<PAGE>
<PAGE>
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------------
FORM 10-Q
(Mark One)
[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 1-5851
------
RHONE-POULENC RORER INC.
- --------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
COMMONWEALTH OF PENNSYLVANIA 23-1699163
- -------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
500 ARCOLA ROAD
COLLEGEVILLE, PENNSYLVANIA 19426-0107
- ------------------------------------------------------------------------
(Address of principal (Zip Code)
executive offices)
(610) 454-8000
- ------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (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 of Rhone-Poulenc Rorer Inc. common stock
outstanding as of the close of business October 31, 1996 was
136,406,092.
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
The Exhibit Index is located on page 27.
<PAGE>
<PAGE>
RHONE-POULENC RORER INC. AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
For the Quarter Ended September 30, 1996
TABLE OF CONTENTS
--------------------------------------------------
PART I. FINANCIAL INFORMATION
Page
Item 1. Financial statements:
Report of Independent Accountants 3
Condensed Consolidated Statements of Income 4
Condensed Consolidated Balance Sheets 5
Condensed Consolidated Statements of Cash Flows 6
Notes to Condensed Consolidated Financial Statements 7-13
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition 14-21
PART II. OTHER INFORMATION
Item 3. Legal Proceedings 22-26
Item 6. Exhibits 27
2
<PAGE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders of Rhone-Poulenc Rorer Inc.:
We have reviewed the accompanying condensed consolidated balance
sheet of Rhone-Poulenc Rorer Inc. and subsidiaries as of September
30, 1996, and the related condensed consolidated statements of income
and cash flows for the three- and nine-month periods ended September
30, 1996 and 1995. These financial statements are the responsibility
of the Company's management.
We conducted our review in accordance with standards established by
the American Institute of Certified Public Accountants. A review of
interim financial information consists principally of applying
analytical procedures to financial data and making inquiries of
persons responsible for financial and accounting matters. It is
substantially less in scope than an audit in accordance with
generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as
a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications
that should be made to the condensed consolidated financial
statements referred to above for them to be in conformity with
generally accepted accounting principles.
We have previously audited, in accordance with generally accepted
auditing standards, the consolidated balance sheet of Rhone-Poulenc
Rorer Inc. and subsidiaries as of December 31, 1995, and the related
consolidated statements of income and cash flows for the year then
ended and in our report dated January 26, 1996, we expressed an
unqualified opinion on those consolidated financial statements. In
our opinion, the information set forth in the accompanying condensed
consolidated balance sheet as of December 31, 1995, is fairly stated,
in all material respects, in relation to the consolidated balance
sheet from which it has been derived.
/s/ COOPERS & LYBRAND L.L.P.
-------------------------------
COOPERS & LYBRAND L.L.P.
Philadelphia, Pennsylvania
October 21, 1996
3
<PAGE>
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
RHONE-POULENC RORER INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited - amounts in millions except per share data)
Three Months Nine Months
Ended Ended
September 30, September 30,
-------------------------------------
1996 1995 1996 1995
-------- -------- -------- --------
Net sales $1,278.0 $1,212.7 $3,896.5 $3,552.4
Cost of products sold 370.6 419.9 1,248.6 1,251.6
Selling, delivery and
administrative expenses 506.0 421.6 1,552.7 1,283.2
Research and development
expenses 207.2 189.7 621.5 532.7
-------- -------- ------- --------
Operating income 194.2 181.5 473.7 484.9
Interest expense, net 44.6 17.9 129.1 40.9
Gain on sale of assets -- -- -- (49.5)
Other (income) expense, net (8.5) 5.8 (85.9) 65.6
-------- -------- ------- --------
Income before income
taxes 158.1 157.8 430.5 427.9
Provision for income taxes 48.8 45.7 134.0 129.2
-------- -------- ------- --------
Net income 109.3 112.1 296.5 298.7
Dividends on preferred stock
and remuneration on capital
equity notes 11.9 4.8 33.2 16.2
-------- -------- ------- -------
Net income available to
common shareholders $ 97.4 $ 107.3 $ 263.3 $ 282.5
======== ======== ======= =======
Primary earnings per common
share:
Net income available to
common shareholders
per share $ .72 $ .80 $ 1.94
======== ======= =======
Net income available to
common shareholders per
share, pro forma $ 2.09
=======
Cash dividends per common
share $ .32 $ .30 $ .94 $ .90
======== ======= ======= =======
Average common shares
outstanding 136.2 134.2 135.6 134.2
======== ======= ======= =======
See Notes to Condensed Consolidated Financial Statements.
4
<PAGE>
<PAGE>
RHONE-POULENC RORER INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited - dollars in millions)
September 30, December 31,
1996 1995
--------- ---------
ASSETS
Current:
Cash and cash equivalents $ 76.5 $ 115.4
Cash pooling arrangements with
Rhone-Poulenc S.A. 10.9 16.0
Short-term investments 47.9 --
Trade accounts and notes receivable, less
reserves of $89.0 (1995: $87.3) 865.3 956.8
Inventories 802.4 765.6
Assets held for sale 2.4 228.8
Other current assets 765.6 707.0
--------- --------
Total current assets 2,571.0 2,789.6
Time deposits, at cost 128.4 83.0
Property, plant and equipment, net of
accumulated depreciation of $1,411.9
(1995: $1,255.5) 1,459.7 1,621.0
Goodwill, net of accumulated amortization of
$293.7 (1995: $241.6) 2,854.2 2,953.5
Intangibles, net of accumulated amortization
of $144.8 (1995: $106.3) 777.6 866.8
Other assets 712.7 673.2
-------- --------
Total assets $8,503.6 $8,987.1
======== ========
LIABILITIES
Current:
Short-term debt $ 120.4 $ 384.2
Notes payable to Rhone-Poulenc S.A. &
affiliates 20.4 127.6
Accounts payable 497.7 601.8
Other current liabilities 1,199.9 1,291.5
-------- --------
Total current liabilities 1,838.4 2,405.1
Long-term debt 2,428.8 2,159.0
Notes payable to Rhone-Poulenc S.A. &
affiliates 71.1 525.4
Deferred income taxes 306.2 365.5
Other liabilities, including minority
interests 1,403.1 1,174.9
-------- --------
Total liabilities 6,047.6 6,629.9
Contingencies
SHAREHOLDERS' EQUITY
Money market preferred stock, without par
value (liquidation preference
$100,000 per share); authorized, issued
and outstanding 1,750 shares 175.0 175.0
Capital equity notes 500.0 500.0
Common stock, without par value; stated value
$1 per share; authorized 600,000,000 shares;
issued and outstanding 136,337,384 shares
(1995: 134,528,487 shares) 141.4 139.5
Capital in excess of stated value 218.0 153.2
Retained earnings 1,716.1 1,580.3
Employee Benefits Trust (185.7) (185.7)
Cumulative translation adjustments (108.8) (5.1)
-------- --------
Total shareholders' equity 2,456.0 2,357.2
-------- --------
Total liabilities and
shareholders' equity $8,503.6 $8,987.1
======== ========
See Notes to Condensed Consolidated Financial Statements.
5
<PAGE>
<PAGE>
RHONE-POULENC RORER INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited - dollars in millions)
Nine Months Ended
September 30,
------------------
1996 1995
------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash provided by operating activities $ 443.9 $ 275.6
CASH FLOWS FROM INVESTING ACTIVITIES:
Assets sold 375.4 51.2
Capital expenditures (221.0) (192.7)
Sales/prepayment of investments and product
rights 109.2 34.2
Purchases of investments and product rights (107.2) (124.7)
Businesses acquired (30.1) (185.0)
Net investment hedging, net (4.1) (3.5)
------- -------
Net cash provided by (used in) investing
activities 122.2 (420.5)
CASH FLOWS FROM FINANCING ACTIVITIES:
Debt borrowings (repayments):
Short-term debt, net (334.3) 394.3
Long-term debt, net (179.9) 29.7
Dividends and remuneration paid (151.5) (136.9)
Issuances of common stock 66.6 6.9
Redemption of Market Auction Preferred Shares -- (225.0)
------- -------
Net cash provided by (used in) financing
activities (599.1) 69.0
Effect of exchange rate changes on cash and
cash equivalents (5.9) 1.4
------- -------
Net decrease in cash and cash equivalents (38.9) (74.5)
Cash and cash equivalents at January 1 115.4 118.8
------- -------
Cash and cash equivalents at September 30 $ 76.5 $ 44.3
======= =======
See Notes to Condensed Consolidated Financial Statements.
6
<PAGE>
<PAGE>
RHONE-POULENC RORER INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1.- RESULTS FOR INTERIM PERIODS
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements reflect the adjustments, all of
which are of a normal recurring nature, necessary for a fair
presentation of financial position, cash flows and results of
operations for the periods presented. Certain prior year items
have been reclassified to conform to current classifications. The
Company restated its first quarter 1995 results to include the
accounts of businesses acquired from Rhone-Poulenc S.A. ("RP") (see
Note 9). Earnings per share (pro forma) for the first nine months
of 1995 reflect pro forma charges totaling $1.6 million relative to
the acquisition transactions.
The Company's consolidated financial statements are prepared on a
basis in conformity with U.S. generally accepted accounting
principles ("U.S. GAAP"). The preparation of the financial
statements in conformity with U.S. GAAP requires management to make
estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent liabilities at
the dates of the financial statements and the reported amounts of
revenues and expenses during the reporting periods. Actual results
could differ from those estimates. See Note 10 for disclosure of
contingent liabilities and related matters.
