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 June 30, 1997
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 June 30, 1997: 732,649,197
PART I. - FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
(UNAUDITED)
(Dollars in millions, except per share figures)
<CAPTION>
Three Months Six Months
Ended Ended
June 30 June 30
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Sales . . . . . . . . . . . . . $1,719.8 $1,476.6 $3,287.9 $2,859.3
Costs and expenses:
Cost of sales. . . . . . . . . 329.9 287.0 619.2 549.7
Selling, general
and administrative. . . . . . 679.7 578.6 1,273.2 1,081.9
Research and development . . . 208.7 177.9 387.9 340.8
Other, net . . . . . . . . . . 7.4 13.1 16.4 34.3
1,225.7 1,056.6 2,296.7 2,006.7
Income before income taxes. . . 494.1 420.0 991.2 852.6
Income taxes. . . . . . . . . . 121.0 102.9 242.8 208.9
Net Income. . . . . . . . . . . 373.1 317.1 748.4 643.7
Earnings per common share . . . $ .51 $ .43 $ 1.02 $ .88
Dividends per common share. . . $ .19 $ .165 $ .355 $ .31
<FN>
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>
June 30, December 31,
1997 1996
<S> <C> <C>
Assets
Cash and cash equivalents . . . . . . . . $ 699.2 $ 535.1
Accounts receivable, net. . . . . . . . . 834.6 542.0
Inventories . . . . . . . . . . . . . . . 729.0 594.1
Prepaid expenses, deferred income
taxes and other current assets . . . . . 841.2 693.4
Total current assets. . . . . . . . . 3,104.0 2,364.6
Property, plant and equipment . . . . . . 3,570.2 3,362.5
Less accumulated depreciation . . . . . . 1,158.7 1,116.2
Property, net . . . . . . . . . . . . 2,411.5 2,246.3
Other assets. . . . . . . . . . . . . . . 1,021.0 787.2
$ 6,536.5 $ 5,398.1
Liabilities and Shareholders' Equity
Accounts payable. . . . . . . . . . . . . $ 586.3 $ 560.6
Short-term borrowings and current
portion of long-term debt. . . . . . . . 1,051.5 855.1
Other accrued liabilities . . . . . . . . 1,535.7 1,183.4
Total current liabilities . . . . . . 3,173.5 2,599.1
Long-term debt. . . . . . . . . . . . . . 64.7 46.4
Other long-term liabilities . . . . . . . 746.5 692.7
Shareholders' Equity:
Preferred shares - $1 par value
each; issued - none. . . . . . . . . . . - -
Common shares - $1 par value each; shares
issued: 1997 - 1,014,753,458
1996 - 507,368,360 . . . . . . . . . . . 1,014.8 507.4
Paid-in capital . . . . . . . . . . . . . 17.2 172.3
Retained earnings . . . . . . . . . . . . 5,259.4 5,080.6
Foreign currency translation
adjustment and other . . . . . . . . . . (179.1) (140.6)
Total . . . . . . . . . . . . . . . . 6,112.3 5,619.7
Less treasury shares, at cost -
1997, 282,104,261 shares;
1996, 142,001,799 shares . . . . . . . . 3,560.5 3,559.8
Total shareholders' equity. . . . . . 2,551.8 2,059.9
$ 6,536.5 $ 5,398.1
<FN>
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30
(UNAUDITED)
(Dollars in millions)
<CAPTION>
1997 1996
<S> <C> <C>
Operating Activities:
Net Income. . . . . . . . . . . . . . . . $ 748.4 $ 643.7
Depreciation and amortization . . . . . . 95.4 84.2
Accounts receivable . . . . . . . . . . . (177.8) (84.2)
Inventories . . . . . . . . . . . . . . . (18.9) (45.9)
Prepaid expenses and other assets . . . . (114.7) (115.9)
Accounts payable and other liabilities . 187.2 194.2
Net cash provided by operating activities 719.6 676.1
Investing Activities:
Purchase of business, net of cash
acquired . . . . . . . . . . . . . . . . (314.5) -
Capital expenditures. . . . . . . . . . . (126.7) (125.9)
Proceeds from sales of investments. . . . 34.2 .6
Purchases of investments. . . . . . . . . (79.2) (15.5)
Other, net. . . . . . . . . . . . . . . . (12.5) (1.1)
Net cash used for investing
activities . . . . . . . . . . . . . . . (498.7) (141.9)
Financing Activities:
Short-term borrowings, net. . . . . . . . 163.9 (59.1)
Repayment of long-term debt . . . . . . . - (100.0)
Common shares repurchased . . . . . . . . (2.6) (6.2)
Dividends paid to common shareholders . . (259.7) (227.8)
Other equity transactions, net. . . . . . 42.9 35.6
Net cash used for financing
activities . . . . . . . . . . . . . . . (55.5) (357.5)
Effect of exchange rates on cash and
cash equivalents. . . . . . . . . . . . . (1.3) (.5)
Net increase in cash and cash equivalents . 164.1 176.2
Cash and cash equivalents, beginning
of period . . . . . . . . . . . . . . . . 535.1 321.4
Cash and cash equivalents, end of period . $ 699.2 $ 497.6
<FN>
See notes to consolidated financial statements.
