-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, FwzY9ntGUVboakL9lDf2pru0Ikqi6vtsiz7ugakMfG6dSgKSl33hjypSM3SVb+eg D7m4SuS57XqEXq1Wwz/IJw== 0000310158-95-000005.txt : 19950609 0000310158-95-000005.hdr.sgml : 19950609 ACCESSION NUMBER: 0000310158-95-000005 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 13 CONFORMED PERIOD OF REPORT: 19941231 FILED AS OF DATE: 19950303 SROS: BSE SROS: CSE SROS: MSE SROS: NYSE SROS: PHLX SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SCHERING PLOUGH CORP CENTRAL INDEX KEY: 0000310158 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 221918501 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-06571 FILM NUMBER: 95518600 BUSINESS ADDRESS: STREET 1: ONE GIRALDA FARMS CITY: MADISON STATE: NJ ZIP: 07940-1000 BUSINESS PHONE: 2018227000 10-K 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Form 10-K Annual Report PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended December 31, 1994 Commission file number 1-6571 SCHERING-PLOUGH CORPORATION Incorporated in New Jersey 22-1918501 One Giralda Farms (I.R.S. Employer Madison, New Jersey 07940-1000 Identification No.) (201) 822-7000 (telephone number) Securities registered pursuant to section 12(b) of the Act: Name of each exchange Title of each class on which registered Common Shares, $1 par value New York Stock Exchange Preferred Share Purchase Rights* New York Stock Exchange *At the time of filing, the Rights were not traded separately from the Common Shares. Indicate by check mark whether the registrant has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and has been subject to such filing requirements for the past 90 days. YES X NO Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. X Common shares outstanding as of January 31, 1995: 186,057,622 Aggregate market value of common shares at January 31, 1995 held by non-affiliates based on closing price: $14.6 billion. Documents incorporated Part of Form 10-K by reference incorporated into Schering-Plough Corporation 1994 Annual Report to Shareholders Parts I, II and IV Schering-Plough Corporation Proxy Statement for the annual meeting of shareholders on April 25, 1995 Part III Part I Item 1. Business General The terms "Schering-Plough" and the "Company," as used herein, refer to Schering-Plough Corporation and its subsidiaries, except as otherwise indicated by the context. Schering-Plough Corporation is a holding company which was incorporated in 1970. Subsidiaries of Schering-Plough Corporation are engaged in the discovery, development, manufacturing and marketing of pharmaceutical and health care products worldwide. Products include prescription drugs, vision care, animal health, over-the- counter (OTC), foot care and sun care products. Business Segment and Other Financial Information The "Business Segment Data" as set forth in the Notes to Consolidated Financial Statements in the Company's 1994 Annual Report to Shareholders is incorporated herein by reference. Sales by major product groups for each of the three years in the period ended December 31, 1994 were as follows (dollars in millions): 1994 1993 1992 Respiratory $1,465 $1,185 $1,063 Anti-infective and Anticancer 939 1,032 906 Dermatologicals 488 443 451 Cardiovasculars 333 316 267 Other Pharmaceuticals 489 399 405 OTC 264 312 346 Foot Care 248 240 214 Animal Health 167 154 157 Sun Care 129 131 117 Vision Care 120 112 111 Other Health Care Products 15 17 19 Consolidated Sales $4,657 $4,341 $4,056 Pharmaceutical Products The Company's pharmaceutical operations include prescription drugs, vision care products and animal health products. Principal prescription products include: CELESTAMINE, CLARITIN, POLARAMINE, PROVENTIL, THEO-DUR, TRINALIN, VANCENASE and VANCERIL, respiratory; CEDAX, EULEXIN, GARAMYCIN, INTRON A, ISEPACIN and NETROMYCIN, anti-infective and anticancer; DIPROLENE, DIPROSONE, ELOCON, FULVICIN, LOTRIMIN, LOTRISONE, QUADRIDERM and VALISONE, dermatologicals; K-DUR, NITRO-DUR and NORMODYNE, cardiovasculars; CELESTONE, DIPROSPAN, LOSEC, NOIN, PALACOS and TRILAFON, other pharmaceuticals. The Company's major vision care product line is conventional contact lenses sold under the DURASOFT trademark. The leading product within the DURASOFT line is DURASOFT Colors, a soft lens that can alter the appearance of eye color. In 1994 the Company began marketing a disposable contact lens under the FRESHLOOK trademark. With this launch, the Company is now able to compete in the fastest growing segment of the contact lens market. Prior to this time, this business had been restricted to the conventional lens segment, which has been contracting for a number of years. Progression to becoming a full-fledged competitor in the contact lens business has involved Company investments in research and capital in excess of $150 million. Notwithstanding achieving our objective of participation in the disposable lens market, the Company continues to review options for the further development of its vision care business. The Company is exploring a number of courses of action, including a strategic alliance, licensing, divestiture or the continuation of present operations. At this time, the outcome of this exploratory process is unknown. The Company hopes to conclude on a course of action in 1995. Animal health biological and pharmaceutical products include antibiotics, vaccines, anti-arthritics, steroids and nutritionals. Major animal health products are: GENTOCIN, GARASOL and NUFLOR, antibiotics; BANAMINE, an anti-arthritic; and OTOMAX, steroid ointment. Pharmaceutical products also include pharmaceutical chemical substances sold in bulk to third parties for production of their own products. Prescription drugs are introduced and made known to physicians, pharmacists, hospitals and managed care organizations by trained professional service representatives, and are sold to hospitals, managed care organizations and wholesale and retail druggists. Pharmaceutical products are also promoted through journal advertising, direct mail advertising and by distributing samples to physicians. Vision care products are promoted and sold by a separate sales force to practitioners and retail outlets. Animal health products are promoted and sold by a separate sales force to veterinarians, distributors and animal producers. The Company's subsidiaries own (or have licensed rights under) a number of patents and patent applications, both in the United States and abroad. In the aggregate, patents and patent applications are believed to be of material importance to the operations of the pharmaceutical segment. In December 1989, the U.S. patent covering PROVENTIL, an asthma product, expired. The PROVENTIL formulations of the tablet, syrup and solution have been subject to generic competition. In January 1994, the U.S. Food and Drug Administration issued bioequivalence standards for generic albuterol metered dose inhalers. Generic competitors are expected to enter the market in the future. The introduction of a generic inhaler will negatively affect the sales and profitability of PROVENTIL. Raw materials essential to this segment are available in adequate quantities from a number of potential suppliers. Energy was and is expected to be available to the Company in sufficient quantities to meet operating requirements. Worldwide, the Company's pharmaceutical products are sold under trademarks. Trademarks are considered in the aggregate to be of material importance to the pharmaceutical business and are protected by registration or common law in the United States and most other markets where the products are sold or likely to be sold. Seasonal patterns do not have a pronounced effect on the combined activities of this industry segment. There is generally no significant backlog of orders since the Company's business is normally conducted on an immediate shipment basis. The pharmaceutical industry is highly competitive and includes other large companies with substantial resources for research, product development and promotion. There are numerous domestic and international competitors in this industry. Some of the principal competitive techniques used by the Company for its pharmaceutical products include research and development of new and improved products, high product quality, varied dosage forms and strengths, and educational services for the medical community. Health Care Products The principal product categories in the health care segment are the Company's over-the-counter (OTC) medicines, foot care and sun care products primarily sold in the United States. Principal products include: AFRIN and DURATION nasal decongestants; CHLOR- TRIMETON antihistamine; CORICIDIN and DRIXORAL cold and decongestant products; CORRECTOL laxative; CLEAR AWAY and DUO wart removers; DI-GEL antacid; GYNE-LOTRIMIN for vaginal yeast infections; DR. SCHOLL'S foot care products; LOTRIMIN AF and TINACTIN antifungals; COPPERTONE, SHADE, SOLARCAINE and TROPICAL BLEND sun care products; A & D ointment; and PAAS egg coloring and holiday products. Business in this segment is conducted through wholesale and retail drug, food chain and variety outlets, and is promoted directly to the consumer through television, radio, print and other advertising media. Raw materials essential to this segment are available in adequate quantities from a number of potential suppliers. Energy was and is expected to be available to the Company in sufficient quantities to meet operating requirements. Trademarks for the major products included in this segment are registered in the United States and most overseas countries where these products are marketed. Trademarks are considered to be vital to the operations of this segment. Principally due to the seasonal sales of sun care products, operating profits in this segment are relatively higher in the first half of the year. There is generally no significant backlog of orders since the Company's business is normally conducted on an immediate shipment basis. The health care products' industry is highly competitive and includes other large companies with substantial resources for product development and promotion. There are several dozen significant competitors in this industry. The Company believes that in the United States it has a leading position in the foot care and sun care industries, with its DR. SCHOLL'S lines of foot pads, cushions, wart removal and other treatments and its brands of sun care products. In addition, the Company's brands are among the leaders in nasal sprays, laxatives, antifungals and vaginal yeast infection treatments sold OTC. The principal competitive techniques used by the Company in this industry segment include switching prescription products to OTC medicines, the development and introduction of new and improved products, and product promotion methods to gain and retain consumer acceptance. Foreign Operations Foreign activities are carried out primarily through wholly-owned subsidiaries wherever market potential is adequate and circum- stances permit. In addition, the Company is represented in some markets through joint ventures, licensees or other distribution arrangements. There are approximately 11,200 employees outside the United States. Foreign operations are subject to certain risks which are inherent in conducting business overseas. These risks include possible nationalization, expropriation, importation limitations and other restrictive governmental actions. Also, fluctuations in foreign currency exchange rates can impact the Company's consolidated financial results. For additional information on foreign operations, see "Management's Discussion and Analysis of Operations and Financial Condition" and "Business Segment Data" in the Company's 1994 Annual Report to Shareholders which is incorporated herein by reference. Operations in Puerto Rico The Company has operations in Puerto Rico that manufacture products for distribution to both domestic and foreign markets. These businesses operate under tax-relief and other incentives granted by the government of Puerto Rico that expire at various dates through 2018. The Company has also been exempt from U.S. tax on certain income derived from its operations in Puerto Rico. The Omnibus Budget Reconciliation Act of 1993 will phase down this exemption over five years to 40 percent of the pre-amendment level. The Company was partially impacted by this change in 1994. Under present U.S. tax laws, accumulated funds generated from operations in Puerto Rico can be remitted tax-free to the parent company. Under recently revised Puerto Rico tax laws, remittance of these funds, with the exception of certain amounts qualifying for tax free distribution, will result in a tollgate tax of from 5 percent to 10 percent based upon prescribed dividend and investment restrictions. For additional information relating to the Puerto Rico operations, see "Income Taxes" in the Notes to Consolidated Financial Statements in the Company's 1994 Annual Report to Shareholders which is incorporated herein by reference. Research and Development The Company's research activities are primarily aimed at discovering and developing new and enhanced pharmaceutical products of medical and commercial significance. Company sponsored research and development expenditures were $620.0 million, $577.6 million and $521.5 million in 1994, 1993, and 1992, respectively. Research expenditures represented approximately 13 percent of consolidated sales in each of the three years. The Company's pharmaceutical research activities are concentrated in the therapeutic areas of allergic and inflammatory disorders, infectious and cardiovascular diseases, oncology and central nervous system disorders. The Company also has substantial efforts directed toward biotechnology and immunology. While several pharmaceutical compounds are in varying stages of development, it cannot be predicted when or if products will become available for commercial sale. Government Regulation Most products manufactured or sold by the Company are subject to varying degrees of governmental regulation in the countries in which operations are conducted. In the United States, the drug industry has long been subject to regulation by various federal, state and local agencies, primarily as to product safety, efficacy, advertising and labeling. Compliance with the broad regulatory powers of the Food and Drug Administration (the "FDA") requires significant amounts of Company time, testing and documentation, and corresponding costs to obtain clearance of new drugs. Similar product regulations also apply in many international markets. In the United States, many of the Company's pharmaceutical products are subject to competitive pricing as managed care groups, institutions and governments seek price discounts. Future health care reform proposals also could have an impact on operations of the Company. In most international markets, the Company operates in an environment of government-mandated cost containment programs. In addition, several markets have enacted across-the-board price reductions or directly control selling prices as a further method of cost control. For additional information on prescription drug pricing, see "Management's Discussion and Analysis of Operations and Financial Condition" in the Company's 1994 Annual Report to Shareholders which is incorporated herein by reference. The Company has and will continue to comply with the government regulations of the countries in which operations are conducted. Environment To date, compliance with federal, state and local environmental protection laws has not had a materially adverse effect on the Company. The Company has and will continue to make necessary expenditures for environmental protection. Worldwide capital expenditures during 1994 included approximately $30 million for environmental control purposes. It is anticipated that continued compliance with such environmental regulations will not significantly affect the Company's financial statements or its competitive position. For additional information on environmental matters, see "Legal and Environmental Matters" in the Notes to the Consolidated Financial Statements in the Company's 1994 Annual Report to Shareholders which is incorporated herein by reference. Employees There were approximately 21,200 people employed by the Company at December 31, 1994. Item 2. Properties The Company's corporate headquarters are located in Madison, New Jersey. Principal manufacturing facilities are located in Kenilworth and Union, New Jersey, Des Plaines, Illinois, Miami, Florida, the Commonwealth of Puerto Rico, Argentina, Australia, Belgium, Canada, Colombia, France, Ireland, Italy, Japan, Mexico and Spain (pharmaceutical products); Cleveland and Memphis, Tennessee (health care products). The Company's principal research facilities are located in Kenilworth and Union, New Jersey and Palo Alto, California (DNAX Research Institute). The major portion of properties is owned by the Company. These properties are maintained in good operating condition, and the manufacturing plants have capacities considered appropriate to meet the Company's needs. Item 3. Legal Proceedings Schering Corporation and White Laboratories, Inc., which are Company subsidiaries, are defendants in more than 95 lawsuits, involving more than 450 plaintiffs, arising out of the use of synthetic estrogens by the mothers of the plaintiffs. In many of these lawsuits, one being an alleged class action, a substantial number of other drug companies are also defendants. The female plaintiffs claim various injuries, including cancerous or precancerous lesions of the vagina and cervix and a multiplicity of pregnancy problems. A number of suits involve infants with birth defects born to daughters whose mothers took the drug. The total amount claimed against all defendants in all the suits amounts to more than $2 billion. While it is not possible to precisely predict the outcome of these proceedings, it is management's opinion that it is remote that any material liability in excess of the amounts accrued will be incurred. The Company has been named as a potentially responsible party ("PRP") by the government under the Comprehensive Environmental Response, Compensation and Liability Act, commonly known as Superfund, or under equivalent state laws. The Company is also a party to a number of proceedings brought under state or federal Superfund laws. These proceedings seek to require the owners or operators of facilities that treated, stored or disposed of hazardous substances and transporters and generators of such substances to clean-up contaminated facilities or reimburse the government for its clean-up costs. The Company has been named a PRP or a party to these proceedings as an alleged generator of hazardous substances found at certain facilities. In each proceeding, the government or private litigants allege that the Company is jointly and severally liable for clean-up costs. Although joint and several liability is alleged, a company's share of clean-up costs is frequently determined on the basis of the type and quantity of hazardous substances sent to a facility by the generator. However, this allocation process varies greatly from facility to facility and can take years to complete. The Company's potential share of clean-up costs also depends on how many other PRP's are involved in the proceedings, insurance coverage, available indemnity contracts and contribution rights against other PRP's or parties. While it is not possible to precisely predict the outcome of these proceedings, it is management's opinion that it is remote that any material liability in excess of amounts accrued will be incurred. In 1994, a judgment in the amount of $63.6 million, including $57.5 million in punitive damages, was entered against the Company in state court in Portland, Oregon in connection with a product liability lawsuit involving THEO-DUR. An appeal from the judgment has been taken. While the success of the appeal cannot be predicted with certainty, the Company will vigorously pursue its case through the appellate courts. The Company believes it has insurance coverage for amounts in excess of a $3 million self-insured retention, but the insurance carriers have reserved their rights with respect to liability for punitive damages. More than 100 antitrust actions have been commenced in state and federal courts against prescription drug manufacturers and, in some cases, wholesalers and mail order pharmacies, by independent and chain pharmacies, and chain food stores that operate pharmacies. The Company is a defendant in all these actions. The complaints allege conspiracy to restrain trade by jointly refusing to sell prescription drugs at discounted prices to the plaintiffs, price discrimination, or both. The plaintiffs seek treble damages in an unspecified amount and an injunction against the allegedly unlawful conduct. One of the actions is a class action on behalf of all retail pharmacies in the United States and is pending in the United States District Court for the Northern District of Illinois, where all the federal actions have been consolidated for pre-trial discovery and possibly trial. Another of the actions, which was commenced in June 1994 by a group of nine chain food stores, including The Great Atlantic and Pacific Tea Company, Inc. ("A&P"), against three mail order pharmacies and 16 drug manufacturers, is pending in the same federal court. Mr. James Wood, a director of the Company, is an executive officer of A&P. Mr. Wood does not participate in any review or deliberations by the Board of Directors relating to this action. The Company believes that all these antitrust actions are without merit and is defending itself vigorously against all claims. Item 4. Submission of Matters to a Vote of Security Holders Not applicable. Executive Officers of the Registrant The following information regarding executive officers is included herein in accordance with Part III, Item 10. Officers are elected to serve for one year and until their successors shall have been duly elected. Name and Current Position Business Experience Age Robert P. Luciano Present position 1986 61 Chairman and Chief Executive Officer Richard J. Kogan Present position 1986 53 President and Chief Operating Officer Raul E. Cesan Present position 1994 47 Executive Vice President President Schering and President Laboratories 1992-1994 Schering-Plough President Schering-Plough Pharmaceuticals International 1988-1992 Donald R. Conklin Present position 1994 58 Executive Vice President Executive Vice President and President and President Schering-Plough Schering-Plough HealthCare Products Pharmaceuticals 1989-1994 Hugh A. D'Andrade Present position 1984 56 Executive Vice President Administration Harold R. Hiser, Jr. Present position 1986 63 Executive Vice President Finance Joseph C. Connors Present position 1992; Vice 46 Senior Vice President President and General Counsel and General Counsel 1991; Staff Vice President and Deputy General Counsel 1987-1991 Geraldine U. Foster Present position 1994 52 Senior Vice President Vice President - Investor Investor Relations and Relations 1988-1994 Corporate Communications Daniel A. Nichols Present position 1991; Vice 54 Senior Vice President President Taxes 1983-1991 Taxes Name and Current Position Business Experience Age Gordon C. O'Brien Present position 1988 54 Senior Vice President Human Resources J. Martin Comey Present position 1991; Vice 60 Vice President President and Treasurer Administration and Business 1979-1990 Development Domenic Guastadisegni Present position 1990 64 Vice President Corporate Audits Thomas H. Kelly Present position 1991; Partner, 45 Vice President and Deloitte & Touche 1982-1990 Controller Robert S. Lyons Present Position 1991; Staff 54 Vice President Vice President - Corporate Corporate Information Information Services 1988-1990 Services Jack L. Wyszomierski Present position 1991; Staff 39 Vice President and Vice President - Planning Treasurer and Business Development 1987-1990 Kevin A. Quinn Present position 1994; Staff 53 Staff Vice President, Vice President and Deputy Secretary and Associate Secretary 1993; Vice President, General Counsel Secretary and Associate General Counsel, The Pittston Company 1989-1993 Part II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters The Common Share Dividends and Market Data as set forth in the Company's 1994 Annual Report to Shareholders are incorporated herein by reference. Item 6. Selected Financial Data The Six-Year Selected Financial & Statistical Data as set forth in the Company's 1994 Annual Report to Shareholders is incorporated herein by reference. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Management's Discussion and Analysis of Operations and Financial Condition as set forth in the Company's 1994 Annual Report to Shareholders is incorporated herein by reference. Item 8. Financial Statements and Supplementary Data The Consolidated Balance Sheets as of December 31, 1994 and 1993, and the related Statements of Consolidated Income, Consolidated Retained Earnings and Consolidated Cash Flows for each of the three years in the period ended December 31, 1994, Notes to Consolidated Financial Statements, the Independent Auditors' Report of Deloitte & Touche LLP dated February 15, 1995 and Quarterly Results of Operations, as set forth in the Company's 1994 Annual Report to Shareholders, are incorporated herein by reference. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Not applicable. Part III Item 10. Directors and Executive Officers of the Registrant The information concerning directors and nominees for directors as set forth in the Company's Proxy Statement for the annual meeting of shareholders on April 25, 1995 is incorporated herein by reference. Information required as to executive officers is included in Part I of this filing under the caption "Executive Officers of the Registrant." Item 11. Executive Compensation Executive compensation information as set forth in the Company's Proxy Statement for the annual meeting of shareholders on April 25, 1995 is incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management Information concerning security ownership of certain beneficial owners and management as set forth in the Company's Proxy Statement for the annual meeting of shareholders on April 25, 1995 is incorporated herein by reference. Item 13. Certain Relationships and Related Transactions Information concerning certain relationships and related transactions as set forth in the Company's Proxy Statement for the annual meeting of shareholders on April 25, 1995 is incorporated herein by reference. Part IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (a) 1. Financial Statements The following consolidated financial statements and independent auditors' report, included in the Company's 1994 Annual Report to Shareholders, are incorporated herein by reference. Statements of Consolidated Income for the Years Ended December 31, 1994, 1993 and 1992 Statements of Consolidated Retained Earnings for the Years Ended December 31, 1994, 1993 and 1992 Statements of Consolidated Cash Flows for the Years Ended December 31, 1994, 1993 and 1992 Consolidated Balance Sheets at December 31, 1994 and 1993 Notes to Consolidated Financial Statements Independent Auditors' Report (a) 2. Financial Statement Schedules Page in Form 10-K Independent Auditors' Report . . . . . . . . . . . . 20 Schedule II - Valuation and Qualifying Accounts. . . 21 Schedules not included have been omitted because they are not applicable or not required or because the required information is set forth in the financial statements or the notes thereto. Columns omitted from schedules filed have been omitted because the information is not applicable. Financial statements of fifty percent or less owned companies accounted for by the equity method have been omitted because, considered individually or in the aggregate, they do not constitute a significant subsidiary. (a) 3. Exhibits Exhibit Method Number Description of Filing 3(a) A complete copy of the Certificate Incorporated by of Incorporation as amended and reference to Exhibit currently in effect. 3(a) to the Company's Annual Report for 1989 on Form 10-K 3(b) A complete copy of the By-Laws Incorporated by as amended and currently in effect. reference to Exhibit 4(b) to the Company's Form S-8 (No. 33-19013) 4(a) Rights Agreement between the Incorporated by Company and The Bank of New York reference to Exhibit 4 dated July 25, 1989. to the Company's Quarterly Report for the period ended June 30, 1989 on Form 10-Q 4(b) Indenture dated as of November 1, Incorporated by 1982 between the Company and The reference to Exhibit Chase Manhattan Bank, N.A. as 4(a) to the Company's Trustee. Registration Statement on Form S-3, File No. 2-80012 Exhibit Method Number Description of Filing 4(c) Supplemental Indenture No. 1 Incorporated by dated as of November 1, 1991 reference to Exhibit 4.1 to Indenture dated as of to the Company's Report November 1, 1982. on Form 8-K dated November 20, 1991 4(d) LYNX Equity Unit Agreement Incorporated by reference to Exhibit 10.1 to the Company's Report on Form 8-K dated October 1, 1991 4(e) LYNX Equity Unit Guarantee Incorporated by Agreement reference to Exhibit 10.1 to the Company's Report on Form 8-K dated October 1, 1991 10(a) The Company's Executive Incentive Plan incorporated by Plan (as amended) and Trust related reference to Exhibit thereto* 10 to the Company's Quarterly Report for the period ended March 31, 1994 on Form 10-Q. Trust Agreement incorporated by reference to Exhibit 10(a) to the Company's Annual Report for 1988 on Form 10-K 10(b) The Company's 1983 Stock Incentive Incorporated by Plan (as amended)* reference to Exhibit 10(c) to the Company's Annual Report for 1988 on Form 10-K 10(c) The Company's 1987 Stock Incentive Incorporated by Plan (as amended)* reference to Exhibit 10(d) to the Company's Annual Report for 1990 on Form 10-K 10(d) The Company's 1992 Stock Incentive Incorporated by Plan (as amended)* reference to Exhibit 10(d) to the Company's Annual Report for 1992 on Form 10-K Exhibit Method Number Description of Filing 10(e)(i) Employment agreement between the Incorporated by Company and Robert P. Luciano reference to Exhibit (as amended)* 10(e)(i) to the Company's Annual Report for 1989 on Form 10-K; first amendment incorporated by reference to Exhibit 10(a) to the Company's Quarterly Report for the period ended June 30, 1994 on Form 10-Q; second amendment filed with this document 10(e)(ii) Employment agreement between the Incorporated by Company and Richard J. Kogan reference to Exhibit (as amended)* 10(e)(ii) to the Company's Annual Report for 1989 on Form 10-K; first amendment incorporated by reference to Exhibit 10(b) to the Company's Quarterly Report for the period ended June 30, 1994 on Form 10-Q; second amendment filed with this document 10(e)(iii) Employment agreement between the Incorporated by Company and Hugh A. D'Andrade reference to Exhibit (as amended)* 10(c) to the Company's Quarterly Report for the period ended June 30, 1994 on Form 10-Q; first amendment filed with this document 10(e)(iv) Form of employment agreement Filed with this between the Company and its document executive officers effective upon a change of control* Exhibit Method Number Description of Filing 10(f) Directors Deferred Compensation Plan incorporated by Plan and Trust related thereto* reference to Exhibit 10 (f) to the Company's Annual Report for 1991 on Form 10-K; Trust Agreement incorporated by reference to Exhibit 10(a) to the Company's Annual Report for 1988 on Form 10-K 10(g) Pension Plan for Directors Plan incorporated by and Trust related thereto* reference to Exhibit 10(g) to the Company's Annual Report for 1987 on Form 10-K; Trust Agreement incorporated by reference to Exhibit 10(g) to the Company's Annual Report for 1988 on Form 10-K; amendment to Trust Agreement incorporated by reference to Exhibit 10(g) to the Company's Annual Report for 1993 on Form 10-K 10(h) Supplemental Executive Retirement Plan incorporated by Plan and Trust related thereto* reference to Exhibit 10(h) to the Company's Annual Report for 1987 on Form 10-K; amendments to Plan filed with this document; Trust Agreement incorporated by reference to Exhibit 10(g) to the Company's Annual Report for 1988 on Form 10-K; amendment to Trust Agreement incorporated by reference to Exhibit 10(g) to the Company's Annual Report for 1993 on Form 10-K Exhibit Method Number Description of Filing 10 (i) Directors' Stock Award Plan* Incorporated by reference to Exhibit 10 to the Company's Quarterly Report for the period ended September 30, 1994 on Form 10-Q 11 Computation of Earnings Per Filed with this document Common Share 12 Computation of Ratio of Filed with this document Earnings to Fixed charges 13 The Financial Section of the Filed with this document Company's 1994 Annual Report to Shareholders. With the exception of those portions of said Annual Report which are specifically incorporated by reference in this Form 10-K, such report shall not be deemed filed as part of this Form 10-K 21 Subsidiaries of the registrant Filed with this document 23 Consents of experts and counsel Filed with this document 24 Power of attorney Filed with this document 27 Financial Data Schedule Filed with this document All other exhibits are not applicable. Copies of above exhibits will be furnished upon request. * Compensatory plan, contract or arrangement. (b) Reports on Form 8-K None SIGNATURES Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Schering-Plough Corporation (Registrant) Date March 3, 1995 By /s/ Thomas H. Kelly Thomas H. Kelly Vice President and Controller Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated. By * By * Robert P. Luciano Regina E. Herzlinger Chairman and Chief Executive Director Officer and Director By * By * Richard J. Kogan H. Barclay Morley President and Chief Operating Director Officer and Director By * By * Harold R. Hiser, Jr. Richard de J. Osborne Executive Vice President - Finance Director and Principal Financial Officer By * By * Thomas H. Kelly William A. Schreyer Vice President and Controller Director and Principal Accounting Officer By * By * Hans W. Becherer Robert F. W. van Oordt Director Director By * By * Hugh A. D'Andrade R. J. Ventres Director Director By * By * David C. Garfield James Wood Director Director *By /s/ Thomas H. Kelly Date March 3, 1995 Thomas H. Kelly Attorney-in-fact INDEPENDENT AUDITORS' REPORT Schering-Plough Corporation: We have audited the consolidated balance sheets of Schering-Plough Corporation and subsidiaries as of December 31, 1994 and 1993 and the related statements of consolidated income, retained earnings and cash flows for each of the three years in the period ended December 31, 1994, and have issued our report thereon dated February 15, 1995; such financial statements and report are included in your 1994 Annual Report to Shareholders and are incorporated herein by reference. Our audits also included the financial statement schedule of Schering-Plough Corporation and subsidiaries, listed in Item 14. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express our opinion based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. /s/DELOITTE & TOUCHE LLP Parsippany, New Jersey February 15, 1995 SCHEDULE II SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1994, 1993, AND 1992 (Dollars in millions)
Valuation and qualifying accounts deducted from assets to which they apply: Allowances for accounts receivable: RESERVE RESERVE RESERVE FOR DOUBTFUL FOR CASH FOR CLAIMS ACCOUNTS DISCOUNTS AND OTHER TOTAL 1994 Balance at beginning of year $ 30.5 $ 7.9 $ 6.5 $ 44.9 Additions: Charged to costs and expenses 17.1 62.4 3.2 82.7 Total 47.6 70.3 9.7 127.6 Translation adjustment .6 (.1) .1 .6 Deductions from reserves (4.2) (62.3) (4.2) (70.7) Balance at end of year $ 44.0 $ 7.9 $ 5.6 $57.5 1993 Balance at beginning of year $ 32.5 $ 9.0 $ 1.8 $ 43.3 Additions: Charged to costs and expenses 5.1 54.3 16.1 75.5 Total 37.6 63.3 17.9 118.8 Translation adjustment (1.1) (.1) - (1.2) Deductions from reserves (6.0) (55.3) (11.4) (72.7) Balance at end of year $ 30.5 $ 7.9 $ 6.5 $ 44.9 1992 Balance at beginning of year $ 33.4 $ 6.8 $ 4.3 $ 44.5 Additions: Charged to costs and expenses 20.5 50.9 5.0 76.4 Total 53.9 57.7 9.3 120.9 Translation adjustment (1.6) (.1) (.1) (1.8) Deductions from reserves (19.8) (48.6) (7.4) (75.8) Balance at end of year $ 32.5 $ 9.0 $ 1.8 $ 43.3
EX-10 2 Exhibit 10(e)(i) SECOND AMENDMENT TO EMPLOYMENT AGREEMENT THIS SECOND AMENDMENT to the Employment Agreement by and between SCHERING-PLOUGH CORPORATION, a New Jersey corpora- tion (the "Company"), and ROBERT P. LUCIANO (the "Employee") dated as of September 26, 1989, as amended as of June 28, 1994 (as so amended, the "Employment Agreement"), made and entered into as of this 1st day of March, 1995; WHEREAS, the Company and the Employee wish to amend the Employment Agreement as set forth below; NOW, THEREFORE, IN CONSIDERATION of the mutual promises, covenants and agreements set forth below, it is hereby agreed as follows: 1.Subparagraph (k)(i) of Section 3 of the Employment Agreement is hereby amended by inserting at the end thereof the following additional material: Notwithstanding the foregoing, the Employee shall be entitled to elect that the SRP shall be paid in accordance with any optional form of benefit available under the Company's qualified retirement plan or as provided below. The Employee may elect (the "Employee's Lump Sum Election") to receive payment of the actuarial equivalent of the aggregate of his Normal Supplement or Early Retirement Supplement, as the case may be (the "Employee's Benefit") and the benefit payable to his wife after his death pursuant to the preceding paragraph (the "Survivor's Benefit") in a lump sum in cash or in up to five equal annual cash installments on or commencing on the date of his retirement or the first day of any month thereafter not later than the second anniversary of the date of his retirement. If the Employee dies after retirement with an Employee's Lump Sum Election in effect but prior to the payment of the full amount of the lump sum or annual installments due thereunder, payment of the unpaid amount thereof shall be made to his surviving spouse, designated beneficiary or estate in accordance with his election. Payment made in accordance with this paragraph to the Employee, his surviving spouse, designated beneficiary or estate shall constitute full and complete satisfaction of the Company's obligation in respect of the Employee's Benefit and the Survivor's Benefit. If the Employee does not make the Employee's Lump Sum Election, the Employee's surviving spouse may elect (the "Survivor's Lump Sum Election") to receive the actuarial equivalent of the Survivor's Benefit, if any, in a lump sum in cash or in up to five equal annual cash installments. A lump sum or installments so elected by a surviving spouse shall be paid on or commencing on the first day of the month next following the month of the Employee's death, or the first day of any month thereafter not later than the first day of the month coincident with or next following the second anniversary of his death. The Employee's Lump Sum Election and the Survivor's Lump Sum Election shall be made, and may be rescinded, in the same manner and at the same times as are prescribed for the anal- ogous elections under the Company's Supplemental Executive Retirement Plan or any successor or replacement plan (the "Basic SERP") or, at any time when there is no Basic SERP in effect, in accordance with procedures specified by the Executive Compensation and Organization Committee of the Board of Directors of the Company (the "Committee"). The amount of any lump sum or installment payments of the Employee's Benefit or Survivor's Benefit shall be computed in the same manner as is prescribed for the analogous computations under the Basic SERP or, at any time when there is no Basic SERP in effect or there are no analogous computations provided under the Basic SERP, as specified by the Committee. Notwithstanding any timely Employee's Lump Sum Election or Survivor's Lump Sum Election, neither the Employee nor the Employee's surviving spouse shall have the right to receive the SRP in a lump sum or installments, if the Employee's employment is terminated for Cause (as defined below). In the event the Employee dies before retirement, the Company shall have no obligation in respect of the Employee's Benefit, and shall be obligated to pay the Survivor's Benefit to his spouse, if, but only if, the Employee's spouse shall survive him. The Committee may, in its sole discretion, defer the payment of any lump sum or annual installment of the Employee's Benefit to the Employee, if the Employee is, at the time such amount would otherwise be paid, a "covered employee" as defined in Section 162(m) of the Internal Revenue Code of 1986, as amended, if such payment would be subject to such Section's limitation on deductibility; provided, however, that such payment shall not be deferred to a date later than the earliest date in the year in which such payment would not be subject to such limitation; and further provided that the Company shall, at the time of payment of any amount so deferred, pay interest thereon from the due date thereof at a rate equal to the actual yield on three-month U.S. Treasury bills as reported in the Wall Street Journal on the first business day of each calendar quarter, compounded quarterly. 2. Section and other headings contained in the Employment Agreement, as hereby amended, are for reference purposes only and are not intended to interpret, define or limit any provision of such Agreement. 3. This Second Amendment and the Employment Agreement constitute the entire agreement between the parties with respect to the subject matter hereof and supersede all prior agreements and understandings between the parties with respect to the subject matter hereof. The Employment Agreement, as amended by this Second Amendment, is and shall continue to be in full force and effect and is hereby in all respects ratified and confirmed. IN WITNESS WHEREOF, the Employee and, pursuant to due authorization from its Board of Directors, the Company have caused this Agreement to be executed as of the day and year first above written. Robert P. Luciano _____________________________ Robert P. Luciano SCHERING-PLOUGH CORPORATION Richard J. Kogan ______________________________ Richard J. Kogan President and Chief Operating Officer 18888-1 EX-10 3 Exhibit 10 (e) (ii) SECOND AMENDMENT TO EMPLOYMENT AGREEMENT THIS SECOND AMENDMENT to the Employment Agreement by and between SCHERING-PLOUGH CORPORATION, a New Jersey corpora- tion (the "Company"), and RICHARD J. KOGAN (the "Employee") dated as of September 26, 1989, as amended as of June 28, 1994 (as so amended, the "Employment Agreement"), made and entered into as of this 1st day of March, 1995; WHEREAS, the Company and the Employee wish to amend the Employment Agreement as set forth below; NOW, THEREFORE, IN CONSIDERATION of the mutual promises, covenants and agreements set forth below, it is hereby agreed as follows: 1. Subparagraph (j)(i) of Section 3 of the Employment Agreement is hereby amended to read in its entirety as follows: (i) Supplemental Retirement Plan ("SRP"). (I) An unfunded, non-tax-qualified annual pension supplement (the "Normal Supplement"), subject to the terms and conditions set forth below, in the amount by which the greatest of (A) or (B) or (C), exceeds (D), where: (A) is two percent (2%) of the Employee's "final average earnings" (the average of his Annual Base Salary over the highest sixty (60) consecutive months in his last one hundred twenty (120) months of employment with the Company plus the average of his last five (5) annual awards from the Cash Bonus Plans) times his years of service with the Company up to twenty (20) years plus one percent (1%) of the same "final average earnings" times his years of service with the Company in excess of twenty (20) years; (B) is thirty-five percent (35%) of the Employee's "final average earnings", as defined hereinabove; provided, however, that this subparagraph (B) shall apply only if the Employee is in the employ of the Company when he reaches age sixty (60) with at least ten (10) years of service with the Company; (C) is fifty-five percent (55%) of the Employee's "final average earnings", as defined hereinabove; provided, however, that this subparagraph (C) shall apply only if the Employee is in the employ of the Company on or after he reaches age sixty-two (62); and (D) is the sum of (I) the Employee's pension from the Company's qualified retirement plan and retirement benefits equalization plan applicable to him and (II) the amount of any benefits paid under the Company's Supplemental Executive Retirement Plan or any successor or replacement plan (collectively with the SRP, the "SERP"). (II) In the event the Employee elects to retire prior to age sixty-five (65) ("Early Retirement"), the Employee shall be entitled, in lieu of the Normal Supplement, to an un- funded, non-tax-qualified annual pension supplement (the "Early Retirement Supplement"), subject to the terms and conditions set forth below, equal to the amount by which (AA) exceeds (BB) below, where: (AA) is the amount computed in accordance with (A) of subsection (I) of this Section 3(j)(i) or, if applicable and greater, (B) or (C) of such subsection (I), reduced four percent (4%) for each year that the Employee's retirement precedes age sixty-two (62); provided, however, that such amount shall not be less than thirty-five percent (35%) of the Employee's "final average earnings" if the Employee's early retirement occurs on or after he reaches age sixty (60) with at least ten (10) years of service; and (BB) is the sum of (I) the Employee's pension payable at early retirement from the Company's qualified retirement plan and retirement benefits equalization plan applicable to him and (II) the amount of any benefits paid under the Company's Supplemental Executive Retirement Plan or any successor or replacement plan. (III) Any SRP that becomes payable pursuant to subsection (I) or (II) of this Section 3(j)(i) shall be payable as follows. (AAA) If payable, the Normal Supplement or the Early Retirement Supplement, as the case may be, shall commence to be paid upon the date of the Employee's retirement. The Normal Supplement or the Early Retirement Supplement, as the case may be, shall be computed on a straight life annuity basis, with an option to the Employee to receive the actuarial equivalent of such supplement under a joint and survivor's annuity; provided, however, that in the event the Employee retires from the employ of the Company on or after he reaches age sixty-two (62), the Employee shall be entitled to receive the Normal Supplement (without any reduction) on a straight life annuity basis and after the Employee's death, his surviving spouse shall be entitled to receive annually for the duration of her life a survivor's benefit (the "Survivor's Benefit") equal to the amount by which (i) 45% of "final average earnings" (as defined in (A) of subsection (I) of this Section 3(j)(i)) (without any reduction) exceeds (ii) the amount payable to her set forth in clause (D) of subsection (I) of this Section 3(j)(i). If the Employee's benefits under the Company's qualified retirement plan are to continue after his death for the benefit of his surviving spouse or a designated beneficiary, then he shall have the right at any time to change the recipient of any survivorship benefit payable under the SRP; provided, however, that any such change, if made after the applicable deadline set forth in the qualified retirement plan, shall not affect the amount of the benefit payable under the SRP as originally calculated or the term for which such benefit is payable, also as originally calculated. (BBB) Notwithstanding the foregoing, the Employee shall be entitled to elect that the SRP shall be paid in accordance with any optional form of benefit available under the Company's qualified retirement plan or as provided in subsection (CCC) below. (CCC) The Employee may elect (the "Employee's Lump Sum Election") to receive payment of the actuarial equivalent of the aggregate of his Normal Supplement or Early Retirement Supplement, as the case may be (the "Employee's Benefit") and the Survivor's Benefit in a lump sum in cash or in up to five equal annual cash installments on or commencing on the date of his retirement or the first day of any month thereafter not later than the second anniversary of the date of his retirement. If the Employee dies after retirement or deemed retirement with an Employee's Lump Sum Election in effect but prior to the payment of the full amount of the lump sum or annual installments due thereunder, payment of the unpaid amount thereof shall be made to his surviving spouse, designated beneficiary or estate in accordance with his election. Payment made in accordance with this subsection (CCC) to the Employee, his surviving spouse, designated beneficiary or estate shall