Exhibit 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS AND FINANCIAL CONDITION
NET SALES
Consolidated net sales in 2000 totaled $9.8 billion, an increase of 8 percent over 1999, due to volume growth of 8 percent and price increases of 2 percent, tempered by unfavorable foreign exchange of 2 percent. Net sales in the United Statesincreased 9 percent versus 1999 and advanced 6 percent internationally. Foreign exchange negatively impacted the international sales growth by 7 percent.
Consolidated 1999 net sales of $9.1 billion advanced 14 percent over 1998, reflecting volume growth of 13 percent. Price increases and foreign exchange both had a less than 1 percent impact on the sales increase.
Net sales by major therapeutic category for the years ended 2000, 1999 and 1998 were as follows:
| | | % Increase (Decrease) |
(Dollars in millions) | 2000 | 1999 | 1998 | 2000/1999 | 1999/1998 |
Allergy & Respiratory | $4,189 | $3,850 | $3,375 | 9% | 14% |
Anti-infective & Anticancer | 2,015 | 1,738 | 1,263 | 16 | 38 |
Cardiovasculars | 746 | 673 | 750 | 11 | (10) |
Dermatologicals | 680 | 682 | 619 | 0 | 10 |
Other Pharmaceuticals | 716 | 775 | 677 | (8) | 15 |
Animal Health | 720 | 672 | 642 | 7 | 5 |
Foot Care | 348 | 332 | 323 | 5 | 3 |
Over-the-Counter (OTC) | 202 | 209 | 207 | (4) | 1 |
Sun Care | 199 | 185 | 171 | 8 | 8 |
Consolidated net sales | $9,815 | $9,116 | $8,027 | 8% | 14% |
Certain amounts in 1999 and 1998 have been reclassified from selling, general and administrative expense to net sales to comply with Emerging Issues Task Force (EITF) Issue No. 00-14, "Accounting for Certain Sales Incentives."
Worldwide net sales of allergy and respiratory products increased 9 percent in 2000 and 14 percent in 1999, led by continued growth for the CLARITIN line of nonsedating antihistamines. Worldwide net sales of the CLARITIN brand totaled $3.0 billion in 2000, $2.7 billion in 1999 and $2.3 billion in 1998. The increase in the CLARITIN brand in 2000 was due primarily to continued expansion in the U.S. antihistamine market, tempered by market share declines. Franchise sales of nasal-inhaled steroid products, which include NASONEX, a once-daily corticosteroid for seasonal allergic rhinitis, and VANCENASE allergy products, increased 24 percent in 2000 and 17 percent in 1999. The growth in both periods was due to overall nasal-inhaled steroid market expansion in the United States and the launch of NASONEX inmost major international markets. Sales of VANCERIL, an orally inhaledsteroid for asthma, declined $52 million in 2000 and $14 million in 1999 due primarily to manufacturing issues. U.S. sales of the PROVENTIL (albuterol) line of asthma products declined $54 million in 2000 due to manufacturing issues and continued generic competition.
Net sales of worldwide anti-infective and anticancer products rose 16 percent compared with 1999. Growth was led by combined worldwide sales of INTRON A and REBETRON Combination Therapy,containing REBETOL Capsules and INTRON A Injection, which totaled $1.4 billion, up 21 percent from 1999.These gains were attributable to increased utilization in the treatment of chronic hepatitis C, including the launch of REBETOL, for combination use, in most major European markets. The U.S. and international launches of TEMODAR, a chemotherapy agent for treating certain types of brain tumors, and the international launch of REMICADE, marketed for Crohn's disease and rheumatoid arthritis, also contributed to the increase in this therapeutic category's sales in 2000. These sales increases were moderated by lower sales of EULEXIN, a prostate cancer therapy, due to generic and branded competition. In 1999, worldwide net sales of anti-infective and anticancer products increased 38 percent, led by worldwide sales ofINTRON A and REBETRON Combination Therapy and the U.S. and international launches of TEMODAR. This increase was moderated by lower sales of EULEXIN due to generic and branded competition.
Worldwide net sales of cardiovascular products increased 11 percent in 2000, led by higher U.S. sales of INTEGRILIN, a platelet receptor glycoprotein IIb/IIIa inhibitor for the treatment of patients with acute coronary syndromes. Sales of K-Dur, a sustained-release potassium chloride supplement, also contributed to the increase in this therapeutic category's sales in 2000. Partially offsetting this growth was a decline in sales of IMDUR, an oral nitrate for angina, due to generic competition in the United States. In 1999, worldwide net sales of cardiovascular products decreased 10 percent, due to generic competition against IMDUR and NORMODYNE, an alpha-beta blocker for hypertension, tempered by higher sales of INTEGRILIN and K-DUR.
Dermatological products' worldwide net sales were unchanged in 2000 versus the prior year and increased 10 percent in 1999 versus 1998. Growth in 1999 was due to higher sales of LOTRISONE, an antifungal/anti-inflammatory cream, and ELOCON, a medium-potency topical steroid.
Other pharmaceuticals consist of products that do not fit into the Company's major therapeutic categories.
Worldwide sales of animal health products increased 7 percent in 2000. Sales growth was primarily due to the June 2000 acquisition of the animal health business of Takeda Chemical Industries, Ltd. in Japan. Sales of animal health products in 1999 increased 5 percent over 1998, driven by NUFLOR, a broad-spectrum, multi-species antibiotic, and BANAMINE, a non-steroidal anti-inflammatory agent.
Foot care product sales rose 5percent in 2000 and 3 percent in 1999, led by increasesin the DR. SCHOLL'S insoles product line resulting from new productintroductions and line extensions.
Over-the-counter (OTC) product sales decreased 4 percent in 2000 due to the 1999 sale of the PAAS product line.OTC product sales increased 1 percent in 1999 due to a strong spring cough/cold season.
Sun care sales were up 8 percent in 2000 benefiting from the 1999 acquisition of the BAIN DE SOLEIL product line. In 1999, sales grew 8percent, primarily due to market growth.
SUMMARY OF COSTS AND EXPENSES:
| | | % Increase |
(Dollars in millions) | 2000 | 1999 | 1998 | 2000/1999 | 1999/1998 |
Cost of sales | $1,902 | $1,800 | $1,601 | 6% | 12% |
| % of net sales | 19.4% | 19.7% | 19.9% | | |
Selling, general and administrative | $3,485 | $3,374 | $3,091 | 3% | 9% |
| % of net sales | 35.5% | 37.0% | 38.5% | | |
Research and development | $1,333 | $1,191 | $1,007 | 12% | 18% |
| % of net sales | 13.6% | 13.1% | 12.5% | | |
Certain amounts in 1999 and 1998 have been reclassified from selling, general and administrative expense to net sales to comply with Emerging Issues Task Force (EITF) Issue No. 00-14, "Accounting for Certain Sales Incentives."
Cost of sales as a percentage of net sales in 2000 decreased versus 1999, due to favorable sales mix and foreign exchange impacts. The slight decrease in the 1999 cost of sales as a percentage of net sales versus 1998 reflects favorable sales mix.
Selling, general and administrative expenses in 2000 and 1999 decreased as a percentage of sales. In both years, sales growth outpaced investments in field force expansions, promotional and selling-related spending.
Research and development expenses grew 12 percent to $1.3 billion and represented 13.6 percent of sales in 2000. In 1999, research and development expenses increased 18 percent over 1998 and represented 13.1 percent of sales. The higher spending in both years reflects the Company's funding of both internal research efforts and research collaborations with various partners to discover and develop a steady flow of innovative products.
INCOME BEFORE INCOME TAXES
Income before income taxes totaled $3.2 billion in 2000, an increase of 14 percent over 1999. In 1999, income before income taxes was $2.8 billion, up 20 percent over $2.3 billion in 1998.
INCOME TAXES
The Company's effective tax rate was 24.0 percent for 2000 and 24.5 percent for the years 1999 and 1998. The decrease in 2000 was primarily due to increased sales of products manufactured in jurisdictions with lower tax rates. The effective tax rate for each period was lower than the U.S. statutory income tax rate, principally due to tax incentives in certain jurisdictions where manufacturing facilities are located. For additional information, see "Income Taxes" in the Notes to Consolidated Financial Statements.
NET INCOME
Net income in 2000 increased 15 percent to $2.4 billion. Net income in 1999 increased 20 percent over 1998.
EARNINGS PER COMMON SHARE
Diluted earnings per common share rose 15 percent in 2000 to $1.64 and 20 percent in 1999 to $1.42. The strengthening of the U.S. dollar against most foreign currencies decreased growth in earnings per common share in 2000. Excluding the impact of exchange rate fluctuations, diluted earnings per common share increased 16 percent in 2000. Foreign currency exchangehad no impact on 1999 diluted earnings per common share. Basic earnings per common share increased 15 percent in 2000 to $1.65 and 20 percent in 1999 to $1.44.
Under existing sharerepurchaseprograms authorized by the Board of Directors, approximately 33 million common shares were repurchased during 2000, 1999 and 1998. A $1 billion program was authorized in September 1997 and commenced in January 1998. This program was completed in March 2000 with approximately 22.4million shares acquired. A $1.5 billion program was authorized in February 2000 and commenced in April 2000. At December 31, 2000, 10.7 million shares had been acquired under the 2000 authorization and the program was approximately 33 percent complete.
EURO
On January 1, 1999, certain member countries of the European Union established a new common currency, the euro. Also on January 1, 1999, the participating countries fixed the rate of exchange between their existing legacy currencies and the euro. The new euro currency will eventually replace the legacy currencies currently in use in each of the participating countries.
