<PAGE> 1
Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From to
-------------------------------------------------------------------
Commission File Number 333-07063
SMITHKLINE BEECHAM HOLDINGS CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 51-0374608
(State of incorporation) (I.R.S. Employer
Identification No.)
1403 Foulk Road, Suite 102, P.O. Box 7108, Wilmington, Delaware 19803-2775
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (302)479-5801
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding twelve months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. YES _X_ NO ___
The number of shares outstanding of Common Stock as of September 30, 1996 was
2,925.2
<PAGE> 2
SMITHKLINE BEECHAM HOLDINGS CORPORATION
INDEX TO FORM 10-Q
SEPTEMBER 30, 1996
PAGE
NUMBER
------
Part I - Financial Information
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets-
September 30, 1996 and December 31, 1995 1
Condensed Consolidated Statements of Operations-
Three Months Ended September 30, 1996 and 1995 2
Condensed Consolidated Statements of Operations-
Nine Months Ended September 30, 1996 and 1995 3
Condensed Consolidated Statements of Cash
Flows-Nine Months Ended September 30, 1996 and 1995 4
Condensed Consolidated Statements of Shareholders' Equity 5
Notes to Condensed Consolidated Financial Statements 6-9
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition 10-13
Part II - Other Information
Item 6. Index to Exhibits and Reports on Form 8-K 14
Signatures 15
<PAGE> 3
SMITHKLINE BEECHAM HOLDINGS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN MILLIONS EXCEPT PER SHARE INFORMATION)
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents .................................. $ 130 $ 120
Trade receivables, net ..................................... 201 252
Inventories ................................................ 189 195
Receivables from affiliates ................................ 75 84
Loans receivable from affiliates ........................... 1,914 1,144
Other current assets ....................................... 72 55
------- ------
Total current assets .................................. 2,581 1,850
Property, plant and equipment, net ............................ 188 190
Investments in affiliates ..................................... 160 144
Goodwill, net ................................................. 398 409
Other assets .................................................. 16 22
------- ------
Total ................................................. $ 3,343 $2,615
======= ======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable ........................................... $ 47 $ 65
Payables to affiliates ..................................... 105 105
Loans payable to affiliates ................................ 91 468
Income taxes payable ....................................... 19 62
Other current liabilities .................................. 176 217
------- ------
Total current liabilities ............................. 438 917
Minority interests ............................................ 215 188
Other liabilities ............................................. 67 77
------- ------
Total liabilities ..................................... 720 1,182
------- ------
Mandatorily redeemable preferred stock, no par value,
$100,000 redemption value per share, 11,500 shares
issued and outstanding ..................................... 1,142 --
------- ------
Shareholders' equity:
Cumulative foreign currency translation adjustment ......... (20) 23
Junior preferred stock, no par value, $1,000,000 liquidation
preference per share, 9.7 shares issued and
outstanding ............................................. 15 --
Common stock, no par value, 2,925.2 shares issued and
outstanding ............................................. 1,470 --
SmithKline Beecham equity .................................. -- 1,410
Retained earnings .......................................... 16 --
------- ------
Total shareholders' equity ............................ 1,481 1,433
------- ------
Total ................................................. $ 3,343 $2,615
======= ======
</TABLE>
See accompanying notes to condensed consolidated financial statements
1
<PAGE> 4
SMITHKLINE BEECHAM HOLDINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN MILLIONS EXCEPT PER SHARE INFORMATION)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED SEPTEMBER 30,
--------------------
1996 1995
------- --------
(UNAUDITED)
<S> <C> <C>
Net sales ................................... $ 350 $ 411
Operating costs and expenses:
Cost of sales ............................ 180 216
Marketing, administrative and general .... 117 129
Research and development ................. 5 6
------- --------
Operating income ............................ 48 60
Non-operating income (expense):
Interest income .......................... 22 9
Minority interests ....................... (11) (10)
Equity in net income of affiliates ....... 5 4
Other, net ............................... (1) 8
------- --------
Income before income taxes .................. 63 71
Provision for income taxes .................. 24 35
------- --------
Net income .................................. 39 36
Dividends on preferred stock ................ (14) --
------- --------
Net income applicable to common shares ...... $ 25 $ 36
======= ========
Earnings per common share ................... $ 8,546 $ 12,307
======= ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
2
<PAGE> 5
SMITHKLINE BEECHAM HOLDINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN MILLIONS EXCEPT PER SHARE INFORMATION)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30,
---------------------
1996 1995
-------- --------
(UNAUDITED)
<S> <C> <C>