</TABLE>
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 1996
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.
Accounting Policies - Derivatives
The following disclosures reflect the additional accounting
policy disclosures required by the SEC's January 1997 release
regarding derivatives and financial instruments.
The Company does not enter into derivatives for speculation or
trading purposes.
The only derivatives currently used by the Company for hedging
purposes are foreign currency swap contracts initiated in the
1980's. These contracts are designated as hedges of the
Company's net investment in Japan, and are deemed effective
as a hedge when the related translation gain or loss equals or
exceeds the after tax gain or loss on the contracts. If all or
any portion of the contracts are not effective as a hedge, the
related gain or loss is recorded in income. Cash flows upon
settlement of these contracts are classified as investing
activities.
The Company has used interest rate swap contracts for
international cash management purposes. Interest rate swaps are
recorded at market value. Changes in market value during the
period are recorded in earnings. Annual net cash flows for
payments and receipts under the contracts are not material. The
net asset or liability under each interest rate swap is recorded
in other current assets or other accrued liabilities, as
applicable.
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 six months ended June 30, 1997 and 1996 were
731,736,000 and 734,630,000, respectively.
On April 22, 1997, 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 600 million to 1.2
billion. Distribution of the split shares was made on June 3,
1997, to shareholders of record at the close of business on May
2, 1997. The per share amounts included in these consolidated
financial statements reflect the stock split.
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 128,
"Earnings per Share". The new standard revises certain
methodology and disclosure requirements for reporting earnings
per common share. The new standard will require the reporting of
two earnings per share figures on the face of income statements:
basic earnings per share and diluted earnings per share. SFAS
No. 128 must be adopted in the fourth quarter of 1997 with
earlier adoption prohibited. Basic earnings per share, for the
Company, is expected to be the same as reported earnings per
share. Diluted earnings per share is expected to be
substantially the same as fully diluted earnings per share
reported in an Exhibit to the Company's quarterly Form 10-Q's and
annual Form 10-K.
Share Purchase Rights
In June 1997, the Board of Directors of the Company approved the
redemption of the Company's outstanding Preferred Share Purchase
Rights at the redemption price of $.00125 per right, effective
July 10, 1997. The Board also declared a dividend distribution
of one new Preferred Share Purchase Right on each outstanding
share of Schering-Plough common stock to replace the rights being
redeemed.
The 1997 rights will be exercisable only if a person or group
acquires 20 percent or more of the Company's common stock or
announces a tender offer which, if completed, would result in
ownership by a person or group of 20 percent or more of the
Company's common stock. Should a person acquire 20 percent or
more of the Company's outstanding common stock through a merger
or other business combination transaction, each right will
entitle its holder (other than such acquirer) to purchase common
shares of either Schering-Plough or the acquirer, as applicable,
having a market value of twice the exercise price of the right.
The exercise price is $200.00 for each right.
Following the acquisition by a person or group of beneficial
ownership of 20 percent or more but less than 50 percent of the
Company's common stock, the Board of Directors may call for the
exchange of the rights (other than rights owned by such
acquirer), in whole or in part, for the common stock at an
exchange ratio of one for one, or one one-hundredth of a share of
the Junior Participating Preferred Stock per right. Also, prior
to the acquisition by a person or group of beneficial ownership
of 20 percent or more of the Company's common stock, the rights
are redeemable for 1 cent per right at the option of the Board of
Directors. The new rights will expire in July, 2007 unless
earlier redeemed. The Board of Directors is also authorized to
reduce the 20 percent thresholds referred to above to not less
than 10 percent.
Acquisition
On June 30, 1997 the Company acquired the worldwide animal health
business of Mallinckrodt Inc. for approximately $490,
including the assumption of debt and direct costs of the
acquisition. The acquisition was
recorded under the purchase method of accounting. The June 30,
1997 balance sheet reflects a preliminary allocation of the
purchase price pending the completion of fair value studies of
individual assets acquired. The results of operations of the
purchased animal health business will be included in the
Company's statement of consolidated income beginning in the third
quarter of 1997. Other assets include net intangible assets
totaling $465.1 and $296.8 at June 30, 1997 and December 31,
1996, respectively; the increase is primarily due to the
acquisition of the worldwide animal health business of
Mallinckrodt Inc. Pro forma results of the Company, assuming
the acquisition had been made at the beginning of each period
presented, would not be materially different from the results
reported.
Inventories
Inventories consisted of: June 30, December 31,
1997 1996
Finished products . . . . . . . $ 362.1 $ 296.7
Goods in process. . . . . . . . 215.0 173.0
Raw materials and supplies. . . 151.9 124.4
Total inventories . . . . . . $ 729.0 $ 594.1
Sales
Segment sales for the six months ended June 30, 1997 and 1996
were as follows:
1997 1996
Pharmaceutical products . . . . $2,910.5 $2,504.2
Health care products. . . . . . 377.4 355.1
Consolidated sales. . . . . . $3,287.9 $2,859.3
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 June 30, 1997 were not material.