constitute full and complete satisfaction of the Company's obligation in respect of the Employee's Benefit and the Survivor's Benefit. (DDD) If the Employee does not make the Employee's Lump Sum Election, the Employee's surviving spouse may elect (the "Survivor's Lump Sum Election") to receive the actuarial equivalent of the Survivor's Benefit, if any, in a lump sum in cash or in up to five equal annual cash installments. A lump sum or installments so elected by a surviving spouse shall be paid on or commencing on the first day of the month next following the month of the Employee's death, or the first day of any month thereafter not later than the first day of the month coincident with or next following the second anniversary of his death. (EEE) The Employee's Lump Sum Election and the Survivor's Lump Sum Election shall be made, and may be rescinded, in the same manner and at the same times as are prescribed for the analogous elections under the Company's Supplemental Executive Retirement Plan or any successor or replacement plan (the "Basic SERP") or, at any time when there is no Basic SERP in effect, in accordance with procedures specified by the Executive Compensation and Organization Committee of the Board of Directors of the Company (the "Committee"). The amount of any lump sum or installment payments of the Employee's Benefit or Survivor's Benefit shall be computed in the same manner as is prescribed for the analogous computations under the Basic SERP or, at any time when there is no Basic SERP in effect or there are no analogous computations provided under the Basic SERP, as specified by the Committee. (FFF) Notwithstanding any timely Employee's Lump Sum Election or Survivor's Lump Sum Election, neither the Employee nor the Employee's surviving spouse shall have the right to receive the SRP in a form provided for in subsection (CCC) or subsection (DDD), as the case may be, if the Employee's employment is terminated for Cause (as defined below). In the event the Employee dies before retirement or deemed retirement, the Company shall have no obligation in respect of the Employee's Benefit, and shall be obligated to pay the Survivor's Benefit to his spouse, if, but only if, the Employee's spouse shall survive him. (GGG) The Committee may, in its sole discretion, defer the payment of any lump sum or annual installment of the Employee's Benefit to the Employee, if the Employee is, at the time such amount would otherwise be paid, a "covered employee" as defined in Section 162(m) of the Internal Revenue Code of 1986, as amended, if such payment would be subject to such Section's limitation on deductibility; provided, however, that such payment shall not be deferred to a date later than the earliest date in the year in which such payment would not be subject to such limitation; and further provided that the Company shall, at the time of payment of any amount so deferred, pay interest thereon from the due date thereof at a rate equal to the actual yield on three-month U.S. Treasury bills as reported in the Wall Street Journal on the first business day of each calendar quarter, compounded quarterly. (IV) In determining the SRP, the following rules shall apply: (AAAA) If, during the Employment Period, the Employee's employment terminates by reason of death, or the Company terminates the Employee's employment for Disability or otherwise than for Cause, or the Employee terminates his employment either for Good Reason or without any reason during the Window Period (as the terms Disability, Cause, Good Reason and Window Period are hereinafter defined), then, in any such event, the references to final average earnings, age and retirement in this subparagraph (j)(i) of Section 3 shall be read in a manner that takes into account the provisions in paragraphs (a)(iv), (b) and (c) of Section 5 of this Agreement regarding deemed compensation, deemed age and deemed retirement, and the time of payment of the SRP shall be determined in accordance with such provisions. (BBBB) Except as otherwise specifically provided for in this Agreement, the provisions of the Company's qualified retirement plan and of the Basic SERP applicable to the Employee shall apply to the SRP provided hereunder. 2. Subparagraph (a)(iv) of Section 5 is hereby amended to read in its entirety as follows: (iv) for all purposes of subparagraph (j)(i) of Section 3 above (including without limitation both the computation and time of payment of the SRP), the Employee shall be deemed to have retired at age 62 on the Date of Termination with final average earnings computed as if the compensation for his final three years consisted of the compensation paid pursuant to subparagraph (a)(i)(B) of this Section 5 and the compensation for the two years preceding his final three years consisted of the compensation actually paid to him with respect to the year in which the Date of Termination occurs (including without limitation the compensation payable pursuant to subparagraph (a)(i)(A) of this Section 5) and the compensation actually paid to him with respect to the year preceding the year in which the Date of Termination occurs. 3. Subparagraph (b) of Section 5 is hereby amended by adding the following sentences at the end thereof: For all purposes of determining the Survivor's Benefit, if any, pursuant to subparagraph (j)(i) of Section 3 above (including without limitation both the computation and time of payment of the Survivor's Benefit), the Employee shall be deemed to have attained age 62 and retired immediately before his death. For purposes of determining the Supplemental Retirement Amount payable pursuant to this subparagraph (b), references in the definition of "Supplemental Retirement Amount" set forth in subparagraph (a)(i)(C) of this Section 5 to the Employee's retirement benefits shall be deemed to refer to the Survivor's Benefit and the other retirement benefits payable to the Employee's surviving spouse and/or beneficiaries and estate. 4. Subparagraph (c) of Section 5 is hereby amended by adding the following sentence at the end thereof: For all purposes of determining the SRP pursuant to subparagraph (j)(i) of Section 3 above (including without limitation both the computation and the time of payment of the SRP), the Employee shall be deemed to have retired at age 62 on the Date of Termination. 5. Section and other headings contained in the Employment Agreement, as hereby amended, are for reference purposes only and are not intended to interpret, define or limit any provision of such Agreement. 6. This Second Amendment and the Employment Agreement constitute the entire agreement between the parties with respect to the subject matter hereof and supersede all prior agreements and understandings between the parties with respect to the subject matter hereof. The Employment Agreement, as amended by this Second Amendment, is and shall continue to be in full force and effect and is hereby in all respects ratified and confirmed. IN WITNESS WHEREOF, the Employee and, pursuant to due authorization from its Board of Directors, the Company have caused this Agreement to be executed as of the day and year first above written. Richard J. Kogan _____________________________ Richard J. Kogan SCHERING-PLOUGH CORPORATION Robert P. Luciano ______________________________ Robert P. Luciano Chairman of the Board and Chief Executive Officer 1n8886-1 EX-10 4 Exhibit 10 (e)(iii) FIRST AMENDMENT TO EMPLOYMENT AGREEMENT THIS FIRST AMENDMENT to the Employment Agreement by and between SCHERING-PLOUGH CORPORATION, a New Jersey corpora- tion (the "Company"), and HUGH A. D'ANDRADE (the "Employee") dated as of June 28, 1994 (the "Employment Agreement"), made and entered into as of this 1st day of March, 1995; WHEREAS, the Company and the Employee wish to amend the Employment Agreement as set forth below; NOW, THEREFORE, IN CONSIDERATION of the mutual promises, covenants and agreements set forth below, it is hereby agreed as follows: 1. Subparagraph (j)(i) of Section 3 of the Employment Agreement is hereby amended to read in its entirety as follows: (i) Supplemental Retirement Plan ("SRP"). (I) An unfunded, non-tax-qualified annual pension supplement (the "Normal Supplement"), subject to the terms and conditions set forth below, in the amount by which the greatest of (A) or (B) or (C), exceeds (D), where: (A) is two percent (2%) of the Employee's "final average earnings" (the average of his Annual Base Salary over the highest sixty (60) consecutive months in his last one hundred twenty (120) months of employment with the Company plus the average of his last five (5) annual awards from the Cash Bonus Plans) times his years of service with the Company up to twenty (20) years plus one percent (1%) of the same "final average earnings" times his years of service with the Company in excess of twenty (20) years; (B) is thirty-five percent (35%) of the Employee's "final average earnings", as defined hereinabove; provided, however, that this subparagraph (B) shall apply only if the Employee is in the employ of the Company when he reaches age sixty (60) with at least ten (10) years of service with the Company; (C) is fifty-five percent (55%) of the Employee's "final average earnings", as defined hereinabove; provided, however, that this subparagraph (C) shall apply only if the Employee is in the employ of the Company on or after he reaches age sixty-two (62); and (D) is the sum of (I) the Employee's pension from the Company's qualified retirement plan and retirement benefits equalization plan applicable to him and (II) the amount of any benefits paid under the Company's Supplemental Executive Retirement Plan or any successor or replacement plan (collectively with the SRP, the "SERP"). (II) In the event the Employee elects to retire prior to age sixty-five (65) ("Early Retirement"), the Employee shall be entitled, in lieu of the Normal Supplement, to an un- funded, non-tax-qualified annual pension supplement (the "Early Retirement Supplement"), subject to the terms and conditions set forth below, equal to the amount by which (AA) exceeds (BB) below, where: (AA) is the amount computed in accordance with (A) of subsection (I) of this Section 3(j)(i) or, if applicable and greater, (B) or (C) of such subsection (I), reduced four percent (4%) for each year that the Employee's retirement precedes age sixty-two (62); provided, however, that such amount shall not be less than thirty-five percent (35%) of the Employee's "final average earnings" if the Employee's early retirement occurs on or after he reaches age sixty (60) with at least ten (10) years of service; and (BB) is the sum of (I) the Employee's pension payable at early retirement from the Company's qualified retirement plan and retirement benefits equalization plan applicable to him and (II) the amount of any benefits paid under the Company's Supplemental Executive Retirement Plan or any successor or replacement plan. (III) Any SRP that becomes payable pursuant to subsection (I) or (II) of this Section 3(j)(i) shall be payable as follows. (AAA) If payable, the Normal Supplement or the Early Retirement Supplement, as the case may be, shall commence to be paid upon the date of the Employee's retirement. The Normal Supplement or the Early Retirement Supplement, as the case may be, shall be computed on a straight life annuity basis, with an option to the Employee to receive the actuarial equivalent of such supplement under a joint and survivor's annuity; provided, however, that in the event the Employee retires from the employ of the Company on or after he reaches age sixty-two (62), the Employee shall be entitled to receive the Normal Supplement (without any reduction) on a straight life annuity basis and after the Employee's death, his surviving spouse shall be entitled to receive annually for the duration of her life a survivor's benefit (the "Survivor's Benefit") equal to the amount by which (i) 45% of "final average earnings" (as defined in (A) of subsection (I) of this Section 3(j)(i)) (without any reduction) exceeds (ii) the amount payable to her set forth in clause (D) of subsection (I) of this Section 3(j)(i). If the Employee's benefits under the Company's qualified retirement plan are to continue after his death for the benefit of his surviving spouse or a designated beneficiary, then he shall have the right at any time to change the recipient of any survivorship benefit payable under the SRP; provided, however, that any such change, if made after the applicable deadline set forth in the qualified retirement plan, shall not affect the amount of the benefit payable under the SRP as originally calculated or the term for which such benefit is payable, also as originally calculated. (BBB) Notwithstanding the foregoing, the Employee shall be entitled to elect that the SRP shall be paid in accordance with any optional form of benefit available under the Company's qualified retirement plan or as provided in subsection (CCC) below. (CCC) The Employee may elect (the "Employee's Lump Sum Election") to receive payment of the actuarial equivalent of the aggregate of his Normal Supplement or Early Retirement Supplement, as the case may be (the "Employee's Benefit") and the Survivor's Benefit in a lump sum in cash or in up to five equal annual cash installments on or commencing on the date of his retirement or the first day of any month thereafter not later than the second anniversary of the date of his retirement. If the Employee dies after retirement or deemed retirement with an Employee's Lump Sum Election in effect but prior to the payment of the full amount of the lump sum or annual installments due thereunder, payment of the unpaid amount thereof shall be made to his surviving spouse, designated beneficiary or estate in accordance with his election. Payment made in accordance with this subsection (CCC) to the Employee, his surviving spouse, designated beneficiary or estate shall constitute full and complete satisfaction of the Company's obligation in respect of the Employee's Benefit and the Survivor's Benefit. (DDD) If the Employee does not make the Employee's Lump Sum Election, the Employee's surviving spouse may elect (the "Survivor's Lump Sum Election") to receive the actuarial equivalent of the Survivor's Benefit, if any, in a lump sum in cash or in up to five equal annual cash installments. A lump sum or installments so elected by a surviving spouse shall be paid on or commencing on the first day of the month next following the month of the Employee's death, or the first day of any month thereafter not later than the first day of the month coincident with or next following the second anniversary of his death. (EEE) The Employee's Lump Sum Election and the Survivor's Lump Sum Election shall be made, and may be rescinded, in the same manner and at the same times as are prescribed for the analogous elections under the Company's Supplemental Executive Retirement Plan or any successor or replacement plan (the "Basic SERP") or, at any time when there is no Basic SERP in effect, in accordance with procedures specified by the Executive Compensation and Organization Committee of the Board of Directors of the Company (the "Committee"). The amount of any lump sum or installment payments of the Employee's Benefit or Survivor's Benefit shall be computed in the same manner as is prescribed for the analogous computations under the Basic SERP or, at any time when there is no Basic SERP in effect or there are no analogous computations provided under the Basic SERP, as specified by the Committee. (FFF) Notwithstanding any timely Employee's Lump Sum Election or Survivor's Lump Sum Election, neither the Employee nor the Employee's surviving spouse shall have the right to receive the SRP in a form provided for in subsection (CCC) or subsection (DDD), as the case may be, if the Employee's employment is terminated for Cause (as defined below). In the event the Employee dies before retirement or deemed retirement, the Company shall have no obligation in respect of the Employee's Benefit, and shall be obligated to pay the Survivor's Benefit to his spouse, if, but only if, the Employee's spouse shall survive him. (GGG) The Committee may, in its sole discretion, defer the payment of any lump sum or annual installment of the Employee's Benefit to the Employee, if the Employee is, at the time such amount would otherwise be paid, a "covered employee" as defined in Section 162(m) of the Internal Revenue Code of 1986, as amended, if such payment would be subject to such Section's limitation on deductibility; provided, however, that such payment shall not be deferred to a date later than the earliest date in the year in which such payment would not be subject to such limitation; and further provided that the Company shall, at the time of payment of any amount so deferred, pay interest thereon from the due date thereof at a rate equal to the actual yield on three-month U.S. Treasury bills as reported in the Wall Street Journal on the first business day of each calendar quarter, compounded quarterly. (IV) In determining the SRP, the following rules shall apply: (AAAA)If, during the Employment Period, the Employee's employment terminates by reason of death, or the Company terminates the Employee's employment for Disability or otherwise than for Cause, or the Employee terminates his employment either for Good Reason or without any reason during the Window Period (as the terms Disability, Cause, Good Reason and Window Period are hereinafter defined), then, in any such event, the references to final average earnings, age and retirement in this subparagraph (j)(i) of Section 3 shall be read in a manner that takes into account the provisions in paragraphs (a)(iv), (b) and (c) of Section 5 of this Agreement regarding deemed compensation, deemed age and deemed retirement, and the time of payment of the SRP shall be determined in accordance with such provisions. (BBBB) Except as otherwise specifically provided for in this Agreement, the provisions of the Company's qualified retirement plan and of the Basic SERP applicable to the Employee shall apply to the SRP provided hereunder. 2. Subparagraph (a)(iv) of Section 5 is hereby amended to read in its entirety as follows: (iv) for all purposes of subparagraph (j)(i) of Section 3 above (including without limitation both the computation and time of payment of the SRP), the Employee shall be deemed to have retired at age 62 on the Date of Termination with final average earnings computed as if the compensation for his final three years consisted of the compensation paid pursuant to subparagraph (a)(i)(B) of this Section 5 and the compensation for the two years preceding his final three years consisted of the compensation actually paid to him with respect to the year in which the Date of Termination occurs (including without limitation the compensation payable pursuant to subparagraph (a)(i)(A) of this Section 5) and the compensation actually paid to him with respect to the year preceding the year in which the Date of Termination occurs. 3. Subparagraph (b) of Section 5 is hereby amended by adding the following sentences at the end thereof: For all purposes of determining the Survivor's Benefit, if any, pursuant to subparagraph (j)(i) of Section 3 above (including without limitation both the computation and time of payment of the Survivor's Benefit), the Employee shall be deemed to have attained age 62 and retired immediately before his death. For purposes of determining the Supplemental Retirement Amount payable pursuant to this subparagraph (b), references in the definition of "Supplemental Retirement Amount" set forth in subparagraph (a)(i)(C) of this Section 5 to the Employee's retirement benefits shall be deemed to refer to the Survivor's Benefit and the other retirement benefits payable to the Employee's surviving spouse and/or beneficiaries and estate. 4. Subparagraph (c) of Section 5 is hereby amended by adding the following sentence at the end thereof: For all purposes of determining the SRP pursuant to subparagraph (j)(i) of Section 3 above (including without limitation both the computation and the time of payment of the SRP), the Employee shall be deemed to have retired at age 62 on the Date of Termination. 5. Section and other headings contained in the Employment Agreement, as hereby amended, are for reference purposes only and are not intended to interpret, define or limit any provision of such Agreement. 6. This First Amendment and the Employment Agreement constitute the entire agreement between the parties with respect to the subject matter hereof and supersede all prior agreements and understandings between the parties with respect to the subject matter hereof. The Employment Agreement, as amended by this First Amendment, is and shall continue to be in full force and effect and is hereby in all respects ratified and confirmed. IN WITNESS WHEREOF, the Employee and, pursuant to due authorization from its Board of Directors, the Company have caused this Agreement to be executed as of the day and year first above written. Hugh A. D'Andrade _____________________________ Hugh A. D'Andrade SCHERING-PLOUGH CORPORATION Robert P. Luciano ______________________________ Robert P. Luciano Chairman of the Board and Chief Executive Officer 18152-1 EX-10 5 EMPLOYMENT AGREEMENT Exhibit 10(e)(iv) AGREEMENT by and between Schering-Plough Corporation, a New Jersey corporation (the "Company") and _________ _________ (the "Executive"), dated as of the ___ day of _______, 1994. The Board of Directors of the Company (the "Board"), has determined that it is in the best interests of the Company and its shareholders to assure that the Company will have the continued dedication of the Executive, notwithstanding the possibility, threat or occurrence of a Change of Control (as defined below) of the Company. The Board believes it is imperative to diminish the inevitable distraction of the Executive by virtue of the personal uncertainties and risks created by a pending or threatened Change of Control and to encourage the Executive's full attention and dedication to the Company currently and in the event of any threatened or pending Change of Control, and to provide the Executive with compensation and benefits arrangements upon a Change of Control which ensure that the compensation and benefits expectations of the Executive will be satisfied and which are competitive with those of other corporations. Therefore, in order to accomplish these objectives, the Board has caused the Company to enter into this Agreement. NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS: 1. Certain Definitions. (a) The "Effective Date" shall mean the first date during the Change of Control Period (as defined in Section 1(b)) on which a Change of Control (as defined in Section 2) occurs. Anything in this Agreement to the contrary notwithstanding, if a Change of Control occurs and if the Executive's employment with the Company is termi- nated prior to the date on which the Change of Control oc- curs, and if it is reasonably demonstrated by the Executive that such termination of employment (i) was at the request of a third party who has taken steps reasonably calculated to effect a Change of Control or (ii) otherwise arose in connection with or anticipation of a Change of Control, then for all purposes of this Agreement the "Effective Date" shall mean the date immediately prior to the date of such termination of employment. (b) The "Change of Control Period" shall mean the period commencing on the date hereof and ending on the third an- niversary of the date hereof; provided, however, that com- mencing on the date one year after the date hereof, and on each annual anniversary of such date (such date and each an- nual anniversary thereof shall be hereinafter referred to as the "Renewal Date"), unless previously terminated, the Change of Control Period shall be automatically extended so as to terminate three years from such Renewal Date, unless at least 60 days prior to the Renewal Date the Company shall give notice to the Executive that the Change of Control Period shall not be so extended. 