-----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, RIHoXSiphpa/GLmqOrqQbdi8Tj57mYnyzdNFtNEuFovW3vk7jyE2nffY4bFDZ+qq NN3wmDYZSN/aBcJaWn6ZoQ== 0000310158-97-000003.txt : 19970304 0000310158-97-000003.hdr.sgml : 19970304 ACCESSION NUMBER: 0000310158-97-000003 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970303 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: 97549337 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, 1996 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, 1997: 365,597,802 Aggregate market value of common shares at January 31, 1997 held by non-affiliates based on closing price: $27.6 billion. Part of Form 10-K Documents incorporated by reference incorporated into Schering-Plough Corporation 1996 Parts I, II and IV Annual Report to Shareholders Schering-Plough Corporation Proxy Part III Statement for the annual meeting of shareholders on April 22, 1997 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 1996 Annual Report to Shareholders is incorporated herein by reference. Sales by major product groups for continuing operations for each of the three years in the period ended December 31, 1996 were as follows (dollars in millions): 1996 1995 1994 Allergy/Respiratory $2,113 $1,834 $1,465 Anti-infective and Anticancer 1,135 1,031 939 Dermatologicals 560 515 488 Cardiovasculars 533 408 333 Other Pharmaceuticals 512 493 489 OTC 210 250 264 Foot Care 261 240 248 Animal Health 196 190 167 Sun Care 123 127 129 Other Health Care Products 13 16 15 Consolidated Sales $5,656 $5,104 $4,537 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, allergy/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. In December 1995, generic metered-dose inhalers entered the market; the PROVENTIL solution, syrup and tablet formulations had previously been subject to generic competition. In response to generic inhaler competition, the Company's generic pharmaceutical marketing subsidiary, Warrick Pharmaceuticals, launched its own generic inhaler in December 1995. While generic inhalers have significantly reduced branded PROVENTIL inhaler sales, the Warrick inhaler has moderated the decline. In December 1996, the Company further enhanced its position in the albuterol asthma market by launching PROVENTIL HFA, a new metered-dose inhaler that uses an advanced delivery system and a propellant free of ozone-damaging chlorofluorocarbons. Competition from generic metered-dose inhalers will, however, continue to negatively affect future sales and profitability of the PROVENTIL (albuterol) line of asthma products. 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. In the United States, many of the Company's pharmaceutical products are subject to increasingly competitive pricing as managed care groups, institutions, government agencies and other buying groups seek price discounts and rebates. 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 nasal decongestant; CHLOR-TRIMETON antihistamine; CORICIDIN and DRIXORAL cold and decongestant products; CORRECTOL laxative; CLEAR AWAY and DUO FILM wart removers; GYNE-LOTRIMIN for vaginal yeast infections; DR. SCHOLL'S foot care products; LOTRIMIN AF and TINACTIN antifungals; COPPERTONE, SHADE and SOLARCAINE 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 11,700 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", "Financial Instruments" and "Business Segment Data" in the Company's 1996 Annual Report to Shareholders which is incorporated herein by reference. 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 $722.8 million, $656.9 million, $610.1 million in 1996, 1995, and 1994, 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 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 1996 included approximately $11.1 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 1996 Annual Report to Shareholders which is incorporated herein by reference. Employees There were approximately 20,600 people employed by the Company at December 31, 1996. 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, 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 in 1997. The Company's principal research facilities are located in Kenilworth and Union, New Jersey and Palo Alto, California (DNAX Research Institute) and San Diego, California (Canji, Inc.). 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 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. In virtually all of these lawsuits, one being an alleged class action, many other pharmaceutical companies are also named 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 mother 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 amount 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 160 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 million 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. Four of the state antitrust cases have been certified as class actions. Two are class actions on behalf of certain retail pharmacies in California and Wisconsin, and the other two are class actions in California and the District of Columbia, 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. 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. The Company is a defendant in a state court action in Texas brought by Foxmeyer Health Corporation, the parent of a pharmaceutical wholesaler that filed for bankruptcy in August 1996, against another pharmaceutical wholesaler and 11 pharmaceutical companies alleging that the defendants conspired to drive the plaintiff out of business. Plaintiff is seeking damages in the amount of $400 million. The Company believes that this action is without merit and is defending itself vigorously against all claims. On March 13, 1996, the Company was notified that the United States Federal Trade Commission (FTC) is investigating whether the Company, along with other pharmaceutical companies, conspired to fix prescription drug prices. The Company has produced a substantial amount of documentation to the FTC. The Company vigorously denies that it has engaged in any price-fixing conspiracy. 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 63 Chairman of the Board and Chief Executive Officer 1986-1995 Richard Jay Kogan Present position 1996; 55 President and President and Chief Chief Executive Officer Operating Officer 1986-1995 Hugh A. D'Andrade Present position 1996; 58 Vice Chairman and Executive Vice President Chief Administrative Officer Administration 1984-1995 Rodolfo C. Bryce Present position 1997; President 50 Executive Vice President Schering-Plough HealthCare and President Schering-Plough Products 1996; President HealthCare Products Schering-Plough International 1993-1996; President Schering Laboratories 1990-1992. Raul E. Cesan Present position 1994; 49 Executive Vice President President Schering and President Laboratories 1992-1994; Schering-Plough President Schering-Plough Pharmaceuticals International 1988-1992 Joseph C. Connors Present position 1996; 48 Executive Vice President Senior Vice President and and General Counsel General Counsel 1992-1995 Jack L. Wyszomierski Present position 1996; 41 Executive Vice President Vice President and Treasurer and Chief Financial Officer 1991-1995 Name and Current Position Business Experience Age Geraldine U. Foster Present position 1994; 54 Senior Vice President Vice President - Investor Investor Relations and Relations 1988-1994 Corporate Communications Daniel A. Nichols Present position 1991 56 Senior Vice President Taxes Gordon C. O'Brien Present position 1988 56 Senior Vice President Human Resources Thomas H. Kelly Present position 1991 47 Vice President and Controller Robert S. Lyons Present position 1991 56 Vice President Corporate Information Services E. Kevin Moore Present position 1996; 44 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; 60 Vice President President - Technical Operations and President, Schering Schering Laboratories 1990-1995 Technical Operations William J. Silbey Present position 1996; 37 Staff Vice President, Corporate Counsel 1993-1995; Secretary and Associate Partner - Stearns, Weaver, Miller, General Counsel Weissler, Alhadeff & Sitterson, P.A. 1992-1993 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 1996 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 1996 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 1996 Annual Report to Shareholders is incorporated herein by reference. Item 8. Financial Statements and Supplementary Data The Consolidated Balance Sheets as of December 31, 1996 and 1995, 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, 1996, Notes to Consolidated Financial Statements, the Independent Auditors' Report of Deloitte & Touche LLP dated February 14, 1997 and Quarterly Results of Operations, as set forth in the Company's 1996 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 22, 1997 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 22, 1997 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 22, 1997 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 22, 1997 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 1996 Annual Report to Shareholders, are incorporated herein by reference. Statements of Consolidated Income for the Years Ended December 31, 1996, 1995 and 1994 Statements of Consolidated Retained Earnings for the Years Ended December 31, 1996, 1995 and 1994 Statements of Consolidated Cash Flows for the Years Ended December 31, 1996, 1995 and 1994 Consolidated Balance Sheets at December 31, 1996 and 1995 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. 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. Exhibit Number Description 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 incorporated by reference to Exhibit 10(d) to the Company's Annual Report for 1995 on Form 10-K, File No. 1-6571. 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 reference to Exhibit 10(e)(i) to the Company's Annual Report for 1994 on Form 10-K, File No. 1-6571. 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 Exhibit Number Description 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 incorporated by reference to Exhibit 10(e)(iii) to the Company's Annual Report for 1995 on Form 10-K, File No. 1-6571. 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. 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. Exhibit Number Description 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; amendment of January 1, 1997 filed with this document. 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. 10(k) The Company's Directors Deferred Stock Equivalency Program*. Filed with this document. 11 Computation of Earnings Per Common Share. 12 Computation of Ratio of Earnings to Fixed Charges. 13 The Financial Section of the Company's 1996 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. 99.1 Cautionary Statements regarding "Safe Harbor" provision of the Private Securities Litigation Reform Act of 1995. 99.2 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 March 3, 1997 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 Jay 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 March 3, 1997 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, 1996 and 1995 and the related statements of consolidated income, retained earnings and cash flows for each of the three years in the period ended December 31, 1996, and have issued our report thereon dated February 14, 1997; such financial statements and report are included in your 1996 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, 1997 SCHEDULE II SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994 (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 1996 Balance at beginning of year $ 49.6 $ 8.1 $ 11.4 $ 69.1 Additions: Charged to costs and expenses 2.4 90.4 10.2 103.0 Translation adjustment (.1) .1 .1 .1 Deductions from reserves (1.5) (86.7) (11.0) (99.2) Balance at end of year $ 50.4 $ 11.9 $ 10.7 $ 73.0 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
