Exhibit 13
Financial Section of the Company's 1993 Annual Report to Shareholders
Management's Discussion and Analysis of Operations and Financial
Condition
Sales
Consolidated sales in 1993 totaled $4.34 billion, an increase of
$285.6 million, or 7 percent, over 1992. Volume growth
contributed 7 percent and price increases added 2 percent, while
unfavorable foreign exchange of 2 percent moderated the
comparison. This performance reflects sales gains for INTRON A,
the Company's alpha interferon anticancer and antiviral agent, to
more than $570 million, and the domestic introduction of
CLARITIN, a once-daily nonsedating antihistamine, which recorded
worldwide sales of $295 million.
Consolidated 1992 sales of $4.06 billion grew $440.1 million, or
12 percent, over 1991, reflecting volume growth of 9 percent,
price increases of 2 percent and favorable foreign exchange of 1
percent. This growth resulted primarily from significant INTRON
A sales gains, due to the March 1992 approval for treatment of
chronic hepatitis C in Japan, and the July 1992 approval for
treatment of chronic hepatitis B in the United States.
Worldwide 1993 pharmaceutical sales of $3.64 billion advanced
$281.2 million, or 8 percent, over 1992, as volume growth of 8
percent and price increases of 2 percent were partially offset by
unfavorable foreign exchange rate fluctuations of 2 percent.
Worldwide sales of pharmaceutical products in 1992 increased
$464.4 million, or 16 percent, over 1991, reflecting volume
growth of 12 percent, price increases of 2 percent and favorable
foreign exchange of 2 percent.
Domestic prescription pharmaceutical product sales rose 10
percent in 1993. Sales of respiratory products increased 10
percent, led by strong introductory sales of CLARITIN, following
Food and Drug Administration (FDA) approval in April 1993. The
respiratory product growth also reflects gains for the VANCENASE
line of allergy products.
The sales advance for respiratory products was mitigated by a 17
percent decline in sales of the PROVENTIL (albuterol) line of
asthma products to $353 million. The PROVENTIL formulations of
solution, syrup and tablets have been subject to generic
competition. In January 1994, the FDA issued bioequivalence
standards for generic albuterol metered dose inhalers, which may
result in generic entries late in the year. The introduction of
a generic inhaler will further negatively affect sales and
profitability of PROVENTIL. Respiratory growth was also
moderated by lower sales of THEO-DUR, a sustained-action
theophylline, reflecting continued shrinkage of the theophylline
market, increased generic usage and price reductions.
Domestic sales of cardiovascular products rose 20 percent,
reflecting growth for K-DUR potassium supplements and NITRO-DUR
transdermal nitroglycerin patches, as well as the August 1993 FDA
approval of IMDUR, an oral nitrate for angina. Sales of anti-
infective and anticancer products grew 13 percent, due to gains
for EULEXIN, a therapy for advanced prostate cancer, and INTRON
A.
Sales of domestic vision care products declined 15 percent, due
to lower sales of colored lenses and the sale of the contact lens
solutions business in May 1992. Excluding the contact lens
solutions business, vision care sales were down 8 percent
compared with 1992.
Domestic prescription pharmaceutical sales in 1992 increased
$92.4 million, or 7 percent, over 1991, reflecting advances in
the anti-infective and anticancer, respiratory, and
cardiovascular product groups.
In 1993, international sales of pharmaceutical products grew
$163.4 million, or 9 percent. Excluding the impact of foreign
currency exchange rate fluctuations, sales would have increased
approximately 13 percent. The higher sales reflect a 16 percent
advance in anti-infective and anticancer products, due to
continued strong sales for INTRON A in Japan resulting from the
March 1992 approval for the treatment of chronic hepatitis C.
Sales of INTRON A in Japan approximated $300 million in 1993, but
are expected to moderate in 1994 due to an anticipated
government-mandated price reduction. Anti-infective and
anticancer sales were also aided by growth of EULEXIN in major
European markets, and introductory sales of CEDAX, a third-
generation cephalosporin.
International sales of respiratory products grew 18 percent, due
to worldwide gains for CLARITIN, and higher sales of asthma and
allergy products in Japan. Sales of cardiovascular products rose
22 percent, reflecting increases for NITRO-DUR and a calcium
channel blocker licensed from AB Astra.
Also contributing to the overall international sales growth were
gains for LOSEC, an anti-ulcer treatment licensed from AB Astra,
and higher sales of vision care products following the launch of
FRESHLOOK disposable lenses in Canada and major European markets.
In 1992, international pharmaceutical sales, excluding foreign
exchange, increased $346.5 million, or 24 percent, over 1991, led
by significant gains for INTRON A in Japan, coupled with
respiratory and cardiovascular product growth.
Sales of health care products in 1993 increased $4.4 million, or
1 percent, over 1992, as price increases of 2 percent were
moderated by volume declines of 1 percent. Foot care sales rose
12 percent, primarily due to higher sales of the upgraded and
repackaged DR. SCHOLL'S insoles line. Sun care sales advanced 12
percent following the introduction of COPPERTONE KIDS sunblock
and SHADE UVAGUARD, a broad-spectrum sunscreen that protects
against UVA and UVB rays. Over-the-counter (OTC) product sales
declined 10 percent, principally the result of lower sales of
female health products, caused by the intensely competitive
nature of the vaginal antifungal category. OTC sales were
further moderated by reduced sales of allergy/cold products, the
result of pressures exerted by the 1993 introductions of several
competitive brands.
In 1992, health care product sales decreased $24.3 million, or 3
percent, reflecting volume declines of 6 percent, tempered by
price increases of 3 percent. The sales shortfall was largely
due to lower sales of female health products.
Income Before Income Taxes
Income before income taxes totaled $1,078.4 million in 1993, an
increase of $124.5 million, or 13 percent, over 1992. In 1992,
income before income taxes of $953.9 million grew $93.1 million,
or 11 percent, over the $860.8 million in 1991.
Summary of Costs and Expenses:
(Dollars in millions)
% Increase/(Decrease)
1993 1992 1991 1993/92 1992/91
Cost of sales . . . . . . $ 908.8 $ 900.6 $ 816.4 1 % 10 %
% of sales . . . . . . . 20.9 % 22.2 % 22.6 %
Selling, general and
administrative . . . . . $1,747.4 $1,629.8 $1,503.5 7 % 8 %
% of sales . . . . . . . 40.3 % 40.2 % 41.6 %
Research and development. $ 577.6 $ 521.5 $ 425.9 11 % 22 %
% of sales . . . . . . . 13.3 % 12.9 % 11.8 %
Other expense, net $ 29.1 $ 49.9 $ 9.0 (42)% -
% of sales . . . . . . . .7 % 1.2 % .2 %
________________________________________________________________________________________
Cost of sales as a percentage of sales declined to 20.9 percent
in 1993 from 22.2 percent in 1992 and 22.6 percent in 1991. The
improvements reflect a change in sales mix to higher margin
ethical pharmaceutical products in several international markets,
and the 1993 launch of CLARITIN in the United States. Cost of
sales percentages also improved as a result of continuing cost
containment efforts.
Selling, general and administrative expenses represented 40.3
percent of sales in 1993, 40.2 percent in 1992 and 41.6 percent
in 1991. The increase as a percent of sales in 1993 from 1992
reflects higher promotional and selling expenses for the launch
of CLARITIN in the United States. The decline as a percent of
sales between 1992 and 1991 was due to lower promotional spending
following the 1991 launch of GYNE-LOTRIMIN, an antifungal for
vaginal yeast infections.
Research and development expenditures increased $56.1 million, or
11 percent, in 1993, representing 13.3 percent of sales, compared
with 12.9 percent of sales in 1992 and 11.8 percent in 1991.
These increases reflect the Company's ongoing commitment to
provide the resources necessary to ensure a steady flow of
innovative products and line extensions. In 1993, research and
development spending dedicated to the discovery and development
of pharmaceutical products increased 13 percent over 1992, and
represented 15.1 percent of total pharmaceutical sales compared
with 14.4 percent in 1992.
