-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, J0AmMdKMUn4WQK+Zy66FD+WXJ8PXjer+lCvk1NaTTLzShXTgiNGFkBHxeeD6uNk5 4Q8GjeNN8snZ9Yalfb5exw== 0000310158-96-000005.txt : 19960229 0000310158-96-000005.hdr.sgml : 19960229 ACCESSION NUMBER: 0000310158-96-000005 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960228 SROS: BSE SROS: CSE SROS: CSX SROS: NYSE SROS: PHLX SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SCHERING PLOUGH CORP CENTRAL INDEX KEY: 0000310158 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 221918501 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-06571 FILM NUMBER: 96527329 BUSINESS ADDRESS: STREET 1: ONE GIRALDA FARMS CITY: MADISON STATE: NJ ZIP: 07940-1000 BUSINESS PHONE: 2018227000 10-K 1 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, 1995 Commission file number 1-6571 SCHERING-PLOUGH CORPORATION Incorporated in New Jersey 22-1918501 One Giralda Farms (I.R.S. Employer Madison, New Jersey 07940-1000 Identification No.) (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, 1996: 364,253,452 Aggregate market value of common shares at January 31, 1996 held by non-affiliates based on closing price: $19.7 billion. Documents incorporated Part of Form 10-K by reference incorporated into Schering-Plough Corporation 1995 Annual Report to Shareholders Parts I, II and IV Schering-Plough Corporation Proxy Statement for the annual meeting of shareholders on April 23, 1996 Part III Part I Item 1. Business General The terms "Schering-Plough" and the "Company," as used herein, refer to Schering-Plough Corporation and its subsidiaries, except as otherwise indicated by the context. Schering-Plough Corporation is a holding company which was incorporated in 1970. Subsidiaries of Schering-Plough Corporation are engaged in the discovery, development, manufacturing and marketing of pharmaceutical and health care products worldwide. Products include prescription drugs, 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 1995 Annual Report to Shareholders is incorporated herein by reference. The company sold its contact lens business in 1995 and has reported the business as a discontinued operation. Sales by major product groups for continuing operations for each of the three years in the period ended December 31, 1995 were as follows (dollars in millions): 1995 1994 1993 Respiratory $1,834 $1,465 $1,185 Anti-infective and Anticancer 1,031 939 1,032 Dermatologicals 515 488 443 Cardiovasculars 408 333 316 Other Pharmaceuticals 493 489 399 OTC 250 264 312 Foot Care 240 248 240 Animal Health 190 167 154 Sun Care 127 129 131 Other Health Care Products 16 15 17 Consolidated Sales $5,104 $4,537 $4,229 Pharmaceutical Products The Company's pharmaceutical operations include prescription drugs and animal health products. Prescription products include: CELESTAMINE, CLARITIN, CLARITIN-D, POLARAMINE, PROVENTIL, THEO- DUR, TRINALIN, VANCENASE and VANCERIL, respiratory; CEDAX, EULEXIN, GARAMYCIN, INTRON A, ISEPACIN and NETROMYCIN, anti- infective and anticancer; DIPROLENE, DIPROSONE, ELOCON, LOTRISONE, QUADRIDERM and VALISONE, dermatologicals; IMDUR, K-DUR, NITRO-DUR and NORMODYNE, cardiovasculars; CELESTONE, DIPROSPAN, LOSEC, NOIN, and PALACOS, other pharmaceuticals. Animal health biological and pharmaceutical products include antibiotics, vaccines, anti-arthritics, steroids and nutritionals. Major animal health products are: GENTOCIN and NUFLOR, antibiotics; BANAMINE, an anti-arthritic; OTOMAX, a steroid ointment and OPTIMMUNE, an ophthalmic ointment. 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, consumer advertising and by distributing samples to physicians. Animal health products are promoted and sold by a separate sales force to veterinarians, distributors and animal producers. 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 tablets, syrup and solution have been subject to generic competition. The Company, through its Warrick Pharmaceuticals subsidiary, currently markets these generic formulations of albuterol, as well as other generic pharmaceuticals. In December 1995, the U.S. Food and Drug Administration (the "FDA") granted marketing clearance to a generic albuterol metered-dose inhaler (MDI). In response to the approval of a generic albuterol MDI, the Company's Warrick subsidiary introduced its own generic albuterol inhaler. The approval of a generic albuterol MDI will negatively affect future sales and profitability for the Company's PROVENTIL inhaler franchise. 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. 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, high product quality, varied dosage forms and strengths, disease management programs, and educational services for the medical community. Health Care Products The product categories in the health care segment are OTC medicines, foot care and sun care products primarily sold in the United States. Products include: AFRIN and DURATION nasal decongestants; CHLOR-TRIMETON antihistamine; CORICIDIN and DRIXORAL cold and decongestant products; CORRECTOL laxative; CLEAR AWAY and DUO wart removers; DI-GEL antacid; GYNE-LOTRIMIN for vaginal yeast infections; DR. SCHOLL'S foot care products; LOTRIMIN AF and TINACTIN antifungals; COPPERTONE, SHADE, SOLARCAINE and TROPICAL BLEND sun care products; A & 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 very important 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 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 and antifungals 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 circum- stances 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 nationalization, expropriation, importation limitations and other restrictive governmental actions. Also, fluctuations in foreign currency exchange rates can 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 1995 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 five years to 40 percent of the pre-amendment level. Under present U.S. tax laws, accumulated funds generated from operations in Puerto Rico can be remitted tax-free to the parent company. Under 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. 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 $656.9 million, $610.1 million and $567.3 million in 1995, 1994, and 1993, respectively. Research expenditures represented approximately 13 percent of consolidated sales in each of the three years. 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, gene therapy and immunology. Research activities include expenditures for both internal research efforts and research collaborations with various partners. 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 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 increasingly competitive pricing as managed care groups, institutions and governments seek price discounts. In most international markets, the Company operates in an environment of government-mandated cost containment programs. Several governments have placed restrictions on physician prescription levels and patient reimbursements, emphasized greater use of generic drugs and enacted across-the- board price cuts as methods of cost control. Since the Company is unable to predict the final form and timing of any future domestic and international governmental or other health care initiatives, their effect on operations and cash flows cannot be reasonably estimated. 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 made and will continue to make necessary expenditures for environmental protection. Worldwide capital expenditures during 1995 included approximately $16.6 million for environmental control purposes. It is anticipated that continued compliance with such environmental regulations will not significantly affect the Company's financial statements 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 1995 Annual Report to Shareholders which is incorporated herein by reference. Employees There were approximately 20,100 people employed by the Company at December 31, 1995. Item 2. Properties The Company's corporate headquarters is located in Madison, New Jersey. Principal manufacturing facilities are located in Kenilworth, New Jersey, 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). Other manufacturing facilities are located in Omaha, Nebraska. In addition, a manufacturing facility for pharmaceutical products is currently under construction in Singapore. This facility is scheduled for completion by 1997. 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 are owned by the Company. These properties are well maintained, adequately insured and in good operating condition. The Company's manufacturing facilities 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 more than 95 lawsuits arising out of the use of synthetic estrogens by the mothers of the plaintiffs. In many of these lawsuits, one being an alleged class action, 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 more than $2 billion. While it is not possible to precisely predict the outcome of these proceedings, it is management's opinion that it is remote that any material liability in excess of the amounts accrued will be incurred. The Company is a party to, or otherwise involved in, environmental clean-ups or proceedings under the Comprehensive Environmental Response, Compensation and Liability Act, commonly known as Superfund, or under equivalent state laws. 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 or private parties for their clean-up costs. The Company is alleged to be a potentially responsible party ("PRP") as an alleged generator of hazardous substances found at certain facilities. In each proceeding, the government or private litigants allege that any one PRP, including 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 PRP's are involved in the proceedings, insurance coverage, available indemnity contracts and contribution rights against other PRP's or parties. While it is not possible to precisely predict the outcome of these proceedings, it is management's opinion that it is remote that any material liability in excess of amounts accrued will be incurred. In 1994, a judgment in the amount of $63.6 million, including $57.5 million in punitive damages, was entered against the Company in state court in Portland, Oregon in connection with a product liability lawsuit involving THEO-DUR. An appeal from the judgment has been taken. While the success of the appeal cannot be predicted with certainty, the Company will vigorously pursue its case through the appellate courts. The Company currently has insurance coverage for amounts in excess of a $3 million self- insured retention. The Company is a defendant in more than 150 antitrust actions commenced in state and federal courts by independent retail pharmacies, chain retail pharmacies, and consumers. The plaintiffs allege price discrimination and/or conspiracy between the Company and other defendants to restrain trade by jointly refusing to sell prescription drugs at discounted prices to the plaintiffs. One of the federal cases, pending in the United States District Court for the Northern District of Illinois, is a class action on behalf of approximately two-thirds of all retail pharmacies in the United States alleging a price-fixing conspiracy. The Company has agreed, subject to court approval, to settle the federal class action for a total of $22.1 million payable over three years. In the event that the court does not approve the settlement, the class action is likely to go to trial in mid-1996. Two of the state cases, which were commenced in the San Francisco County Superior Court in 1995, have been certified as class actions in California. One is a class action on behalf of certain retail pharmacies, and the other is a class action on behalf of certain consumers of prescription medicine. A third state case, which was commenced in the Circuit Court of Clark County, Alabama in 1996, has been conditionally certified as a class action in Alabama on behalf of certain consumers of prescription medicine. Another of the actions, which was commenced in June 1994 by a group of nine chain food stores, including The Great Atlantic and Pacific Tea Company, Inc. ("A&P"), against three mail order pharmacies and 16 drug manufacturers, is pending in the United States District Court for the Northern District of Illinois. Mr. James Wood, a director of the Company, is an executive officer of A&P. Mr. Wood does not participate in any review or deliberations by the Board of Directors relating to this action. Plaintiffs in all cases seek treble damages and/or penalties in an unspecified amount and an injunction against the allegedly unlawful conduct. The Company believes that all these actions are without merit and is defending itself vigorously against all such claims. 