-----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, Vc2DSVLpv/Neuu99I5jBcbl98ZvsXlg7xq6a0kJrM0kyRXCb9udHjrk0gqcjLJr4 PAt8W65HyZrsAxYbS676mw== 0000310158-96-000017.txt : 19961031 0000310158-96-000017.hdr.sgml : 19961031 ACCESSION NUMBER: 0000310158-96-000017 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961030 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-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-06571 FILM NUMBER: 96649925 BUSINESS ADDRESS: STREET 1: ONE GIRALDA FARMS CITY: MADISON STATE: NJ ZIP: 07940-1000 BUSINESS PHONE: 2018227000 10-Q 1 WD060201.10Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1996 Commission file number 1-6571 SCHERING-PLOUGH CORPORATION Incorporated in New Jersey 22-1918501 One Giralda Farms (I.R.S. Employer Identification No.) Madison, N.J. 07940-1000 (201) 822-7000 (telephone number) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. YES X NO Common Shares Outstanding as of September 30, 1996: 369,379,595 PART I. - FINANCIAL INFORMATION Item 1. Financial Statements SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED INCOME (UNAUDITED) (Dollars in millions, except per share figures)
Three Months Nine Months Ended Ended September 30 September 30 1996 1995 1996 1995 Sales . . . . . . . . . . . . . $1,382.2 $1,256.8 $4,241.5 $3,813.5 Costs and expenses: Cost of sales. . . . . . . . . 257.7 237.8 807.4 746.1 Selling, general and administrative. . . . . . 562.7 509.7 1,644.6 1,477.4 Research and development . . . 182.0 165.8 522.8 475.1 Other, net . . . . . . . . . . (6.6) 8.9 27.7 37.3 995.8 922.2 3,002.5 2,735.9 Income before income taxes. . . 386.4 334.6 1,239.0 1,077.6 Income taxes. . . . . . . . . . 94.7 82.0 303.6 264.0 Income from continuing operations 291.7 252.6 935.4 813.6 Discontinued operations, net of tax: Loss from operations. . . . . . - - - (10.2) Loss on disposal. . . . . . . . - - - (156.2) Net income. . . . . . . . . . . $ 291.7 $ 252.6 $ 935.4 $ 647.2 Earnings per common share: Continuing operations. . . . . $ .79 $ .68 $ 2.54 $ 2.19 Discontinued operations: Loss from operations. . . . . - - - (.03) Loss on disposal. . . . . . . - - - (.42) Total . . . . . . . . . . . . . $ .79 $ .68 $ 2.54 $ 1.74 Dividends per common share. . . $ .33 $ .29 $ .95 $ .835 See notes to consolidated financial statements.
SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED) (Dollars in millions, except per share figures)
September, 30 December 31, 1996 1995 Assets Cash and cash equivalents . . . . . . . . $ 437.2 $ 321.4 Accounts receivable, net. . . . . . . . . 571.2 569.3 Inventories . . . . . . . . . . . . . . . 574.1 502.0 Prepaid expenses, deferred income taxes and other current assets . . . . . 674.0 563.6 Total current assets. . . . . . . . . 2,256.5 1,956.3 Property, plant and equipment . . . . . . 3,284.9 3,136.0 Less accumulated depreciation . . . . . . 1,105.2 1,037.1 Property, net . . . . . . . . . . . . 2,179.7 2,098.9 Other assets. . . . . . . . . . . . . . . 760.1 609.4 $ 5,196.3 $ 4,664.6 Liabilities and Shareholders' Equity Accounts payable. . . . . . . . . . . . . $ 312.9 $ 374.2 Short-term borrowings and current portion of long-term debt. . . . . . . . 562.3 841.3 Other accrued liabilities . . . . . . . . 1,420.6 1,146.6 Total current liabilities . . . . . . 2,295.8 2,362.1 Long-term debt. . . . . . . . . . . . . . 42.0 87.1 Other long-term liabilities . . . . . . . 618.1 592.5 Shareholders' Equity: Preferred shares - $1 par value each; issued - none. . . . . . . . . . . - - Common shares - $1 par value each; shares issued: 1996 - 507,368,360 1995 - 502,965,382 . . . . . . . . . . . 507.4 503.0 Paid-in capital . . . . . . . . . . . . . 146.0 49.5 Retained earnings . . . . . . . . . . . . 4,927.5 4,341.8 Foreign currency translation adjustment and other . . . . . . . . . . (129.7) (103.9) Total . . . . . . . . . . . . . . . . 5,451.2 4,790.4 Less treasury shares, at cost - 1996, 137,988,765 shares; 1995, 138,796,653 shares . . . . . . . . 3,210.8 3,167.5 Total shareholders' equity. . . . . . 2,240.4 1,622.9 $ 5,196.3 $ 4,664.6 See notes to consolidated financial statements.
SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30 (UNAUDITED) (Dollars in millions)
1996 1995 Operating Activities: Income from continuing operations . . . . $ 935.4 $ 813.6 Depreciation and amortization . . . . . . 127.1 120.1 Working capital changes - source (use): Accounts receivable. . . . . . . . . . . (17.2) 39.9 Inventories. . . . . . . . . . . . . . . (84.2) (24.5) Other current assets . . . . . . . . . . (113.0) (64.1) Accounts payable and other accrued liabilities . . . . . . . . . . . . . . 187.2 173.1 Other, net. . . . . . . . . . . . . . . . (5.3) (62.3) Net cash provided by operating activities . . . . . . . . . . . . . . . 1,030.0 995.8 Investing Activities: Reduction of investments. . . . . . . . . .6 45.3 Purchases of investments. . . . . . . . . (34.6) (80.4) Capital expenditures. . . . . . . . . . . (208.0) (167.6) Other, net. . . . . . . . . . . . . . . . (1.8) (1.5) Net cash used for investing activities . . . . . . . . . . . . . . . (243.8) (204.2) Financing Activities: Dividends paid to common shareholders . . (349.7) (310.4) Repayment of long-term debt . . . . . . . (140.3) - Short-term borrowings, net. . . . . . . . (180.0) (102.4) Common shares repurchased . . . . . . . . (45.9) (268.0) Proceeds from other equity transactions . . . . . . . . . . . . . . 46.2 33.9 Other, net. . . . . . . . . . . . . . . . - .6 Net cash used for financing activities . . . . . . . . . . . . . . . (669.7) (646.3) Effect of exchange rates on cash and cash equivalents. . . . . . . . . . . . . (.7) (3.9) Net Cash Flow from Continuing Operations . 115.8 141.4 Net Cash Flow from Discontinued Operations - 79.7 Net increase in cash and cash equivalents . 115.8 221.1 Cash and cash equivalents, beginning of period . . . . . . . . . . . . . . . . 321.4 115.6 Cash and cash equivalents, end of period . $ 437.2 $ 336.7 See notes to consolidated financial statements.
SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Dollars in millions, except per share figures) Basis of Presentation The unaudited financial statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission for reporting on Form 10-Q. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. The statements should be read in conjunction with the accounting policies and notes to consolidated financial statements included in the Company's 1995 Annual Report on Form 10-K. In the opinion of management, the financial statements reflect all adjustments necessary for a fair statement of the operations for the interim periods presented. 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 do not have a material effect on the determination of earnings per common share. The weighted-average number of shares used in the computation of earnings per common share for the nine months ended September 30, 1996 and 1995 were 367,976,072 and 371,203,591, respectively. During the first quarter of 1996, the Company issued approximately 1.0 million shares of common stock in connection with the acquisition of Canji, Inc., a gene therapy company (accounted for using the purchase method of accounting). Also, during the first six months of 1996, the Company issued approximately 3.4 million shares of common stock in exchange and settlement for warrants to purchase 14.2 million shares of common stock. Inventories Inventories consisted of: September 30, December 31, 1996 1995 Finished products . . . . . . . $ 255.0 $ 213.2 Goods in process. . . . . . . . 187.4 179.4 Raw materials and supplies. . . 131.7 109.4 Total inventories . . . . . . $ 574.1 $ 502.0 Sales Segment sales for the nine months ended September 30, 1996 and 1995 were as follows: 1996 1995 Pharmaceutical products . . . . $3,748.9 $3,290.4 Health care products. . . . . . 492.6 523.1 Consolidated sales. . . . . . $4,241.5 $3,813.5 Legal and Environmental Matters The Company is involved in various claims and legal proceedings of a nature considered normal to its business, including environmental matters and product liability cases. The recorded liabilities for these matters at September 30, 1996 were not material. Management believes that, except for the matters 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 to settle the federal class action for a total of $22.1 payable over three years. The settlement provides, among other things, that the Company shall not refuse to grant discounts on brand name prescription drugs to a retailer based solely on its status as a retailer and that, to the extent a retailer can demonstrate its ability to affect market share of a Company brand name prescription drug in the same manner as a managed care organization