EX-10 2 Exhibit 10(i) SCHERING-PLOUGH CORPORATION Amendments to Directors Stock Award Plan The Schering-Plough Corporation Directors Stock Award Plan is hereby amended effective as of January 1, 1997, by deleting Section 4 thereof and substituting therefore the following: 4. From and after January 1, 1997, upon election of any new non-employee Director or re-election of any incumbent non-employee Director, he or she shall receive 550 shares of Common Stock of the Corporation for each year or partial year of the term to which he or she has been elected; provided, however, that if a Director is scheduled to retire prior to the end of his or her current term, or does not intend to serve his or her current term, his or her actual expected remaining term shall be used to calculate the award herein. Effective as of the close of business on the date of the Corporation's 1997 Annual Meeting of Shareholders, each then incumbent non- employee Director not standing for election at such Meeting shall receive 150 shares of Common Stock of the Corporation for each year remaining in his or her then current term of directorship. 26036-1 EX-10 3 Exhibit 10(k) SCHERING-PLOUGH CORPORATION DIRECTORS DEFERRED STOCK EQUIVALENCY PROGRAM I. Purpose The purposes of the Schering-Plough Corporation Directors Deferred Stock Equivalency Program ("Program") are (a) to attract and retain highly qualified individuals to serve as Directors of Schering-Plough Corporation ("Corporation") and (b) to relate non-employee Directors' interests more closely to the Corporation's performance and its shareholders' interests. II. Effective Date The effective date of the Schering-Plough Corporation Directors Deferred Stock Equivalency Program is January 1, 1997 ("Effective Date"). III. Participation From and after the Effective Date, each Director shall be a participant in the Program throughout his or her term of service as a Director; except that any Director who has attained age 72 prior to the Effective Date or is entitled to receive employee pension benefits from the Corporation or any of its subsidiaries shall not be a participant in the Program. Directors who are participants in the Program shall be entitled, effective as of the Effective Date, to transfer to their account in the Program ("Deferred Account") by an election made prior to the Effective Date the lump-sum present value of their earned benefits under the Corporation's Pension Plan for Directors based on service through December 31, 1996. For purposes of calculating the lump-sum present value of earned pension benefits, a discount rate of seven percent per annum shall be used. IV. Amount of Deferral The Company shall credit an amount equal to $25,000 to each participant's Deferred Account annually as of January 1; except that in the case of any Director who is or will be a participant in the Program for a portion of a calendar year, a pro rata portion of $25,000 shall be credited to the Deferred Account of such Director. Such pro rata amount, if applicable, shall be credited as of the date on which the Director becomes a participant in the Program or, in the case of a Director expected to retire in a given calendar year, as of January 1 of such calendar year. In addition, amounts transferred by a Director from the Pension Plan for Directors to this Program pursuant to Article III hereof shall be credited to the Director's Deferred Account as of the Effective Date. For purposes hereof, "Deferred Amounts" shall mean all amounts credited to a Director's Deferred Account. V. Deferred Account (a) The Corporation shall establish a separate Deferred Account for each participant. Deferred Amounts shall be expressed and credited to each participant's Deferred Account in terms of units ("Units"). As of each date on which Deferred Amounts are credited to a participant's Deferred Account, the Corporation shall credit to such Deferred Account a number of Units and fractional Units determined by dividing the Deferred Amounts credited by the Unit Value (as defined below) of one share of the Corporation's Common Shares. The "Unit Value" of one share of the Corporation's Common Shares shall be the closing price of one share of the Corporation's Common Shares on the New York Stock Exchange on the day on which Deferred Amounts are credited or a payment is to be valued under Article VI (b) below, as the case may be; or if there were no sales on that day, then the closing price on the New York Stock Exchange on the nearest preceding day on which there were sales. Deferred Amounts transferred from the Pension Plan for Directors shall be credited as of the Effective Date. (b) When dividends are paid with respect to the Corporation's Common Shares, the Corporation shall calculate the amount which would have been payable in cash or property on the Units in each participant's Deferred Account on each dividend payment date as if each Unit represented one issued and outstanding share of the Corporation's Common Shares. The applicable number of Units and fractional Units equal to the amount of such dividends (based on the Unit Value of one share of the Corporation's Common Shares on the dividend payment date) shall be credited to each participant's Deferred Account. In the event of any capital stock adjustment to the Corporation's Common Shares or other appropriate event or circumstance, the number of Units or fractional Units credited to Deferred Accounts shall be correspondingly adjusted as of the date of such capital stock adjustment or other event or circumstance. VI. Payment of Benefits (a) Except as provided in Article VII below, the value of a participant's Deferred Account shall be payable solely in cash, either in (i) a lump sum, or (ii) in approximately equal annual installments of up to 10 years in accordance with an election made by the participant by written notice to the Corporation given at least one year prior to the calendar year in which payments would otherwise be made or commence. Such payment or payments shall be made or commence, as the case may be, within 30 days following the termination of service as Director. (b) Any lump sum payment shall be valued as of the end of the most recent calendar month prior to the payment date. The amount of each installment payment shall be determined by dividing the aggregate Unit Value of the Units credited to the participant's Deferred Account valued as of the end of the most recent calendar month prior to the payment date by the remaining number of unpaid installments; provided, however, that the Corporation's Executive Compensation and Organization Committee may, in its absolute discretion, approve any other method of determining the amount of each installment payment in order to achieve approximately equal installment payments over the installment period. VII. Death of Participant In the event of the death of a Director, the Corporation shall pay in a lump sum on the 60th day thereafter the balance of his or her Deferred Account to such beneficiary or beneficiaries as the Director may have designated in writing or, in the event a beneficiary has not been so designated, to the Director's estate. VIII. Miscellaneous A. The amounts credited to the Deferred Account shall constitute an unsecured claim against the general funds of the Corporation. B. The Program is unfunded, and the Corporation will make Plan benefit payments solely on a current disbursement basis; provided, however, the Corporation shall provide alternative sources of benefit payments under this Program through one or more grantor trusts. The existence of any such trust or trusts shall not relieve the Corporation of any liability to make benefit payments under this Program, but to the extent any benefit payments are made from any such trust, such payment shall be in satisfaction of and shall reduce the Corporation's liabilities under this Program. C. No right or interest of the Director, his beneficiary, or estate, established herein, shall be assignable or transferable in whole or in part, either directly or by operation of law or otherwise, including, but not by way of limitation, execution, levy, garnishment, attachment, pledge, bankruptcy, or in any other manner, and no right or interest established herein shall be liable for, or subject to, any obligation or liability of the Director. D. Except as herein provided, this Program shall be binding upon the parties hereto, their heirs, executors, administrators, successors (including but not limited to successors resulting from any corporate merger) or assigns. E. This Program may be amended or terminated at any time by the Board of Directors of the Corporation, but no such termination or amendment shall adversely affect a Director's rights and benefits under this Plan, except with his consent. F. This Program shall be construed in accordance with the laws of the State of New Jersey. 1/28/97 23421-3 -7- EX-11 4 Exhibit 11 SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES COMPUTATION OF EARNINGS PER COMMON SHARE (In millions, except per share figures)
Year Ended December 31, 1996 1995 1994 Earnings per Common Share, As Reported: Income from continuing operations. . . . $1,212.8 $1,053.0 $ 926.2 Discontinued operations. . . . . . . . . - (166.4) (4.2) Net Income Applicable to Common Shares . . . . . . . . . . . $1,212.8 $ 886.6 $ 922.0 Average Number of Common Shares Outstanding. . . . . . . . . . . . . . 367.7 369.7 382.5 Earnings Per Common Share: Income from continuing operations. . . . $ 3.30 $ 2.85 $ 2.42 Discontinued operations. . . . . . . . . - (.45) (.01) Net Income per Common Share. . . . . . . $ 3.30 $ 2.40 $ 2.41 Earnings per Common Share, Assuming Full Dilution: (a) Average Number of Common Shares Outstanding . . . . . . . . . . . . 367.7 369.7 382.5 Shares Contingently Issuable for Stock Incentive Plans and Warrant Agreements. . . . . . . . . . . . 4.7 6.1 4.1 Average Number of Common Shares and Common Share Equivalents Outstanding . . . . . . . . . . . . 372.4 375.8 386.6 Net Income Per Common Share Assuming Full Dilution . . . . . . $ 3.26 $ 2.36 $ 2.38 (a) This calculation is submitted in accordance with the regulations of the Securities and Exchange Commission although not required by APB Opinion No. 15 because it results in dilution of less than 3%.
