restricts deductibility of certain operating expenses, reduces the tax benefit generated from operations in Puerto Rico and, in certain circumstances, taxes a portion of undistributed earnings of foreign subsidiaries. Management estimates that the primary impact on the Company is the reduction in the benefit arising from its operations in Puerto Rico. This reduction in benefit is to be phased-in over a five-year period. Management estimates the Act will unfavorably impact the effective tax rate by 1.5 percentage points in 1994, and an additional 1.5 to 2.5 percentage points by 1996. Accounting Changes And Extraordinary Item During the first quarter of 1993, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions." In connection with this adoption, the Company fully funded its initial accumulated benefit obligation. The cumulative effect of adopting SFAS No. 106 was a one-time, after-tax charge of $94.2 million, or $.48 per common share. For additional information on this transaction, see "Other Post-retirement Benefits" in the Notes to Consolidated Financial Statements on page 29. During the first quarter of 1992, the Company adopted SFAS No. 109, "Accounting for Income Taxes." The cumulative effect of implementing SFAS No. 109 was a one-time gain of $27.1 million, or $.13 per common share. Also in this quarter, the Company effected an in-substance defeasance of its zero-coupon debt, which resulted in an extraordinary loss of $26.7 million, or $.13 per common share. For additional information on these transactions, see "Income Taxes" and "Borrowings" in the Notes to Consolidated Financial Statements on pages 31 and 26, respectively. Net Income Income in 1993, excluding the extraordinary item and the cumulative effect of accounting changes, totaled $825.0 million, an increase of $105.0 million, or 15 percent, over 1992. Income in 1992 exceeded 1991 by $74.4 million, or 12 percent, when excluding the extraordinary item and the cumulative effect of accounting changes. Differences in year-to-year exchange rates reduced comparative growth in income in 1993 and 1992. After eliminating these differences, income would have increased approximately 18 percent in 1993 and 13 percent in 1992. Net income in 1993, after the extraordinary item and accounting changes, totaled $730.8 million, an increase of $10.4 million, or 1 percent, over 1992. Earnings Per Common Share Earnings per common share for the years 1991 through 1993 were as follows:
1993 1992 1991 Earnings per common share before the extraordinary item and accounting changes $ 4.23 $ 3.60 $ 3.01 Extraordinary item - (.13) - Accounting changes (.48) .13 - Earnings per common share $ 3.75 $ 3.60 $ 3.01 Average shares outstanding (in millions) 195.1 200.2 214.5
Earnings per common share before the extraordinary item and accounting changes rose 18 percent in 1993 and 20 percent in 1992. Earnings per common share increased at a faster rate than income due to the Company's share repurchase programs. Fluctuations in year-to-year exchange rates have reduced comparative growth in earnings per common share. Excluding the impact of these exchange differences, earnings per common share before the extraordinary item and accounting changes would have advanced approximately 21 percent in both 1993 and 1992. During the first quarter of 1993, the Company completed a $1.0 billion share repurchase program initiated in 1990, with the purchase of .5 million common shares at a cost of $31.6 million. This particular program also included the purchase of 3.1 million common shares at a cost of $171.0 million in 1992 and the purchase of 11.0 million shares at a cost of $547.4 million in 1991. In February 1993, the Board of Directors authorized the purchase of up to an additional $500 million of the Company's common shares. At year-end 1993, the program was approximately 77 percent complete with the purchase of 6.4 million common shares at a cost of $386.7 million. During the first quarter of 1994, the Company expects to obtain medium-term financing to complete its $500 million share repurchase program. The Company also completed a debt-for-shares exchange transaction during the fourth quarter of 1991 in which 10.0 million of the Company's common shares were acquired and retired. Additional information about this transaction is included in "Shareholders' Equity" in the Notes to Consolidated Financial Statements on page 30. Environmental Matters The Company has obligations for environmental safety and clean-up under various state, local and federal laws, including the Comprehensive Environmental Response, Compensation and Liability Act, commonly known as Superfund. Based on information currently available, environmental expenditures have not had, and are not anticipated to have, a material impact on the Company's financial position, results of operations, liquidity or capital resources. Additional Factors Influencing Operations Prescription Drug Pricing In the United States, many of the Company's pharmaceutical products are subject to competitive pricing as managed care groups, institutions and the government seek price discounts. For the past three years, the Company held average net prescription price increases in the United States to below the increase in the Consumer Price Index (CPI). For 1994, the Company once again expects average U.S. net prescription price increases to be at or below the increase in the CPI. The Clinton health care reform proposal includes several measures that, if enacted, will have an impact on operations of the Company. These measures include, but are not limited to, the requirement of all health plans to offer prescription drug coverage, the extension of Medicare coverage to include outpatient drugs, and rebates on Medicare sales. In addition, prices of new drugs would be reviewed with the Secretary of Health and Human Services, who would be empowered to deny Medicare reimbursement for those drugs deemed too expensive. In most international markets, the Company operates in an environment of government-mandated cost containment programs. Sales in Italy and Germany declined in 1993 as a result of restrictions placed on physician prescription levels and patient reimbursements, and greater generic usage. In addition, several markets have enacted across-the-board price reductions as a further method of cost control. Currently, a number of other international markets are reviewing the implementation of additional programs to contain health care costs. Because the Company is unable to predict the final form and timing of various domestic and international governmental health care reform proposals, their effect on future operations and cash flows cannot be reasonably estimated. Foreign Exchange Sales outside of the United States represented 47 percent of total sales in both 1993 and 1992. Fluctuating foreign exchange rates have affected sales and earnings, as previously discussed. Sales and earnings growth in 1994 will be negatively impacted if the U.S. dollar continues to strengthen. The Company continues to implement selective hedging strategies to mitigate the possible adverse effects of additional 1994 exchange rate changes. Inflation Inflation has had only a minimal impact on operations in recent years. Liquidity and Financial Resources In 1993, total cash and investments, which includes cash and cash equivalents and short- and long-term investments, decreased $108.7 million, and total debt increased $128.2 million. This change increased the Company's net debt position (debt less cash and investments) to $824.3 million. While operations provided $962.1 million in cash, net debt increased, resulting from spending of $418.3 million for common share repurchases, $365.2 million for additions to property and $339.6 million for shareholder dividends. In 1992, the Company's net debt position of $587.4 million was $207.1 million higher than the $380.3 million net debt position in 1991. This change reflects spending for property additions, shareholder dividends and common share repurchases in excess of cash provided by operations. Cash provided by operating activities totaled $962.1 million in 1993, $691.9 million in 1992 and $897.4 million in 1991. The 1993 increase primarily reflects lower working capital requirements. Cash from operating activities has been reduced by $147.0 million for the January 1993 funding of the Company's initial accumulated post-retirement benefit obligation. Capital expenditures amounted to $365.2 million in 1993, $403.2 million in 1992 and $339.4 million in 1991. It is anticipated that expenditures will approximate $380 million in 1994, mainly reflecting continuing plant expansions in Ireland and manufacturing upgrades in New Jersey. Commitments related to 1994 capital expenditures totaled $117.8 million at December 31, 1993. Dividend payments of $339.6 million were made in 1993, compared with $300.2 million in 1992 and $273.6 million in 1991. These increases reflect dividends per common share paid to shareholders of $1.74 per share in 1993, up from $1.50 per share in 1992 and $1.27 in 1991. The Company's ratio of debt to total capital increased to 44 percent in 1993 from 41 percent in 1992, reflecting higher levels of short-term debt. The Company's current liquidity levels and financial resources continue to be sufficient to meet its operating needs. As of December 31, 1993, the Company had $955.3 million in unused lines of credit, of which $680.0 million was in support of commercial paper borrowings. The Company had an A-1+ and P-1 rating for its commercial paper, and AA and Aa3 general bond rating from Standard and Poor's and Moody's, respectively, as of December 31, 1993. Schering-Plough Corporation and Subsidiaries Statements of Consolidated Income (Dollars in millions, except per share figures)
For The Years Ended December 31, 1993 1992 1991 Sales . . . . . . . . . . . . . . . . . . . . . $4,341.3 $4,055.7 $3,615.6 Costs and Expenses: Cost of sales . . . . . . . . . . . . . . . . 908.8 900.6 816.4 Selling, general and administrative . . . . . 1,747.4 1,629.8 1,503.5 Research and development. . . . . . . . . . . 577.6 521.5 425.9 Other expense, net . . . . . . . . . 29.1 49.9 9.0 Total costs and expenses . . . . . . . . . . 3,262.9 3,101.8 2,754.8 Income before Income Taxes. . . . . . . . . . . 1,078.4 953.9 860.8 Income taxes. . . . . . . . . . . . . . . . . 253.4 233.9 215.2 Income before extraordinary item and cumulative effect of accounting changes. . . . 825.0 720.0 645.6 Extraordinary Item. . . . . . . . . . . . . . - (26.7) - Cumulative effect of accounting changes . . . (94.2) 27.1 - ___________________________________________________________________________________ Net Income. . . . . . . . . . . . . . . . . . . $ 730.8 $ 720.4 $ 645.6 Earnings per common share before extraordinary item and cumulative effect of accounting changes $ 4.23 $ 3.60 $ 3.01 Extraordinary item. . . . . . . . . . . . . . - (.13) - Cumulative effect of accounting changes . . . (.48) .13 - ___________________________________________________________________________________ Earnings Per Common Share . . . . . . . . . . . $ 3.75 $ 3.60 $ 3.01 Statements of Consolidated Retained Earnings (Dollars in millions, except per share figures) For The Years Ended December 31, 1993 1992 1991 Retained Earnings, Beginning of Year. . . . . . $3,044.4 $2,624.2 $2,817.8 Net income. . . . . . . . . . . . . . . . . . . 730.8 720.4 645.6 Cash dividends on common shares (per share: 1993, $1.74; 1992, $1.50; and 1991, $1.27) . . (339.6) (300.2) (273.6) Common shares retired . . . . . . . . . . . . . - - (565.6) ___________________________________________________________________________________ Retained Earnings, End of Year. . . . . . . . . $3,435.6 $3,044.4 $2,624.2 See Notes to Consolidated Financial Statements.