2. Change of Control. For the purpose of this Agreement, a "Change of Control" shall mean: (a) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of securities of the Company where such acquisition causes such Person to own 20% or more of either (i) the then outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") or (ii) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that for purposes of this subsection (a), the following acquisitions shall not be deemed to result in a Change of Control: (i) any acquisition directly from the Company, (ii) any acquisition by the Company, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company or (iv) any acquisition by any corporation pursuant to a transaction which complies with clauses (i), (ii) and (iii) of subsection (c) of this Section 2; and provided, further, that if any Person's beneficial ownership of the Outstanding Company Voting Securities reaches or exceeds 20% as a result of a transaction described in clause (i) or (ii) above, and such Person subsequently acquires beneficial ownership of additional voting securities of the Company, such subsequent acquisition shall be treated as an acquisition that causes such Person to own 20% or more of the Outstanding Company Voting Securities; or (b) Individuals who, as of the date hereof, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but exclud- ing, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicita- tion of proxies or consents by or on behalf of a Person other than the Board; or (c) Consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company (a "Business Combination"), in each case, unless, following such Business Combination, (i) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or all or sub- stantially all of the Company's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (ii) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of, respectively, the then out- standing shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination and (iii) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or (d) Approval by the shareholders of the Company of a complete liquidation or dissolution of the Company. 3. Employment Period. The Company hereby agrees to continue the Executive in its employ, and the Executive hereby agrees to remain in the employ of the Company subject to the terms and conditions of this Agreement, for the period commencing on the Effective Date and ending on the earlier of (x) the third anniversary of such date and (y) the Executive's 65th birthday (the "Employment Period"). 4. Terms of Employment. (a) Position and Duties. (i) During the Employment Period, (A) the Executive's position (including status, offices, titles and reporting re- quirements), authority, duties and responsibilities shall be at least commensurate in all material respects with the most significant of those held, exercised and assigned at any time during the 120-day period immediately preceding the Ef- fective Date and (B) the Executive's services shall be performed at the location where the Executive was employed immediately preceding the Effective Date or any office or location less than 35 miles from such location. (ii) During the Employment Period, and excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive agrees to devote reasonable attention and time during normal business hours to the business and affairs of the Company and, to the extent necessary to discharge the responsibilities assigned to the Executive hereunder, to use the Executive's reasonable best efforts to perform faithfully and efficiently such responsi- bilities. During the Employment Period it shall not be a violation of this Agreement for the Executive to (A) serve on corporate, civic or charitable boards or committees, (B) deliver lectures, fulfill speaking engagements or teach at educational institutions and (C) manage personal invest- ments, so long as such activities do not significantly interfere with the performance of the Executive's responsibilities as an employee of the Company in accordance with this Agreement. It is expressly understood and agreed that to the extent that any such activities have been conducted by the Executive prior to the Effective Date, the continued conduct of such activities (or the conduct of activities similar in nature and scope thereto) subsequent to the Effective Date shall not thereafter be deemed to interfere with the performance of the Executive's responsibilities to the Company. (b) Compensation. (i) Base Salary. During the Employment Period, the Executive shall receive an annual base salary ("Annual Base Salary"), which shall be paid at a semi-monthly rate, at least equal to twenty-four times the highest semi-monthly base salary paid or payable, including any base salary which has been earned but deferred, to the Executive by the Company and its affiliated companies in respect of the twelve-month period immediately preceding the month in which the Effective Date occurs. During the Employment Period, the Annual Base Salary shall be reviewed no more than 12 months after the last salary increase awarded to the Executive prior to the Effective Date and thereafter at least annually. Any increase in Annual Base Salary shall not serve to limit or reduce any other obligation to the Executive under this Agreement. Annual Base Salary shall not be reduced after any such increase and the term Annual Base Salary as utilized in this Agreement shall refer to Annual Base Salary as so increased. As used in this Agreement, the term "affiliated companies" shall include any company controlled by, controlling or under com- mon control with the Company. (ii) Annual Bonus. In addition to Annual Base Salary, the Executive shall be awarded, for each fiscal year ending during the Employment Period, an annual bonus (the "Annual Bonus") in cash at least equal to the Executive's highest bonus under the Company's Executive Incentive Plan, or any comparable bonus under any predecessor or successor plan, for the last three full fiscal years prior to the Effective Date (annualized in the event that the Executive was not employed by the Company for the whole of such fiscal year) (the "Recent Annual Bonus"). Each such Annual Bonus shall be paid no later than the end of the third month of the fiscal year next following the fiscal year for which the An- nual Bonus is awarded, unless the Executive shall elect to defer the receipt of such Annual Bonus. (iii) Incentive, Savings and Retirement Plans. During the Employment Period, the Executive shall be entitled to participate in all incentive, profit-sharing, stock option, stock award, savings and retirement plans, practices, policies and programs applicable generally to other peer executives of the Company and its affiliated companies, but in no event shall such plans, practices, policies and programs provide the Executive with incentive opportunities (measured with respect to both regular and special incentive opportunities, to the extent, if any, that such distinction is applicable), savings opportunities and retirement benefit opportunities, in each case, less favorable, in the aggregate, than the most favorable of those provided by the Company and its affiliated companies for the Executive under such plans, practices, policies and programs as in effect at any time during the 120-day period immediately preceding the Effective Date or if more favorable to the Executive, those provided generally at any time after the Effective Date to other peer executives of the Company and its affiliated companies. (iv) Welfare Benefit Plans. During the Employment Period, the Executive and/or the Executive's family, as the case may be, shall be eligible for participation in and shall receive all benefits under welfare benefit plans, practices, policies and programs provided by the Company and its affiliated companies (including, without limitation, medical, prescription, dental, disability, employee life, group life, accidental death and travel accident insurance plans and programs) to the extent applicable generally to other peer executives of the Company and its affiliated companies, but in no event shall such plans, practices, policies and programs provide the Executive with benefits which are less favorable, in the aggregate, than the most favorable of such plans, practices, policies and programs in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, those provided generally at any time after the Effective Date to other peer executives of the Company and its affiliated companies. (v) Expenses. During the Employment Period, the Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Executive in accordance with the most favorable policies, practices and procedures of the Company and its affiliated companies in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favor- able to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies. (vi) Fringe Benefits. During the Employment Period, the Executive shall be entitled to fringe benefits, including, without limitation, tax and financial planning services, payment of club dues, and, if applicable, use of an automobile and payment of related expenses and use of Company aircraft, in accordance with the most favorable plans, practices, programs and policies of the Company and its affiliated companies in effect for the Executive at any time during the 120-day period immediately preceding the Ef- fective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies. (vii) Office and Support Staff. During the Employment Period, the Executive shall be entitled to an office or offices of a size and with furnishings and other ap- pointments, and to personal secretarial and other assistance, at least equal to the most favorable of the foregoing provided to the Executive by the Company and its affiliated companies at any time during the 120-day period immediately preceding the Effective Date or, if more favor- able to the Executive, as provided generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies. (viii) Vacation. During the Employment Period, the Executive shall be entitled to paid vacation in accordance with the most favorable plans, policies, programs and practices of the Company and its affiliated companies as in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies. 5. Termination of Employment. (a) Death or Disability. The Executive's employment shall terminate automatically upon the Executive's death during the Employment Period. If the Company determines in good faith that the Disability of the Executive has occurred during the Employment Period (pursuant to the definition of Disability set forth below), it may give to the Executive written notice in accordance with Section 12(b) of this Agreement of its intention to terminate the Executive's employment. In such event, the Executive's employment with the Company shall terminate effective on the 30th day after receipt of such notice by the Executive (the "Disability Effective Date"), provided that, within the 30 days after such receipt, the Executive shall not have returned to full-time performance of the Executive's duties. For purposes of this Agreement, "Disability" shall mean the absence of the Executive from the Executive's duties with the Company on a full-time basis for 180 consecutive business days as a result of incapacity due to mental or physical illness which is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to the Executive or the Executive's legal representative. (b) Cause. The Company may terminate the Executive's employment during the Employment Period for Cause. For purposes of this Agreement, "Cause" shall mean: (i) the willful and continued failure of the Executive to perform substantially the Executive's duties with the Company or one of its affiliates (other than any such failure resulting from incapacity due to physical or mental illness), after a written demand for substantial performance is delivered to the Executive by the Board or the Chief Executive Officer of the Company which specifically identifies the manner in which the Board or Chief Executive Officer believes that the Executive has not substantially performed the Executive's duties, or (ii) the willful engaging by the Executive in illegal conduct or gross misconduct which is materially and demonstrably injurious to the Company. For purposes of this provision, no act or failure to act, on the part of the Executive, shall be considered "willful" un- less it is done, or omitted to be done, by the Executive in bad faith or without reasonable belief that the Executive's action or omission was in the best interests of the Company. Any act, or failure to act, based upon authority given pur- suant to a resolution duly adopted by the Board or upon the instructions of the Chief Executive Officer or a senior of- ficer of the Company or based upon the advice of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by the Executive in good faith and in the best interests of the Company. The cessation of employment of the Executive shall not be deemed to be for Cause unless and until there shall have been delivered to the Executive a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the entire membership of the Board at a meeting of the Board called and held for such purpose (after reasonable notice is provided to the Executive and the Executive is given an opportunity, together with counsel, to be heard before the Board), finding that, in the good faith opinion of the Board, the Executive is guilty of the conduct described in subparagraph (i) or (ii) above, and specifying the particulars thereof in detail. (c) Good Reason. The Executive's employment may be terminated by the Executive for Good Reason. For purposes of this Agreement, "Good Reason" shall mean: (i) the assignment to the Executive of any duties inconsistent in any respect with the Executive's position (including status, offices, titles and reporting require- ments), authority, duties or responsibilities as contem- plated by Section 4(a) of this Agreement, or any other action by the Company which results in a diminution in such position, authority, duties or responsibilities, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; (ii) any failure by the Company to comply with any of the provisions of Section 4(b) of this Agreement, other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; (iii) the Company's requiring the Executive to be based at any office or location other than as provided in Section 4(a)(i)(B) hereof or the Company's requiring the Executive to travel on Company business to a substantially greater extent than required immediately prior to the Effective Date; (iv) any purported termination by the Company of the Executive's employment otherwise than as expressly permitted by this Agreement; or (v) any failure by the Company to comply with and satisfy Section 11(c) of this Agreement. For purposes of this Section 5(c), any good faith determina- tion of "Good Reason" made by the Executive shall be conclu- sive. Anything in this Agreement to the contrary notwith- standing, a termination by the Executive for any reason dur- ing the 30-day period immediately following the first an- niversary of the Effective Date shall be deemed to be a ter- mination for Good Reason for all purposes of this Agreement. (d) Notice of Termination. Any termination by the Company for Cause, or by the Executive for Good Reason, shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 12(b) of this Agree- ment. For purposes of this Agreement, a "Notice of Termina- tion" means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than thirty days after the giving of such notice). The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting such fact or circumstance in enforcing the Executive's or the Company's rights hereunder. (e) Date of Termination. "Date of Termination" means (i) if the Executive's employment is terminated by the Company for Cause, or by the Executive for Good Reason, the date of receipt of the Notice of Termination or any later date specified therein, as the case may be, (ii) if the Executive's employment is terminated by the Company other than for Cause or Disability, the Date of Termination shall be the date on which the Company notifies the Executive of such termination and (iii) if the Executive's employment is terminated by reason of death or Disability, the Date of Termination shall be the date of death of the Executive or the Disability Effective Date, as the case may be. 6. Obligations of the Company upon Termination. (a) Good Reason; Other Than for Cause, Death or Disability. If, during the Employment Period, the Company shall terminate the Executive's employment other than for Cause or Disability or the Executive shall terminate employment for Good Reason: (i)the Company shall pay to the Executive in a lump sum in cash within 30 days after the Date of Termination the aggregate of the following amounts: A. the sum of (1) the Executive's Annual Base Salary through the Date of Termination to the extent not theretofore paid, (2) the product of (x) the higher of (I) the Recent Annual Bonus and (II) the Annual Bonus paid or payable, including any bonus or portion thereof which has been earned but deferred (and annualized for any fiscal year consisting of less than twelve full months or during which the Executive was employed for less than twelve full months), for the most recently completed fiscal year during the Employment Period, if any (such higher amount being referred to as the "Highest Annual Bonus") and (y) a fraction, the numerator of which is the number of days in the current fiscal year through the Date of Termination, and the denominator of which is 365 and (3) any compensation previously deferred by the Executive (together with any accrued interest or earnings thereon) and any accrued vacation pay, in each case to the extent not theretofore paid (the sum of the amounts described in clauses (1), (2), and (3) shall be hereinafter referred to as the "Accrued Obligations"); and B. the amount equal to the product of (1) the lesser of (x) three and (y) the number of days after the Date of Termination and on or before the Executive's 65th birthday, divided by 365, times (2) the sum of (A) the Executive's Annual Base Salary, (B) the Highest Annual Bonus and (C) the highest contributions made under the Company's Employees' Profit Sharing Incentive Plan and the Company's Profit Sharing Benefits Equalization Plan or any successor or replacement plans thereto, for any of the three calendar years preceding the Date of Termination; and C. an amount equal to the excess of (a) the actuarial equivalent of the benefit under the Company's qualified defined benefit retirement plan (the "Retirement Plan") (utilizing actuarial assumptions no less favorable to the Executive than those in effect under the Company's Re- tirement Plan immediately prior to the Effective Date), and any excess or supplemental retirement plans in which the Executive participates (together, the "SERP") which the Executive would have received if the Executive's employment had continued for three years after the Date of Termination or through age 65, if sooner, assuming for this purpose that all accrued benefits were fully vested, and, assuming that the Executive's compensation in each of the three years (or the shorter period to age 65, if applicable) would have been that required by Section 4(b)(i) and Section 4(b)(ii), over (b) the actuarial equivalent of the Executive's actual benefit (paid or payable), if any, under the Retirement Plan and the SERP as of the Date of Termination; (ii) for the lesser of (x) three years after the Executive's Date of Termination and (y) the period through the Executive's 65th birthday, or such longer period as may be provided by the terms of the appropriate plan, program, practice or policy, the Company shall continue benefits to the Executive and/or the Executive's family at least equal to those which would have been provided to them in accor- dance with the plans, programs, practices and policies described in Section 4(b)(iv) of this Agreement if the Executive's employment had not been terminated or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies and their families, provided, however, that if the Executive becomes reemployed with another employer and is eligible to receive medical or other welfare benefits under another employer provided plan, the medical and other welfare benefits described herein shall be secondary to those provided under such other plan during such applicable period of eligibility. For purposes of determining eligibility (but not the time of commencement of benefits) of the Executive for retiree benefits pursuant to such plans, practices, programs and policies, the Ex- ecutive shall be considered to have remained employed until three years after the Date of Termination and to have retired on the last day of such period; and (iii) to the extent not theretofore paid or provided, the Company shall timely pay or provide to the Executive any other amounts or benefits required to be paid or provided or which the Executive is eligible to receive under any plan, program, policy or practice or contract or agreement of the Company and its affiliated companies (such other amounts and benefits shall be hereinafter referred to as the "Other Benefits"). (b) Death. If the Executive's employment is terminated by reason of the Executive's death during the Employment Period, this Agreement shall terminate without further obligations to the Executive's legal representatives under this Agreement, other than for payment of Accrued Obligations and the timely payment or provision of Other Benefits. Accrued Obligations shall be paid to the Executive's estate or beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of Termination. With respect to the provision of Other Benefits, the term Other Benefits as utilized in this Section 6(b) shall include, without limitation, and the Executive's estate and/or beneficiaries shall be entitled to receive, benefits at least equal to the most favorable benefits provided by the Company and affiliated companies to the estates and beneficiaries of peer executives of the Company and such af- filiated companies under such plans, programs, practices and policies relating to death benefits and survivor benefits, if any, as in effect with respect to other peer executives and their beneficiaries at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive's estate and/or the Executive's beneficiaries, as in effect on the date of the Executive's death with respect to other peer executives of the Company and its affiliated companies and their beneficiaries. (c) Disability. If the Executive's employment is terminated by reason of the Executive's Disability during the Employment Period, this Agreement shall terminate without further obligations to the Executive, other than for payment of Accrued Obligations and the timely payment or provision of Other Benefits. Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination. With respect to the provision of Other Benefits, the term Other Benefits as utilized in this Section 6(c) shall include, without limitation, and the Executive shall be entitled after the Disability Effective Date to receive, disability and other benefits at least equal to the most favorable of those generally provided by the Company and its affiliated companies to disabled executives and/or their families in accordance with such plans, programs, practices and policies relating to dis- ability, if any, as in effect generally with respect to other peer executives and their families at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive and/or the Executive's family, as in effect at any time thereafter generally with respect to other peer executives of the Com- pany and its affiliated companies and their families. (d) Cause; Other than for Good Reason. If the Executive's employment shall be terminated for Cause during the Employment Period, this Agreement shall terminate without further obligations to the Executive other than the obliga- tion to pay to the Executive (x) his Annual Base Salary through the Date of Termination, (y) the amount of any com- pensation previously deferred by the Executive, and (z) Other Benefits, in each case to the extent theretofore unpaid. If the Executive voluntarily terminates employment during the Employment Period, excluding a termination for Good Reason, this Agreement shall terminate without further obligations to the Executive, other than for Accrued Obliga- tions and the timely payment or provision of Other Benefits. In such case, all Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination. 7. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any plan, program, policy or practice provided by the Company or any of its affiliated companies and for which the Executive may qualify, nor, subject to Section 12(f), shall anything herein limit or otherwise af- fect such rights as the Executive may have under any contract or agreement with the Company or any of its af- filiated companies. Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan, policy, practice or program of or any contract or agreement with the Company or any of its affiliated companies at or subsequent to the Date of Termination shall be payable in accordance with such plan, policy, practice or program or contract or agreement except as explicitly modified by this Agreement. 8. Full Settlement. The Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement and such amounts shall not be reduced whether or not the Executive obtains other employment. The Company agrees to pay as incurred, to the full extent permitted by law, all legal fees and expenses which the Executive may reasonably incur as a result of any contest (regardless of the outcome thereof) by the Company, the Executive or others of the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof (including as a result of any contest by the Execu- tive about the amount of any payment pursuant to this Agree- ment), plus in each case interest on any delayed payment at the applicable Federal rate provided for in Section 7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended (the "Code"). 9. Certain Additional Payments by the Company. (a) Anything in this Agreement to the contrary not- withstanding and except as set forth below, in the event it shall be determined that any payment or distribution by the Company to or for the benefit of the Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Sec- tion 9) (a "Payment") would be subject to the excise tax im- posed by Section 4999 of the Code or any interest or penal- ties are incurred by the Executive with respect to such ex- cise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. (b) Subject to the provisions of Section 9(c), all determinations required to be made under this Section 9, in- cluding whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by Deloitte & Touche or such other certified public ac- counting firm as may be designated by the Executive (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and the Executive within 15 business days of the receipt of notice from the Executive that there has been a Payment, or such earlier time as is requested by the Company. In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the Change of Control, the Executive shall appoint another nationally recognized ac- counting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Ac- counting Firm hereunder). All fees and expenses of the Ac- counting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to this Section 9, shall be paid by the Company to the Executive within five days of the receipt of the Accounting Firm's determination. Any determination by the Accounting Firm shall be binding upon the Company and the Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made ("Underpayment"), consistent with the calculations required to be made hereunder. In the event that the Company exhausts its remedies pursuant to Section 9(c) and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive. (c) The Executive shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten business days after the Executive is informed in writing of such claim and shall ap- prise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the 30- day period following the date on which it gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall: (i) give the Company any information reasonably requested by the Company relating to such claim, (ii)take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company, (iii)cooperate with the Company in good faith in order effectively to contest such claim, and (iv) permit the Company to participate in any pro- ceedings relating to such claim; provided, however, that the Company shall bear and pay di- rectly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and ex- penses. Without limitation on the foregoing provisions of this Section 9(c), the Company shall control all proceedings taken in connection with such contest and, at its sole op- tion, may pursue or forgo any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that if the Company directs the Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the Executive, on an interest-free basis and shall indemnify and hold the Execu- tive harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; and further provided that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. (d) If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 9(c), the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall (subject to the Company's complying with the requirements of Section 9(c)) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 9(c), a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. 10. Confidential Information. The Executive shall hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company or any of its affiliated companies, and their respective businesses, which shall have been ob- tained by the Executive during the Executive's employment by the Company or any of its affiliated companies and which shall not be or become public knowledge (other than by acts by the Executive or representatives of the Executive in vio- lation of this Agreement). After termination of the Executive's employment with the Company, the Executive shall not, without the prior written consent of the Company or as may otherwise be required by law or legal process, communi- cate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it. In no event shall an asserted violation of the provisions of this Section 10 constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement. 11. Successors. (a) This Agreement is personal to the Executive and without the prior written consent of the Company shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives. (b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. (c) The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. 12. Miscellaneous. (a) This Agreement shall be governed by and construed in accordance with the laws of the State of New Jersey, without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives. (b) All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Executive: If to the Company: Schering-Plough Corporation One Giralda Farms Madison, New Jersey 07940 Attention: General Counsel or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee. (c) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. (d) The Company may withhold from any amounts payable under this Agreement such Federal, state, local or foreign taxes as shall be required to be withheld pursuant to any ap- plicable law or regulation. (e) The Executive's or the Company's failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right the Executive or the Company may have hereunder, including, without limitation, the right of the Executive to terminate employment for Good Reason pursuant to Section 5(c)(i)-(v) of this Agreement, shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement. (f) The Executive and the Company acknowledge that, except as may otherwise be provided under any other written agreement between the Executive and the Company, the employ- ment of the Executive by the Company is "at will" and, sub- ject to Section 1(a) hereof, prior to the Effective Date, the Executive's employment and/or this Agreement may be ter- minated by either the Executive or the Company at any time prior to the Effective Date, in which case the Executive shall have no further rights under this Agreement. From and after the Effective Date this Agreement shall supersede any prior agreement between the parties with respect to the sub- ject matter hereof. IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and, pursuant to the authorization from its Board of Directors, the Company has caused these presents to be executed in its name on its behalf, all as of the day and year first above written. __________________________ [Executive] SCHERING-PLOUGH CORPORATION By________________________ Robert P. Luciano Chairman of the Board and Chief Executive Officer 18721-1 EX-10 6 Exhibit 10(h) SCHERING-PLOUGH CORPORATION Amendments to Supplemental Executive Retirement Plan The Supplemental Executive Retirement Plan is hereby amended effective as of October 1, 1994, as follows: 1. SECTION 1, Definitions, is hereby amended in its entirety to read as follows: 1.1 "Affiliate" means any corporation, partnership or other organization controlled by or under common control with the Corporation. 1.2 "Basic Plan" means as to any Participant or Former Participant the qualified retirement or pension plan of the Corporation or an Affiliate pursuant to which retirement benefits are payable to such Participant or Former Participant or to the Surviving Spouse or designated Beneficiary of a deceased Participant or Former Participant. 1.3 "Basic Plan Benefit" means the amount of benefit payable from the Basic Plan to a Participant or Former Participant. 1.4 "Board" means the Board of Directors of Schering-Plough Corporation. 1.5 "Change of Control" means Change of Control as defined in the Corporation's 1992 Stock Incentive Plan. 1.6 "Committee" means the Committee provided for in Section 6 of the Plan. 1.7 "Corporation" means Schering-Plough Corporation, a New Jersey Corporation, and any successor or assigns thereto. 1.8 "Deferral Rate" means a rate equal to the actual yield on three-month U.S. Treasury bills as reported in the Wall Street Journal on the first business day of each calendar quarter. 1.9 "Earnings" means the base pay received as an employee as salary or wages, including any amounts deferred under a plan qualified under Section 401(k) of the Internal Revenue Code, and bonuses awarded under any executive or management incentive plan of the Corporation or an Affiliate, excluding without limitation any stock awards, stock options and rights under any Stock Option, Employee Stock Ownership, or Stock Incentive Plan of the Corporation, any pensions, profit-sharing, pay in lieu of vacation, or other special remuneration. "Average Final Earnings" means a Participant's or Former Participant's average annual Earnings during the sixty consecutive months for which his Earnings were highest during the last one hundred twenty consecutive months of his Service. 1.10 "Effective Date" means January 1, 1983. 1.11 "Former Participant" means an executive employee who has been removed from further participation in the Plan. 1.12"Optional Survivor's Benefit Payment Date" means (a), in the case of a Participant or Former Participant having at least ten years of employment with the Corporation or an Affiliate, the first day of the month coincident with or next following the date of his death and (b), in the case of a Participant or Former Participant having less than ten years of employment with the Corporation or an Affiliate, the first day of the month coincident with or next following (i) the date on which the Participant or Former Participant would have attained age 55 or, (ii) if later, the date on which the Participant or Former Participant dies. 1.13 "Other Retirement Income" means retirement income payable to a Participant or Former Participant from the following sources: (a) any Retirement Benefits Equalization Plan of the Corporation or an Affiliate; and (b) any other contract, agreement or other arrangement with the Corporation or an Affiliate (excluding any Basic Plan) to the extent it provides retirement or pension benefits. 1.14 "Participant" means an executive employee of the Corporation or an Affiliate who becomes a participant in the plan pursuant to Section 2. 1.15 "Plan" means this Supplemental Executive Retirement Plan, as amended from time to time. 1.16 "Retirement" means the termination of a Participant's or Former Participant's employment with the Corporation or an Affiliate on one of the retirement dates specified in Section 3 or the deemed retirement of a Participant or a Former Participant pursuant to an employment agreement between him and the Corporation. 1.17 "Service" means a Participant's period of employment with the Corporation or an Affiliate for which benefits are accrued under the relevant Basic Plan. 1.18 "Surviving Spouse" means the spouse of a deceased Participant or Former Participant to whom such Participant or Former Participant has been validly married for a continuous period of at least one year immediately preceding such Participant or Former Participant's death. 1.19 The masculine gender, where appearing in the Plan, will be deemed to include the feminine gender, and the singular may include the plural, unless the context clearly indicates the contrary. 2. The last sentence of SECTION 4.3 is hereby amended in its entirety to read as follows: The Benefit of a Participant or Former Participant, whose employment is terminated other than by Retirement, disability, or death, shall be an annual benefit payable monthly commencing on the first day of the calendar month coincident with or next following his Normal Retirement Date, as determined under the preceding sentence but without taking into account the reduction factors, and if such Benefit is payable in a lump sum or annual installments pursuant to an election made in accordance with Section 4.6, payment thereof shall be made or commence on such Normal Retirement Date or on the first day of any month thereafter not later than the second anniversary of such Normal Retirement Date. 3. SECTION 4.6 is hereby amended in its entirety to read as follows: 4.6 The benefits under this Plan shall be payable to a Participant or Former Participant in the normal form such Participant's or Former Participant's retirement benefits would be payable under the Basic Plan determined solely on the basis of his marital status on his retirement benefit commencement date and without regard for any optional form of benefits elected under the Basic Plan. Notwithstanding the preceding sentence, a Participant or Former Participant may elect that payment of any benefits under this Plan shall be made in accordance with any optional form of benefit available under the Basic Plan or as hereinafter provided in this Section 4.6. A Participant or Former Participant may elect (the "Participant's Lump Sum Election") to receive payment of the actuarial equivalent of the aggregate of his benefits under this Plan and any Survivor's Benefit payable to his Surviving Spouse under this Plan in a lump sum in cash or in up to five equal annual cash installments on or commencing on his Early Retirement Date, Normal Retirement Date, or Deferred or Postponed Retirement Date or the first day of any month thereafter not later than the second anniversary of such Early Retirement Date, Normal Retirement Date, or Deferred or Postponed Retirement Date, as the case may be. If a Participant or a Former Participant terminates his employment by Retirement and dies with a Participant's Lump Sum Election in effect but prior to the payment of the full amount of such lump sum or annual installments, payment of the unpaid amount thereof shall be made to his Surviving Spouse, designated Beneficiary or estate in accordance with such Election. Payment made in accordance with either of the two preceding sentences to the Participant or Former Participant, his Surviving Spouse, designated Beneficiary or estate shall constitute full and complete satisfaction of the Company's obligation in respect of the benefits of such Participant or Former Participant and any Survivor's Benefit of his Surviving Spouse. If a Participant or Former Participant dies before Retirement, the Company shall have no obligation in respect of his benefits under this Plan and shall be obligated to pay any Survivor's Benefit, if, but only if, his spouse shall survive him. If the Participant or Former Participant does not make the Participant's Lump Sum Election, he may nevertheless elect (the "Survivor's Lump Sum Election") that if he should die prior to termination of employment, his Surviving Spouse shall receive the actuarial equivalent of her Survivor's Benefit, if any, in a lump sum in cash or in up to five equal annual cash installments on or commencing on the Optional Survivor's Benefit Payment Date or the first day of any month thereafter not later than the first day of the month coincident with or next following the second anniversary of the Optional Survivor's Benefit Payment Date. A Participant or a Former Participant may make any election pursuant to this Section 4.6, or may modify or rescind such an election previously made: (a), in the case of an election of a form of benefit other than a lump sum or annual installments pursuant to a Participant's Lump Sum Election or a Survivor's Lump Sum Election, at any time prior to the Participant's or Former Participant's Retirement, except that in the case of a Participant or Former Participant whose employment is terminated other than by Retirement, such election, modification or rescission must be made at least 90 days prior to his Normal Retirement Date; (b), in the case of a Participant's Lump Sum Election by a Participant or a Former Participant whose Retirement occurs on or after October 1, 1994, and on or before July 1, 1995, at least 30 days prior to the date of his Retirement; (c), in the case of a Participant's Lump Sum Election by a Participant or a Former Participant who is not covered by clause (b) of this sentence, not later than the end of the calendar year preceding the calendar year in which the termination of his employment occurs and at least six months prior to such termination of employment; and (d), in the case of a Survivor's Lump Sum Election by a Participant or Former Participant, at least six months prior to his death; provided, however, that in the event of a Change of Control, a Participant or Former Participant may make a Participant's Lump Sum Election or a Survivor's Lump Sum Election, or modify or rescind such an Election previously made, within a period of 60 days following such Change of Control but in no event later than 30 days prior to the date of the termination of his employment. Any election pursuant to this Section 4.6, or any modification or rescission of a previous election, shall be made in writing and filed with the Committee before the applicable limitation of time specified in this Section 4.6, and any election purported to be filed after the applicable limitation of time shall be void. Unless otherwise specified in the written form of election, the actuarial equivalent of the benefits payable to a Participant or a Former Participant who has made a Participant's Lump Sum Election, and the actuarial equivalent of any Survivor's Benefit payable to his Surviving Spouse pursuant to a Survivor's Lump Sum Election, shall be paid in five equal annual installments commencing on his Early Retirement Date, Normal Retirement Date, Deferred or Postponed Retirement Date, or the first day of the month coincident with or next following his death, as the case may be. If benefits under this Plan are payable to a Participant or Former Participant in a different form than his retirement benefits under the Basic Plan, the amount of the offset provided in this Plan for such Participant's or Former Participant's Basic Plan Benefit shall be actuarially converted into the form of benefit payable under this Plan but solely for purposes of calculating the amount of such offset. The amount of any lump sum payment shall be equal to the actuarial present value of the benefits payable under this Plan to a Participant, Former Participant or Surviving Spouse calculated as of the Early Retirement Date, Normal Retirement Date, Deferred or Postponed Retirement Date, or date of death of the Participant or Former Participant, as the case may be, by utilizing (a) the interest rate determined as of such Retirement Date or date of death under the regulations of the Pension Benefit Guaranty Corporation for determining the present value of a lump sum distribution on plan termination that were in effect on September 1, 1993, and (b) the other applicable actuarial assumptions in use as of such Retirement Date or date of death under the Basic Plan. The amount of any annual installment shall be calculated by converting the benefits payable under this Plan to a Participant, Former Participant or Surviving Spouse, as the case may be, into a lump sum amount in accordance with the preceding sentence and by dividing such amount by the number of installments elected or deemed to have been elected by the Participant or Former Participant. The amount of any lump sum or annual installment of the benefit of any Participant or Former Participant that is not paid within fifteen days after the date of his Retirement, and the amount of any lump sum or annual installment of any Survivor's Benefit of his Surviving Spouse that is not paid within fifteen days after the Optional Survivor's Benefit Payment Date, shall bear interest from such fifteenth day after the date of Retirement or the Optional Survivor's Benefit Payment Date, as the case may be, to but excluding the date of payment of such amount, at the Deferral Rate, compounded quarterly. Interest on any such amount shall be paid on the date such amount is paid. If the benefits under this Plan are to continue after a Participant's or Former Participant's death for the benefit of his spouse or a designated beneficiary, then such Participant or Former Participant shall have the right at any time to change the recipient of the survivorship benefit payable under this Plan; provided, however, that any such change, if made after the applicable deadline set forth in the Basic Plan, shall not affect the amount of the benefit payable under this Plan as originally calculated or the term for which such benefit is payable, also as originally calculated. The Committee may, in its sole discretion, defer the payment of any lump sum or initial annual installment to a Participant or a Former Participant who is a "covered employee" as defined in Section 162(m) of the Internal Revenue Code of 1986, as amended, if such payment would be subject to such Section's limitation on deductibility; provided, however, that such payment shall not be deferred to a date later than the earliest date in the year in which such payment would not be subject to such limitation; and further provided that the Company shall, at the time of payment of any amount so deferred, pay interest thereon from the due date thereof at the Deferral Rate, compounded quarterly. 18200-1 EX-11 7 Exhibit 11 SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES COMPUTATION OF EARNINGS PER COMMON SHARE (In millions, except per share figures)
Year Ended December 31, 1994 1993 1992 Earnings per Common Share, As Reported: Net Income Applicable to Common Shares . . . . . . . . . . . $ 922.0 $ 730.8 $ 720.4 Average Number of Common Shares Outstanding. . . . . . . . . . . . . 191.3 195.1 200.2 Earnings Per Common Share. . . . . . . $ 4.82 $ 3.75 $ 3.60 Earnings per Common Share, Assuming Full Dilution: (a) Average Number of Common Shares Outstanding . . . . . . . . . . . . 191.3 195.1 200.2 Shares Contingently Issuable for Stock Incentive Plans . . . . . . . 2.0 2.2 2.8 Average Number of Common Shares and Common Share Equivalents Outstanding . . . . . . . . . . . . 193.3 197.3 203.0 Earnings Per Common Share Assuming Full Dilution . . . . . . . . . . . $ 4.77 $ 3.70 $ 3.55 (a) This calculation is submitted in accordance with the regulations of the Securities and Exchange Commission although not required by APB Opinion No. 15 because it results in dilution of less than 3%.
EX-12 8 Exhibit 12 SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (Dollars in millions)
Year Ended December 31, 1994 1993 1992 1991 1990 Income Before Income Taxes . . . . . $1,213.2 $1,078.4 $953.9 $860.8 $768.9 Add : Fixed Charges Interest Expense . . . . . . . . . 56.2 48.2 55.4 65.3 82.4 1/3 Rentals. . . . . . . . . . . . 9.6 9.0 8.5 7.9 7.7 Capitalized Interest . . . . . . . 11.4 12.7 15.8 11.8 6.3 Total Fixed Charges. . . . . . . 77.2 69.9 79.7 85.0 96.4 Less: Capitalized Interest . . . . . 11.4 12.7 15.8 11.8 6.3 Add : Amortization of Capitalized Interest. . . . . . . . 4.1 3.5 4.1 4.0 3.8 Earnings Before Income Taxes and Fixed Charges (other than Capitalized Interest) . . . . . . . $1,283.1 $1,139.1 $1,021.9 $ 938.0 $862.8 Ratio of Earnings to Fixed Charges . 16.6 16.3 12.8 11.0 9.0 "Earnings" consist of income before income taxes and fixed charges (other than capitalized interest). "Fixed charges" consist of interest expense, capitalized interest and one-third of rentals which Schering-Plough believes to be a reasonable estimate of an interest factor on leases.