EX-12 5 Exhibit 12 SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (Dollars in millions)
Year Ended December 31, 1996 1995 1994 1993 1992 1991 Income Before Income Taxes from Continuing Operations . . . . . . $1,606.4 $1,394.7 $1,226.7 $1,073.1 $ 962.8 $ 847.6 Add : Fixed Charges Interest Expense . . . . . . . . . 45.4 57.6 56.2 48.2 55.4 65.3 1/3 Rentals. . . . . . . . . . . . 12.2 10.5 8.7 8.0 7.7 7.0 Capitalized Interest . . . . . . . 10.8 11.4 11.4 12.7 15.8 11.8 Total Fixed Charges. . . . . . . 68.4 79.5 76.3 68.9 78.9 84.1 Less: Capitalized Interest . . . . . 10.8 11.4 11.4 12.7 15.8 11.8 Add : Amortization of Capitalized Interest. . . . . . . . 5.0 4.8 4.1 3.5 4.1 4.0 Earnings Before Income Taxes and Fixed Charges (other than Capitalized Interest) . . . . . . . $1,669.0 $1,467.6 $1,295.7 $1,132.8 $1,030.0 $ 923.9 Ratio of Earnings to Fixed Charges . 24.4 18.5 17.0 16.4 13.1 11.0 "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.
WD011203.94K EX-13 6 Exhibit 13 Financial Section of the Company's 1996 Annual Report to Shareholder Management's Discussion and Analysis of Operations and Financial Condition Sales Consolidated sales in 1996 totaled $5.66 billion, an increase of 11 percent over 1995, due to volume growth of 13 percent tempered by price decreases of 1 percent and unfavorable foreign exchange rate fluctuations of 1 percent. This performance reflects significant gains for the CLARITIN brand of nonsedating antihistamines, which includes CLARITIN-D, a combination product with a decongestant. Worldwide CLARITIN brand sales totaled $1.15 billion in 1996, compared with $789 million in 1995. Consolidated 1995 sales of $5.10 billion advanced 13 percent over 1994, reflecting volume growth of 10 percent and favorable foreign exchange rate fluctuations of 3 percent. This increase reflects worldwide CLARITIN brand sales growth of 56 percent in 1995. Worldwide 1996 pharmaceutical sales of $5.05 billion rose 13 percent over 1995, due to volume growth of 15 percent tempered by price declines of 1 percent and unfavorable foreign exchange rate fluctuations of 1 percent. Worldwide sales of pharmaceutical products in 1995 increased 15 percent over 1994, reflecting volume growth of 12 percent and favorable foreign exchange rate fluctuations of 3 percent. Domestic prescription pharmaceutical product sales grew 23 percent in 1996. Sales of allergy/respiratory products increased 21 percent, due to continued strong growth of the CLARITIN brand and increases for VANCENASE allergy and VANCERIL asthma products. The allergy/respiratory sales gain reflects a 25 percent decline in sales of the PROVENTIL (albuterol) line of asthma products, due to increased generic competition. Sales of the PROVENTIL line totaled $316 million in 1996, with metered-dose inhalers contributing 65 percent. The PROVENTIL solution, syrup and tablet formulations 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 in December 1995. While generic inhalers have significantly reduced branded PROVENTIL inhaler sales, the Warrick inhaler has moderated the decline. In December 1996, the Company further enhanced its position in the albuterol asthma market by launching PROVENTIL HFA, a new metered-dose inhaler that uses an advanced delivery system and a propellant free of ozone-damaging chlorofluorocarbons. Competition from generic metered-dose inhalers will, however, continue to negatively affect future sales and profitability of the PROVENTIL (albuterol) line of asthma products. Domestic sales of anti-infective and anticancer products rose 33 percent compared with 1995, due to increased utilization of INTRON A, the Company's alpha interferon anticancer and antiviral agent, for malignant melanoma and hepatitis C. Also contributing to the sales increase was the 1996 first quarter launch of CEDAX, a third-generation cephalosporin antibiotic. These increases were tempered by lower sales of EULEXIN, a prostate cancer therapy, due to branded competition. Sales of cardiovascular products advanced 36 percent, reflecting significant market share increases for IMDUR, an oral nitrate for angina, and K-DUR potassium supplement. Dermatological product sales increased 11 percent, due to higher sales of LOTRISONE, an antifungal/anti- inflammatory cream, and ELOCON, a mid-potency topical corticosteroid. Domestic prescription pharmaceutical sales in 1995 advanced 20 percent over 1994, led by gains in allergy/respiratory products, primarily reflecting strong growth of the CLARITIN brand. Sales growth of cardiovascular and anti-infective and anticancer products was somewhat offset by lower dermatological product sales. In 1996, sales of international ethical pharmaceutical products increased 4 percent. Excluding the impact of foreign exchange rate fluctuations, sales would have risen approximately 6 percent. International sales of allergy/respiratory products advanced 5 percent over 1995, led by growth for the CLARITIN brand, tempered by lower sales of other allergy products in Japan. Sales of dermatological products rose 8 percent, reflecting higher sales of ELOCON. Sales of cardiovascular products were up slightly. International sales of anti-infective and anticancer products rose 7 percent in 1996, due primarily to gains for INTRON A. LOSEC, an anti-ulcer treatment licensed from AB Astra, also contributed to higher overall international sales. In 1995, international ethical pharmaceutical sales, excluding foreign exchange, increased 5 percent over 1994, reflecting gains in all therapy areas. LOSEC also contributed to the overall international sales growth in 1995. Worldwide sales of animal health products increased 4 percent in 1996, excluding unfavorable foreign exchange rate fluctuations of 1 percent. The sales growth was driven by NUFLOR, a broad-spectrum, multispecies antibiotic. Sales of animal health products in 1995 increased 11 percent over 1994, excluding foreign exchange. Sales of health care products in 1996 declined 4 percent compared with 1995, as volume declines of 6 percent were partially offset by price increases of 2 percent. Over-the-counter (OTC) product sales decreased 16 percent, primarily due to aggressive private- label competition for allergy/cold products, while sun care sales were down slightly. Foot care product sales rose 9 percent due primarily to the 1996 launch of gel insoles and higher TINACTIN and LOTRIMIN AF antifungal products sales. In 1995, health care product sales declined 4 percent as volume declines of 6 percent were partially offset by price increases of 2 percent. The sales decline largely reflected lower sales of OTC products, primarily due to competition for vaginal antifungal products. Income Before Income Taxes Income before income taxes totaled $1.61 billion in 1996, an increase of 15 percent over 1995. In 1995, income before income taxes of $1.39 billion grew 14 percent over $1.23 billion in 1994. Summary of Costs and Expenses: (Dollars in millions)
% Increase 1996 1995 1994 1996/95 1995/94 Cost of sales . . . . . . $1,077.8 $1,004.8 $ 906.8 7 % 11% % of sales. . . . . . . . 19.1 % 19.7 % 20.0 % Selling, general and administrative. . . . . $2,209.1 $1,990.4 $1,755.5 11 % 13 % % of sales . . . . . . . 39.1 % 39.0 % 38.7 % Research and development. $ 722.8 $ 656.9 $ 610.1 10 % 8 % % of sales . . . . . . . 12.8 % 12.9 % 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 1996 increased as a percentage of sales compared with 1995, due to increased promotional and selling-related spending primarily for the CLARITIN brand, INTRON A and the domestic launch of CEDAX. The 1995 increase as a percentage of sales from 1994 reflects higher promotional and selling-related spending for the CLARITIN brand and INTRON A. Research and development expenses increased $65.9 million, or 10 percent, to $722.8 million in 1996 and represented 12.8 percent, 12.9 percent and 13.4 percent of sales in 1996, 1995 and 1994, respectively. 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. The Company also acquired Canji, Inc. in February 1996 to serve as its center for gene therapy research and development. Income Taxes The Company's effective tax rate was 24.5 percent in 1996, 1995 and 1994. The effective tax rate for each period was lower than the U.S. statutory income tax rate, principally due to tax incentives in certain jurisdictions where manufacturing facilities are located. For additional information, see "Income Taxes" in the Notes to Consolidated Financial Statements. Income From Continuing Operations Income in 1996 increased 15 percent to $1.21 billion. Income in 1995 increased 14 percent over 1994. Differences in year-to-year exchange rates reduced comparative income growth in 1996, but increased it in 1995. After eliminating these exchange differences, income would have risen approximately 18 percent in 1996 and 12 percent in 1995. Discontinued Operations In June 1995, the Company sold its contact lens business. For additional information, see "Discontinued Operations" in the Notes to Consolidated Financial Statements. Earnings Per Common Share Earnings per common share were as follows:
1996 1995 1994 Earnings per common share from continuing operations $ 3.30 $ 2.85 $ 2.42 Discontinued operations - loss from operations - (.03) (.01) Discontinued operations - loss on disposal - (.42) - Earnings per common share $ 3.30 $ 2.40 $ 2.41 Average shares outstanding (in millions) 367.7 369.7 382.5
