UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1995
Commission file number 1-6571
SCHERING-PLOUGH CORPORATION
Incorporated in New Jersey 22-1918501
One Giralda Farms (I.R.S. Employer Identification No.)
Madison, N.J. 07940-1000 (201) 822-7000
(telephone number)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months, and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
Common Shares Outstanding as of March 31, 1995: 186,036,690
<PAGE>
PART I. - FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
FOR THE THREE MONTHS ENDED MARCH 31,
(UNAUDITED)
(Dollars in millions, except per share figures)
<CAPTION>
1995 1994
<S> <C> <C>
Sales. . . . . . . . . . . . . . . . . . . $1,244.3 $1,161.6
Costs and expenses:
Cost of sales . . . . . . . . . . . . 248.1 247.3
Selling, general
and administrative . . . . . . . . . 473.7 443.4
Research and development . . . . . . . 149.4 142.0
Other, net . . . . . . . . . . . . . . 6.5 (4.2)
877.7 828.5
Income before income taxes . . . . . . . . 366.6 333.1
Income taxes . . . . . . . . . . . . . . 88.0 79.9
Net income . . . . . . . . . . . . . . . . $ 278.6 $ 253.2
Earnings per common share . . . . . . . . $ 1.50 $ 1.31
Dividends per common share . . . . . . . . $ .51 $ .45
See notes to consolidated financial statements.
/TABLE
<PAGE>
<TABLE>
SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(Dollars in millions, except per share figures)
<CAPTION>
March 31, December 31,
1995 1994
<S> <C> <C>
Assets
Cash and cash equivalents . . . . . . . . $ 126.2 $ 115.6
Accounts receivable, net. . . . . . . . . 784.9 627.9
Inventories . . . . . . . . . . . . . . . 493.2 466.3
Prepaid expenses, deferred income
taxes and other current assets . . . . . 533.6 529.3
Total current assets. . . . . . . . . 1,937.9 1,739.1
Property, plant and equipment . . . . . . 3,103.2 3,049.7
Less accumulated depreciation . . . . . . 1,007.4 967.4
Property, net . . . . . . . . . . . . 2,095.8 2,082.3
Intangible assets, net. . . . . . . . . . 168.4 168.3
Other assets. . . . . . . . . . . . . . . 360.9 336.0
$4,563.0 $4,325.7
Liabilities and Shareholders' Equity
Accounts payable. . . . . . . . . . . . . $ 256.8 $ 285.2
Short-term borrowings and current
portion of long-term debt. . . . . . . . 820.4 782.3
Other accrued liabilities . . . . . . . . 969.8 961.3
Total current liabilities . . . . . . 2,047.0 2,028.8
Long-term debt. . . . . . . . . . . . . . 185.9 185.8
Other long-term liabilities . . . . . . . 569.7 536.7
Shareholders' Equity:
Preferred shares - $1 par value
each; issued - none. . . . . . . . . . . - -
Common shares - $1 par value each;
issued - 251,482,691 shares . . . . . . 251.5 251.5
Paid-in capital . . . . . . . . . . . . . 143.7 133.3
Retained earnings . . . . . . . . . . . . 4,161.9 3,978.2
Foreign currency translation
adjustment and other . . . . . . . . . . (110.6) (117.0)
Total . . . . . . . . . . . . . . . . 4,446.5 4,246.0
Less treasury shares, at cost - 1995,
65,446,001 shares; 1994, 65,468,430
shares . . . . . . . . . . . . . . . . . 2,686.1 2,671.6
Total shareholders' equity. . . . . . 1,760.4 1,574.4
$4,563.0 $4,325.7
<FN>
See notes to consolidated financial statements.