Net sales ................................... $ 1,102 $ 1,237
Operating costs and expenses:
Cost of sales ............................ 563 635
Marketing, administrative and general .... 359 377
Research and development ................. 15 17
Restructuring ............................ -- 60
-------- --------
Operating income ............................ 165 148
Non-operating income (expense):
Interest income .......................... 37 24
Minority interests ....................... (32) (25)
Equity in net income of affiliates ....... 18 20
Other, net ............................... (37) 4
-------- --------
Income before income taxes .................. 151 171
Provision for income taxes .................. 58 85
-------- --------
Net income .................................. 93 86
Dividends on preferred stock ................ (14) --
-------- --------
Net income applicable to common shares ...... $ 79 $ 86
======== ========
Earnings per common share ................... $ 27,007 $ 29,400
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE> 6
SMITHKLINE BEECHAM HOLDINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------
1996 1995
------- -----
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net income ............................................. $ 93 $ 86
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization ....................... 29 28
Gain on sale of fixed assets ........................ (1) (5)
Minority interests .................................. 32 25
Equity in net income of affiliates .................. (18) (20)
Changes in assets and liabilities:
Decrease in trade receivables ................... 40 26
Decrease (increase) in receivables from/
payables to affiliates, net ................... 9 (164)
(Increase) decrease in inventories .............. (2) 13
Increase in other assets ........................ (12)
(20)
(Decrease) increase in accounts payable, other
liabilities and income taxes .................. (100) 60
------- -----
Net cash provided by operating activities ................. 70 29
------- -----
Cash flows (used in) provided by investing activities:
Capital expenditures ................................... (25) (19)
Proceeds from sale of fixed assets ..................... 4 86
------- -----
Net cash (used in) provided by investing activities ....... (21) 67
------- -----
Cash flows (used in) provided by financing activities:
Increase in loans to/from affiliates, net .............. (1,178) (105)
Issuance of preferred stock ............................ 1,142 --
Dividends on preferred stock ........................... (14) --
Net capitalization from parent ......................... 13 74
------- -----
Net cash used in financing activities ..................... (37) (31)
------- -----
Effect of exchange rates on cash .......................... (2) 6
------- -----
Change in cash and cash equivalents ....................... 10 71
Cash and cash equivalents at beginning of period .......... 120 45
------- -----
Cash and cash equivalents at end of period ................ $ 130 $ 116
======= =====
</TABLE>
See accompanying notes to condensed consolidated financial statements
4
<PAGE> 7
SMITHKLINE BEECHAM HOLDINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN MILLIONS)
<TABLE>
<CAPTION>
Cumulative
Foreign
Junior Currency SmithKline
Preferred Common Translation Beecham Retained
Stock Stock Adjustment Equity Earnings TOTAL
--------- ------ ----------- ---------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994 ................ -- -- $(30) $ 1,152 -- $ 1,122
Translation adjustments (unaudited) ......... -- -- 89 -- -- 89
Net income (unaudited) ...................... -- -- -- 86 -- 86
Net transfers from affiliates (unaudited).... -- -- -- 50 -- 50
--- ------ ---- ------- ---- -------
Balance at September 30, 1995 (unaudited) ... -- -- $ 59 $ 1,288 -- $ 1,347
--- ------ ---- ------- ---- -------
Balance at December 31, 1995 ................ -- -- $ 23 $ 1,410 -- $ 1,433
Translation adjustments (unaudited) ......... -- -- (43) -- -- (43)
Net income (unaudited) ...................... -- -- -- 54 $ 39 93
Net transfers from affiliates (unaudited) ... -- -- -- 21 (9) 12
Issuance of stock (unaudited) .............. $15 $1,470 -- (1,485) -- --
Dividends (unaudited) ....................... -- -- -- -- (14) (14)
--- ------ ---- ------- ---- -------
Balance at September 30, 1996 (unaudited) ... $15 $1,470 $(20) -- $ 16 $ 1,481
=== ====== ==== ======= ==== =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE> 8
SMITHKLINE BEECHAM HOLDINGS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(ALL AMOUNTS SHOWN IN MILLIONS EXCEPT SHARE INFORMATION)
(1) BASIS OF PRESENTATION
On May 20, 1996, SmithKline Beecham Holdings Corporation (the "Company")
was formed with the intent of holding the stock of certain subsidiaries of
SmithKline Beecham International Co., a Delaware Corporation ("Intco"),
SmithKline Beecham Corporation, a Pennsylvania corporation ("SB Corp"), and
SBCL, Inc., a Delaware corporation ("SBCL"), (collectively, Intco, SB Corp and
SBCL are referred to as the "Transferors"). The Company, SB Corp, Intco and SBCL
are directly or indirectly owned by SmithKline Beecham plc, a public limited
company registered in England ("SmithKline Beecham"). On June 20, 1996, a share
exchange agreement was executed by the Company and the Transferors whereas the
Transferors recorded or otherwise gave full legal effect to transfer to
SmithKline Beecham Holdings Corporation the shares of capital stock of certain
subsidiaries in consideration for shares of common stock and junior preferred
stock of the Company. The principal purpose of the formation of the Company was
to acquire, own and manage certain non-U.S. assets of the Transferors, primarily
in the pharmaceuticals business.