Management believes that, except for the matters discussed in the
following paragraph, it is remote that any material liability in
excess of the amounts accrued will be incurred.
The Company is a defendant in more than 160 antitrust actions
commenced in state and federal courts by independent retail
pharmacies, chain retail pharmacies and consumers. The
plaintiffs allege price discrimination and/or conspiracy between
the Company and other defendants to restrain trade by jointly
refusing to sell prescription drugs at discounted prices to the
plaintiffs. One of the federal cases is a class action on behalf
of approximately two-thirds of all retail pharmacies in the
United States alleging a price-fixing conspiracy. The Company
has agreed to settle the federal class action for a total of
$22.1 payable over three years. The settlement provides, among
other things, that the Company shall not refuse to grant
discounts on brand-name prescription drugs to a retailer based
solely on its status as a retailer and that, to the extent a
retailer can demonstrate its ability to affect market share of a
Company brand name prescription drug in the same manner as a
managed care organization with which the retailer competes, it
will be entitled to negotiate similar incentives subject to the
rights, obligations, exemptions and defenses of the Robinson-
Patman Act and other laws and regulations. The District Court
approved the settlement of the federal class action on June 21,
1996. In early July 1996, the Seventh Circuit Court of Appeals
agreed to review before trial the District Court's denial of
defendants' summary judgment motion seeking dismissal of all
claims by indirect purchasers of pharmaceutical products in all
remaining cases before the District Court. In addition, the
Seventh Circuit Court of Appeals will hear an appeal by the
plaintiffs from the grant of summary judgment to the wholesaler
defendants. In June 1997, the Seventh Circuit Court of Appeals
dismissed an appeal by certain class members from the approval by
the settlement by the District Court and a motion for rehearing
was filed. In April 1997, certain of the plaintiffs in the
federal class action commenced another purported class action in
Federal District Court in Illinois against the Company and the
other defendants who settled the previous federal class action.
The complaint alleges that the defendants conspired not to
implement the settlement commitments following the settlement
discussed above. The complaint seeks solely injunctive relief
and the plaintiffs have moved to have the District Court set a
date for a hearing on a request for a preliminary injunction.
Four of the state antitrust cases have been certified as class
actions. Two are class actions on behalf of certain retail
pharmacies in California and Wisconsin, and the other two are
class actions in California and the District of Columbia, on
behalf of certain consumers of prescription medicine. Plaintiffs
seek treble damages in an unspecified amount and an injunction
against the allegedly unlawful conduct. The Company believes that
all the antitrust actions are without merit and is defending
itself vigorously against all such claims.
New Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 130,
"Reporting Comprehensive Income" and SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information." Both
standards for the Company are effective beginning in 1998. SFAS
No. 130 will require the Company to add the reporting of
Comprehensive Income to its financial statements. Under SFAS No.
131 the Company will continue to report information for its
pharmaceutical and health care businesses.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations - three and six months ended June 30, 1997
compared with the corresponding periods in 1996.
Sales
Consolidated sales for the second quarter advanced $243.2 million
or 16 percent compared with the same period in 1996. For the six
months, sales rose $428.6 million or 15 percent over 1996.
Excluding the effect of foreign currency exchange rate
fluctuations, consolidated sales grew 19 percent in the quarter
and 18 percent for the six month period. This performance
reflects worldwide sales of the CLARITIN brand of nonsedating
antihistamines of $536 million and $889 million for the quarter
and first half, respectively, compared with $347 million and $584
million for the corresponding periods in 1996.
Domestic prescription pharmaceutical sales increased 29 percent
for the 1997 second quarter and 25 percent for the six-month
period. Sales of allergy/respiratory products advanced 29
percent in the quarter and 26 percent for the first half, due to
continued strong growth of the CLARITIN brand. Sales of
VANCENASE allergy products declined in the quarter due to the
first quarter trade stock-in of the new once-daily version. For
the six month period sales of VANCENASE grew. Sales of VANCERIL
asthma products advanced in both periods reflecting the first
quarter launch of a new "Double Strength".
The domestic allergy/respiratory sales gain reflects a 25 percent
decline in sales of the PROVENTIL (albuterol) line of asthma
products for the quarter, and a 36 percent decline for the first
half, due to increased generic competition. Sales of the
PROVENTIL line totaled $67 million for the quarter and $132
million for the six months, with metered-dose inhalers
contributing over 50 percent. The PROVENTIL line has been
subject to generic competition, and in December 1995 generic
metered-dose inhalers entered the market. In response, the
Company's generic pharmaceutical marketing subsidiary, Warrick
Pharmaceuticals, launched its generic inhaler in December 1995.
In December 1996, the Company began marketing PROVENTIL HFA, a
new metered-dose inhaler that uses an advanced delivery system
and a propellant free of ozone-damaging chlorofluorocarbons.
Competition from generic metered-dose inhalers will, however,
continue to negatively affect future sales and profitability of
the PROVENTIL (albuterol) line of asthma products.