Other expense, net consists of interest income, interest expense,
foreign exchange gains and losses, and non-recurring items. In
1993, the net expense declined $20.8 million, reflecting
favorable foreign exchange in Japan and Ireland, and reduced
interest expense, moderated by lower interest income. The 1992
change resulted from lower interest income and higher foreign
exchange losses, tempered by lower interest expense.
Income Taxes
The Company's effective tax rate was 23.5 percent in 1993, 24.5
percent in 1992 and 25.0 percent in 1991. The effective tax rate
for each period was lower than the U.S. statutory income tax
rate, primarily due to tax incentives in Puerto Rico and lower
foreign tax rates. For additional information, see "Income
Taxes" in the Notes to Consolidated Financial Statements on page
31.
The Omnibus Budget Reconciliation Act of 1993 (the "Act")
increases the U.S. corporate tax rate from 34 percent to 35
percent, restricts deductibility of certain operating expenses,
reduces the tax benefit generated from operations in Puerto Rico
and, in certain circumstances, taxes a portion of undistributed
earnings of foreign subsidiaries. Management estimates that the
primary impact on the Company is the reduction in the benefit
arising from its operations in Puerto Rico. This reduction in
benefit is to be phased-in over a five-year period. Management
estimates the Act will unfavorably impact the effective tax rate
by 1.5 percentage points in 1994, and an additional 1.5 to 2.5
percentage points by 1996.
Accounting Changes And Extraordinary Item
During the first quarter of 1993, the Company adopted Statement
of Financial Accounting Standards (SFAS) No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions." In
connection with this adoption, the Company fully funded its
initial accumulated benefit obligation. The cumulative effect of
adopting SFAS No. 106 was a one-time, after-tax charge of $94.2
million, or $.48 per common share. For additional information on
this transaction, see "Other Post-retirement Benefits" in the
Notes to Consolidated Financial Statements on page 29.
During the first quarter of 1992, the Company adopted SFAS No.
109, "Accounting for Income Taxes." The cumulative effect of
implementing SFAS No. 109 was a one-time gain of $27.1 million,
or $.13 per common share. Also in this quarter, the Company
effected an in-substance defeasance of its zero-coupon debt,
which resulted in an extraordinary loss of $26.7 million, or $.13
per common share. For additional information on these
transactions, see "Income Taxes" and "Borrowings" in the Notes to
Consolidated Financial Statements on pages 31 and 26,
respectively.
Net Income
Income in 1993, excluding the extraordinary item and the
cumulative effect of accounting changes, totaled $825.0 million,
an increase of $105.0 million, or 15 percent, over 1992. Income
in 1992 exceeded 1991 by $74.4 million, or 12 percent, when
excluding the extraordinary item and the cumulative effect of
accounting changes. Differences in year-to-year exchange rates
reduced comparative growth in income in 1993 and 1992. After
eliminating these differences, income would have increased
approximately 18 percent in 1993 and 13 percent in 1992. Net
income in 1993, after the extraordinary item and accounting
changes, totaled $730.8 million, an increase of $10.4 million, or
1 percent, over 1992.
Earnings Per Common Share
Earnings per common share for the years 1991 through 1993 were
as follows:
1993 1992 1991
Earnings per common share before the
extraordinary item and accounting
changes $ 4.23 $ 3.60 $ 3.01
Extraordinary item - (.13) -
Accounting changes (.48) .13 -
Earnings per common share $ 3.75 $ 3.60 $ 3.01
Average shares outstanding
(in millions) 195.1 200.2 214.5
Earnings per common share before the extraordinary item and
accounting changes rose 18 percent in 1993 and 20 percent in
1992. Earnings per common share increased at a faster rate than
income due to the Company's share repurchase programs.
Fluctuations in year-to-year exchange rates have reduced
comparative growth in earnings per common share. Excluding the
impact of these exchange differences, earnings per common share
before the extraordinary item and accounting changes would have
advanced approximately 21 percent in both 1993 and 1992.
During the first quarter of 1993, the Company completed a $1.0
billion share repurchase program initiated in 1990, with the
purchase of .5 million common shares at a cost of $31.6 million.
This particular program also included the purchase of 3.1 million
common shares at a cost of $171.0 million in 1992 and the
purchase of 11.0 million shares at a cost of $547.4 million in
1991. In February 1993, the Board of Directors authorized the
purchase of up to an additional $500 million of the Company's
common shares. At year-end 1993, the program was approximately
77 percent complete with the purchase of 6.4 million common
shares at a cost of $386.7 million. During the first quarter of
1994, the Company expects to obtain medium-term financing to
complete its $500 million share repurchase program.
The Company also completed a debt-for-shares exchange transaction
during the fourth quarter of 1991 in which 10.0 million of the
Company's common shares were acquired and retired. Additional
information about this transaction is included in "Shareholders'
Equity" in the Notes to Consolidated Financial Statements on page
30.
Environmental Matters
The Company has obligations for environmental safety and clean-up
under various state, local and federal laws, including the
Comprehensive Environmental Response, Compensation and Liability
Act, commonly known as Superfund. Based on information currently
available, environmental expenditures have not had, and are not
anticipated to have, a material impact on the Company's financial
position, results of operations, liquidity or capital resources.
Additional Factors Influencing Operations
Prescription Drug Pricing
In the United States, many of the Company's pharmaceutical
products are subject to competitive pricing as managed care
groups, institutions and the government seek price discounts.
For the past three years, the Company held average net
prescription price increases in the United States to below the
increase in the Consumer Price Index (CPI). For 1994, the
Company once again expects average U.S. net prescription price
increases to be at or below the increase in the CPI.
The Clinton health care reform proposal includes several measures
that, if enacted, will have an impact on operations of the
Company. These measures include, but are not limited to, the
requirement of all health plans to offer prescription drug
coverage, the extension of Medicare coverage to include
outpatient drugs, and rebates on Medicare sales. In addition,
prices of new drugs would be reviewed with the Secretary of
Health and Human Services, who would be empowered to deny
Medicare reimbursement for those drugs deemed too expensive.
In most international markets, the Company operates in an
environment of government-mandated cost containment programs.
Sales in Italy and Germany declined in 1993 as a result of
restrictions placed on physician prescription levels and patient
reimbursements, and greater generic usage. In addition, several
markets have enacted across-the-board price reductions as a
further method of cost control. Currently, a number of other
international markets are reviewing the implementation of
additional programs to contain health care costs.
Because the Company is unable to predict the final form and
timing of various domestic and international governmental health
care reform proposals, their effect on future operations and cash
flows cannot be reasonably estimated.
Foreign Exchange
Sales outside of the United States represented 47 percent of
total sales in both 1993 and 1992. Fluctuating foreign exchange
rates have affected sales and earnings, as previously discussed.
Sales and earnings growth in 1994 will be negatively impacted if
the U.S. dollar continues to strengthen. The Company continues
to implement selective hedging strategies to mitigate the
possible adverse effects of additional 1994 exchange rate
changes.
Inflation
Inflation has had only a minimal impact on operations in recent
years.
Liquidity and Financial Resources
In 1993, total cash and investments, which includes cash and cash
equivalents and short- and long-term investments, decreased
$108.7 million, and total debt increased $128.2 million. This
change increased the Company's net debt position (debt less cash
and investments) to $824.3 million. While operations provided
$962.1 million in cash, net debt increased, resulting from
spending of $418.3 million for common share repurchases, $365.2
million for additions to property and $339.6 million for
shareholder dividends.
In 1992, the Company's net debt position of $587.4 million was
$207.1 million higher than the $380.3 million net debt position
in 1991. This change reflects spending for property additions,
shareholder dividends and common share repurchases in excess of
cash provided by operations.
Cash provided by operating activities totaled $962.1 million in
1993, $691.9 million in 1992 and $897.4 million in 1991. The
1993 increase primarily reflects lower working capital
requirements. Cash from operating activities has been reduced by
$147.0 million for the January 1993 funding of the Company's
initial accumulated post-retirement benefit obligation.