Earnings per common share from continuing operations rose 16 percent in 1996 and 18 percent in 1995. Earnings per common share increased at a higher rate than income due to the Company's share repurchase programs. Fluctuations in year-to-year exchange rates decreased comparative growth in earnings per common share in 1996, but increased it in 1995. Excluding the impact of these exchange rate differences, earnings per common share from continuing operations would have increased approximately 19 percent and 16 percent in 1996 and 1995, respectively. Over the past three years, the Board of Directors has authorized several share repurchase programs. Under these programs, approximately 5.8 million common shares were purchased in 1996, 9.9 million common shares in 1995 and 17.2 million common shares in 1994. At year-end, the most recent $500 million program was 74 percent completed. 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. Foreign Exchange and Inflation Sales outside of the United States represented 42 percent of worldwide sales in 1996 and 45 percent in 1995. Fluctuating foreign exchange rates have affected sales and earnings, as previously discussed. Sales and earnings growth in 1997 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, see "Financial Instruments" in the Notes to Consolidated Financial Statements. 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, 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 operations and cash flows cannot be reasonably estimated. The market for pharmaceutical products is competitive. The Company's operations may be affected by technological advances of competitors, patents granted to competitors, new products of competitors, and generic competition as the Company's products mature. In addition, patent positions can be highly uncertain and an adverse result in a patent dispute can preclude commercialization of products or negatively affect sales of existing products. The effect on operations of competitive factors and patent disputes cannot be predicted. Uncertainties inherent in government regulatory approval processes, including among other things delays in approval of new products, may also affect the Company's operations. The effect on operations of regulatory approval processes cannot be predicted. 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 $1,458.5 million in 1996, $1,383.3 million in 1995 and $1,270.1 million in 1994. Capital expenditures amounted to $324.5 million in 1996, $293.8 million in 1995 and $268.2 million in 1994. It is anticipated that capital expenditures will approximate $350 million in 1997 and include the cost to complete construction of a bulk chemical plant in Singapore. Commitments for future capital expenditures totaled $82.9 million at December 31, 1996. Common shares repurchased in 1996 totaled 5.8 million shares at a cost of $388.0 million. In 1995, 9.9 million shares were repurchased for $493.8 million, and in 1994, 17.2 million shares were repurchased at a cost of $599.4 million. Dividend payments of $474.0 million were made in 1996, compared with $416.4 million in 1995 and $379.4 million in 1994. Dividends per common share were $1.28 in 1996, up from $1.125 in 1995 and $.99 in 1994. Short-term borrowings and current portion of long-term debt totaled $855.1 million at year-end 1996, $841.3 million in 1995 and $782.3 million in 1994. The 1995 increase was due to the reclassification of $100 million for current maturities of long-term debt. In 1996, the Company funded the repayment of current maturities of long-term debt through increased short- term borrowings. The Company's ratio of debt to total capital decreased to 30 percent in 1996 from 36 percent in 1995, resulting primarily from 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, 1996, the Company had $1,295 million in unused lines of credit, including $1 billion from a multi-currency unsecured revolving credit facility expiring in 2001 considered as 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, 1996. Securities Litigation Reform Act Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995: Certain matters discussed in this Annual Report are forward-looking statements that involve risks and uncertainties, including but not limited to economic, litigation, competitive, regulatory, governmental and technological factors affecting the Company's operations, markets, products, services and prices, and other factors discussed in Exhibit 99.1 of the Company's December 31, 1996 Form 10K filed 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, 1996 1995 1994 Sales . . . . . . . . . . . . . . . . . . . . . $5,655.8 $5,104.4 $4,536.6 Costs and expenses: Cost of sales . . . . . . . . . . . . . . . . 1,077.8 1,004.8 906.8 Selling, general and administrative . . . . . 2,209.1 1,990.4 1,755.5 Research and development. . . . . . . . . . . 722.8 656.9 610.1 Other expense, net. . . . . . . . . . . . . . 39.7 57.6 37.5 Total costs and expenses . . . . . . . . . . 4,049.4 3,709.7 3,309.9 Income before income taxes. . . . . . . . . . . 1,606.4 1,394.7 1,226.7 Income taxes. . . . . . . . . . . . . . . . . 393.6 341.7 300.5 Income from continuing operations . . . . . . . 1,212.8 1,053.0 926.2 Discontinued operations: Loss from operations . . . . . . . . . . . . . - (10.2) (4.2) Loss on disposal . . . . . . . . . . . . . . . - (156.2) - ___________________________________________________________________________________ Net income. . . . . . . . . . . . . . . . . . . $1,212.8 $ 886.6 $ 922.0 Earnings per common share: Continuing operations. . . . . . . . . . . . . $ 3.30 $ 2.85 $ 2.42 Discontinued operations: Loss from operations . . . . . . . . . . . . - (.03) (.01) Loss on disposal. . . . . . . . . . . . . . . - (.42) - ___________________________________________________________________________________ Earnings per common share . . . . . . . . . . . $ 3.30 $ 2.40 $ 2.41
Statements of Consolidated Retained Earnings (Dollars in millions, except per share figures) For The Years Ended December 31, 1996 1995 1994 Retained Earnings, Beginning of Year. . . . . . $4,341.8 $3,978.2 $3,435.6 Net income. . . . . . . . . . . . . . . . . . 1,212.8 886.6 922.0 Cash dividends on common shares (per share: 1996, $1.28; 1995, $1.125; and 1994, $.99) . (474.0) (416.4) (379.4) Effect of 2-for-1 stock split . . . . . . . . - (106.6) - ___________________________________________________________________________________ Retained Earnings, End of Year. . . . . . . . . $5,080.6 $4,341.8 $3,978.2 See Notes to Consolidated Financial Statements.
Statements of Consolidated Cash Flows (Dollars in millions) For The Years Ended December 31, 1996 1995 1994 Operating Activities: Income from continuing operations. . . . . . . . . . $1,212.8 $1,053.0 $ 926.2 Depreciation and amortization. . . . . . . . . . . . 173.2 157.1 144.6 Accounts receivable. . . . . . . . . . . . . . . . . 1.6 11.3 75.2 Inventories. . . . . . . . . . . . . . . . . . . . . (111.9) (63.7) (34.1) Prepaid expenses and other assets. . . . . . . . . . (144.4) (107.9) (122.2) Accounts payable and other liabilities . . . . . . . 327.2 333.5 280.4 Net cash provided by operating activities. . . . . . 1,458.5 1,383.3 1,270.1 Investing Activities: Capital expenditures . . . . . . . . . . . . . . . . (324.5) (293.8) (268.2) Reduction of investments . . . . . . . . . . . . . . .6 45.3 181.0 Purchases of investments . . . . . . . . . . . . . . (77.9) (93.2) (37.1) Other, net . . . . . . . . . . . . . . . . . . . . . (5.8) (1.8) (8.3) Net cash used for investing activities (407.6) (343.5) (132.6) Financing Activities: Common shares repurchased. . . . . . . . . . . . . . (388.0) (493.8) (599.4) Cash dividends paid to common shareholders . . . . . (474.0) (416.4) (379.4) Net change in short-term borrowings. . . . . . . . . 113.0 (46.0) (292.1) Repayment of long-term debt. . . . . . . . . . . . . (140.2) (1.4) (3.7) Other equity transactions, net . . . . . . . . . . . 48.1 44.4 33.1 Other, net . . . . . . . . . . . . . . . . . . . . . 4.7 2.7 7.4 Net cash used for financing activities . . . . . . . (836.4) (910.5) (1,234.1) Effect of exchange rates on cash and cash equivalents. (.8) (3.2) (4.2) Net Cash Flow from Continuing Operations . . . . . . . 213.7 126.1 (100.8) Discontinued operations. . . . . . . . . . . . . . . . - 79.7 (5.8) Net Increase (Decrease) in Cash and Cash Equivalents . 213.7 205.8 (106.6) Cash and Cash Equivalents, Beginning of Year . . . . . 321.4 115.6 222.2 Cash and Cash Equivalents, End of Year . . . . . . . . $ 535.1 $ 321.4 $ 115.6 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, 1996 1995 ASSETS __________________________________________________________________________ Current Assets: Cash and cash equivalents. . . . . . . . . . . $ 535.1 $ 321.4 Accounts receivable, less allowances: 1996, $73.0; 1995, $69.1 . . . . . . . . . . 542.0 569.3 Inventories. . . . . . . . . . . . . . . . . . 594.1 502.0 Prepaid expenses, deferred income taxes and other current assets. . . . . . . . . . . 693.4 563.6 Total current assets . . . . . . . . . . . . . 2,364.6 1,956.3 Property, at cost: Land . . . . . . . . . . . . . . . . . . . . . 41.3 41.4 Buildings and improvements . . . . . . . . . . 1,562.6 1,528.2 Equipment. . . . . . . . . . . . . . . . . . . 1,296.3 1,250.8 Construction in progress . . . . . . . . . . . 462.3 315.6 Total. . . . . . . . . . . . . . . . . . . . . 3,362.5 3,136.0 Less accumulated depreciation. . . . . . . . . 1,116.2 1,037.1 Property, net. . . . . . . . . . . . . . . . . 2,246.3 2,098.9 Other Assets. . . . . . . . . . . . . . . . . . . . 787.2 609.4 $5,398.1 $4,664.6 1996 1995 LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable . . . . . . . . . . . . . . . $ 560.6 $ 509.5 Short-term borrowings and current portion of long-term debt . . . . . . . . . . . . . . . 855.1 841.3 U.S., foreign and state income taxes . . . . . 458.7 384.2 Accrued compensation . . . . . . . . . . . . . 205.3 205.1 Other accrued liabilities. . . . . . . . . . . 519.4 422.0 Total current liabilities. . . . . . . . . . . 2,599.1 2,362.1 Long-Term Liabilities: Long-term debt . . . . . . . . . . . . . . . . 46.4 87.1 Deferred income taxes. . . . . . . . . . . . . 267.4 255.1 Other long-term liabilities. . . . . . . . . . 425.3 337.4 Total long-term liabilities. . . . . . . . . . 739.1 679.6 Shareholders' Equity: Preferred shares - authorized 50,000,000 shares, $1 par value; issued - none . . . . . - - Common shares - 600,000,000 authorized shares, $1 par value; issued - 1996, 507,368,360; 1995, 502,965,382 . . . . . . . . . . . . . . 507.4 503.0 Paid-in capital. . . . . . . . . . . . . . . . 172.3 49.5 Retained earnings. . . . . . . . . . . . . . . 5,080.6 4,341.8 Foreign currency translation adjustment and other . . . . . . . . . . . . . . . . . . . . (140.6) (103.9) Total. . . . . . . . . . . . . . . . . . . . . 5,619.7 4,790.4 Less treasury shares, at cost - 1996, 142,001,799 shares; 1995,138,796,653 shares . 3,559.8 3,167.5 Total shareholders' equity . . . . . . . . . . 2,059.9 1,622.9 $5,398.1 $4,664.6 See Notes to Consolidated Financial Statements.