U.S. sales of cardiovascular products rose 18 percent in the
quarter and 17 percent for the six months, reflecting market
share gains for IMDUR, a once-daily oral nitrate for angina.
Domestic sales of anti-infective and anticancer products rose 37
percent in the quarter and 14 percent for the six-month period,
primarily due to increased utilization of INTRON A, the Company's
alpha interferon anticancer and antiviral agent for malignant
melanoma and hepatitis C. Both periods, however, were negatively
affected by lower sales of EULEXIN, a prostate cancer treatment,
due to branded competition.
U.S. sales of dermatological products increased 14 percent for
the quarter and 6 percent for the six months, primarily due to
higher sales of LOTRISONE, an antifungal/anti-inflammatory cream,
and ELOCON, a mid-potency topical corticosteroid.
International ethical pharmaceutical product sales increased 5
percent for the second quarter and 6 percent for the six-month
period. Excluding the impact of foreign currency exchange rate
fluctuations, sales would have risen 12 percent in both periods.
Sales of allergy/respiratory products advanced 16 percent for the
quarter and 19 percent for the first half, led by CLARITIN in
most world markets.
International dermatological product sales advanced 9 percent in
the quarter and 7 percent for the six-month period, primarily
reflecting gains for ELOCON. Cardiovascular product sales grew
15 percent for the second quarter and 9 percent for the six
months, led by higher sales of NITRO-DUR.
International sales of anti-infective and anticancer products
declined 2 percent in the second quarter but rose 4 percent for
the six months. Both periods were negatively impacted by lower
EULEXIN sales due to generic and branded competition in Europe.
While sales of INTRON A were flat in the quarter, growth was
recorded for the six-month period. International sales, in both
periods, also benefited from higher sales of LOSEC, an anti-ulcer
treatment licensed from AB Astra.
Worldwide sales of animal health products rose 5 percent in the
quarter and 18 percent in the first half, excluding foreign
exchange rate fluctuations. The six-month period benefited from
higher sales of NUFLOR, a broad-spectrum, multi-species
antibiotic. On June 30, 1997, the Company completed the
acquisition of the worldwide animal health business of
Mallinckrodt, Inc. The results of operations from this
acquisition will be included in the Company's statement of
consolidated income beginning in the third quarter of 1997.
Sales of health care products increased 6 percent in both the
second quarter and first half of 1997. Strong foot care sales,
which benefited from the addition of DYNA STEP inserts to the DR.
SCHOLL'S foot care line, added to both periods. Sun care sales
were flat in the quarter, but grew 4 percent in the six months.
Sales of over-the-counter products increased 3 percent in the
second quarter, while down 3 percent for the six-month period.
Income before income taxes increased 18 percent for the quarter
compared with 1996, and represented 28.7 percent of sales versus
28.4 percent last year. For the six months, income before taxes
grew 16 percent over 1996, representing 30.1 percent of sales
compared with 29.8 percent of last year.
Cost of sales as a percentage of sales decreased to 19.2 percent
in the quarter from 19.4 percent in 1996, and for the first half,
the ratio declined to 18.8 percent from 19.2 percent in 1996.
These declines are the result of a more favorable sales mix of
higher margin domestic pharmaceutical products.
Selling, general and administrative expenses represented 39.5
percent of sales in the second quarter compared with 39.2 percent
last year. For the six-month period, the ratio was 38.7 percent
versus 37.8 percent in 1996. The increases in the ratios reflect
higher selling and promotional related spending, primarily for
the CLARITIN brand and INTRON A.
Research and development spending rose 17 percent in the quarter,
representing 12.1 percent of sales compared with 12.0 percent a
year ago. For the first half, spending grew 14 percent, and
represented 11.8 percent of sales versus 11.9 percent in 1996.
The higher spending reflects the Company's funding of both
internal research efforts and research collaborations with
various partners to develop innovative products and line
extensions.
The effective tax rate was 24.5 percent in the three- and six-
month periods of both 1997 and 1996.
Earnings per common share advanced 19 percent in the second
quarter to $.51 from $.43 in 1996. For the six-month period,
earnings per share increased 16 percent to $1.02 from $.88 last
year. Excluding the impact of fluctuations in foreign currency
exchange rates, earnings per common share would have risen
approximately 19 percent in the quarter and 17 percent for the
six months. In February 1997, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards (SFAS)
No. 128, "Earnings Per Share". For additional information, see
"Earnings Per Common Share" in the Notes to Consolidated
Financial Statements.
Additional Factors Influencing Operations
In the United States, many of the Company's pharmaceutical
products are subject to increasingly competitive pricing as
managed care groups, institutions, government agencies and other
buying groups seek price discounts. In most international
markets, the Company operates in an environment of government-
mandated cost containment programs. Several governments have
placed restrictions on physician prescription levels and patient
reimbursements, emphasized greater use of generic drugs and
enacted across-the-board price cuts as methods of cost control.
Since the Company is unable to predict the final form and timing
of any future domestic and international governmental or other
health care initiatives, their effect on operations and cash
flows cannot be reasonably estimated.