Capital expenditures amounted to $365.2 million in 1993, $403.2
million in 1992 and $339.4 million in 1991. It is anticipated
that expenditures will approximate $380 million in 1994, mainly
reflecting continuing plant expansions in Ireland and
manufacturing upgrades in New Jersey. Commitments related to
1994 capital expenditures totaled $117.8 million at December 31,
1993.
Dividend payments of $339.6 million were made in 1993, compared
with $300.2 million in 1992 and $273.6 million in 1991. These
increases reflect dividends per common share paid to shareholders
of $1.74 per share in 1993, up from $1.50 per share in 1992 and
$1.27 in 1991.
The Company's ratio of debt to total capital increased to 44
percent in 1993 from 41 percent in 1992, reflecting higher levels
of short-term debt. The Company's current liquidity levels and
financial resources continue to be sufficient to meet its
operating needs. As of December 31, 1993, the Company had $955.3
million in unused lines of credit, of which $680.0 million was in
support of commercial paper borrowings. The Company had an A-1+
and P-1 rating for its commercial paper, and AA and Aa3 general
bond rating from Standard and Poor's and Moody's, respectively,
as of December 31, 1993.
Schering-Plough Corporation and Subsidiaries
Statements of Consolidated Income
(Dollars in millions, except per share figures)
For The Years Ended December 31, 1993 1992 1991
Sales . . . . . . . . . . . . . . . . . . . . . $4,341.3 $4,055.7 $3,615.6
Costs and Expenses:
Cost of sales . . . . . . . . . . . . . . . . 908.8 900.6 816.4
Selling, general and administrative . . . . . 1,747.4 1,629.8 1,503.5
Research and development. . . . . . . . . . . 577.6 521.5 425.9
Other expense, net . . . . . . . . . 29.1 49.9 9.0
Total costs and expenses . . . . . . . . . . 3,262.9 3,101.8 2,754.8
Income before Income Taxes. . . . . . . . . . . 1,078.4 953.9 860.8
Income taxes. . . . . . . . . . . . . . . . . 253.4 233.9 215.2
Income before extraordinary item and
cumulative effect of accounting changes. . . . 825.0 720.0 645.6
Extraordinary Item. . . . . . . . . . . . . . - (26.7) -
Cumulative effect of accounting changes . . . (94.2) 27.1 -
___________________________________________________________________________________
Net Income. . . . . . . . . . . . . . . . . . . $ 730.8 $ 720.4 $ 645.6
Earnings per common share before extraordinary
item and cumulative effect of accounting changes $ 4.23 $ 3.60 $ 3.01
Extraordinary item. . . . . . . . . . . . . . - (.13) -
Cumulative effect of accounting changes . . . (.48) .13 -
___________________________________________________________________________________
Earnings Per Common Share . . . . . . . . . . . $ 3.75 $ 3.60 $ 3.01
Statements of Consolidated Retained Earnings
(Dollars in millions, except per share figures)
For The Years Ended December 31, 1993 1992 1991
Retained Earnings, Beginning of Year. . . . . . $3,044.4 $2,624.2 $2,817.8
Net income. . . . . . . . . . . . . . . . . . . 730.8 720.4 645.6
Cash dividends on common shares (per share:
1993, $1.74; 1992, $1.50; and 1991, $1.27) . . (339.6) (300.2) (273.6)
Common shares retired . . . . . . . . . . . . . - - (565.6)
___________________________________________________________________________________
Retained Earnings, End of Year. . . . . . . . . $3,435.6 $3,044.4 $2,624.2
<FN>
See Notes to Consolidated Financial Statements.
Schering-Plough Corporation and Subsidiaries
Statements of Consolidated Cash Flows
(Dollars in millions)
For The Years Ended December 31, 1993 1992 1991
Operating Activities:
Net income . . . . . . . . . . . . . . . . . . . . . $ 730.8 $ 720.4 $ 645.6
Depreciation and amortization. . . . . . . . . . . . 142.4 135.0 129.0
Working capital changes - source (use):
Accounts receivable . . . . . . . . . . . . . . . 48.4 (246.5) (45.3)
Inventories . . . . . . . . . . . . . . . . . . . (11.4) (28.8) (26.5)
Other current assets. . . . . . . . . . . . . . . (41.2) (78.1) (19.7)
Accounts payable, income taxes and accrued
liabilities. . . . . . . . . . . . . . . . . . . 101.9 142.2 185.5
Other, net . . . . . . . . . . . . . . . . . . . . . (8.8) 47.7 28.8
Net cash provided by operating activities. . . . . . 962.1 691.9 897.4
Investing Activities:
Capital expenditures . . . . . . . . . . . . . . . . (365.2) (403.2) (339.4)
Reduction of investments . . . . . . . . . . . . . . 192.7 323.0 575.9
Purchases of investments . . . . . . . . . . . . . . (287.1) (93.1) (315.3)
Other, net . . . . . . . . . . . . . . . . . . . . . (18.1) (2.5) (2.8)
Net cash used for investing activities (477.7) (175.8) (81.6)
Financing Activities:
Dividends paid to common shareholders. . . . . . . . (339.6) (300.2) (273.6)
Net change in short-term borrowings. . . . . . . . . 120.0 352.1 (172.6)
Reduction of long-term debt. . . . . . . . . . . . . (.6) (580.3) -
Common shares repurchased. . . . . . . . . . . . . . (418.3) (171.0) (547.4)
Proceeds from other equity transactions. . . . . . . 33.7 18.7 18.2
Other, net . . . . . . . . . . . . . . . . . . . . . (62.3) (9.7) 1.4
Net cash used for financing activities . . . . . . . (667.1) (690.4) (974.0)
Effect of Exchange Rates on Cash and Cash equivalents. (1.4) (3.7) -
Net Decrease in Cash and Cash Equivalents. . . . . . . (184.1) (178.0) (158.2)
Cash and Cash Equivalents, Beginning of Year . . . . . 406.3 584.3 742.5
Cash and Cash Equivalents, End of Year . . . . . . . . $ 222.2 $ 406.3 $ 584.3
_______________________________________________________________________________________
<FN>
See Notes to Consolidated Financial Statements.
/TABLE
Schering-Plough Corporation and Subsidiaries
Consolidated Balance Sheets
(Dollars in millions, except per share figures)
At December 31, 1993 1992
ASSETS
__________________________________________________________________________
Current Assets:
Cash and cash equivalents. . . . . . . . . . . $ 222.2 $ 406.3
Short-term investments . . . . . . . . . . . . 207.2 122.8
Accounts receivable, less allowances:
1993, $44.9; 1992, $43.3 . . . . . . . . . . 687.1 735.9
Inventories. . . . . . . . . . . . . . . . . . 404.6 393.4
Prepaid expenses, deferred income taxes
and other current assets . . . . . . . . . . . 379.4 354.6
Total current assets . . . . . . . . . . . . . 1,900.5 2,013.0
Property, at cost:
Land . . . . . . . . . . . . . . . . . . . . . 47.1 47.5
Buildings and improvements . . . . . . . . . . 1,319.8 978.0
Equipment. . . . . . . . . . . . . . . . . . . 1,146.6 1,007.2
Construction in progress . . . . . . . . . . . 325.4 546.8
Total. . . . . . . . . . . . . . . . . . . . . 2,838.9 2,579.5
Less accumulated depreciation. . . . . . . . . 871.2 831.0
Property, net. . . . . . . . . . . . . . . . . 1,967.7 1,748.5
Intangible Assets, net. . . . . . . . . . . . . . . 182.5 189.6
Other Assets. . . . . . . . . . . . . . . . . . . . 266.2 205.5
$4,316.9 $4,156.6
/TABLE
1993 1992
LIABILITIES AND SHAREHOLDERS' EQUITY
___________________________________________________________________________
Current Liabilities:
Accounts payable . . . . . . . . . . . . . . . $ 249.0 $ 239.7
Short-term borrowings and current portion of
long-term debt . . . . . . . . . . . . . . . 1,076.0 946.0
U.S., foreign and state income taxes . . . . . 341.8 312.3
Accrued compensation . . . . . . . . . . . . . 157.4 146.3
Other accrued liabilities. . . . . . . . . . . 308.2 324.9
Total current liabilities. . . . . . . . . . . 2,132.4 1,969.2
Long-Term Liabilities:
Long-term debt . . . . . . . . . . . . . . . . 182.3 184.1
Deferred income taxes. . . . . . . . . . . . . 175.9 198.5
Other long-term liabilities. . . . . . . . . . 244.4 207.9
Total long-term liabilities. . . . . . . . . . 602.6 590.5
Shareholders' Equity:
Preferred shares - authorized, 50,000,000
shares of $1 par value each; issued - none . - -
Common shares - authorized, 300,000,000 shares
of $1 par value each; issued,
251,482,691 shares . . . . . . . . . . . . . 251.5 251.5
Paid-in capital . . . . . . . . . . . . . . . . 80.9 47.5
Retained earnings . . . . . . . . . . . . . . . 3,435.6 3,044.4
Foreign currency translation adjustment . . . . (116.2) (90.9)
Total . . . . . . . . . . . . . . . . . . . . . 3,651.8 3,252.5
Less treasury shares, at cost - 1993, 57,927,994
shares; 1992, 51,965,499 shares . . . . . . 2,069.9 1,655.6
Total shareholders' equity . . . . . . . . . . 1,581.9 1,596.9
$4,316.9 $4,156.6
<FN>
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. Intercompany balances and
transactions are eliminated. Certain prior year amounts have been
reclassified to conform to the current year presentation.