</TABLE>
PAGE
<PAGE>
<TABLE>
SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31
(UNAUDITED)
(Dollars in millions)
<CAPTION>
1995 1994
<S> <C> <C>
Operating Activities:
Net income. . . . . . . . . . . . . . . . $278.6 $253.2
Depreciation and amortization . . . . . . 42.7 38.3
Working capital changes - source (use):
Accounts receivable. . . . . . . . . . . (135.6) (90.2)
Inventories. . . . . . . . . . . . . . . (11.2) (11.7)
Other current assets . . . . . . . . . . (29.6) 1.5
Accounts payable and other accrued
liabilities . . . . . . . . . . . . . . (20.1) (47.2)
Other, net. . . . . . . . . . . . . . . . (25.0) (1.7)
Net cash provided by operating
activities . . . . . . . . . . . . . . 99.8 142.2
Investing Activities:
Reduction of investments . . . . . . . . 43.0 193.2
Purchases of investments. . . . . . . . . (7.2) (104.8)
Capital expenditures. . . . . . . . . . . (49.1) (59.2)
Other, net. . . . . . . . . . . . . . . . (2.2) .2
Net cash provided by (used for) investing
activities . . . . . . . . . . . . . . (15.5) 29.4
Financing Activities:
Net change in short-term borrowings . . . 27.6 (168.2)
Dividends paid to common shareholders . . (94.9) (87.1)
Common shares repurchased . . . . . . . . (13.8) (31.1)
Proceeds from other equity transactions . 8.5 3.4
Net cash provided by (used for) financing
activities . . . . . . . . . . . . . . (72.6) (283.0)
Effect of Exchange Rates on Cash and
Cash Equivalents. . . . . . . . . . . . . (1.1) (.2)
Net Increase (Decrease) in Cash and
Cash Equivalents. . . . . . . . . . . . . 10.6 (111.6)
Cash and Cash Equivalents, Beginning
of Period . . . . . . . . . . . . . . . . 115.6 222.2
Cash and Cash Equivalents, End of Period . $126.2 $110.6
<FN>
See notes to consolidated financial statements.
</TABLE>
PAGE
<PAGE>
SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollars in millions, except per share figures)
Basis of Presentation
The unaudited financial statements included herein have been
prepared pursuant to the rules and regulations of the Securities
and Exchange Commission for reporting on Form 10-Q. Certain
information and footnote disclosures normally included in
financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. The statements should be
read in conjunction with the accounting policies and notes to
consolidated financial statements included in the Company's 1994
Annual Report on Form 10-K.
In the opinion of management, the financial statements reflect
all adjustments necessary for a fair statement of the operations
for the interim periods presented.
Inventories
Inventories consisted of:
March 31, December 31,
1995 1994
Finished products . . . . . . . $ 190.0 $ 180.1
Goods in process. . . . . . . . 192.4 193.8
Raw materials and supplies. . . 110.8 92.4
Total inventories . . . . . . $ 493.2 $ 466.3
Sales
Sales for the three months ended March 31, 1995 and 1994 were as
follows:
1995 1994
Pharmaceutical products . . . . $1,050.4 $ 951.7
Health care products. . . . . . 193.9 209.9
Consolidated sales. . . . . . $1,244.3 $1,161.6
Earnings Per Common Share
Earnings per common share is computed by dividing net income by
the weighted-average number of common shares outstanding. Shares
issuable through the exercise of stock options and warrants and
under deferred delivery agreements are not considered in the
calculation, as they do not have a material effect on the
determination of earnings per common share. The weighted-average
number of shares used in the computation of earnings per common
share for the three months ended March 31, 1995 and 1994 were
186,019,000 and 193,489,000, respectively.
On April 4, 1995, the Board of Directors of the Company
authorized a 2-for-1 stock split, and voted to increase the
number of authorized common shares from 300 million to 600
million. Distribution of the split shares will be made on June
9, 1995, to shareholders of record at the close of business on
May 5, 1995. The number of shares and the per share amounts
included in these consolidated financial statements are presented
before giving effect to the stock split. Proforma earnings per
common share on a post-split basis for the three months ended
March 31, 1995 and 1994 would be $.75 and $.65, respectively.
Legal and Environmental Matters
The Company is involved in various claims and legal proceedings
of a nature considered normal to its business, including
environmental matters and product liability cases. The recorded
liabilities for these matters at March 31, 1995, were not
material. Management believes that, except for the matters
discussed in the following two paragraphs, it is remote that any
material liability in excess of the amounts accrued will be
incurred.
In 1994, a judgment in the amount of $63.6, including $57.5 in
punitive damages, was entered against the Company in connection
with a product liability lawsuit involving THEO-DUR. An appeal
from this judgment has been taken. While the success of the
appeal cannot be predicted with certainty, the Company will
vigorously pursue its case through the appellate courts. The
Company believes it has insurance coverage for amounts in excess
of $3, but the insurance carriers have reserved their rights with
respect to liability for punitive damages.
The Company is a defendant in more than 145 antitrust actions
commenced in state and federal courts by independent and chain
retail pharmacies and others. The plaintiffs allege price
discrimination and/or conspiracy between the Company and other
defendants to restrain trade by jointly refusing to sell
prescription drugs at discounted prices to the plaintiffs. One
of these cases is a class action on behalf of U.S. retail
pharmacies. Plaintiffs seek treble damages in an unspecified
amount and an injunction against the allegedly unlawful conduct.