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 1996; Chairman 62 Chairman of the Board and Chief Executive Officer 1986-1995 Richard J. Kogan Present position 1996; 54 President and President and Chief Chief Executive Officer Operating Officer 1986-1995 Hugh A. D'Andrade Present position 1996; 57 Vice Chairman and Executive Vice President Chief Administrative Officer Administration 1984-1995 Raul E. Cesan Present position 1994; 48 Executive Vice President President Schering and President Laboratories 1992-1994; Schering-Plough President Schering-Plough Pharmaceuticals International 1988-1992 Donald R. Conklin Present position 1994; 59 Executive Vice President Executive Vice President and President and President Schering-Plough Schering-Plough HealthCare Products Pharmaceuticals 1989-1994 Joseph C. Connors Present position 1996; 47 Executive Vice President Senior Vice President and and General Counsel General Counsel 1992-1995; Vice President and General Counsel 1991; Staff Vice President and Deputy General Counsel 1987-1991 Jack L. Wyszomierski Present position 1996; 40 Executive Vice President Vice President and Treasurer and Chief Financial Officer 1991-1995 Geraldine U. Foster Present position 1994; 53 Senior Vice President Vice President - Investor Investor Relations and Relations 1988-1994 Corporate Communications Name and Current Position Business Experience Age Daniel A. Nichols Present position 1991; Vice 55 Senior Vice President President Taxes 1983-1991 Taxes Gordon C. O'Brien Present position 1988 55 Senior Vice President Human Resources Thomas H. Kelly Present position 1991 46 Vice President and Controller Robert S. Lyons Present position 1991 55 Vice President Corporate Information Services E. Kevin Moore Present position 1996; 43 Vice President and Staff Vice President and Treasurer Assistant Treasurer 1993-1995; Treasurer-Europe, The Dun and Bradstreet Corporation 1990-1993 John E. Nine Present position 1996; 59 Vice President President - Technical Operations and President, Schering Schering Laboratories 1990-1995 Technical Operations William J. Silbey Present position 1996; 36 Staff Vice President, Corporate Counsel 1993-1995; Secretary and Associate Partner - Stearns, Weaver, Miller, General Counsel Weissler, Alhadeff & Sitterson, P.A. 1992-1993, Associate 1991 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 1995 Annual Report to Shareholders are incorporated herein by reference. Item 6. Selected Financial Data The Six-Year Selected Financial & Statistical Data as set forth in the Company's 1995 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 1995 Annual Report to Shareholders is incorporated herein by reference. Item 8. Financial Statements and Supplementary Data The Consolidated Balance Sheets as of December 31, 1995 and 1994, 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, 1995, Notes to Consolidated Financial Statements, the Independent Auditors' Report of Deloitte & Touche LLP dated February 14, 1996 and Quarterly Results of Operations, as set forth in the Company's 1995 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 shareholders on April 23, 1996 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 23, 1996 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 23, 1996 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 23, 1996 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 1995 Annual Report to Shareholders, are incorporated herein by reference. Statements of Consolidated Income for the Years Ended December 31, 1995, 1994 and 1993 Statements of Consolidated Retained Earnings for the Years Ended December 31, 1995, 1994 and 1993 Statements of Consolidated Cash Flows for the Years Ended December 31, 1995, 1994 and 1993 Consolidated Balance Sheets at December 31, 1995 and 1994 Notes to Consolidated Financial Statements Independent Auditors' Report (a) 2. Financial Statement Schedules Page in Form 10-K Independent Auditors' Report . . . . . . . . . . . . 19 Schedule II - Valuation and Qualifying Accounts. . . 20 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 Number Description 3(a) A complete copy of the Certificate of Incorporation as amended and currently in effect. Incorporated by reference to Exhibit 3 (i) to the Company's Quarterly Report for the period ended June 30, 1995 on Form 10-Q, File No. 1-6571. 3(b) A complete copy of the By-Laws as amended and currently in effect. Incorporated by reference to Exhibit 4(2) to the Company's Registration Statement on Form S-3, File No. 333-853. 4(a) Rights Agreement between the Company and The Bank of New York dated July 25, 1989. Incorporated by reference to Exhibit 4 to the Company's Quarterly Report for the period ended June 30, 1989 on Form 10-Q, File No. 1-6571. 4(b) Indenture dated as of November 1, 1982 between the Company and The Chase Manhattan Bank, N.A. as Trustee. Incorporated by reference to Exhibit 4(a) to the Company's Registration Statement on Form S-3, File No. 2-80012. 4(c) Supplemental Indenture No. 1 dated as of November 1, 1991 to Indenture dated as of November 1, 1982. Incorporated by reference to Exhibit 4.1 to the Company's Report on Form 8-K dated November 20, 1991, File No. 1-6571. Exhibit Number Description 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, File No. 1-6571. 4(e) LYNX Equity Unit Guarantee Agreement. Incorporated by reference to Exhibit 10.1 to the Company's Report on Form 8-K dated October 1, 1991, File No. 1-6571. 4(f) Form of Participation Rights Agreement between The Company and The Chase Manhattan Bank (National Association), as Trustee. Incorporated by reference to Exhibit 4.6 to the Company's Registration Statement on Form S-4, Amendment No. 1, File No. 33-65107. 10(a) The Company's Executive Incentive Plan (as amended) and Trust related thereto*. Plan incorporated by reference to Exhibit 10 to the Company's Quarterly Report for the period ended March 31, 1994 on Form 10-Q; Trust Agreement incorporated by reference to Exhibit 10(a) to the Company's Annual Report for 1988 on Form 10-K, File No. 1-6571. 10(b) The Company's 1983 Stock Incentive Plan (as amended)*. Incorporated by reference to Exhibit 10(c) to the Company's Annual Report for 1988 on Form 10-K, File No. 1-6571. 10(c) The Company's 1987 Stock Incentive Plan (as amended)*. Incorporated by reference to Exhibit 10(d) to the Company's Annual Report for 1990 on Form 10-K, File No. 1-6571. 10(d) The Company's 1992 Stock Incentive Plan (as amended)*. Incorporated by reference to Exhibit 10(d) to the Company's Annual Report for 1992 on Form 10-K, File No. 1-6571; amendment of December 11, 1995 filed with this document. 10(e)(i) Employment agreement between the Company and Robert P. Luciano (as amended).* Incorporated by reference to Exhibit 10(e) (i) to the Company's Annual Report for 1989 on Form 10-K; first amendment incorporated by reference to Exhibit 10(a) to the Company's Quarterly Report for the period ended June 30, 1994 on Form 10-Q; second amendment incorporated by ref- erence to Exhibit 10(e)(i) to the Company's Annual Report for 1994 on Form 10-K, File No. 1-6571. Exhibit Number Description 10(e)(ii) Employment agreement between the Company and Richard J. Kogan (as amended)*. Incorporated by reference to Exhibit 10(e)(ii) to the Company's Annual Report for 1989 on Form 10-K; first amendment incorporated by reference to Exhibit 10(b) to the Company's Quarterly Report for the period ended June 30, 1994 on Form 10-Q; second amendment incorporated by reference to Exhibit 10(e)(ii) to the Company's Annual Report for 1994 on Form 10-K; third amendment incorporated by reference to Exhibit 10(a) to the Company's Quarterly Report for the period ended September 30, 1995 on Form 10-Q, File No. 1-6571. 10(e)(iii) Employment agreement between the Company and Hugh A. D'Andrade (as amended)*. Incorporated by reference to Exhibit 10(c) to the Company's Quarterly Report for the period ended June 30, 1994 on Form 10-Q; first amendment incorporated by reference to Exhibit 10(e)(iii) to the Company's Annual Report for 1994 on Form 10-K, File No. 1-6571; second amendment filed with this document. 10(e)(iv) Form of employment agreement between the Company and its executive officers effective upon a change of control*. Incorporated by reference to Exhibit 10(e)(iv) to the Company's Annual Report for 1994 on Form 10-K, File No. 1-6571. 10(f) Directors Deferred Compensation Plan and Trust related thereto*. Plan incorporated by 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, File No. 1-6571. 10(g) Pension Plan for Directors and Trust related thereto*. Plan incorporated by 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 incorporated by reference to Exhibit 10(g) to the Company's Annual Report for 1993 on Form 10-K, File No. 1-6571. Exhibit Number Description 10(h) Supplemental Executive Retirement Plan and Trust related thereto*. Plan incorporated by reference to Exhibit 10(h) to the Company's Annual Report for 1987 on Form 10-K; amendments to Plan incorporated by reference to Exhibit 10(h) to the Company's Annual Report for 1994 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 incorporated by reference to Exhibit 10(g) to the Company's Annual Report for 1993 on Form 10-K, File No. 1-6571. 10(i) Directors' Stock Award Plan*. Incorporated by reference to Exhibit 10 to the Company's Quarterly Report for the period ended September 30, 1994 on Form 10-Q, File No. 1-6571. 10(j) The Company's Deferred Compensation Plan*. Plan incorporated by reference to Exhibit 10(b) to the Company's Quarterly Report for the period ended September 30, 1995 on Form 10-Q, File No. 1-6571. 11 Computation of Earnings Per Common Share. 12 Computation of Ratio of Earnings to Fixed Charges. 13 The Financial Section of the Company's 1995 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. 21 Subsidiaries of the registrant. 23 Consents of experts and counsel. 24 Power of attorney. 27 Financial Data Schedule. 99 Forward-looking statements by the Company. All other exhibits are not applicable. Copies of above exhibits will be furnished upon request. * Compensatory plan, contract or arrangement. (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 February 28, 1996 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 H. Barclay Morley Chairman and Director Director By * By * Richard J. Kogan Carl E. Mundy, Jr. President and Chief Executive Director Officer and Director By * By * Jack L. Wyszomierski Richard de J. Osborne Executive Vice President and Director Chief Financial Officer By * By * Thomas H. Kelly Patricia F. Russo Vice President and Controller Director and Principal Accounting Officer By * By * Hans W. Becherer William A. Schreyer Director Director By * By * Hugh A. D'Andrade Robert F. W. van Oordt Director Director By * By * David C. Garfield R. J. Ventres Director Director By * By * Regina E. Herzlinger James Wood Director Director *By /s/ Thomas H. Kelly Date February 28, 1996 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, 1995 and 1994 and the related statements of consolidated income, retained earnings and cash flows for each of the three years in the period ended December 31, 1995, and have issued our report thereon dated February 14, 1996; such financial statements and report are included in your 1995 Annual Report to Shareholders and are incorporated herein by reference. Our audits also included the financial statement schedule of Schering-Plough Corporation and subsidiaries, listed in Item 14. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express our opinion based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. /s/DELOITTE & TOUCHE LLP Parsippany, New Jersey February 14, 1996 SCHEDULE II SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993 (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 1995 Balance at beginning of year $ 44.0 $ 7.9 $ 5.6 $ 57.5 Additions: Charged to costs and expenses 14.9 74.3 12.1 101.3 Translation adjustment .3 (.1) - .2 Deductions from reserves (9.6) (74.0) (6.3) (89.9) Balance at end of year $ 49.6 $ 8.1 $ 11.4 $ 69.1 1994 Balance at beginning of year $ 30.5 $ 7.9 $ 6.5 $ 44.9 Additions: Charged to costs and expenses 17.1 62.4 3.2 82.7 Translation adjustment .6 (.1) .1 .6 Deductions from reserves (4.2) (62.3) (4.2) (70.7) Balance at end of year $ 44.0 $ 7.9 $ 5.6 $ 57.5 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 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
EX-10 2 Exhibit 10 (e) (iii) SECOND AMENDMENT TO EMPLOYMENT AGREEMENT THIS SECOND AMENDMENT to the Employment Agreement by and between SCHERING-PLOUGH CORPORATION, a New Jersey corporation (the "Company"), and HUGH A. D'ANDRADE (the "Employee") dated as of June 28, 1994, as amended as of March 1, 1995 (as so amended, the "Employment Agreement"), made and entered into as of this 11th day of December, 1995. WHEREAS, the Company and the Employee wish to amend the Employment Agreement as set forth below; NOW, THEREFORE, IN CONSIDERATION of the mutual promises, covenants and agreements set forth below, it is hereby agreed as follows: 1. Section 1 of the Employment Agreement is hereby amended to read in its entirety as follows: The Company agrees to employ the Employee and the Employee agrees to remain in the employ of the Company, in accordance with the terms and provisions of this Agreement, for the period beginning on January 1, 1996, and ending as of the close of business on December 31, 2000 (the "Employment Period"); provided, however, that the Employment Period shall be extended for an additional five-year period commencing on the Effective Date (as defined in Section 11(d) below) and ending on the fifth anniversary of the Effective Date; and provided further that unless on or before the December 1 immediately preceding each December 31 on which the Employment Period would otherwise end, either party delivers to the other party a written notice of its election to terminate such employment on such December 31, the Employment Period shall be extended for additional one-year periods commencing on the January 1 immediately succeeding such December 31 and ending on the following December 31; and provided further that, if not previously terminated, the Employment Period shall terminate on November 30, 2003. 2. The first sentence of Section 2(a) is hereby amended to read in its entirety as follows: During the Employment Period, the Employee shall be employed as Vice Chairman of the Board and Chief Administrative Officer of the Company, reporting to the Chief Executive Officer of the Company, and with the duties and powers held by him as of January 1, 1996 and such other duties consistent therewith as the Chief Executive Officer may assign him from time to time. 3. The second sentence of Section 11(a) is hereby amended by striking the words "Executive Vice President" and by substituting the words "Vice Chairman of the Board and Chief Administrative Officer." 4. The definition of "Change of Control" contained in Section 11(c) of the Employment Agreement shall be amended by adding the following proviso at the end of clause (i) of subparagraph (i) thereof: and provided, further, that if any Person's beneficial ownership of the Outstanding Company Voting Stock or Outstanding Company Voting Securities reaches or exceeds 20% as a result of a transaction described in clause (A) or (B) of the foregoing proviso, and such Person subsequently acquires beneficial ownership of additional common stock or voting securities of the Company, such subsequent acquisition shall be treated as an acquisition that causes such Person to own 20% or more of the Outstanding Company Voting Stock or Outstanding Company Voting Securities; 5. This Second Amendment shall become effective as of January 1, 1996. 6. Except as provided above, the Employment Agreement shall continue in effect without alteration as in effect on the date hereof. The Employment Agreement, as amended by this Second Amendment, constitutes the entire agreement of the parties and supersedes all prior agreements and understandings with respect to the subject matter hereof and thereof. IN WITNESS WHEREOF, the Employee and, pursuant to due authorization from its Board of Directors, the Company have caused this Agreement to be executed as of the day and year first above written. Hugh A. D'Andrade SCHERING-PLOUGH CORPORATION Robert P. Luciano Chairman of the Board 21083-1 EX-10 3 Exhibit 10 (d) SCHERING-PLOUGH CORPORATION Amendments to 1992 Stock Incentive Plan The 1992 Stock Incentive Plan is hereby amended as follows: 1. Paragraph 6(j) is hereby amended in its entirety to read as follows: (j) No option whose grant is intended to be exempt from Section 16(b) under the Securities Exchange Act of 1934, as amended, pursuant to Rule 16b-3 and the other rules and regulations promulgated thereunder shall be transferable other than as permitted by Section 16(b), Rule 16b-3 and such other rules and regulations and, except as permitted under Paragraph 6(k), no option granted pursuant to this Plan may be sold, assigned, transferred, pledged, hypothecated or otherwise disposed of, except by will or the laws of descent and distribution and, during the lifetime of the optionee, may be exercised only by such optionee. The optionee may designate in writing a beneficiary of the option in the event of his death. 