Cash and Cash Equivalents
Cash and cash equivalents include operating cash and highly liquid
investments, generally with 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 substantially
all domestic inventories. 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.
Intangible Assets
Intangible assets principally include goodwill, patents, licenses
and trademarks. Goodwill represents the excess of cost over the
fair value of net assets of companies purchased, and is amortized on
the straight-line method, generally over 40 years. Other intangible
assets are recorded at cost and amortized over their expected useful
lives on the straight-line method. Accumulated amortization of
intangible assets was $86.5 and $69.8 at December 31, 1993 and 1992,
respectively. Intangible assets are periodically reviewed to
determine recoverability by comparing their carrying values to
expected future cash flows.
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 (FCTA) account in shareholders' equity. For
the remaining foreign subsidiaries, non-monetary assets are
translated using historical rates, while monetary assets are
translated at current rates, with the U.S. dollar effects of rate
changes included in income.
Exchange gains and losses arising from hedging foreign net
investments and from translating intercompany balances of a long-
term investment nature are recorded in the FCTA account. Other
exchange gains and losses are included in income.
Net foreign exchange losses included in income were $13.6, $21.5,
and $8.4 in 1993, 1992 and 1991, respectively.
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, warrants and under
deferred delivery agreements are not considered in the calculation,
as they are either not dilutive or do not have a material effect on
the determination of earnings per common share.
Financial Instruments
The following table presents information on the Company's financial
instruments:
1993 1992
Carrying Estimated Carrying Estimated
Value Fair Value Value Fair Value
Assets:
Cash and cash equivalents $ 222 $ 222 $406 $406
Investments 212 212 136 136
Foreign currency put options 4 6 8 12
Liabilities:
Short-term borrowings 1,076 1,076 946 946
Long-term debt 182 194 184 198
Interest rate swap contracts 6 6 3 3
Forward exchange contracts 53 68 55 62
The estimated fair values of investments, short-term borrowings and
long-term debt were based on the quoted market prices of these or
similar instruments. The estimated fair values of foreign currency
put options, interest rate swap contracts and forward exchange
contracts were based upon quotes from brokers.
All investments are available for sale and mature within 12 months
of year-end. Investments consist primarily of certificates of
deposit and municipal obligations, and are carried at amortized
cost. Realized gains and losses, based on the specific
identification method, were not material.
On a selective basis, the Company uses derivative financial
instruments to hedge against adverse changes in interest rates and
foreign exchange rates. The Company has also used such instruments
as a part of its international cash management strategy. The
Company is neither a trader nor a speculator in such instruments.
Certain financial instruments, including derivative 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 by dealing only with financially sound
counterparties. Accordingly, the Company does not anticipate loss
for non-performance. The Company manages market risk by limiting
the use of derivatives to hedging activities or by limiting maximum
potential exposures to amounts that are not material to results of
operations or cash flow.
Following is a description of the derivative financial instruments
shown above:
Foreign Currency Put Options
The Company uses these instruments to hedge future inventory
purchases. The total U.S. dollar amount of such instruments was
$150.0 at December 31, 1993 and $354.0 at December 31, 1992. At
December 31, 1993, these instruments were to sell Deutschemarks,
French francs and yen, and at December 31, 1992, these instruments
were for the sale of Deutschemarks and yen. These options mature
within 15 months from date of purchase. During 1993, transactions
included the purchase, exercise and expiration of options of $382.1,
$281.8 and $304.3, respectively. Loss on option contracts is
limited to the premiums paid. Gains on such instruments are
deferred and ultimately reduce the cost of inventory. Gains arising
from these instruments were not material.
Interest Rate Swap Contracts
The Company has used interest rate swap contracts as a part of its
international cash management strategy. At December 31, 1993 and
1992, two arrangements having notional principal amounts of $650 and
$950 were outstanding. These arrangements provide for the receipt
and payment of interest through 2012. These contracts are carried
at market value.
Forward Exchange Contracts
The Company uses these instruments to hedge investments in its
foreign subsidiaries. The aggregate face values were $87.3 and
$105.0 at December 31, 1993 and 1992, respectively. During 1993,
activity included a $7.0 purchase and a $24.7 maturity. At December
31, 1993, these contracts were primarily for the exchange of yen for
U.S. dollars and at December 31, 1992, these contracts were for the
exchange of yen and Swiss francs for U.S. dollars. The arrangements
mature at various dates through 2002. In accordance with SFAS No.
52, these instruments are recorded at foreign exchange spot rates in
effect at year-end.
Borrowings
Short-term borrowings consist of commercial paper issued in the
United States, bank loans and notes payable. Commercial paper
outstanding at December 31, 1993 and 1992 was $961.4 and $715.8,
respectively. Bank loans and notes payable at December 31, 1993 and
1992 totaled $112.0 and $229.6, respectively.
At December 31, 1993, unused domestic bank lines of credit, which
were considered as support for commercial paper borrowings, were
$680.0. These lines of credit do not require compensating balances;
however, a nominal commitment fee is paid on the unused portion of
these lines.
The Company's foreign subsidiaries had available $275.3 in unused
lines of credit from various financial institutions at December 31,
1993. Generally, these credit lines do not require commitment fees
or compensating balances and are cancelable at the option of the
Company or the financial institutions.
Long-term debt, including current maturities, at December 31
consisted of the following:
1993 1992
Notes, 7.8%, due 1996 . . . . . . . . . . . . . . $100.0 $100.0
Industrial revenue bonds, 2.8%-12.0%,
due 2001-2013 . . . . . . . . . . . . . . . . . 80.0 80.0
Other . . . . . . . . . . . . . . . . . . . . . . 4.9 4.7
184.9 184.7
Current maturities. . . . . . . . . . . . . . . . (2.6) (.6)
Total long-term debt. . . . . . . . . . . . . . . $182.3 $184.1
During the 1992 first quarter, the Company purchased approximately
$600.0 of U.S. Government securities and deposited them into an
irrevocable trust to complete an in-substance defeasance of the
Company's zero-coupon notes. The funds in the trust will be used
solely to satisfy the $828.6 maturity value of the zero-coupon notes
due December 2, 1996. Accordingly, the government securities and
the zero-coupon notes have been excluded from the 1992 and 1993
balance sheets. The debt extinguishment resulted in an
extraordinary loss of $26.7 (net of income taxes of $15.0), or $.13
per share.
The Company has a shelf registration statement on file with the
Securities and Exchange Commission covering the issuance of up to
$200.0 of debt securities. These securities may be offered from
time to time on terms to be determined at the time of sale. As of
December 31, 1993, no debt securities have been issued pursuant to
this registration.