Schering-Plough Corporation and Subsidiaries Statements of Consolidated Cash Flows (Dollars in millions)
For The Years Ended December 31, 1993 1992 1991 Operating Activities: Net income . . . . . . . . . . . . . . . . . . . . . $ 730.8 $ 720.4 $ 645.6 Depreciation and amortization. . . . . . . . . . . . 142.4 135.0 129.0 Working capital changes - source (use): Accounts receivable . . . . . . . . . . . . . . . 48.4 (246.5) (45.3) Inventories . . . . . . . . . . . . . . . . . . . (11.4) (28.8) (26.5) Other current assets. . . . . . . . . . . . . . . (41.2) (78.1) (19.7) Accounts payable, income taxes and accrued liabilities. . . . . . . . . . . . . . . . . . . 101.9 142.2 185.5 Other, net . . . . . . . . . . . . . . . . . . . . . (8.8) 47.7 28.8 Net cash provided by operating activities. . . . . . 962.1 691.9 897.4 Investing Activities: Capital expenditures . . . . . . . . . . . . . . . . (365.2) (403.2) (339.4) Reduction of investments . . . . . . . . . . . . . . 192.7 323.0 575.9 Purchases of investments . . . . . . . . . . . . . . (287.1) (93.1) (315.3) Other, net . . . . . . . . . . . . . . . . . . . . . (18.1) (2.5) (2.8) Net cash used for investing activities (477.7) (175.8) (81.6) Financing Activities: Dividends paid to common shareholders. . . . . . . . (339.6) (300.2) (273.6) Net change in short-term borrowings. . . . . . . . . 120.0 352.1 (172.6) Reduction of long-term debt. . . . . . . . . . . . . (.6) (580.3) - Common shares repurchased. . . . . . . . . . . . . . (418.3) (171.0) (547.4) Proceeds from other equity transactions. . . . . . . 33.7 18.7 18.2 Other, net . . . . . . . . . . . . . . . . . . . . . (62.3) (9.7) 1.4 Net cash used for financing activities . . . . . . . (667.1) (690.4) (974.0) Effect of Exchange Rates on Cash and Cash equivalents. (1.4) (3.7) - Net Decrease in Cash and Cash Equivalents. . . . . . . (184.1) (178.0) (158.2) Cash and Cash Equivalents, Beginning of Year . . . . . 406.3 584.3 742.5 Cash and Cash Equivalents, End of Year . . . . . . . . $ 222.2 $ 406.3 $ 584.3 _______________________________________________________________________________________ See Notes to Consolidated Financial Statements. /TABLE Schering-Plough Corporation and Subsidiaries Consolidated Balance Sheets (Dollars in millions, except per share figures)
At December 31, 1993 1992 ASSETS __________________________________________________________________________ Current Assets: Cash and cash equivalents. . . . . . . . . . . $ 222.2 $ 406.3 Short-term investments . . . . . . . . . . . . 207.2 122.8 Accounts receivable, less allowances: 1993, $44.9; 1992, $43.3 . . . . . . . . . . 687.1 735.9 Inventories. . . . . . . . . . . . . . . . . . 404.6 393.4 Prepaid expenses, deferred income taxes and other current assets . . . . . . . . . . . 379.4 354.6 Total current assets . . . . . . . . . . . . . 1,900.5 2,013.0 Property, at cost: Land . . . . . . . . . . . . . . . . . . . . . 47.1 47.5 Buildings and improvements . . . . . . . . . . 1,319.8 978.0 Equipment. . . . . . . . . . . . . . . . . . . 1,146.6 1,007.2 Construction in progress . . . . . . . . . . . 325.4 546.8 Total. . . . . . . . . . . . . . . . . . . . . 2,838.9 2,579.5 Less accumulated depreciation. . . . . . . . . 871.2 831.0 Property, net. . . . . . . . . . . . . . . . . 1,967.7 1,748.5 Intangible Assets, net. . . . . . . . . . . . . . . 182.5 189.6 Other Assets. . . . . . . . . . . . . . . . . . . . 266.2 205.5 $4,316.9 $4,156.6 /TABLE
1993 1992 LIABILITIES AND SHAREHOLDERS' EQUITY ___________________________________________________________________________ Current Liabilities: Accounts payable . . . . . . . . . . . . . . . $ 249.0 $ 239.7 Short-term borrowings and current portion of long-term debt . . . . . . . . . . . . . . . 1,076.0 946.0 U.S., foreign and state income taxes . . . . . 341.8 312.3 Accrued compensation . . . . . . . . . . . . . 157.4 146.3 Other accrued liabilities. . . . . . . . . . . 308.2 324.9 Total current liabilities. . . . . . . . . . . 2,132.4 1,969.2 Long-Term Liabilities: Long-term debt . . . . . . . . . . . . . . . . 182.3 184.1 Deferred income taxes. . . . . . . . . . . . . 175.9 198.5 Other long-term liabilities. . . . . . . . . . 244.4 207.9 Total long-term liabilities. . . . . . . . . . 602.6 590.5 Shareholders' Equity: Preferred shares - authorized, 50,000,000 shares of $1 par value each; issued - none . - - Common shares - authorized, 300,000,000 shares of $1 par value each; issued, 251,482,691 shares . . . . . . . . . . . . . 251.5 251.5 Paid-in capital . . . . . . . . . . . . . . . . 80.9 47.5 Retained earnings . . . . . . . . . . . . . . . 3,435.6 3,044.4 Foreign currency translation adjustment . . . . (116.2) (90.9) Total . . . . . . . . . . . . . . . . . . . . . 3,651.8 3,252.5 Less treasury shares, at cost - 1993, 57,927,994 shares; 1992, 51,965,499 shares . . . . . . 2,069.9 1,655.6 Total shareholders' equity . . . . . . . . . . 1,581.9 1,596.9 $4,316.9 $4,156.6 See Notes to Consolidated Financial Statements.