Companies operating within the participating countries may, at their discretion, choose to operate in either legacy currencies or the euro until January 1, 2002. The Company expects the majority of its affected subsidiaries to continue to operate in their respective legacy currencies during 2001. However, selected subsidiaries will adopt the euro as their operating currency during 2001, with the remaining affected subsidiaries adopting the euro no later than January 1, 2002. During this transition period, the Company will be able to accommodate transactions for customers and suppliers in either legacy currencies or euros.
The Company believes that the creation of the euro will not significantly change its market risk with respect to foreign exchange. Having a common European currency may result in certain changes to competitive practices, product pricing and marketing strategies. Although unable to quantify these effects, if any, management at this time does not believe the creation of the euro will have a material effect on the Company.
ENVIRONMENTAL MATTERS
The Company has responsibilities for environmental cleanup under various state, local and federal laws, including the Comprehensive Environmental Response, Compensation and Liability Act, commonly known as Superfund. Environmental expenditures have not had and, based on information currently available, are not anticipated to have a material impact on the Company. For additional information, see "Legal and Environmental Matters" 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 tocontrol costs.
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. Similarly, the effect on operations and cash flows of decisions of government entities, managed care groups and other buying groups concerning formularies, pharmaceutical reimbursement policies and availability of the Company's pharmaceutical products cannot be reasonably estimated.
A significant portion of net sales are made to major pharmaceutical and health care products distributors and major retail chains in the United States. Consequently, net sales and quarterly growth comparisons may be affected by fluctuations in the buying patterns of major distributors, retail chains and other trade buyers. These fluctuations may result from seasonality, pricing, wholesaler buying decisions or other factors.
The market for pharmaceutical products is competitive. The Company's operations may be affected by technological advances of competitors, industry consolidation, patents granted to competitors, new products of competitors and generic competition as the Company's products mature. In addition, patent positions are increasingly being challenged by competitors, and the outcome can be highly uncertain. 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, formulations or indications, may also affect the Company's operations. The effect on operations of regulatory approval processes cannot be predicted.
The Company is subject to the jurisdiction of various national, state and local regulatory agencies and is, therefore, subject to potential administrative actions. Of particular importance is the Food and Drug Administration (FDA) in the United States. It has jurisdiction over all the Company's businesses and administers requirements covering the testing, safety, effectiveness, approval, manufacturing, labeling and marketing of the Company's products. From time to time, agencies, including the FDA, may require the Company to address various manufacturing, advertising, labeling or other regulatory issues. Failure to comply with governmental regulations can result in delays in the release of products, seizure or recall of products, suspension or revocation of the authority necessary for the production and sale of products, fines and other civil or criminal sanctions.
From time to time, the Company has received Warning Letters from the FDA pertaining to various manufacturing issues. Among these, the Company has received a Warning Letter from the FDA relating specifically to manufacturing issues identified during FDA inspections of the Company's aerosol products (PROVENTIL, including other albuterol products, andVANCERIL) manufacturing facilities in New Jersey. The Company is implementing remedial actions at these facilities. The Company has met with the FDA on several occasions to apprise the agency of the scope and status of these activities. The Company cannot predict whether its remedial actions will resolve the FDA's concerns, whether the FDA willtake any further action, or the effect of this matter on the Company's operations.
In February 2001, the Company reported that manufacturing process and control issues have led to reduced sales of certain products in the U.S. marketplace, with the result that first quarter and full-year 2001 sales and earnings will be lower than expected. The extent of this impact will depend upon the timing and nature of a resolution of the manufacturing issues. The Company said that the FDA has been conducting inspections of the Company's manufacturing facilities in New Jersey and Puerto Rico, and has issued reports citing deficiencies concerning compliance with current Good Manufacturing Practices (GMPs), primarily relating to production processes, controls and procedures. The FDA has advised the Company that GMP deficiencies cited in facility inspection reports must be resolved prior to granting approval of the Company's pending New Drug Application (NDA) for CLARINEX (desloratadine) Tablets. Among the issues affecting the Company's ability to manufacture and ship certain pharmaceutical products has been the temporary interruption of some production lines to install system upgrades and further enhance compliance, and other technical production and equipment qualification issues. As part of its effort to improve manufacturing and quality-control functions, the Company has committed to spend more than $50 million in new equipment, process and system improvements. In addition, the Company has increased the number of personnel dedicated to quality control and compliance. While the Company has taken extensive measures intended to enhance its manufacturing processes and controls, the Company notes that the FDA's inspection reports and its own internal reviews indicate that improvements are required.
Under certain circumstances, the Company may deem it advisable to initiate product recalls. In 1999, the Company voluntarily chose to initiate several recalls, including a recall of certain shipments of PROVENTIL, including other albuterol products, and VANCERIL manufactured at its New Jersey facilities. In the first quarter of 2000, the Company voluntarily expanded the recall to include shipments manufactured prior to September 30, 1999. The cost of the recall did not have a significant impact on the financial results of the Company.
LIQUIDITY AND FINANCIAL RESOURCES
Net income generated from operations continues to be the Company's major source of funds to finance working capital, capital expenditures, shareholder dividends and common share repurchases.
Cash provided by operating activities totaled $2,511 million in 2000, $2,020 million in 1999 and $2,138 million in 1998. Year-to-year changes in cash provided by operating activities result from the timing of receipts and disbursements as well as from an overall net investment in working capital necessitated by the growth in the business.
Capital expenditures amounted to $763 million in 2000, $543 million in 1999 and $389 million in 1998. It is expected that capital expenditures will exceed $750 million in 2001. Commitments for future capital expenditures totaled $223 million at December 31, 2000.
Cash flow related to financing activities included equity proceeds as well as proceeds from short-term borrowings. Common shares repurchased in 2000 totaled 19.8 million shares at a cost of $855 million. In 1999, 9.9 million shares were repurchased for $504 million and, in 1998, 3.4 million shares were repurchased at a cost of $141 million. Dividend payments of $802 million were made in 2000, compared with $716 million in 1999 and $627 million in 1998. Dividends per common share were $0.545 in 2000, up from $0.485 in 1999 and $0.425 in 1998.
Cash and cash equivalents totaled $2,397 million, $1,876 million and $1,259 million at December 31, 2000, 1999 and 1998, respectively. Short-term borrowings and current portion of long-term debt totaled $994 million at year-end 2000, $728 million in 1999 and $558 million in 1998.
The Company's ratio of debt to total capital was 15 percent in 2000 and 12 percent in 1999. The Company's liquidity and financial resources continued to be sufficient to meet its operating needs. As of December 31, 2000, the Company had $1.3 billion in unused lines of credit, which includes $1.0 billion available under a multi-currency unsecured revolving credit facility expiring in 2001. The Company had A-1+ and P-1 ratings for its commercial paper, and AA and Aa2 general bond ratings from Standard & Poor's and Moody's, respectively, as of December 31, 2000. After the Company announced the manufacturing issues discussed herein, Standard & Poor's and Moody's affirmed these ratings, but revised their rating outlook on the Company's long-term debt ratings from stable to negative.
MARKET RISK DISCLOSURES
The Company is exposed to market risk primarily from changes in foreign currency exchange rates and, to a lesser extent, from interest rates. The following describes the nature of the risks and demonstrates that, in general, such market risk is not material to the Company.
Foreign Currency Exchange Risk
The Company has subsidiaries in more than 40 countries worldwide. In 2000, sales outside the United States accounted for approximately 36 percent of worldwide sales. Virtually all these sales were denominated in currencies of the local country. As such, the Company's reported profits and cash flows are exposed to changing exchange rates. In 2000, changes inforeign exchange ratesreduced sales by 2 percent and reduced 2000 diluted earnings per common share by 1 percent.
To date, management has not deemed it cost-effective to engage in a formula-based program of hedging the profits and cash flows of foreign operations using derivative financial instruments. Because the Company's foreign subsidiaries purchase significant quantities of inventory payable in U.S. dollars, managing the level of inventory and related payables and the rate of inventory turnover provides a level of protection against adverse changes in exchange rates. In addition, the risk of adverse exchange rate change is mitigated by the fact that the Company's foreign operations are widespread.
In addition, at any point in time, the Company's foreign subsidiaries hold financial assets and liabilities that are denominated in currencies other than U.S. dollars. These financial assets and liabilities consist primarily of short-term, third-party and intercompany receivables and payables. Changes in exchange rates affect these financial assets and liabilities. For the most part, however, gains or losses arise from translation and, as such, do not significantly affect net income.
On occasion, the Company has used derivatives to hedge specific short-term risk situations involving foreign currency exposures. However, these derivative transactions have not been material.
Interest Rate and Equity Price Risk
The financial assets of the Company that are exposed to changes in interest rates and equity prices include debt and equity securities held in non-qualified trusts for employee benefits andequity securities acquired in connection with in-licensingarrangements. The trust investments totaled approximately $193 million at December 31, 2000. Due to the long-term nature of the liabilities that these trust assets fund, the Company's exposure to market risk is low. A moderate decline in market value of these investments would not necessitate any near-term funding of the trusts. In connection with certain research and development in-licensing arrangements, on occasion the Company acquires equity securities of the licensor company. These investments are generally accounted for as available for saleand, as such, carried at market value. The total market value of these investments at December 31, 2000, was $132 million. See "Unrealized gain (loss) on investments held available for sale, net" in the Statements of Consolidated Shareholders' Equity and "Equity Swap Contracts" in the "Financial Instruments" footnote in the Notes to Consolidated Financial Statements for additionalinformation. The other financial assets of the Company do not give rise to significant interest rate risk due to their short duration.
