-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Sv7LafBd0kuRq7Jglxh85G9Ep2Zk4Q/xZEAjU3ztiiN7bU93NLEqhGsJO2Q7i2BI TcJ5BnmmdBDkFrJu6Zl6sw== 0000310158-95-000024.txt : 19951118 0000310158-95-000024.hdr.sgml : 19951118 ACCESSION NUMBER: 0000310158-95-000024 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19950930 FILED AS OF DATE: 19951109 SROS: BSE SROS: CSE 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-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-06571 FILM NUMBER: 95588533 BUSINESS ADDRESS: STREET 1: ONE GIRALDA FARMS CITY: MADISON STATE: NJ ZIP: 07940-1000 BUSINESS PHONE: 2018227000 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1995 Commission file number 1-6571 SCHERING-PLOUGH CORPORATION Incorporated in New Jersey 22-1918501 One Giralda Farms (I.R.S. Employer Identification No.) Madison, N.J. 07940-1000 (201) 822-7000 (telephone number) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. YES X NO Common Shares Outstanding as of September 30, 1995: 367,568,011 PART I. - FINANCIAL INFORMATION Item 1. Financial Statements SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED INCOME (UNAUDITED) (Dollars in millions, except per share figures)
Three Months Nine Months Ended Ended September 30 September 30 1995 1994 1995 1994 Sales . . . . . . . . . . . . . . $1,256.8 $1,095.2 $3,813.5 $3,377.1 Costs and expenses: Cost of sales. . . . . . . . . . 237.8 206.3 746.1 666.9 Selling, general and administrative. . . . . . . 509.7 429.0 1,477.4 1,302.2 Research and development . . . . 165.8 158.0 475.1 447.1 Other expense, net . . . . . . . 8.9 2.3 37.3 14.3 922.2 795.6 2,735.9 2,430.5 Income before income taxes. . . . 334.6 299.6 1,077.6 946.6 Income taxes. . . . . . . . . . . 82.0 73.4 264.0 231.9 Income from continuing operations 252.6 226.2 813.6 714.7 Discontinued operations, net of tax: Income (loss) from operations . - (1.9) (10.2) 3.5 Loss on disposal. . . . . . . . - - (156.2) - Net income. . . . . . . . . . . . $ 252.6 $ 224.3 $ 647.2 $ 718.2 Earnings per common share: Continuing operations . . . . . $ .68 $ .59 $ 2.19 $ 1.86 Discontinued operations: Income (loss) from operations. - - (.03) .01 Loss on disposal . . . . . . . - - (.42) - Total . . . . . . . . . . . . . . $ .68 $ .59 $ 1.74 $ 1.87 Dividends per common share. . . . $ .29 $ .255 $ .835 $ .735 See notes to consolidated financial statements.
PAGE SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED) (Dollars in millions, except per share figures)
September 30, December 31, 1995 1994 Assets Cash and cash equivalents . . . . . . . . $ 336.7 $ 115.6 Accounts receivable, net. . . . . . . . . 557.0 627.9 Inventories . . . . . . . . . . . . . . . 468.1 466.3 Prepaid expenses, deferred income taxes and other current assets . . . . . 568.1 529.3 Total current assets. . . . . . . . . 1,929.9 1,739.1 Property, plant and equipment . . . . . . 3,050.1 3,049.7 Less accumulated depreciation . . . . . . 1,027.0 967.4 Property, net . . . . . . . . . . . . 2,023.1 2,082.3 Other assets. . . . . . . . . . . . . . . 601.2 504.3 $4,554.2 $4,325.7 Liabilities and Shareholders' Equity Accounts payable. . . . . . . . . . . . . $ 282.2 $ 285.2 Short-term borrowings and current portion of long-term debt. . . . . . . . 791.8 782.3 Other accrued liabilities . . . . . . . . 1,145.4 961.3 Total current liabilities . . . . . . 2,219.4 2,028.8 Long-term debt. . . . . . . . . . . . . . 86.3 185.8 Other long-term liabilities . . . . . . . 553.0 536.7 Shareholders' Equity: Preferred shares - $1 par value each; issued - none. . . . . . . . . . . - - Common shares - $1 par value each; shares issued: 1995 - 502,965,382; 1994 - 251,482,691 . . . . . . . . . . . 503.0 251.5 Paid-in capital . . . . . . . . . . . . . 24.5 133.3 Retained earnings . . . . . . . . . . . . 4,208.6 3,978.2 Foreign currency translation adjustment and other . . . . . . . . . . (100.9) (117.0) Total . . . . . . . . . . . . . . . . 4,635.2 4,246.0 Less treasury shares, at cost - 1995, 135,397,371 shares; 1994, 65,468,430 shares . . . . . . . . 2,939.7 2,671.6 Total shareholders' equity. . . . . . 1,695.5 1,574.4 $4,554.2 $4,325.7 See notes to consolidated financial statements.