Notes to Consolidated Financial Statements (Dollars in millions, except per share figures) Accounting Policies Principles of Consolidation The consolidated financial statements include Schering-Plough Corporation and its subsidiaries. Intercompany balances and transactions are eliminated. Certain prior year amounts have been reclassified to conform to the current year presentation. 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. Debt and Equity Investments Investments, included in other non-current assets, consist of debt and equity securities held primarily in non-qualified trusts to fund benefit obligations. For purposes of Statement of Financial Accounting Standards (SFAS) No. 115, all of the Company's investment securities are classified as available for sale and, accordingly, are carried at fair value. Gains and losses during 1996, 1995 and 1994, based on the specific identification method, were not material. Unrealized gains and losses are included in shareholders' equity until realized. 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 $149.2, $142.7, and $134.3 in 1996, 1995 and 1994, 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 $10.9, $4.0 and $6.0 in 1996, 1995 and 1994, 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. Discontinued Operations On June 28, 1995, the Company sold its 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. Contact lens sales during 1995 through the date of disposition were $46.2. Sales for the year ended December 31, 1994, were $120.5. Loss from discontinued operations for the years ended December 31, 1995 and 1994 is net of tax benefits of $7.0 and $9.3, 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, 1996 December 31, 1995 Carrying Estimated Carrying Estimated Value Fair Value Value Fair Value ASSETS: Cash and cash equivalents $535.1 $535.1 $321.4 $321.4 Debt and equity investments 148.0 148.0 142.6 142.6 LIABILITIES: Short-term borrowings 855.1 855.1 841.3 842.0 Long-term debt 46.4 46.4 87.1 88.9 Derivative Financial Instruments: Interest rate swap contracts - - 1.5 1.5 Foreign currency swap contracts 47.9 64.5 64.5 81.3
1996 1995 Notes, 7.8%, due 1996 . . . . . . . . . . . . $ - $ 100.0 Industrial revenue bonds, due 2013: 1996, 3.8%; 1995, 3.8% - 12.0%. . . . . . . . . . . 40.0 80.0 Other . . . . . . . . . . . . . . . . . . . . 11.2 7.3 51.2 187.3 Current maturities. . . . . . . . . . . . . . (4.8) (100.2) Total long-term debt. . . . . . . . . . . . . $ 46.4 $ 87.1
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, 1996, no debt securities have been issued pursuant to this registration. Interest Income and Interest Expense Interest income for 1996, 1995 and 1994 was $32.8, $22.6 and $17.2, respectively. Interest expense, net of amounts capitalized as part of the construction cost of property, plant and equipment, for 1996, 1995 and 1994 was $45.4, $57.6 and $56.2, respectively. Interest costs of $10.8, $11.4 and $11.4 in 1996, 1995 and 1994, respectively, have been capitalized and included in the cost of property, plant and equipment. Total cash payments for interest, net of amounts capitalized, were $52.0, $56.3 and $54.9 in 1996, 1995 and 1994, 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. Option exercise prices equal the market price of the common shares at their grant dates. Options expire not later than 10 years after the date of the grant. Standard options granted generally have a one-year vesting term. Other options granted vest 20 percent per year for five years starting in the fifth year after the date of 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 generally commencing one year from the date of the award. The Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation," in October 1995. Under SFAS No. 123, companies can either continue to account for stock compensation plans pursuant to existing accounting standards or elect to expense the value derived from using an option pricing model such as Black-Scholes. The Company will continue to apply existing accounting standards. However, SFAS No. 123 requires disclosure of pro forma net income and earnings per share as if the Company had adopted the expensing provisions of SFAS No. 123. Based on Black- Scholes values, pro forma net income for 1996 and 1995 would be $1,196.5 and $882.8, respectively; pro forma earnings per common share for 1996 and 1995 would be $3.25 and $2.39, respectively. The following table summarizes stock option activity over the past two years under the current and prior plans: Weighted- Average Number Exercise of Shares Price Outstanding at January 1, 1995 9,653,934 $23.83 Granted 1,911,920 $45.90 Exercised (1,743,223) $25.08 Canceled or expired (99,854) $33.44 Outstanding at December 31, 1995 9,722,777 $28.44 Granted 3,097,374 $57.44 Exercised (2,404,461) $22.83 Canceled or expired (276,312) $41.55 Outstanding at December 31, 1996 10,139,378 $38.28 Options exercisable at December 31, 1995 6,346,127 $24.64 Options exercisable at December 31, 1996 5,474,076 $27.83
In 1996 and 1995, the Company awarded deferred stock units totaling 881,030 and 824,560, respectively. The weighted-average fair value of these deferred stock units was $56.07 and $39.37 per unit in 1996 and 1995, respectively. The expense recorded in 1996 and 1995 for deferred stock units was $26.9 and $23.4, respectively. The weighted-average Black-Scholes value per option granted in 1996 and 1995 was $12.43 and $11.28, respectively. The following weighted-average assumptions were used in the Black-Scholes option pricing model for options granted in 1996 and 1995: 1996 1995 Dividend yield 2.8% 2.8% Volatility 20% 20% Risk-free interest rate 5.7% 6.6% Expected term of options (in years) 5 5 For options outstanding and exercisable at December 31, 1996, the exercise price ranges and average remaining lives were: Options Outstanding Options Exercisable Weighted- Weighted- Weighted- Range of Number Average Average Number Average Exercise Outstanding Remaining Exercise Exercisable Exercise Prices at 12/31/96 Life Price at 12/31/96 Price $12 to $29 3,791,558 4 $22.62 3,027,558 $23.07 $30 to $51 2,586,518 8 $33.72 2,446,518 $33.71 $52 to $68 3,761,302 9 $57.20 - - 10,139,378 7 $38.28 5,474,076 $27.83
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 $125.00 for $62.50. 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 (other than such person or members of such group) 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, 1994. . . $251.5 $ 80.9 58.0 $2,069.9 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 - 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 Stock incentive plans. . . . . - 92.4 (2.6) 4.3 Settlement of warrants . . . . 3.4 (23.1) - - Purchase of treasury shares. . - - 5.8 388.0 Shares issued for purchase of Canji, Inc. . . . . . . . . 1.0 53.5 - - Balance at December 31, 1996. . $507.4 $172.3 142.0 $3,559.8
1996 1995 Finished products . . . . . . . . . . . . . . $296.7 $213.2 Goods in process. . . . . . . . . . . . . . . 173.0 179.4 Raw materials and supplies. . . . . . . . . . 124.4 109.4 Total inventories . . . . . . . . . . . . . . $594.1 $502.0
Inventories valued on a last-in, first-out basis comprised approximately 45 percent and 39 percent of total inventories at December 31, 1996 and 1995, respectively. The estimated replacement cost of total inventories at December 31, 1996 and 1995 was $644.5 and $549.7, respectively. Retirement Plans The Company and certain of its subsidiaries have defined benefit pension plans covering eligible employees in the United States and certain foreign countries. Benefits under these plans are generally based upon the participants' average final earnings and years of credited service, and take into account governmental retirement benefits. The Company's funding policy is to contribute actuarially determined amounts, after taking into consideration the funded status of each plan and regulatory limitations. The components of the net pension expense for all Company-sponsored plans were as follows: 1996 1995 1994 Service cost - benefits earned during the year. . . . . . . . . . . . . . . $ 37.1 $ 29.1 $ 32.2 Interest cost on projected benefit obligations . . . . . . . . . . . . . 49.6 47.0 42.0 Actual return on plan assets . . . . . (98.8) (152.8) .5 Net amortization and deferral . . . . . 18.5 78.8 (68.4) Net pension expense . . . . . . . . . . $ 6.4 $ 2.1 $ 6.3