2. Paragraph 6(k) is hereby redesignated as Paragraph 6(1), and the following new Paragraph 6(k) is hereby added: (k) The Committee may grant options that are transferable, or amend outstanding options to make them transferable, by the optionee (any such option so granted or amended a "Transferable Option") to one or more members of the optionee's immediate family, to a partnership of which the only partners are members of the optionee's immediate family, or to a trust established by the optionee for the benefit of one or more members of the optionee's immediate family, which grant, or as a result of such amendment, such option, is not intended to be exempt from Section 16(b) under the Securities Exchange Act of 1934 pursuant to Rule 16b-3 thereunder. For this purpose the term "immediate family" means the optionee's spouse, children and grandchildren. Consideration may not be paid for the transfer of a Transferable Option. A transferee described in this Paragraph 6(k) shall be subject to all terms and conditions applicable to the Transferable Option prior to its transfer. The stock option agreement with respect to a Transferable Option shall set forth its transfer restrictions, such stock option agreement shall be approved by the Committee, and only options granted pursuant to a stock option agreement expressly permitting transfer pursuant to this Paragraph 6(k) shall be so transferable. 21153-1 EX-11 4 Exhibit 11 SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES COMPUTATION OF EARNINGS PER COMMON SHARE 1/ (In millions, except per share figures)
Year Ended December 31, 1995 1994 1993 Earnings per Common Share, As Reported: Income from continuing operations before cumulative effect of accounting change . . . . . . . . . . . $1,053.0 $ 926.2 $ 815.6 Discontinued operations. . . . . . . . . (166.4) (4.2) 9.4 Cumulative effect of accounting change . - - (94.2) Net Income Applicable to Common Shares . . . . . . . . . . . $ 886.6 $ 922.0 $ 730.8 Average Number of Common Shares Outstanding. . . . . . . . . . . . . . 369.7 382.5 390.2 Earnings Per Common Share: Income from continuing operations before cumulative effect of accounting change . . . . . . . . . . . $ 2.85 $ 2.42 $ 2.09 Discontinued operations. . . . . . . . . (.45) (.01) .02 Cumulative effect of accounting change . - - (.24) Net Income per Common Share. . . . . . . $ 2.40 $ 2.41 $ 1.87 Earnings per Common Share, Assuming Full Dilution: (a) Average Number of Common Shares Outstanding . . . . . . . . . . . . 369.7 382.5 390.2 Shares Contingently Issuable for Stock Incentive Plans and Warrant Agreements. . . . . . . . . . . . . 6.1 4.1 4.4 Average Number of Common Shares and Common Share Equivalents Outstanding . . . . . . . . . . . . 375.8 386.6 394.6 Net Income Per Common Share Assuming Full Dilution . . . . . . $ 2.36 $ 2.38 $ 1.85 (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%. 1/ Amounts for 1994 and 1993 have been restated for the effect of discontinued operations and a 2-for-1 stock split.
EX-12 5 Exhibit 12 SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES \1 (Dollars in millions)
Year Ended December 31, 1995 1994 1993 1992 1991 1990 Income Before Income Taxes from Continuing Operations . . . . . . $1,394.7 $1,226.7 $1,073.1 $962.8 $847.6 $768.1 Add : Fixed Charges Interest Expense . . . . . . . . . 57.6 56.2 48.2 55.4 65.3 82.4 1/3 Rentals. . . . . . . . . . . . 10.5 8.7 8.0 7.7 7.0 6.9 Capitalized Interest . . . . . . . 11.4 11.4 12.7 15.8 11.8 6.3 Total Fixed Charges. . . . . . . 79.5 76.3 68.9 78.9 84.1 95.6 Less: Capitalized Interest . . . . . 11.4 11.4 12.7 15.8 11.8 6.3 Add : Amortization of Capitalized Interest. . . . . . . . 4.8 4.1 3.5 4.1 4.0 3.8 Earnings Before Income Taxes and Fixed Charges (other than Capitalized Interest) . . . . . . . $1,467.6 $1,295.7 $1,132.8 $1,030.0 $ 923.9 $861.2 Ratio of Earnings to Fixed Charges . 18.5 17.0 16.4 13.1 11.0 9.0 \1 Restated for the effect of discontinued operations. "Earnings" consist of income before income taxes and fixed charges (other than capitalized interest). "Fixed charges" consist of interest expense, capitalized interest and one-third of rentals which Schering-Plough believes to be a reasonable estimate of an interest factor on leases.
EX-13 6 Exhibit 13 Financial section of the Company's 1995 Annual Report to Shareholders. Management's Discussion and Analysis of Operations and Financial Condition In June 1995, the Company completed the sale of its worldwide contact lens business. The discussion of operations that follows excludes the Company's contact lens business, which has been treated as a discontinued operation for all periods presented. For additional information, see "Discontinued Operations" in the Notes to Consolidated Financial Statements on page 24. Sales Consolidated sales in 1995 totaled $5.10 billion, an increase of 13 percent over 1994, reflecting volume growth of 10 percent and favorable foreign exchange rate fluctuations of 3 percent. This performance was primarily due to significant sales gains for the CLARITIN brand of nonsedating antihistamines that includes CLARITIN-D, a combination product with a decongestant, launched domestically in November 1994. Worldwide CLARITIN brand sales totaled $789 million in 1995, compared with $505 million in 1994. Consolidated 1994 sales of $4.54 billion advanced 7 percent over 1993, reflecting volume growth of 5 percent and price increases of 2 percent. The CLARITIN brand had dramatic sales growth, but sales of INTRON A, the Company's alpha interferon anticancer and antiviral agent, declined. Worldwide 1995 pharmaceutical sales of $4.47 billion rose 15 percent over 1994, reflecting volume growth of 12 percent and favorable foreign exchange rate fluctuations of 3 percent. Worldwide sales of pharmaceutical products in 1994 increased 10 percent over 1993, due to volume growth of 7 percent, price increases of 2 percent and favorable foreign exchange rate fluctuations of 1 percent. Domestic prescription pharmaceutical product sales grew 20 percent in 1995. Sales of respiratory products increased 29 percent, due to continued strong growth of the CLARITIN brand, the VANCENASE line of allergy products and the VANCERIL line of asthma products. The respiratory sales gain also reflected continued strong sales of the PROVENTIL (albuterol) line of asthma products, due to an increase in prescription levels for the metered-dose inhaler. Sales of the PROVENTIL line totaled $422 million in 1995, and the metered-dose inhaler contributed approximately 70 percent of this amount. The PROVENTIL formulations of solution, syrup and tablets have been subject to generic competition. In 1994, the Food and Drug Administration (FDA) issued bioequivalence standards for generic albuterol metered-dose inhalers, and subsequently in December 1995 a generic inhaler was approved. In response, the Company's generic pharmaceutical marketing subsidiary, Warrick Pharmaceuticals, introduced a generic inhaler in December 1995. Competition from generic metered-dose inhalers will negatively affect future PROVENTIL sales and profitability. Respiratory sales growth was moderated in 1995 by lower sales of THEO-DUR, a sustained-action theophylline, due to increased generic competition. Domestic sales of anti-infective and anticancer products rose 18 percent compared with 1994, due to gains for EULEXIN, a therapy for advanced prostate cancer, and INTRON A. In December 1995, marketing approval was received from the FDA for CEDAX, a third- generation cephalosporin antibiotic, which was launched in the first quarter of 1996. Sales of cardiovascular products advanced 23 percent, reflecting significant market share increases for IMDUR, an oral nitrate for angina, and K-DUR potassium supplement. Dermatological product sales declined 3 percent, due to lower sales of LOTRISONE, an antifungal/anti-inflammatory cream. Domestic prescription pharmaceutical sales in 1994 advanced 20 percent over 1993, led by gains in respiratory products, reflecting strong growth of the CLARITIN brand and advances for the VANCENASE and VANCERIL product lines. Sales of anti-infective and anticancer, dermatological and cardiovascular products also grew. In 1995, sales of international ethical pharmaceutical products increased 11 percent. Excluding the impact of foreign exchange rate fluctuations, sales would have risen approximately 5 percent. International sales of respiratory products advanced 11 percent over 1994, led by growth for CLARITIN in Europe and higher allergy product sales in Japan. Sales of cardiovascular products rose 17 percent, reflecting higher sales of NITRO-DUR transdermal nitroglycerin patches. Dermatological product sales increased 7 percent, largely due to strong gains for topical steroids in Europe. International sales of anti-infective and anticancer products grew 2 percent in 1995, due to gains for EULEXIN and CEDAX. Countering these gains were lower sales of INTRON A in Japan, as various actions by the Japanese health authorities to control health care costs resulted in a continued decline in the interferon market. Sales of INTRON A in Japan decreased to $94 million in 1995 from $141 million in 1994 and $307 million in 1993. INTRON A sales in all other international markets, however, grew 13 percent to $235 million, with notable increases occurring in most major European markets. Also contributing to the overall international sales growth in 1995 were continued gains for LOSEC, an anti-ulcer treatment licensed from AB Astra. In 1994, international ethical pharmaceutical sales, excluding foreign exchange, increased 1 percent over 1993, reflecting gains for respiratory, dermatological and cardiovascular products. These increases were offset by lower sales of anti-infective and anticancer products, which were driven by a substantial decline in INTRON A sales in Japan. Worldwide sales of animal health products increased 11 percent in 1995, excluding favorable foreign exchange rate fluctuations of 3 percent. Contributing to the growth were the international launch of NUFLOR, a broad-spectrum, multi-species antibiotic, and the U. S. and international launches of OPTIMMUNE, an ophthalmic ointment. Sales of animal health products in 1994 increased 8 percent over 1993. Changes in exchange rates did not affect the sales comparison. Sales of health care products in 1995 decreased 4 percent compared with 1994, as price increases of 2 percent were more than offset by volume declines of 6 percent. Over-the-counter (OTC) product sales declined 5 percent, largely due to increasingly competitive markets for vaginal antifungal products. Foot care and sun care sales declined moderately from 1994 levels. In 1994, health care product sales decreased 6 percent as volume declines of 9 percent were partially offset by price increases of 3 percent. The sales decline largely reflected lower sales of OTC products, primarily female health and allergy/cold products, moderated by higher foot care product sales. Income Before Income Taxes Income before income taxes totaled $1.39 billion in 1995, an increase of 14 percent over 1994. In 1994, income before income taxes of $1.23 billion grew 14 percent over the $1.07 billion in 1993. Summary of Costs and Expenses: (Dollars in millions)
% Increase 1995 1994 1993 1995/94 1994/93 Cost of sales . . . . . . $1,004.8 $ 906.8 $ 862.4 11 % 5 % % of sales . . . . . . . 19.7 % 20.0 % 20.4 % Selling, general and administrative . . . . . $1,990.4 $1,755.5 $1,698.5 13 % 3 % % of sales . . . . . . . 39.0 % 38.7 % 40.2 % Research and development. $ 656.9 $ 610.1 $ 567.3 8 % 8 % % of sales . . . . . . . 12.9 % 13.4 % 13.4 % ________________________________________________________________________________________
Cost of sales as a percentage of sales has followed a downward trend over the past three years. The improvement reflects a favorable sales mix of higher margin pharmaceutical products and continuing cost containment efforts throughout the world. Selling, general and administrative expenses in 1995 increased as a percentage of sales compared with 1994, resulting from increased promotional and selling-related spending for the CLARITIN brand and INTRON A in domestic and international markets. The 1994 decline as a percent of sales from 1993 reflects lower promotional spending for CLARITIN following the 1993 domestic launch, and reduced spending for female health products. Research and development expenses increased $46.8 million, or 8 percent, representing 12.9 percent of sales in 1995 and 13.4 percent of sales in 1994 and 1993. The higher spending reflects the Company's funding of both internal research efforts and research collaborations with various partners to develop a steady flow of innovative products and line extensions. Income Taxes The Company's effective tax rate was 24.5 percent in 1995 and 1994, and 24.0 percent in 1993. The effective tax rate for each period was lower than the U.S. statutory income tax rate, principally due to tax incentives in jurisdictions where the Company's primary manufacturing facilities are located. For additional information, see "Income Taxes" in the Notes to Consolidated Financial Statements on page 31. Income From Continuing Operations Income in 1995 increased 14 percent to $1.05 billion. Income in 1994 increased 14 percent over 1993. Differences in year-to-year exchange rates increased comparative income growth in 1995, but reduced it in 1994. After eliminating these exchange differences, income would have risen approximately 12 percent in 1995 and 15 percent in 1994. Accounting Change In 1993, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions." For additional information, see "Other Post-retirement Benefits" in the Notes to Consolidated Financial Statements on page 29. Earnings Per Common Share During the second quarter of 1995, the Board of Directors approved a 2-for-1 stock split. All per share amounts, shares outstanding and shares repurchased have been adjusted for the stock split.