PAGE SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30 (UNAUDITED) (Dollars in millions)
1995 1994 Operating Activities: Income from continuing operations . . . . $ 813.6 $ 714.7 Depreciation and amortization . . . . . . 120.1 107.2 Working capital changes - source (use): Accounts receivable. . . . . . . . . . . 39.9 19.3 Inventories. . . . . . . . . . . . . . . (24.5) (23.6) Other current assets . . . . . . . . . . (64.1) (60.6) Accounts payable and other accrued liabilities . . . . . . . . . . . . . . 173.1 79.5 Other, net. . . . . . . . . . . . . . . . (62.3) 1.4 Net cash provided by operating activities . . . . . . . . . . . . . . . 995.8 837.9 Investing Activities: Reduction of investments. . . . . . . . . 45.3 100.2 Purchases of investments. . . . . . . . . (80.4) (13.8) Capital expenditures. . . . . . . . . . . (167.6) (198.0) Other, net. . . . . . . . . . . . . . . . (1.5) 2.2 Net cash used for investing activities . . . . . . . . . . . . . . . (204.2) (109.4) Financing Activities: Net repayments on short-term borrowings . (102.4) (303.6) Common shares repurchased . . . . . . . . (268.0) (259.4) Dividends paid to common shareholders . . (310.4) (283.4) Proceeds from other equity transactions . . . . . . . . . . . . . . 33.9 24.5 Other, net. . . . . . . . . . . . . . . . .6 2.8 Net cash used for financing activities . . . . . . . . . . . . . . . (646.3) (819.1) Effect of Exchange Rates on Cash and Cash Equivalents. . . . . . . . . . . . . (3.9) .6 Net Cash Flow from Continuing Operations . 141.4 (90.0) Net Cash Flow from Discontinued Operations 79.7 2.9 Net Increase (Decrease) in Cash and Cash Equivalents. . . . . . . . . . . . . 221.1 (87.1) Cash and Cash Equivalents, Beginning of Period . . . . . . . . . . . . . . . . 115.6 222.2 Cash and Cash Equivalents, End of Period . $ 336.7 $ 135.1 See notes to consolidated financial statements.
PAGE SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Dollars in millions, except per share figures) Basis of Presentation The unaudited financial statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission for reporting on Form 10-Q. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. The statements should be read in conjunction with the accounting policies and notes to consolidated financial statements included in the Company's 1994 Annual Report on Form 10-K. In the opinion of management, the financial statements reflect all adjustments necessary for a fair statement of the operations for the interim periods presented. Discontinued Operations On June 28, 1995, the Company completed the sale of its worldwide contact lens business. In connection therewith, the Company recorded a loss on disposal of $156.2, net of tax benefits of $75.3, ($.42 per share). Proceeds from the sale were $47.5. The contact lens business is reported as a discontinued operation for all periods presented. The statements of consolidated income and cash flows have been restated to conform to the discontinued operation presentation. Contact lens sales during 1995 through the date of disposition were $46.2. Sales for the three and nine months ended September 30, 1994 were $30.5 and $100.3, respectively. Earnings Per Common Share On April 4, 1995, the Board of Directors of the Company authorized a 2-for-1 stock split, and voted to increase the number of authorized common shares from 300 million to 600 million. Distribution of the split shares was made on June 9, 1995. The per share amounts included in these consolidated financial statements reflect the stock split. Earnings per common share is computed by dividing net income by the weighted-average number of common shares outstanding. Shares issuable through the exercise of stock options and warrants and under deferred delivery agreements are not considered in the calculation, as they do not have a material effect on the determination of earnings per common share. The weighted-average number of shares used in the computation of earnings per common share for the nine months ended September 30, 1995 and 1994 were 371,203,591 and 385,058,178, respectively. Inventories Inventories consisted of: September 30, December 31, 1995 1994 Finished products . . . . . . . $ 202.9 $ 180.1 Goods in process. . . . . . . . 166.1 193.8 Raw materials and supplies. . . 99.1 92.4 Total inventories . . . . . . $ 468.1 $ 466.3 Sales Segment sales for the nine months ended September 30, 1995 and 1994 were as follows: 1995 1994 Pharmaceutical products . . . . $3,290.4 $2,843.6 Health care products. . . . . . 523.1 533.5 Consolidated sales. . . . . . $3,813.5 $3,377.1 Legal and Environmental Matters The Company is involved in various claims and legal proceedings of a nature considered normal to its business, including environmental matters and product liability cases. The recorded liabilities for these matters at September 30, 1995 were not material. Management believes that, except for the matters discussed in the following two paragraphs, it is remote that any material liability in excess of the amounts accrued will be incurred. In 1994, a judgment in the amount of $63.6, including $57.5 in punitive damages, was entered against the Company in connection with a product liability lawsuit involving THEO-DUR. An appeal from this judgment has been taken. While the success of the appeal cannot be predicted with certainty, the Company will vigorously pursue its case through the appellate courts. The Company believes it has insurance coverage for amounts in excess of $3.0, but the insurance carriers have reserved their rights with respect to liability for punitive damages. The Company has instituted a lawsuit against its insurance carriers seeking a declaration from the state court in Oregon that the carriers are obligated to indemnify