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 was as follows: Over-funded Under-funded plans plans 1996 1995 1996 1995 Projected benefit obligations: Accumulated benefit obligations, including vested benefits of $604.5 in 1996 and $571.4 in 1995. . . $519.9 $532.4 $116.3 $ 83.9 Effect of future salary increases. . . 87.9 85.6 30.3 25.8 Total projected benefit obligations . . . 607.8 618.0 146.6 109.7 Plan assets at fair value, primarily stocks and bonds. . . . . . . 876.9 822.4 36.1 17.3 Plan assets over (under) projected benefit obligations . . . . . . . . . . 269.1 204.4 (110.5) (92.4) Unrecognized net transition (asset) liability . . . . . . . . . . . . . . . (67.2) (77.4) 4.3 6.1 Unrecognized prior service cost . . . . . 5.7 5.6 5.3 7.6 Unrecognized net (gain) loss. . . . . . . (69.9) (9.8) 34.2 20.9 Net pension asset (liability) . . . . . . $137.7 $122.8 $(66.7) $(57.8)
1996 1995 1994 Service cost - benefits earned during the year. . . $ 4.9 $ 3.9 $ 5.7 Interest cost on accumulated post-retirement benefit obligation . . . . . . . . . . . . . . . . 11.1 10.7 10.3 Actual return on plan assets. . . . . . . . . . . . (21.9) (35.4) 2.0 Net deferral. . . . . . . . . . . . . . . . . . . . 6.8 20.3 (15.5) Post-retirement benefit expense (income). . . . . . $ .9 $ (.5) $ 2.5
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: 1996 1995 Accumulated post-retirement benefit obligation attributable to: Retirees. . . . . . . . . . . . . . . . . . . . . . $ 84.6 $83.4 Fully eligible active plan participants . . . . . . 24.5 30.1 Other active plan participants. . . . . . . . . . . 46.8 50.4 Accumulated post-retirement benefit obligation. . . . . 155.9 163.9 Plan assets at fair value, primarily stocks and bonds . 191.6 179.4 Plan assets in excess of accumulated post-retirement benefit obligation. . . . . . . . . . . . . . . . . . 35.7 15.5 Unrecognized net gain . . . . . . . . . . . . . . . . . (44.2) (23.1) Accrued post-retirement benefit liability . . . . . . . $ (8.5) $(7.6)
The assumed health care cost trend rates used for measurement purposes were 9.0 percent for 1997, trending down to 5.0 percent by 2003. The weighted- average discount rate used was 7.5 percent at December 31, 1996, and 7.0 percent at December 31, 1995. The weighted-average expected long-term rate of return on plan assets was 9 percent at December 31, 1996 and 1995. 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 1993, the Company fully funded its initial accumulated benefit obligation. Future funding is at the discretion of the Company. The 1996 discount rate change reduced the accumulated benefit obligation by approximately $9.6. At December 31, 1996, a 1 percent increase in the assumed health care cost trend rate would increase the combined service and interest cost by approximately 15 percent and the accumulated post-retirement benefit obligation by approximately 11 percent. Income Taxes U.S. and foreign operations contributed to income before income taxes as follows: 1996 1995 1994 United States. . . . . . . . . . . . . $1,090.6 $ 916.7 $ 765.6 Foreign. . . . . . . . . . . . . . . . 515.8 478.0 461.1 Total income before income taxes . . . $1,606.4 $1,394.7 $1,226.7
The components of income tax expense were as follows: 1996 1995 1994 Current: Federal. . . . . . . . . . . . . . . $296.5 $262.1 $120.6 Foreign. . . . . . . . . . . . . . . 122.0 93.7 119.2 State. . . . . . . . . . . . . . . . 13.7 29.3 19.6 Total current. . . . . . . . . . . . 432.2 385.1 259.4 Deferred: Federal and state. . . . . . . . . . (24.5) (23.1) 51.3 Foreign. . . . . . . . . . . . . . . (14.1) (20.3) (10.2) Total deferred . . . . . . . . . . . (38.6) (43.4) 41.1 Total income tax expense . . . . . . . $393.6 $341.7 300.5
The difference between the U.S. statutory tax rate and the Company's effective tax rate was due to the following: 1996 1995 1994 U.S. statutory tax rate. . . . . . . . . 35.0% 35.0% 35.0% Increase (decrease) in taxes resulting from: Lower rates in other jurisdictions, net . . . . . . . . . . . . . . . . . (10.3) (10.7) (9.8) Research tax credit. . . . . . . . . . (.4) (.3) (.6) All other, net . . . . . . . . . . . . .2 .5 (.1) Effective tax rate . . . . . . . . . . . 24.5% 24.5% 24.5%
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 2010. As of December 31, 1996 and 1995, the Company had total deferred tax assets of $485.3 and $426.6, respectively, and deferred tax liabilities of $406.7 and $379.5, respectively. Valuation allowances are not significant. Significant deferred tax assets at December 31, 1996 and 1995 were for operating costs not currently deductible for tax purposes and totaled $374.2 and $302.7, respectively. Significant deferred tax liabilities at December 31, 1996 and 1995 were for depreciation differences, $219.0 and $207.4, respectively, and retirement plans, $47.0 and $41.0, respectively. Other current assets include deferred income taxes of $344.5 and $300.9 at December 31, 1996 and 1995, respectively. Deferred taxes are not provided on undistributed earnings of foreign subsidiaries (considered to be permanent investments), which at December 31, 1996, approximated $2,181.7. Determining the tax liability that would arise if these earnings were remitted is not practicable. As of December 31, 1996, 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 1996, 1995 and 1994 were $306.2, $318.9 and $173.1, respectively. 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, 1996 and 1995, and the related expenses incurred during the three years ended December 31, 1996, were not material. Expected insurance recoveries have not been considered in determining the costs for environmental related liabilities. Management believes that, except for the matters discussed in the following paragraphs, it is remote that any material liability in excess of the amounts accrued will be incurred. The Company is a defendant in more than 160 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. Four of the state antitrust cases have been certified as class actions. Two are class actions on behalf of certain retail pharmacies in California and Wisconsin, and the other two are class actions in California and the District of Columbia, 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. On March 13, 1996, the Company was notified that the United States Federal Trade Commission (FTC) is investigating whether the Company, along with other pharmaceutical companies, conspired to fix prescription drug prices. The Company has provided a substantial amount of documentation to the FTC. The Company vigorously denies that it has engaged in any price-fixing conspiracy. The Company is a defendant in a state court action in Texas brought by Foxmeyer Health Corporation, the parent of a pharmaceutical wholesaler that filed for bankruptcy in August 1996, against another pharmaceutical wholesaler and 11 pharmaceutical companies alleging that the defendants conspired to drive the plaintiff out of business. Plaintiff is seeking damages in the amount of $400. The Company believes that this action is without merit and is defending itself vigorously against all claims. Consistent with trends in the pharmaceutical industry, the Company is self- insured for certain events Quarterly results of operations (Unaudited) Three Months Ended March 31, June 30, September 30, December 31, 1996 1995 1996 1995 1996 1995 1996 1995 Sales. . . . . . $1,382.7 $1,224.2 $1,476.6 $1,332.5 $1,382.2 $1,256.8 $1,414.3 $1,290.9 Cost of sales. . 262.7 235.8 287.0 272.5 257.7 237.8 270.4 258.7 Gross profit . . $1,120.0 $ 988.4 $1,189.6 $1,060.0 $1,124.5 $1,019.0 $1,143.9 $1,032.2 Selling, general and administrative . 503.3 455.8 578.6 511.9 562.7 509.7 564.5 513.0 Research and development . . 162.9 147.2 177.9 162.1 182.0 165.8 200.0 181.8 Other, net . . . 21.2 8.0 13.1 20.4 (6.6) 8.9 12.0 20.3 Income before income taxes. . 432.6 377.4 420.0 365.6 386.4 334.6 367.4 317.1 Income taxes . . 106.0 92.5 102.9 89.5 94.7 82.0 90.0 77.7 Income from continuing operations. . . 326.6 284.9 317.1 276.1 291.7 252.6 277.4 239.4 Discontinued operations: . . - (6.3) - (160.1) - - - - Net income . . . $ 326.6 $ 278.6 $ 317.1 $ 116.0 $ 291.7 $ 252.6 $ 277.4 $ 239.4 Earnings per common share from continuing operations. . . $ .89 $ .77 $ .86 $ .74 $ .79 $ .68 $ .76 $ .66 Discontinued operations . . - (.02) - (.43) - - - - Earnings per common share . $ .89 $ .75 $ .86 $ .31 $ .79 $ .68 $ .76 $ .66 Common shares outstanding at period end (in millions) 368.4 372.1 369.7 372.3 369.4 367.6 365.4 364.2 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.