The market for pharmaceutical products is competitive. The
Company's operations may be affected by technological advances of
competitors, patents granted to competitors, new products of
competitors, and generic competition as the Company's products
mature. In addition, patent positions can be highly uncertain
and an adverse result in a patent dispute can preclude
commercialization of products or negatively affect sales of
existing products. The effect on operations of competitive
factors and patent disputes cannot be predicted.
Uncertainties inherent in government regulatory approval
processes, including among other things delays in approval of new
products, may also affect the Company's operations. The effect
on operations of regulatory approval processes cannot be
predicted.
Liquidity and financial resources - six months ended June 30,
1997
Cash generated from operations continues to be the Company's
major source of funds to finance working capital, additions to
property, shareholder dividends and common share repurchases.
Cash and cash equivalents increased by $164.1 million in the
first six months of 1997, primarily due to cash provided by
operating activities of $719.6 million and the net increase in
short-term borrowings of $163.9 million which exceeded the
funding required for the acquisition of the animal health
business of Mallinckrodt Inc. of $314.5 million, shareholder
dividends of $259.7 million and capital expenditures of $126.7
million.
In September 1996, the Board of Directors authorized the
repurchase of $500 million of common shares. As of June 30, 1997
this program was approximately 74 percent complete.
In April 1997, the Board of Directors authorized a 2-for-1 stock
split of the Company's common shares. The distribution of the
split shares was made on June 3, 1997, to the shareholders of
record at the close of business on May 2, 1997. The per share
amounts included in these consolidated financial statements
reflect the stock split.
The Company's liquidity and financial resources continue to be
sufficient to meet its operating needs.
Cautionary Statements for Forward Looking Information
Management's discussion and analysis set forth above contains
certain forward looking statements, including statements
regarding the Company's financial position and results of
operations. These forward looking statements are based on
current expectations. Certain factors have been identified by
the Company in Exhibit 99.1 of the Company's December 31, 1996,
Form 10-K filed with the Securities and Exchange Commission,
which could cause the Company's actual results to differ
materially from expected and historical results. Exhibit 99.1
from the Form 10-K is incorporated by reference herein
PART II OTHER INFORMATION
Item 1. Legal Proceedings
The fourth 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, 1996 (as updated in the Quarterly Report on
Form 10-Q for the quarterly period ended March 31, 1997),
relating to certain antitrust actions, is incorporated herein by
reference. In June 1997, the Seventh Circuit Court of Appeals
dismissed the appeal by certain class members from the approval
of the settlement by the District Court and a motion for
rehearing was filed.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits - The following Exhibits are filed with this
document:
Exhibit
Number Description
3 - Certificate of Amendment of Certificate of
Incorporation of the Company
4 - Rights Agreement between the Company and
The Bank of New York dated June 24, 1997.
Incorporated by reference to Exhibit 1 to the
Form 8-A filed by the Company on June 30,
1997, file no. 1-6571.
11 - Computation of Earnings Per Common Share
27 - Financial Data Schedule
99 - Company Statements Relating to Forward
Looking Information
b) Reports on Form 8-K:
A report on Form 8-K was filed on June 2, 1997 under Item 5
"Other Events" of Form 8-K relating to the acquisition of
the worldwide animal health business of Mallinckrodt Inc.
A report on Form 8-K was filed on July 14, 1997 under Item 5
"Other Events" of Form 8-K relating to the Company's
redemption, effective as of July 10, 1997, of all of the
outstanding rights (the "Existing Rights") to purchase
shares of Series A Junior Participating Preferred Stock, par
value $1.00 per share, issued pursuant to the Rights
Agreement, dated as of July 25, 1989, between the Company
and The Bank of New York, as Rights Agent, at a redemption
price of $.00125 per Existing Right, and, in conjunction
therewith, the declaration of a dividend of one preferred
share purchase right for each common share, par value $1.00
per share, of the Company outstanding at the close of
business on July 10, 1997 to the stockholders of record on
that date.
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 August 8, 1997 /s/Thomas H. Kelly
Thomas H. Kelly
Vice President and Controller
Exhibit 3
CERTIFICATE OF AMENDMENT
of
CERTIFICATE OF INCORPORATION
of
SCHERING-PLOUGH CORPORATION
(Pursuant to Title 14A:7-2(2) of the New Jersey Business
Corporation Act)
It is hereby certified that:
1. The name of the corporation is Schering-Plough Corporation
(hereinafter called the "Corporation"); and
2. The Certificate of Incorporation of the Corporation, as
amended (the "Certificate of Incorporation") is hereby amended so
that the designation and number of shares of the class and series
acted upon in the following resolutions, and the relative rights,
preferences and limitations of such class and series, are as
stated in such resolutions.