The statements are presented in accordance with the requirements of
Form 10-Q and do not include all disclosures required by generally
accepted accounting principles or those made in the Annual Report
on Form 10-K. The Annual Report on Form 10-K for the year 1995 is
on file with the Securities and Exchange Commission and should be
read in conjunction with these condensed consolidated financial
statements.
NOTE 2.- FISONS
In late October 1995, the Company acquired the outstanding shares
of Fisons plc ("Fisons"), a U.K.-based pharmaceutical company, for
a total purchase price, including expenses, of $3.0 billion. The
Company is currently finalizing fixed asset appraisals and the
valuation of intangibles. To date, the preliminary purchase price
allocation has resulted in goodwill of $2.2 billion and intangibles
of $600.0 million that will be amortized on a straight-line basis
over lives of 40 years and 15 to 30 years, respectively.
In March 1996, the sale of the majority of Fisons' Scientific
Instruments Division to Thermo Instruments Systems Inc. was
completed; the remaining mass spectrometry and PlasmaTrace assets
of the division were also sold in March. Total consideration
approximated $271.8 million, representing $235.9 million in cash
and the assignment of $35.9 million of external debt. The sale
resulted in a decrease in goodwill of approximately $30.0 million.
In July 1996, the Company finalized its agreement with Medeva plc
to sell certain U.S.-based ex-Fisons fixed assets and license
certain intellectual property rights for total cash consideration
of $370.0 million. At the end of a four-and-one-half year period,
Medeva has the option to purchase the intellectual property rights.
The upfront cash payment includes fixed asset sale proceeds and
certain prepayments under the licensing arrangement, including
licensing fees and a purchase option payment which are refundable
in certain circumstances.
7
<PAGE>
<PAGE>
NOTE 3.- PRO FORMA FINANCIAL INFORMATION
In October 1995, the Company acquired Fisons (see Note 2). In late
November 1995, the Company acquired the remaining 53% that it did
not already own of Applied Immune Sciences, Inc. ("AIS"), a pioneer
in cell therapy. The Company's reported results for 1995 included
the operations of Fisons and AIS from November and December,
respectively, as well as acquisition-related costs, financing
charges and goodwill amortization incurred during the respective
periods. Prior to the November transaction, the Company recorded
its share of AIS' results under the equity method.
On January 1, 1996, the joint control and profit-sharing provisions
of the global plasma proteins joint venture formed between the
Company's Armour Pharmaceutical Company subsidiary and Behringwerke
AG ("Centeon L.L.C." or "Centeon") became effective. As a result,
the Company has discontinued consolidation of the operations
contributed to the joint venture and, under the equity method, is
now reporting its share of Centeon's results as income from equity
affiliates.
The following unaudited pro forma financial information shows the
results of the Company's operations for the three and nine months
ended September 30, 1995 as if the acquisitions of Fisons and AIS
and the formation of Centeon had occurred on January 1, 1995.
Adjustments have been made for financing charges and goodwill
amortization, and income taxes were provided at an estimated full
year effective income tax rate of 36%. The operations of Fisons'
Scientific Instruments Division and Laboratory Supplies Division,
sold in 1996 and 1995, respectively, are not included in the pro
forma results. Nine-month pro forma gains on sales of assets
exclude a $133.4 million pretax gain on Fisons' sale of the greater
portion of its research and development activities in the second
quarter of 1995; research and development expenses approximating
$23.9 million associated with the research operations sold are also
excluded. In addition, the pro forma information excludes acquired
research and development of $13.0 million recorded in the first
quarter of 1995 associated with the Company's prior equity
investment in AIS. The pro forma information does not purport to
be indicative of the Company's results of operations had the
transactions actually occurred on the dates presented nor is it
necessarily indicative of future operating results.
Pro Forma Information
----------------------
Three months Nine months
ended ended
Sept. 30, 1995 Sept. 30, 1995
--------- ---------
(in millions, except per share data)
Net sales $ 1,296.3 $ 3,792.0
Cost of products sold 424.9 1,236.2
Selling, delivery and administrative
expenses 521.1 1,589.7
Research and development 205.9 587.6
--------- ---------
Operating income 144.4 378.5
Interest expense, net 45.0 133.5
Gain on sales of assets -- (49.5)
Other (income), net (45.6) (92.4)
--------- ---------
Income before income taxes 145.0 386.9
Provision for income taxes 50.2 140.5
--------- ---------
Net income from continuing
operations before nonrecurring
charges 94.8 246.4
Dividends on preferred stock and
remuneration on capital equity notes 13.3 41.8
--------- ---------
Net income from continuing
operations before nonrecurring charges
available to common shareholders,
pro forma $ 81.5 $ 204.6
========= =========
Earnings per common share, pro forma $ .61 $ 1.51
========= =========
Average common shares outstanding 134.2 134.2
========= =========
8
<PAGE>
<PAGE>
NOTE 4.- RESTRUCTURING AND OTHER CHARGES
In December 1995, the Company recorded a $60.0 million pretax
charge related to the restructuring of RPR operations as a direct
result of the acquisition of Fisons. As part of the Fisons
purchase price allocation, the Company also recorded an estimated
$100.0 million liability for the restructuring of Fisons
operations. The combined $160.0 million liability represents
expected cash outlays, primarily severance-related, associated with
eliminating positions principally in the marketing, administrative
and manufacturing functions. Many of these positions are based in
the U.S. and the U.K., although other locations are also affected.
For the three- and nine-month periods ended September 30, 1996,
cash outlays associated with the restructuring programs totaled
$17.6 million and $94.4 million, respectively, with approximately
1,600 positions affected.
A rollforward of the 1995 restructuring liability from January 1,
1996 is as follows:
Translation
January 1, adjustments/ September 30,
1996 Payments other 1996
------- ------- -------- -------
(Dollars in millions)
Social costs $148.5 (77.4) (4.2) $ 66.9
Third parties 11.5 (17.0) 5.5 --
------- ------- ------- -------
Total $160.0 (94.4) 1.3 $ 66.9
======= ======= ======= =======
In June 1994, the Company recorded a $121.2 million pretax charge
in connection with a global restructuring plan. At September 30,
1996, the remaining reserve approximated $13.7 million, the
majority of which represented outstanding social costs. Cash
outlays during the quarter and year-to-date period were not
significant.
NOTE 5.- OTHER (INCOME) EXPENSE, NET AND GAIN ON SALE OF ASSETS
Third quarter 1996 income from equity affiliates, including the
Company's interest in the Centeon joint venture, was substantially
reduced by charges of $33.8 million associated with the estimated
impact of Centeon's voluntary worldwide recall of all in-date
Albuminar(r)/Plasma Plex(r) products, including anticipated returns
of recalled products from customers, writeoff of certain
inventories, and related expenses. The recall was a precautionary
measure taken due to manufacturing concerns at a U.S. production
facility with respect to these products. The U.S. Food and Drug
Administration ("FDA") is currently conducting a comprehensive
review of the manufacturing processes at the U.S. facility. Pending
completion of the FDA's inspection, the manufacture of
Albuminar(r)/Plasma Plex(r) and other plasma-derived products at
the location has been temporarily suspended by Centeon.
Consequently, Centeon's fourth quarter results will be adversely
impacted by lost sales of Albuminar(r)/Plasma Plex(r) in addition
to reduced sales of other plasma-derived products whose production
has also been temporarily suspended and/or which are typically
marketed with those albumin products. Management cannot at this
time offer a firm timetable for renewed product distribution, but
does not expect that this distribution will resume before the first
quarter of 1997.
Centeon sales for the third quarter of 1996, including sales to
certain RPR affiliates, totaled $200.0 million and gross margin
approximated 33% for the quarter. The recall contributed to a loss
before income taxes totaling $2.0 million. On a year-to-date
basis, Centeon sales approached $700.0 million and gross profit and
income before income taxes as a percentage of sales approximated
47% and 20%, respectively.
Other (income) expense, net for the first nine months of 1996
includes increased provisions for anti-hemophilic factor litigation
and gains on sales of nonstrategic investments; the net impact of
these items was not material.
Other (income) expense, net for the first nine months of 1995
included $13.0 million of acquired research and development expense
related to an additional investment in AIS and pretax charges of
$25.4 million related to the reassessment of the carrying value of
certain assets, including those associated with the Company's prior
investment in The Immune Response Corporation. In the first
quarter of 1995, the Company also recorded pretax gains totaling
$49.5 million from the sale to Ciba-Geigy Ltd. of assets related to
9
<PAGE>
<PAGE>
the Company's Canadian over-the-counter business and the sale of
certain European product rights.
NOTE 6.- 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 31.1% in 1996
compared with 30.2% in 1995.
NOTE 7.- INVENTORIES
Inventories consisted of the following:
September 30, December 31,
1996 1995
----------- ---------
(Dollars in millions)
Finished goods $ 356.2 $346.2
Work in process 153.6 140.6
Raw materials and supplies 292.6 278.8
----------- ---------
$ 802.4 $765.6
=========== =========
10
<PAGE>
<PAGE>
NOTE 8.- SHAREHOLDERS' EQUITY
Money Common
market Capital stock at
preferred equity stated
stock notes value
------- ------- -------
(Dollars in millions)
Balance, January 1, 1996 $ 175.0 $ 500.0 $ 139.5
Net income
Cash dividends, $.94 per
common share
Dividends on preferred
stock
Remuneration on capital
equity notes
Issuance of shares under
employee benefit plans 1.9
Translation adjustments
------- ------- -------
Balance,
September 30, 1996 $ 175.0 $ 500.0 $ 141.4
======= ======= =======
Capital
in
excess Employee Cumulative
of stated Retained Benefits translation
value earnings Trust adjustment
-------- -------- -------- ---------
(Dollars in millions)
Balance, January 1, 1996 $ 153.2 $1,580.3 $ (185.7) $ (5.1)
Net income 296.5
Cash dividends, $.94 per
common share (127.5)
Dividends on preferred
stock (6.9)
Remuneration on capital
equity notes (26.3)
Issuance of shares under
employee benefit plans 64.8
Translation adjustments (103.7)
-------- -------- -------- --------
Balance,
September 30, 1996 $ 218.0 $1,716.1 $ (185.7) $ (108.8)
======== ======== ======== ========
11
<PAGE>
<PAGE>
NOTE 9.- RELATED PARTY TRANSACTIONS
Rhone-Poulenc S.A.