1995 1994 1993 Earnings per common share from continuing operations $ 2.85 $ 2.42 $ 2.09 Discontinued operations - income (loss) from operations (.03) (.01) .02 Discontinued operations - loss on disposal (.42) - - Accounting change - - (.24) Earnings per common share $ 2.40 $ 2.41 $ 1.87 Average shares outstanding (in millions) 369.7 382.5 390.2
Earnings per common share from continuing operations rose 18 percent in 1995 and 16 percent in 1994. 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 increased comparative growth in earnings per common share in 1995, but reduced it in 1994. Excluding the impact of these exchange rate differences, earnings per common share from continuing operations would have increased approximately 16 percent in 1995 and 17 percent in 1994. Over the past three years, the Board of Directors has authorized several share repurchase programs. Under these programs, approximately 9.9 million common shares were purchased in 1995, 17.2 million common shares in 1994 and 14.0 million common shares in 1993. At year end, the most recent $500 million program was 96 percent complete. Environmental Matters The Company has obligations for environmental clean-up under various state, local and federal laws, including the Comprehensive Environmental Response, Compensation and Liability Act, commonly known as Superfund. Environmental expenditures have not had and, based on information currently available, are not anticipated to have a material impact on the Company's financial statements. For additional information, see "Legal and Environmental Matters" in the Notes to Consolidated Financial Statements on page 32. Foreign Exchange and Inflation Sales outside of the United States represented 45 percent of worldwide sales in 1995 and 46 percent in 1994. Fluctuating foreign exchange rates have affected sales and earnings, as previously discussed. Sales and earnings growth in 1996 will be negatively affected if the U.S. dollar strengthens. The Company continues to implement selective hedging strategies to mitigate the possible adverse effects of future exchange rate changes. For additional information on these strategies, see "Financial Instruments" in the Notes to Consolidated Financial Statements on page 24. Inflation has had a minimal impact on operations in recent years. Additional Factors Influencing Operations In the United States, many of the Company's pharmaceutical products are subject to increasingly competitive pricing as managed care groups, institutions and governments seek price discounts. In most international markets, the Company operates in an environment of government-mandated cost containment programs. Several governments have placed restrictions on physician prescription levels and patient reimbursements, emphasized greater use of generic drugs and enacted across-the-board price cuts as methods of cost control. Since the Company is unable to predict the final form and timing of any future domestic and international governmental or other health care initiatives, their effect on operations and cash flows cannot be reasonably estimated. Liquidity and Financial Resources Cash generated from operations continues to be the Company's major source of funds to finance working capital, additions to property, shareholder dividends and common share repurchases. Cash provided by operating activities totaled $1,383.3 million in 1995, $1,270.1 million in 1994 and $923.6 million in 1993. The 1993 amount was reduced by $147.0 million for the funding of the Company's accumulated post-retirement benefit obligation. Capital expenditures amounted to $293.8 million in 1995, $268.2 million in 1994 and $339.9 million in 1993. It is anticipated that expenditures will approximate $340 million in 1996 and include the construction of a bulk chemical plant in Singapore, and a manufacturing facility in Mexico. Commitments for 1996 capital expenditures totaled $129.8 million at December 31, 1995. Common shares repurchased in 1995 totaled 9.9 million shares at a cost of $493.8 million. In 1994, 17.2 million shares were repurchased for $599.4 million, and 14.0 million shares were repurchased in 1993 at a cost of $418.3 million. Dividend payments of $416.4 million were made in 1995, compared with $379.4 million in 1994 and $339.6 million in 1993. Dividends per common share were $1.125 in 1995, up from $.99 in 1994 and $.87 in 1993. Short-term borrowings totaled $841.3 million at year-end 1995, $782.3 million in 1994 and $1,076.0 million in 1993. A reclassification of $100 million for current maturities of long- term debt increased short-term borrowings in 1995. The decline in 1994 primarily reflects cash generated from domestic operations and the sale of investments. The Company's ratio of debt to total capital decreased to 36 percent in 1995 from 38 percent in 1994, resulting from a decrease in total debt and an increase in shareholders' equity. The Company's liquidity and financial resources continue to be sufficient to meet its operating needs. As of December 31, 1995, the Company had $822.6 million in unused lines of credit, of which $510.0 million was in support of commercial paper borrowings. The Company had A-1+ and P-1 ratings for its commercial paper, and AA and Aa3 general bond ratings from Standard & Poor's and Moody's, respectively, as of December 31, 1995. Securities Litigation Reform Act Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995: Except for the historical information contained herein, the matters discussed in this Annual Report are forward- looking statements that involve risk and uncertainties, including but not limited to economic, competitive, governmental and technological factors affecting the Company's operations, markets, products, services and prices, and other factors discussed in the Company's filings with the Securities and Exchange Commission. Schering-Plough Corporation and Subsidiaries Statements of Consolidated Income (Dollars in millions, except per share figures)
For The Years Ended December 31, 1995 1994 1993 Sales . . . . . . . . . . . . . . . . . . . . . $5,104.4 $4,536.6 $4,229.1 Costs and Expenses: Cost of sales . . . . . . . . . . . . . . . . 1,004.8 906.8 862.4 Selling, general and administrative . . . . . 1,990.4 1,755.5 1,698.5 Research and development. . . . . . . . . . . 656.9 610.1 567.3 Other expense, net. . . . . . . . . . . . . . 57.6 37.5 27.8 Total costs and expenses . . . . . . . . . . 3,709.7 3,309.9 3,156.0 Income before Income Taxes. . . . . . . . . . . 1,394.7 1,226.7 1,073.1 Income taxes. . . . . . . . . . . . . . . . . 341.7 300.5 257.5 Income from continuing operations before cumulative effect of accounting change . . . . 1,053.0 926.2 815.6 Discontinued operations: Income (loss) from operations . . . . . . . . (10.2) (4.2) 9.4 Loss on disposal . . . . . . . . . . . . . . . (156.2) - - ___________________________________________________________________________________ Income before cumulative effect of accounting change . . . . . . . . . . . . . . 886.6 922.0 825.0 Cumulative effect of accounting change . . . . - - (94.2) ___________________________________________________________________________________ Net Income. . . . . . . . . . . . . . . . . . . $ 886.6 $ 922.0 $ 730.8 Earnings per common share: Continuing operations. . . . . . . . . . . . . $ 2.85 $ 2.42 $ 2.09 Discontinued operations: Income (loss) from operations . . . . . . . . (.03) (.01) .02 Loss on disposal. . . . . . . . . . . . . . . (.42) - - Cumulative effect of accounting change . . . . - - (.24) ___________________________________________________________________________________ Earnings Per Common Share . . . . . . . . . . . $ 2.40 $ 2.41 $ 1.87 Statements of Consolidated Retained Earnings (Dollars in millions, except per share figures) For The Years Ended December 31, 1995 1994 1993 Retained Earnings, Beginning of Year. . . . . . $3,978.2 $3,435.6 $3,044.4 Net income. . . . . . . . . . . . . . . . . . 886.6 922.0 730.8 Cash dividends on common shares (per share: 1995, $1.125; 1994, $.99; and 1993, $.87). . (416.4) (379.4) (339.6) Effect of 2-for-1 stock split . . . . . . . . (106.6) - - ___________________________________________________________________________________ Retained Earnings, End of Year. . . . . . . . . $4,341.8 $3,978.2 $3,435.6 See Notes to Consolidated Financial Statements. /TABLE Schering-Plough Corporation and Subsidiaries Statements of Consolidated Cash Flows (Dollars in millions)
For The Years Ended December 31, 1995 1994 1993 Operating Activities: Income from continuing operations after the cumulative effect of accounting change. . . . . . . $1,053.0 $ 926.2 $ 721.4 Depreciation and amortization. . . . . . . . . . . . 157.1 144.6 130.9 Working capital changes - source (use): Accounts receivable . . . . . . . . . . . . . . . 11.3 75.2 47.8 Inventories . . . . . . . . . . . . . . . . . . . (63.7) (34.1) (22.3) Other current assets. . . . . . . . . . . . . . . (64.1) (109.9) (45.1) Accounts payable, income taxes and accrued liabilities. . . . . . . . . . . . . . . . . . . 283.3 161.6 100.4 Other, net . . . . . . . . . . . . . . . . . . . . . 6.4 106.5 (9.5) Net cash provided by operating activities. . . . . . 1,383.3 1,270.1 923.6 Investing Activities: Capital expenditures . . . . . . . . . . . . . . . . (293.8) (268.2) (339.9) Reduction of investments . . . . . . . . . . . . . . 45.3 181.0 192.7 Purchases of investments . . . . . . . . . . . . . . (93.2) (37.1) (287.1) Other, net . . . . . . . . . . . . . . . . . . . . . (1.8) (8.3) - Net cash used for investing activities (343.5) (132.6) (434.3) Financing Activities: Common shares repurchased. . . . . . . . . . . . . . (493.8) (599.4) (418.3) Cash dividends paid to common shareholders . . . . . (416.4) (379.4) (339.6) Net change in short-term borrowings. . . . . . . . . (46.0) (292.1) 120.9 Net change in long-term debt . . . . . . . . . . . . 1.3 3.7 (.6) Proceeds from other equity transactions. . . . . . . 44.4 33.1 33.7 Other, net . . . . . . . . . . . . . . . . . . . . . - - (62.4) Net cash used for financing activities . . . . . . . (910.5) (1,234.1) (666.3) Effect of Exchange Rates on Cash and Cash Equivalents. (3.2) (4.2) (1.4) Net Cash Flow from Continuing Operations . . . . . . . 126.1 (100.8) (178.4) Discontinued operations. . . . . . . . . . . . . . . . 79.7 (5.8) (5.7) Net Increase (Decrease) in Cash and Cash Equivalents . 205.8 (106.6) (184.1) Cash and Cash Equivalents, Beginning of Year . . . . . 115.6 222.2 406.3 Cash and Cash Equivalents, End of Year . . . . . . . . $ 321.4 $ 115.6 $ 222.2 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, 1995 1994 ASSETS __________________________________________________________________________ Current Assets: Cash and cash equivalents. . . . . . . . . . . $ 321.4 $ 115.6 Short-term investments . . . . . . . . . . . . .4 45.0 Accounts receivable, less allowances: 1995, $69.1; 1994, $57.5 . . . . . . . . . . 569.3 627.9 Inventories. . . . . . . . . . . . . . . . . . 502.0 466.3 Prepaid expenses, deferred income taxes and other current assets. . . . . . . . . . . 563.2 484.3 Total current assets . . . . . . . . . . . . . 1,956.3 1,739.1 Property, at cost: Land . . . . . . . . . . . . . . . . . . . . . 41.4 46.1 Buildings and improvements . . . . . . . . . . 1,528.2 1,450.4 Equipment. . . . . . . . . . . . . . . . . . . 1,250.8 1,283.7 Construction in progress . . . . . . . . . . . 315.6 269.5 Total. . . . . . . . . . . . . . . . . . . . . 3,136.0 3,049.7 Less accumulated depreciation. . . . . . . . . 1,037.1 967.4 Property, net. . . . . . . . . . . . . . . . . 2,098.9 2,082.3 Other Assets. . . . . . . . . . . . . . . . . . . . 609.4 504.3 $4,664.6 $4,325.7 1995 1994 LIABILITIES AND SHAREHOLDERS' EQUITY ___________________________________________________________________________ Current Liabilities: Accounts payable . . . . . . . . . . . . . . . $ 374.2 $ 285.2 Short-term borrowings and current portion of long-term debt . . . . . . . . . . . . . . . 841.3 782.3 U.S., foreign and state income taxes . . . . . 384.2 397.7 Accrued compensation . . . . . . . . . . . . . 205.1 170.5 Other accrued liabilities. . . . . . . . . . . 557.3 393.1 Total current liabilities. . . . . . . . . . . 2,362.1 2,028.8 Long-Term Liabilities: Long-term debt . . . . . . . . . . . . . . . . 87.1 185.8 Deferred income taxes. . . . . . . . . . . . . 255.1 246.1 Other long-term liabilities. . . . . . . . . . 