3. The following resolutions were duly adopted by the Board of
Directors of the Corporation as required by Subsection 14A: 7-
2(3) of the New Jersey Business Corporation Act at a meeting duly
called and held on June 24, 1997:
RESOLVED, that pursuant to the authority granted to and
vested in the Board of Directors of the Corporation in accordance
with the provisions of Article Fifth of its Certificate of
Incorporation, the Board of Directors hereby increases the number
of shares of the Corporation designated as Series A Junior
Participating Preferred Stock from 1,500,000 to 12,000,000
shares, and correspondingly decreases the number of preferred
shares whose designations have not yet been determined from
48,500,000 to 38,000,000 shares.
RESOLVED, that pursuant to the authority granted to and
vested in the Board of Directors of the Corporation in accordance
with the provisions of Article Fifth of its Certificate of
Incorporation, the Board of Directors hereby amends and restates
in their entirety the designation and number, and the relative
rights, preferences and limitation of the Series A Junior
Participating Preferred Stock of the Corporation, no shares of
which have been issued, as follows:
Series A Junior Participating Preferred Stock:
Section 1. Designation and Amount. The shares of such
series shall be designated as "Series A Junior Participating
Preferred Stock" (the "Series A Preferred Stock") and the number
of shares constituting the Series A Preferred Stock shall be
12,000,000. Such number of shares may be increased or decreased
by resolution of the Board of Directors; provided, that no
decrease shall reduce the number of shares of Series A Preferred
Stock to a number less than the number of shares then outstanding
plus the number of shares reserved for issuance upon the exercise
of outstanding options, rights or warrants or upon the conversion
of any outstanding securities issued by the Corporation
convertible into Series A Preferred Stock.
Section 2. Dividends and Distributions.
A. Subject to the rights of the holders of any shares
of any series of Preferred Stock (or any similar stock) ranking
prior and superior to the Series A Preferred Stock with respect
to dividends, the holders of shares of Series A Preferred Stock,
in preference to the holders of Common Stock, par value $1 per
share (the "Common Stock"), of the Corporation, and of any other
junior stock, shall be entitled to receive, when, as and if
declared by the Board of Directors out of funds legally available
for the purpose, quarterly dividends payable in cash on the first
day of March, June, September and December in each year (each
such date being referred to herein as a "Quarterly Dividend
Payment Date"), commencing on the first Quarterly Dividend
Payment Date after the first issuance of a share or fraction of a
share of Series A Preferred Stock, in an amount per share
(rounded to the nearest cent) equal to the greater of (a) $1 or
(b) subject to the provision for adjustment hereinafter set
forth, 100 times the aggregate per share amount of all cash
dividends, and 100 times the aggregate per share amount (payable
in kind) of all non-cash dividends or other distributions, other
than a dividend payable in shares of Common Stock or a
subdivision of the outstanding shares of Common Stock (by
reclassification or otherwise), declared on the Common Stock
since the immediately preceding Quarterly Dividend Payment Date
or, with respect to the first Quarterly Dividend Payment Date,
since the first issuance of any share or fraction of a share of
Series A Preferred Stock. In the event the Corporation shall at
any time declare or pay any dividend on the Common Stock payable
in shares of Common Stock, or effect a subdivision or combination
or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in
shares of Common Stock) into a greater or lesser number of shares
of Common Stock, then in each such case the amount to which
holders of shares of Series A Preferred Stock were entitled
immediately prior to such event under clause (b) of the preceding
sentence shall be adjusted by multiplying such amount by a
fraction, the numerator of which is the number of shares of
Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that
were outstanding immediately prior to such event.
B. The Corporation shall declare a dividend or
distribution on the Series A Preferred Stock as provided in
paragraph (A) of this Section immediately after it declares a
dividend or distribution on the Common Stock (other than a
dividend payable in shares of Common Stock); provided that, in
the event no dividend or distribution shall have been declared on
the Common Stock during the period between any Quarterly Dividend
Payment Date and the next subsequent Quarterly Dividend Payment
Date, a dividend of $1 per share on the Series A Preferred Stock
shall nevertheless be payable on such subsequent Quarterly
Dividend Payment Date.
C. Dividends shall begin to accrue and be cumulative
on outstanding shares of Series A Preferred Stock from the
Quarterly Dividend Payment Date next preceding the date of issue
of such shares, unless the date of issue of such shares is prior
to the record date for the first Quarterly Dividend Payment Date,
in which case dividends on such shares shall begin to accrue from
the date of issue of such shares, or unless the date of issue is
a Quarterly Dividend Payment Date or is a date after the record
date for the determination of holders of shares of Series A
Preferred Stock entitled to receive a quarterly dividend and
before such Quarterly Dividend Payment Date, in either of which
events such dividends shall begin to accrue and be cumulative
from such Quarterly Dividend Payment Date. Accrued but unpaid
dividends shall not bear interest. Dividends paid on the shares
of Series A Preferred Stock in an amount less than the total
amount of such dividends at the time accrued and payable on such
shares shall be allocated pro rata on a share-by-share basis
among all such shares at the time outstanding. The Board of
Directors may fix a record date for the determination of holders
of shares of Series A Preferred Stock entitled to receive payment
of a dividend or distribution declared thereon, which record date
shall be not more than 60 days prior to the date fixed for the
payment thereof.