The entities comprising the Company manage their cash separately.
In the largest countries such as the U.S., France, the U.K. and
Germany, the local entities have access to RP cash pooling
arrangements whereby they can, at their own request, lend to or
borrow from RP at market terms and conditions.
Receivables from RP at September 30, 1996 included $11.9 million
in accounts receivable from sales of products to RP and $30.0
million classified as other current assets.
Accounts payable related to the purchase of materials and
services from RP were $13.3 million at September 30, 1996;
accrued and other liabilities due to RP totaled $13.7 million.
As of September 30, 1996, the Company had $20.4 million short-
term and $71.1 million long-term debt outstanding with RP.
Sales to RP totaled $8.1 million in the third quarter and $25.8
million for the nine-month period ended September 30, 1996;
services purchased from and interest paid to RP totaled $18.5
million in the third quarter and $34.5 million for the year-to-
date of 1996. For the comparable 1995 periods, sales to RP were
$7.5 million and $24.0 million, respectively; services purchased
from and interest paid to RP totaled $9.0 million and $28.2
million, respectively.
In the 1995 second quarter, the Company acquired Cooperation
Pharmaceutique Francaise and a pharmaceutical business in Brazil
from RP for cash and preferred stock of an RPR subsidiary
aggregating approximately $273.2 million. The preferred shares,
accounted for as minority interest in other liabilities, have a
liquidation preference approximating 645.0 million French francs
(approximately $124.7 million) and pay dividends of 7.5% per
annum on a stated value of 145.0 million French francs. The
acquisition agreements call for potential earnings adjustments to
the purchase price of the businesses based on several factors,
including earnings performance.
Centeon L.L.C.
Receivables and investments related to Centeon classified as
current assets totaled $21.6 million at September 30, 1996.
Current liabilities due to Centeon totaled $9.5 million.
NOTE 10.- CONTINGENCIES
The Company is involved in litigation incidental to its business,
including, but not limited to: (1) approximately 519 pending
lawsuits in the United States, Canada and Ireland against the
Company and its Armour Pharmaceutical Company subsidiary
("Armour"), in which it is claimed by individuals infected with
the Human Immunodeficiency Virus ("HIV") that their infection
with HIV and, in some cases, resulting illnesses, including
Acquired Immune Deficiency Syndrome-related conditions or death
therefrom, may have been caused by administration of
antihemophilic factor ("AHF") concentrates processed by Armour in
the early-and mid-1980's. Armour has also been named as a
defendant in certain proposed class action lawsuits filed on
behalf of HIV-infected hemophiliacs and their families. None of
the cases involves Armour's currently distributed AHF
concentrates. In August 1996, the Company, with three other U.S.
plasma fractionators defending the U.S. AHF litigation, signed a
Settlement Agreement with the plaintiffs with respect to this
litigation which, subject to certain conditions, provides for
payment of $100,000 to each eligible claimant or claimant group
and the payment of up to $40 million in attorneys fees. One
significant condition of the settlement is that potential
subrogation claims by third party medical providers be resolved
to the mutual satisfaction of the parties and that the class
members' eligibility for federal program entitlements be
maintained. The Company and the other fractionator-defendants
are working with the plaintiffs' counsel to resolve these issues;
(2) legal actions pending against one or more subsidiaries of the
Company and various groupings of more than one hundred
pharmaceutical companies, in which it is generally alleged that
certain individuals were injured as a result of the development
of various reproductive tract abnormalities because of in utero
12
<PAGE>
<PAGE>
exposure to diethylstilbestrol ("DES") (typically, two former
operating subsidiaries of the Company are named as defendants,
along with numerous other DES manufacturers, when the claimant is
unable to identify the manufacturer); (3) antitrust actions
alleging that certain pharmaceutical companies, including the
Company, engaged in price discrimination practices to the
detriment of certain independent community pharmacists, retail
chains and consumers; (4) alleged breach of contract by a
subsidiary of the Company with respect to agreements involving a
bisphosphonate compound and Lozol(r); and (5) potential
responsibility relating to past waste disposal practices,
including potential involvement at three sites on the U.S.
National Priority List created by Superfund legislation.
The eventual outcomes of the above matters of pending litigation
cannot be predicted with certainty. The defense of these matters
and the defense of expected additional lawsuits related to these
matters may require substantial legal defense expenditures. The
Company follows Statement of Financial Accounting Standards No. 5
in determining whether to recognize losses and accrue liabilities
relating to such matters. Accordingly, the Company recognizes a
loss if available information indicates that a loss or range of
losses is probable and reasonably estimable. The Company
estimates such losses on the basis of current facts and
circumstances, prior experience with similar matters, the number
of claims and the anticipated cost of administering, defending
and, in some cases, settling such claims. The Company has also
recorded as an asset certain insurance recoveries which are
determined to be probable of occurrence. If a contingent loss is
not probable but is reasonably possible, the Company discloses
this contingency in the notes to its consolidated financial
statements if it is material. Based on the information
available, the Company does not believe that reasonably possible
uninsured losses in excess of amounts recorded for the above
matters of litigation would have a material adverse impact on the
Company's financial position, results of operations or cash
flows.
13
<PAGE>
<PAGE>
ITEM 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition
Rhone-Poulenc Rorer Inc. ("RPR" or "the Company") is one of the
largest research-based pharmaceutical companies in the world.
RPR was formed in 1990 by the combination of Rorer Group Inc. and
substantially all of the Human Pharmaceutical Business of Rhone-
Poulenc S.A. ("RP"), based in Paris, France. RP owns
approximately two-thirds of RPR's common stock and controls the
Company.
Strategic Business Developments Affecting Comparability
In the second quarter of 1995, the Company acquired from RP the
businesses of Cooperation Pharmaceutique Francaise ("Cooper") and
a pharmaceutical business in Brazil. The acquisitions of entities
under common control were treated for accounting purposes on an
"as-if pooling" basis; accordingly, the Company restated its
results effective April 1, 1994 and January 1, 1994,
respectively, to include the accounts of Cooper and the
Brazilian business. Earnings per share for the nine months ended
September 30, 1995 reflect first quarter pro forma charges
totaling $1.6 million relative to the acquisition transactions.
In late October 1995, RPR acquired the U.K.-based pharmaceutical
company, Fisons plc ("Fisons"), which significantly added to the
Company's global respiratory franchise. In late November 1995,
the Company acquired the remaining 53% of the shares of the cell
therapy pioneer Applied Immune Sciences, Inc. ("AIS") that it did
not already own. Results for 1995 included the operating results
of Fisons and AIS from November and December, respectively, as
well as acquisition-related costs, financing charges and goodwill
amortization incurred during the respective periods. Prior to the
November transaction, the Company recorded its share of AIS'
operating losses in equity from investments in affiliates.
On January 1, 1996, the joint control and profit-sharing
provisions of the global plasma proteins joint venture
("Centeon") formed between the Company's Armour Pharmaceutical
Company subsidiary and Behringwerke AG became effective. As a
result, the Company has discontinued consolidation of the
operations contributed to the joint venture and, under the equity
method, is now reporting its 50 percent share of the venture's
results as income from equity affiliates.
The above strategic business developments affect comparability of
third quarter and nine-month 1996 results with reported results
for the comparable 1995 periods. A more meaningful analysis can
be made by comparing 1996 results with the 1995 pro forma results
appearing in Note 3, "Pro Forma Financial Information" on page 8
in the Notes to Condensed Consolidated Financial Statements. The
1995 pro forma information does not purport to be indicative of
the Company's results of operations had the transactions
described above actually occurred on the dates presented nor is
it necessarily indicative of future operating results. The 1995
pro forma information does not include the effects of cost
savings and sales synergies expected to be realized as a result
of the Fisons acquisition and Centeon joint venture. The
following "Results of Operations" discussion describes the
comparison of the third quarter and year-to-date periods of 1996
to the comparable 1995 pro forma results, unless otherwise noted.
Results of Operations (Three and nine months ended September 30,
1996 versus comparable 1995 periods on a pro forma basis)
Third quarter 1996 net income available to common shareholders
was $97 million ($.72 per common share) as compared with $82
million ($.61 per common share) on a pro forma basis in the prior
year. On a year-to-date basis, net income available to common
shareholders totaled $263 million ($1.94 per common share), an
increase of 29% over the comparable prior year period. Third
quarter 1996 results included the estimated impact of a voluntary
worldwide recall of all in-date lots of albumin products sold
under the trademarks Albuminar(r) and Plasma Plex(r) by Centeon
totaling $34 million ($.17 per common share). Based on
14
<PAGE>
<PAGE>
information currently available, the Company expects that the
recall and the related temporary suspension of the manufacture of
Albuminar(r)/Plasma Plex(r) and other plasma-derived products at
Centeon's U.S. production facility will negatively impact its
full year 1996 results by approximately 10%-12%. Nine-month 1995
pro forma results included $.10 per common share of asset gains,
net of the effects of the reassessment of certain asset values.