with which the retailer competes, it will be entitled to negotiate similar incentives subject to the rights, obligations, exemptions and defenses of the Robinson- Patman Act and other laws and regulations. The District Court approved the settlement of the federal class action on June 21, 1996. In early July, the Seventh Circuit Court of Appeals agreed to review before trial the District Court's denial of defendant's summary judgment motion seeking dismissal of all claims by indirect purchasers of pharmaceutical products in all remaining cases before the District Court. In addition, the Seventh Circuit Court of Appeals will hear an appeal by the plaintiffs from the grant of summary judgment to the wholesaler defendants and an appeal by certain plaintiffs from the approval of the settlement by the District Court. Three of the state antitrust 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 seek treble damages in an unspecified amount and an injunction against the allegedly unlawful conduct. The Company believes that all the antitrust actions are without merit and is defending itself vigorously against all such claims. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations - three and nine months ended September 30, 1996 compared with the corresponding periods in 1995. Consolidated sales for the third quarter increased $125.4 million or 10 percent compared with the same period in 1995. For the nine months, sales rose $428.0 million or 11% over 1995. Excluding the effect of foreign currency exchange rate changes, consolidated sales grew 12 percent in the quarter and the nine- month period. In the United States, many of the Company's pharmaceutical products are subject to increasingly competitive pricing as managed care, institutions, government agencies and other buying groups 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 future operations and cash flows cannot be reasonably estimated. Sales Domestic ethical pharmaceutical sales advanced 20 percent for the 1996 third quarter and 24 percent for the nine-month period. Sales of respiratory products increased 21 percent in the quarter and 25 percent for the nine months, due to significant market share growth for the CLARITIN brand of nonsedating antihistamines. Sales growth for the nine months was also aided by increases for VANCENASE allergy and VANCERIL asthma products. The respiratory sales gains also reflected a decrease for the quarter and nine-month period in sales of the PROVENTIL (albuterol) line of asthma products, due to increased generic competition. Sales of the PROVENTIL line totaled $55 million for the quarter and $261 million for the nine months, with metered- dose inhalers contributing over 60 percent to both periods. The PROVENTIL formulations of solution, syrup and tablets have been subject to generic competition, and in December 1995 generic metered-dose inhalers entered the market. In response, the Company's generic pharmaceutical marketing subsidiary, Warrick Pharmaceuticals, launched its own generic inhaler. While generic inhalers have significantly reduced branded PROVENTIL inhaler sales, the Warrick inhaler has moderated the sales decline. Competition from generic metered-dose inhalers will, however, continue to negatively affect future sales and profitability of the PROVENTIL (albuterol) line of asthma products. U.S. sales of cardiovascular products rose 26 percent in the quarter and 30 percent for the nine months, reflecting market share gains for IMDUR, a once-daily oral nitrate. The nine-month period also benefited from strong sales of K-DUR potassium supplements due to market share gains. Sales of anti-infective and anticancer products grew 25 percent in the third quarter and 32 percent for the nine-month period, resulting from increased utilization of INTRON-A, the Company's alpha interferon anticancer and antiviral agent, for melanoma and hepatitis. Also contributing to the nine-month period sales increase was the first quarter launch of CEDAX, a third-generation cephalosporin antibiotic. Both periods, however, were negatively affected by lower sales of EULEXIN, a prostate cancer therapy, due to branded competition. Domestic dermatological product sales declined 6 percent for the quarter but advanced 11 percent for the nine months. Higher sales of LOTRISONE, an antifungal/anti- inflamatory cream, and ELOCON, a mid-potency topical corticosteriod, drove the nine month advance, while lower sales of several smaller dermatological products were responsible for the third quarter's decline. International ethical pharmaceutical product sales increased 