Sales and Operating Profit by Industry Segment Sales Profit 1996 1995 1994 1996 1995 1994 Pharmaceutical products. . . $5,049.2 $4,471.7 $3,880.2 $1,591.7 $1,380.6 $1,204.4 Health care products . . . . 606.6 632.7 656.4 138.6 153.6 158.9 Total sales and operating profit. . . . . . . . . . . 5,655.8 5,104.4 4,536.6 1,730.3 1,534.2 1,363.3 General corporate revenue and expense . . . . (78.5) (81.9) (80.4) Interest expense . . . . . . (45.4) (57.6) (56.2) Consolidated sales and pre-tax profit. . . . . $5,655.8 $5,104.4 $4,536.6 $1,606.4 $1,394.7 $1,226.7
Identifiable Assets, Capital Expenditures, Depreciation and Amortization by Industry Segment Capital Depreciation and Assets Expenditures Amortization 1996 1995 1994 1996 1995 1994 1996 1995 1994 Pharmaceutical products. . . $4,099.4 $3,608.7 $3,544.5 $ 308.1 $ 275.5 $ 243.8 $ 152.0 $ 134.9 $ 121.2 Health care products. . . 374.5 373.2 395.2 14.0 17.4 21.5 15.9 16.9 18.2 Industry segment totals. . . . 4,473.9 3,981.9 3,939.7 322.1 292.9 265.3 167.9 151.8 139.4 Corporate. . . 924.2 682.7 386.0 2.4 .9 2.9 5.3 5.3 5.2 Consolidated assets, capital expenditures, depreciation and amortization. $5,398.1 $4,664.6 $4,325.7 $ 324.5 $ 293.8 $ 268.2 $ 173.2 $ 157.1 $ 144.6
Sales, Operating Profit and Identifiable Assets by Geographic Area Sales Profit Assets 1996 1995 1994 1996 1995 1994 1996 1995 1994 United States.$3,283.4 $2,804.9 $2,470.2 $1,202.9 $1,037.1 $ 887.2 $2,472.2$2,234.8 $2,344.2 Europe, Middle East & Africa 1,375.9 1,277.3 1,045.7 287.9 264.1 235.5 1,159.4 1,058.6 887.5 Latin America. 385.0 373.8 387.0 107.5 104.5 101.8 303.8 278.2 278.4 Canada, Pacific Area & Asia . 611.5 648.4 633.7 132.0 128.5 138.8 538.5 410.3 429.6 Total sales, operating profit & identifiable assets. . . .$5,655.8 $5,104.4 $4,536.6 $1,730.3 $1,534.2 $1,363.3 $4,473.9 $3,981.9$3,939.7
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 certain countries 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 management'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, 1996, 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 Jay Kogan /s/Jack L. Wyszomierski /s/Thomas H. Kelly President and Executive Vice President Vice President Chief Executive Officer and Chief Financial and Controller Officer 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, 1996 and 1995 and the related statements of consolidated income, retained earnings and cash flows for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Schering-Plough Corporation and subsidiaries at December 31, 1996 and 1995 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. /s/Deloitte & Touche LLP Parsippany, New Jersey February 14, 1997 COMMON SHARE DIVIDENDS AND MARKET DATA During 1996, the Board of Directors increased the quarterly dividend rate from $.29 per share to $.33 per share, a 14 percent increase. Dividends paid on common shares in 1996 and 1995 totaled $474.0 million and $416.4 million, respectively. The following table reflects the quarterly dividends per share paid over the last two years. Quarter 1996 1995 1st $ .29 $ .255 2nd .33 .29 3rd .33 .29 4th .33 .29 $ 1.28 $ 1.125
The approximate number of holders of record of common shares as of December 31, 1996, was 35,000. 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. 1996 1995 Quarter High Low High Low 1st $ 61 3/8 $ 51 1/2 $ 39 7/16 $ 35 13/16 2nd 62 3/4 53 1/2 45 3/8 36 3/4 3rd 63 1/8 55 52 1/2 43 4th 72 1/4 62 60 5/8 51 3/4 __________________________________________________________
Schering-Plough Corporation and Subsidiaries Six-Year Selected Financial & Statistical Data(Dollars in millions, except per share figures) 1996 1995 1994 1993 1992 1991 Operating Results Sales . . . . . . . . . . . . . $5,655.8 $5,104.4 $4,536.6 $4,229.1 $3,944.6 $3,475.4 Income before income taxes. . . 1,606.4 1,394.7 1,226.7 1,073.1 962.8 847.6 Income from continuing operations before extraordinary item and cumulative effect of accounting changes . . . . . . 1,212.8 1,053.0 926.2 815.6 722.1 635.7 Discontinued operations . . . . - (166.4) (4.2) 9.4 (2.1) 9.9 Extraordinary item. . . . . . . - - - - (26.7) - Cumulative effect of accounting changes. . . . . . . . . . . . - - - (94.2) 27.1 - Net income. . . . . . . . . . . 1,212.8 886.6 922.0 730.8 720.4 645.6 Earnings per common share from continuing operations before extraordinary item and cumulative effect of accounting changes . 3.30 2.85 2.42 2.09 1.80 1.48 Discontinued operations . . . . - (.45) (.01) .02 - .02 Extraordinary item. . . . . . . - - - - (.07) - Cumulative effect of accounting changes. . . . . . . . . . . . - - - (.24) .07 - Earnings per common share . . . 3.30 2.40 2.41 1.87 1.80 1.50 ___________________________________________________________________________________________ Investments Research and development . . . $ 722.8 $ 656.9 $ 610.1 $ 567.3 $ 510.5 $ 416.5 Capital expenditures . . . . . 324.5 293.8 268.2 339.9 372.8 319.2 Financial Condition Property, net . . . . . . . . . $2,246.3 $2,098.9 $2,082.3 $1,967.7 $1,748.5 $1,490.4 Total assets. . . . . . . . . . 5,398.1 4,664.6 4,325.7 4,316.9 4,156.6 4,013.2 Long-term debt. . . . . . . . . 46.4 87.1 185.8 182.3 184.1 753.6 Shareholders' equity. . . . . . 2,059.9 1,622.9 1,574.4 1,581.9 1,596.9 1,346.1 Net book value per common share 5.64 4.46 4.23 4.09 4.00 3.34 Financial Statistics Income from continuing operations before extraordinary item and cumulative effect of accounting changes as a percent of sales. 21.4% 20.6% 20.4% 19.3% 18.3% 18.3% Net income as a percent of sales 21.4% 17.4% 20.3% 17.3% 18.3% 18.6% Return on average shareholders' equity . . . . . . . . . . . . 65.9% 55.5% 58.4% 46.0% 49.0% 37.7% Effective tax rate . . . . . . 24.5% 24.5% 24.5% 24.0% 25.0% 25.0% Other Data Cash dividends per common share $ 1.28 $ 1.125 $ .99 $ .87 $ .75 $ .635 Cash dividends on common shares 474.0 416.4 379.4 339.6 300.2 273.6 Depreciation and amortization . 173.2 157.1 144.6 130.9 124.5 118.0 Number of employees . . . . . . 20,600 20,100 20,000 20,300 19,800 19,000 Average common shares outstanding (in millions) . . . . . . . . . 367.7 369.7 382.5 390.2 400.3 429.0 Common shares outstanding at year-end (in millions). . . . 365.4 364.2 372.0 387.1 399.0 403.6
EX-21 7 Schering-Plough Corporation and Subsidiaries Subsidiaries of Registrant As of December 31, 1996 Exhibit 21 Subsidiaries of Registrant or Organization Name/State or Country of Incorporation 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 Canji, Inc. Delaware Chemibiotic (Ireland) Limited Ireland Dashtag United Kingdom Desarrollos Farmaceuticos Y Cosmeticos S.A. Spain DNAX Research Institute of Molecular & 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 Italia S.p.A. Italy Essex Pharma GmbH Germany Essexfarm S. A. (Ecuador) Ecuador Farmaceutica Essex, S. A. Spain Garden Insurance Co., Ltd. Bermuda Integrated Disease Management, Inc. Delaware Integrated Therapeutics Group, Inc. Delaware Key Pharma, A. G. Switzerland Key Pharma, S.A. Spain Key Pharmaceuticals Export Co., Inc. U.S. Virgin Islands Key Pharmaceuticals, Inc. Florida Kirby Medical Products Cia Ltda Chile Kirby-Warrick Pharmaceuticals Limited United Kingdom Laboratorio Essex, C.A. Venezuela Laboratorio S.P. White's, C.A. Venezuela Laboratorios Essex S.A. Argentina Loftus Bryan Chemicals Limited Ireland Med-Nim (Proprietary) Limited South Africa P.T. Schering-Plough Indonesia Indonesia Pharmaceutical Supply Corporation Delaware Pharmaco(Canada) Ltd. Canada Pharmaco, Inc. Delaware Plough (Australia) Pty. Limited