Sales
At $1,278 million, reported third quarter 1996 sales declined by
1% from 1995 pro forma sales. In mid-1996, the Company licensed
the rights to certain non-strategic former Fisons products in the
cough and cold, diuretic and appetite suppressant areas to Medeva
plc for four-and-one-half years, after which period Medeva will
have the option to purchase the product rights. The Company also
sold its U.K. generics business and a former Fisons non-strategic
business in Spain. Excluding the third quarter 1995 sales of the
above products (-3%) and the negative effects of currency
fluctuations (-2%), third quarter 1996 sales increased by 4%. Net
higher prices, principally in the U.S., represented one
percentage point of this growth, with the balance due to volume
increases including contributions from new products. Reported
nine-month sales increased 3% over 1995 pro forma sales; year-to-
date sales growth excluding the effects of product divestitures (-1%)
and negative currency fluctuations (-2%) approximated 6%. Net
higher prices in the U.S. and Europe contributed approximately
one percentage point to year-to-date sales growth.
In the tables and discussion which follow, percentage comparisons
of sales are presented excluding the effects of product
divestitures and currency fluctuations unless otherwise noted.
Sales by geographic area for the three- and nine-month periods
were as follows:
Three Months ended Nine Months ended
Sept. 30, Sept. 30,
--------------------- ---------------------
Pro Pro
($ in Forma % Forma %
millions) 1996 1995 Change 1996 1995 Change
----- ------ ------ ----- ----- ------
U.S. $ 309 $ 301 11.6% $ 795 $ 756 8.6%
----- ------ ------ ----- ----- ------
France 414 417 3.5% 1,335 1,340 1.7%
Other Europe 320 345 -1.8% 1,087 1,057 6.1%
Rest of World 235 233 5.4% 679 639 11.4%
----- ------ ------ ----- ------ ------
Total Non-U.S. 969 995 2.2% 3,101 3,036 5.3%
----- ------ ------ ----- ------ ------
Total Sales $1,278 $1,296 4.2% $3,896 $3,792 5.9%
===== ====== ====== ====== ====== ======
Quarterly and year-to-date sales growth in the United States
reflected strong performance of Azmacort(r), a doubling in
Lovenox(r) sales and contributions from the innovative new
products Taxotere(r) and Rilutek(r). Certain other major
products, principally Dilacor(r) XR, Lozol(r)/indapamide and
calcitonins, registered sales declines for the same periods.
Sales increased modestly in France for the three- and nine-month
periods primarily due to contributions from new oncology products
(Taxotere(r), Campto(r) and Granocyte(r)) and higher sales of
Doliprane(r) and Imovane(r)/Amoban(r). Generally, sales in France
have been affected by a slowdown in market growth due in part to
restricted physician prescribing practices in response to on-
going government initiatives to reduce health care expenditures.
Although Other European sales grew moderately on a year-to-date
basis, certain of the Company's major Other European markets
experienced a modest slowdown in sales growth during the third
quarter. In Germany, three-month sales were essentially level
with the prior year quarter as the effect of higher sales of
strategic ethical products (Taxotere(r), Rilutek(r), Clexane(r)
and Imovane(r)/Amoban(r)) was mitigated by reduced sales of self-
medication products, principally Maalox(r). Sales improved
modestly on a year-to-date basis as growth of strategic products
exceeded sales declines in non-core self-medication products. In
15
<PAGE>
<PAGE>
the U.K., quarterly sales were below the prior year principally
due to reduced export sales of Intal(r) to Japan; during the
first nine months, however, respiratory product exports as well
as higher sales of Imovane(r)/Amoban(r) and new oncology products
(Taxotere(r), Granocyte(r)) resulted in good sales growth for the
period. In Italy, lower sales of ex-Fisons products reduced
quarterly sales levels, but were slightly exceeded by
contributions from Granocyte(r) and self-medication products
(Maalox(r)) on a year-to-date basis. Recent government pricing
programs for prescription pharmaceuticals are not expected to
have a significant impact on the Company's sales in the Italian
market. Sales of strategic products in Eastern/Central Europe
performed well for the three- and nine-month periods.
In the Rest of World area, three-month sales were higher in South
Asian markets (anti-infectives); elsewhere, quarterly sales
lagged the prior year in Japan (Orudis(r), calcitonins) and in
Brazil (non-core products). For the nine months, South Asian
countries, Japan and Brazil reported sales gains.
The Company is focusing on innovation and leadership in targeted
key therapeutic areas including asthma/allergy, thrombosis, anti-
infectives and oncology and, in 1996, it realigned its
therapeutic categories accordingly. Certain reclassifications of
amounts shown in prior periods have been made between therapeutic
area categories to conform to classifications now used by the
Company. Sales by therapeutic area for the three- and nine-month
periods were as follows:
Three Months ended Nine Months ended
Sept. 30, Sept. 30,
Therapeutic ------------------------- -----------------------
Area/Principal Pro Pro
Offerings Forma % Forma %
($ in millions) 1996 1995 Change* 1996 1995 Change*
------ ------ ----- ------ ----- -----
Azmacort(r) $81 $49 67% $165 $129 28%
Intal(r)/Aarane(r) 68 71 -3% 202 213 -4%
Nasacort(r)/
Nasacort(r) AQ 26 21 26% 60 55 9%
Tilade(r) 26 15 73% 63 51 22%
Total Asthma/Allergy
and Other
Respiratory 262 243 17% 805 751 11%
Clexane(r)/Lovenox(r) 96 70 41% 273 212 31%
Dilacor(r) XR 26 36 -28% 74 80 -8%
Lozol(r)/Indapamide 8 20 -59% 33 47 -29%
Total Cardiovascular/
Thrombosis 244 239 6% 726 678 9%
Doliprane(r) 33 31 7% 106 97 10%
Imovane(r)/Amoban(r) 36 32 19% 104 92 18%
Total Analgesics/Select
Neurological
Disorders 156 146 15% 473 435 8%
Flagyl(r) 33 31 9% 92 86 10%
Total Anti-infectives 142 132 9% 448 432 5%
Maalox(r) 40 42 --% 122 124 3%
Total Gastrointestinal/
Vitamins 98 97 5% 327 293 11%
Calcitonins 17 26 -30% 55 77 -26%
Orudis(r)/Profenid(r)/
Oruvail(r) 48 53 -6% 144 154 -4%
Total Hormone
Replacement Therapy/
Bone Metabolism 87 93 -3% 263 276 -2%
Granocyte(r) 18 12 44% 50 33 51%
Taxotere(r) 23 -- N/A 50 -- N/A
Total Oncology 52 22 139% 133 62 119%
DDAVP(r) 32 27 19% 75 62 21%
Other Therapeutic
Areas 237 324 -21% 721 865 -13%
* Percentage change calculation excludes effects of product
divestitures and currency fluctuations.
Quarterly and nine-month growth in sales of asthma/allergy
products was led by increased Azmacort(r) sales. Azmacort(r) has
16
<PAGE>
<PAGE>
had good growth in prescriptions written on a year-to-date basis,
although third quarter sales were also boosted by trade buying
patterns. The recent entrance of a competitive offering into the
market is not anticipated to significantly impact Azmacort(r)
sales in the near-term. In the 1996 second quarter, the Company
received two U.S. Food and Drug Administration ("FDA") approvals
related to the Nasacort(r) product line--approval to market
Nasacort(r) AQ, a once-daily, water-based, nasally inhaled
corticosteroid for the treatment of allergic rhinitis, and
approval to market Nasacort(r) to children six years of age and
older. Although sales of both Nasacort(r) and Nasacort(r) AQ
increased during the quarter, competition and expansion of the
aqueous segment have negatively affected sales of Nasacort(r). On
a year-to-date basis, shortfalls in sales of Nasacort(r) have
been replaced by contributions from Nasacort(r) AQ. While
Intal(r) reported good sales growth in the United States, sales
declined in European markets during the quarter due, in part, to
reduced exports from the U.K. to Japan resulting from distributor
stocking patterns in the first half of the year. For the nine
months, Intal(r) sales remained essentially level with the prior
year in the U.K. and the United States, but were lower in other
European markets. Three-month growth in Tilade(r) sales was
principally driven by increased sales in the U.S. and France. On
a year-to-date basis, Tilade(r) registered sales gains in
European markets.
The thrombosis product Clexane(r)/Lovenox(r) continued to record
substantial sales growth in the U.S. and performed well
throughout Europe. Although three-month Lovenox(r) sales in
France increased modestly, year-to-date sales in that market have
been negatively affected by increased competition. For the three-
and nine-month periods, Dilacor(r) XR sales fell below the prior
year due, in part, to trade inventory levels at the end of the
second quarter; however, Dilacor(r) XR has experienced year-to-
date growth in prescriptions written. Sales of total indapamide
products continue to be affected by generic competition.
Quarterly and year-to-date sales of anti-infectives increased in
Eastern Europe and South Asian markets. In France, three- and
nine-month anti-infective sales have been affected by restricted
physician prescribing patterns; year-to-date sales growth was
also impacted by significantly lower Zagam(tm) sales in the first
half of the year. Flagyl(r) recorded year-to-date sales gains in
South Asian countries and in Brazil.
Sales growth of products for select neurological disorders was
due to good performance of Imovane(r)/Amoban(r) in Europe and
contributions from sales of Rilutek(r), approved in the U.S. in
late 1995 and in the European Union in June 1996 for the
treatment of Amyotrophic Lateral Sclerosis. The Company hopes to
further increase acceptance of Rilutek(r) in the U.S. through
product positioning and expanding its access to the physician-
neurologist community. Rilutek(r) was launched in several
European markets during the third quarter, including Germany and
the U.K. where it received good acceptance.