The financial obligations of the Company that are exposed to changes in interest rates are generally limited to short-term borrowings and a $200 million equity-type security issued in 1999. All other borrowings are not significant. Although the borrowings are, for the most part, floating rate obligations, the interest rate risk posed by these borrowings is low because the amount of this obligation is small in relation to annual cash flow. The Company believes it has the financial flexibility to pay off these borrowings quickly if interest rates were to increase significantly.
Interest Rate Swaps
In 1991 and 1992, the Company utilized interest rate swaps as part of its international cash management strategy. For additional information, see "Financial Instruments" in the Notes to Consolidated Financial Statements. These swaps subject the Company to a moderate degree of market risk. The Company accounts for these swaps using fair value accounting, with changes in the fair value recorded in earnings. The fair value of these swaps was a liability of $1 million at December 31, 2000. The fair value of these swaps at December 31, 1999, was an asset of $1 million. It is estimated that a 10 percent change in interest rate structure could change the fair value of the swaps by approximately $2 million.
During 1999, the Company purchased a $200 million variable rate, three-month time deposit. The Company intends to roll over this time deposit every three months until November 2003. To hedge the future variable interest receipts on this time deposit, the Company entered into an interest rate swap that matures inNovember 2003. Under this swap,the Company receives a fixed rate and pays a three-month variable rate. The fair value of this swap was a $15 million asset at December 31, 2000. The fair value of this swap at December 31, 1999 was a liability of $6 million. It is estimated that a 10 percent change in interest rate structure could change the fair value of the swap by approximately $3million.
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS (SFAS) NO. 133
Effective January 1, 2001, the Company has adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." Based on the Company's limited use of derivative financial instruments, the impact of adoption will not be material and its ongoing effects are not expected to be material.
CAUTIONARY FACTORS THAT MAY AFFECT FUTURE RESULTS
This annual report and other written reports and oral statements made from time to time by the Company may contain so-called "forward-looking statements," all of which are subject to risks and uncertainties. One can identify these forward-looking statements by the use of such words as "expects," "plans," "will," "estimates," "forecasts," "projects," "believes" and other words of similar meaning. One also can identify them by the fact that they do not relate strictly to historical or current facts. These statements are likely to address the Company's growth strategy, financial results, regulatory issues, status of product approvals, development programs, litigation and investigations. One must carefully consider any such statement and should understand that many factors could cause actualresults to differ from the Company's forward-looking statements. These factors include inaccurate assumptions and a broad variety of other risks and uncertainties, including some that are known and some that are not. No forward-looking statement can be guaranteed, and actual future results may vary materially.
The Company does not assume the obligation to update any forward-looking statement. One should carefully evaluate such statements in light of factors described in the Company's filings with the Securities and Exchange Commission, especially on Forms 10-K, 10-Q and 8-K (if any). In Item 1 of the Company's annual report on Form 10-K for the year ended December 31, 2000, the Company discusses in more detail various important factors that could cause actual results to differ from expected or historic results. The Company notes these factors for investors as permitted by thePrivate Securities Litigation Reform Act of 1995. One should understand that it is not possible to predict or identify all such factors. Consequently, the reader should not consider any such list to be a complete statement of all potential risks or uncertainties.
SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
| For the Years Ended December 31, |
(Amounts in millions, except per share figures) | 2000 | 1999 | 1998 |
| | | |
Net sales | $9,815 | $9,116 | $8,027 |
Costs and Expenses: | | | |
| Cost of sales | 1,902 | 1,800 | 1,601 |
| Selling, general and administrative | 3,485 | 3,374 | 3,091 |
| Research and development | 1,333 | 1,191 | 1,007 |
| Other (income) expense, net | (93) | (44) | 2 |
| Total costs and expenses | 6,627 | 6,321 | 5,701 |
Income before income taxes | 3,188 | 2,795 | 2,326 |
| Income taxes | 765 | 685 | 570 |
Net income | $2,423 | $2,110 | $1,756 |
Diluted earnings per common share | $1.64 | $1.42 | $1.18 |
Basic earnings per common share | $1.65 | $1.44 | $1.20 |
| | | |
See Notes to Consolidated Financial Statements. | | | |
SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
| For the Years Ended December 31, |
(Amounts in millions) | 2000 | 1999 | 1998 |
Operating Activities: | | | |
Net income | $2,423 | $2,110 | $1,756 |
Depreciation and amortization | 299 | 264 | 238 |
Accounts receivable | (418) | (352) | (67) |
Inventories | (17) | (150) | (102) |
Prepaid expenses and other assets | (30) | (76) | (116) |
Accounts payable and other liabilities | 254 | 224 | 429 |
Net cash provided by operating activities | 2,511 | 2,020 | 2,138 |
Investing Activities: | | | |
Capital expenditures | (763) | (543) | (389) |
Purchases of investments | (104) | (338) | (319) |
Reduction of investments | 60 | 215 | - |
Other, net | (41) | 3 | - |
Net cash used for investing activities | (848) | (663) | (708) |
Financing Activities: | | | |
Cash dividends paid to common shareholders | (802) | (716) | (627) |
Common shares repurchased | (855) | (504) | (141) |
Net change in short-term borrowings | 280 | 187 | (19) |
Issuance (repayment) of long-term debt | 106 | (2) | (42) |
Other, net | 133 | 297 | (55) |
Net cash used for financing activities | (1,138) | (738) | (884) |
Effect of exchange rates on cash and cash equivalents | (4) | (2) | (1) |
Net increase in cash and cash equivalents | 521 | 617 | 545 |
Cash and cash equivalents, beginning of year | 1,876 | 1,259 | 714 |
Cash and cash equivalents, end of year | $2,397 | $1,876 | $1,259 |
| | | |
See Notes to Consolidated Financial Statements. | | | |
SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
| At December 31, |
(Amounts in millions, except per share figures) | 2000 | 1999 |
ASSETS | | |
Current Assets: | | |
| Cash and cash equivalents | $2,397 | $1,876 |
| Accounts receivable, less allowances: 2000, $96; 1999, $92 | 1,413 | 1,022 |
| Inventories | 951 | 958 |
| Prepaid expenses, deferred income taxes and other current assets | 959 | 1,053 |
| Total current assets | 5,720 | 4,909 |
Property, at cost: | | |
| Land | 56 | 50 |
| Buildings and improvements | 2,072 | 1,922 |
| Equipment | 1,861 | 1,760 |
| Construction in progress | 938 | 654 |
| Total | 4,927 | 4,386 |
| Less accumulated depreciation | 1,565 | 1,447 |
| Property, net | 3,362 | 2,939 |
Intangible assets, net | 627 | 588 |
Other assets | 1,096 | 939 |
| $10,805 | $9,375 |
LIABILITIES AND SHAREHOLDERS' EQUITY | | |
Current Liabilities: | | |
| Accounts payable | $1,031 | $1,063 |
| Short-term borrowings and current portion of long-term debt | 994 | 728 |
| U.S., foreign and state income taxes | 589 | 502 |
| Accrued compensation | 312 | 301 |
| Other accrued liabilities | 719 | 615 |
| Total current liabilities | 3,645 | 3,209 |
Long-term Liabilities: | | |
| Deferred income taxes | 214 | 284 |
| Other long-term liabilities | 827 | 717 |
| Total long-term liabilities | 1,041 | 1,001 |
Shareholders' Equity: | | |
| Preferred shares - authorized shares: 50, $1 par value; issued: none | - | - |
| Common shares - authorized shares: 2,400, $.50 par value; issued: 2,030 | 1,015 | 1,015 |
| Paid-in capital | 974 | 675 |
| Retained earnings | 9,817 | 8,196 |
| Accumulated other comprehensive income | (318) | (233) |
| Total | 11,488 | 9,653 |
| Less treasury shares: 2000, 567; 1999, 558; at cost | 5,369 | 4,488 |
| Total shareholders' equity | 6,119 | 5,165 |
| $10,805 | $9,375 |
| | |
See Notes to Consolidated Financial Statements. | | |
SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY
| | | | | Accumulated | |
| | | | | Other | Total |
| | | | | Compre- | Share- |
| Common | Paid-in | Retained | Treasury | hensive | holders' |
(Amounts in millions) | Shares | Capital | Earnings | Shares | Income | Equity |
Balance December 31, 1997 | $ 1,015 | $ 96 | $ 5,673 | $(3,719) | $ (244) | $2,821 |
Comprehensive income: | | | | | | |
| Net income | | | 1,756 | | | 1,756 |
| Foreign currency translation, | | | | | | |
| net of tax | | | | | 5 | 5 |
| Unrealized gain on | | | | | | |
| investments held available | | | | | | |
| for sale, net | | | | | 1 | 1 |
| Total comprehensive income | | | | | | 1,762 |
Cash dividends on common shares | | | (627) | | | (627) |
Stock incentive plans | | 269 | | (82) | | 187 |
Common shares repurchased | | | | (141) | | (141) |
Balance December 31, 1998 | 1,015 | 365 | 6,802 | (3,942) | (238) | 4,002 |
Comprehensive income: | | | | | | |
| Net income | | | 2,110 | | | 2,110 |
| Foreign currency translation, | | | | | | |
| net of tax | | | | | (54) | (54) |
| Unrealized gain on | | | | | | |
| investments held available | | | | | | |
| for sale, net | | | | | 59 | 59 |
| Total comprehensive income | | | | | | 2,115 |
Cash dividends on common shares | | | (716) | | | (716) |
Stock incentive plans | | 310 | | (42) | | 268 |
Common shares repurchased | | | | (504) | | (504) |
Balance December 31, 1999 | 1,015 | 675 | 8,196 | (4,488) | (233) | 5,165 |
Comprehensive income: | | | | | | |
| Net income | | | 2,423 | | | 2,423 |
| Foreign currency translation, | | | | | | |
| net of tax | | | | | (75) | (75) |
| Unrealized (loss) on | | | | | | |
| investments held available | | | | | | |
| for sale, net | | | | | (10) | (10) |
| Total comprehensive income | | | | | | 2,338 |
Cash dividends on common shares | | | (802) | | | (802) |
Stock incentive plans | | 299 | | (26) | | 273 |
Common shares repurchased | | | | (855) | | (855) |
Balance December 31, 2000 | $1,015 | $974 | $9,817 | $(5,369) | $(318) | $6,119 |
| | | | | | |
See Notes to Consolidated Financial Statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share figures)
ACCOUNTING POLICIES
Principles of Consolidation - The consolidated financial statements include Schering-Plough Corporation and its subsidiaries (the "Company"). Intercompany balances and transactions are eliminated. Certain prior year amounts have been reclassified to conform to the current year presentation.