337.4 290.6 Total long-term liabilities. . . . . . . . . . 679.6 722.5 Shareholders' Equity: Preferred shares - authorized 50,000,000, $1 par value; issued-none . . . . . . - - Common shares - authorized shares - 1995, 600,000,000; 1994, 300,000,000, $1 par value; shares issued - 1995, 502,965,382; 1994, 251,482,691. . . . . . . . 503.0 251.5 Paid-in capital. . . . . . . . . . . . . . . . 49.5 133.3 Retained earnings. . . . . . . . . . . . . . . 4,341.8 3,978.2 Foreign currency translation adjustment and other . . . . . . . . . . . . . . . . . . . . (103.9) (117.0) Total. . . . . . . . . . . . . . . . . . . . . 4,790.4 4,246.0 Less treasury shares, at cost - 1995, 138,796,653 shares; 1994, 65,468,430 shares . 3,167.5 2,671.6 Total shareholders' equity . . . . . . . . . . 1,622.9 1,574.4 $4,664.6 $4,325.7 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. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and use assumptions that affect certain reported amounts and disclosures; actual amounts may differ. Cash and Cash Equivalents Cash and cash equivalents include operating cash and highly liquid investments, generally with maturities of three months or less. Investments Effective January 1, 1994, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity Securities." Short-term investments are generally held to maturity. Other investments, included in other non-current assets, consist primarily of debt and equity securities held in non-qualified trusts to fund benefit obligations. For purposes of SFAS No. 115, all of the Company's investment securities are classified as available for sale and, accordingly, are carried at fair value. Unrealized gains and losses are included in shareholders' equity until realized. There was no effect on income upon adoption of SFAS No. 115. 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. Average useful lives are 50 years for buildings, 25 years for building improvements and 12 years for equipment. Depreciation expense was $142.7, $134.3 and $120.9 in 1995, 1994 and 1993, respectively. Intangible Assets Intangible assets, included in other non-current assets, principally include goodwill, patents, trademarks, licenses and product rights. Intangible assets are recorded at cost and amortized over their expected useful lives on the straight-line method. 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 account in shareholders' equity. For the remaining foreign subsidiaries, non-monetary assets and liabilities are translated using historical rates, while monetary assets and liabilities 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 foreign currency translation adjustment account. Other exchange gains and losses are included in income. Net foreign exchange losses included in income were $4.0, $6.0 and $12.8 in 1995, 1994 and 1993, 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 and 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. On April 4, 1995, the Board of Directors of the Company authorized a 2-for-1 stock split. The number of shares and the per share amounts included in these consolidated financial statements reflect the stock split. Discontinued Operations On June 28, 1995, the Company completed the sale of its worldwide contact lens business. In connection therewith, the Company recorded a loss on disposal of $156.2, net of a tax benefit of $75.3, ($.42 per share). Proceeds from the sale were $47.5. The contact lens business is reported as a discontinued operation for all periods presented. The statements of consolidated income, cash flows and related notes to consolidated financial statements have been restated to conform to the discontinued operations presentation. Contact lens sales during 1995 through the date of disposition were $46.2. Sales for the years ended December 31, 1994 and 1993 were $120.5 and $112.2, respectively. Income (loss) from discontinued operations for the years ended December 31, 1995, 1994 and 1993 is net of tax benefits of $7.0, $9.3 and $4.1, respectively. Financial Instruments The table below presents the carrying values and estimated fair values for the Company's financial instruments, including derivative financial instruments. Estimated fair values were determined based on market prices, where available, or dealer quotes. December 31, 1995 December 31, 1994
Carrying Estimated Carrying Estimated Value Fair Value Value Fair Value Assets: Cash and cash equivalents $321.4 $321.4 $115.6 $115.6 Short-term investments .4 .4 45.0 45.0 Other investments 142.2 142.2 83.0 83.0 Derivative Financial Instruments: Foreign currency put options .2 - .7 .4 Forward exchange contracts - - 2.4 2.4 Liabilities: Short-term borrowings 841.3 842.0 782.3 782.3 Long-term debt 87.1 88.9 185.8 189.2 Derivative Financial Instruments: Interest rate swap contracts 1.5 1.5 19.4 19.4 Foreign currency swap contracts 64.5 81.3 68.8 100.8
Credit and Market Risk Most 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 primarily by investing in short-term, highly liquid investments and, in the case of derivatives, by limiting the use of derivatives to hedging activities or by limiting potential exposure to amounts that are not material to results of operations or cash flow. The Company does not enter into derivative instruments to generate trading profits. Investments Short-term investments at December 31, 1994 consisted of certificates of deposit and municipal obligations. Other investments primarily consist of debt and equity securities held in non-qualified trusts to fund benefit obligations. Gains and losses during 1995 and 1994, based on the specific identification method, were not material. Derivatives The Company has not used derivative financial instruments to manage overall interest rate risk or overall exchange rate risk. Further, the Company has not used derivative financial instruments to speculate. The use of derivative financial instruments has been limited to: - Hedging selective foreign exchange exposures that arise from international operations, and - International cash management. Hedging Selective Foreign Exchange Exposures The profitability of the Company's foreign operations, as measured in U.S. dollars, is subject to exchange rate risk. If the U.S. dollar weakens, the profitability of foreign operations benefits. However, if the U.S. dollar strengthens, the profitability of foreign operations can be adversely affected. Historically, the level of pre-tax operating profitability subject to this kind of exchange risk has been as follows:
1995 1994 1993 Europe, Middle East and Africa $264.1 $235.5 $218.4 Latin America 104.5 101.8 77.2 Canada, Pacific Area and Asia 128.5 138.8 205.7
To date, management has not deemed it cost-effective to engage in a formula-based program of hedging the profitability of these operations using derivative financial instruments. Some of the reasons for this conclusion are: - The Company operates in a large number of foreign countries; the currencies of these countries generally do not move in the same direction at the same time. - Historically, the major groups of currencies in which the Company operates generally have not experienced dramatic changes on a year-to-year basis. - The Company's foreign subsidiaries purchase significant quantities of inventory payable in U.S. dollars. Managing the level of inventory and related payables and the rate of inventory turnover provides a level of protection against adverse changes in exchange rates. Anticipated Inventory Purchases On a selective basis, put option contracts have been used to hedge some of the anticipated inventory purchases of Company subsidiaries. Put option contracts provide the right to sell a fixed amount of a specified currency at a fixed price during a specified period or on a specified date. Realized gains on these contracts are accounted for as a reduction in the cost of inventory. Unrealized gains are not recognized for financial statement purposes. Losses on foreign currency put options are limited to the premiums paid. Premiums paid are recorded in other current and non-current assets and amortized to other expense, net over the life of the contract. Contracts outstanding at December 31, 1995, were not material. At December 31, 1994, yen option contracts were outstanding, which provided the Company the right to deliver 6.2 billion yen in exchange for $60.0 in 1995. Gains and costs in both 1995 and 1994 were not material. Financial Obligations On a selective basis, the Company will enter into forward exchange contracts to hedge near-term financial obligations denominated in a foreign currency. At December 31, 1995, there were no forward exchange contracts outstanding. At December 31, 1994, the Company's Mexican subsidiary held a forward contract with a notional principal of $7.0 and a maturity date of January 24, 1995. Under the contract, on January 24, the subsidiary received pesos equal to the difference between the spot rate and the contract rate of 3.28 times the notional principal. The market and net carrying value of this contract at December 31, 1994, was an asset of $2.4. Realized and unrealized gains and losses are recorded as foreign exchange gains and losses and offset the equivalent recorded loss or gain on the related financial obligations. Net Investment in Foreign Subsidiaries In the early 1980s, the Company significantly changed its operating structure in Japan. About the same time, the Company decided to partially hedge its net investment in Japan. At December 31, 1995, the net investment in the subsidiary was approximately 20.1 billion yen. Long-term foreign currency interest rate swap contracts have been used to hedge this net investment. Under contracts outstanding at December 31, 1995 and 1994, the Company will deliver 14.9 billion yen in exchange for $80.3 on various dates through 2005. The net contract liability is in other long-term liabilities. There have been no purchases, sales or maturities of these foreign currency contracts during 1995 and 1994. In accordance with SFAS No. 52, the foreign currency obligations under these contracts are recorded using foreign exchange spot rates in effect at year end. The Company estimates that a 50 basis point reduction in interest rates would favorably affect the fair value of these contracts by approximately $2.7 and a 1 percent stronger dollar-to-yen exchange rate would favorably affect the estimated fair value by approximately $1.4. The investment in the Japanese subsidiary is the only net investment that is hedged at year end using derivative financial instruments. International Cash Management In 1991 and 1992, the Company utilized interest rate swaps as part of its international cash management strategy. The Company employed the strategy in 1991 using an interest rate swap arrangement with a notional principal of $650 and in 1992 using an interest rate swap arrangement with a notional principal of $950. The $650 arrangement initially provided for the payment and receipt of interest based on two floating rates (LIBOR and average federal funds rates), and the $950 arrangement initially provided for the payment of interest based upon a floating rate (LIBOR) and the receipt of interest based upon two-year U.S. treasury rates. Both arrangements have 20-year terms. From 1993 to 1995, the Company changed the original market risk of these arrangements by entering into partially offsetting contracts. At December 31, 1995, the $650 and $950 arrangements provide for the payment of interest based upon LIBOR and the receipt of interest based upon an annual election of various floating rates. As a result, the Company remains subject to a moderate degree of market risk through maturity of the swaps. At December 31, 1995 and 1994, the market value of these arrangements was a liability of $1.5 and $19.4, respectively. It is estimated that a 50 basis point change in interest rate structure could change the market value of these arrangements by approximately $2.7. The above interest rate swaps are accounted for on a mark-to- market basis, and annual net cash flows for payments and receipts under the contracts are not material. Borrowings Short-term borrowings consist of commercial paper issued in the United States, bank loans and notes payable. Commercial paper outstanding at December 31, 1995 and 1994 was $689.0 and $601.7, respectively. Bank loans and notes payable at December 31, 1995 and 1994 totaled $52.1 and $178.2, respectively. The weighted- average interest rate for short-term borrowings at December 31, 1995 and 1994 was 6.1 percent and 6.4 percent, respectively. At December 31, 1995, unused domestic bank lines of credit, which were considered as support for commercial paper borrowings, were $510.0. These lines of credit do not require compensating balances; however, a nominal commitment fee is paid for these lines. The Company's foreign subsidiaries had available $312.6 in unused lines of credit from various financial institutions at December 31, 1995. 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:
1995 1994 Notes, 7.8%, due 1996 . . . . . . . . . . . . $100.0 $100.0 Industrial revenue bonds, 3.8%-12.0%, due 2001-2013 . . . . . . . . . . . . . . . 80.0 80.0 Other . . . . . . . . . . . . . . . . . . . . 7.3 8.2 187.3 188.2 Current maturities. . . . . . . . . . . . . . (100.2) (2.4) Total long-term debt. . . . . . . . . . . . . $ 87.1 $185.8
During 1992, 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 accumulated 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 1995 and 1994 balance sheets. 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, 1995, no debt securities have been issued pursuant to this registration. Interest Income and Interest Expense Interest income for 1995, 1994 and 1993 was $22.6, $17.2 and $23.8, respectively. Interest expense, net of amounts capitalized as part of the construction cost of property, plant and equipment, for 1995, 1994 and 1993 was $57.6, $56.2 and $48.2, respectively. Interest costs of $11.4, $11.4 and $12.7 in 1995, 1994 and 1993, respectively, have been capitalized and included in the cost of property, plant and equipment. Total cash payments for interest, net of amounts capitalized, were $56.3, $54.9 and $49.4 in 1995, 1994 and 1993, 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, 18 million of the Company's common shares 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 shares 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, 1994. . . . . 8,760,812 $ 4.40-$33.19 Granted . . . . . . . . . . . . . . 2,607,166 $29.82-$37.06 Exercised . . . . . . . . . . . . . (1,511,374) $ 4.40-$29.44 Canceled or expired . . . . . . . . (202,670) Outstanding at December 31,1994 . . . . 9,653,934 $ 4.94-$37.06 Granted . . . . . . . . . . . . . . 1,911,920 $39.06-$59.25 Exercised . . . . . . . . . . . . . (1,743,223) $ 4.94-$34.13 Canceled or expired . . . . . . . . (99,854) Outstanding at December 31, 1995. . . . 9,722,777 $ 8.00-$59.25 Exercisable at December 31, 1995. . . . 6,346,127
As of December 31, 1995 and 1994, there were 1,576,032 and 1,542,920 deferred stock units outstanding, respectively, under current and prior plans. There were 714,208 shares issued in 1995 and 1,014,772 shares issued in 1994. At December 31, 1995, there were 10,248,918 common shares available for future options or awards. 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:
1995 1994 1993 Service cost - benefits earned during the year. . . . . . . . . . . . . . . $ 29.1 $ 32.2 $ 25.9 Interest cost on projected benefit obligations . . . . . . . . . . . . . 47.0 42.0 40.3 Actual return on plan assets . . . . . (152.8) .5 (101.2) Net amortization and deferral . . . . . 78.8 (68.4) 38.1 Net pension expense . . . . . . . . . . $ 2.1 $ 6.3 $ 3.1
The year-to-year changes in the net amortization and deferral component of pension expense are principally attributable to differences between actual and expected returns on plan assets. The actuarial present value of benefit obligations and qualified assets of the plans at December 31 were as follows:
Over-funded Under-funded plans plans 1995 1994 1995 1994 Projected benefit obligations: Accumulated benefit obligations, including vested benefits of $571.4 in 1995 and $449.2 in 1994. . . $532.4 $426.4 $83.9 $ 73.0 Effect of future salary increases . . . 85.6 70.2 25.8 20.5 Total projected benefit obligations . . . 618.0 496.6 109.7 93.5 Plan assets at fair value, primarily stocks and bonds. . . . . . . 822.4 688.7 17.3 13.7 Plan assets over (under) projected benefit obligations . . . . . . . . . . 204.4 192.1 (92.4) (79.8) Unrecognized net transition (asset) liability . . . . . . . . . . . . . . . (77.4) (86.6) 6.1 6.6 Unrecognized prior service cost . . . . . 5.6 6.0 7.6 8.7 Unrecognized net (gain) loss. . . . . . . (9.8) (10.3) 20.9 15.3 Net pension asset (liability) . . . . . . $122.8 $101.2 $(57.8) $(49.2)
In addition to the plan assets indicated above, at December 31, 1995 and 1994, securities of $64.5 and $45.7, respectively, were held in non-qualified trusts designated to provide pension benefits for certain plans presented as under-funded. The discount rate used in determining the projected benefit obligation for the Company's U.S. plans was 7.0 percent at December 31, 1995, and 8.25 percent at December 31, 1994. The weighted-average discount rate for the Company's non-U.S. plans was 7.1 percent at December 31, 1995, and 7.4 percent at December 31, 1994. The weighted-average rate of increase in future compensation levels for all plans was 4.2 percent at December 31, 1995 and 1994. The weighted-average expected long-term rate of return on plan assets was approximately 10 percent for both years. The 1995 discount rate change increased the total projected benefit obligation by approximately $80.0. The remaining increase reflects 1995 service and interest costs. 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 $57.8, $56.4 and $54.8 in 1995, 1994 and 1993, 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 SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions." SFAS No. 106 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 $.24 per share. The Company elected to recognize this entire amount effective with the adoption of SFAS No. 106. The components of net post-retirement benefit expense (income) were as follows:
1995 1994 1993 Service cost - benefits earned during the year. . . $ 3.9 $ 5.7 $ 4.7 Interest cost on accumulated post-retirement benefit obligation . . . . . . . . . . . . . . . . 10.7 10.3 12.1 Actual return on plan assets. . . . . . . . . . . . (35.4) 2.0 (15.9) Net deferral. . . . . . . . . . . . . . . . . . . . 20.3 (15.5) 4.2 Post-retirement benefit expense (income). . . . . . $ (.5) $ 2.5 $ 5.1
The year-to-year changes in the net deferral component of post- retirement benefit expense (income) are principally attributable to differences between actual and expected returns on plan assets. The accumulated post-retirement benefit obligation and funded status at December 31, were as follows:
1995 1994 Accumulated post-retirement benefit obligation attributable to: Retirees. . . . . . . . . . . . . . . . . . . . . $83.4 $ 67.6 Fully eligible active plan participants . . . . . 30.1 24.6 Other active plan participants. . . . . . . . . . 50.4 38.2 Accumulated post-retirement benefit obligation. . . . 163.9 130.4 Plan assets at fair value, primarily stocks and bonds. . . . . . . . . . . . . 179.4 150.2 Plan assets in excess of accumulated post-retirement benefit obligation. . . . . . . . . . . . . . . . . 15.5 19.8 Unrecognized net gain . . . . . . . . . . . . . . . . (23.1) (27.6) Accrued post-retirement benefit liability . . . . . . $(7.6) $ (7.8)
The assumed health care cost trend rates used for measurement purposes were 9.8 percent for 1996, trending down to 5.0 percent by 2003. The weighted-average discount rate used was 7.0 percent at December 31, 1995, and 8.25 percent at December 31, 1994. The weighted-average expected long-term rate of return on plan assets was 9 percent at December 31, 1995 and 1994. 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. In January 1993, the Company fully funded its initial accumulated benefit obligation. Future funding is at the discretion of the Company. The 1995 discount rate change increased the accumulated benefit obligation by approximately $20.0. The remaining increase reflects 1995 service and interest costs. At December 31, 1995, a 1 percent increase in the assumed health care cost trend rate would increase the combined service and interest cost by approximately 14 percent and the accumulated post-retirement benefit obligation by approximately 13 percent. Shareholders' Equity On April 4, 1995, the Board of Directors voted to increase the number of authorized shares from 300 million to 600 million and approved a 2-for-1 stock split. Distribution of the split shares was made on June 9, 1995. The Company has Preferred Share Purchase Rights (the "Rights") outstanding that 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's 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 four-hundredth of a share of Series A Junior Participating Preferred Stock, par value $1 per share, of the Company at an exercise price of $62.50. 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 $.0025 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 millions):
Common Paid-in Treasury Shares Shares Capital Number Amount Balance at January 1, 1993. . . $251.5 $47.5 52.0 $1,655.6 Shares issued under stock incentive plans . . . . . . . - 41.8 (1.0) (4.0) Warrant transactions . . . . . - (8.4) - - Purchase of treasury shares. . - - 7.0 418.3 ____________________________________________________________________ Balance at December 31, 1993. . 251.5 80.9 58.0 2,069.9 Shares issued under stock incentive plans . . . . . . . - 52.4 (1.1) 2.3 Purchase of treasury shares. . - - 8.6 599.4 ____________________________________________________________________ Balance at December 31, 1994. . 251.5 133.3 65.5 2,671.6 Effect of 2-for-1 stock split. 251.5 (145.0) 65.4 - Shares issued under stock incentive plans . . . . . . . - 61.2 (2.0) 2.1 Purchase of treasury shares. . - - 9.9 493.8 ____________________________________________________________________ Balance at December 31, 1995. . $503.0 $ 49.5 138.8 $3,167.5
At December 31, 1995, warrants to purchase 15.3 million common shares are outstanding; 10.2 million warrants, exercisable during November 1996, have a strike price of $45 per share and 5.1 million warrants, exercisable during the 90-day period ended November 22, 1996, have a strike price of $48.67 per share. Inventories
Year-end inventories consisted of the following: 1995 1994 Finished products . . . . . . . . . . . . . . $213.2 $180.1 Goods in process. . . . . . . . . . . . . . . 179.4 193.8 Raw materials and supplies. . . . . . . . . . 109.4 92.4 Total inventories . . . . . . . . . . . . . . $502.0 $466.3
Inventories valued on a last-in, first-out basis comprised approximately 39 percent and 36 percent of total inventories at December 31, 1995 and 1994, respectively. The estimated replacement cost of total inventories at December 31, 1995 and 1994 was $549.7 and $520.1, respectively. Income Taxes U.S. and foreign operations contributed to income before income taxes as follows:
1995 1994 1993 United States. . . . . . . . . . . . . $ 916.7 $ 765.6 $ 587.8 Foreign. . . . . . . . . . . . . . . . 478.0 461.1 485.3 Total income before income taxes . . . $1,394.7 $1,226.7 $1,073.1
The components of income tax expense were as follows:
1995 1994 1993 Current: Federal. . . . . . . . . . . . . . . $262.1 $120.6 $117.4 Foreign. . . . . . . . . . . . . . . 93.7 119.2 121.7 State. . . . . . . . . . . . . . . . 29.3 19.6 6.9 Total current. . . . . . . . . . . . 385.1 259.4 246.0 Deferred: Federal and state. . . . . . . . . . (23.1) 51.3 8.0 Foreign. . . . . . . . . . . . . . . (20.3) (10.2) 3.5 Total deferred . . . . . . . . . . . (43.4) 41.1 11.5 Total income tax expense . . . . . . . $341.7 $300.5 $257.5
The difference between the U.S. statutory tax rate and the Company's effective tax rate was due to the following:
1995 1994 1993 U.S. statutory tax rate. . . . . . . . . 35.0% 35.0% 35.0% Increase (decrease) in taxes resulting from: Lower rates in other jurisdictions, net . . . . . . . . . . . . . . . . . (10.7) (9.8) (11.2) Research tax credit. . . . . . . . . . (.3) (.6) (.6) All other, net . . . . . . . . . . . . .5 (.1) .8 Effective tax rate . . . . . . . . . . . 24.5% 24.5% 24.0%