Section 3. Voting Rights. The holders of shares of Series
A Preferred Stock shall have the following voting rights:
A. Subject to the provision for adjustment hereinafter
set forth, each share of Series A Preferred Stock shall entitle
the holder thereof to 100 votes on all matters submitted to a
vote of the stockholders of the Corporation. In the event the
Corporation shall at any time declare or pay any dividend on the
Common Stock payable in shares of Common Stock, or effect a
subdivision or combination or consolidation of the outstanding
shares of Common Stock (by reclassification or otherwise than by
payment of a dividend in shares of Common Stock) into a greater
or lesser number of shares of Common Stock, then in each such
case the number of votes per share to which holders of shares of
Series A Preferred Stock were entitled immediately prior to such
event shall be adjusted by multiplying such number by a fraction,
the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of
which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
B. Except as otherwise provided herein, in any other
Certificate of Amendment creating a series of Preferred Stock or
any similar stock, or by law, the holders of shares of Series A
Preferred Stock and the holders of shares of Common Stock and any
other capital stock of the Corporation having general voting
rights shall vote together as one class on all matters submitted
to a vote of stockholders of the Corporation.
C. Except as set forth herein, or as otherwise
provided by law or the Certificate of Incorporation, holders of
Series A Preferred Stock shall have no special voting rights and
their consent shall not be required (except to the extent they
are entitled to vote with holders of Common Stock as set forth
herein) for taking any corporate action.
Section 4. Certain Restrictions.
A. Whenever quarterly dividends or other dividends or
distributions payable on the Series A Preferred Stock as provided
in Section II are in arrears, thereafter and until all accrued
and unpaid dividends and distributions, whether or not declared,
on shares of Series A Preferred Stock outstanding shall have been
paid in full, the Corporation shall not:
1. declare or pay dividends, or make any other
distributions, on any shares of stock ranking junior (either as
to dividends or upon liquidation, dissolution or winding up) to
the Series A Preferred Stock;
2. declare or pay dividends, or make any other
distributions, on any shares of stock ranking on a parity (either
as to dividends or upon liquidation, dissolution or winding up)
with the Series A Preferred Stock, except dividends paid ratably
on the Series A Preferred Stock and all such parity stock on
which dividends are payable or in arrears in proportion to the
total amounts to which the holders of all such shares are then
entitled;
3. redeem or purchase or otherwise acquire for
consideration shares of any stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the
Series A Preferred Stock, provided that the Corporation may at
any time redeem, purchase or otherwise acquire shares of any such
junior stock in exchange for shares of any stock of the
Corporation ranking junior (either as to dividends or upon
dissolution, liquidation or winding up) to the Series A Preferred
Stock; or
4. redeem or purchase or otherwise acquire for
consideration any shares of Series A Preferred Stock, or any
shares of stock ranking on a parity with the Series A Preferred
Stock, except in accordance with a purchase offer made in writing
or by publication (as determined by the Board of Directors) to
all holders of such shares upon such terms as the Board of
Directors, after consideration of the respective annual dividend
rates and other relative rights and preferences of the respective
series and classes, shall determine in good faith will result in
fair and equitable treatment among the respective series or
classes.
B. The Corporation shall not permit any subsidiary of
the Corporation to purchase or otherwise acquire for
consideration any shares of stock of the Corporation unless the
Corporation could, under paragraph (A) of this Section IV,
purchase or otherwise acquire such shares at such time and in
such manner.
Section 5. Reacquired Shares. Any shares of Series A
Preferred Stock purchased or otherwise acquired by the
Corporation in any manner whatsoever shall be retired and
cancelled promptly after the acquisition thereof. All such
shares shall upon their cancellation become authorized but
unissued shares of Preferred Stock and may be reissued as part of
a new series of Preferred Stock subject to the conditions and
restrictions on issuance set forth herein, in the Certificate of
Incorporation, or in any other Certificate of Amendment creating
a series of Preferred Stock or any similar stock or as otherwise
required by law.
Section 6. Liquidation, Dissolution or Winding Up. Upon
any liquidation, dissolution or winding up of the Corporation, no
distribution shall be made (1) to the holders of shares of stock
ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series A Preferred Stock
unless, prior thereto, the holders of shares of Series A
Preferred Stock shall have received $100 per share, plus an
amount equal to accrued and unpaid dividends and distributions
thereon, whether or not declared, to the date of such payment,
provided that the holders of shares of Series A Preferred Stock
shall be entitled to receive an aggregate amount per share,
subject to the provision for adjustment hereinafter set forth,
equal to 100 times the aggregate amount to be distributed per
share to holders of shares of Common Stock, or (2) to the holders
of shares of stock ranking on a parity (either as to dividends or
upon liquidation, dissolution or winding up) with the Series A
Preferred Stock, except distributions made ratably on the Series
A Preferred Stock and all such parity stock in proportion to the
total amounts to which the holders of all such shares are
entitled upon such liquidation, dissolution or winding up. In
the event the Corporation shall at any time declare or pay any
dividend on the Common Stock payable in shares of Common Stock,
or effect a subdivision or combination or consolidation of the
outstanding shares of Common Stock (by reclassification or
otherwise than by payment of a dividend in shares of Common
Stock) into a greater or lesser number of shares of Common Stock,
then in each such case the aggregate amount to which holders of
shares of Series A Preferred Stock were entitled immediately
prior to such event under the proviso in clause (1) of the
preceding sentence shall be adjusted by multiplying such amount
by a fraction the numerator of which is the number of shares of
Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that
were outstanding immediately prior to such event.