Use of Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and use assumptions that affect certain reported amounts and disclosures. Actual amounts may differ.
Cash and Cash Equivalents - Cash and cash equivalents include operating cash and highly liquid investments, generally with original maturities of three months or less.
Inventories - Inventories are valued at the lower of cost or market. Cost is determined by using the last-in, first-out method for a substantial portion of inventories located in the United States. The cost of all other inventories is determined by the first-in, first-out method.
Depreciation - Depreciation is provided over the estimated useful lives of the properties, generally by use of the straight-line method. Average useful lives are 50 years for buildings, 25 years for building improvements and 12 years for equipment. Depreciation expense was $235, $208 and $191 in 2000, 1999 and 1998, respectively.
Intangible Assets - Intangible assets principally include goodwill, licenses, patents and trademarks. Intangible assets are recorded at cost and amortized on the straight-line method over periods not exceeding 40 years. Accumulated amortization of intangible assets was $257 and $188 at December 31, 2000 and 1999, respectively. Intangible assets are reviewed to determine recoverability by comparing their carrying values to undiscounted expected future cash flows when events or circumstances warrant such a review.
Foreign Currency Translation - The net assets of most of the Company's foreign subsidiaries are translated into U.S. dollars using current exchange rates. The U.S. dollar effects that arise from translating the net assets of these subsidiaries at changing rates are recorded in the foreign currency translation adjustment account, which is included in other comprehensive income. For the remaining foreign subsidiaries, non-monetary assets and liabilities are translated using historical rates, while monetary assets and liabilities are translated at current rates, with the U.S. dollar effects of rate changes included in income.
Exchange gains and losses arising from translating intercompany balances of a long-term investment nature are recorded in the foreign currency translation adjustment account. Other exchange gains and losses are included in income.
Net foreign exchange losses included in income were $8, $6 and $2 in 2000, 1999 and 1998, respectively.
Accumulated Other Comprehensive Income - Accumulated other comprehensive income consists of the accumulated foreign currency translation adjustment account and accumulated unrealized gains and losses on securities classified for Statement of Financial Accounting Standards (SFAS) No. 115 purposes as held available for sale. At December 31, 2000 and 1999, the accumulated foreign currency translation adjustment account, net of tax, totaled $376 and $301, respectively, and accumulated unrealized gains, net of tax, totaled $58 and $68, respectively.
Revenue Recognition - Revenues from the sale of products are recorded at the time goods are shipped to customers. Provisions for discounts, returns and other allowances are recorded in the same period the related sales are recognized.
Earnings Per Common Share - Diluted earnings per common share are computed by dividing income by the sum of the weighted-average number of common shares outstanding plus the dilutive effect of shares issuable through deferred stock units and the exercise of stock options. Basic earnings per common share are computed by dividing income by the weighted-average number of common shares outstanding.
The shares used to calculate basic earnings per common share and diluted earnings per common share are reconciled as follows:
(shares in millions) | 2000 | 1999 | 1998 |
Average shares outstanding for basic earnings per share | 1,465 | 1,470 | 1,468 |
Dilutive effect of options and deferred stock units | 11 | 16 | 20 |
Average shares outstanding for diluted earnings per share | 1,476 | 1,486 | 1,488 |
As of December 31, 2000, there were 1 million options outstanding with exercise prices higher than the average price of the Company's common stock during 2000. Accordingly, these options are not included in the dilutive effects indicated above.
Recently Issued Accounting Standards -In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133, as amended, is effective for the Company for reporting periods beginning after December 31, 2000. The statement requires all derivatives to be recorded on the balance sheet at fair value and establishes new accounting rules for hedging activities. Based on the Company's limited use of derivative financial instruments, the impact of adoption will not be material and its ongoing effects are not expected to be material.
In May 2000, the Emerging Issues Task Force (EITF) issued EITF No. 00-14, "Accounting for Certain Sales Incentives," which addresses the income statement classification of certain sales incentives. The Company adopted EITF Issue No. 00-14 in the fourth quarter of 2000 and, therefore, has reclassified the cost of certain sales incentives from selling, general and administrative expense to net sales. All prior periods are presented on a comparable basis. Net sales for 1999 and 1998 were reduced by $60 and $50, respectively. The adoption of EITF Issue No. 00-14 has no effect on net income.
FINANCIAL INSTRUMENTS
The table below presents the carrying values and estimated fair values for the Company's financial instruments, including derivative financial instruments. Estimated fair values were determined based on market prices, where available, or dealer quotes.
| December 31, 2000 | December 31, 1999 |
| Carrying | Estimated | Carrying | Estimated |
| Value | Fair Value | Value | Fair Value |
| | | | |
ASSETS: | | | | |
Cash and cash equivalents | $2,397 | $2,397 | $1,876 | $1,876 |
Debt and equity investments | 562 | 562 | 532 | 532 |
Interest rate swap contracts | 16 | 14 | 6 | (6) |
Foreign currency option contracts | - | - | 1 | - |
| | | | |
LIABILITIES: | | | | |
Short-term borrowings and current portion of | | | | |
| long-term debt | 994 | 994 | 728 | 728 |
Long-term debt | 109 | 109 | 6 | 6 |
Equity swap contracts | 16 | 16 | (2) | (2) |
Other financing instruments | 219 | 211 | 208 | 193 |
Credit and Market Risk -Most financial instruments expose the holder to credit risk for non-performance and to market risk for changes in interest and currency rates. The Company mitigates credit risk on derivative instruments by dealing only with financially sound counterparties. Accordingly, the Company does not anticipate loss for non-performance. The Company does not enter into derivative instruments to generate trading profits. Refer to "Market Risk Disclosures" in Management's Discussion and Analysis of Operations and Financial Condition for a discussion regarding the market risk of the Company's financial instruments.
Debt and Equity Investments -Debt and equity investments, which are primarily included in other non-current assets, consist of a time deposit, equity securities of licensor companies and debt and equity securities held in non-qualified trusts to fund benefit obligations. Investments are primarily classified as available for sale and are carried at fair value, with unrealized gains and losses, net of tax, reported in accumulated other comprehensive income. Realized gains and losses are recorded in income.
Proceeds from the sale of available for sale securities were $43 in 2000, resulting in realized gains of $29. Such amounts for 1999 and 1998 were insignificant. An insignificant portion of the gains realized in 2000 was included in the accumulated unrealized gains balance at December 31, 1999.
Gross unrealized gains in 2000 and 1999 were $27 and $59, respectively; gross unrealized losses in 2000 were $9 and in 1999 were not material. Gross unrealized gains and losses in 1998 were not material.
Interest Rate Swap Contracts -In 1991 and 1992, the Company utilized interest rate swaps as part of its international cash management strategy. The notional principal of the 1991 arrangement is $650 and the notional principal of the 1992 arrangement is $950. Both arrangements have 20-year terms. At December 31, 2000, the arrangements provide for the payment of interest based upon LIBOR and the receipt of interest based upon an annual election of various floating rates. As a result, the Company remains subject to a moderate degree of market risk through maturity of the swaps. These interest rate swaps are recorded at fair value, with changes in fair value recorded in earnings. Annual net cash flows for payments and receipts under these interest rate swap contracts are not material. The net asset or liability under these interest rate swaps is recorded in other current assets or other accrued liabilities, as applicable.
To hedge future variable interest receiptson a $200 time deposit purchased in 1999, the Company entered into an interest rate swap that matures in November 2003. Under the swap, the Company will receive 5.6 percent on a notional principal of $200 and will pay three-month LIBOR. The net amount paid or earned on this interest rate swap has been reflected as an adjustment to interest income in both 2000 and 1999.
Foreign Currency Option Contracts -To hedge certain anticipated inventory purchases, the Company has, from time to time, acquired foreign currency option contracts. Gains, if any, realized on these contracts are included in cost of sales when the inventory is sold. Losses are limited to the premiums paid. At December 31, 2000, the terms of the option contracts outstanding permit the Company to deliver a total of 96 million South African rand in exchange for $12.4 at various dates during 2001. Contracts outstanding at December 31, 1999 all matured during 2000.