Interest Income and Interest Expense
Interest income for 1993, 1992 and 1991 was $23.9, $38.5 and $72.2,
respectively.
Interest expense, net of amounts capitalized as part of the
construction cost of property, plant and equipment for 1993, 1992
and 1991 was $48.2, $55.4 and $65.3, respectively. Interest costs
of $12.7, $15.8, and $11.8 in 1993, 1992, and 1991, respectively,
have been capitalized and included in the cost of property, plant
and equipment. Total cash payments for interest, net of amounts
capitalized, were $49.4, $54.8 and $62.2 in 1993, 1992 and 1991,
respectively.
Interest income and interest expense are included in other expense,
net.
Stock Incentive Plans
Under the terms of the Company's 1992 Stock Incentive Plan, 9
million shares of the Company's common stock may be granted as stock
options or awarded as deferred stock units to officers and certain
employees of the Company through December 1997. Options are granted
at prices not less than the market value of the common stock at
grant dates, become exercisable not earlier than six months and one
day from the date of the grant, and expire not later than 10 years
after the date of the grant. Deferred stock units are payable in an
equivalent number of common shares; the shares are distributable in
a single installment or in up to five equal annual installments
commencing not earlier than six months and one day from the date of
the award.
The table below summarizes stock option activity over the past two
years under current and prior plans:
Number Option price
of shares (range per share)
Outstanding at January 1, 1992 . . . . 4,555,668 $ 7.41-$56.50
Granted . . . . . . . . . . . . . . 624,275 $55.38-$58.88
Exercised . . . . . . . . . . . . . (575,141) $ 7.41-$48.75
Canceled or expired . . . . . . . . (33,576)
Outstanding at December 31, 1992. . . . 4,571,226 $ 8.81-$58.88
Granted . . . . . . . . . . . . . . 608,195 $53.00-$66.38
Exercised . . . . . . . . . . . . . (772,910) $ 8.81-$58.88
Canceled or expired . . . . . . . . (26,105)
Outstanding at December 31,1993 . . . . 4,380,406 $ 8.81-$66.38
Exercisable at December 31, 1993. . . . 2,623,516
There were 315,770 deferred stock units awarded in 1993 and 306,846
in 1992. As of December 31, 1993 and 1992, there were 942,300 and
897,842 deferred stock units outstanding, respectively, under
current and prior plans. At December 31, 1993, there were 8,023,790
shares available for future options or awards.
Inventories
Year-end inventories consisted of the following:
1993 1992
Finished products . . . . . . . . . . . . . . $168.3 $155.6
Goods in process. . . . . . . . . . . . . . . 95.5 112.3
Raw materials and supplies. . . . . . . . . . 140.8 125.5
Total inventories . . . . . . . . . . . . . . 404.6 $393.4
Inventories valued on a last-in, first-out basis comprised
approximately 42 percent and 47 percent of total inventories at
December 31, 1993 and 1992, respectively. The estimated replacement
cost of total inventories at December 31, 1993 and 1992 was $458.7
and $443.5, respectively.
Retirement Plans
The Company and certain of its subsidiaries have defined benefit
pension plans covering eligible employees in the United States and
certain foreign countries. Benefits under these plans are generally
based upon the participants' average final earnings and years of
credited service, and take into account governmental retirement
benefits. The Company's funding policy is to contribute actuarially
determined amounts, after taking into consideration the funded
status of each plan and regulatory limitations.
The components of the net pension expense (income) for all Company-
sponsored plans were as follows:
1993 1992 1991
Service cost - benefits earned during
the year. . . . . . . . . . . . . . . $ 26.6 $ 24.0 $ 24.0
Interest cost on projected benefit
obligations . . . . . . . . . . . . . 40.5 37.5 35.4
Actual return on plan assets . . . . . (101.5) (46.3) (109.0)
Net amortization and deferral . . . . . 36.8 (15.3) 50.6
Net pension (income) expense. . . . . . $ 2.4 $ (.1) $ 1.0
The year-to-year changes in the net amortization and deferral
component of pension cost are principally attributable to
differences between actual and expected returns on plan assets.
The actuarial present value of benefit obligations and funded status
of the plans at December 31 were as follows:
1993 1992
Projected benefit obligations:
Accumulated benefit obligations,
including vested benefits of
$466.8 in 1993 and $389.4 in 1992. . . $504.1 $400.1
Effect of future salary increases . . . 101.8 93.3
Total projected benefit obligations . . . 605.9 493.4
Plan assets at fair value,
primarily stocks and bonds. . . . . . . 711.2 622.9
Excess of plan assets over projected
benefit obligations . . . . . . . . . . 105.3 129.5
Unrecognized net transition asset . . . . (87.9) (96.1)
Unrecognized prior service cost . . . . . 11.0 7.6
Unrecognized net loss (gain) to date. . . 20.0 (2.3)
Prepaid pension cost . . . . . . . . . . $ 48.4 $ 38.7
The discount rate used in determining the projected benefit obli-
gation for the Company's U.S. plans was 7.0 percent at December 31,
1993 and 8.5 percent at December 31, 1992. The weighted-average
discount rate for the Company's non-U.S. plans was 7.3 percent at
December 31, 1993, and 7.9 percent at December 31, 1992. The
weighted-average rate of increase in future compensation levels for
all plans was 4.2 percent and 5.5 percent at December 31, 1993 and
1992, respectively. The weighted-average expected long-term rate of
return on plan assets was approximately 10.0 percent for both years.
The assumption changes increased the projected benefit obligation by
approximately 14 percent.
The Company has a defined contribution profit-sharing plan covering
substantially all of 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 $58.2, $53.7 and $47.1 in 1993, 1992 and 1991, respectively.
Other Post-retirement Benefits
The Company provides post-retirement health care and other benefits
to its eligible United States retirees and their dependents.
Eligibility for benefits depends upon age and years of service.
Retirees share in the cost of the health care benefits.
Health care benefits for retirees in most countries other than the
United States are provided through local government-sponsored plans.
The direct cost of Company sponsored, non-U.S. plans is not
significant. Accordingly, these plans are excluded from the
following disclosures.
Effective January 1, 1993, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions." The
statement requires the accrual of post-retirement benefits during
the years an employee provides service to the Company. Previously,
these costs were expensed on a pay-as-you-go basis.
As of January 1, 1993, the cumulative accrual of such benefits
totaled $147.0, $94.2 after-tax, or $.48 per share. The Company
elected to recognize this entire amount effective with the adoption
of the statement.
The components of 1993 net post-retirement benefit cost were as
follows:
Service cost - benefits earned during the year. . . . $ 5.3
Interest cost on accumulated post-retirement
benefit obligation . . . . . . . . . . . . . . . . . 12.1
Actual return on plan assets. . . . . . . . . . . . . (15.9)
Deferral. . . . . . . . . . . . . . . . . . . . . . . 4.2
Post-retirement benefit cost . . . . . . . . . . . . . $ 5.7
The pay-as-you-go cost was $6.1 and $5.6 in 1992 and 1991,
respectively.
The accumulated post-retirement benefit obligation and funded status
at December 31, 1993, were as follows:
Accumulated post-retirement benefit
obligation attributable to:
Retirees. . . . . . . . . . . . . . . . . . . . . $ 69.6
Fully eligible active plan participants . . . . . 24.2
Other active plan participants. . . . . . . . . . 56.2
Accumulated post-retirement benefit obligation . . . . 150.0
Plan assets at fair value,
primarily stocks & bonds. . . . . . . . . . . . . . 157.6
Plan assets in excess of accumulated post-retirement
benefit obligation . . . . . . . . . . . . . . . 7.6
Unrecognized gain . . . . . . . . . . . . . . . . . . (12.3)
Accrued post-retirement benefit liability . . . . . . $ (4.7)
/TABLE
In January 1993, the Company fully funded its initial accumulated
benefit obligation. Future funding is at the discretion of the
Company.