Notes to Consolidated Financial Statements (Dollars in millions, except per share figures) Accounting Policies Principles of Consolidation The consolidated financial statements include Schering-Plough Corporation and its subsidiaries. Intercompany balances and transactions are eliminated. Certain prior year amounts have been reclassified to conform to the current year presentation. Cash and Cash Equivalents Cash and cash equivalents include operating cash and highly liquid investments, generally with maturities of three months or less. Inventories Inventories are valued at the lower of cost or market. Cost is determined by using the last-in, first-out method for substantially all domestic inventories. The cost of all other inventories is determined by the first-in, first-out method. Depreciation Depreciation is provided over the estimated useful lives of the properties, generally by use of the straight-line method. Intangible Assets Intangible assets principally include goodwill, patents, licenses and trademarks. Goodwill represents the excess of cost over the fair value of net assets of companies purchased, and is amortized on the straight-line method, generally over 40 years. Other intangible assets are recorded at cost and amortized over their expected useful lives on the straight-line method. Accumulated amortization of intangible assets was $86.5 and $69.8 at December 31, 1993 and 1992, respectively. Intangible assets are periodically reviewed to determine recoverability by comparing their carrying values to expected future cash flows. Foreign Currency Translation The net assets of most of the Company's foreign subsidiaries are translated into U.S. dollars using current exchange rates. The U.S. dollar effects that arise from translating the net assets of these subsidiaries at changing rates are recorded in the foreign currency translation adjustment (FCTA) account in shareholders' equity. For the remaining foreign subsidiaries, non-monetary assets are translated using historical rates, while monetary assets are translated at current rates, with the U.S. dollar effects of rate changes included in income. Exchange gains and losses arising from hedging foreign net investments and from translating intercompany balances of a long- term investment nature are recorded in the FCTA account. Other exchange gains and losses are included in income. Net foreign exchange losses included in income were $13.6, $21.5, and $8.4 in 1993, 1992 and 1991, respectively. Earnings Per Common Share Earnings per common share is computed by dividing net income by the weighted-average number of common shares outstanding. Shares issuable through the exercise of stock options, warrants and under deferred delivery agreements are not considered in the calculation, as they are either not dilutive or do not have a material effect on the determination of earnings per common share. Financial Instruments The following table presents information on the Company's financial instruments:
1993 1992 Carrying Estimated Carrying Estimated Value Fair Value Value Fair Value Assets: Cash and cash equivalents $ 222 $ 222 $406 $406 Investments 212 212 136 136 Foreign currency put options 4 6 8 12 Liabilities: Short-term borrowings 1,076 1,076 946 946 Long-term debt 182 194 184 198 Interest rate swap contracts 6 6 3 3 Forward exchange contracts 53 68 55 62
The estimated fair values of investments, short-term borrowings and long-term debt were based on the quoted market prices of these or similar instruments. The estimated fair values of foreign currency put options, interest rate swap contracts and forward exchange contracts were based upon quotes from brokers. All investments are available for sale and mature within 12 months of year-end. Investments consist primarily of certificates of deposit and municipal obligations, and are carried at amortized cost. Realized gains and losses, based on the specific identification method, were not material. On a selective basis, the Company uses derivative financial instruments to hedge against adverse changes in interest rates and foreign exchange rates. The Company has also used such instruments as a part of its international cash management strategy. The Company is neither a trader nor a speculator in such instruments. Certain financial instruments, including derivative financial instruments, expose the holder to credit risk for non-performance and to market risk for changes in interest and currency rates. The Company mitigates credit risk by dealing only with financially sound counterparties. Accordingly, the Company does not anticipate loss for non-performance. The Company manages market risk by limiting the use of derivatives to hedging activities or by limiting maximum potential exposures to amounts that are not material to results of operations or cash flow. Following is a description of the derivative financial instruments shown above: Foreign Currency Put Options The Company uses these instruments to hedge future inventory purchases. The total U.S. dollar amount of such instruments was $150.0 at December 31, 1993 and $354.0 at December 31, 1992. At December 31, 1993, these instruments were to sell Deutschemarks, French francs and yen, and at December 31, 1992, these instruments were for the sale of Deutschemarks and yen. These options mature within 15 months from date of purchase. During 1993, transactions included the purchase, exercise and expiration of options of $382.1, $281.8 and $304.3, respectively. Loss on option contracts is limited to the premiums paid. Gains on such instruments are deferred and ultimately reduce the cost of inventory. Gains arising from these instruments were not material. Interest Rate Swap Contracts The Company has used interest rate swap contracts as a part of its international cash management strategy. At December 31, 1993 and 1992, two arrangements having notional principal amounts of $650 and $950 were outstanding. These arrangements provide for the receipt and payment of interest through 2012. These contracts are carried at market value. Forward Exchange Contracts The Company uses these instruments to hedge investments in its foreign subsidiaries. The aggregate face values were $87.3 and $105.0 at December 31, 1993 and 1992, respectively. During 1993, activity included a $7.0 purchase and a $24.7 maturity. At December 31, 1993, these contracts were primarily for the exchange of yen for U.S. dollars and at December 31, 1992, these contracts were for the exchange of yen and Swiss francs for U.S. dollars. The arrangements mature at various dates through 2002. In accordance with SFAS No. 52, these instruments are recorded at foreign exchange spot rates in effect at year-end. Borrowings Short-term borrowings consist of commercial paper issued in the United States, bank loans and notes payable. Commercial paper outstanding at December 31, 1993 and 1992 was $961.4 and $715.8, respectively. Bank loans and notes payable at December 31, 1993 and 1992 totaled $112.0 and $229.6, respectively. At December 31, 1993, unused domestic bank lines of credit, which were considered as support for commercial paper borrowings, were $680.0. These lines of credit do not require compensating balances; however, a nominal commitment fee is paid on the unused portion of these lines. The Company's foreign subsidiaries had available $275.3 in unused lines of credit from various financial institutions at December 31, 1993. Generally, these credit lines do not require commitment fees or compensating balances and are cancelable at the option of the Company or the financial institutions. Long-term debt, including current maturities, at December 31 consisted of the following:
1993 1992 Notes, 7.8%, due 1996 . . . . . . . . . . . . . . $100.0 $100.0 Industrial revenue bonds, 2.8%-12.0%, due 2001-2013 . . . . . . . . . . . . . . . . . 80.0 80.0 Other . . . . . . . . . . . . . . . . . . . . . . 4.9 4.7 184.9 184.7 Current maturities. . . . . . . . . . . . . . . . (2.6) (.6) Total long-term debt. . . . . . . . . . . . . . . $182.3 $184.1
During the 1992 first quarter, the Company purchased approximately $600.0 of U.S. Government securities and deposited them into an irrevocable trust to complete an in-substance defeasance of the Company's zero-coupon notes. The funds in the trust will be used solely to satisfy the $828.6 maturity value of the zero-coupon notes due December 2, 1996. Accordingly, the government securities and the zero-coupon notes have been excluded from the 1992 and 1993 balance sheets. The debt extinguishment resulted in an extraordinary loss of $26.7 (net of income taxes of $15.0), or $.13 per share. The Company has a shelf registration statement on file with the Securities and Exchange Commission covering the issuance of up to $200.0 of debt securities. These securities may be offered from time to time on terms to be determined at the time of sale. As of December 31, 1993, no debt securities have been issued pursuant to this registration. Interest Income and Interest Expense Interest income for 1993, 1992 and 1991 was $23.9, $38.5 and $72.2, respectively. Interest expense, net of amounts capitalized as part of the construction cost of property, plant and equipment for 1993, 1992 and 1991 was $48.2, $55.4 and $65.3, respectively. Interest costs of $12.7, $15.8, and $11.8 in 1993, 1992, and 1991, respectively, have been capitalized and included in the cost of property, plant and equipment. Total cash payments for interest, net of amounts capitalized, were $49.4, $54.8 and $62.2 in 1993, 1992 and 1991, respectively. Interest income and interest expense are included in other expense, net. Stock Incentive Plans Under the terms of the Company's 1992 Stock Incentive Plan, 9 million shares of the Company's common stock may be granted as stock options or awarded as deferred stock units to officers and certain employees of the Company through December 1997. Options are granted at prices not less than the market value of the common stock at grant dates, become exercisable not earlier than six months and one day from the date of the grant, and expire not later than 10 years after the date of the grant. Deferred stock units are payable in an equivalent number of common shares; the shares are distributable in a single installment or in up to five equal annual installments commencing not earlier than six months and one day from the date of the award. The table below summarizes stock option activity over the past two years under current and prior plans:
Number Option price of shares (range per share) Outstanding at January 1, 1992 . . . . 4,555,668 $ 7.41-$56.50 Granted . . . . . . . . . . . . . . 624,275 $55.38-$58.88 Exercised . . . . . . . . . . . . . (575,141) $ 7.41-$48.75 Canceled or expired . . . . . . . . (33,576) Outstanding at December 31, 1992. . . . 4,571,226 $ 8.81-$58.88 Granted . . . . . . . . . . . . . . 608,195 $53.00-$66.38 Exercised . . . . . . . . . . . . . (772,910) $ 8.81-$58.88 Canceled or expired . . . . . . . . (26,105) Outstanding at December 31,1993 . . . . 4,380,406 $ 8.81-$66.38 Exercisable at December 31, 1993. . . . 2,623,516
There were 315,770 deferred stock units awarded in 1993 and 306,846 in 1992. As of December 31, 1993 and 1992, there were 942,300 and 897,842 deferred stock units outstanding, respectively, under current and prior plans. At December 31, 1993, there were 8,023,790 shares available for future options or awards. Inventories Year-end inventories consisted of the following:
1993 1992 Finished products . . . . . . . . . . . . . . $168.3 $155.6 Goods in process. . . . . . . . . . . . . . . 95.5 112.3 Raw materials and supplies. . . . . . . . . . 140.8 125.5 Total inventories . . . . . . . . . . . . . . 404.6 $393.4
Inventories valued on a last-in, first-out basis comprised approximately 42 percent and 47 percent of total inventories at December 31, 1993 and 1992, respectively. The estimated replacement cost of total inventories at December 31, 1993 and 1992 was $458.7 and $443.5, respectively. Retirement Plans The Company and certain of its subsidiaries have defined benefit pension plans covering eligible employees in the United States and certain foreign countries. Benefits under these plans are generally based upon the participants' average final earnings and years of credited service, and take into account governmental retirement benefits. The Company's funding policy is to contribute actuarially determined amounts, after taking into consideration the funded status of each plan and regulatory limitations. The components of the net pension expense (income) for all Company- sponsored plans were as follows:
1993 1992 1991 Service cost - benefits earned during the year. . . . . . . . . . . . . . . $ 26.6 $ 24.0 $ 24.0 Interest cost on projected benefit obligations . . . . . . . . . . . . . 40.5 37.5 35.4 Actual return on plan assets . . . . . (101.5) (46.3) (109.0) Net amortization and deferral . . . . . 36.8 (15.3) 50.6 Net pension (income) expense. . . . . . $ 2.4 $ (.1) $ 1.0
The year-to-year changes in the net amortization and deferral component of pension cost are principally attributable to differences between actual and expected returns on plan assets. The actuarial present value of benefit obligations and funded status of the plans at December 31 were as follows:
1993 1992 Projected benefit obligations: Accumulated benefit obligations, including vested benefits of $466.8 in 1993 and $389.4 in 1992. . . $504.1 $400.1 Effect of future salary increases . . . 101.8 93.3 Total projected benefit obligations . . . 605.9 493.4 Plan assets at fair value, primarily stocks and bonds. . . . . . . 711.2 622.9 Excess of plan assets over projected benefit obligations . . . . . . . . . . 105.3 129.5 Unrecognized net transition asset . . . . (87.9) (96.1) Unrecognized prior service cost . . . . . 11.0 7.6 Unrecognized net loss (gain) to date. . . 20.0 (2.3) Prepaid pension cost . . . . . . . . . . $ 48.4 $ 38.7
The discount rate used in determining the projected benefit obli- gation for the Company's U.S. plans was 7.0 percent at December 31, 1993 and 8.5 percent at December 31, 1992. The weighted-average discount rate for the Company's non-U.S. plans was 7.3 percent at December 31, 1993, and 7.9 percent at December 31, 1992. The weighted-average rate of increase in future compensation levels for all plans was 4.2 percent and 5.5 percent at December 31, 1993 and 1992, respectively. The weighted-average expected long-term rate of return on plan assets was approximately 10.0 percent for both years. The assumption changes increased the projected benefit obligation by approximately 14 percent. The Company has a defined contribution profit-sharing plan covering substantially all of its full-time domestic employees who have completed one year of service. The annual contribution is determined by a formula based on the Company's income, shareholders' equity and participants' compensation. Profit-sharing expense totaled $58.2, $53.7 and $47.1 in 1993, 1992 and 1991, respectively. Other Post-retirement Benefits The Company provides post-retirement health care and other benefits to its eligible United States retirees and their dependents. Eligibility for benefits depends upon age and years of service. Retirees share in the cost of the health care benefits. Health care benefits for retirees in most countries other than the United States are provided through local government-sponsored plans. The direct cost of Company sponsored, non-U.S. plans is not significant. Accordingly, these plans are excluded from the following disclosures. Effective January 1, 1993, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions." The statement requires the accrual of post-retirement benefits during the years an employee provides service to the Company. Previously, these costs were expensed on a pay-as-you-go basis. As of January 1, 1993, the cumulative accrual of such benefits totaled $147.0, $94.2 after-tax, or $.48 per share. The Company elected to recognize this entire amount effective with the adoption of the statement. The components of 1993 net post-retirement benefit cost were as follows:
Service cost - benefits earned during the year. . . . $ 5.3 Interest cost on accumulated post-retirement benefit obligation . . . . . . . . . . . . . . . . . 12.1 Actual return on plan assets. . . . . . . . . . . . . (15.9) Deferral. . . . . . . . . . . . . . . . . . . . . . . 4.2 Post-retirement benefit cost . . . . . . . . . . . . . $ 5.7
The pay-as-you-go cost was $6.1 and $5.6 in 1992 and 1991, respectively. The accumulated post-retirement benefit obligation and funded status at December 31, 1993, were as follows:
Accumulated post-retirement benefit obligation attributable to: Retirees. . . . . . . . . . . . . . . . . . . . . $ 69.6 Fully eligible active plan participants . . . . . 24.2 Other active plan participants. . . . . . . . . . 56.2 Accumulated post-retirement benefit obligation . . . . 150.0 Plan assets at fair value, primarily stocks & bonds. . . . . . . . . . . . . . 157.6 Plan assets in excess of accumulated post-retirement benefit obligation . . . . . . . . . . . . . . . 7.6 Unrecognized gain . . . . . . . . . . . . . . . . . . (12.3) Accrued post-retirement benefit liability . . . . . . $ (4.7) /TABLE In January 1993, the Company fully funded its initial accumulated benefit obligation. Future funding is at the discretion of the Company. The assumed health care cost trend rates used for measurement purposes were 13 percent for 1994, trending down to 5 percent by 2003. The weighted-average discount rate used was 7 percent. The weighted-average expected long-term rate of return on plan assets was 9 percent. Earnings on plan assets that have been segregated for tax purposes and funded through a Voluntary Employee Benefit Association (VEBA trust) are subject to a tax rate of 39.6 percent. A 1 percent increase in the assumed health care cost trend rate would increase the combined service and interest cost by approximately 8 percent, and the accumulated post-retirement benefit obligation by approximately 13 percent. Shareholders' Equity The Preferred Share Purchase Rights (the "Rights") outstanding are attached to, and presently only trade with, the Company's common shares and are not exercisable. The Rights will begin to trade separately from the common shares and become exercisable upon the earlier of (i) 10 days following a public announcement that a person or group has acquired beneficial ownership of 20 percent or more of the Company's outstanding common shares, or (ii) 10 business days following a person or group's commencement of, or announcement of, an intention to make a tender or exchange offer, the consummation of which would result in beneficial ownership of 20 percent or more of the Company's common shares. Upon becoming exercisable, each Right will entitle the holder to purchase one one-hundredth of a share of Series A Junior Participating Preferred Stock, par value $1 per share, of the Company at an exercise price of $250. In the event that the Company is acquired pursuant to a merger, or 50 percent or more of its consolidated assets or earning power are sold, each Right will entitle its holder to purchase shares of the acquiring company having a market value of twice the exercise price of the Right. In the event that any person or group becomes the beneficial owner of 20 percent or more of the common shares, each Right will entitle its holder to purchase common shares of the Company having a market value of twice the exercise price of the Right. The Company may redeem the Rights at $.01 per Right at any time prior to the acquisition, by a person or group, of 20 percent or more of the Company's outstanding common shares. The Rights will expire on August 9, 1999, unless earlier redeemed. A summary of activity in common shares, paid-in capital and treasury shares follows (number of shares in thousands):