Equity Swap Contracts - The Company has hedged the fair value of certain of its equity investments with equity swaps. The combined notional amount of all equity hedges at December 31, 2000 was $111. Realized and unrealized gains and losses on equity swaps are classified in the financial statements in the same manner as the hedged investment losses and gains.
BORROWINGS
The Company has a $1 billion committed, multi-currency unsecured revolving credit facility expiring in 2001 from a syndicate of financial institutions. This facility is available for general corporate purposes and is considered as support for the Company's commercial paper borrowings. This line of credit does not require compensating balances; however, a nominal commitment fee is paid. At December 31, 2000, no funds had been drawn down under this facility. In addition, the Company's foreign subsidiaries had available $293 in unused lines of credit from various financial institutions at December 31, 2000. Generally, these foreign credit lines do not require commitment fees or compensating balances and are cancelable at the option of the Company or the financial institutions.
In general, short-term borrowings consist of commercial paper issued in the United States, bank loans, notes payable and amounts drawn down under the revolving credit facility. Commercial paper outstanding at December 31, 2000 and 1999 was $895 and $495, respectively. The weighted-average interest rate for short-term borrowings at December 31, 2000 and 1999 was 6.8 percent and 6.9 percent, respectively.
In connection with the Company's purchase of a research and office facility in 2000, the Company issued a note payable to the seller due in its entirety in 2003. The imputed interest rate on the note is 5.9 percent. The carrying amount of the note payable, which approximates its market value, at December 31, 2000, was $88. This obligation is included in other long-term liabilities.
The Company has a shelf registration statement on file with the Securities and Exchange Commission covering the issuance of up to $200 of debt securities. The terms of these securities will be determined at the time of sale. As of December 31, 2000, no debt securities have been issued pursuant to this registration.
OTHER FINANCING INSTRUMENTS
During 1999, a subsidiary of the Company issued $200 of equity-type securities. Thesecurities bear a LIBOR-based yield thatis substantially fixed through November 28, 2003; thereafter, the Company can elect to reset the rate annually or substantiallyfix the rate for the next five years. AtDecember 31, 2000 and 1999,the rate was 5.0 percent and 5.6 percent, respectively. The Company can call the securities at any time after November 30, 2004, or earlier under certain circumstances. The holders can put the securities back to the Company at any time after November 30, 2027, or earlier under certain circumstances. Because of the put and call features, this obligation is included in other long-term liabilities.
COMMITMENTS
Total rent expense amounted to $71 in 2000, $65 in 1999 and $58 in 1998. Future minimum rental commitments on non-cancelable operating leases as of December 31, 2000 range from $32 in 2001 to $8 in 2005, with aggregate minimum lease obligations of $28 due thereafter. The Company has commitments related to future capital expenditures totaling $223 as of December 31, 2000.
INTEREST COSTS AND INCOME
Interest costs were as follows:
| 2000 | 1999 | 1998 |
Interest cost incurred | $64 | $41 | $28 |
Less: amount capitalized on construction | 20 | 12 | 9 |
Interest expense | $44 | $29 | $19 |
Cash paid for interest, net of amount capitalized | $50 | $28 | $19 |
| | | |
Interest income for 2000, 1999 and 1998 was $159, $103 and $59, respectively. Interest income and interest expense are included in other (income) expense, net.
SHAREHOLDERS' EQUITY
On September 22, 1998, the Board of Directors voted to increase the number of authorized common shares from 1.2 billion to 2.4 billion and approved a 2-for-1 stock split. Distribution of the split shares was made on December 2, 1998. All per share amounts herein reflect the effect of the stock split.
A summary of treasury share transactions follows:
(shares in millions) | 2000 | 1999 | 1998 |
Share balance at January 1 | 558 | 558 | 282 |
Shares issued under stock incentive plans | (11) | (10) | (9) |
Purchase of treasury shares | 20 | 10 | 3 |
Effect of 2-for-1 stock split | - | - | 282 |
Share balance at December 31 | 567 | 558 | 558 |
The Company has Preferred Share Purchase Rights outstanding that are attached to, and presently only trade with, the Company's common shares and are not exercisable. The rights will become 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 or group 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 Schering-Plough having a market value of twice the exercise price of the right. The exercise price of the rights is $100.
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, at an exchange ratio of one common share or one two-hundredth of a share of Series A 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 $.005 per right at the option of the Board of Directors. The rights will expire on July 10, 2007, unless earlier redeemed or exchanged. The Board of Directors is also authorized to reduce the 20 percent thresholds referred to above to not less than the greater of (i) the sum of .001 percent and the largest percentage of the outstanding shares of common stock then known to the Company to be beneficially owned by any person or group of affiliated or associated persons and (ii) 10 percent, except that, following the acquisition by a person or group of beneficial ownership of 20 percent or more of the Company's common stock, no such reduction may adversely affect the interests of the holders of the rights.
COLLABORATION WITH MERCK
In May 2000, the Company and Merck & Co., Inc. (Merck) entered into agreements to jointly develop and market, in the United States, new prescription medicines in the cholesterol-management and respiratory therapeutic areas. The agreements cover the development and marketing of:
- ezetimibe, the Company's novel cholesterol absorption inhibitor, as a once-daily fixed-combination tablet withZocor, Merck's cholesterol-management medicine;
- ezetimibe as a once-daily monotherapy;
- co-administration of ezetimibe with statins; and
- a once-daily fixed-combination tablet containing CLARITIN andSingulair for the treatment of allergic rhinitis and asthma.Singulair is Merck's once-daily leukotriene receptor antagonist for the treatment of asthma.
At this time, all the products are in the development stage. The development costs are being shared equally by the two companies.
STOCK INCENTIVE PLANS
Under the terms of the Company's 1997 Stock Incentive Plan, 72 million of the Company's common shares may be granted as stock options or awarded as deferred stock units to officers and certain employees of the Company through December 2002. Option exercise prices equal the market price of the common shares at their grant dates. Options expire not later than 10 years after the date of grant. Standard options granted generally have a one-year vesting term. Other option grants vest over longer periods ranging from three to nine years. Deferred stock units are payable in an equivalent number of common shares; the shares are distributable in a single installment or in five equal annual installments generally commencing one year from the date of the award.
The following table summarizes stock option activity over the past three years under the current and prior plans:
| 2000 | 1999 | 1998 |
| | Weighted- | | Weighted- | | Weighted- |
| Number | Average | Number | Average | Number | Average |
| Of | Exercise | Of | Exercise | Of | Exercise |
(number of options in millions) | Options | Price | Options | Price | Options | Price |
Outstanding at January 1 | 42 | $27.34 | 42 | $19.31 | 42 | $12.20 |
| Granted | 14 | 42.03 | 9 | 52.86 | 11 | 39.06 |
| Exercised | (9) | 16.36 | (8) | 13.96 | (10) | 10.47 |
| Canceled or expired | (1) | 40.73 | (1) | 32.79 | (1) | 30.87 |
Outstanding at December 31 | 46 | $33.77 | 42 | $27.34 | 42 | $19.31 |
Exercisable at December 31 | 26 | $32.10 | 27 | $21.16 | 25 | $12.02 |
| | | | | | | |
The Company accounts for its stock compensation arrangements using the intrinsic value method. If the fair value method of accounting was applied as defined in SFAS No. 123, "Accounting for Stock-Based Compensation," the Company's pro forma net income would have been $2,369, $2,044 and $1,704 for 2000, 1999 and 1998, respectively. Pro forma diluted earnings per share would have been $1.60, $1.38 and $1.15 for 2000, 1999 and 1998, respectively, and pro forma basic earnings per share would have been $1.62, $1.39 and $1.16 for 2000, 1999 and 1998, respectively.
The weighted-average fair value per option granted in 2000, 1999 and 1998 was $13.82, $12.38 and $9.24, respectively. The fair values were estimated using the Black-Scholes option pricing model based on the following assumptions:
| 2000 | 1999 | 1998 |
Dividend yield | 1.7% | 2.2% | 2.4% |
Volatility | 32% | 23% | 24% |
Risk-free interest rate | 6.3% | 5.1% | 5.5% |
Expected term of options (in years) | 5 | 5 | 5 |
In 2000, 1999 and 1998, the Company awarded deferred stock units totaling 2.5 million, 2.4 million and 2.5 million, respectively. The expense recorded in 2000, 1999 and 1998 for deferred stock units was $76, $61 and $45, respectively.
INVENTORIES
Year-end inventories consisted of the following:
| 2000 | 1999 |
Finished products | $459 | $437 |
Goods in process | 261 | 267 |
Raw materials and supplies | 231 | 254 |
Total inventories | $951 | $958 |
Inventories valued on a last-in, first-out basis comprised approximately 29 percent and 31 percent of total inventories at December 31, 2000 and 1999, respectively. The estimated replacement cost of total inventories at December 31, 2000 and 1999 was $995 and $972, respectively.
RETIREMENT PLANS AND OTHER POST-RETIREMENT BENEFITS
The Company has defined benefit pension plans covering eligible employees in the United States and certain foreign countries, and the Company provides post-retirement health care benefits to its eligible U.S. retirees and their dependents.