Despite strong performance of Maalox(r) in Japan, reduced sales
in France and in Germany due to competitive pressures limited
sales growth for the periods reported.
Sales declines in the HRT/bone metabolism category reflected
lower sales of Orudis(r)/Profenid(r)/Oruvail(r) in the U.K. and
Japan, and reduced calcitonin product sales in the United States
and in Japan. In the second quarter of 1996, the Company entered
into a global (excluding Japan) co-promotion agreement with Novo
Nordisk A/G with respect to strategic HRT products of both
companies including the Menorest(r) transdermal patch, launched
by RPR in major European markets in early 1996. Contributions
from Menorest(r) sales have helped to soften declines in the
category.
Expansion of the Company's oncological products was driven by
sales of the innovative new products Taxotere(r), Granocyte(r),
and Campto(r). Taxotere(r), a semi-synthetic taxoid for solid
tumors, has been approved in more than 35 countries for treatment
of advanced metastatic breast cancer. Taxotere(r) has experienced
good performance in European markets, particularly in France and
Germany, where it was launched in mid-first quarter 1996 and in
the U.S. where it was launched in June 1996. In October 1996,
Taxotere(r) received approval in Japan for treatment of advanced
breast cancer and nonsmall cell lung cancer and will be the first
taxoid introduced in that market. Granocyte(r), launched in
European markets in 1995 for chemotherapy-induced neutropenia,
recorded good growth throughout the year in France and Italy.
Sales of Campto(r), launched in France in the 1996 second quarter
for treatment of colorectal cancer, also added to growth of the
category. In October, Gliadel(r) Wafer, polifeprosan 20 with
17
<PAGE>
<PAGE>
carmustine implant, received approval from the U.S. FDA for use
as an adjunct to surgery to prolong survival in patients with
recurrrent glioblastoma multiforme for whom surgical resection is
indicated. The Company acquired worldwide rights (excluding
Scandinavian countries) to market Gliadel(r) from Guilford
Pharmaceuticals Inc. with whom it has a strategic agreement to
develop oncology products using Guilford's proprietary
biodegradable polymer implant technology. The first commercial
launch of Gliadel(r) is anticipated by January 1997.
In addition to the impact of the reclassification of certain
products to other categories in the current year, declines in
other therapeutic areas reflected lower sales of the Cooper
subsidiary, non-core products and certain bulk chemicals. Also
included in other therapeutic area sales are sales by the Company
of certain plasma derivatives in Japan through operations not
contributed to Centeon. The Company's fourth quarter 1996 plasma
derivatives sales in Japan will be affected significantly by the
temporary suspension of U.S. manufacture of plasma-derived
products.
Operating Income
Three Months ended Sept. 30, Nine Months ended Sept. 30,
--------------------------------- -------------------------------
Pro Forma Pro Forma
1996 1995 1996 1995
----------- ----------- ------------ ------------
(in % of % of Total % of % of Total
millions) $ Sales $ Sales Change $ Sales $ Sales Change
----- ----- ---- ------ ------- ----- ------ ----- ------ ------
Gross
margin $ 907 71.0% $ 871 67.2% 4% $2,648 68.0% $2,556 67.4% 4%
Selling,
delivery
and admin. 506 39.6% 521 40.2% -3% 1,553 39.8% 1,590 41.9% -2%
Research
and dev-
elopment 207 16.2% 206 15.9% 1% 622 16.0% 588 15.5% 6%
Operating
income 194 15.2% 144 11.1% 34% 474 12.2% 378 10.0% 25%
Three-month gross margin improvement reflected the effect of
favorable mix due to the mid-1996 divestiture of certain lower-
margin products and increased third quarter sales of certain high
margin products (Azmacort(r), Clexane(r)/Lovenox(r),
Taxotere(r)). Gross margin also benefited from net royalty income
associated with the Medeva transaction. For the nine-month
period, the impact of favorable mix on gross margin was partially
offset by certain cost reclassifications from the prior year.
Higher net royalty income also contributed to year-to-date gross
margin improvement, but at a lesser rate than for the quarter due
to lower nine-month royalties from Fisons' joint venture partner
in Japan.
Despite increased spending in support of new products, third
quarter and nine-month selling, delivery and administrative
expenses decreased as a percentage of sales largely due to the
realization of cost savings associated with the integration of
the Fisons business. The Company anticipates that Fisons-related
cost savings will be in-line with expectations on a full-year
basis. Year-to-date reductions in selling, delivery and
administrative expenses also reflected the benefits of cost
containment programs. Higher research and development as a
percentage of sales reflected increased investment in later stage
development projects including Synercid(tm) and new indications
for Clexane(r)/Lovenox(r).
Operating margin improved for the three- and nine-month periods
as gross margin improvements and reduced selling, delivery and
administrative expenses exceeded the Company's increased
investment in research and development.
In the fourth quarter of 1995, the Company recorded a $60 million
pretax charge related to the restructuring of RPR operations as a
direct result of the acquisition of Fisons. In addition, as part
of the Fisons purchase price allocation, the Company recorded an
estimated $100 million liability for the restructuring of Fisons
operations. The combined $160 million liability represents
expected cash outlays, primarily severance-related, associated
with eliminating positions principally in the marketing,
administrative and manufacturing functions. Many of these
positions are based in the U.S. and the U.K., although other
locations are also affected. For the nine months ended September
30, 1996, cash outlays associated with the restructuring exceeded
$94 million with approximately 1,600 positions affected.
18
<PAGE>
<PAGE>
Interest
Pro forma 1995 periods reflected the impact of acquisition debt
associated with the Fisons transaction. In 1996, the favorable
impact of third quarter debt reduction on net interest expense
was offset by imputed interest associated with certain prepaid
licensing fees related to the Medeva transaction. The recording
of imputed interest will continue to impact the Company's
interest expense, although at a declining rate, during the four-
and-one-half year license term. Third quarter interest expense
was also affected by higher interest rates in the United States.
On a year-to-date basis, net interest expense was favorably
impacted by lower weighted average interest rates in the U.S. and
Europe.
A reduction in dividends on preferred stock and remuneration on
capital equity notes compared with pro forma 1995 was due to the
absence in 1996 of Market Auction Preferred Shares which were
redeemed in the third quarter of last year. In December 1995, the
Company issued $500 million of capital equity notes to RP,
remuneration on which is based on six-month LIBOR plus a margin.
Other (Income) Expense, Net and Gain on Sales of Assets
Other (income) expense, net for the third quarter of 1995
included income from equity affiliates totaling $45 million on a
pro forma basis. Third quarter 1996 income from equity
affiliates, including the Company's interest in the Centeon joint
venture, was substantially reduced by charges of $34 million
associated with the estimated impact of Centeon's voluntary
worldwide recall of all in-date Albuminar(r)/Plasma Plex(r)
products, including anticipated returns of recalled products from
customers, writeoff of certain inventories, and related expenses.
The recall was a precautionary measure taken due to manufacturing
concerns at a U.S. production facility with respect to these
products. The U.S. Food and Drug Administration is currently
conducting a comprehensive review of the manufacturing processes
at the U.S. facility. Pending completion of the FDA's inspection,
the manufacture of Albuminar(r)/Plasma Plex(r) and other plasma-
derived products at the location has been temporarily suspended
by Centeon. Consequently, Centeon's fourth quarter results will
be adversely impacted by lost sales of Albuminar(r)/Plasma
Plex(r) in addition to reduced sales of other plasma-derived
products whose production has also been temporarily suspended
and/or which are typically marketed with those albumin products.
Management cannot at this time offer a firm timetable for renewed
product distribution, but does not expect that this distribution
will resume before the first quarter of 1997.
Centeon sales for the third quarter of 1996, including sales to
certain RPR affiliates, totaled $200 million. Third quarter sales
fell below sales recorded in each of the previous quarters of
1996 due to the impact of the recall as well as competitive
conditions in the U.S. and certain European markets (Germany,
France). The recall negatively impacted Centeon's gross margin,
which approximated 33% for the quarter, and contributed to a loss
before income taxes totaling $2 million. On a year-to-date basis,
Centeon sales approached $700 million and gross profit and income
before income taxes as a percentage of sales approximated 47% and
20%, respectively.
Other (income) expense, net on a year-to-date basis included
income from equity affiliates totaling $78 million and $127
million in 1996 and pro forma 1995, respectively. Other (income)
expense, net in 1996 also includes increased provisions for anti-
hemophilic factor litigation and gains on sales of nonstrategic
investments recorded in the second quarter; the net impact of
these items was not material. Nine-month pro forma 1995 other
(income) expense, net included $24 million related to gains on
sales of assets, net of certain asset carrying value
reassessments. Year-to-date pro forma 1995 results exclude
acquired research and development of $13 million ($.06 per share)
related to an additional investment in AIS.
19
<PAGE>
<PAGE>
Taxes
The Company's year-to-date reported effective income tax rate
approximated 31% in 1996 compared with 36% on a pro forma basis
in 1995 reflecting current year tax planning strategies and the
unfavorable impact in 1995 of asset gains and carrying value
reassessments.
Financial Condition
Cash Flows
Cash flows from operating activities totaled $444 million
compared with $276 million in 1995, reflecting the prepayment of
certain licensing fees associated with the Medeva transaction,
partially offset by increased working capital needs and greater
cash outlays for restructuring activities. Operating cash flows
also benefited from a third quarter cash distribution from
Centeon.