EX-13 9 Exhibit 13 Financial Section of the Company's 1994 Annual Report to Shareholders Management's Discussion and Analysis of Operations and Financial Condition Sales Consolidated sales in 1994 totaled $4.66 billion, an increase of $315.8 million, or 7 percent, over 1993, reflecting volume growth of 5 percent and price increases of 2 percent. This performance was primarily due to significant sales gains for the CLARITIN brand of nonsedating antihistamines. CLARITIN-D, a combination product with a decongestant, was launched domestically in November 1994. Worldwide CLARITIN brand sales totaled $505 million in 1994. Consolidated sales in 1994 were also affected by a sharp decline in sales of INTRON A, the Company's alpha interferon anticancer and antiviral agent, in Japan. Consolidated 1993 sales of $4.34 billion advanced $285.6 million, or 7 percent, over 1992, as volume growth of 7 percent and price increases of 2 percent were tempered by unfavorable foreign exchange of 2 percent. This growth was primarily the result of gains for INTRON A and the domestic introduction of CLARITIN. Worldwide 1994 pharmaceutical sales of $4.0 billion rose $360.0 million, or 10 percent, over 1993, reflecting volume growth of 7 percent, price increases of 2 percent and favorable foreign exchange rate fluctuations of 1 percent. Worldwide sales of pharmaceutical products in 1993 increased $281.2 million, or 8 percent, over 1992, as volume growth of 8 percent and price increases of 2 percent were moderated by unfavorable foreign exchange of 2 percent. Domestic prescription pharmaceutical product sales grew $299.1 million, or 20 percent, in 1994. Sales of respiratory products increased 30 percent due to continued strong growth of the CLARITIN brand and advances for the VANCENASE line of allergy products and VANCERIL line of asthma products. The respiratory sales gain also reflects higher sales of the PROVENTIL (albuterol) line of asthma products, resulting from prescription growth for the metered dose inhaler and higher branded and generic sales of the solution formulation. Sales of the PROVENTIL line totaled $396 million in 1994. The PROVENTIL formulations of solution, syrup and tablets are subject to generic competition. In January 1994, the Food and Drug Administration (FDA) issued bioequivalence standards for generic albuterol metered dose inhalers. Generic competitors are expected to enter the market in the future. The introduction of a generic inhaler will negatively affect sales and profitability of PROVENTIL. Respiratory growth was moderated by lower sales of THEO-DUR, a sustained-action theophylline, reflecting increased generic competition. Domestic sales of anti-infective and anticancer products rose 8 percent compared with 1993, due to gains for INTRON A and EULEXIN, a therapy for advanced prostate cancer. Dermatological products grew 5 percent, as increased promotional activities aided sales of LOTRISONE, an antifungal/anti-inflammatory cream. Sales of cardiovascular products advanced 4 percent, reflecting increases for K-DUR potassium supplements and IMDUR, an oral nitrate for angina. Domestic prescription pharmaceutical sales in 1993 advanced 10 percent over 1992, led by gains in respiratory products, reflecting the launch of CLARITIN. Sales of cardiovascular and anti-infective and anticancer products also grew. In 1994, sales of international pharmaceutical products increased $48.0 million, or 2 percent. Excluding the impact of foreign currency exchange rate fluctuations, sales would have risen approximately 1 percent. Sales in 1994 were significantly impacted by a sharp decline of INTRON A sales in Japan. International sales of respiratory products advanced 10 percent over 1993, led by growth for CLARITIN. Dermatological products sales increased 15 percent, largely due to gains for topical steroids in Latin American and major European markets. Sales of cardiovascular products rose 19 percent, reflecting higher sales of NITRO-DUR transdermal nitroglycerin patches. International sales of anti-infective and anticancer products declined 14 percent in 1994 due to lower sales of INTRON A in Japan, as various actions by the Japanese health authorities to control health care costs, including a mandated price reduction, resulted in a drastic decline in the interferon market. Sales of INTRON A in Japan decreased to $141 million in 1994 from $307 million in 1993. Sales of anti-infective and anticancer products were aided by growth of EULEXIN in major European markets and higher sales of CEDAX, a third-generation cephalosporin. Also contributing to the overall international sales growth were gains for LOSEC, an anti-ulcer treatment licensed from AB Astra. In 1993, international pharmaceutical sales, excluding foreign exchange, increased 13 percent over 1992, reflecting significant INTRON A sales growth in Japan, coupled with higher sales of respiratory and cardiovascular products. Sales of health care products in 1994 decreased $44.2 million, or 6 percent, compared with 1993, as price increases of 3 percent were more than offset by volume declines of 9 percent. Over-the- counter product sales declined 15 percent, largely due to increasingly competitive markets for vaginal antifungal and allergy/cold products. Foot care sales rose 3 percent, reflecting sales of the upgraded and repackaged DR. SCHOLL'S corn/callus/bunion line, coupled with spray and powder line extensions for LOTRIMIN AF, an antifungal. Sun care sales declined slightly from 1993 levels. In 1993, health care product sales increased $4.4 million, or 1 percent, over 1992, as price increases of 2 percent were partially offset by volume declines of 1 percent. The sales growth largely reflects higher sales of foot care and sun care products, moderated by lower sales of female health and allergy/cold products. Income Before Income Taxes Income before income taxes totaled $1,213.2 million in 1994, an increase of $134.8 million, or 13 percent, over 1993. In 1993, income before income taxes of $1,078.4 million grew $124.5 million, or 13 percent, over the $953.9 million in 1992. Summary of Costs and Expenses: (Dollars in millions)
% Increase/(Decrease) 1994 1993 1992 1994/93 1993/92 Cost of sales . . . . . . $ 958.6 $ 908.8 $ 900.6 5 % 1 % % of sales . . . . . . . 20.6 % 20.9 % 22.2 % Selling, general and administrative . . . . . $1,828.9 $1,747.4 $1,629.8 5 % 7 % % of sales . . . . . . . 39.3 % 40.3 % 40.2 % Research and development. $ 620.0 $ 577.6 $ 521.5 7 % 11 % % of sales . . . . . . . 13.3 % 13.3 % 12.9 % Other expense, net $ 36.4 $ 29.1 $ 49.9 25 % (42)% % of sales . . . . . . . .8 % .7 % 1.2 % ____________________________________________________________________________________________
Cost of sales as a percentage of sales declined to 20.6 percent in 1994 from 20.9 percent in 1993 and 22.2 percent in 1992. The improvements reflect the 1993 launch of CLARITIN in the United States, a change in sales mix to higher margin ethical pharmaceutical products in several international markets, and continuing cost containment efforts. Selling, general and administrative expenses represented 39.3 percent of sales in 1994, 40.3 percent in 1993 and 40.2 percent in 1992. The decline as a percentage of sales in 1994 from 1993 reflects lower promotional spending for CLARITIN following the 1993 domestic launch, and reduced spending for female health care products. The increase as a percentage of sales between 1993 and 1992 was due to higher promotional and selling expenses to support the launch of CLARITIN in the United States. Research and development expenses increased $42.4 million, or 7 percent, representing 13.3 percent of sales in 1994 and 1993 and 12.9 percent of sales in 1992. The higher spending reflects the Company's ongoing commitment to provide the resources necessary to develop a steady flow of innovative products and line extensions. Other expense, net consists of interest income, interest expense, foreign exchange gains and losses, and non-recurring items. In 1994, the net expense increased $7.3 million, as higher interest expense and a decline in interest income were moderated by lower foreign exchange losses. The decrease in expense between 1993 and 1992 reflects favorable foreign exchange in Japan and Ireland, and reduced interest expense, tempered by lower interest income. Income Taxes The Company's effective tax rate was 24.0 percent in 1994, 23.5 percent in 1993 and 24.5 percent in 1992. 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. The Omnibus Budget Reconciliation Act of 1993 (the "Act") increased the U.S. corporate tax rate from 34 percent in 1992 to 35 percent, restricted deductibility of certain operating expenses, reduced the tax benefit generated from operations in Puerto Rico and, in certain circumstances, taxed 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, which began in 1994. The impact of the Act on the 1994 effective tax rate was less than the Company had originally anticipated. However, management estimates the Act could increase the effective tax rate an additional 2.0 percentage points beginning in 1996. For additional information, see "Income Taxes" in the Notes to Consolidated Financial Statements on page 30. 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." 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. In 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 1992, 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 30 and 26, respectively. Net Income Income in 1994, excluding the cumulative effect of an accounting change in 1993, increased $97.0 million, or 12 percent, to $922.0 million. Income in 1993 advanced $105.0 million, or 15 percent, over 1992 when excluding the extraordinary item and the cumulative effect of the accounting changes. Differences in year-to-year exchange rates reduced comparative income growth in 1994 and 1993. After eliminating these exchange differences, income would have risen approximately 13 percent in 1994 and 18 percent in 1993. Earnings Per Common Share Earnings per common share were as follows:
1994 1993 1992 Earnings per common share before the extraordinary item and accounting changes $ 4.82 $ 4.23 $ 3.60 Extraordinary item - - (.13) Accounting changes - (.48) .13 Earnings per common share $ 4.82 $ 3.75 $ 3.60 Average shares outstanding (in millions) 191.3 195.1 200.2
Earnings per common share rose 14 percent in 1994 and 18 percent in 1993, when excluding the extraordinary item and accounting changes. 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 increased approximately 15 percent in 1994 and 21 percent in 1993. Over the past three years, the Board of Directors has authorized several share repurchase programs. Under these programs, approximately 8.6 million common shares were purchased in 1994, 7.0 million common shares in 1993 and 3.1 million common shares in 1992. At year-end 1994, the most recent $500 million program was 97 percent complete. This program was completed in February 1995. 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. Environmental expenditures have not had and, based on information currently available, are not anticipated to have a material impact on the Company's financial statements. For additional information, see "Legal and Environmental Matters" in the Notes to Consolidated Financial Statements on page 32. Additional Factors Influencing Operations Vision Care Business With the 1994 launch of its disposable contact lenses, the Company's Wesley-Jessen subsidiary is now able to compete in the fastest-growing segment of the contact lens market. Prior to this time, Wesley-Jessen's business had been restricted to the conventional lens segment, which has been contracting for a number of years. Wesley-Jessen's progression to becoming a full-fledged competitor in the contact lens business resulted from Company investments in research and capital in excess of $150 million. Having achieved this objective for the business, the Company is exploring a number of courses of action, including a strategic alliance, licensing, divestiture or the continuation of present operations. At this time, the outcome of this exploratory process is unknown. The Company hopes to conclude on a course of action in 1995. Health Care Reform In the United States, many of the Company's pharmaceutical products are subject to increasingly competitive pricing as managed care groups, institutions and governments seek price discounts. Future health care reform proposals also could have an impact on operations of the Company. In most international markets, the Company operates in an environment of government-mandated cost containment programs. Sales in Japan declined significantly in 1994, due to the impact of various cost containment efforts by the Japanese health authorities on the overall interferon market. INTRON A sales decreased as a result of a mandated price cut and government- imposed restrictions. In addition, several other markets have placed restrictions on physician prescription levels and patient reimbursements, emphasized greater generic usage and enacted across-the-board price cuts as further methods of cost control. Since the Company is unable to predict the final form and timing of any 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 45 percent of total sales in 1994 and 47 percent in 1993. Fluctuating foreign exchange rates have affected sales and earnings, as previously discussed. Sales and earnings growth in 1995 will be negatively affected if the U.S. dollar strengthens. The Company continues to implement selective hedging strategies to mitigate the possible adverse effects of 1995 exchange rate changes. For additional information on these strategies, see "Financial Instruments" in the Notes to Consolidated Financial Statements on page 24. Inflation Inflation has had only a minimal impact on operations in recent years. Liquidity and Financial Resources Cash generated from operations and selected borrowings continues to be the Company's major source of funds to finance working capital, additions to property and shareholder dividends. Cash provided by operating activities totaled $1,282.5 million in 1994, $962.1 million in 1993 and $691.9 million in 1992. The 1993 amount was reduced by $147.0 million for the funding of the Company's initial accumulated post-retirement benefit obligation. Capital expenditures amounted to $271.6 million in 1994, $365.2 million in 1993 and $403.2 million in 1992. It is anticipated that expenditures will approximate $350 million in 1995, mainly reflecting initial construction of a bulk chemical plant in Singapore and construction of a nonsterile facility in Mexico. Commitments for 1995 capital expenditures totaled $58.3 million at December 31, 1994. Common shares repurchased in 1994 totaled 8.6 million shares at a cost of $599.4 million. In 1993, 7.0 million shares were repurchased for $418.3 million, and 3.1 million shares were repurchased in 1992 at a cost of $171.0 million. Dividend payments of $379.4 million were made in 1994, compared with $339.6 million in 1993 and $300.2 million in 1992. These increases reflect dividends per common share paid to shareholders of $1.98 per share in 1994, up from $1.74 per share in 1993 and $1.50 in 1992. Short-term borrowings totaled $782.3 million at year-end 1994, $1,076.0 million in 1993 and $946.0 million in 1992. The decline in 1994 primarily reflects cash generated from domestic operations and the sale of investments. The Company's ratio of debt to total capital decreased to 38 percent in 1994 from 44 percent in 1993, as a result of the reduction in short-term debt. The Company's liquidity and financial resources continue to be sufficient to meet its operating needs. As of December 31, 1994, the Company had $866.6 million in unused lines of credit, of which $541.5 million was in support of commercial paper borrowings. The Company had A-1+ and P-1 ratings for its commercial paper, and AA and Aa3 general bond ratings from Standard and Poor's and Moody's, respectively, as of December 31, 1994. Schering-Plough Corporation and Subsidiaries Statements of Consolidated Income (Dollars in millions, except per share figures)
For The Years Ended December 31, 1994 1993 1992 Sales . . . . . . . . . . . . . . . . . . . . . $4,657.1 $4,341.3 $4,055.7 Costs and Expenses: Cost of sales . . . . . . . . . . . . . . . . 958.6 908.8 900.6 Selling, general and administrative . . . . . 1,828.9 1,747.4 1,629.8 Research and development. . . . . . . . . . . 620.0 577.6 521.5 Other expense, net. . . . . . . . . . . . . . 36.4 29.1 49.9 Total costs and expenses . . . . . . . . . . 3,443.9 3,262.9 3,101.8 Income before Income Taxes. . . . . . . . . . . 1,213.2 1,078.4 953.9 Income taxes. . . . . . . . . . . . . . . . . 291.2 253.4 233.9 Income before extraordinary item and cumulative effect of accounting changes. . . . 922.0 825.0 720.0 Extraordinary Item. . . . . . . . . . . . . . - - (26.7) Cumulative effect of accounting changes . . . - (94.2) 27.1 ___________________________________________________________________________________ Net Income. . . . . . . . . . . . . . . . . . . $ 922.0 $ 730.8 $ 720.4 Earnings per common share before extraordinary item and cumulative effect of accounting changes $ 4.82 $ 4.23 $ 3.60 Extraordinary item. . . . . . . . . . . . . . - - (.13) Cumulative effect of accounting changes . . . - (.48) .13 ___________________________________________________________________________________ Earnings Per Common Share . . . . . . . . . . . $ 4.82 $ 3.75 $ 3.60
Statements of Consolidated Retained Earnings (Dollars in millions, except per share figures)
For The Years Ended December 31, 1994 1993 1992 Retained Earnings, Beginning of Year. . . . . . $3,435.6 $3,044.4 $2,624.2 Net income. . . . . . . . . . . . . . . . . . . 922.0 730.8 720.4 Cash dividends on common shares (per share: 1994, $1.98; 1993, $1.74; and 1992, $1.50) . . (379.4) (339.6) (300.2) ___________________________________________________________________________________ Retained Earnings, End of Year. . . . . . . . . $3,978.2 $3,435.6 $3,044.4 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, 1994 1993 1992 Operating Activities: Net income . . . . . . . . . . . . . . . . . . . . . $ 922.0 $ 730.8 $ 720.4 Depreciation and amortization. . . . . . . . . . . . 157.6 142.4 135.0 Working capital changes - source (use): Accounts receivable . . . . . . . . . . . . . . . 73.0 48.4 (246.5) Inventories . . . . . . . . . . . . . . . . . . . (41.5) (11.4) (28.8) Other current assets. . . . . . . . . . . . . . . (107.6) (41.2) (78.1) Accounts payable, income taxes and accrued liabilities. . . . . . . . . . . . . . . . . . . 166.4 101.9 142.2 Other, net . . . . . . . . . . . . . . . . . . . . . 112.6 (8.8) 47.7 Net cash provided by operating activities. . . . . . 1,282.5 962.1 691.9 Investing Activities: Capital expenditures . . . . . . . . . . . . . . . . (271.6) (365.2) (403.2) Reduction of investments . . . . . . . . . . . . . . 181.0 192.7 323.0 Purchases of investments . . . . . . . . . . . . . . (19.1) (287.1) (93.1) Other, net . . . . . . . . . . . . . . . . . . . . . (41.1) (18.1) (2.5) Net cash used for investing activities (150.8) (477.7) (175.8) Financing Activities: Common shares repurchased. . . . . . . . . . . . . . (599.4) (418.3) (171.0) Cash dividends paid to common shareholders . . . . . (379.4) (339.6) (300.2) Net change in short-term borrowings. . . . . . . . . (292.1) 120.0 352.1 Net change in long-term debt . . . . . . . . . . . . 3.7 (.6) (580.3) Proceeds from other equity transactions. . . . . . . 33.1 33.7 18.7 Other, net . . . . . . . . . . . . . . . . . . . . . - (62.3) (9.7) Net cash used for financing activities . . . . . . . (1,234.1) (667.1) (690.4) Effect of Exchange Rates on Cash and Cash Equivalents. (4.2) (1.4) (3.7) Net Decrease in Cash and Cash Equivalents. . . . . . . (106.6) (184.1) (178.0) Cash and Cash Equivalents, Beginning of Year . . . . . 222.2 406.3 584.3 Cash and Cash Equivalents, End of Year . . . . . . . . $ 115.6 $ 222.2 $ 406.3 _______________________________________________________________________________________ See Notes to Consolidated Financial Statements.