The assumed health care cost trend rates used for measurement
purposes were 13 percent for 1994, trending down to 5 percent by
2003. The weighted-average discount rate used was 7 percent. The
weighted-average expected long-term rate of return on plan assets
was 9 percent. Earnings on plan assets that have been segregated
for tax purposes and funded through a Voluntary Employee Benefit
Association (VEBA trust) are subject to a tax rate of 39.6 percent.
A 1 percent increase in the assumed health care cost trend rate
would increase the combined service and interest cost by
approximately 8 percent, and the accumulated post-retirement benefit
obligation by approximately 13 percent.
Shareholders' Equity
The Preferred Share Purchase Rights (the "Rights") outstanding are
attached to, and presently only trade with, the Company's common
shares and are not exercisable. The Rights will begin to trade
separately from the common shares and become exercisable upon the
earlier of (i) 10 days following a public announcement that a person
or group has acquired beneficial ownership of 20 percent or more of
the Company's outstanding common shares, or (ii) 10 business days
following a person or group's commencement of, or announcement of,
an intention to make a tender or exchange offer, the consummation of
which would result in beneficial ownership of 20 percent or more of
the Company's common shares.
Upon becoming exercisable, each Right will entitle the holder to
purchase one one-hundredth of a share of Series A Junior
Participating Preferred Stock, par value $1 per share, of the
Company at an exercise price of $250. In the event that the Company
is acquired pursuant to a merger, or 50 percent or more of its
consolidated assets or earning power are sold, each Right will
entitle its holder to purchase shares of the acquiring company
having a market value of twice the exercise price of the Right. In
the event that any person or group becomes the beneficial owner of
20 percent or more of the common shares, each Right will entitle its
holder to purchase common shares of the Company having a market
value of twice the exercise price of the Right. The Company may
redeem the Rights at $.01 per Right at any time prior to the
acquisition, by a person or group, of 20 percent or more of the
Company's outstanding common shares. The Rights will expire on
August 9, 1999, unless earlier redeemed.
A summary of activity in common shares, paid-in capital and treasury
shares follows (number of shares in thousands):
Common Paid-in Treasury Shares
Shares Capital Number Amount
Balance at January 1, 1991. . . $261.5 $ 17.3 39,457 $945.0
Shares issued under stock
incentive plans . . . . . . . - 22.1 (802) (5.0)
Common shares retired. . . . . (10.0) (29.0) - -
Issuance of warrants . . . . . - 10.4 - -
Purchase of treasury shares. . - - 11,039 547.4
___________________________________________________________________
Balance at December 31, 1991. . 251.5 20.8 49,694 1,487.4
Shares issued under stock
incentive plans . . . . . . . - 26.7 (791) (2.8)
Purchase of treasury shares. . - - 3,062 171.0
__________________________________________________________________
Balance at December 31, 1992. . 251.5 47.5 51,965 1,655.6
Shares issued under stock
incentive plans . . . . . . . - 41.8 (990) (4.0)
Warrant transactions . . . . . - (8.4) - -
Purchase of treasury shares . . - - 6,953 418.3
____________________________________________________________________
Balance at December 31, 1993. . $251.5 $ 80.9 57,928 $ 2,069.9
During 1991, the Company received and retired 10 million shares of
common stock in exchange for zero-coupon notes and warrants. The
warrants, exercisable during a 90-day period ending on November 22,
1996, entitle their holders to purchase up to 8.5 million shares of
common stock at an exercise price of $97.33 per share. In February
1993, the Company entered into a transaction that effectively
eliminated, for financial reporting purposes, its obligation for
warrants covering 3.4 million common shares. The net cost of this
transaction was $8.4. In December 1993, pursuant to certain rights
provided by the agreement, warrants covering 2.6 million shares were
surrendered in exchange for $7.0. Also, during 1993, the Company
entered into an option-type contract that reduces its exposure under
warrants that remain outstanding at December 31, 1993, covering 2.5
million shares.
Income Taxes
Effective January 1, 1992, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for
Income Taxes", under which deferred taxes are based on the asset and
liability method. Prior to the adoption of SFAS No. 109, income
taxes were accounted for under the deferral method.
The cumulative effect of implementing SFAS No. 109 was a one-time gain of $27.1,
or $.13 per share. As permitted by SFAS No. 109, the Company has not restated
prior year financial statements.
U.S. and foreign operations contributed to income before income taxes as follows:
1993 1992 1991
United States. . . . . . . . . . . . $ 588.7 $561.7 $569.0
Foreign. . . . . . . . . . . . . . . . 489.7 392.2 291.8
Total income before income taxes . . . $1,078.4 $953.9 $860.8
The components of income tax expense before the extraordinary item and cumulative
effect of accounting changes were as follows:
1993 1992 1991
Current:
Federal. . . . . . . . . . . . . . . $ 110.9 $131.5 $134.3
Foreign. . . . . . . . . . . . . . . 121.7 111.5 65.0
State. . . . . . . . . . . . . . . . 6.9 24.3 11.2
Total current. . . . . . . . . . . . 239.5 267.3 210.5
Deferred:
Federal and state. . . . . . . . . . 10.4 6.1 4.1
Foreign. . . . . . . . . . . . . . . 3.5 (39.5) .6
Total deferred . . . . . . . . . . . 13.9 (33.4) 4.7
Total income tax expense . . . . . . . $ 253.4 $233.9 $215.2
Deferred taxes include provisions (credits) for the following:
1993 1992 1991
Non-recurring items . . . . . . . . . . $ 5.7 $ 13.5 $ 19.8
Excess of tax depreciation over
financial statement depreciation . . . 17.2 .8 9.3
Intercompany inventory transfers . . . 2.6 (17.4) (5.8)
Operating costs not currently
deductible for tax purposes* . . . . (11.1) (15.3) (15.7)
* Principally consisting of accruals for employee benefits and other operating
costs and allowances for accounts receivable and inventory.
The difference between the U.S. statutory tax rate and the Company's effective
tax rate was due to the following:
1993 1992 1991
U.S. statutory tax rate. . . . . . . . . 35.0% 34.0% 34.0%
Increase (decrease) in taxes resulting
from:
Tax exemptions on Puerto Rico
operations . . . . . . . . . . . . . (6.1) (6.8) (7.5)
Difference in effective tax rate on
foreign source income. . . . . . . . (5.6) (5.7) (3.1)
Research tax credit. . . . . . . . . . (.6) (.3) (.7)
All other, net . . . . . . . . . . . . .8 3.3 2.3
Effective tax rate . . . . . . . . . . . 23.5% 24.5% 25.0%
As of December 31, 1993 and 1992, the Company had total deferred tax
assets of $325.9 and $251.0, respectively, and deferred tax
liabilities of $301.4 and $267.6, respectively. Valuation
allowances are not significant. Significant deferred tax
liabilities and assets at December 31, 1993 and 1992 were for
depreciation differences, $163.5 and $146.2, respectively, and
operating costs not currently deductible for tax purposes, $230.6
and $166.7, respectively. Current assets at December 31, 1993 and
1992 include net deferred tax assets of $187.6 and $179.7,
respectively.
Deferred taxes are not provided on undistributed earnings of foreign
subsidiaries (considered to be permanent investments), which at
December 31, 1993 approximated $1,068.3. Determining the tax
liability that would arise if these earnings were remitted is not
practicable.
The Company has facilities in Puerto Rico that manufacture products
for both domestic and foreign markets. These facilities operate
under tax relief and other incentives that expire at various dates
through 2018.
As of December 31, 1993, the U.S. Internal Revenue Service has
completed its examination of the Company's tax returns for all years
through 1986 and there are no unresolved issues outstanding for
those years.
Total income tax payments during 1993, 1992 and 1991 were $183.1,
$210.3 and $117.8, respectively.
At December 31, 1993, the Company had capital losses for tax
purposes of $73.2 available to be carried forward to future periods
expiring in 1995.
Commitments
Total rent expense amounted to $27.0 in 1993, $25.6 in 1992 and
$23.8 in 1991. Future minimum rental commitments on non-cancelable
operating leases as of December 31, 1993, range from $16.8 in 1994
to $6.1 in 1998, with aggregate minimum lease obligations of $24.0
due thereafter.