The Company believes that all these actions are without merit and
is defending itself vigorously against all such claims.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations - three months ended March 31, 1995
compared with the corresponding period in 1994.
Consolidated sales for the first quarter increased $82.7 million
or 7 percent compared with the same period in 1994. Excluding
the effect of foreign currency exchange rate changes,
consolidated sales rose 4 percent.
In the United States, many of the Company's pharmaceutical
products are subject to increasingly competitive pricing as
managed care groups, institutions and governments seek price
discounts. Future health care reform proposals also could have
an impact on operations of the Company.
In most international markets, the Company operates in an
environment of government-mandated cost containment programs.
Sales of INTRON A, the Company's alpha-2 interferon anticancer
and antiviral agent, declined in Japan as a result of various
1994 cost-containment efforts by the Japanese health authorities
on the overall interferon market. In addition, several other
markets have been affected by the implementation of across-the-
board price cuts and government-imposed restrictions.
Since the Company is unable to predict the final form and timing
of domestic and international governmental health care reform
proposals, their effect on future operations and cash flows
cannot be reasonably estimated.
Sales
Domestic prescription pharmaceutical sales advanced 16 percent
for the first three months of 1995. Sales of respiratory products
rose 34 percent in the quarter reflecting significant market
share growth for the CLARITIN brand of nonsedating
antihistamines. CLARITIN-D, which combines the decongestant
pseudoephedrine, was launched in the U.S. in November 1994. In
addition, sales growth was aided by prescription growth for the
VANCENASE line of allergy products. Despite generic competition
for the solution, tablet and syrup formulations, sales increased
for the PROVENTIL line of asthma products due to higher
prescription levels for the metered dose inhaler. These gains
were tempered by lower solution sales following the nonrecurrence
of heavy 1994 purchases, which resulted from the recall of a
competitor's product. In January 1994, the Food and Drug
Administration (FDA) issued bioequivalence standards for generic
albuterol metered dose inhalers. Generic entries are expected to
enter the market in the future. The introduction of a generic
inhaler will negatively affect sales and profitability of
PROVENTIL.
U.S. sales of anti-infective and anticancer products increased 34
percent for the first quarter led by prescription growth for
EULEXIN, a prostate cancer therapy, and expanded indication usage
of INTRON A. Dermatological product sales were up 18 percent,
primarily due to prescription growth for LOTRISONE, an
antifungal/anti-inflammatory cream, DIPROLENE, a high-potency
topical steroid and ELOCON, a mid-potency topical corticosteroid.
Sales of cardiovascular products declined 9 percent for the first
three months due to the timing of promotional programs for NITRO-
DUR transdermal nitroglycerin patches. This decrease was
moderated by prescription growth for IMDUR, a once-daily oral
nitrate and
K-DUR potassium supplements.
Worldwide sales of the Wesley-Jessen vision care business
declined 30 percent in the first quarter due to weak sales of its
DURASOFT colored and FRESHLOOK disposable contact lenses.
Management is continuing to explore strategic alternatives for
the vision care business, and expects to conclude on a course of
action in 1995.
International pharmaceutical sales increased 2 percent in the
first quarter after excluding the impact of foreign currency
exchange fluctuations. Sales of respiratory products advanced 18
percent for the first three months due to higher sales of
CLARITIN in Europe and allergy products in Japan. Dermatological
product sales rose 11 percent reflecting advances for topical
steroids. Sales growth was also recorded for LOSEC, an anti-ulcer
treatment licensed from AB Astra.
International sales of anti-infective and anticancer products
decreased 10 percent due to continued shortfalls of INTRON A in
Japan. This decline was moderated by higher sales in several
markets of EULEXIN and CEDAX, a third-generation cephalosporin.
Health care product sales declined 8 percent in the first quarter
reflecting lower sales of sun care and foot care products due to
the timing of product shipments, and reduced sales of female
health products. Sales of allergy/cold products increased as a
result of an extended cold and flu season.
Income before income taxes increased 10 percent in the first
quarter, and represented 29.5 percent of sales compared with 28.7
percent in 1994.
Cost of sales as a percentage of sales declined to 19.9 percent
in the 1995 first quarter compared with 21.3 percent last year,
reflecting a favorable sales mix of higher margin ethical
pharmaceutical products, mainly CLARITIN, and continued cost
containment programs.