Schering-Plough Corporation and Subsidiaries Consolidated Balance Sheets (Dollars in millions, except per share figures)
At December 31, 1994 1993 ASSETS __________________________________________________________________________ Current Assets: Cash and cash equivalents. . . . . . . . . . . $ 115.6 $ 222.2 Short-term investments . . . . . . . . . . . . 45.0 207.2 Accounts receivable, less allowances: 1994, $57.5; 1993, $44.9 . . . . . . . . . . 627.9 687.1 Inventories. . . . . . . . . . . . . . . . . . 466.3 404.6 Prepaid expenses, deferred income taxes and other current assets . . . . . . . . . . . 484.3 379.4 Total current assets . . . . . . . . . . . . . 1,739.1 1,900.5 Property, at cost: Land . . . . . . . . . . . . . . . . . . . . . 46.1 47.1 Buildings and improvements . . . . . . . . . . 1,450.4 1,319.8 Equipment. . . . . . . . . . . . . . . . . . . 1,283.7 1,146.6 Construction in progress . . . . . . . . . . . 269.5 325.4 Total. . . . . . . . . . . . . . . . . . . . . 3,049.7 2,838.9 Less accumulated depreciation. . . . . . . . . 967.4 871.2 Property, net. . . . . . . . . . . . . . . . . 2,082.3 1,967.7 Intangible Assets, net. . . . . . . . . . . . . . . 168.3 182.5 Other Assets. . . . . . . . . . . . . . . . . . . . 336.0 266.2 $4,325.7 $4,316.9 /TABLE
1994 1993 LIABILITIES AND SHAREHOLDERS' EQUITY ___________________________________________________________________________ Current Liabilities: Accounts payable . . . . . . . . . . . . . . . $ 285.2 $ 249.0 Short-term borrowings and current portion of long-term debt . . . . . . . . . . . . . . . 782.3 1,076.0 U.S., foreign and state income taxes . . . . . 397.7 341.8 Accrued compensation . . . . . . . . . . . . . 170.5 157.4 Other accrued liabilities. . . . . . . . . . . 393.1 308.2 Total current liabilities. . . . . . . . . . . 2,028.8 2,132.4 Long-Term Liabilities: Long-term debt . . . . . . . . . . . . . . . . 185.8 182.3 Deferred income taxes. . . . . . . . . . . . . 246.1 175.9 Other long-term liabilities. . . . . . . . . . 290.6 244.4 Total long-term liabilities. . . . . . . . . . 722.5 602.6 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 . . . . . . . . . . . . . . . . 133.3 80.9 Retained earnings . . . . . . . . . . . . . . . 3,978.2 3,435.6 Foreign currency translation adjustment and other (117.0) (116.2) Total . . . . . . . . . . . . . . . . . . . . . 4,246.0 3,651.8 Less treasury shares, at cost - 1994, 65,468,430 shares; 1993, 57,927,994 shares . . . . . . 2,671.6 2,069.9 Total shareholders' equity . . . . . . . . . . 1,574.4 1,581.9 $4,325.7 $4,316.9 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. Investments Effective January 1, 1994, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity Securities." The Company's short-term investments consist of short-term certificates of deposit and municipal obligations, which are generally held to maturity. The Company's other investments consist primarily of debt and equity securities held in non-qualified trusts for pension obligations. These trust funds are included in other non-current assets on the consolidated balance sheet. For purposes of SFAS No. 115, all of the Company's investment securities are classified as available for sale and, accordingly, are carried at fair value. Unrealized gains and losses are included in shareholders' equity until realized. There was no effect on income as a result of adopting SFAS No. 115. 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. Average useful lives are 50 years for buildings, 25 years for building improvements and 12 years for equipment. Intangible Assets Intangible assets principally include goodwill, patents, licenses and trademarks. Net goodwill of $69.3 and $70.7 at December 31, 1994 and 1993, respectively, 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 $101.4 and $86.5 at December 31, 1994 and 1993, 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, principally those operating in highly inflationary economies, 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 $5.8, $13.6 and $21.5 in 1994, 1993 and 1992, 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 and 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 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, 1994 December 31, 1993 Carrying Estimated Carrying Estimated Value Fair Value Value Fair Value Assets: Cash and cash equivalents $ 116 $ 116 $ 222 $ 222 Short-term investments 45 45 207 207 Other investments 83 83 87 90 Derivative Financial Instruments: Foreign currency put options 1 - 4 6 Forward exchange contracts 2 2 - - Liabilities: Short-term borrowings 782 782 1,076 1,076 Long-term debt 186 189 182 194 Derivative Financial Instruments: Interest rate swap contracts 19 19 6 6 Foreign currency swap contracts 69 101 53 68
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 by dealing only with financially sound counterparties. Accordingly, the Company does not anticipate loss for non-performance. The Company manages market risk primarily by investing in short-term, highly liquid investments and, in the case of derivatives, by limiting the use of derivatives to hedging activities or by limiting potential exposure to amounts that are not material to results of operations or cash flow. The Company does not enter into derivative instruments to generate trading profits. Short-term and Other Investments Short-term investments consist of certificates of deposit and municipal obligations, all of which mature within 12 months. Other investments primarily consist of debt and equity securities held in non-qualified trusts to fund pension benefits. Other investments are recorded in other non-current assets. Gains and losses during 1994 and 1993, based on the specific identification method, were not material. Derivatives The Company has not used derivative financial instruments to manage overall interest rate risk or overall exchange rate risk. Further, the Company has not used derivative financial instruments to speculate. The use of derivative financial instruments has been limited to: o Hedging selective foreign exchange exposures that arise from international operations and o International cash management. Hedging Selective Foreign Exchange Exposures The profitability of the Company's foreign operations, as measured in U.S. dollars, is subject to exchange rate risk. If the U.S. dollar weakens, the profitability of foreign operations benefits. However, if the U.S. dollar strengthens, the profitability of foreign operations can be adversely affected. Historically, the level of pre-tax operating profitability subject to this kind of exchange risk has been as follows:
1994 1993 1992 Europe, Middle East and Africa $232 $220 $215 Latin America 102 79 65 Canada, Pacific Area and Asia 138 207 141
To date, management has not deemed it cost-effective to engage in a formula- based program of hedging the profitability of these operations using derivative financial instruments. Some of the reasons for this conclusion are: o The Company operates in a large number of foreign countries; the currencies of these countries generally do not move in the same direction at the same time. o Historically, the major groups of currencies in which the Company operates generally have not experienced dramatic changes on a year-to-year basis. o 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. Anticipated Inventory Purchases On a selective basis, derivative instruments have been used to hedge some of the anticipated inventory purchases of Company subsidiaries. Put option contracts provide the right to sell a fixed amount of a specified currency at a fixed price during a specified period. Realized gains on these contracts are accounted for as a reduction in the cost of inventory. Unrealized gains are not recognized for financial statement purposes. Losses on foreign currency put options are limited to the premiums paid. Premiums paid are recorded in other current and non-current assets and amortized to other expense, net over the life of the contract. At December 31, 1994, yen option contracts were outstanding, which provide the Company with the right to deliver 6.2 billion yen in exchange for $60 in 1995. There were no unrealized gains at December 31, 1994. At December 31, 1993, the Company held options to deliver 85 million Deutschemarks, 238 million French francs and 6.7 billion yen for $50, $40 and $60, respectively. All 1993 contracts matured in 1994. At December 31, 1993, unrealized gains were insignificant. Gains and costs in both 1994 and 1993 were not material. Firm Commitments On a selective basis, the Company will enter into forward exchange contracts to hedge near-term, firm commitments denominated in a foreign currency. At December 31, 1994, the Company's Mexican subsidiary held a forward contract with a notional principal of $7 and a maturity date of January 24, 1995. Under the contract, on January 24, the subsidiary received pesos equal to the difference between the spot rate and the contract rate of 3.28 times the notional principal. The market and net carrying value of this contract at December 31, 1994, was an asset of $2. Realized and unrealized gains and losses under this contract are recorded as foreign exchange gains and losses and offset the equivalent recorded loss or gain on the firm commitment. At December 31, 1993, the Mexican subsidiary held a forward contract with a notional principal of $7 and a contract rate of 3.12. This contract matured in January 1994. Net Investment in Foreign Subsidiaries In the early 1980s, the Company significantly changed its operating structure in Japan. About the same time, the Company decided to partially hedge its net investment in Japan. At December 31, 1994, the net investment in the subsidiary was approximately 20 billion yen. Long-term foreign currency interest rate swap contracts have been used to hedge this net investment. Under contracts outstanding at December 31, 1994 and 1993, the Company will deliver 14.9 billion yen in exchange for $80.3 on various dates through 2005. The net contract liability is in other long-term liabilities. There have been no purchases, sales or maturities of these foreign currency contracts during 1994. In accordance with SFAS No. 52, the foreign currency obligations under these contracts are recorded using foreign exchange spot rates in effect at year end. At December 31, 1994, the Company estimates that a 1 percent change in the yen to U.S. dollar exchange rate would affect the estimated fair value of these contracts by approximately $2. The investment in the Japanese subsidiary is the only net investment that is hedged at year end using derivative financial instruments. International Cash Management In 1991 and 1992, the Company utilized interest rate swaps as part of its international cash management strategy. The Company employed the strategy in 1991 using an interest rate swap arrangement with a notional principal of $650 and in 1992 using an interest rate swap arrangement with a notional principal of $950. The $650 arrangement initially provided for the payment and receipt of interest based on two floating rates (LIBOR and average federal funds rates), and the $950 arrangement initially provided for the payment of interest based upon a floating rate (LIBOR) and the receipt of interest based upon two-year U.S. treasury rates. Both arrangements have 20-year terms. During 1994, the market risk of the $650 arrangement was significantly reduced by entering into offsetting contracts. The offsetting interest receipts and payments begin in 1997. As a result, the Company continues to be subject to market risk through 1996. At December 31, 1994 and 1993, the market value of this arrangement was a liability of $19 and $6, respectively. It is estimated that a 50 basis point change in interest rate structure could change the market value of this arrangement by approximately $5. During 1993, the market risk of the $950 arrangement was effectively nullified by entering into offsetting contracts. These offsetting contracts took effect immediately. The market value of this arrangement was a liability of less than $1 at December 31, 1994 and 1993. The above interest rate swaps are accounted for on a mark-to-market basis, and annual net cash flows for payments and receipts under the contracts are not material. Borrowings Short-term borrowings consist of commercial paper issued in the United States, bank loans and notes payable. Commercial paper outstanding at December 31, 1994 and 1993 was $601.7 and $961.4, respectively. Bank loans and notes payable at December 31, 1994 and 1993 totaled $178.2 and $112.0, respectively. The weighted average interest rate for short-term borrowings at December 31, 1994 and 1993 was 6.4 percent and 3.6 percent, respectively. At December 31, 1994, unused domestic bank lines of credit, which were considered as support for commercial paper borrowings, were $541.5. These lines of credit do not require compensating balances; however, a nominal commitment fee is paid for these lines. The Company's foreign subsidiaries had available $325.1 in unused lines of credit from various financial institutions at December 31, 1994. 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:
1994 1993 Notes, 7.8%, due 1996 . . . . . . . . . . . . . . $100.0 $100.0 Industrial revenue bonds, 4.35%-12.0%, due 2001-2013 . . . . . . . . . . . . . . . . . 80.0 80.0 Other . . . . . . . . . . . . . . . . . . . . . . 8.2 4.9 188.2 184.9 Current maturities. . . . . . . . . . . . . . . . (2.4) (2.6) Total long-term debt. . . . . . . . . . . . . . . $185.8 $182.3
During 1992, 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 1994 and 1993 balance sheets. The debt extinguishment resulted in an extraordinary loss in 1992 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, 1994, no debt securities have been issued pursuant to this registration. Interest Income and Interest Expense Interest income for 1994, 1993 and 1992 was $17.2, $23.9 and $38.5, respectively. Interest expense, net of amounts capitalized as part of the construction cost of property, plant and equipment, for 1994, 1993 and 1992 was $56.2, $48.2 and $55.4, respectively. Interest costs of $11.4, $12.7 and $15.8 in 1994, 1993 and 1992, respectively, have been capitalized and included in the cost of property, plant and equipment. Total cash payments for interest, net of amounts capitalized, were $43.8, $49.4 and $54.8 in 1994, 1993 and 1992, respectively. Interest income and interest expense are included in other expense, net. Inventories Year-end inventories consisted of the following:
1994 1993 Finished products . . . . . . . . . . . . . . $180.1 $168.3 Goods in process. . . . . . . . . . . . . . . 193.8 153.7 Raw materials and supplies. . . . . . . . . . 92.4 82.6 Total inventories . . . . . . . . . . . . . . $466.3 $404.6
Inventories valued on a last-in, first-out basis comprised approximately 36 percent and 42 percent of total inventories at December 31, 1994 and 1993, respectively. The estimated replacement cost of total inventories at December 31, 1994 and 1993 was $520.1 and $458.7, respectively. Stock Incentive Plans Under the terms of the Company's 1992 Stock Incentive Plan, 9 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 1997. Options are granted at prices not less than the market value of the common shares 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, 1993. . . . . 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 Granted . . . . . . . . . . . . . . 1,303,583 $59.63-$74.13 Exercised . . . . . . . . . . . . . (755,687) $ 8.81-$58.88 Canceled or expired . . . . . . . . (101,335) Outstanding at December 31, 1994. . . . 4,826,967 $ 9.88-$74.13 Exercisable at December 31, 1994. . . . 2,728,359 /TABLE As of December 31, 1994 and 1993, there were 771,460 and 942,300 deferred stock units outstanding, respectively, under current and prior plans. There were 507,386 shares issued in 1994 and 315,770 shares issued in 1993. At December 31, 1994, there were 6,413,723 common shares available for future options or awards. 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:
1994 1993 1992 Service cost - benefits earned during the year. . . . . . . . . . . . . . . $ 33.0 $ 26.6 $ 24.0 Interest cost on projected benefit obligations . . . . . . . . . . . . . 42.2 40.5 37.5 Actual return on plan assets . . . . . .2 (101.5) (46.3) Net amortization and deferral . . . . . (69.9) 36.8 (15.3) Net pension expense (income). . . . . . $ 5.5 $ 2.4 $ (.1)
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 qualified assets of the plans at December 31 were as follows:
Over funded Under funded plans plans 1994 1993 1994 1993 Projected benefit obligations: Accumulated benefit obligations, including vested benefits of $449.2 in 1994 and $466.8 in 1993. . . $426.4 $442.9 $73.0 $ 61.2 Effect of future salary increases . . . 70.2 82.8 20.5 19.0 Total projected benefit obligations . . . 496.6 525.7 93.5 80.2 Plan assets at fair value, primarily stocks and bonds. . . . . . . 688.7 699.8 13.7 11.4 Plan assets over (under) projected benefit obligations . . . . . . . . . . 192.1 174.1 (79.8) (68.8) Unrecognized net transition (asset) liability . . . . . . . . . . . . . . . (86.6) (95.7) 6.6 7.8 Unrecognized prior service cost . . . . . 6.0 6.3 8.7 4.7 Unrecognized net (gain) loss. . . . . . . (10.3) 1.8 15.3 18.2 Net pension asset (liability) . . . . . . $101.2 $ 86.5 $(49.2) $(38.1)
In addition to the plan assets indicated above, at December 31, 1994 and 1993, $45.7 and $45.4, respectively, of securities were held in non-qualified trusts designated to provide pension benefits for certain of the plans presented above as under funded. The discount rate used in determining the projected benefit obligation for the Company's U.S. plans was 8.25 percent at December 31, 1994, and 7 percent at December 31, 1993. The weighted-average discount rate for the Company's non-U.S. plans was 7.4 percent at December 31, 1994, and 7.3 percent at December 31, 1993. The weighted-average rate of increase in future compensation levels for all plans was 4.2 percent at December 31, 1994 and 1993. The weighted-average expected long-term rate of return on plan assets was approximately 10 percent for both years. The 1994 assumption changes reduced the total projected benefit obligation by approximately 11 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 $59.6, $58.2 and $53.7 in 1994, 1993 and 1992, 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 SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions." SFAS No. 106 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 SFAS No. 106. The components of net post-retirement benefit cost were as follows:
1994 1993 Service cost - benefits earned during the year. . . $ 6.0 $ 5.3 Interest cost on accumulated post-retirement benefit obligation . . . . . . . . . . . . . . . . 10.3 12.1 Actual return on plan assets. . . . . . . . . . . . 2.0 (15.9) Net deferral. . . . . . . . . . . . . . . . . . . . (15.5) 4.2 Post-retirement benefit cost. . . . . . . . . . . . $ 2.8 $ 5.7
The pay-as-you-go cost was $6.1 in 1992. The accumulated post-retirement benefit obligation and funded status at December 31 were as follows:
1994 1993 Accumulated post-retirement benefit obligation attributable to: Retirees. . . . . . . . . . . . . . . . . . . . . $67.6 $ 69.6 Fully eligible active plan participants . . . . . 24.6 24.2 Other active plan participants. . . . . . . . . . 38.2 56.2 Accumulated post-retirement benefit obligation . . . 130.4 150.0 Plan assets at fair value, primarily stocks and bonds. . . . . . . . . . . . . 150.2 157.6 Plan assets in excess of accumulated post-retirement benefit obligation . . . . . . . . . . . . . . . . 19.8 7.6 Unrecognized net gain . . . . . . . . . . . . . . . . (27.6) (12.3) Accrued post-retirement benefit liability . . . . . . $(7.8) $ (4.7)
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 10.6 percent for 1995, trending down to 5 percent by 2003. The weighted- average discount rate used was 8.25 percent at December 31, 1994, and 7 percent at December 31, 1993. The weighted-average expected long-term rate of return on plan assets was 9 percent at both December 31, 1994 and 1993. The 1994 discount rate change reduced the accumulated benefit obligation by approximately 18 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. At December 31, 1994, a 1 percent increase in the assumed health care cost trend rate would increase the combined service and interest cost by approximately 18 percent and the accumulated post-retirement benefit obligation by approximately 12 percent. Shareholders' Equity The Company has Preferred Share Purchase Rights (the "Rights") outstanding that 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 two-hundredths of a share of Series A Junior Participating Preferred Stock, par value $1 per share, of the Company at an exercise price of $125. 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 $.005 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, 1992. . . $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 Shares issued under stock incentive plans . . . . . . . - 52.4 (1,054) 2.3 Purchase of treasury shares . - - 8,594 599.4 ____________________________________________________________________ Balance at December 31, 1994. . $251.5 $133.3 65,468 $2,671.6
At December 31, 1994, warrants to purchase 7.6 million common shares, exercisable in 1996, are effectively outstanding; 5.1 million warrants have a strike price of $90 per share and 2.5 million warrants have a strike price of $97.33 per share. Income Taxes Effective January 1, 1992, the Company adopted 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. U.S. and foreign operations contributed to income before income taxes as follows:
1994 1993 1992 United States. . . . . . . . . . . . . $ 756.8 $ 588.7 $561.7 Foreign. . . . . . . . . . . . . . . . 456.4 489.7 392.2 Total income before income taxes . . . $1,213.2 $1,078.4 $953.9
The components of income tax expense before the extraordinary item and cumulative effect of accounting changes were as follows:
1994 1993 1992 Current: Federal. . . . . . . . . . . . . . . $ 91.3 $110.9 $131.5 Foreign. . . . . . . . . . . . . . . 119.2 121.7 111.5 State. . . . . . . . . . . . . . . . 19.6 6.9 24.3 Total current. . . . . . . . . . . . 230.1 239.5 267.3 Deferred: Federal and state. . . . . . . . . . 71.7 10.4 6.1 Foreign. . . . . . . . . . . . . . . (10.6) 3.5 (39.5) Total deferred . . . . . . . . . . . 61.1 13.9 (33.4) Total income tax expense . . . . . . . $291.2 $253.4 $233.9
Deferred taxes include provisions (credits) for the following:
1994 1993 1992 Non-recurring items . . . . . . . . . . $ 10.7 $ 5.7 $ 13.5 Excess of tax depreciation over financial statement depreciation . . . 29.8 17.2 .8 General business credit carry-forwards. 21.0 (7.0) (2.6) Intercompany inventory transfers . . . (18.0) 2.6 (17.4) Operating costs not currently deductible for tax purposes* . . . . (22.7) (11.1) (15.3) * 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:
1994 1993 1992 U.S. statutory tax rate. . . . . . . . . 35.0% 35.0% 34.0% Increase (decrease) in taxes resulting from: Tax exemptions on Puerto Rico operations . . . . . . . . . . . . . (6.5) (6.1) (6.8) Difference in effective tax rate on foreign source income. . . . . . . . (3.8) (5.6) (5.7) Research tax credit. . . . . . . . . . (.6) (.6) (.3) All other, net . . . . . . . . . . . . (.1) .8 3.3 Effective tax rate . . . . . . . . . . . 24.0% 23.5% 24.5%