The Company has commitments related to future capital expenditures
totaling $117.8 as of December 31, 1993.
Legal and Environmental Matters
The Company has responsibilities for environmental safety and clean-
up under various state, local and federal laws, including the
Comprehensive Environmental Response, Compensation and Liability
Act, commonly known as Superfund.
The Company is named as a potentially responsible party (PRP) at
several Superfund sites. The Company estimates its obligations for
clean-up costs for Superfund sites based on information obtained
from the Environmental Protection Agency, studies prepared by
independent engineers, and probable costs to be paid by other PRPs.
Costs are accrued when the Company becomes aware of its site clean-
up responsibility.
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 reasonably be estimated.
The recorded liabilities for these matters at December 31, 1993 and
1992, and the related expenses incurred during the three years ended
December 31, 1993, were not material. Expected insurance recoveries
have not been considered in determining the costs related to
recorded liabilities. Management believes that it is remote that
costs materially in excess of the amounts accrued for the above
matters will be incurred.
Consistent with trends in the pharmaceutical industry, the Company
is self-insured for certain events.
Business Segment Data
Schering-Plough is a research-based company engaged in the
discovery, development, manufacturing and marketing of
pharmaceutical and health care products worldwide. Pharmaceutical
products include prescription drugs, vision care and animal health
products. Health care products include over-the-counter, foot care
and sun care products sold primarily in the United States.
Sales and Operating Profit by Industry Segment
Sales Profit
1993 1992 1991 1993 1992 1991
Pharmaceutical products. . . $3,640.7 $3,359.5 $2,895.1 $1,055.9 $ 934.6 $785.2
Health care products . . . . 700.6 696.2 720.5 135.8 149.8 155.6
Total sales and operating
profit. . . . . . . . . . . 4,341.3 4,055.7 3,615.6 1,191.7 1,084.4 940.8
General corporate
revenue and expense . . . . (65.1) (75.1) (14.7)
Interest expense . . . . . . (48.2) (55.4) (65.3)
Consolidated sales
and pre-tax profit. . . . . 4,341.3 $4,055.7 $3,615.6 $1,078.4 $953.9 $860.8
Identifiable Assets, Capital Expenditures, Depreciation and Amortization by Industry
Segment
Capital Depreciation and
Assets Expenditures Amortization
1993 1992 1991 1993 1992 1991 1993 1992 1991
Pharmaceutical products. $3,276.1 $3,036.8 $2,428.4 $ 339.4 $383.9 $312.9 $119.5 $113.0 $107.7
Health care products . . 408.7 382.7 418.1 24.2 18.4 22.6 17.8 16.9 16.3
Industry segment totals. 3,684.8 3,419.5 2,846.5 363.6 402.3 335.5 137.3 129.9 124.0
Corporate. . . . . . . . 632.1 737.1 1,166.7 1.6 .9 3.9 5.1 5.1 5.0
Consolidated assets,
capital expenditures,
depreciation and
amortization. . . . . . $4,316.9 $4,156.6 $4,013.2 $ 365.2 $403.2 $339.4 $142.4 $135.0 $129.0
Sales, Operating Profit and Identifiable Assets by Geographic Area
Sales Profit Assets
1993 1992 1991 1993 1992 1991 1993 1992 1991
United States. . . $2,285.1 $2,163.9 $2,117.5 $ 685.2 $664.2 $658.5 $2,263.0 $2,135.3 $1,755.0
Europe, Middle
East and Africa . 955.5 1,018.9 875.8 219.8 214.5 159.7 689.2 567.6 588.6
Latin America. . . 333.1 274.7 232.6 79.4 64.6 48.2 233.9 192.0 201.0
Canada, Pacific
Area and Asia . . 767.6 598.2 389.7 207.3 141.1 74.4 498.7 524.6 301.9
Total sales,
operating profit
and identifiable
assets . . . . . $4,341.3 $4,055.7 $3,615.6 $1,191.7 $1,084.4 $940.8 $3,684.8 $3,419.5 $2,846.5
Sales, operating profit and identifiable assets as presented are associated
with each geographic area, based on the location of the ultimate customers.
The Company maintains manufacturing facilities in Ireland and Puerto Rico for
the production of several significant finished and semi-finished products for
distribution to domestic and foreign subsidiaries. The sales, operating
profit and identifiable assets of these facilities have been included in the
geographic area in which the ultimate customers are located.
Net assets of foreign subsidiaries totaled $1,571.5, $1,322.4 and $870.1 at
December 31, 1993, 1992 and 1991, respectively.
Corporate assets are principally cash and cash equivalents, investments,
property and deferred taxes.
Report by Management
The management of Schering-Plough is responsible for the preparation
and the integrity of all information and representations contained
in the financial statements and related data included in this Annual
Report. This information was prepared in accordance with generally
accepted accounting principles and is believed by management to
present fairly the Company's results of operations, financial
position and cash flows. It is important to recognize that the
preparation of financial statements requires the use of estimates
and assumptions that affect the reported amounts of assets,
liabilities, sales and expenses.
Schering-Plough maintains, and management relies on, a system of
internal accounting controls that provides reasonable assurance of
the integrity and reliability of the financial statements. The
system provides, at appropriate cost, that assets are safeguarded,
transactions are executed in accordance with management's authoriza-
tion, and fraudulent financial reporting practices are prevented or
detected. In establishing and maintaining this system, judgments
are required to assess and balance the relative cost versus the
expected benefit of a given control.
The Company's internal accounting control system is clearly
documented, provides for careful selection and training of
supervisory and management personnel, and also requires appropriate
segregation of responsibilities and delegation of authority. Formal
policies and procedures are maintained and systematically
disseminated throughout the Company. 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, audit
Schering-Plough's financial statements. They evaluate the Company's
internal accounting controls and perform tests of procedures and
accounting records to enable them to render their report. In
addition, Schering-Plough has an internal audit function that
assists management in discharging its responsibilities. The
internal audit staff, under the direction of the vice president -
corporate audits, regularly performs audits using programs designed
to test compliance with Company policies and procedures, and to
verify the adequacy of internal accounting controls and other
financial policies. The internal auditors also continually evaluate
the effectiveness and accuracy of financial reporting by the
Company's various operations.
Management has considered the internal auditors' and independent
auditors' recommendations concerning the Company's system of
internal accounting controls and has taken appropriate action. Such
recommendations are communicated in accordance with Company policy
to the individuals responsible for implementation.
The Finance and Audit Committee of the Board of Directors consists
solely of non-employee directors. The Committee meets periodically
with management, the internal auditors and the independent auditors
to review auditing, financial reporting, internal accounting
controls and other financial matters. Both the independent auditors
and internal auditors have free access to the Committee, with and
without the presence of management, to discuss the adequacy of
Schering-Plough's internal accounting controls, the quality of
financial reporting and other matters relating to their audits.
It is our opinion that the Company's system of internal accounting
controls in effect as of December 31, 1993, provides reasonable
assurance that the financial statements and related data in this
Annual Report are fairly presented in accordance with generally
accepted accounting principles.
/s/Robert P. Luciano /s/Harold R. Hiser, Jr. /s/Thomas H. Kelly
Chairman and Executive Vice President Vice President
Chief Executive Officer Finance and Controller
INDEPENDENT AUDITORS' REPORT
DELOITTE & TOUCHE
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, 1993
and 1992 and the related statements of consolidated income, retained
earnings and cash flows for each of the three years in the period
ended December 31, 1993. 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 generally accepted
auditing standards. 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, 1993
and 1992 and the results of their operations and their cash flows
for each of the three years in the period ended December 31, 1993,
in conformity with generally accepted accounting principles.
As discussed in Notes to Consolidated Financial Statements, the
Company changed, in 1992, its method of accounting for income taxes
to conform with Statement of Financial Accounting Standards ("SFAS")
No. 109, and, in 1993, its method of accounting for postretirement
benefits other than pensions to conform with SFAS No. 106.