Section 7. Consolidation, Merger, etc. In case the
Corporation shall enter into any consolidation, merger,
combination or other transaction in which the shares of Common
Stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case
each share of Series A Preferred Stock shall at the same time be
similarly exchanged or changed into an amount per share, subject
to the provision for adjustment hereinafter set forth, equal to
100 times the aggregate amount of stock, securities, cash and/or
any other property (payable in kind), as the case may be, into
which or for which each share of Common Stock is changed or
exchanged. In the event the Corporation shall at any time
declare or pay any dividend on the Common Stock payable in shares
of Common Stock, or effect a subdivision or combination or
consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in
shares of Common Stock) into a greater or lesser number of shares
of Common Stock, then in each such case the amount set forth in
the preceding sentence with respect to the exchange or change of
shares of Series A Preferred Stock shall be adjusted by
multiplying such amount by a fraction, the numerator of which is
the number of shares of Common Stock outstanding immediately
after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to
such event.
Section 8. No Redemption. The shares of Series A Preferred
Stock shall not be redeemable.
Section 9. Rank. The Series A Preferred Stock shall rank,
with respect to the payment of dividends and the distribution of
assets, junior to all series of any other class of the
Corporation's Preferred Stock.
Section 10. Amendment. The Certificate of Incorporation of
the Corporation shall not be amended in any manner which would
materially alter or change the powers, preferences or special
rights of the Series A Preferred Stock so as to affect them
adversely without the affirmative vote of the holders of at least
two-thirds of the outstanding shares of Series A Preferred Stock,
voting together as a single class.
IN WITNESS WHEREOF, this Certificate of Amendment is
executed on behalf of the Corporation by its Vice President and
attested by its Secretary this eighth day of July 1997.
/s/E. Kevin Moore
-----------------
E. Kevin Moore
Vice President
Attest:
/s/William J. Silbey
______________________________
William J. Silbey
Secretary
Exhibit 11
<TABLE>
SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
(Amounts in millions, except per share figures)
<CAPTION>
Six Months Ended
June 30,
1997 1996
<S> <C> <C>
Earnings per Common Share, As Reported:
Net income applicable to common shares. $ 748.4 643.7
Average Number of Common Shares
Outstanding . . . . . . . . . . . . . . 731.7 734.6
Earnings per Common Share . . . . . . . $ 1.02 $ .88
Earnings per Common Share, Assuming
Full Dilution: (a)
Average Number of Common Shares
Outstanding . . . . . . . . . . . . . . 731.7 734.6
Shares Contingently Issuable for
Stock Incentive Plans and Warrant
Agreements. . . . . . . . . . . . . . . 7.3 9.4
Average Number of Common Shares and
Common Share Equivalents Outstanding. . 739.0 744.0
Earnings per Common Share, Assuming
Full Dilution . . . . . . . . . . . . $ 1.01 $ .87
(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>
<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 six months ended June 30, 1997 and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 699200
<SECURITIES> 0
<RECEIVABLES> 834600
<ALLOWANCES> 0
<INVENTORY> 729000
<CURRENT-ASSETS> 3104000
<PP&E> 3570200
<DEPRECIATION> 1158700
<TOTAL-ASSETS> 6536500
<CURRENT-LIABILITIES> 3173500
<BONDS> 64700
0
0
<COMMON> 1014800
<OTHER-SE> 1537000
<TOTAL-LIABILITY-AND-EQUITY> 6536500
<SALES> 3287900
<TOTAL-REVENUES> 3287900
<CGS> 619200
<TOTAL-COSTS> 619200
<OTHER-EXPENSES> 387900
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 991200
<INCOME-TAX> 242800
<INCOME-CONTINUING> 748400
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 748400
<EPS-PRIMARY> 1.02<F1>
<EPS-DILUTED> 1.01
<FN>
<F1>On April 22, 1997, the Board of Directors of the Company authorized a
2-for-1stock split. Distribution of the split shares was made on June 3, 1997
to shareholders of record at the close of business on May 2, 1997. Prior
financial data schedules have not been restated for this recapitalization.
</FN>
</TABLE>
Exhibit 99
Company Statements Relating
To Forward Looking Information
(Filed Pursuant to Rule 175)
1. Statement from press release issued by the Company on May 21, 1997:
Mr. Richard Jay Kogan, President and Chief Executive Officer, commenting on the
Company's earnings per share for 1997, stated that based on the Company's
business results to date, the Company projects that the percentage increase
in 1997 earnings per share versus 1996 should be in the "mid-teens," assuming
no major unforeseen changes in the marketplace.