Selling, general and administrative expenses represented 38.1
percent of sales for the first three months of 1995 compared with
38.2 percent in 1994. The slightly improved ratio results from
the timing of promotional spending for certain health care
products.
Research and development spending rose 5 percent for the first
quarter and represented 12.0 percent of sales compared with 12.2
percent in 1994. It is anticipated that total research and
development expenses will approximate $650 million in 1995.
The effective tax rate was 24.0 percent for both the 1995 and
1994 periods.
Earnings per common share increased 15 percent in the first
quarter to $1.50 from $1.31 in 1994. Excluding the impact of
changes in foreign currency exchange rates, earnings per common
share would have risen approximately 11 percent in the first
quarter.
Liquidity and financial resources - three months ended March 31,
1995.
Cash generated from operations and selected borrowings continues
to be the company's major source of funds to finance working
capital, additions to property and shareholder dividends. Cash
provided from operations totaled $99.8 million for the first
three months of 1995. This cash, along with borrowings, funded
the spending of $94.9 million for shareholder dividends, $49.1
million for capital expenditures and $13.8 million for common
share repurchases.
In September 1994, the Board of Directors authorized the purchase
of $500 million of the Company's common shares. This program was
completed in February 1995.
In April 1995, the Board authorized an increase in the quarterly
dividend of 14 percent, to $.58 per common share from $.51 per
common share. Also, the Board announced a 2- for -1 stock split
of the Company's common shares. The distribution of the split
shares will be made on June 9, 1995 to shareholders of record on
May 5, 1995.
The Company's liquidity and financial resources continue to be
sufficient to meet its operating needs.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The final paragraph of Item 3, Legal Proceedings of Part I of the
Company's annual report on Form 10-K for the fiscal year ended
December 31, 1994, relating to certain antitrust actions pending
against the Company, is incorporated herein by reference. As of
March 31, 1995, the Company was a defendant in more than 145 of
such actions.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits:
Exhibit 11 - Computation of Earnings Per Common Share.
Exhibit 27 - Financial Data Schedule.
b) Reports on Form 8-K
No report has been filed during the three months ended
March 31, 1995.
<PAGE>
SIGNATURE(S)
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
Schering-Plough Corporation
(Registrant)
Date April 21, 1995 /s/ Thomas H. Kelly
Thomas H. Kelly
Vice President and Controller
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS
AND RELATED EXHIBITS FOR THE THREE MONTHS ENDED MARCH 31, 1995, AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1995
<CASH> 126200
<SECURITIES> 0
<RECEIVABLES> 784900
<ALLOWANCES> 0
<INVENTORY> 493200
<CURRENT-ASSETS> 1937900
<PP&E> 3103200
<DEPRECIATION> 1007400
<TOTAL-ASSETS> 4563000
<CURRENT-LIABILITIES> 2047000
<BONDS> 185900
<COMMON> 251500
0
0
<OTHER-SE> 1508900
<TOTAL-LIABILITY-AND-EQUITY> 4563000
<SALES> 1244300
<TOTAL-REVENUES> 1244300
<CGS> 248100
<TOTAL-COSTS> 248100
<OTHER-EXPENSES> 149400
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 366600
<INCOME-TAX> 88000
<INCOME-CONTINUING> 278600
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 278600
<EPS-PRIMARY> 1.50
<EPS-DILUTED> 1.48
</TABLE>
Exhibit 11
<TABLE>
SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
(Dollars in millions, except per share figures)
<CAPTION>
Three Months Ended
March 31,
1995 1994
<S> <C> <C>
Net Income Applicable to Common Shares. . . . . . $ 278.6 $ 253.2
Earnings per Common Share, As Reported:
Average Number of Common Shares
Outstanding (in thousands). . . . . . . . . . . 186,019 193,489
Earnings per Common Share. . . . . . . . . . . . $ 1.50 $ 1.31
Earnings per Common Share, Assuming
Full Dilution: (a)
Average Number of Common Shares
Outstanding (in thousands) . . . . . . . . . . 186,019 193,489
Shares Contingently Issuable for
Stock Incentive Plans (in thousands) . . . . . 2,293 2,170
Average Number of Common Shares and
Common Share Equivalents Outstanding
(in thousands) . . . . . . . . . . . . . . . . 188,312 195,659
Earnings per Common Share, Assuming
Full Dilution. . . . . . . . . . . . . . . . . $ 1.48 $ 1.29
<FN>
(a) This calculation is submitted in accordance with the regulations
of the Securities and Exchange Commission although not required
by APB Opinion No. 15 because it results in dilution of less
than 3%.
</TABLE>