Investing activities provided $122 million of cash flows for the
first nine months of 1996. Cash inflows represented proceeds from
the divestiture of Fisons' Scientific Instruments Division and
the sale of assets in the U.K., Spain and Italy as well as Medeva-
related proceeds. Investing cash inflows were partially reduced
by capital expenditures in support of new products; capital
expenditures for the full year are expected to approach $325
million. During the period, the Company also made certain
payments to Guilford Pharmaceuticals Inc. related to Gliadel(r)
and invested in certain long-term deposits. Net investing cash
outflows of $420 million in 1995 reflected net cash outlays for
acquisitions of new businesses and investments in
technologies/product rights, and capital expenditures.
Current year financing cash outflows reflected debt repayments
totaling $514 million compared with $424 million of proceeds from
increased borrowings in 1995 in support of businesses acquired
and to finance preferred share redemptions. Nine-month 1996
financing cash flows benefited from increased issuances of common
stock primarily associated with stock option exercises. Cash
dividends paid to common shareholders in 1996 totaled $127
million ($.94 per share). In October 1996, the Board of Directors
declared a fourth quarter cash dividend of $.32 per share payable
on November 29, 1996 to holders of record on November 11, 1996.
Liquidity
The Company's net debt (short- and long-term debt including notes
payable to RP, less cash and cash equivalents, cash pooling
arrangements, short-term investments and time deposits) to net
debt plus equity ratio declined to .49 to 1 at September 30, 1996
from .56 to 1 at December 31, 1995, reflecting the impact of
proceeds associated with the Medeva transaction and divestitures
in the U.K., Spain and Italy. The ratio of current assets to
current liabilities was 1.40 to 1 at September 30, 1996 compared
to 1.16 to 1 at December 31, 1995, reflecting a decrease in short-
term debt balances related to asset divestitures.
At September 30, 1996, the Company had committed medium-term
lines of credit totaling $2,325 million. Of this amount, $1,825
million represented multicurrency medium-term facilities with
fourteen banks expiring in the year 2000. An additional $500
million represented two medium-term credit agreements with Rhone-
Poulenc S.A. expiring in 2000 and 2002. Borrowings outstanding
under the above lines totaled $569 million at September 30, 1996.
The Company classified this amount plus an additional $1,588
million of short-term borrowings as long-term debt at September
30, 1996 as it had the ability and intent to finance these
amounts on a long-term basis under the above medium-term
facilities.
Pursuant to a shelf registration, the Company has the ability to
issue an additional $325 million in public debt securities and/or
preferred shares.
20
<PAGE>
<PAGE>
In mid-1996, the Company increased the number of its authorized
common shares to 600,000,000.
Management believes that cash flows from operations, supplemented
by proceeds from selected divestitures and financing expected to
be available from external sources, will provide sufficient
liquidity to meet its needs for the foreseeable future. The
Company's competitive position, including its ability to
discover, develop and market innovative new therapies, build
leadership positions in targeted therapeutic areas and maximize
the benefits of business acquisitions and alliances, will drive
its liquidity on a long-term basis.
The Company is involved in litigation incidental to its business.
A discussion of contingencies appears in Note 10 of the Notes to
Condensed Consolidated Financial Statements and in Legal
Proceedings in Part II of this Form 10-Q.
21
<PAGE>
<PAGE>
PART II. OTHER INFORMATION
ITEM 3. LEGAL PROCEEDINGS
Diethylstilbestrol ("DES") Litigation
There are approximately 675 actions pending against one or more
current and/or former subsidiaries of the Company and various
groupings of more than one hundred pharmaceutical companies, in
which it is generally alleged that "DES daughters" and/or their
offspring were injured as a result of the development of various
reproductive tract abnormalities in the "DES daughters" because
of their in utero exposure to DES. Typically, the Company's
subsidiaries are named as defendants, along with numerous other
former DES manufacturers, when the claimant is unable to identify
the manufacturer of the DES to which she was exposed. While the
aggregate monetary damages sought in all of these DES actions are
substantial, the Company believes that it has adequate defenses
to DES claims. The Company and certain of its current and former
subsidiaries were named in a putative class action, Ballo et al.,
v. Abbott Laboratories, et al., No. 96-CV-0774, filed in the
United States District Court for the Eastern District of New York
in February 1996. The case, brought on behalf of all women in
the United States exposed to DES while in utero, seeks
compensation for future medical expenses allegedly associated
with the exposure, as well as financial support for educational
and research efforts related to DES. The class does not seek
compensation for existing DES-related injuries. A majority of
the cases are currently being defended by insurance carriers,
sometimes under a reservation of rights. The Company is
defending 66 cases in which the plaintiffs allege in utero
exposure prior to 1954.
AHF Litigation
There are approximately 455 lawsuits in the United States, 7 in
Canada and 57 in Ireland pending against the Company's Armour
Pharmaceutical Company ("Armour") subsidiary, and in some
instances, the Company and certain of its other subsidiaries, in
which individuals with hemophilia and infected with the Human
Immunodeficiency Virus ("HIV"), or their representatives claim
that such infection and, in some cases, resulting illnesses,
including Acquired Immune Deficiency Syndrome-related conditions
or death therefrom, may have been caused by administration of
anti-hemophilic factor ("AHF") concentrates processed by Armour
in the early and mid-1980s. None of these cases involves
Armour's currently distributed AHF concentrates. In most of
these suits, Armour is one of a number of defendants, including
other fractionators who supplied AHF during that period. To
date, approximately 120 cases and claims have been resolved
either by dismissal by the plaintiffs or the Court or through
settlement. A majority of the currently pending lawsuits were
filed in 1993, and management expects additional lawsuits will be
filed. It is not possible, however, to predict with certainty
the number of additional lawsuits that may eventually be filed
alleging HIV-related claims.
In December 1993, the Federal Multi-District Litigation Panel
("MDL") authorized the consolidation of all AHF litigation
pending in U.S. Federal Courts for purposes of pre-trial
discovery and the transfer of such cases to the U.S. District
Court for the Northern District of Illinois for this purpose.
Five proposed federal class action lawsuits (Richard Roe and his
mother, Jane Roe v. Armour Pharmaceutical Company, et al., United
States District Court, Idaho District; Jose Alvarez, Jr. et al.
v. Armour Pharmaceutical Company, et al., United States District
Court for the Eastern District of Louisiana; Timmy Dale Martin,
et al. v. Armour Pharmaceutical Company, et al., United States
District Court for the Northern District of Alabama; Thorne v.
Alpha Therapeutic, et al., United States District Court for the
Eastern District of Louisiana and Morabito v. Rhone-Poulenc
Rorer, et al., United States District Court for the District of
Wyoming [removed from state Colorado court]), and three proposed
state court class actions (Richard Murphy, et al. v. Armour
Pharmaceutical Company, et al., Superior Court, Pima County,
Arizona, James David Hepworth v. Armour, et al., Marion County
Superior Court, Indiana; and Jones v. Bayer Corporation et al.,
Florida), discussed further below, have been filed against
several fractionators, including Armour. The federal actions are
part of the MDL proceeding in Chicago.
In October 1995, the United States Supreme Court denied
plaintiffs' petition for a writ of certiorari related to
plaintiffs' proposed certification of a federal nationwide class
action captioned Wadleigh, et al v. Armour Pharmaceutical Company
22
<PAGE>
<PAGE>
(United States District Court, Northern District, Illinois).
Wadleigh was decertified in January 1996. As noted above, the
Jones action is pending in a Florida state court against the same
defendants as in Wadleigh, together with a Florida plasma
provider; plaintiffs' counsel consist of a subgroup of counsel
from Wadleigh. The Jones action seeks certification of a
nationwide class and a Florida subclass. Evidentiary hearings on
plaintiffs' motion for class certification have been completed
and the judge has indicated his intention to deny certification
of both proposed classes. In July 1996, the judge in the Murphy
case in Arizona denied plaintiffs' motion for partial
certification of a class of Arizona plaintiffs.
In October 1993, Armour obtained a directed verdict dismissing it
from a lawsuit pending in a state court in Louisiana on the basis
that the plaintiff had not presented evidence sufficient to
maintain an action against Armour. That decision was appealed by
plaintiff and affirmed by the appellate court on May 29, 1996.
Plaintiffs' application for rehearing was denied and plaintiffs
have appealed to the Louisiana Supreme Court.
In April 1996, the Company, with the three other U.S. plasma
fractionators defending the U.S. AHF litigation, announced a
settlement proposal to resolve this litigation. The April
proposal contemplated a $600 million dollar fund to be divided
per capita among those who made claims, with attorneys fees and
settlement administration costs to be paid out of a separate fund
in an amount to be determined by the settlement judge, up to a
maximum of $40 million. The proposal, subject to a variety of
conditions, contemplated the use of a class settlement vehicle,
no more than 100 opt-outs, and required an indication from the
plaintiffs that at least 95% of the plaintiffs in the then
currently-filed lawsuits would accept the proposal. Following a
meeting with representatives of the plaintiffs, the companies
made a formal settlement offer on May 29, 1996 that responded to
certain demands by the plaintiffs' negotiating committee,
including the removal of the opt-out limit and a guaranteed
commitment to a settlement resulting in 150 or fewer opt-outs.
Further negotiations with the plaintiffs culminated in the
signing of an August 13, 1996 Settlement Agreement which, subject
to certain conditions, provides for payment of $100,000 to each
eligible claimant or claimant group, and the payment of up to $40
million in attorneys fees. The Company and the three other
fractionator-defendents each have the right to withdraw from the
settlement based upon the number of opt-outs. One significant
condition of the settlement is that potential subrogation claims
by third party medical providers be resolved to the mutual
satisfaction of the parties and that the class members'
eligibility for federal program entitlements be maintained. The
Company and the other fractionator-defendants are working with
the plaintiffs' counsel to resolve these issues.