Australia Plough (UK) Limited United Kingdom Plough Benelux S.A. Belgium Plough Broadcasting Co., Inc. Delaware Plough Consumer Products (Asia) Ltd. Hong Kong Plough Consumer Products (Philippines) Inc. Philippines Plough de Venezuela, C.A. Venezuela Plough Export, Inc. Tennessee Plough Farma, Lda. Portugal Plough France S.A. France Plough Hellas Limited Greece Plough Laboratories, Inc. Tennessee Plough S.p.A. Italy Plough Services AG Switzerland PPL, Inc. Tennessee Pro Medica AB Sweden Professional Pharmaceutical Corporation Delaware Professional Vaccine Corporation Delaware S-P RIL Limited United Kingdom Scheramex S.A. de C.V. Mexico Scherico, Ltd. Switzerland Schering Canada Inc. Canada Schering Corporation New Jersey Schering Institutional Sales Corporation Delaware Schering Laboratories Advertising Inc. Delaware Schering Plough South Korea Schering Sales Corporation Delaware Schering Transamerica Corporation New Jersey Schering-Plough France Schering-Plough (Grenada) Limited Grenada Schering-Plough (Proprietary) Limited South Africa Schering-Plough A/S Denmark Schering-Plough A/S Norway Schering-Plough AB Sweden Schering-Plough Animal-Health Corporation Delaware Schering-Plough B.V. Netherlands Schering-Plough C.A. Venezuela Schering-Plough Central East A.G. Switzerland Schering-Plough China, Ltd. Bermuda Schering-Plough Compania Limitada Chile Schering-Plough Coordination Center N.V./S.A. Belgium Schering-Plough Corp., U.S.A. Delaware Schering-Plough Corporation Philippines Schering-Plough del Caribe, Inc. New Jersey Schering-Plough del Ecuador, S.A. Ecuador Schering-Plough Farma Lda. Portugal Schering-Plough Farmaceutica Ltda. Brazil Schering-Plough HealthCare Holding Co. Delaware Schering-Plough HealthCare Products Advertising Corp. Tennessee Schering-Plough HealthCare Products Canada, Inc. Canada Schering-Plough HealthCare Products Sales Corporation California Schering-Plough HealthCare Products, Inc. Delaware Schering-Plough Holdings Ltd. United Kingdom Schering-Plough INT Limited United Kingdom Schering-Plough International, Inc. Delaware Schering-Plough Investment Company, 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 N.V./S.A. Belgium Schering-Plough Overseas Limited Delaware Schering-Plough OY Finland Schering-Plough Pharmaceutical Industrial and Commercial S.A. Greece Schering-Plough Products, Inc. Delaware Schering-Plough Pty. Limited Australia Schering-Plough Real Estate Company, Inc. Delaware Schering-Plough Research Institute Delaware 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 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 Biotech, S.A. Spain SP HealthCare Products Corp. Delaware SP Neurotech, S.A. Spain 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 Ltd. United Kingdom White Laboratories of Canada Limited Canada White Laboratories, Inc. New Jersey 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, Post- Effective Amendment No. 1 to Registration Statement No. 2-77740 on Form S-3 and Registration Statement No. 333-12909 on Form S-3 of our reports dated February 14, 1997, appearing in and incorporated by reference in this Annual Report on Form 10-K of Schering- Plough Corporation for the year ended December 31, 1996. /s/ DELOITTE & TOUCHE, LLP Parsippany, New Jersey March 3, 1997 consent.10k EX-24 9 POWER OF ATTORNEY Exhibit 24 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, 1996 (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 25th day of February, 1997. /s/Robert P. Luciano /s/Richard Jay Kogan Robert P. Luciano, Chairman; Richard Jay Kogan, President and Director Chief Executive Officer; Director /s/Jack L. Wyszomierski /s/Thomas H. Kelly Jack L. Wyszomierski, Thomas H. Kelly, Vice President Executive Vice President and and Controller; Principal Chief Financial Officer Accounting Officer /s/Hans W. Becherer /s/Richard de J. Osborne Hans W. Becherer, Director Richard de J. Osborne, Director /s/Hugh A. D'Andrade /s/Patricia F. Russo Hugh A. D'Andrade, Director Patricia F. Russo, Director /s/David C. Garfield /s/William A. Schreyer David C. Garfield, Director William A. Schreyer, 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, Director R. J. Ventres, Director /s/Carl E. Mundy, Jr. /s/James Wood Carl E. Mundy, Jr., Director James Wood, Director WD022003.FIL EX-27 10
5 This schedule contains summary financial data extracted from Schering-Plough Corporation Consolidated Financial Statements, related 10-K Schedules and Exhibits for the year ended December 31, 1996, and is qualified in its entirety by reference to such financial statements. 1,000 YEAR DEC-31-1996 DEC-31-1996 535100 0 615000 73000 594100 2364600 3362500 1116200 5398100 2599100 46400 0 0 507400 1552500 5398100 5655800 5655800 1077800 1077800 722800 2400 45400 1606400 393600 1212800 0 0 0 1212800 3.30 3.26
EX-99 11 Exhibit 99.1 CAUTIONARY STATEMENTS REGARDING "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 The Company is hereby filing a cautionary statement identifying important factors that could cause the Company's actual results to differ materially from those projected in forward looking statements of the Company made by, or on behalf of, the Company. Competitive factors including technological advances attained by competitors; patents granted to competitors; new products of competitors coming to the market; generic competition as the Company's products mature. Increased pricing pressure both in the United States and abroad from managed care buyers, institutions and government agencies. Government laws and regulations affecting domestic and international operations including, among other laws and regulations, those resulting from healthcare reform initiatives at the state and federal level, as well as those relating to trade, monetary and fiscal policies, taxes, price controls, and possible nationalization. Patent positions can be highly uncertain and patent disputes are not unusual. An adverse result in a patent dispute can preclude commercialization of products or negatively impact sales of existing products. Uncertainties of the FDA approval process and the regulatory approval processes of foreign countries, including, without limitation, delays in approval of new products. Difficulties in product development. Pharmaceutical product development is highly uncertain. Products that appear promising in the early phases of development may fail to reach market for numerous reasons. They may be found to be ineffective or to have harmful side effects in clinical or pre-clinical testing, they may fail to receive the necessary regulatory approvals, they may turn out not to be economically feasible because of manufacturing costs or other factors or they may be precluded from commercialization by the proprietary rights of others. Recalls of pharmaceutical products as a consequence of previously unknown side-effects or for other reasons may occur. Significant litigation adverse to the Company. Fluctuations in interest rates and foreign currency exchange rates. 22533-1 EX-99 12 Exhibit 99.2 Company Statements Relating to Forward Looking Information (Filed Pursuant to Rule 175) 1. Extract from news release issued by the Company on January 23, 1997: Mr. Richard Jay Kogan, President and Chief Executive Officer, commenting on the Company's earnings per share for 1997, stated that the Company expects good earnings growth in 1997, with the percentage increase for earnings per share coming in around the low to mid teens. 26039-1 -----END PRIVACY-ENHANCED MESSAGE-----