The components of net pension and other post-retirement benefit (income) expense were as follows:
|
Retirement Plans | Post-retirement
Health Care Benefits |
| 2000 | 1999 | 1998 | 2000 | 1999 | 1998 |
| | | | | | |
Service cost | $45 | $42 | $41 | $5 | $5 | $5 |
Interest cost | 69 | 62 | 59 | 12 | 11 | 11 |
Expected return on plan assets | (110) | (101) | (89) | (20) | (18) | (17) |
Amortization, net | (6) | (5) | (6) | (2) | (2) | (1) |
Net | $(2) | $(2) | $5 | $(5) | $(4) | $(2) |
The components of the changes in the benefit obligations were as follows:
|
Retirement Plans | Post-retirement Health Care Benefits |
| 2000 | 1999 | 2000 | 1999 |
Benefit obligations at January 1 | $968 | $987 | $170 | $177 |
Service cost | 45 | 42 | 5 | 5 |
Interest cost | 69 | 62 | 12 | 11 |
Assumption changes | - | (101) | - | (20) |
Effects of exchange rate changes | (12) | (9) | - | - |
Benefits paid | (45) | (41) | (12) | (11) |
Actuarial losses | 11 | 22 | 10 | 8 |
Plan amendments | - | 6 | - | - |
Benefit obligations at December 31 | $1,036 | $968 | $185 | $170 |
Benefit obligations of overfunded plans | $825 | $740 | $185 | $170 |
Benefit obligations of underfunded plans | 211 | 228 | | |
The components of the changes in plan assets were as follows:
|
Retirement Plans | Post-retirement Health Care Benefits |
| 2000 | 1999 | 2000 | 1999 |
Fair value of plan assets, primarily stocks and bonds, at | | | | |
| January 1 | $1,299 | $1,145 | $259 | $228 |
Actual return on plan assets | 5 | 188 | (4) | 42 |
Contributions | 19 | 14 | - | - |
Effects of exchange rate changes | (10) | (9) | - | - |
Benefits paid | (45) | (39) | (12) | (11) |
Fair value of plan assets at December 31 | $1,268 | $1,299 | $243 | $259 |
Plan assets of overfunded plans | $1,218 | $1,219 | $243 | $259 |
Plan assets of underfunded plans | 50 | 80 | | |
In addition to the plan assets indicated above, at December 31, 2000 and 1999, securities of $76 and $79, respectively, were held in non-qualified trusts designated to provide pension benefits for certain underfunded plans.
The following is a reconciliation of the funded status of the plans to the Company's balance sheet:
|
Retirement Plans | Post-retirement Health Care Benefits |
| 2000 | 1999 | 2000 | 1999 |
Plan assets in excess of benefit obligations | $232 | $331 | $58 | $89 |
Unrecognized net transition assets | (29) | (37) | - | - |
Unrecognized prior service costs | 15 | 16 | (4) | (5) |
Unrecognized net actuarial (gain) | (70) | (189) | (50) | (85) |
Net asset (liability) at December 31 | $148 | $121 | $4 | $ (1) |
The weighted-average assumptions employed at December 31 were:
|
Retirement Plans | Post-retirement Health Care Benefits |
| 2000 | 1999 | 2000 | 1999 |
Discount rate | 7.1% | 7.0% | 7.5% | 7.5% |
Long-term expected rate of return on plan assets | 9.5% | 9.5% | 9.0% | 9.0% |
Rate of increase in future compensation | 4.0% | 3.9% | | |
The weighted-average assumed health care cost inflation rates used for post-retirement measurement purposes is 8.0 percent for 2001, trending down to 5.0 percent by 2004. A 1 percent increase or decrease in the assumed health care cost trend rate would increase or decrease combined post-retirement service and interest cost by $3 and the post-retirement benefit obligation by $24.
The Company has a defined contribution profit-sharing plan covering substantially all its full-time domestic employees who have completed one year of service. The annual contribution is determined by a formula based on the Company's income, shareholders' equity and participants' compensation. Profit-sharing expense totaled $84, $74 and $66 in 2000, 1999 and 1998, respectively.
INCOME TAXES
U.S. and foreign operations contributed to income before income taxes as follows:
| 2000 | 1999 | 1998 |
United States | $2,365 | $2,031 | $1,609 |
Foreign | 823 | 764 | 717 |
Total income before income taxes | $3,188 | $2,795 | $2,326 |
The components of income tax expense were as follows:
| 2000 | 1999 | 1998 |
Current: | | | |
| Federal | $503 | $464 | $442 |
| Foreign | 178 | 185 | 184 |
| State | 27 | 13 | 14 |
| Total current | 708 | 662 | 640 |
Deferred: | | | |
| Federal and state | 21 | 46 | (19) |
| Foreign | 36 | (23) | (51) |
| Total deferred | 57 | 23 | (70) |
Total income tax expense | $765 | $685 | $570 |
The difference between the U.S. statutory tax rate and the Company's effective tax rate was due to the following:
| 2000 | 1999 | 1998 |
U.S. statutory tax rate | 35.0% | 35.0% | 35.0% |
Increase (decrease) in taxes resulting from: | | | |
| Lower rates in other jurisdictions, net | (12.2) | (10.5) | (10.6) |
| Research tax credit | (.8) | (.8) | (.8) |
| All other, net | 2.0 | .8 | .9 |
Effective tax rate | 24.0% | 24.5% | 24.5% |
The lower rates in other jurisdictions, net, are primarily attributable to certain employment and capital investment actions taken by the Company. As a result, income from manufacturing activities in these jurisdictions is subject to lower tax rates through 2018.
As of December 31, 2000 and 1999, the Company had total deferred tax assets of $693 and $733, respectively, and deferred tax liabilities of $486 and $521, respectively. Valuation allowances are not significant. Significant deferred tax assets at December 31, 2000 and 1999 were for operating costs not currently deductible for tax purposes and totaled $353 and $389, respectively. Significant deferred tax liabilities at December 31, 2000 and 1999 were for depreciation differences, $232 and $222, respectively, and retirement plans, $82 and $67, respectively. Other current assets include deferred income taxes of $431 and $507 at December 31, 2000 and 1999, respectively.
Deferred taxes are not provided on undistributed earnings of foreign subsidiaries (considered to be permanent investments), which at December 31, 2000 approximated $6,400. Determining the tax liability that would arise if these earnings were remitted is not practicable.
As of December 31, 2000, the U.S. Internal Revenue Service has completed its examination of the Company's tax returns for all years through 1988, and there are no unresolved issues outstanding for those years.
Total income tax payments during 2000, 1999 and 1998 were $606, $502 and $458, respectively.
OTHER MATTERS
In February 2001, the Company reported that the FDA has been conducting inspections of the Company's manufacturing facilities in New Jersey and Puerto Rico, and has issued reports citing deficiencies concerning compliance with current Good Manufacturing Practices (GMPs), primarily relating to production processes, controls and procedures. The extent of the impact of these matters on 2001 and future operations will depend upon the timing and nature of a resolution of the manufacturing issues.
LEGAL AND ENVIRONMENTAL MATTERS
The Company has responsibilities for environmental cleanup under various state, local and federal laws, including the Comprehensive Environmental Response, Compensation and Liability Act, commonly known as Superfund. At several Superfund sites (or equivalent sites under state law), the Company is alleged to be a potentially responsible party (PRP). The Company estimates its obligations for cleanup costs for Superfund sites based on information obtained from the federal Environmental Protection Agency, an equivalent state agency and/or studies prepared by independent engineers, and on the probable costs to be paid by other PRPs. The Company records a liability for environmental assessments and/or cleanup when it is probable a loss has been incurred and the amount can be estimated reasonably.
The Company is also involved in various other claims and legal proceedings of a nature considered normal to its business, including product liability cases. The estimated costs the Company expects to pay in these cases are accrued when the liability is considered probable and the amount can be estimated reasonably. Consistent with trends in the pharmaceutical industry, the Company is self-insured for certain events.
The recorded liabilities for the above matters at December 31, 2000 and 1999 and the related expenses incurred during the three years ended December 31, 2000 were not material. Expected insurance recoveries have not been considered in determining the costs for environmental-related liabilities. Management believes that, except for the matters discussed in the following paragraphs, it is remote that any material liability in excess of the amounts accrued will be incurred.
Residents in the vicinity of a publicly owned waste-water treatment plant in Barceloneta, Puerto Rico, have filed two lawsuits against the plant operator and numerous companies that discharge into the plant, including a subsidiary of the Company, for damages and injunctive relief relating to odors coming from the plant and connecting sewers. One of these lawsuits is a class action claiming damages of $600. Both lawsuits are in the very early stages of discovery, and it is not possible to predict the outcome.
The Company is a defendant in approximately 100 antitrust actions commenced (starting in 1993) 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 was a class action on behalf of approximately two-thirds of all retail pharmacies in the United States and alleged a price-fixing conspiracy. The Company, in February 1996, agreed to settle the federal class action for a total of $22, which has been paid in full. The United States District Court in Illinois approved the settlement of the federal class action in June 1996. In June 1997, the Seventh Circuit Court of Appeals dismissed all appeals from that settlement, and it is not subject to further review. The defendants that did not settle the class action proceeded to trial in September 1998. The trial ended in November 1998 with a directed verdict in the defendants' favor.
In April 1997, certain of the plaintiffs in the federal class action commenced another purported class action in the United States 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 District Court has denied the plaintiffs' motion for a preliminary injunction hearing.
The Company has settled all the state retailer actions, except in California and Alabama. The settlement amounts were not material to the Company. In June 1999, the Alabama Supreme Court reversed the denial of a motion for judgment on the pleadings in the Alabama retailer case. The court held that theAlabama antitrust law did not apply to conspiracies alleged to bein interstate commerce. Based on that ruling, the Alabama retailer case has been dismissed. Subsequently, the District Attorney for the First Judicial Circuit filed a complaint on behalf of Alabama consumers under the State's Deceptive Trade Practices Act.