Common Paid-in Treasury Shares Shares Capital Number Amount Balance at January 1, 1991. . . $261.5 $ 17.3 39,457 $945.0 Shares issued under stock incentive plans . . . . . . . - 22.1 (802) (5.0) Common shares retired. . . . . (10.0) (29.0) - - Issuance of warrants . . . . . - 10.4 - - Purchase of treasury shares. . - - 11,039 547.4 ___________________________________________________________________ Balance at December 31, 1991. . 251.5 20.8 49,694 1,487.4 Shares issued under stock incentive plans . . . . . . . - 26.7 (791) (2.8) Purchase of treasury shares. . - - 3,062 171.0 __________________________________________________________________ Balance at December 31, 1992. . 251.5 47.5 51,965 1,655.6 Shares issued under stock incentive plans . . . . . . . - 41.8 (990) (4.0) Warrant transactions . . . . . - (8.4) - - Purchase of treasury shares . . - - 6,953 418.3 ____________________________________________________________________ Balance at December 31, 1993. . $251.5 $ 80.9 57,928 $ 2,069.9
During 1991, the Company received and retired 10 million shares of common stock in exchange for zero-coupon notes and warrants. The warrants, exercisable during a 90-day period ending on November 22, 1996, entitle their holders to purchase up to 8.5 million shares of common stock at an exercise price of $97.33 per share. In February 1993, the Company entered into a transaction that effectively eliminated, for financial reporting purposes, its obligation for warrants covering 3.4 million common shares. The net cost of this transaction was $8.4. In December 1993, pursuant to certain rights provided by the agreement, warrants covering 2.6 million shares were surrendered in exchange for $7.0. Also, during 1993, the Company entered into an option-type contract that reduces its exposure under warrants that remain outstanding at December 31, 1993, covering 2.5 million shares. Income Taxes Effective January 1, 1992, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes", under which deferred taxes are based on the asset and liability method. Prior to the adoption of SFAS No. 109, income taxes were accounted for under the deferral method. The cumulative effect of implementing SFAS No. 109 was a one-time gain of $27.1, or $.13 per share. As permitted by SFAS No. 109, the Company has not restated prior year financial statements. U.S. and foreign operations contributed to income before income taxes as follows:
1993 1992 1991 United States. . . . . . . . . . . . $ 588.7 $561.7 $569.0 Foreign. . . . . . . . . . . . . . . . 489.7 392.2 291.8 Total income before income taxes . . . $1,078.4 $953.9 $860.8
The components of income tax expense before the extraordinary item and cumulative effect of accounting changes were as follows:
1993 1992 1991 Current: Federal. . . . . . . . . . . . . . . $ 110.9 $131.5 $134.3 Foreign. . . . . . . . . . . . . . . 121.7 111.5 65.0 State. . . . . . . . . . . . . . . . 6.9 24.3 11.2 Total current. . . . . . . . . . . . 239.5 267.3 210.5 Deferred: Federal and state. . . . . . . . . . 10.4 6.1 4.1 Foreign. . . . . . . . . . . . . . . 3.5 (39.5) .6 Total deferred . . . . . . . . . . . 13.9 (33.4) 4.7 Total income tax expense . . . . . . . $ 253.4 $233.9 $215.2
Deferred taxes include provisions (credits) for the following:
1993 1992 1991 Non-recurring items . . . . . . . . . . $ 5.7 $ 13.5 $ 19.8 Excess of tax depreciation over financial statement depreciation . . . 17.2 .8 9.3 Intercompany inventory transfers . . . 2.6 (17.4) (5.8) Operating costs not currently deductible for tax purposes* . . . . (11.1) (15.3) (15.7)
* Principally consisting of accruals for employee benefits and other operating costs and allowances for accounts receivable and inventory. The difference between the U.S. statutory tax rate and the Company's effective tax rate was due to the following:
1993 1992 1991 U.S. statutory tax rate. . . . . . . . . 35.0% 34.0% 34.0% Increase (decrease) in taxes resulting from: Tax exemptions on Puerto Rico operations . . . . . . . . . . . . . (6.1) (6.8) (7.5) Difference in effective tax rate on foreign source income. . . . . . . . (5.6) (5.7) (3.1) Research tax credit. . . . . . . . . . (.6) (.3) (.7) All other, net . . . . . . . . . . . . .8 3.3 2.3 Effective tax rate . . . . . . . . . . . 23.5% 24.5% 25.0%
As of December 31, 1993 and 1992, the Company had total deferred tax assets of $325.9 and $251.0, respectively, and deferred tax liabilities of $301.4 and $267.6, respectively. Valuation allowances are not significant. Significant deferred tax liabilities and assets at December 31, 1993 and 1992 were for depreciation differences, $163.5 and $146.2, respectively, and operating costs not currently deductible for tax purposes, $230.6 and $166.7, respectively. Current assets at December 31, 1993 and 1992 include net deferred tax assets of $187.6 and $179.7, respectively. Deferred taxes are not provided on undistributed earnings of foreign subsidiaries (considered to be permanent investments), which at December 31, 1993 approximated $1,068.3. Determining the tax liability that would arise if these earnings were remitted is not practicable. The Company has facilities in Puerto Rico that manufacture products for both domestic and foreign markets. These facilities operate under tax relief and other incentives that expire at various dates through 2018. As of December 31, 1993, the U.S. Internal Revenue Service has completed its examination of the Company's tax returns for all years through 1986 and there are no unresolved issues outstanding for those years. Total income tax payments during 1993, 1992 and 1991 were $183.1, $210.3 and $117.8, respectively. At December 31, 1993, the Company had capital losses for tax purposes of $73.2 available to be carried forward to future periods expiring in 1995. Commitments Total rent expense amounted to $27.0 in 1993, $25.6 in 1992 and $23.8 in 1991. Future minimum rental commitments on non-cancelable operating leases as of December 31, 1993, range from $16.8 in 1994 to $6.1 in 1998, with aggregate minimum lease obligations of $24.0 due thereafter. The Company has commitments related to future capital expenditures totaling $117.8 as of December 31, 1993. Legal and Environmental Matters The Company has responsibilities for environmental safety and clean- up under various state, local and federal laws, including the Comprehensive Environmental Response, Compensation and Liability Act, commonly known as Superfund. The Company is named as a potentially responsible party (PRP) at several Superfund sites. The Company estimates its obligations for clean-up costs for Superfund sites based on information obtained from the Environmental Protection Agency, studies prepared by independent engineers, and probable costs to be paid by other PRPs. Costs are accrued when the Company becomes aware of its site clean- up responsibility. The Company is also involved in various other claims and legal proceedings of a nature considered normal to its business, including product liability cases. The estimated costs the Company expects to pay in these cases are accrued when the liability is considered probable and the amount can reasonably be estimated. The recorded liabilities for these matters at December 31, 1993 and 1992, and the related expenses incurred during the three years ended December 31, 1993, were not material. Expected insurance recoveries have not been considered in determining the costs related to recorded liabilities. Management believes that it is remote that costs materially in excess of the amounts accrued for the above matters will be incurred. Consistent with trends in the pharmaceutical industry, the Company is self-insured for certain events. Business Segment Data Schering-Plough is a research-based company engaged in the discovery, development, manufacturing and marketing of pharmaceutical and health care products worldwide. Pharmaceutical products include prescription drugs, vision care and animal health products. Health care products include over-the-counter, foot care and sun care products sold primarily in the United States.