On August 14, 1996, the United States District Court for the
Northern District of Illinois entered a preliminary finding that
the settlement was fair and authorized dissemination of notice to
the settlement class. Thereafter, notice was sent to all known
class members, as well as to numerous hemophilia treatment
centers. The notice was also published and posted on various
computer bulletin boards. The opt-out period expired on October
15, 1996. Although the results are still being calculated, an
overwhelming majority of the HIV-infected hemophilia community
has accepted the proposed settlement. The preliminary figures
suggest that the settlement, if finally approved, would dispose
of approximately three-quarters of the Company's pending
lawsuits. The number of valid claims will not be known until all
of the ineligible claimants (i.e., those not meeting the
definition of a claimant, fraudulent claims, etc.) are identified
and eliminated. The Company, together with the other companies
participating in the proposed settlement, must decide, pursuant
to the current terms of the Settlement Agreement, by November 22
whether or not to proceed with the settlement. A final fairness
hearing is currently scheduled for November 25, 1996.
With respect to the above litigation, the Company has contractual
rights to certain insurance coverage provided by carriers that
insured Revlon, Inc., the party from whom it purchased Armour in
1986 ("Revlon carriers"). The Company also has access to
"excess" liability insurance coverage from other carriers,
effective in 1986, for certain of these cases if self-insured
retention levels from relevant insurable losses are exceeded.
From late 1988 until November 1995, the Company was involved in
litigation with a principal insurance carrier ("the principal
carrier"), an umbrella insurance carrier ("the umbrella carrier")
23
<PAGE>
<PAGE>
and many of the Revlon carriers, relative to carrier defense and
indemnity obligations associated with the AHF litigation ("the
insurance coverage litigation"). In late 1994, the Company
settled the dispute being litigated with the principal carriers
by entering into an agreement which defines the principal
carrier's obligations with respect to the underlying AHF
litigation. The Company also settled its disputes with the
umbrella carrier and many of the Revlon carriers. After lengthy
discussions, the Company and the remaining Revlon carriers in the
insurance coverage litigation agreed in November 1995 regarding
the extent and other conditions of coverage of those carriers,
and the litigation was concluded. Based upon the above, the
Company believes that there is a substantial level of coverage
(including substantial coverage for legal defense expenditures)
for the Company's estimated probable liability determined in
accordance with Statement of Financial Accounting Standards No. 5
("SFAS 5").
Commercial Litigation
Rhone-Poulenc Rorer Pharmaceuticals Inc. ("RPRP"), a subsidiary
of the Company, has been named as a defendant in two related
arbitration proceedings in Zurich, Switzerland initiated by
Boehringer Mannheim GmbH and its American affiliate, Boehringer
Mannheim Pharmaceuticals Corporation (collectively, "BM"),
seeking substantial compensatory damages for alleged breach of
contract by RPRP. Specifically, BM commenced arbitration
proceedings in Switzerland and litigation in the state court of
Maryland alleging that RPRP breached an agreement related to the
development of BM's bisphosphonate compound and a copromotion
agreement pertaining to the Company's licensed product Lozol(r).
RPR filed a counterclaim in the Maryland litigation against BM
for fraud related to representations made by BM and its agents
prior to the execution of the agreements. In March 1995, the
parties agreed to dismiss the Maryland litigation and to transfer
all of those claims to final and binding arbitration in
Switzerland. At present, two arbitration proceedings before the
same panel are underway. The Company believes that the claims
asserted by BM are without merit and RPRP is vigorously defending
its position. A preliminary hearing on liability will be held in
Zurich this winter.
In the Spring of 1995, the Company and its subsidiary, Rhone-
Poulenc Rorer International (Holdings) Inc. ("RIH"), together
with three former officers and/or directors of a former
subsidiary, Rorer International (Overseas) Inc. ("RIO") were
named as defendants in a lawsuit filed by a Mexican
pharmaceutical company known as Laboratorios A.F. Aplicaciones
Farmaceuticas, S.A. de C.V. ("LAF"). The suit arose out of an
action brought in 1985 in Mexico by RIO against LAF for
infringement of intellectual property rights. The suit alleged
that RIO obtained a wrongful injunction against LAF and pursued
its claims against LAF in bad faith, resulting in lost profits
and damage to LAF's reputation. The parties agreed to settle
this litigation in August 1996.
Antitrust Litigation
The Company has been named as a defendant in 134 antitrust
lawsuits. It is presently a party to ten state court actions
pending in California, two each in Minnesota and Wisconsin, and
one each in the District of Columbia, Alabama, Washington,
Colorado, Arizona, Maine, New York and Michigan. Additionally,
the Company has been named in 112 antitrust actions brought in
several federal courts which have been coordinated before a judge
in the U. S. District Court for the Northern District of Illinois
(Chicago). All of the cases brought in California state court
have similarly been coordinated before a judge in the San
Francisco Superior Court. The suits allege that many
pharmaceutical companies (including RPR) and wholesalers, in
conjunction with certain pharmacy benefits managers,
discriminated against independent community pharmacist plaintiffs
and/or retail chains with respect to the prices charged for brand
name pharmaceutical products and further conspired to maintain
prices at artificially high levels to the detriment of these
pharmacies. Three of the California actions allege injury to
classes of California residents who are consumers of brand name
prescription products. One of the cases in each of Minnesota and
Wisconsin and the cases in the District of Columbia, New York,
Arizona, Colorado, Washington, Maine and Michigan allege proposed
consumer class claims. An Alabama state court case that alleged
a proposed consumer class was successfully removed to federal
court in Alabama and transferred for coordination with the
federal proceeding in Chicago. In October 1995, the Washington
state court action was dismissed with prejudice with the court
24
<PAGE>
<PAGE>
holding that Washington law did not permit a consumer action in
this instance. This ruling is currently on appeal. The Colorado
state court action was dismissed in January 1996 and no appeal
was filed within the permissible time period. Many of the
federal actions were brought on behalf of an alleged class of
retail pharmacies throughout the United States; three of the
state cases similarly allege classes of pharmacists within those
states. Plaintiffs in these lawsuits seek injunctive relief and
a monetary award for past damages alleged. The federal class
plaintiffs have filed an amended consolidated Complaint so that
issues affecting the class are pleaded consistently. The
coordinating federal court certified the class alleged in the
amended consolidated Complaint in November 1994. Notice to the
class was given and the opt-out period ended March 10, 1995. The
coordinating California state court certified retail and consumer
classes in June 1995. These cases have been stayed in order to
trail the federal litigation proceedings. Notice to the retailer
class was given and the opt-out period has expired; notice to the
consumer class has not yet been provided.
In April 1996, the federal court denied summary judgment motions
filed by the pharmaceutical companies but summary judgment
motions filed by the wholesaler defendants were granted. The
court entered final judgment in favor of the wholesalers and
certified certain issues relating to the denial of the
manufacturer defendants' summary judgment motions for
interlocutory appeal to the United States Court of Appeals for
the Seventh Circuit. Plaintiffs have also filed appeals on the
orders granting the wholesaler defendants' summary judgment
motions. Due to the pendency of the appellate proceedings, the
court withdrew the May 7, 1996 trial date previously set in the
federal class conspiracy case and has not set a new trial date in
any federal action. In addition, several of the companies named
as defendants in the federal class action, excluding RPR, entered
into a settlement with independent and chain pharmacies who are
members of that class. That settlement was approved by the court
on June 21, 1996. Certain plaintiffs have appealed the approval
of this settlement to the United States Court of Appeals for the
Seventh Circuit. The Company believes that none of the claims
against it have any merit and is vigorously defending these
lawsuits.
Environmental Litigation
Fisons plc has been named along with other defendants in a U.S.
Federal Court action (Olin Corporation v. Fisons plc, et al.,
United States District Court for the District of Massachusetts)
in which Olin Corporation is seeking to recover its response
costs for environmental contamination resulting from operations
at a Wilmington, Massachusetts facility. The facility was
operated during the late 1960s by a separate Fisons entity.
Fisons plc and another subsidiary, Fisons Finance Ltd., are named
in a cross-claim and third-party complaint, respectively, filed
by one of the co-defendants in the Olin action, NOR-AM Chemical
Company ("NOR-AM"). NOR-AM is asserting claims for
indemnification and/or contribution if it is found liable in
Olin. Fisons plc has filed a motion to dismiss the Complaint for
lack of personal jurisdiction. The Court has not yet ruled on
this motion.
The Company and/or its subsidiaries, including the recently-
acquired Fisons companies, have been named as potentially
responsible parties at three sites on the U.S. National Priority
List created by Superfund legislation.
Patent and Intellectual Property Litigation
In February 1993, Tanabe Seiyaku Company ("Tanabe") of Japan and
their U.S. licensee, Marion Merrell Dow Inc. ("MMD") initiated an
action before the International Trade Commission ("ITC"), the
administrative agency responsible for handling complaints of
imports which allegedly infringe U.S. intellectual property
rights. The complaint names ten domestic and foreign
respondents, including the Company, and alleges infringement of a
Tanabe U.S. patent, claiming a process for preparing bulk
diltiazem, the active ingredient in the Company's Dilacor(r) XR
product. In January 1995, the ITC Administrative Judge ruled
that Dilacor(r) XR does not infringe the MMD/Tanabe patent under
any circumstances and that the MMD/Tanabe patent is invalid and
unenforceable. An appeal was taken and the Commission
effectively affirmed the ITC Judge's rulings. MMD/Tanabe has
appealed to the Court of Appeals for the Federal Circuit. The
appeal was argued in July 1996.