The Company has settled or otherwise disposed of all the state consumer cases. The settlement amounts were not material to the Company.
The Company has settled several other groups of similar federal antitrust cases brought by food and drug chain retailers and independent retailer stores comprising about 22 percent of the prescription drug retail market. The settlement amounts were not material to the Company.
Plaintiffs in these antitrust actions generally seek treble damages in an unspecified amount and an injunction against the allegedly unlawful conduct.
The Company believes all the antitrust actions are without merit and is defending itself vigorously.
In March 1996, the Company was notified that the United States Federal Trade Commission (FTC) was investigating whether the Company, along with other pharmaceutical companies, conspired to fix prescription drug prices. The Company believes that its actions have been lawful and proper andis cooperating in the investigation. However, it is not possibleto predict the outcome of the investigation, which could result in theimposition of fines, penalties and injunctive or administrativeremedies.
In October 1999, the Company received a subpoena from the U.S. Attorney's Office for the Eastern District of Pennsylvania, pursuant to the Health Insurance Portability and Accountability Act of 1996, concerning the Company's contracts with pharmacy benefit managers (PBMs) and managed care organizations to provide disease management services in connection with the marketing of its pharmaceutical products. It appears that the subpoena is one of a number addressed to industry participants as part of an inquiry into, among other things, pharmaceutical marketing practices. The government's inquiry appears to focus on whether the Company's disease management and other marketing programs and arrangements comply with federal health care laws and whether the value of its disease management programs and other marketing programs and arrangements should have been included in the calculation of rebates to the government. The Company is cooperating in the investigation. It is not possible to predict the outcome of the investigation, which could include the imposition of fines, penalties and injunctive or administrative remedies, nor can the Company predict whether the investigation will affect its marketing practices or sales.
In February 1998, Geneva Pharmaceuticals, Inc. (Geneva) submitted an Abbreviated New Drug Application (ANDA) to the U.S. Food and Drug Administration (FDA) seeking to market a generic form of CLARITIN in the United States several years before the expiration of the Company's patents. Geneva has alleged that certain of the Company's U.S. CLARITIN patents are invalid and unenforceable. The CLARITIN patents are material to the Company's business. In March 1998, the Company filed suit in federal court seeking a ruling that Geneva's ANDA submission constitutes willful infringement of the Company's patents and that its challenge to the Company's patents is without merit. The Company believes that it should prevail in the suit. However, as with any litigation, there can be no assurance that the Company will prevail.
During 1999, Copley Pharmaceutical, Inc., Teva Pharmaceuticals, Inc., Novex Pharma and Zenith Goldline Pharmaceuticals individually notified the Company that each had submitted an ANDA to the FDA seeking to market certain generic forms of CLARITIN in the United States before the expiration of certain of the Company's patents; and in 2000, Andrx Pharmaceuticals, L.L.C., Mylan Pharmaceuticals Inc., ESI Lederle, Inc. (Lederle) and Impax Laboratories, Inc. made similar submissions. Each has alleged that one or more of those patents are invalid and unenforceable. In each case, the Company has filed or will file suit in federal court seeking a ruling that the applicable ANDA submission and proposed marketing of a generic product constitute willful infringement of the Company's patent and that the challenge to the patent is without merit. The Company believes that it should prevail in these suits. However, as with any litigation, there can be no assurance that the Company will prevail.
In January 2000, Hoffmann-La Roche Inc. filed actions against the Company in the United States District Court in New Jersey, France and Germany alleging that the Company's PEG-INTRON (peginterferon alfa-2b) infringes Hoffmann-La Roche Inc.'s patents on certain pegylated interferons. The Company believes that it should prevail in these suits. However, as with any litigation, there can be no assurance that the Company will prevail.
The Company is responding to investigations by the Department of Health and Human Services, the Department of Justice and certain states into certain industry and Company practices regarding average wholesale price (AWP). These investigations include a Department of Justice review of the merits of a federal action filed by a private entity on behalf of the United States in the United States District Court for the Southern District of Florida, as well as an investigation by the United States Attorney's Office for the District of Massachusetts, regarding, inter alia, whether the AWP set by pharmaceutical companies for certain drugs improperly exceeds the average prices paid by dispensers and, as a consequence, results in unlawful inflation of certain government drug reimbursements that are based on AWP or wholesale acquisition cost. The United States Attorney's Office for the District of Massachusetts is also investigating whether the Company's sales of a product that was repackaged for sale by a managed care organization should have been included in the Company's Medicaid best price calculations. The Company is cooperating with these investigations. It is not possible to predict the outcome of these investigations, which could include the imposition of fines, penalties and injunctive or administrative remedies.
During the third quarter of 2000, the Company's generic subsidiary, Warrick Pharmaceuticals, was sued by the state of Texas. The lawsuit alleges that Warrick supplied the state with false reports of wholesale prices, which caused the state to pay Medicaid claims on prescriptions of Warrick's albuterol sulfate solution at a higher than justified level. The state seeks damages of $54 against Warrick, including treble damages and penalties. The Company is cooperating with the investigation. It is not possible to predict the outcome of the litigation, which could result in the imposition of fines, penalties and injunctive or administrative remedies.
The FTC is investigating possible anti-competitive effects of the settlement of patent lawsuits between the Company and Lederle and the Company and Upsher-Smith, Inc. (Upsher-Smith). The lawsuits that were settled related to generic versions of K-DUR, the Company's long-acting potassium chloride product, which was the subject of Abbreviated New Drug Applications filed by Lederle and Upsher-Smith. The investigation is ongoing. The Company believes that its actions have been lawful and proper, and is cooperating in the investigation. However, it is not possible to predict the outcome of the investigation, which could result in the imposition of fines, penalties and injunctive or administrative remedies.
In January 2000, a jury found that the Company's PRIME PACâ PRRS (Porcine Respiratory and Reproductive Syndrome) vaccine infringed a patent owned by Boehringer Ingelheim Vetmedica, Inc. An injunction was issued in August 2000 barring further sales of the Company's vaccine. The Company has filed post-trial motions, currently pending, for either a reversal of the jury's verdict or a new trial. The Company believes it should prevail, either through the post-trial motions or on appeal. However, as with any litigation, there can be no assurance that the Company will prevail.
On February 15, 2001, the Company stated in a press release that the FDA has been conducting inspections of the Company's manufacturing facilities in New Jersey and Puerto Rico and has issued reports citing deficiencies concerning compliance with current GMPs, primarily relating to production processes, controls and procedures. The next day, February 16, 2001, a lawsuit was filed in the United States District Court for the District of New Jersey against the Company and certain named officers alleging violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. The plaintiffs in the suit purport to represent classes of shareholders who purchased shares of Company stock between July 25, 2000 and February 15, 2001, the date of the press release. The litigation is in the very early stages. The Company believes that it has substantial defenses and intends to defend the suit vigorously.
SEGMENT INFORMATION
Schering-Plough is a worldwide research-based pharmaceutical company engaged in the discovery, development, manufacturing and marketing of pharmaceutical products. Discovery and development efforts target the field of human health. However, application in the field of animal health can result from these efforts. The Company views animal health applications as a means to maximize the return on investments in discovery and development. The Company operates primarily in the prescription pharmaceutical marketplace. However, where appropriate, the Company has sought regulatory approval to switch prescription products to over-the-counter (OTC) status as a means of extending a product's life cycle. In this way, the OTC marketplace is yet another means of maximizing the return on investments in discovery and development.
Net Sales by Major Therapeutic Category
| 2000 | 1999 | 1998 |
Allergy & Respiratory | $4,189 | $3,850 | $3,375 |
Anti-infective & Anticancer | 2,015 | 1,738 | 1,263 |
Cardiovasculars | 746 | 673 | 750 |
Dermatologicals | 680 | 682 | 619 |
Other Pharmaceuticals | 716 | 775 | 677 |
Animal Health | 720 | 672 | 642 |
Foot Care | 348 | 332 | 323 |
OTC | 202 | 209 | 207 |
Sun Care | 199 | 185 | 171 |
Consolidated net sales | $9,815 | $9,116 | $8,027 |
Consolidated income before income taxes | $3,188 | $2,795 | $2,326 |
Certain amounts in 1999 and 1998 have been reclassified from selling, general and administrative expense to net sales to comply with EITF Issue No. 00-14.
The Company has subsidiaries in more than 40 countries outside the United States. Sales outside the United States comprised 36 percent of consolidated net sales in 2000 and 1999, and 37 percent in 1998. No single foreign country accounted for more than 5percent of consolidated net sales during the past three years.
Net Sales by Geographic Area
| 2000 | 1999 | 1998 |
United States | $6,299 | $5,794 | $5,078 |
Europe and Canada | 2,204 | 2,138 | 1,874 |
Latin America | 694 | 614 | 578 |
Pacific Area and Asia | 618 | 570 | 497 |
Consolidated net sales | $9,815 | $9,116 | $8,027 |
Certain amounts in 1999 and 1998 have been reclassified from selling, general and administrative expense to net sales to comply with EITF Issue No. 00-14.
Net sales are presented in the geographic area in which the Company's customers are located. During 2000, 1999 and 1998, 13 percent, 12 percent and 11 percent, respectively, of consolidated net sales were made to McKesson HBOC, Inc., a major pharmaceutical and health care products distributor.