Sales and Operating Profit by Industry Segment Sales Profit 1993 1992 1991 1993 1992 1991 Pharmaceutical products. . . $3,640.7 $3,359.5 $2,895.1 $1,055.9 $ 934.6 $785.2 Health care products . . . . 700.6 696.2 720.5 135.8 149.8 155.6 Total sales and operating profit. . . . . . . . . . . 4,341.3 4,055.7 3,615.6 1,191.7 1,084.4 940.8 General corporate revenue and expense . . . . (65.1) (75.1) (14.7) Interest expense . . . . . . (48.2) (55.4) (65.3) Consolidated sales and pre-tax profit. . . . . 4,341.3 $4,055.7 $3,615.6 $1,078.4 $953.9 $860.8
Identifiable Assets, Capital Expenditures, Depreciation and Amortization by Industry Segment
Capital Depreciation and Assets Expenditures Amortization 1993 1992 1991 1993 1992 1991 1993 1992 1991 Pharmaceutical products. $3,276.1 $3,036.8 $2,428.4 $ 339.4 $383.9 $312.9 $119.5 $113.0 $107.7 Health care products . . 408.7 382.7 418.1 24.2 18.4 22.6 17.8 16.9 16.3 Industry segment totals. 3,684.8 3,419.5 2,846.5 363.6 402.3 335.5 137.3 129.9 124.0 Corporate. . . . . . . . 632.1 737.1 1,166.7 1.6 .9 3.9 5.1 5.1 5.0 Consolidated assets, capital expenditures, depreciation and amortization. . . . . . $4,316.9 $4,156.6 $4,013.2 $ 365.2 $403.2 $339.4 $142.4 $135.0 $129.0 Sales, Operating Profit and Identifiable Assets by Geographic Area Sales Profit Assets 1993 1992 1991 1993 1992 1991 1993 1992 1991 United States. . . $2,285.1 $2,163.9 $2,117.5 $ 685.2 $664.2 $658.5 $2,263.0 $2,135.3 $1,755.0 Europe, Middle East and Africa . 955.5 1,018.9 875.8 219.8 214.5 159.7 689.2 567.6 588.6 Latin America. . . 333.1 274.7 232.6 79.4 64.6 48.2 233.9 192.0 201.0 Canada, Pacific Area and Asia . . 767.6 598.2 389.7 207.3 141.1 74.4 498.7 524.6 301.9 Total sales, operating profit and identifiable assets . . . . . $4,341.3 $4,055.7 $3,615.6 $1,191.7 $1,084.4 $940.8 $3,684.8 $3,419.5 $2,846.5
Sales, operating profit and identifiable assets as presented are associated with each geographic area, based on the location of the ultimate customers. The Company maintains manufacturing facilities in Ireland and Puerto Rico for the production of several significant finished and semi-finished products for distribution to domestic and foreign subsidiaries. The sales, operating profit and identifiable assets of these facilities have been included in the geographic area in which the ultimate customers are located. Net assets of foreign subsidiaries totaled $1,571.5, $1,322.4 and $870.1 at December 31, 1993, 1992 and 1991, respectively. Corporate assets are principally cash and cash equivalents, investments, property and deferred taxes. Report by Management The management of Schering-Plough is responsible for the preparation and the integrity of all information and representations contained in the financial statements and related data included in this Annual Report. This information was prepared in accordance with generally accepted accounting principles and is believed by management to present fairly the Company's results of operations, financial position and cash flows. It is important to recognize that the preparation of financial statements requires the use of estimates and assumptions that affect the reported amounts of assets, liabilities, sales and expenses. Schering-Plough maintains, and management relies on, a system of internal accounting controls that provides reasonable assurance of the integrity and reliability of the financial statements. The system provides, at appropriate cost, that assets are safeguarded, transactions are executed in accordance with management's authoriza- tion, and fraudulent financial reporting practices are prevented or detected. In establishing and maintaining this system, judgments are required to assess and balance the relative cost versus the expected benefit of a given control. The Company's internal accounting control system is clearly documented, provides for careful selection and training of supervisory and management personnel, and also requires appropriate segregation of responsibilities and delegation of authority. Formal policies and procedures are maintained and systematically disseminated throughout the Company. In addition, the Company maintains a corporate code of conduct for purposes of determining possible conflicts of interest, compliance with laws and confidentiality of proprietary information. The Company's independent auditors, Deloitte & Touche, audit Schering-Plough's financial statements. They evaluate the Company's internal accounting controls and perform tests of procedures and accounting records to enable them to render their report. In addition, Schering-Plough has an internal audit function that assists management in discharging its responsibilities. The internal audit staff, under the direction of the vice president - corporate audits, regularly performs audits using programs designed to test compliance with Company policies and procedures, and to verify the adequacy of internal accounting controls and other financial policies. The internal auditors also continually evaluate the effectiveness and accuracy of financial reporting by the Company's various operations. Management has considered the internal auditors' and independent auditors' recommendations concerning the Company's system of internal accounting controls and has taken appropriate action. Such recommendations are communicated in accordance with Company policy to the individuals responsible for implementation. The Finance and Audit Committee of the Board of Directors consists solely of non-employee directors. The Committee meets periodically with management, the internal auditors and the independent auditors to review auditing, financial reporting, internal accounting controls and other financial matters. Both the independent auditors and internal auditors have free access to the Committee, with and without the presence of management, to discuss the adequacy of Schering-Plough's internal accounting controls, the quality of financial reporting and other matters relating to their audits. It is our opinion that the Company's system of internal accounting controls in effect as of December 31, 1993, provides reasonable assurance that the financial statements and related data in this Annual Report are fairly presented in accordance with generally accepted accounting principles. /s/Robert P. Luciano /s/Harold R. Hiser, Jr. /s/Thomas H. Kelly Chairman and Executive Vice President Vice President Chief Executive Officer Finance and Controller INDEPENDENT AUDITORS' REPORT DELOITTE & TOUCHE Schering-Plough Corporation, its Directors and Shareholders: We have audited the accompanying consolidated balance sheets of Schering-Plough Corporation and subsidiaries as of December 31, 1993 and 1992 and the related statements of consolidated income, retained earnings and cash flows for each of the three years in the period ended December 31, 1993. 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, such consolidated financial statements present fairly, in all material respects, the financial position of Schering-Plough Corporation and subsidiaries at December 31, 1993 and 1992 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1993, in conformity with generally accepted accounting principles. As discussed in Notes to Consolidated Financial Statements, the Company changed, in 1992, its method of accounting for income taxes to conform with Statement of Financial Accounting Standards ("SFAS") No. 109, and, in 1993, its method of accounting for postretirement benefits other than pensions to conform with SFAS No. 106. /s/Deloitte & Touche Parsippany, New Jersey February 15, 1994 COMMON SHARE DIVIDENDS AND MARKET DATA During 1993, the Board of Directors increased the quarterly dividend rate from $.39 per share to $.45 per share. Dividends paid on common shares in 1993 totaled $339.6 million, representing a 13 percent increase over the $300.2 million paid in 1992. The quarterly dividends per share paid over the last two years were as follows:
Quarter 1993 1992 1st $ .39 $ .33 2nd .45 .39 3rd .45 .39 4th .45 .39 $1.74 $1.50
The approximate number of holders of record of common shares as of December 31, 1993, was 34,900. The Company's common shares are listed and principally traded on the New York Stock Exchange. The following table shows the reported high and low sale prices for the common shares in each of the calendar quarters during the past two years:
1993 1992 Quarter High Low High Low 1st 63 7/8 51 3/4 $68 $54 7/8 2nd 70 7/8 55 1/2 58 1/2 49 7/8 3rd 69 1/4 58 62 7/8 53 3/4 4th 71 63 1/8 70 1/8 55 1/4 __________________________________________________________
Schering-Plough Corporation and Subsidiaries Six-Year Selected Financial and Statistical Data (Dollars in millions, except per share figures)
1993 1992 1991 1990 1989 1988 Operating Results Sales . . . . . . . . . . . . . $4,341.3 $4,055.7 $3,615.6 $3,322.9 $3,157.9 $2,969.4 Income before income taxes. . . 1,078.4 953.9 860.8 768.9 645.6 533.9 Income before extraordinary item and cumulative effect of accounting changes . . . . . . 825.0 720.0 645.6 565.1 471.3 389.8 Extraordinary item. . . . . . . - (26.7) - - - - Cumulative effect of accounting changes. . . . . . . . . . . . (94.2) 27.1 - - - - Net income. . . . . . . . . . . 730.8 720.4 645.6 565.1 471.3 389.8 Earnings per common share before extraordinary item and cumulative effect of accounting changes . 4.23 3.60 3.01 2.50 2.09 1.74 Extraordinary item. . . . . . . - (.13) - - - - Cumulative effect of accounting changes. . . . . . . . . . . . (.48) .13 - - - - Earnings per common share . . . 3.75 3.60 3.01 2.50 2.09 1.74 ______________________________________________________________________________________________ Investments Research and development. . . . $ 577.6 $ 521.5 $ 425.9 $ 379.6 $ 326.5 $ 297.9 Capital expenditures. . . . . . 365.2 403.2 339.4 242.9 186.1 156.1 Financial Condition Property, net . . . . . . . . . $1,967.7 $1,748.5 $1,490.4 $1,284.4 $1,210.7 $1,181.0 Total assets. . . . . . . . . . 4,316.9 4,156.6 4,013.2 4,103.1 3,613.5 3,425.6 Long-term debt. . . . . . . . . 182.3 184.1 753.6 182.9 185.5 189.8 Shareholders' equity. . . . . . 1,581.9 1,596.9 1,346.1 2,080.8 1,955.4 1,677.0 Net book value per common share 8.17 8.00 6.67 9.37 8.64 7.46 Financial Statistics Income before extraordinary item and cumulative effect of accounting changes as a percent of sales. 19.0% 17.8% 17.9% 17.0% 14.9% 13.1% Net income as a percent of sales 16.8% 17.8% 17.9% 17.0% 14.9% 13.1% Return on average shareholders' equity . . . . . . . . . . . . 46.0% 49.0% 37.7% 28.0% 25.9% 25.0% Effective tax rate. . . . . . . 23.5% 24.5% 25.0% 26.5% 27.0% 27.0% Other Data Dividends per common share. . . $ 1.74 $ 1.50 $ 1.27 $1.065 $ .875 $ .70 Dividends on common shares. . . 339.6 300.2 273.6 241.2 197.3 157.0 Depreciation and amortization . 142.4 135.0 129.0 121.9 111.9 101.7 Number of employees . . . . . . 21,600 21,100 20,200 19,700 21,300 22,400 Average common shares outstanding (in millions) . . . . . . . . . 195.1 200.2 214.5 225.9 225.5 224.2 Actual common shares outstanding at year end (in millions) . . . 193.6 199.5 201.8 222.0 226.3 224.9
Quarterly Results of Operations (Dollars in millions, except per share figures)
Three Months Ended March 31, June 30, September 30, December 31, 1993 1992 1993 1992 1993 1992 1993 1992 Sales. . . . . . . . . $1,089.6 $1,021.9 $1,123.4 $1,019.6 $1,061.9 $1,019.8 $1,066.4 $994.4 Gross profit . . . . . 855.4 796.5 886.7 791.6 850.1 789.1 840.3 777.9 Income before income taxes . . . . . . . . 292.1 257.2 278.8 246.6 260.6 229.5 246.9 220.6 Income before extra- ordinary item and cumulative effect of accounting changes. . 223.5 192.9 213.2 184.9 199.4 174.5 188.9 167.7 Extraordinary item . . - (26.7) - - - - - - Cumulative effect of accounting changes. . (94.2) 27.1 - - - - - - Net income . . . . . . 129.3 193.3 213.2 184.9 199.4 174.5 188.9 167.7 Earnings per common share before extra- ordinary item and cumulative effect of accounting changes. . 1.13 .96 1.09 .92 1.03 .88 .98 .84 Extraordinary item . . - (.13) - - - - - - Cumulative effect of accounting changes. . (.48) .13 - - - - - - Earnings per common share . . . . . . . . .65 .96 1.09 .92 1.03 .88 .98 .84 ______________________________________________________________________________________________
Page 1 OF 3 APPENDIX TO EXHIBIT #13 The first page of the financial section of the 1993 annual report to shareholders presents six bar charts. The following tables provide the information portrayed in the charts: Chart 1 Title: Earnings per Common Share* * Before extraordinary item and accounting changes. The vertical axis is in dollars starting at $0.00, increasing in increments of $1.00, ending at $5.00. The horizontal axis is in years starting with 1989, ending with 1993. The data points are: 1989 $2.09 1990 $2.50 1991 $3.01 1992 $3.60 1993 $4.23 Chart 2 Title: Income* * Before extraordinary item and accounting changes. The vertical axis is in millions of dollars starting at zero, increasing in $200 million increments, ending at $1,000 million. The horizontal axis is in years starting with 1989, ending with 1993. The data points are: 1989 $471.3 1990 $565.1 1991 $645.6 1992 $720.0 1993 $825.0 Page 2 of 3 APPENDIX TO EXHIBITS #13 Chart 3 Title: Sales The vertical axis is in millions of dollars starting at zero, increasing in $1,000 million increments, ending at $5,000 million. The horizontal axis is in years starting with 1989, ending with 1993. The data points are: 1989 $3,157.9 1990 $3,322.9 1991 $3,615.6 1992 $4,055.7 1993 $4,341.3 Chart 4 Title: Research and Development The vertical axis is in millions of dollars starting at zero, increasing in $100 million increments, ending at $600 million. The horizontal axis is in years starting with 1989, ending with 1993. The data points are: 1989 $326.5 1990 $379.6 1991 $425.9 1992 $521.5 1993 $577.6 Page 3 of 3 APPENDIX TO EXHIBIT #13 Chart 5 Title: Capital Expenditures The vertical axis is in millions of dollars starting at zero, increasing in $100 million increments, ending at $500 million. The horizontal axis is in years starting with 1989, ending with 1993. The data points are: 1989 $186.1 1990 $242.9 1991 $339.4 1992 $403.2 1993 $365.2 Chart 6 Title: Dividends Per Common share The vertical axis is in dollars starting at $0.00, increasing in $.50 increments, ending at $2.00. The horizontal axis is in years starting with 1989, ending with 1993. The data points are: 1989 $.875 1990 $1.065 1991 $1.27 1992 $1.50 1993 $1.74 EX-22 6 EXHIBIT 22 State or Country of Incorporation Subsidiaries of Registrant or Organization Garden Insurance Company Ltd. Bermuda Schering Biotech Corporation Delaware DNAX Research Institute of Molecular and Cellular Biology, Inc. California Schering-Plough Products, Inc. Delaware Plough Broadcasting Company, Inc. Delaware American Image Productions, Inc. Tennessee Schering Institutional Sales Corporation Delaware Schering-Plough Research Institute Delaware Schering-Plough Investment Co., Inc. Delaware Schering-Plough Real Estate Co., Inc. Delaware Schering Corporation New Jersey Douglas Industries Inc. Delaware Key Pharmaceuticals, Inc. Florida Key Pharmaceuticals Export Co., Inc. U.S. Virgin Islands Plough Export, Inc. Tennessee Plough (Australia) Pty. Limited Australia Schering-Plough Animal Health Corporation Delaware Professional Vaccine Corporation Delaware Warrick Pharmaceuticals Corporation Delaware Pharmaceutical Supply Corporation Delaware Schering-Plough International, Inc. Delaware Schering-Plough S.A. Colombia P.T. Schering-Plough Indonesia Indonesia Plough Benelux