All financial information, at dates and for periods prior to the formation
of the Company, was prepared as if the Company had existed and operated as a
separate business at such dates and during such periods. Such financial
information reflects operating expenses incurred by SmithKline Beecham and its
subsidiaries (the "SmithKline Beecham Group") that are specifically identifiable
to the Company, and certain corporate overhead allocations that management
believes represent the value of services performed on behalf of the Company.
The condensed consolidated financial information presented herein is
unaudited, other than the condensed consolidated balance sheet at December 31,
1995, which is derived from audited financial statements. The unaudited
condensed consolidated financial statements have been prepared pursuant to rules
and regulations of the Securities and Exchange Commission and, therefore, do not
include all disclosures required by generally accepted accounting principles.
These condensed consolidated financial statements and notes thereto should be
read in conjunction with the financial statements and notes thereto included in
the Company's Registration Statement on Form F-3 filed with the Securities and
Exchange Commission on June 28, 1996.
In the opinion of management, the interim financial statements reflect all
adjustments (consisting of normally recurring accruals, except for the
restructuring accrual in 1995) necessary for a fair statement of the results for
interim periods. The current period's results of operations are not necessarily
indicative of results that ultimately may be achieved for the year.
Reclassification of prior period amounts have been made to conform to current
period presentation.
6
<PAGE> 9
SMITHKLINE BEECHAM HOLDINGS CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(CONTINUED)
The condensed consolidated financial statements include the accounts of
the Company and its majority-owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation. Investments in
common stock of companies which are 20-50 percent owned by the Company are
accounted for using the equity method of accounting. Investments in common stock
of companies that are less than 20 percent owned by the Company for which the
remaining shares are owned by SmithKline Beecham or its other subsidiaries are
also accounted for using the equity method of accounting as they are considered
to be under common control. All other investments are accounted for using the
cost method. The consolidated financial results of the Company are subject to
exchange rate fluctuations involving the U.S. dollar and a number of foreign
currencies. The functional currency for the majority of the Company's foreign
operations is the applicable local currency. The Company's operations that
operate in highly inflationary economies are re-measured as if the functional
currency were the U.S. dollar.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(2) INVENTORIES
Inventories consisted of the following and are shown net of total
inventory reserves at September 30, 1996, and December 31, 1995, respectively.
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
(UNAUDITED)
<S> <C> <C>
Finished goods .................. $113 $ 93
Work in progress ................ 34 35
Raw materials and supplies ...... 42 67
---- ----
$189 $195
==== ====
</TABLE>
7
<PAGE> 10
SMITHKLINE BEECHAM HOLDINGS CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(CONTINUED)
(3) RELATED PARTY TRANSACTIONS
The Company's common and junior preferred stock are indirectly owned by
SmithKline Beecham. The operations of the Company and its subsidiaries are fully
integrated with those of SmithKline Beecham Group as a whole through a series of
intercompany arrangements including purchases and sales of active ingredients
and finished products, product and intellectual property licenses, intercompany
loans and management and shared services agreements. The Company's activity in
various transactions with SmithKline Beecham affiliates was as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1996 1995
---- ----
(UNAUDITED)
<S> <C> <C>
Royalties to SmithKline Beecham affiliates ............... $ 28 $ 32
Royalties from SmithKline Beecham affiliates ............. $ 1 $ 1
Sales to SmithKline Beecham affiliates ................... $187 $232
Cost of sales to SmithKline Beecham affiliates ........... $135 $160
Purchases of raw materials and finished goods from
SmithKline Beecham affiliates ...................... $338 $430
Interest income attributable to SmithKline Beecham
affiliates ......................................... $ 35 $ 23
Interest expense attributable to SmithKline Beecham
affiliates ......................................... $ 1 $ 2
</TABLE>
(4) INCOME TAXES
The Company records income tax expense based on an estimated full year
effective income tax rate. The year to date September 30 reported effective
income tax rate approximated 38.7 percent in 1996, compared to 49.8 percent in
1995. The decrease in the effective rate was due to the 1996 estimated effective
income tax rate not being impacted by the French exceptional surcharge tax, an
increase in foreign tax exempt income and the effects of increased income in
areas of operations which have lower effective tax rates.