Long-lived Assets by Geographic Location
| 2000 | 1999 | 1998 |
United States | $2,123 | $1,794 | $1,567 |
Ireland | 384 | 358 | 355 |
Singapore | 323 | 272 | 281 |
Puerto Rico | 207 | 175 | 162 |
Other | 656 | 533 | 515 |
Total | $3,693 | $3,132 | $2,880 |
Long-lived assets shown by geographic location are primarily property.
REPORT BY MANAGEMENT
Management is responsible for the preparation and the integrity of the accompanying financial statements. These statements are prepared in accordance with generally accepted accounting principles and require the use of estimates and assumptions that affect the reported amounts of assets, liabilities, sales and expenses. In management's opinion, the consolidated financial statements present fairly the Company's results of operations, financial position and cash flows. All financial information in this Annual Report is consistent with the financial statements.
The Company maintains, and management relies on, a system of internal controls and related policies and procedures that provide reasonable assurance of the integrity and reliability of the financial statements. The system provides, at appropriate cost and within the inherent limitations of all internal control systems, that transactions are executed in accordance with management's authorization and are properly recorded and reported in the financial statements, and that assets are safeguarded. The Company's internal control system provides for careful selection and training of supervisory and management personnel and requires appropriate segregation of responsibilities and delegation of authority. In addition, the Company maintains a corporate code of conduct for purposes of determining possible conflicts of interest, compliance with laws and confidentiality of proprietary information.
The Company's independent auditors, Deloitte & Touche LLP, audit the annual consolidated financial statements. They evaluate the Company's internal control system and perform tests of procedures and accounting records to enable them to express their opinion on the fairness of these statements. In addition, the Company has an internal audit function that regularly performs audits using programs designed to test compliance with Company policies and procedures and to verify the adequacy of internal controls and other financial policies. The internal auditors' and independent auditors' recommendations concerning the Company's system of internal controls have been considered, and appropriate action has been taken with respect to those recommendations.
The Finance, Compliance and Audit Review Committee of the Board of Directors is comprised solely of six independent directors. The Committee is appointed by the Board to assist the Board in its oversight function by monitoring, among other things, the Company's financial reporting process and the independence and performance of the Company's independent auditors and internal auditing department. The Committee's activities include meeting periodically with management, the internal auditors and the independent auditors to discuss their independence and to review audit results, financial reporting, internal controls and other financial matters. Both the independent auditors and internal auditors have full and free access to the Committee.
/S/ Richard Jay Kogan | /S/ Jack L. Wyszomierski | /S/ Thomas H. Kelly |
Chairman of the Board and | Executive Vice President and | Vice President and |
Chief Executive Officer | Chief Financial Officer | Controller |
INDEPENDENT AUDITORS' REPORT
Schering-Plough Corporation, its Directors and Shareholders:
We have audited the accompanying consolidated balance sheets of Schering-Plough Corporation and subsidiaries as of December 31, 2000 and 1999, and the related consolidated statements of income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Schering-Plough Corporation and subsidiaries at December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States of America.
/S/DELOITTE & TOUCHE LLP
Parsippany, New Jersey
February 16, 2001
SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES
QUARTERLY DATA (UNAUDITED)
Three Months Ended | March 31 | June 30 | September 30 | December 31 |
(Dollars in millions, except per share figures) | 2000 | 1999 | 2000 | 1999 | 2000 | 1999 | 2000 | 1999 |
Net sales | $2,389 | $2,169 | $2,626 | $2,435 | $2,383 | $2,222 | $2,418 | $2,290 |
Cost of sales | 457 | 432 | 489 | 472 | 468 | 438 | 489 | 458 |
Gross profit | 1,932 | 1,737 | 2,137 | 1,963 | 1,915 | 1,784 | 1,929 | 1,832 |
Selling, general and | | | | | | | | |
| administrative | 841 | 777 | 977 | 947 | 828 | 800 | 840 | 850 |
Research and development | 290 | 262 | 345 | 297 | 340 | 305 | 358 | 327 |
Other (income) expense, net | (25) | (15) | (19) | (7) | (30) | (7) | (20) | (15) |
Income before income taxes | 826 | 713 | 834 | 726 | 777 | 686 | 751 | 670 |
Income taxes | 198 | 174 | 200 | 179 | 186 | 168 | 180 | 164 |
Net income | $ 628 | $ 539 | $ 634 | $ 547 | $ 591 | $ 518 | $ 571 | $ 506 |
Diluted earnings per | | | | | | | | |
| common share | $ .42 | $ .36 | $ .43 | $ .37 | $ .40 | $ .35 | $ .39 | $ .34 |
Basic earnings per | | | | | | | | |
| common share | .43 | .37 | .43 | .37 | .40 | .35 | .39 | .35 |
Dividends per | | | | | | | | |
| common share | .125 | .11 | .14 | .125 | .14 | .125 | .14 | .125 |
Common share prices: | | | | | | | | |
| High | 48 | 58 7/8 | 50 1/2 | 60 3/4 | 51 3/8 | 56 | 59 1/8 | 56 7/8 |
| Low | 30 1/2 | 51 1/8 | 38 7/16 | 43 5/16 | 39 1/16 | 41 9/16 | 45 3/4 | 40 3/4 |
Average shares outstanding | | | | | | | | |
| for diluted EPS (in millions) | 1,479 | 1,491 | 1,476 | 1,486 | 1,474 | 1,484 | 1,474 | 1,483 |
Average shares outstanding | | | | | | | | |
| for basic EPS (in millions) | 1,468 | 1,472 | 1,464 | 1,470 | 1,463 | 1,469 | 1,462 | 1,470 |
Certain amounts in 1999 and the first three quarters of 2000 have been reclassified from selling, general and administrative expense to net sales to comply with EITF Issue No. 00-14.
The Company's common shares are listed and principally traded on the New York Stock Exchange. The approximate number of holders of record of common shares as of December 31, 2000 was 49,200.
SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES
SIX-YEAR SELECTED FINANCIAL & STATISTICAL DATA
(Dollars in millions, except per share figures) | 2000 | 1999 | 1998 | 1997 | 1996 | 1995 |
Operating Results | | | | | | |
Net sales | $9,815 | $9,116 | $8,027 | $6,745 | $5,627 | $5,076 |
Income before income taxes | 3,188 | 2,795 | 2,326 | 1,913 | 1,606 | 1,395 |
Income from continuing operations | 2,423 | 2,110 | 1,756 | 1,444 | 1,213 | 1,053 |
Discontinued operations | - | - | - | - | - | (166) |
Net income | 2,423 | 2,110 | 1,756 | 1,444 | 1,213 | 887 |
Diluted earnings per common share | | | | | | |
| from continuing operations | 1.64 | 1.42 | 1.18 | .97 | .82 | .70 |
Diluted earnings per common share | 1.64 | 1.42 | 1.18 | .97 | .82 | .59 |
Basic earnings per common share | | | | | | |
| from continuing operations | 1.65 | 1.44 | 1.20 | .98 | .82 | .71 |
Discontinued operations | - | - | - | - | - | (.11) |
Basic earnings per common share | 1.65 | 1.44 | 1.20 | .98 | .82 | .60 |
Investments | | | | | | |
Research and development | $1,333 | $1,191 | $1,007 | $847 | $723 | $657 |
Capital expenditures | 763 | 543 | 389 | 405 | 336 | 304 |
Financial Condition | | | | | | |
Property, net | $3,362 | $2,939 | $2,675 | $2,526 | $2,246 | $2,099 |
Total assets | 10,805 | 9,375 | 7,840 | 6,507 | 5,398 | 4,665 |
Long-term debt | 109 | 6 | 4 | 46 | 46 | 87 |
Shareholders' equity | 6,119 | 5,165 | 4,002 | 2,821 | 2,060 | 1,623 |
Net book value per common share | 4.18 | 3.51 | 2.72 | 1.93 | 1.41 | 1.11 |
Financial Statistics | | | | | | |
Income from continuing | | | | | | |
| operations as a percent of sales | 24.7% | 23.1% | 21.9% | 21.4% | 21.6% | 20.7% |
Net income as a percent of sales | 24.7% | 23.1% | 21.9% | 21.4% | 21.6% | 17.5% |
Return on average shareholders' equity | 42.9% | 46.0% | 51.5% | 59.2% | 65.9% | 55.5% |
Effective tax rate | 24.0% | 24.5% | 24.5% | 24.5% | 24.5% | 24.5% |
Other Data | | | | | | |
Cash dividends per common share | $.545 | $.485 | $.425 | $.368 | $ .32 | $.281 |
Cash dividends on common shares | 802 | 716 | 627 | 542 | 474 | 416 |
Depreciation and amortization | 299 | 264 | 238 | 200 | 173 | 157 |
Number of employees | 28,100 | 26,500 | 25,100 | 22,700 | 20,600 | 20,100 |
Average shares outstanding for diluted | | | | | | |
| earnings per common share (in millions) | 1,476 | 1,486 | 1,488 | 1,480 | 1,487 | 1,498 |
Average shares outstanding for basic | | | | | | |
| earnings per common share (in millions) | 1,465 | 1,470 | 1,468 | 1,464 | 1,471 | 1,479 |
Common shares outstanding at year-end (in millions) | 1,463 | 1,472 | 1,472 | 1,465 | 1,461 | 1,457 |
Certain amounts in 1995 through 1999 have been reclassified from selling, general and administrative expense to net sales to comply with EITF Issue No. 00-14.