As of December 31, 1994 and 1993, the Company had total deferred tax assets of $340.7 and $325.9, respectively, and deferred tax liabilities of $370.3 and $301.4, respectively. Valuation allowances are not significant. Significant deferred tax liabilities at December 31, 1994 and 1993 were for depreciation differences, $193.2 and $163.5, respectively, and retirement plans, $34.0 and $27.4, respectively. Significant deferred tax assets at December 31, 1994 and 1993 were for operating costs not currently deductible for tax purposes, $245.6 and $222.9, respectively. Current assets at December 31, 1994 and 1993 include net deferred tax assets of $209.3 and $187.6, respectively. Deferred taxes are not provided on undistributed earnings of foreign subsidiaries (considered to be permanent investments), which at December 31, 1994, approximated $1,380.0. 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, 1994, 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 1994, 1993 and 1992 were $173.1, $183.1 and $210.3, respectively. At December 31, 1994, the Company had capital loss carry-forwards for tax purposes of $18.8 that expire in 1995. Commitments Total rent expense amounted to $28.9 in 1994, $27.0 in 1993 and $25.6 in 1992. Future minimum rental commitments on non-cancelable operating leases as of December 31, 1994, range from $22.8 in 1995 to $8.1 in 1999, with aggregate minimum lease obligations of $26.7 due thereafter. The Company has commitments related to future capital expenditures totaling $58.3 as of December 31, 1994. 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 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 clean-up when it is probable a loss has been incurred. 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 the above matters at December 31, 1994 and 1993, and the related expenses incurred during the three years ended December 31, 1994, were not material. Expected insurance recoveries have not been considered in determining the costs related to recorded liabilities. Management believes that, except for the matters discussed in the following two paragraphs, it is remote that any material liability in excess of the amounts accrued will be incurred. In 1994, a judgment in the amount of $63.6, including $57.5 in punitive damages, was entered against the Company in state court in Portland, Oregon, in connection with a product liability lawsuit involving THEO-DUR. An appeal from this judgment has been taken. While the success of the appeal cannot be predicted with certainty, the Company will vigorously pursue its case through the appellate courts. The Company believes it has insurance coverage for amounts in excess of a $3 self-insured retention, but the insurance carriers have reserved their rights with respect to liability for punitive damages. The Company is a defendant in more than 100 antitrust actions commenced in state and federal courts by independent and chain retail pharmacies and others. The plaintiffs allege price discrimination and/or conspiracy between the Company and other defendants to restrain trade by jointly refusing to sell prescription drugs at discounted prices to the plaintiffs. One of these cases is a class action on behalf of U.S. retail pharmacies. Plaintiffs seek treble damages in an unspecified amount and an injunction against the allegedly unlawful conduct. The Company believes that all these actions are without merit and is defending itself vigorously against all such claims. Consistent with trends in the pharmaceutical industry, the Company is self- insured for certain events. Business Segment Data Schering-Plough Corporation is a holding company whose subsidiaries are 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 1994 1993 1992 1994 1993 1992 Pharmaceutical products. . . $4,000.7 $3,640.7 $3,359.5 $1,190.8 $1,055.9 $ 934.6 Health care products . . . . 656.4 700.6 696.2 158.9 135.8 149.8 Total sales and operating profit. . . . . . . . . . . 4,657.1 4,341.3 4,055.7 1,349.7 1,191.7 1,084.4 General corporate revenue and expense . . . . (80.3) (65.1) (75.1) Interest expense . . . . . . (56.2) (48.2) (55.4) Consolidated sales and pre-tax profit. . . . . $4,657.1 $4,341.3 $4,055.7 $1,213.2 $1,078.4 $953.9
Identifiable Assets, Capital Expenditures, Depreciation and Amortization by Industry Segment
Capital Depreciation and Assets Expenditures Amortization 1994 1993 1992 1994 1993 1992 1994 1993 1992 Pharmaceutical products. $3,544.5 $3,276.1 $3,036.8 $247.2 $339.4 $383.9 $134.2 $119.5 $113.0 Health care products . . 395.2 408.7 382.7 21.5 24.2 18.4 18.2 17.8 16.9 Industry segment totals. 3,939.7 3,684.8 3,419.5 268.7 363.6 402.3 152.4 137.3 129.9 Corporate. . . . . . . . 386.0 632.1 737.1 2.9 1.6 .9 5.2 5.1 5.1 Consolidated assets, capital expenditures, depreciation and amortization. . . . . . $4,325.7 $4,316.9 $4,156.6 $271.6 $365.2 $403.2 $157.6 $142.4 $135.0
Sales, Operating Profit and Identifiable Assets by Geographic Area
Sales Profit Assets 1994 1993 1992 1994 1993 1992 1994 1993 1992 United States. . . $2,552.6 $2,285.1 $2,163.9 $ 878.4 $ 685.2 $ 664.2 $2,344.2 $2,263.0 $2,135.3 Europe, Middle East and Africa . 1,064.5 955.5 1,018.9 232.0 219.8 214.5 887.5 689.2 567.6 Latin America. . . 394.0 333.1 274.7 101.7 79.4 64.6 278.4 233.9 192.0 Canada, Pacific Area and Asia . . 646.0 767.6 598.2 137.6 207.3 141.1 429.6 498.7 524.6 Total sales, operating profit and identifiable assets . . . . . $4,657.1 $4,341.3 $4,055.7 $1,349.7 $1,191.7 $1,084.4 $3,939.7 $3,684.8 $3,419.5 /TABLE 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 distri- bution 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 $1,611.7, $1,571.5 and $1,322.4 at December 31, 1994, 1993 and 1992, respectively. 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 authorization, 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 LLP, audit Schering- Plough's consolidated 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 audit results, 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, 1994, 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 LLP 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, 1994 and 1993 and the related statements of consolidated income, retained earnings and cash flows for each of the three years in the period ended December 31, 1994. 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, 1994 and 1993 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1994, 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 post-retirement benefits other than pensions to conform with SFAS No. 106. /s/Deloitte & Touche LLP Parsippany, New Jersey February 15, 1995 COMMON SHARE DIVIDENDS AND MARKET DATA During 1994, the Board of Directors increased the quarterly dividend rate from $.45 per share to $.51 per share. Dividends paid on common shares in 1994 totaled $379.4 million, representing a 12 percent increase over the $339.6 million paid in 1993. The quarterly dividends per share paid over the last two years were as follows:
Quarter 1994 1993 1st $ .45 $ .39 2nd .51 .45 3rd .51 .45 4th .51 .45 $ 1.98 $ 1.74
The approximate number of holders of record of common shares as of December 31, 1994, was 37,900. 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:
1994 1993 Quarter High Low High Low 1st $ 69 1/8 $ 55 5/8 $63 7/8 $51 3/4 2nd 66 5/8 55 1/8 70 7/8 55 1/2 3rd 71 3/8 61 5/8 69 1/4 58 4th 75 5/8 69 7/8 71 63 1/8 __________________________________________________________
Schering-Plough Corporation and Subsidiaries Six-Year Selected Financial & Statistical Data (Dollars in millions, except per share figures)
1994 1993 1992 1991 1990 1989 Operating Results Sales . . . . . . . . . . . . . $4,657.1 $4,341.3 $4,055.7 $3,615.6 $3,322.9 $3,157.9 Income before income taxes. . . 1,213.2 1,078.4 953.9 860.8 768.9 645.6 Income before extraordinary item and cumulative effect of accounting changes . . . . . . 922.0 825.0 720.0 645.6 565.1 471.3 Extraordinary item. . . . . . . - - (26.7) - - - Cumulative effect of accounting changes. . . . . . . . . . . . - (94.2) 27.1 - - - Net income. . . . . . . . . . . 922.0 730.8 720.4 645.6 565.1 471.3 Earnings per common share before extraordinary item and cumulative effect of accounting changes . 4.82 4.23 3.60 3.01 2.50 2.09 Extraordinary item. . . . . . . - - (.13) - - - Cumulative effect of accounting changes. . . . . . . . . . . . - (.48) .13 - - - Earnings per common share . . . 4.82 3.75 3.60 3.01 2.50 2.09 _______________________________________________________________________________________________ Investments Research and development. . . . $ 620.0 $ 577.6 $ 521.5 $ 425.9 $ 379.6 $ 326.5 Capital expenditures. . . . . . 271.6 365.2 403.2 339.4 242.9 186.1 Financial Condition Property, net . . . . . . . . . $2,082.3 $1,967.7 $1,748.5 $1,490.4 $1,284.4 $1,210.7 Total assets. . . . . . . . . . 4,325.7 4,316.9 4,156.6 4,013.2 4,103.1 3,613.5 Long-term debt. . . . . . . . . 185.8 182.3 184.1 753.6 182.9 185.5 Shareholders' equity. . . . . . 1,574.4 1,581.9 1,596.9 1,346.1 2,080.8 1,955.4 Net book value per common share 8.46 8.17 8.00 6.67 9.37 8.64 Financial Statistics Income before extraordinary item and cumulative effect of accounting changes as a percent of sales. 19.8% 19.0% 17.8% 17.9% 17.0% 14.9% Net income as a percent of sales 19.8% 16.8% 17.8% 17.9% 17.0% 14.9% Return on average shareholders' equity . . . . . . . . . . . . 58.4% 46.0% 49.0% 37.7% 28.0% 25.9% Effective tax rate. . . . . . . 24.0% 23.5% 24.5% 25.0% 26.5% 27.0% Other Data Cash dividends per common share $ 1.98 $ 1.74 $ 1.50 $ 1.27 $1.065 $ .875 Cash dividends on common shares 379.4 339.6 300.2 273.6 241.2 197.3 Depreciation and amortization . 157.6 142.4 135.0 129.0 121.9 111.9 Number of employees . . . . . . 21,200 21,600 21,100 20,200 19,700 21,300 Average common shares outstanding (in millions) . . . . . . . . . 191.3 195.1 200.2 214.5 225.9 225.5 Actual common shares outstanding at year end (in millions) . . . 186.0 193.6 199.5 201.8 222.0 226.3
Quarterly Results of Operations (Dollars in millions, except per share figures)
Three Months Ended March 31, June 30, September 30, December 31, 1994 1993 1994 1993 1994 1993 1994 1993 Sales. . . . . . . . .$1,161.6 $1,089.6 $1,190.1 $1,123.4 $1,125.7 $1,061.9 $1,179.7 $1,066.4 Gross profit . . . . . 914.3 855.4 944.1 886.7 905.9 850.1 934.2 840.3 Income before income taxes . . . . . . . . 333.1 292.1 316.8 278.8 295.1 260.6 268.2 246.9 Net income . . . . . . 253.2 129.3 240.7 213.2 224.3 199.4 203.8 188.9 Earnings per common share . . . . . . . . 1.31 .65 1.25 1.09 1.17 1.03 1.09 .98 ______________________________________________________________________________________________ The first quarter of 1993 includes a $94.2 charge ($.48 per share) for the cumulative effect of a change in accounting for post-retirement benefits other than pensions.
Page 1 OF 3 APPENDIX TO EXHIBIT #13 The first page of the financial section of the 1994 annual report to shareholders presents six bar charts. The following 6 sections provide the information portrayed in the charts: ___________________________________________________________________________ Title: Earnings per Common Share* * Before extraordinary item and accounting changes. The horizontal axis is in dollars starting at $0.00, increasing in increments of $1.00, ending at $5.00. The vertical axis is in years starting with 1990, ending with 1994. The data points are: 1990 $2.50 1991 $3.01 1992 $3.60 1993 $4.23 1994 $4.82 ___________________________________________________________________________ Title: Income* * Before extraordinary item and accounting changes. The horizontal axis is in millions of dollars starting at zero, increasing in $200 million increments, ending at $1,000 million. The vertical axis is in years starting with 1990, ending with 1994. The data points are: 1990 $565.1 1991 $645.6 1992 $720.0 1993 $825.0 1994 $922.0 ___________________________________________________________________________ Page 2 of 3 APPENDIX TO EXHIBIT #13 ___________________________________________________________________________ Title: Sales The horizontal axis is in millions of dollars starting at zero, increasing in $1,000 million increments, ending at $5,000 million. The vertical axis is in years starting with 1990, ending with 1994. The data points are: 1990 $3,322.9 1991 $3,615.6 1992 $4,055.7 1993 $4,341.3 1994 $4,657.1 ___________________________________________________________________________ Title: Research and Development The horizontal axis is in millions of dollars starting at zero, increasing in $100 million increments, ending at $700 million. The vertical axis is in years starting with 1990, ending with 1994. The data points are: 1990 $379.6 1991 $425.9 1992 $521.5 1993 $577.6 1994 $620.0 ___________________________________________________________________________ Page 3 of 3 APPENDIX TO EXHIBIT #13 ___________________________________________________________________________ Title: Capital Expenditures The horizontal axis is in millions of dollars starting at zero, increasing in $100 million increments, ending at $500 million. The vertical axis is in years starting with 1990, ending with 1994. The data points are: 1990 $242.9 1991 $339.4 1992 $403.2 1993 $365.2 1994 $271.6 ___________________________________________________________________________ Title: Dividends Per Common share The horizontal axis is in dollars starting at $0.00, increasing in $.50 increments, ending at $2.00. The vertical axis is in years starting with 1990, ending with 1994. The data points are: 1990 $1.065 1991 $1.27 1992 $1.50 1993 $1.74 1994 $1.98 ___________________________________________________________________________ EX-21 10 Schering-Plough Corporation and Subsidiaries Subsidiaries of Registrant Exhibit 21 As of December 31, 1994 Page 1 of 4 State or Country of Incorporation Subsidiaries of Registrant or Organization Garden Insurance Company Ltd. Bermuda Schering Biotech Corporation Delaware DNAX Research Institute of Molecular and Cellular Biology, Inc. California Schering-Plough Products, Inc. Delaware Plough Broadcasting Company, Inc. Delaware American Image Productions, Inc. Tennessee Schering Institutional Sales Corporation Delaware Schering-Plough Research Institute Delaware Schering-Plough Investment Co., Inc. Delaware Schering-Plough Real Estate Co., Inc. Delaware Integrated Disease Management, Inc. Delaware Integrated Therapeutics Group, Inc. Delaware Schering Corporation New Jersey Douglas Industries Inc. Delaware Key Pharmaceuticals, Inc. Florida Key Pharmaceuticals Export Co., Inc. U.S. Virgin Islands Plough Export, Inc. Tennessee Plough (Australia) Pty. Limited Australia Schering-Plough Animal Health Corporation Delaware Professional Vaccine Corporation Delaware Warrick Pharmaceuticals Corporation Delaware Professional Pharmaceutical Corporation Delaware Pharmaceutical Supply Corporation Delaware American Scientific Laboratories, Inc. Delaware Schering-Plough International, Inc. Delaware Schering Canada, Inc. Canada Pharmaco (Canada) Ltd. Canada White Laboratories of Canada Limited Canada Wesley-Jessen (Canada) Inc. Canada Schering-Plough del Caribe, Inc. New Jersey Schering-Plough Corporation, U.S.A. Delaware Schering-Plough (Grenada) Limited Grenada Schering-Plough Holdings Ltd. United Kingdom Dashtag United Kingdom Fulford (India) Limited India Schering-Plough (India) Private Ltd. India Plough Services A.G. Switzerland Plough (UK) Limited United Kingdom Schering-Plough Investments Limited Delaware Schering-Plough Overseas Limited Delaware S-P RIL Limited United Kingdom Warrick Pharmaceuticals Limited United Kingdom Kirby-Warrick Pharmaceuticals Limited United Kingdom Schering-Plough Limited United Kingdom White Laboratories Ltd. United Kingdom Wesley-Jessen France France Schering-Plough Coordination Center N.V./S.A. Belgium Wesley-Jessen Limited United Kingdom Exhibit 21 Page 2 of 4 State or Country of Incorporation Subsidiaries of Registrant or Organization Schering Corporation (New Jersey) (continued) Schering-Plough International, Inc. (Delaware) (continued) Schering-Plough S.A. Colombia P.T. Schering-Plough Indonesia Indonesia Plough Benelux S.A. Belgium Plough Consumer Products (Asia) Ltd. Hong Kong Schering-Plough HealthCare Products Canada Inc. Canada Schering-Plough Ltd. Switzerland Chemibiotic (Ireland) Ltd. Ireland Loftus Bryan Chemicals Ltd. Ireland Scherico Ltd. Switzerland AESCA Chemisch-Pharmazeutische Fabrik GmbH Austria Plough S.p.A. Italy Essex Chemie A.G. Switzerland Werthenstein Chemie A.G. Switzerland Essex Chemie A.G. (East) Switzerland Essex Pharma GmbH Germany Essex Pharma S.A. Greece Farmaceutica Essex S.A. Spain Key Pharma A.G. Switzerland Schering-Plough (Proprietary) Limited South Africa Med-Nim (Proprietary) Limited South Africa Schering-Plough France Schering-Plough AB Sweden Pro Medica AB Sweden Schering-Plough A/S Denmark Schering-Plough B.V. Netherlands Schering-Plough Farma, Lda Portugal Plough/OTC Farma Lda. Portugal Schering-Plough Labo N.V. Belgium Schering-Plough Limited Iran Schering-Plough A/S Norway Schering-Plough N.V./S.A. Belgium Schering-Plough OY Finland Schering-Plough Pharmaceutical Industrial and Commercial S.A. Greece Plough (Hellas) Ltd. Greece Schering-Plough S.A. Spain Desarrollos Farmaceuticos y Cosmeticos S.A. Spain Schering-Plough Sante Animale France Schering-Plough S.p.A. Italy Schering-Plough Tibbi Urunler Ticaret A.S. Turkey Sentipharm A.G. Switzerland Wesley-Jessen S.p.A. Italy Wesley-Jessen S.A. Spain Exhibit 21 Page 3 of 4 State or Country of InCorporation Subsidiaries of Registrant or Organization Schering Corporation (New Jersey) (continued) Schering-Plough International, Inc. (Delaware) (continued) Schering-Plough Ltd. (Switzerland) (continued) SOL Limited Bermuda Beneficiadora e Industrializadora, S.A. de C.V. Mexico Scheramex, S.A. de C.V. Mexico Schering-Plough, S.A. de C.V. Mexico SBI - Distribuidora de Productos Farmaceuticos Ltda. Brazil Industria Quimica e Farmaceutica Schering-Plough Ltda. Brazil EssexFarm S.A. Ecuador Schering-Plough Corporation South Korea Laboratorios Essex S.A. Argentina Essex Farmaceutica, S.A. Columbia Plough Chile Ltda. Chile Plough Consumer Products (Philippines) Inc. Philippines S.C.A. - Stabilimenti Chimici dell'Adda, S.p.A. Italy Schering-Plough del Ecuador, S.A. Ecuador Schering-Plough, C.A. Venezuela Schering-Plough China Limited Bermuda Shanghai Schering-Plough Pharmaceutical Company Ltd. China Schering-Plough Compania Limitada Chile Schering-Plough Corporation Philippines Schering-Plough INT Limited United Kingdom Schering-Plough Kabushiki Kaisha Japan Schering-Plough Limited Taiwan Schering-Plough Limited Thailand Schering-Plough Pty. Limited Australia Schering-Plough S.A. Argentina Schering-Plough S.A. Panama Schering-Plough S.A. Uruguay Schering-Plough Sdn. Bhd. Malaysia Sentipharm Hong Kong Ltd. Hong Kong Schering Sales Corporation Delaware Schering Laboratories Advertising Inc. Delaware Schering Transamerica Corporation New Jersey Wesley-Jessen Corporation Delaware W-J Manufacturing Corporation Delaware Wesley-Jessen (Japan) K.K. Japan White Laboratories, Inc. New Jersey Exhibit 21 Page 4 of 4 State or Country of Incorporation Subsidiaries of Registrant or Organization Schering-Plough HealthCare Products, Inc. Delaware Cacene, C.A. Venezuela Calzado Confort C.A. Venezuela Casacen, C.A. Venezuela Dr. Scholl's Foot Comfort Shops, Inc. Delaware Industrias Arco, Ltda. Costa Rica Ortopedia Nacional de Venezuela C.A. Venezuela Pharmaco, Inc. Delaware Plough de Venezuela, C.A. Venezuela Plough Laboratories, Inc. Tennessee PPL, Inc. Tennessee Schering-Plough HealthCare Products Advertising Corporation Tennessee Schering-Plough HealthCare Products Sales Corporation California SUNTAN Sensations, Inc. California Technobiotic Limited Australia The Coppertone Corporation Florida SP HealthCare Products Corporation Delaware Schering-Plough HealthCare Holding Company Delaware EX-23 11 EXHIBIT 23 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statements No. 2-83963, No. 33-19013, No. 33-50606 and No.33-57111 on Form S-8, Post-Effective Amendment No. 1 to Registration Statement No. 2-84723 on Form S-8, Post-Effective Amendment No. 1 to Registration Statement No. 2-80012 on Form S-3 and Post- Effective Amendment No. 1 to Registration Statement No. 2-77740 on Form S-3 of our reports dated February 15, 1995,appearing in and incorporated by reference in this Annual Report on Form 10-K of Schering-Plough Corporation for the year ended December 31, 1994. /s/DELOITTE & TOUCHE LLP Parsippany, New Jersey March 3, 1995 EX-24 12 Exhibit 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned officers and/or directors of Schering-Plough Corporation, a New Jersey corporation (herein called the "Corporation"), does hereby constitute and appoint Kevin A. Quinn, Thomas H. Kelly and Benjamin Croce, or any of them, his or her true and lawful attorney or attorneys and agent or agents, to do any and all acts and things and to execute any and all instruments which said attorney or attorneys and agent or agents may deem necessary or advisable to enable the Corporation to comply with the Securities Exchange Act of 1934, as amended, and any rules, regulations, requirements or requests of the Securities and Exchange Commission thereunder or in respect thereof in connection with the filing under said Act of the Annual Report of the Corporation on Form 10-K for the fiscal year ended December 31, 1994 (herein called the "Form 10-K"); including specifically, but without limiting the generality of the foregoing, the power and authority to sign the respective names of the undersigned officers and/or directors as indicated below to the Form 10-K and/or to any amendment of the Form 10-K and each of the undersigned does hereby ratify and confirm all that said attorney or attorneys and agent or agents, or any of them, shall do or cause to be done by virtue hereof. IN WITNESS WHEREOF, each of the undersigned has subscribed these presents this 28th day of February, 1995. /s/Robert P. Luciano /s/Richard J. Kogan Robert P. Luciano, Chairman Richard J. Kogan, President and and Chief Executive Officer; Chief Operating Officer; Director Director /s/Harold R. Hiser, Jr. /s/Thomas H. Kelly Harold R. Hiser, Jr. Thomas H. Kelly, Vice President Executive Vice President- and Controller; Principal Finance; Principal Financial Accounting Officer Officer page 1 of 2 /s/Hans W. Becherer /s/Richard de J. Osborne Hans W. Becherer Richard de J. Osborne Director Director /s/Hugh A. D'Andrade /s/William A. Schreyer Hugh A. D'Andrade William A. Schreyer Director Director /s/David C. Garfield /s/Robert F. W. van Oordt David C. Garfield Robert F. W. van Oordt Director Director /s/Regina E. Herzlinger /s/R. J. Ventres Regina E. Herzlinger R. J. Ventres Director Director /s/H. Barclay Morley /s/James Wood H. Barclay Morley James Wood Director Director page 2 of 2 EX-27 13
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS, RELATED 10-K SCHEDULES AND EXHIBITS FOR THE YEAR ENDED DECEMBER 31, 1994 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR DEC-31-1994 DEC-31-1994 115600 45000 685400 57500 466300 1739100 3049700 967400 4325700 2028800 185800 251500 0 0 1322900 4325700 4657100 4657100 958600 958600 620000 17100 56200 1213200 291200 922000 0 0 0 922000 4.82 4.77
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