6 percent in the third quarter and 5 percent for the nine-month period. Excluding the impact of foreign currency exchange rate fluctuations, sales would have risen 10 percent in the quarter and 7 percent for the nine months. Sales of anti-infective and anticancer products grew 10 percent in the third quarter, and 9 percent for the nine-month period, due to gains for INTRON A in both periods. International respiratory product sales advanced 13 percent in the quarter and 7 percent for the nine-month period, as strong CLARITIN growth for both periods was tempered by a decline in sales of other allergy products in Japan for the nine months. Dermatological product sales grew 10 percent for the third quarter and 7 percent for the nine-month period, primarily reflecting gains for ELOCON. Sales growth for both periods was also aided by continued gains for LOSEC, an anti-ulcer treatment licensed from AB Astra. Worldwide sales of animal health products were flat for the third quarter and nine months. The sales gains from the domestic June launch of NUFLOR, an antibiotic for bovine respiratory disease, were tempered by lower sales of various other animal health products in both the domestic and international markets. Sales of health care products declined 10 percent in the third quarter and 6 percent for the nine-month period. Over-the- counter product sales declined 13 percent in the quarter and 19 percent for the nine months, primarily due to aggressive private- label competition for allergy/cold products, along with the introduction of competitive products and price reductions for female health products. Footcare product sales advanced in both periods, while Suncare product sales declined in the quarter but were flat for the nine-month period. Income before income taxes increased 15 percent for the quarter and represented 28.0 percent of sales versus 26.6 percent last year. For the nine months, income before taxes from continuing operations grew 15 percent over 1995, representing 29.2 percent of sales compared with 28.3 percent last year. Cost of sales as a percentage of sales decreased to 18.6 percent from 18.9 percent in the quarter, principally the result of a favorable sales mix of higher margin pharmaceutical products. For the nine-month period, the cost of sales ratio declined to 19.0 percent from 19.6 percent, also the result of a favorable product mix. Selling, general and administrative expenses represented 40.7 percent of sales in the third quarter compared with 40.6 percent last year. For the nine-month period, the ratio was 38.8 percent versus 38.7 percent in 1995. These increases reflect higher CLARITIN promotions and launch-related expenses for CEDAX in the U.S. For the quarter, research and development spending rose 10 percent and represented 13.2 percent of sales in both 1996 and 1995. For the nine months, spending also grew 10 percent, and represented 12.3 percent of sales versus 12.5 percent in 1995. The higher spending reflects the Company's funding of both internal research efforts and research collaborations with various partners. It is anticipated that total research and development expenses will approximate $720 million in 1996. The effective tax rate for continuing operations was 24.5 percent in the three- and nine- month periods of both 1996 and 1995. Earnings per common share advanced 16 percent in the third quarter to $.79 from $.68 in 1995. For the nine-month period, earnings per common share from continuing operations increased 16 percent to $2.54 from $2.19 last year. Excluding the impact of foreign currency exchange rates, earnings per common share from continuing operations would have risen approximately 19 percent in the quarter and 18 percent for the nine months. Liquidity and financial resources - nine months ended September 30, 1996 Cash generated from operations continues to be the Company's major source of funds to finance working capital, additions to property, shareholder dividends, common share repurchases and repayment of debt. Cash provided from operations totaled $1,030.0 million for the first nine months of 1996. This cash funded the spending of $349.7 million for shareholder dividends and $208.0 million for capital expenditures, as well as provided for the $180.0 million reduction in short-term borrowings and $140.3 million repayment of long-term debt. In the second quarter, the Company completed a $500 million repurchase program, which had begun in 1995. In September 1996, the Board of Directors authorized the purchase of an additional $500 million of common shares. As of September 30 this program was