8
<PAGE> 11
SMITHKLINE BEECHAM HOLDINGS CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(CONTINUED)
(5) COMMITMENTS AND CONTINGENT LIABILITIES
The Company has approximately $65 in letters of credit outstanding with
the Toronto Dominion Bank. The letters are required by Canadian taxation
authorities with respect to pending litigation. The letters are unconditionally
guaranteed by SmithKline Beecham Corporation. The Company is required to pay a
commitment fee to the bank of 0.25 percent per annum.
The Company is involved in various legal and administrative proceedings
related to its business. Although the outcome of claims, legal proceedings and
other matters in which the Company is involved cannot be predicted with any
certainty, management does not expect the Company's ultimate liability for such
matters nor any liabilities related to pending tax litigation to have a material
adverse effect on its financial condition, results of operations or cash flow.
(6) EARNINGS PER SHARE
Earnings per share amounts were computed using 2,925.2 common shares for
all periods presented. All shares of common stock currently outstanding were
issued by the Company to subsidiaries of SmithKline Beecham on June 20, 1996, as
described in Note 1. For comparative purposes, 2,925.2 common shares were used
in the calculations for all periods presented, as the Company had no capital
structure prior to formation.
(7) ISSUANCE OF MANDATORILY REDEEMABLE PREFERRED STOCK
As referenced in Note 1, on June 28, 1996 the Company filed a registration
statement with the Securities and Exchange Commission in connection with an
initial public offering of Flexible Auction Market Preferred Stock ("AMPS") and
Flexible Money Market Cumulative Preferred Stock ("MMP"). In a series of
transactions occurring between July 15, 1996 and August 1, 1996 the Company
issued 7,500 shares of the AMPS and 4,000 shares of the MMP. At the option of
the Company, the shares of MMP and AMPS may be redeemed except during the
initial dividend period. If however, at any time, SmithKline Beecham shall cease
to own, directly or indirectly, shares of the common stock of the Company
representing more than 50.0 percent of the voting power of all outstanding
common shares, the AMPS and MMP securities will be subject to mandatory
redemption in whole, at a redemption price of $100 thousand per share plus
accumulated and unpaid dividends. On the balance sheet, the issue proceeds are
shown net of the total issue costs which are being amortized over the initial
term of the securities. The net proceeds from the sale of the AMPS and MMP were
loaned by the Company to other companies within SmithKline Beecham Group.
Additional interest income recorded by the Company as a result of the increased
lending was approximately $12 at September 30, 1996.
9
<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
OVERVIEW
SmithKline Beecham Holdings Corporation was incorporated in May 1996 for
the principal purpose of acquiring, owning and managing certain non-U.S. assets
of SmithKline Beecham, principally in the pharmaceuticals business. The Company
is a holding company and conducts its operations through approximately 60
subsidiaries. The Company's holdings also include fixed rate cumulative
preferred stock of SmithKline Beecham Biologicals S.A., an indirect Belgian
pharmaceuticals subsidiary of SmithKline Beecham, having an aggregate redemption
price of $650 million. The Company's primary activities consist of the
manufacture and sale of pharmaceuticals and consumer healthcare products, as
part of the worldwide business of SmithKline Beecham Group, as well as
intercompany lending activity with companies within SmithKline Beecham Group.