The lower rates in other jurisdictions are primarily attributable to certain employment and capital investment actions taken by the Company. As a result, income from manufacturing activities in these jurisdictions is subject to lower tax rates for years through 2018. As of December 31, 1995 and 1994, the Company had total deferred tax assets of $426.6 and $340.7, respectively, and deferred tax liabilities of $379.5 and $370.3, respectively. Valuation allowances are not significant. Significant deferred tax assets at December 31, 1995 and 1994 were for operating costs not currently deductible for tax purposes and totaled $302.7 and $245.6, respectively. Significant deferred tax liabilities at December 31, 1995 and 1994 were for depreciation differences, $207.4 and $193.2, respectively, and retirement plans, $41.0 and $34.0, respectively. Other current assets include deferred income taxes of $300.9 and $209.3 at December 31, 1995 and 1994, respectively. Deferred taxes are not provided on undistributed earnings of foreign subsidiaries (considered to be permanent investments), which at December 31, 1995, approximated $1,820.6. Determining the tax liability that would arise if these earnings were remitted is not practicable. As of December 31, 1995, the U.S. Internal Revenue Service has completed its examination of the Company's tax returns for all years through 1988 and there are no unresolved issues outstanding for those years. Total income tax payments during 1995, 1994 and 1993 were $318.9, $173.1 and $183.1, respectively. At December 31, 1995, the Company had capital loss carry-forwards for tax purposes of $28.9 that expire in 2000. Commitments Total rent expense amounted to $31.4 in 1995, $26.1 in 1994 and $24.1 in 1993. Future minimum rental commitments on non- cancelable operating leases as of December 31, 1995, range from $20.2 in 1996 to $4.9 in 2000, with aggregate minimum lease obligations of $8.9 due thereafter. The Company has commitments related to future capital expenditures totaling $129.8 as of December 31, 1995. Legal and Environmental Matters The Company has responsibilities for environmental clean-up under various state, local and federal laws, including the Comprehensive Environmental Response, Compensation and Liability Act, commonly known as Superfund. At several Superfund sites (or equivalent sites under state law), the Company is alleged to be a potentially responsible party (PRP). The Company estimates its obligations for clean-up costs for Superfund sites based on information obtained from the federal Environmental Protection Agency, an equivalent state agency and/or studies prepared by independent engineers, and on the probable costs to be paid by other PRPs. The Company records a liability for environmental assessments and/or clean-up when it is probable a loss has been incurred. 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 the above matters at December 31, 1995 and 1994, and the related expenses incurred during the three years ended December 31, 1995, were not material. Expected insurance recoveries have not been considered in determining the costs for environmental related liabilities. Management believes that, except for the matter discussed in the following paragraph, it is remote that any material liability in excess of the amounts accrued will be incurred. The Company is a defendant in more than 150 antitrust actions commenced in state and federal courts by independent retail pharmacies, chain retail pharmacies and consumers. The plaintiffs allege price discrimination and/or conspiracy between the Company and other defendants to restrain trade by jointly refusing to sell prescription drugs at discounted prices to the plaintiffs. One of the federal cases is a class action on behalf of approximately two-thirds of all retail pharmacies in the United States alleging a price-fixing conspiracy. The Company has agreed, subject to court approval, to settle this federal class action for a total of $22.1 payable over three years. In the event that the court does not approve the settlement, the class action is likely to go to trial in mid-1996. Three of the state cases have been certified as class actions. One is a class action on behalf of certain retail pharmacies in California, and the other two are class actions in California and Alabama, respectively, on behalf of certain consumers of prescription medicine. Plaintiffs in all cases seek treble damages and/or penalties in an unspecified amount and an injunction against the allegedly unlawful conduct. The Company believes that all these actions are without merit and is defending itself vigorously against all such claims. Consistent with trends in the pharmaceutical industry, the Company is self-insured for certain events. Business Segment Data Schering-Plough Corporation is a holding company whose subsidiaries are engaged in the discovery, development, manufac- turing and marketing of pharmaceutical and health care products worldwide. Pharmaceutical products include prescription drugs 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 1995 1994 1993 1995 1994 1993 Pharmaceutical products. . . $4,471.7 $3,880.2 $3,528.5 $1,380.6 $1,204.4 $1,049.8 Health care products . . . . 632.7 656.4 700.6 153.6 158.9 135.8 Total sales and operating profit. . . . . . . . . . . 5,104.4 4,536.6 4,229.1 1,534.2 1,363.3 1,185.6 General corporate revenue and expense . . . . (81.9) (80.4) (64.3) Interest expense . . . . . . (57.6) (56.2) (48.2) Consolidated sales and pre-tax profit. . . . . $5,104.4 $4,536.6 $4,229.1 $1,394.7 $1,226.7 $1,073.1
Identifiable Assets, Capital Expenditures, Depreciation and Amortization by Industry Segment Capital Assets Expenditures 1995 1994 1993 1995 1994 1993 Pharmaceutical products. $3,608.7 $3,544.5 $3,276.1 $ 275.5 $243.8 $314.1 Health care products . . 373.2 395.2 408.7 17.4 21.5 24.2 Industry segment totals. 3,981.9 3,939.7 3,684.8 292.9 265.3 338.3 Corporate. . . . . . . . 682.7 386.0 632.1 .9 2.9 1.6 Consolidated assets, capital expenditures, depreciation and amortization. . . . . . $4,664.6 $4,325.7 $4,316.9 $293.8 $268.2 $339.9
Depreciation and Amortization 1995 1994 1993 Pharmaceutical products. $ 134.9 $ 121.2 $ 108.0 Health care products . . 16.9 18.2 17.8 Industry segment totals. 151.8 139.4 125.8 Corporate. . . . . . . . 5.3 5.2 5.1 Consolidated assets, capital expenditures, depreciation and amortization. . . . . . $ 157.1 $ 144.6 $ 130.9
Sales, Operating Profit and Identifiable Assets by Geographic Area Sales Profit 1995 1994 1993 1995 1994 1993 United States. . . . . . $2,804.9 $2,470.2 $2,212.7 $1,037.1 $ 887.2 $ 684.3 Europe, Middle East and Africa . . . . 1,277.3 $1,045.7 936.9 264.1 235.5 218.4 Latin America. . . . . . 373.8 387.0 325.4 104.5 101.8 77.2 Canada, Pacific Area and Asia . . . . . 648.4 633.7 754.1 128.5 138.8 205.7 Total sales, operating profit and identifiable assets . . . . . . . . $5,104.4 $4,536.6 $4,229.1 $1,534.2 $1,363.3 $1,185.6
Assets 1995 1994 1993 United States. . . . . . $2,234.8 $2,344.2 $2,263.0 Europe, Middle East and Africa . . . . 1,058.6 $ 887.5 689.2 Latin America. . . . . . 278.2 278.4 233.9 Canada, Pacific Area and Asia . . . . . 410.3 429.6 498.7 Total sales, operating profit and identifiable assets . . . . . . . . $3,981.9 $3,939.7 $3,684.8 /TABLE 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. 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 manage- ment's authorization, 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 LLP, audit Schering-Plough's consolidated 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 staff 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 audit results, 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, 1995, 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/Richard J. Kogan President and Chief Executive Officer /s/Jack L. Wyszomierski Executive Vice President and Chief Financial Officer /s/Thomas H. Kelly Vice President and Controller INDEPENDENT AUDITORS' REPORT DELOITTE & TOUCHE LLP 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, 1995 and 1994 and the related statements of consolidated income, retained earnings and cash flows for each of the three years in the period ended December 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial state- ments 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, 1995 and 1994 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. As discussed in the Notes to Consolidated Financial Statements, the Company changed, in 1993, its method of accounting for post- retirement benefits other than pensions to conform with Statement of Financial Accounting Standards No. 106. /s/Deloitte & Touche LLP Parsippany, New Jersey February 14, 1996 COMMON SHARE DIVIDENDS AND MARKET DATA During 1995, the Board of Directors increased the quarterly dividend rate from $.255 per share to $.29 per share, a 14 percent increase. Dividends paid on common shares in 1995 and 1994 totaled $416.4 million and $379.4 million, respectively. The following table reflects the quarterly dividends per share paid over the last two years, restated for the effect of the 1995 2-for-1 stock split:
Quarter 1995 1994 1st $ .255 $ .225 2nd .29 .255 3rd .29 .255 4th .29 .255 $ 1.125 $ .99
The approximate number of holders of record of common shares as of December 31, 1995, was 34,100. The Company's common shares are listed and principally traded on the New York Stock Exchange. The following table reflects the reported high and low sale prices for the common shares in each of the calendar quarters during the past two years, restated for the effect of the 1995 2-for-1 stock split:
1995 1994 Quarter High Low High Low 1st $ 39 7/16 $ 35 13/16 $34 9/16 $27 13/16 2nd 45 3/8 36 3/4 33 5/16 27 9/16 3rd 52 1/2 43 35 11/16 30 13/16 4th 60 5/8 51 3/4 37 13/16 34 15/16 __________________________________________________________
Schering-Plough Corporation and Subsidiaries Six-Year Selected Financial & Statistical Data (Dollars in millions, except per share figures) 1995 1994 1993 1992 1991 1990 Operating Results Sales . . . . . . . . . . . . .$5,104.4 $4,536.6 $4,229.1 $3,944.6 $3,475.4 $3,194.9 Income before income taxes. . . 1,394.7 1,226.7 1,073.1 962.8 847.6 768.1 Income from continuing operations before extraordinary item and cumulative effect of accounting changes . . . . . . 1,053.0 926.2 815.6 722.1 635.7 560.7 Discontinued operations . . . . (166.4) (4.2) 9.4 (2.1) 9.9 4.4 Extraordinary item. . . . . . . - - - (26.7) - - Cumulative effect of accounting changes. . . . . . . . . . . . - - (94.2) 27.1 - - Net income. . . . . . . . . . . 886.6 922.0 730.8 720.4 645.6 565.1 Earnings per common share from continuing operations before extraordinary item and cumulative effect of accounting changes . . . . . . . . . . . 2.85 2.42 2.09 1.80 1.48 1.24 Discontinued operations . . . . (.45) (.01) .02 - .02 .01 Extraordinary item. . . . . . . - - - (.07) - - Cumulative effect of accounting changes. . . . . . . . . . . . - - (.24) .07 - - Earnings per common share . . . 2.40 2.41 1.87 1.80 1.50 1.25 _____________________________________________________________________________________________ Investments Research and development . . . $ 656.9 $ 610.1 $ 567.3 $ 510.5 $ 416.5 $ 370.5 Capital expenditures . . . . . 293.8 268.2 339.9 372.8 319.2 229.3 Financial Condition Property, net . . . . . . . . .$2,098.9 $2,082.3 $1,967.7 $1,748.5 $1,490.4 $1,284.4 Total assets. . . . . . . . . . 4,664.6 4,325.7 4,316.9 4,156.6 4,013.2 4,103.1 Long-term debt. . . . . . . . . 87.1 185.8 182.3 184.1 753.6 182.9 Shareholders' equity. . . . . . 1,622.9 1,574.4 1,581.9 1,596.9 1,346.1 2,080.8 Net book value per common share 4.46 4.23 4.09 4.00 3.34 4.69 Financial Statistics Income from continuing operations before extraordinary item and cumulative effect of accounting changes as a percent of sales 20.6% 20.4% 19.3% 18.3% 18.3% 17.5% Net income as a percent of sales 17.4% 20.3% 17.3% 18.3% 18.6% 17.7% Return on average shareholders' equity . . . . . . . . . . . . 55.5% 58.4% 46.0% 49.0% 37.7% 28.0% Effective tax rate . . . . . . 24.5% 24.5% 24.0% 25.0% 25.0% 27.0% Other Data Cash dividends per common share $ 1.125 $ .99 $ .87 $ .75 $ .635 $ .533 Cash dividends on common shares 416.4 379.4 339.6 300.2 273.6 241.2 Depreciation and amortization . 157.1 144.6 130.9 124.5 118.0 111.2 Number of employees . . . . . . 20,100 20,000 20,300 19,800 19,000 18,500 Average common shares outstanding (in millions) . . . . . . . . . 369.7 382.5 390.2 400.3 429.0 451.9 Actual common shares outstanding at year end (in millions). . . . 364.2 372.0 387.1 399.0 403.6 444.0 Certain amounts for years prior to 1995 have been restated for the effect of discontinued operations and a 2-for-1 stock split.