approximately 5% complete. The Company's liquidity and financial resources continue to be sufficient to meet its operating needs. Cautionary Statements for Forward Looking Information Management's discussion and analysis set forth above contains certain forward looking statements, including statements regarding the Company's financial position and results of operations. These forward looking statements are based on current expectations. Certain factors have been identified by the Company in Exhibit 99 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 1996 which could cause the Company's actual results to differ materially from expected and historical results. Exhibit 99 from that quarterly report is incorporated by reference herein. PART II OTHER INFORMATION Item 1. Legal Proceedings The first paragraph of Item 3, Legal Proceedings of Part I of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995, as amended by the Company's Quarterly Reports on Form 10-Q for the quarterly periods ended March 31, 1996 and June 30, 1996, respectively, relating to certain product liability actions pending against the Company, is incorporated herein by reference. Subsidiaries of the Company are defendants in 149 lawsuits involving approximately 600 plaintiffs arising out of the use of synthetic estrogens by the mothers of the plaintiffs. The final paragraph of Item 3, Legal Proceedings of Part I of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995, as amended by the Company's Quarterly Reports on Form 10-Q for the quarterly periods ended March 31, 1996 and June 30, 1996, respectively, relating to certain antitrust actions, is incorporated herein by reference. In the federal class action, the Seventh Circuit Court of Appeals will also hear an appeal by the plaintiffs from the grant of summary judgment to the wholesaler defendants and an appeal by certain plaintiffs from the approval of the settlement by the District Court. Item 6. Exhibits and Reports on Form 8-K a) Exhibits - The following Exhibits are filed with this document: Exhibit Number Description 11 - Computation of Earnings Per Common Share 27 - Financial Data Schedule 99 - Exhibit 99 to Quarterly Report on Form 10-Q for the quarterly period ended March 31, 1996 is hereby incorporated by reference. b) Reports on Form 8-K: No report has been filed during the three months ended September 30, 1996. SIGNATURE(S) Pursuant to the requirements 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 October 30, 1996 Thomas H. Kelly Thomas H. Kelly Vice President and Controller EX-11 2 WD041001.10Q Exhibit 11 SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES COMPUTATION OF EARNINGS PER COMMON SHARE (Amounts in millions, except per share figures)
Nine Months Ended September 30, 1996 1995 Earnings per Common Share, As Reported: Income from continuing operations . . . $ 935.4 $ 813.6 Discontinued operations: Loss from operations . . . . . . . . . - (10.2) Loss on disposal . . . . . . . . . . . - (156.2) Net income applicable to common shares. 935.4 647.2 Average Number of Common Shares Outstanding . . . . . . . . . . . . . . 368.0 371.2 Earnings per Common Share: Income from continuing operations . . . 2.54 2.19 Discontinued operations: Loss from operations . . . . . . . . . - (.03) Loss on disposal . . . . . . . . . . . - (.42) Total . . . . . . . . . . . . . . . . . $ 2.54 $ 1.74 Earnings per Common Share, Assuming Full Dilution: (a) Average Number of Common Shares Outstanding . . . . . . . . . . . . . . 368.0 371.2 Shares Contingently Issuable for Stock Incentive Plans and Warrant Agreements. . . . . . . . . . . . . . . 4.4 5.4 Average Number of Common Shares and Common Share Equivalents Outstanding. . 372.4 376.6 Earnings per Common Share: Continuing operations . . . . . . . . . 2.51 2.16 Discontinued operations: Loss from operations . . . . . . . . . - (.03) Loss on disposal . . . . . . . . . . . - (.41) Earnings per Common Share, Assuming Full Dilution . . . . . . . . . . . . $ 2.51 $ 1.72 (a) This calculation is submitted in accordance with the regulations of the Securities and Exchange Commission although not required by APB Opinion No. 15 because it results in dilution of less than 3%.
EX-27 3
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS, AND RELATED EXHIBITS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1000 9-MOS DEC-31-1996 SEP-30-1996 437200 0 571200 0 574100 2256500 3284900 1105200 5196300 2295800 42000 0 0 507400 1733000 5196300 4241500 4241500 807400 807400 522800 0 0 1239000 303600 935400 0 0 0 935400 2.54 2.51
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