While there may be no direct correlation between the financial results of
the Company and those of SmithKline Beecham in any particular period, the
overall performance of the Company is interdependent with the performance of
other units of SmithKline Beecham Group. Moreover, the Company is dependent upon
SmithKline Beecham Group with respect to new product development, the addition
of any resulting new products to the Company's product line and the expansion of
the Company's marketing and distribution activities. There can be no assurance
that the Company or its subsidiaries will be requested to manufacture or market
any particular product or to engage in any particular business of SmithKline
Beecham Group.
The Company or other members of SmithKline Beecham Group manufacture most
of the active ingredients contained in the Company's pharmaceutical products and
secondary manufacture for most of its consumer healthcare products. Therefore,
the Company is generally not dependent on third-party suppliers for these
materials. Inflation, although at reduced levels in recent years, continues to
raise the cost of goods and services used by the Company. Although the Company
attempts to fully recover higher costs through increased selling prices, the
competitive environment as well as government health policy in certain major
markets may restrict this ability. The Company is unable to predict what effect
inflation and pricing restrictions may ultimately have on its businesses.
RESULTS OF OPERATIONS (GROWTH RATES ARE AT ACTUAL EXCHANGE RATES UNLESS
OTHERWISE STATED)
The Company's sales for the third quarter of 1996 (the "1996 Quarter")
decreased 14.8 percent (10.4 percent at comparable exchange rates) compared with
the third quarter of 1995 (the "1995 Quarter"). Sales inside Latin America more
than doubled while sales in Europe, Asia and the rest of world declined 20.8
percent, 16.7 percent and 2.6 percent, respectively. Lower volume and
unfavorable foreign exchange rates, compared with the 1995 Quarter, were the
principal factors for the sales decline.
10
<PAGE> 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION (CONTINUED)
The Company's sales for the first nine months of 1996 (the "1996 Period")
decreased 10.9 percent (8.8 percent at comparable exchange rates) compared with
the first nine months of 1995 (the "1995 Period"). European, Asian and rest of
world sales declined 16.8 percent, 2.8 percent and 9.4 percent, respectively.
Sales inside Latin America increased 12.0 percent. Decline in volume and
unfavorable foreign exchange rates were the principal factors contributing to
the decline in the Company's 1996 Period sales.
Sales of pharmaceutical products decreased 16.9 percent and 12.2 percent
for 1996 Quarter and the 1996 Period, respectively, as compared with the same
periods of 1995.
France, the most important country for the sale of the Company's
prescription medicines, continued to experience declining sales of vaccines and
antibiotics due to the completion of the French mandated hepatitis B vaccination
campaign and increased government pressures on antibiotic pricing and
prescribing practices. Sales in France of ENGERIX - B, AUGMENTIN and AMOXIL
declined $26 million, $7 million and $6 million, respectively, in the 1996
Quarter and $75 million, $11 million and $14 million, respectively, in the 1996
Period. SEROXAT sales in France continued to increase with sales of $19 million
in the 1996 Quarter and $113 million in the 1996 Period. Sales in Europe were
also adversely impacted due to the termination of a sterile antibiotic
manufacturing and selling agreement to affiliated companies. The Company's total
sales to affiliates decreased approximately $15 million in the 1996 Quarter and
$45 million in the 1996 Period.
Brazil, the Company's largest market for sales in Latin America,
experienced pharmaceutical sales growth of 23.1 percent in the 1996 Quarter and
24.3 percent in the 1996 Period compared with the same periods in 1995. Leading
this sales growth was SEROXAT and AMOXIL which increased 65.1 percent and 27.8
percent, respectively, in the 1996 Quarter and 61.7 percent and 18.1 percent,
respectively, in the 1996 Period.
AMOXIL sales in Africa declined 44.6 percent in the 1996 Quarter and 32.7
percent for the 1996 Period compared with the same periods of 1995. Social
unrest in Algeria and other parts of Africa caused the decreased sales volume in
this geographic area.
Thailand, one of the Company's fastest growing markets, reported
pharmaceutical sales growth of over 27 percent in both the 1996 Quarter and the
1996 Period compared with the same periods of 1995. The Company continues to
increase its presence in Thailand through additional promotional activities and
the introduction of new products.
11
<PAGE> 14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION (CONTINUED)
Company sales of consumer healthcare products decreased 4.1 percent and
4.5 percent for the 1996 Quarter and the 1996 Period, respectively, as compared
with the same periods of 1995. Sales of CONTAC in Japan declined $6.8 million in
the 1996 Quarter and $7.6 million in the 1996 Period, compared with 1995
periods, which reflects unfavorable foreign exchange rates and reduced volume.