S.A. Belgium Plough Consumer Products (Asia) Ltd. Hong Kong Schering Canada, Inc. Canada Pharmaco (Canada) Ltd. Canada White Laboratories of Canada Limited Canada Wesley-Jessen (Canada) Inc. Canada Schering-Plough del Caribe, Inc. New Jersey Schering-Plough Corporation, U.S.A. Delaware Schering-Plough (Grenada) Limited Grenada Schering-Plough Holdings Ltd. United Kingdom Dashtag United Kingdom Fulford (India) Limited India Schering-Plough (India) Private Ltd. India Plough Services A.G. Switzerland Plough (UK) Limited United Kingdom Schering-Plough Investments Limited Delaware Schering-Plough Overseas Limited Delaware S-P RIL Limited United Kingdom Warrick Pharmaceuticals Limited United Kingdom Kirby-Warrick Pharmaceuticals Limited United Kingdom Schering-Plough Limited United Kingdom White Laboratories Ltd. United Kingdom Wesley-Jessen France France Schering-Plough Coordination Center N.V./S.A. Belgium Wesley-Jessen Limited United Kingdom State or Country of Incorporation Subsidiaries of Registrant or Organization Schering Corporation (New Jersey) (continued) Schering-Plough International, Inc. (Delaware) (continued) Schering-Plough HealthCare Products Canada Inc. Canada Schering-Plough Ltd. Switzerland Chemibiotic (Ireland) Ltd. Ireland Loftus Bryan Chemicals Ltd. Ireland Irish Fine Chemicals Ireland Scherico Ltd. Switzerland AESCA Chemisch-Pharmazeutische Fabrik GmbH Austria Astra Italia S.p.A. Italy Essex Chemie A.G. Switzerland Werthenstein Chemie A.G. Switzerland Essex Chemie A.G. (East) Switzerland Essex Pharma GmbH Germany Essex Pharma S.A. Greece Farmaceutica Essex S.A. Spain Plough Trading Ltd. Switzerland Scherag (Proprietary) Limited South Africa Med-Nim (Proprietary) Limited South Africa Schering-Plough France Schering-Plough AB Sweden Pro Medica AB Sweden Schering-Plough A/S Denmark Schering-Plough B.V. Netherlands Schering-Plough Farma, Lda Portugal Plough/OTC Farma Lda. Portugal Schering-Plough Labo N.V. Belgium Schering-Plough Limited Iran Schering-Plough A/S Norway Schering-Plough N.V./S.A. Belgium Schering-Plough OY Finland Schering-Plough Pharmaceutical Industrial and Commercial S.A. Greece Plough (Hellas) Ltd. Greece Schering-Plough S.A. Luxembourg Schering-Plough S.A. Spain Desarrollos Farmaceuticos y Cosmeticos S.A. Spain Schering-Plough Sante Animale France Schering-Plough S.p.A. Italy Sentipharm A.G. Switzerland Wesley-Jessen S.p.A. Italy Wesley-Jessen S.A. Spain State or Country of InCorporation Subsidiaries of Registrant or Organization Schering Corporation (New Jersey) (continued) Schering-Plough International, Inc. (Delaware) (continued) Schering-Plough Ltd. (Switzerland) (continued) SOL Limited Bermuda Beneficiadora e Industrializadora, S.A. de C.V. Mexico Scheramex, S.A. de C.V. Mexico Schering-Plough, S.A. de C.V. Mexico SBI - Distribuidora de Productos Farmaceuticos Ltda. Brazil Industria Quimica e Farmaceutica Schering-Plough Ltda. Brazil EssexFarm S.A. Ecuador Schering-Plough Corporation South Korea Laboratorios Essex S.A. Argentina Essex Farmaceutica, S.A. Columbia Plough Chile Ltda. Chile Plough Consumer Products (Philippines) Inc. Philippines S.C.A. - Stabilimenti Chimici dell'Adda, S.p.A. Italy Schering-Plough, C.A. Venezuela Schering-Plough China Limited Bermuda Schering-Plough Compania Limitada Chile Schering-Plough Corporation Philippines Schering-Plough INT Limited United Kingdom Schering-Plough Kabushiki Kaisha Japan Schering-Plough Limited Taiwan Schering-Plough Limited Thailand Schering-Plough Pty. Limited Australia Schering-Plough S.A. Argentina Schering-Plough S.A. Panama Schering-Plough S.A. Uruguay Schering-Plough Sdn. Bhd. Malaysia Sentipharm Hong Kong Ltd. Hong Kong Schering Sales Corporation Delaware Schering Laboratories Advertising Inc. Delaware Schering Transamerica Corporation New Jersey Wesley-Jessen Corporation Delaware W-J Manufacturing Corporation Delaware Wesley-Jessen (Japan) K.K. Japan White Laboratories, Inc. New Jersey State or Country of Incorporation Subsidiaries of Registrant or Organization Schering-Plough HealthCare Products, Inc. Delaware Cacene, C.A. Venezuela Calzado Confort C.A. Venezuela Casacen, C.A. Venezuela Dr. Scholl's Foot Comfort Shops, Inc. Delaware Industrias Arco, Ltda. Costa Rica Ortopedia Nacional de Venezuela C.A. Venezuela Pharmaco, Inc. Delaware Plough de Venezuela, C.A. Venezuela Plough Laboratories, Inc. Tennessee PPL, Inc. Tennessee Schering-Plough HealthCare Products Advertising Corporation Tennessee Schering-Plough HealthCare Products Sales Corporation California SUNTAN Sensations, Inc. California Technobiotic Limited Australia The Coppertone Corporation Florida SP HealthCare Products Corporation Delaware Schering-Plough HealthCare Holding Company Delaware EX-24 7 EXHIBIT 24 EXHIBIT 24 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statements No. 2-83963, No. 33-19013, and No. 33-50606 on Form S-8, Post-Effective Amendment No. 1 to Registration Statement No. 2-84723 on Form S-8, Post-Effective Amendment No. 1 to Registration Statement No. 2-80012 on Form S-3 and Post-Effective Amendment No. 1 to Registration Statement No. 2-77740 on Form S-15 of our reports dated February 15, 1994, appearing in and incorporated by reference in this Annual Report on Form 10-K of Schering-Plough Corporation for the year ended December 31, 1993. /s/DELOITTE & TOUCHE Parsippany, New Jersey March 4, 1994 EX-25 8 EXHIBIT 25 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned officers and/or directors of Schering-Plough Corporation, a New Jersey corporation (herein called the "Corporation"), does hereby constitute and appoint John T. Fogarty, Thomas H. Kelly and Benjamin Croce, or any of them, his or her true and lawful attorney or attorneys and agent or agents, to do any and all acts and things and to execute any and all instruments which said attorney or attorneys and agent or agents may deem necessary or advisable to enable the Corporation to comply with the Securities Exchange Act of 1934, as amended, and any rules, regulations, requirements or requests of the Securities and Exchange Commission thereunder or in respect thereof in connection with the filing under said Act of the Annual Report of the Corporation on Form 10-K for the fiscal year ended December 31, 1993 (herein called the "Form 10-K); including specifically, but without limiting the generality of the foregoing, the power and authority to sign the respective names of the undersigned officers and/or directors as indicated below to the Form 10-K and/or to any amendment of the Form 10-K and each of the undersigned does hereby ratify and confirm all that said attorney or attorneys and agent or agents, or any of them, shall do or cause to be done by virtue hereof. IN WITNESS WHEREOF, each of the undersigned has subscribed these presents this 22nd day of February, 1994. /s/ Robert P. Luciano /s/ Richard J. Kogan Robert P. Luciano, Chairman and Richard J. Kogan, President Chief Executive Officer; Director and Chief Operating Officer; Director /s/ Harold R. Hiser, Jr. /s/ Thomas H. Kelly Harold R. Hiser, Jr. Executive Thomas H. Kelly, Vice President Vice President-Finance; and Controller; Principal Principal Financial Officer Accounting Officer /s/ Hans W. Becherer /s/ Richard de J. Osborne Hans W. Becherer, Director Richard de J. Osborne, Director /s/ Hugh A. D'Andrade /s/ William A. Schreyer Hugh A. D'Andrade, Director William A. Schreyer, Director /s/ Virginia A. Dwyer /s/ Robert F. W. van Oordt Virginia A. Dwyer, Director Robert F. W. van Oordt, Director /s/ David C. Garfield /s/ R. J. Ventres David C. Garfield, Director R. J. Ventres, Director /s/ Regina E. Herzlinger /s/ James Wood Regina E. Herzlinger, Director James Wood, Director /s/ H. Barclay Morley H. Barclay Morley, Director -----END PRIVACY-ENHANCED MESSAGE-----