/s/Deloitte & Touche
Parsippany, New Jersey
February 15, 1994
COMMON SHARE DIVIDENDS AND MARKET DATA
During 1993, the Board of Directors increased the quarterly dividend
rate from $.39 per share to $.45 per share. Dividends paid on common
shares in 1993 totaled $339.6 million, representing a 13 percent
increase over the $300.2 million paid in 1992. The quarterly
dividends per share paid over the last two years were as follows:
Quarter 1993 1992
1st $ .39 $ .33
2nd .45 .39
3rd .45 .39
4th .45 .39
$1.74 $1.50
The approximate number of holders of record of common shares as of
December 31, 1993, was 34,900.
The Company's common shares are listed and principally traded on the
New York Stock Exchange. The following table shows the reported
high and low sale prices for the common shares in each of the
calendar quarters during the past two years:
1993 1992
Quarter High Low High Low
1st 63 7/8 51 3/4 $68 $54 7/8
2nd 70 7/8 55 1/2 58 1/2 49 7/8
3rd 69 1/4 58 62 7/8 53 3/4
4th 71 63 1/8 70 1/8 55 1/4
__________________________________________________________
Schering-Plough Corporation and Subsidiaries
Six-Year Selected Financial and Statistical Data
(Dollars in millions, except per share figures)
1993 1992 1991 1990 1989 1988
Operating Results
Sales . . . . . . . . . . . . . $4,341.3 $4,055.7 $3,615.6 $3,322.9 $3,157.9 $2,969.4
Income before income taxes. . . 1,078.4 953.9 860.8 768.9 645.6 533.9
Income before extraordinary item
and cumulative effect of
accounting changes . . . . . . 825.0 720.0 645.6 565.1 471.3 389.8
Extraordinary item. . . . . . . - (26.7) - - - -
Cumulative effect of accounting
changes. . . . . . . . . . . . (94.2) 27.1 - - - -
Net income. . . . . . . . . . . 730.8 720.4 645.6 565.1 471.3 389.8
Earnings per common share before
extraordinary item and cumulative
effect of accounting changes . 4.23 3.60 3.01 2.50 2.09 1.74
Extraordinary item. . . . . . . - (.13) - - - -
Cumulative effect of accounting
changes. . . . . . . . . . . . (.48) .13 - - - -
Earnings per common share . . . 3.75 3.60 3.01 2.50 2.09 1.74
______________________________________________________________________________________________
Investments
Research and development. . . . $ 577.6 $ 521.5 $ 425.9 $ 379.6 $ 326.5 $ 297.9
Capital expenditures. . . . . . 365.2 403.2 339.4 242.9 186.1 156.1
Financial Condition
Property, net . . . . . . . . . $1,967.7 $1,748.5 $1,490.4 $1,284.4 $1,210.7 $1,181.0
Total assets. . . . . . . . . . 4,316.9 4,156.6 4,013.2 4,103.1 3,613.5 3,425.6
Long-term debt. . . . . . . . . 182.3 184.1 753.6 182.9 185.5 189.8
Shareholders' equity. . . . . . 1,581.9 1,596.9 1,346.1 2,080.8 1,955.4 1,677.0
Net book value per common share 8.17 8.00 6.67 9.37 8.64 7.46
Financial Statistics
Income before extraordinary item
and cumulative effect of accounting
changes as a percent of sales. 19.0% 17.8% 17.9% 17.0% 14.9% 13.1%
Net income as a percent of sales 16.8% 17.8% 17.9% 17.0% 14.9% 13.1%
Return on average shareholders'
equity . . . . . . . . . . . . 46.0% 49.0% 37.7% 28.0% 25.9% 25.0%
Effective tax rate. . . . . . . 23.5% 24.5% 25.0% 26.5% 27.0% 27.0%
Other Data
Dividends per common share. . . $ 1.74 $ 1.50 $ 1.27 $1.065 $ .875 $ .70
Dividends on common shares. . . 339.6 300.2 273.6 241.2 197.3 157.0
Depreciation and amortization . 142.4 135.0 129.0 121.9 111.9 101.7
Number of employees . . . . . . 21,600 21,100 20,200 19,700 21,300 22,400
Average common shares outstanding
(in millions) . . . . . . . . . 195.1 200.2 214.5 225.9 225.5 224.2
Actual common shares outstanding
at year end (in millions) . . . 193.6 199.5 201.8 222.0 226.3 224.9
Quarterly Results of Operations
(Dollars in millions, except per share figures)
Three Months Ended March 31, June 30, September 30, December 31,
1993 1992 1993 1992 1993 1992 1993 1992
Sales. . . . . . . . . $1,089.6 $1,021.9 $1,123.4 $1,019.6 $1,061.9 $1,019.8 $1,066.4 $994.4
Gross profit . . . . . 855.4 796.5 886.7 791.6 850.1 789.1 840.3 777.9
Income before income
taxes . . . . . . . . 292.1 257.2 278.8 246.6 260.6 229.5 246.9 220.6
Income before extra-
ordinary item and
cumulative effect of
accounting changes. . 223.5 192.9 213.2 184.9 199.4 174.5 188.9 167.7
Extraordinary item . . - (26.7) - - - - - -
Cumulative effect of
accounting changes. . (94.2) 27.1 - - - - - -
Net income . . . . . . 129.3 193.3 213.2 184.9 199.4 174.5 188.9 167.7
Earnings per common
share before extra-
ordinary item and
cumulative effect of
accounting changes. . 1.13 .96 1.09 .92 1.03 .88 .98 .84
Extraordinary item . . - (.13) - - - - - -
Cumulative effect of
accounting changes. . (.48) .13 - - - - - -
Earnings per common
share . . . . . . . . .65 .96 1.09 .92 1.03 .88 .98 .84
______________________________________________________________________________________________
Page 1 OF 3
APPENDIX TO EXHIBIT #13
The first page of the financial section of the 1993 annual report to
shareholders presents six bar charts. The following tables provide the
information portrayed in the charts:
Chart 1
Title: Earnings per Common Share*
* Before extraordinary item and accounting changes.
The vertical axis is in dollars starting at $0.00, increasing in increments of
$1.00, ending at $5.00.
The horizontal axis is in years starting with 1989, ending with 1993.
The data points are:
1989 $2.09
1990 $2.50
1991 $3.01
1992 $3.60
1993 $4.23
Chart 2
Title: Income*
* Before extraordinary item and accounting changes.
The vertical axis is in millions of dollars starting at zero, increasing in
$200 million increments, ending at $1,000 million.
The horizontal axis is in years starting with 1989, ending with 1993.
The data points are:
1989 $471.3
1990 $565.1
1991 $645.6
1992 $720.0
1993 $825.0
Page 2 of 3
APPENDIX TO EXHIBITS #13
Chart 3
Title: Sales
The vertical axis is in millions of dollars starting at zero, increasing in
$1,000 million increments, ending at $5,000 million.
The horizontal axis is in years starting with 1989, ending with 1993.
The data points are:
1989 $3,157.9
1990 $3,322.9
1991 $3,615.6
1992 $4,055.7
1993 $4,341.3
Chart 4
Title: Research and Development
The vertical axis is in millions of dollars starting at zero, increasing in
$100 million increments, ending at $600 million.
The horizontal axis is in years starting with 1989, ending with 1993.
The data points are:
1989 $326.5
1990 $379.6
1991 $425.9
1992 $521.5
1993 $577.6
Page 3 of 3
APPENDIX TO EXHIBIT #13
Chart 5
Title: Capital Expenditures
The vertical axis is in millions of dollars starting at zero, increasing in
$100 million increments, ending at $500 million.
The horizontal axis is in years starting with 1989, ending with 1993.
The data points are:
1989 $186.1
1990 $242.9
1991 $339.4
1992 $403.2
1993 $365.2
Chart 6
Title: Dividends Per Common share
The vertical axis is in dollars starting at $0.00, increasing in $.50
increments, ending at $2.00.
The horizontal axis is in years starting with 1989, ending with 1993.
The data points are:
1989 $.875
1990 $1.065
1991 $1.27
1992 $1.50
1993 $1.74