Sales of SYNTHOL in France and ODOL sales in Austria and Switzerland also
experienced decreased volume.
Cost of sales for the 1996 Quarter was 51.4 percent of sales compared with
52.6 percent for the 1995 Quarter. Cost of sales for the 1996 Period was 51.1
percent of sales as compared with 51.3 percent in the 1995 Period. The decrease
in cost of sales for the 1996 Quarter reflects lower factory costs resulting
from restructuring activity and a sales mix that decreased revenues from lower
margin sales of antibiotics to affiliates.
Operating expenses, excluding restructuring costs, decreased 9.6 percent
and 5.1 percent for the 1996 Quarter and the 1996 Period, respectively.
Administration, selling and distribution expenses decreased reflecting
efficiencies realized from restructuring activity and completion of the French
vaccination campaign. Research and development expenses in the 1995 periods
included clinical trial costs associated with the SEROXAT pre-launch activity.
The Company's total net non-operating income for the 1996 Quarter was $15
million versus net non-operating income of $11 million for the 1995 Quarter. The
$13 million increase in interest income primarily reflects increased loan
activity to affiliates generated from the preferred share issuance proceeds.
Other net non-operating expense increased due to exchange losses realized on
related party loan activity.
The total net non-operating expense for the 1996 Period is $14 million
versus a net non-operating income of $23 million for the 1995 Period. Total net
non-operating expense for the 1996 Period increased due to higher minority
interest expense and exchange losses realized on related party loan activity.
These expense increases were partially offset by increased interest income from
loans to affiliates.
The effective tax rate was 38.7 percent and 49.8 percent for the 1996 and
1995 periods, respectively. The decrease in the effective rate was due to the
1996 period not being impacted by the French exceptional surcharge tax, and
increase in foreign tax exempt income and the effects of increased income in
areas of operation which have lower effective tax rates.
Net income, excluding the interest income associated with the use of
preferred share issuance proceeds, decreased in both the 1996 Quarter and the
1996 Period compared with the same periods of 1995. The decrease is principally
due to the negative income impact of lower sales and exchange losses realized on
related party loan activity partially offset by lower operating costs and
expenses and a reduced estimated tax rate. Dividends on preferred stock were
greater than the interest income generated from the use of issuance proceeds
adversely impacting the earnings per common share.
12
<PAGE> 15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities in the 1996 Period was $70
million as compared with $29 million provided in the 1995 Period. The increase
in the current period was due to both differences in the timing of payments of
certain operating expenses and lower operating expense as a result of the
restructuring activity.
Capital expenditures totaled $25 million for the 1996 Period as compared
with $19 million for the 1995 Period. During the 1995 Period the Company sold
certain fixed assets to an affiliated entity which supplied the majority of the
cash provided by investing activities in the 1995 Period.
During the 1996 Quarter, the Company issued preferred stock which provided
the Company with net cash of $1,142 million. The proceeds from this issuance
were subsequently loaned by the Company to other subsidiaries of SmithKline
Beecham, resulting in a relatively minor net effect on cash used in financing
activities.
The Company expects its future cash requirements to include capital
expenditures, payment of restructuring costs and dividends on preferred stock,
as well as funding ongoing operations. These anticipated cash requirements will
be funded primarily by cash flow from operations, supplemented by dividends on
the Company's investment in the preferred stock of SmithKline Beecham
Biologicals S.A., interest payments and principal repayments on loans to
affiliates, and the utilization of local lines of credit for small daily cash
activities in certain countries. Management believes that these sources will be
sufficient to fund the cash needs of the Company's business for the foreseeable
future.
Long-term liquidity is dependent upon the Company's competitive position,
including its ability to license and market new products and to maximize
benefits from new business alliances.
13
<PAGE> 16
PART II - OTHER INFORMATION
Item 6. Index to Exhibits and Reports on Form 8-K
(A) Exhibits
27 Financial Data Schedule
(B) Reports on Form 8-K
There were no reports on Form 8-K during the quarter
ended September 30, 1996.
14
<PAGE> 17
SIGNATURE:
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SMITHKLINE BEECHAM HOLDINGS CORPORATION
(Registrant)
DATE: November 12, 1996 BY: /S/DONALD F. PARMAN
Donald F. Parman
Secretary,
SmithKline Beecham Holdings Corporation
15
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15
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