25
<PAGE>
<PAGE>
The Company is a plaintiff in a patent infringement lawsuit with
Chiron Corporation filed in the United States District Court in
California involving the patent licensed exclusively to the
Company by the Scripps Research Institute covering the anti-
hemophilic Factor VIII:C. The Court is considering pending
summary judgment motions. If this case goes to trial, such trial
is likely to be scheduled to commence within the six to twelve
months after the Court's decision on the summary judgment
motions.
The outcomes of the referenced litigation cannot be predicted
with certainty. The defense of these cases and the defense of
expected additional lawsuits may require substantial legal
defense expenditures. The Company follows SFAS 5 in determining
whether to recognize losses and accrue liabilities relating to
such matters. Accordingly, the Company recognizes a loss if
available information indicates that a loss or range of losses is
probable and reasonably estimable. The Company estimates such
losses on the basis of current facts and circumstances, prior
experience with similar matters, the number of claims and the
anticipated cost of administering, defending and, in some cases,
settling such claims. The Company has also recorded as an asset
insurance recoveries that are probable of occurrence as a result
of the insurance coverage litigation settlement previously
described. If a contingent loss is not probable, but is
reasonably possible, the Company discloses this contingency in
the notes to its consolidated financial statements if it is
material. Based on the information available, the Company does
not believe that reasonably possible uninsured losses in excess
of amounts recorded for the referenced litigation would have a
material adverse impact on the Company's financial position,
results of operations or cash flows.
26
<PAGE>
<PAGE>
ITEM 6. Exhibits
a. Exhibits
10 Material Contract
(a) Amendment 1996-1 to the Pension Plan
of Rhone-Poulenc Rorer Inc. dated
April 26, 1996.
11 Statement re computation of earnings per
common share.
15 Letter re unaudited interim financial
information.
27 Financial data schedule (electronic
filing only).
27
<PAGE>
<PAGE>
SIGNATURES
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.
RHONE-POULENC RORER INC.
----------------------------------------
(Registrant)
November 5, 1996 /s/ PATRICK LANGLOIS
---------------------------------------
Patrick Langlois
Executive Vice President and
Chief Financial Officer
November 5, 1996 /s/ PHILIPPE MAITRE
---------------------------------------
Philippe Maitre
Vice President and
Corporate Controller
28
<PAGE>
<PAGE>
INDEX TO EXHIBITS
Exhibit No.
- -----------
10 Material Contract
(a) Amendment 1996-1 to the Pension Plan
of Rhone-Poulenc Rorer Inc. dated
April 26, 1996.
11 Statement re computation of earnings per
common share.
15 Letter re unaudited interim financial
information.
27 Financial data schedule (electronic
filing only).
<PAGE>
<PAGE>
EXHIBIT 10(a)
AMENDMENT 1996-1 TO THE
PENSION PLAN OF RHONE-POULENC RORER INC.
WHEREAS, Rhone-Poulenc Rorer Inc. (the "Company") maintains
the Pension Plan of Rhone-Poulenc Rorer Inc. (the "Plan") for the
benefit of its employees;
WHEREAS, the Company desires to amend the Plan to comply with
the provisions of the Retirement Protection Act as enacted in the
Uruguay Round Agreements Act relating to the calculation of single
sum payments from the Plan;
WHEREAS, Section 10.1 of the Plan provides that the Committee
may adopt such amendments to the Plan as it shall deem necessary or
appropriate to maintain compliance with current law or regulation;
NOW, THEREFORE, it is agreed that the Plan be amended as
follows, effective as of May 1, 1996.
1. Section II of Schedule A to the Plan, "Actuarial
Equivalence," is hereby amended by adding thereto a new
subsection (d) to read as follows:
(d) Notwithstanding the foregoing or anything to
the contrary elsewhere in the Plan, in determining
the single sum payment of any benefit distributed
from the Plan on an Annuity Starting Date
occurring on or after May 1, 1996, the interest
rate shall be the annual rate of interest on
30-year Treasury securities as specified by the
Commissioner pursuant to section 417(e)(3)(A) of
the Code and regulations issued thereunder for the
first full calendar month preceding the first day
of the Plan Year that contains the Annuity
Starting Date and the mortality table shall be the
mortality table prescribed by the Commissioner
pursuant to section 41 7(e)(3)(A) of the Code on
the date as of which the single sum payment is
being determined.
The Plan, in all other respects, shall remain unchanged by this
amendment.
IN WITNESS WHEREOF, and as evidence of the adoption of the
amendments set forth herein, the Committee has executed this
Amendment 1996-1 to the Plan, this 26th day of April, 1996.
ADMINISTRATIVE COMMITTEE OF THE PENSION
PLAN OF RHONE-POULENC RORER INC.
By: /s/ Kenneth L. Emens
-------------------------------------
<PAGE>
EXHIBIT 11
RHONE-POULENC RORER INC. AND SUBSIDIARIES
Computation of Earnings Per Common Share
(Unaudited-dollars and shares in millions except per share data)
Three Months Ended
September 30,
----------------------
1996 1995
--------- ---------
Net income per common share as reported:
Net income before preferred dividends and
remuneration $ 109.3 $ 112.1
Less: Dividends on preferred stock and
remuneration on capital equity notes (11.9) (4.8)
--------- ---------
Net income available to common shareholders $ 97.4 $ 107.3
========= =========
Average shares outstanding 136.2 134.2
========= =========
Net income available to common shareholders
per share $ .72 $ .80
========= =========
Net income per common share assuming full dilution:
Net income before preferred dividends and
remuneration $ 109.3 $ 112.1
Less: Dividends on preferred stock and
remuneration on capital equity notes (11.9) (4.8)
--------- ---------
Net income available to common shareholders $ 97.4 $ 107.3
========= =========
Average shares outstanding 136.2 134.2
Shares contingently issuable for stock plan 2.6 .7
--------- ---------
Average shares outstanding, assuming full
dilution 138.8 134.9
========= =========
Net income available to common shareholders
per share, assuming full dilution $ .70 $ .80
========= =========
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%.
<PAGE>
<PAGE>
EXHIBIT 11
RHONE-POULENC RORER INC. AND SUBSIDIARIES
Computation of Earnings Per Common Share
(Unaudited-dollars and shares in millions except per share data)
Nine Months Ended
September 30,
--------------------
1996 1995
--------- --------
Net income per common share as reported:
Net income before preferred dividends and
remuneration $ 296.5 $ 298.7
Less: Dividends on preferred stock and
remuneration on capital equity notes (33.2) (16.2)
--------- --------
Net income available to common shareholders $ 263.3 282.5
=========
Pro forma adjustments for interest and
preferred dividends, net of tax effects (1.6)
--------
Net income available to common shareholders,
pro forma $ 280.9
========
Average shares outstanding 135.6 134.2
========= ========
Net income available to common shareholders
per share $ 1.94
=========
Net income available to common shareholders
per share, pro forma $ 2.09
========
Net income per common share assuming full
dilution:
Net income before preferred dividends and
remuneration $ 296.5 $ 298.7
Less: Dividends on preferred stock and
remuneration on capital equity notes (33.2) (16.2)
--------- --------
Net income available to common shareholders $ 263.3 282.5
=========
Pro forma adjustments for interest and
preferred dividends, net of tax effects (1.6)
--------
Net income available to common shareholders,
pro forma $ 280.9
========
Average shares outstanding 135.6 134.2
Shares contingently issuable for stock plan 2.6 .7
-------- --------
Average shares outstanding, assuming full
dilution 138.2 134.9
======== ========
Net income available to common shareholders
per share, assuming full dilution $ 1.90
========
Net income available to common shareholders
per share, pro forma, assuming full dilution $ 2.08
========
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%.
<PAGE>
EXHIBIT 15
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
RE: Rhone-Poulenc Rorer Inc.
Quarterly Report on Form 10-Q
We are aware that our report dated October 21, 1996, on our review of
interim financial information of Rhone-Poulenc Rorer Inc. ("the
Company"), for the period ended September 30, 1996, and included in
the Company's quarterly report on Form 10-Q for the quarter then
ended is incorporated by reference in the registration statements of
the Company on Form S-3 (Registration No. 33-58229, Registration No.
33-62052, Registration No. 33-36558, Registration No. 33-30795,
Registration No. 33-23754, Registration No. 33-15671, Registration
No. 33-53378 and Registration No. 33-55694) and on Form S-8
(Registration No. 33-58998, Registration No. 33-24537 and
Registration No. 33-21902). Pursuant to Rule 436(c) under the
Securities Act of 1933, this report should not be considered a part
of the registration statements prepared or certified by us within the
meaning of Sections 7 and 11 of that Act.
/s/ COOPERS & LYBRAND L.L.P.
------------------------------
COOPERS & LYBRAND L.L.P.
Philadelphia, Pennsylvania
November 5, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AND THE RELATED CONDENSED CONSOLIDATED
STATEMENT OF INCOME FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 119
<SECURITIES> 16
<RECEIVABLES> 954
<ALLOWANCES> 89
<INVENTORY> 802
<CURRENT-ASSETS> 768
<PP&E> 2,872
<DEPRECIATION> 1,412
<TOTAL-ASSETS> 8,504
<CURRENT-LIABILITIES> 1,838
<BONDS> 2,429
0
175
<COMMON> 141
<OTHER-SE> 2,140
<TOTAL-LIABILITY-AND-EQUITY> 8,504
<SALES> 3,897
<TOTAL-REVENUES> 3,897
<CGS> 1,249
<TOTAL-COSTS> 1,249
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 159
<INCOME-PRETAX> 431
<INCOME-TAX> 134
<INCOME-CONTINUING> 297
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 297
<EPS-PRIMARY> 1.94
<EPS-DILUTED> 1.90
</TABLE>