Quarterly Results of Operations (Dollars in millions, except per share figures) Three Months Ended March 31, June 30, September 30, December 31, 1995 1994 1995 1994 1995 1994 1995 1994 Sales . . . . . . . $1,224.2 $1,132.9 $1,332.5 $1,149.0 $1,256.8 $1,095.2 $1,290.9 $1,159.5 Gross profit . . . . 988.4 899.7 1,060.0 921.6 1,019.0 888.9 1,032.2 919.6 Income before income taxes . . . . . . . 377.4 337.7 365.6 309.3 334.6 299.6 317.1 280.1 Income from continuing operations. . . . . 284.9 255.0 276.1 233.5 252.6 226.2 239.4 211.5 Discontinued operations (6.3) (1.8) (160.1) 7.2 - (1.9) - (7.7) Net income . . . . . 278.6 253.2 116.0 240.7 252.6 224.3 239.4 203.8 Earnings per common share from continuing operations . . . . .77 .66 .74 .61 .68 .59 .66 .56 Discontinued operations (.02) (.01) (.43) .02 - - - (.02) Earnings per common share . . . . . . . .75 .65 .31 .63 .68 .59 .66 .54 ____________________________________________________________________________________________ Certain amounts for 1994 have been restated for the effect of discontinued operations and a 2-for-1 stock split. Discontinued operations includes a loss on disposal of $156.2, net of a tax benefit of $75.3, ($.42 per share), during the second quarter of 1995.
APPENDIX TO EXHIBIT #13 Page 1 OF 2 The page preceding the management's discussion and analysis of operations and financial condition of the 1995 annual report to shareholders presents three bar charts. Across the bottom of the page, beneath the charts, is a footnote stating that amounts prior to 1995 have been restated for the effect of discontinued operations. The following 3 sections provide the information portrayed in the charts: _______________________________________________________________ Title: Sales The vertical axis is in millions of dollars starting at zero, increasing in $1,000 million increments, ending at $6,000 million. The horizontal axis is in years starting with 1991, ending with 1995. The data points are: 1991 $3,475.4 1992 $3,944.6 1993 $4,229.1 1994 $4,536.6 1995 $5,104.4 _______________________________________________________________ Title: Research and Development The vertical axis is in millions of dollars starting at zero, increasing in $100 million increments, ending at $800 million. The horizontal axis is in years starting with 1991, ending with 1995. The data points are: 1991 $416.5 1992 $510.5 1993 $567.3 1994 $610.1 1995 $656.9 _______________________________________________________________ Page 2 of 2 APPENDIX TO EXHIBIT #13 _______________________________________________________________ Title: Capital Expenditures The vertical axis is in millions of dollars starting at zero, increasing in $50 million increments, ending at $400 million. The horizontal axis is in years starting with 1991, ending with 1995. The data points are: 1991 $319.2 1992 $372.8 1993 $339.9 1994 $268.2 1995 $293.8 _______________________________________________________________ EX-21 7 Schering-Plough Corporation and Subsidiaries Subsidiaries of Registrant Exhibit 21 As of December 31, 1995 Page 1 of 3 State or Country of Incorporation Subsidiaries of Registrant or Organization AESCA Chemisch-Pharmazeutische Fabrik GmbH Austria American Image Productions, Inc. Tennessee American Scientific Laboratories, Inc. Delaware Beneficiadora e Industrializadora, S.A. de C.V. Mexico Cacene, C.A. Venezuela Calzado Confort C.A. Venezuela Casacen, C.A. Venezuela Chemibiotic (Ireland) Ltd. Ireland Dashtag United Kingdom Desarrollos Farmaceuticos y Cosmeticos S.A. Spain DNAX Research Institute of Molecular and Cellular Biology, Inc. California Douglas Industries Inc. Delaware Dr. Scholl's Foot Comfort Shops, Inc. Delaware Essex Chemie A.G. Switzerland Essex Farmaceutica, S.A. Colombia Essex Quimica Industria E Comercio S.A. Brazil Essex Pharma GmbH Germany Essex Pharma S.A. Greece EssexFarm S.A. Ecuador Farmaceutica Essex S.A. Spain Fulford (India) Limited India Garden Insurance Company Ltd. Bermuda Industria Quimica e Farmaceutica Schering-Plough S.A. Brazil Industrias Arco, Ltda. Costa Rica Integrated Disease Management, Inc. Delaware Integrated Therapeutics Group, Inc. Delaware Key Pharma A.G. Switzerland Key Pharmaceuticals Export Co., Inc. U.S. Virgin Islands Key Pharmaceuticals, Inc. Florida Kirby-Warrick Pharmaceuticals Limited United Kingdom Laboratorios Essex S.A. Argentina Loftus Bryan Chemicals Ltd. Ireland Med-Nim (Proprietary) Limited South Africa Ortopedia Nacional de Venezuela C.A. Venezuela PPL, Inc. Tennessee P.T. Schering-Plough Indonesia Indonesia Pharmaceutical Supply Corporation Delaware Pharmaco (Canada) Ltd. Canada Pharmaco, Inc. Delaware Plough (Australia) Pty. Limited Australia Plough Benelux S.A. Belgium Plough Broadcasting Company, Inc. Delaware Plough Chile Ltda. Chile Plough Consumer Products (Asia) Ltd. Hong Kong Plough Consumer Products (Philippines) Inc. Philippines Plough de Venezuela, C.A. Venezuela Plough Export, Inc. Tennessee Plough France France Plough (Hellas) Ltd. Greece Exhibit 21 Page 2 of 3 State or Country of Incorporation Subsidiaries of Registrant or Organization Plough Laboratories, Inc. Tennessee Plough Services A.G. Switzerland Plough, S.p.A. Italy Plough (UK) Limited United Kingdom Plough/OTC Farma Lda. Portugal Pro Medica AB Sweden Professional Pharmaceutical Corporation Delaware Professional Vaccine Corporation Delaware S.C.A. - Stabilimenti Chimici dell'Adda, S.p.A. Italy S-P RIL Limited United Kingdom SBI - Distribuidora de Productos Farmaceuticos Ltda. Brazil Scheramex, S.A. de C.V. Mexico Scherico Ltd. Switzerland Schering Biotech Corporation Delaware Schering Canada, Inc. Canada Schering Corporation New Jersey Schering Institutional Sales Corporation Delaware Schering Laboratories Advertising Inc. Delaware Schering Sales Corporation Delaware Schering Transamerica Corporation New Jersey Schering-Plough France Schering-Plough AB Sweden Schering-Plough A/S Denmark Schering-Plough A/S Norway Schering-Plough B.V. Netherlands Schering-Plough, C.A. Venezuela Schering-Plough N.V./S.A. Belgium Schering-Plough OY Finland Schering-Plough S.A. Argentina Schering-Plough S.A. Colombia Schering-Plough S.A. Panama Schering-Plough S.A. Spain Schering-Plough S.A. Uruguay Schering-Plough, S.A. de C.V. Mexico Schering-Plough S.p.A. Italy Schering-Plough Animal Health Corporation Delaware Schering-Plough Central East A.G. Switzerland Schering-Plough China Limited Bermuda Schering-Plough Compania Limitada Chile Schering-Plough Coordination Center N.V./S.A. Belgium Schering-Plough Corporation Philippines Schering-Plough South Korea Schering-Plough Corporation, U.S.A. Delaware Schering-Plough del Caribe, Inc. New Jersey Schering-Plough del Ecuador, S.A. Ecuador Schering-Plough Farma, Lda Portugal Schering-Plough (Grenada) Limited Grenada Schering-Plough HealthCare Holding Company Delaware Schering-Plough HealthCare Products Advertising Corporation Tennessee Schering-Plough HealthCare Products Canada, Inc. Canada Exhibit 21 Page 3 of 3 State or Country of Incorporation Subsidiaries of Registrant or Organization Schering-Plough HealthCare Products, Inc. Delaware Schering-Plough HealthCare Products Sales Corporation California Schering-Plough Holdings Ltd. United Kingdom Schering-Plough INT Limited United Kingdom Schering-Plough (India) Limited India Schering-Plough International, Inc. Delaware Schering-Plough Investment Co., Inc. Delaware Schering-Plough Investments Limited Delaware Schering-Plough Kabushiki Kaisha Japan Schering-Plough Labo N.V. Belgium Schering-Plough Limited Iran Schering-Plough Limited Taiwan Schering-Plough Limited Thailand Schering-Plough Limited United Kingdom Schering-Plough Ltd. Switzerland Schering-Plough Overseas Limited Delaware Schering-Plough Pharmaceutical Industrial and Commercial S.A. Greece Schering-Plough Products, Inc. Delaware Schering-Plough Pty Ltd. South Africa Schering-Plough Pty Limited Australia Schering-Plough Real Estate Co., Inc. Delaware Schering-Plough Research Institute Delaware Schering-Plough Sante Animale France Schering-Plough Sdn. Bhd. Malaysia Schering-Plough Tibbi Urunler Ticaret A.S. Turkey Sentipharm A.G. Switzerland Sentipharm Hong Kong Ltd. Hong Kong Shanghai Schering-Plough Pharmaceutical Company Ltd. China SOL Limited Bermuda SP HealthCare Products Corporation Delaware SUNTAN Sensations, Inc. California Technobiotic Limited Australia The Coppertone Corporation Florida W-J Liquidating Corp. Delaware W-J Manufacturing Corporation Delaware Warrick Pharmaceuticals Corporation Delaware Warrick Pharmaceuticals Limited United Kingdom Werthenstein Chemie A.G. Switzerland White Laboratories, Inc. New Jersey White Laboratories Ltd. United Kingdom White Laboratories of Canada Limited Canada EX-23 8 EXHIBIT 23 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, Registration Statement No. 333-853 on Form S-3, 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-3 of our reports dated February 14, 1996, appearing in and incorporated by reference in this Annual Report on Form 10-K of Schering-Plough Corporation for the year ended December 31, 1995. /s/DELOITTE & TOUCHE Parsippany, New Jersey February 28, 1996 EX-99 9 Exhibit 99 Company Statements Relating to Forward Looking Information (Filed Pursuant to Rule 175) 1. Extract from news releases issued by the Company on January 2, 1996 and February 9, 1996: - Mr. Richard J. Kogan, President and Chief Executive Officer, commenting on the Company's earnings per share for 1996 in a news release dated January 2, 1996, stated that he expects earnings per share gains in the low-to-mid teens in 1996. The Company reaffirmed this expectation in another news release dated February 9, 1996. EX-27 10
5 THIS SCHEDULE CONTAINS FINANCIAL DATA EXTRACTED FROM THE SCHERING-PLOUGH CORPORATION CONSOLIDATED FINANCIAL STATEMENTS, RELATED 10-K SCHEDULES AND EXHIBITS FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1994 AMOUNTS HAVE BEEN RESTATED FOR THE EFFECT OF DISCONTINUED OPERATIONS AND A STOCK SPLIT IN 1995. 1,000 YEAR YEAR DEC-31-1995 DEC-31-1994 DEC-31-1995 DEC-31-1994 321400 115600 400 45000 638400 685400 69100 57500 502000 466300 1956300 1739100 3136000 3049700 1037100 967400 4664600 4325700 2362100 2028800 87100 185800 503000 251500 0 0 0 0 1119900 1322900 4664600 4325700 5104400 4536600 5104400 4536600 1004800 906800 1004800 906800 656900 610100 14900 17100 57600 56200 1394700 1226700 341700 300500 1053000 926200 (166400) (4200) 0 0 0 0 886600 922000 2.40 2.41 2.36 2.38
EX-24 11 Exhibit 24 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 William J. Silbey, 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, 1995 (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 27th day of February, 1996. /s/ Robert P. Luciano /s/ Richard J. Kogan Robert P. Luciano, Chairman; Richard J. Kogan, President and Director Chief Executive Officer; Director /s/ Jack L. Wyszomierski /s/ Thomas H. Kelly Jack L. Wyszomierski, Executive Thomas H. Kelly, Vice President Vice President and Chief and Controller; Principal Financial Officer Accounting Officer /s/ Hans W. Becherer /s/ Richard de J. Osborne Hans W. Becherer Richard de J. Osborne Director Director /s/ Hugh A. D'Andrade /s/ Patricia F. Russo Hugh A. D'Andrade Patricia F. Russo Director Director /s/ David C. Garfield /s/ William A. Schreyer David C. Garfield William A. Schreyer Director Director /s/ Regina E. Herzlinger /s/ Robert F. W. van Oordt Regina E. Herzlinger Robert F. W. van Oordt Director Director /s/ H. Barclay Morley /s/ R. J. Ventres H. Barclay Morley R. J. Ventres Director Director /s/ Carl E. Mundy, Jr. /s/ James Wood Carl E. Mundy, Jr. James Wood Director Director 21982-1 -----END PRIVACY-ENHANCED MESSAGE-----