the Company for any punitive damages it may be required to pay in connection with the underlying product liability action. The Company, along with other prescription drug manufacturers, is a defendant in more than 145 antitrust actions commenced in state and federal courts by independent and chain retail pharmacies and others. The plaintiffs allege price discrimination and/or conspiracy between the Company and other defendants to restrain trade by jointly refusing to sell prescription drugs at discounted prices to the plaintiffs. One of these cases is a class action on behalf of U.S. retail pharmacies. Plaintiffs seek treble damages in an unspecified amount and an injunction against the allegedly unlawful conduct. Another of these actions has been certified as a class of all pharmaceutical consumers in California seeking to recover treble damages for overcharges on prescription drugs purchased at retail. Other cases alleging to be class actions under various state laws have also been brought. The Company believes that all these actions are without merit and is defending itself vigorously against all such claims. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations - three and nine months ended September 30, 1995 compared with the corresponding periods in 1994. In June 1995, the Company completed the sale of its worldwide contact lens business. The following results exclude the contact lens business, which has been treated as a discontinued operation for all periods presented. For additional information, see "Discontinued Operations" in the Notes to the Consolidated Financial Statements on page 5. Consolidated sales for the third quarter increased $161.6 million or 15 percent compared with the same period in 1994. For the nine months, sales rose $436.4 million or 13 percent over 1994. Excluding the effect of foreign currency exchange rate changes, consolidated sales grew 12 percent in the quarter and 10 percent for the nine-month period. In the United States, many of the Company's pharmaceutical products are subject to increasingly competitive pricing as managed care groups, institutions and government agencies seek price discounts. Future health care reform proposals also could have an impact on operations of the Company. In most international markets, the Company operates in an environment of government-mandated cost containment programs. Sales of INTRON A, the Company's alpha-2 interferon anticancer and antiviral agent, declined in Japan as a result of various 1994 cost-containment efforts by the Japanese health authorities on the overall interferon market. In addition, several other markets have been affected by the implementation of across-the- board price cuts and government-imposed restrictions. Since the Company is unable to predict the form and timing of domestic and international governmental health care reform actions, their effect on future operations and cash flows cannot be reasonably estimated. Sales Domestic prescription pharmaceutical sales advanced 27 percent for the 1995 third quarter and 23 percent for the nine-month period. Sales of respiratory products increased 35 percent in the quarter and 33 percent for the nine months, reflecting significant market share growth for the CLARITIN brand of nonsedating antihistamines. CLARITIN-D, which combines the decongestant pseudoephedrine, was launched in the U.S. in November 1994. Sales growth in both periods was also aided by increases for VANCENASE allergy and VANCERIL asthma products. Despite generic competition for the solution, tablet and syrup formulations, sales for the PROVENTIL line of asthma products increased in both the quarter and nine-month periods, due to higher prescription levels for the metered dose inhaler. These gains were tempered by lower solution sales following the nonrecurrence of heavy 1994 purchases, which resulted from the recall of a competitor's product. The Food and Drug Administration (FDA) has issued bioequivalence standards for generic albuterol metered dose inhalers. Generic entries are expected to enter the market in the future. The introduction of a generic inhaler will negatively affect sales and profitability of PROVENTIL. U.S. sales of cardiovascular products rose 36 percent in the quarter and 29 percent for the nine months, reflecting prescription growth for IMDUR, a once-daily oral nitrate, and K- DUR potassium supplements. Sales of anti-infective and anticancer products advanced 37 percent for the quarter and 22 percent for the nine months, due to prescription growth for EULEXIN, a prostate cancer therapy, and expanded indication usage of INTRON A. International pharmaceutical sales increased 3 percent for both the third quarter and nine-month period after excluding the impact of foreign currency exchange fluctuations. Sales of respiratory products grew 8 percent in the quarter and 13 percent for the nine months, due to higher sales of CLARITIN in Europe and Latin America, and VANCERIL in Japan. Cardiovascular product sales rose 33 percent in the quarter and 18 percent for the nine months, reflecting growth for NITRO-DUR transdermal nitroglycerin patches in Europe and Canada. Sales of dermatological products increased 8 percent in both the quarter and nine-month periods, reflecting advances for topical steroids. Sales growth in both periods was also aided by higher sales of LOSEC, an anti-ulcer treatment licensed from AB Astra. International sales of anti-infective and anticancer products grew 6 percent in the quarter, but declined 2 percent in the nine months. Continued shortfalls of INTRON A in Japan negatively affected both the quarter and nine months. However, higher sales of EULEXIN and CEDAX, a third-generation cephalosporin, in several markets helped to moderate the impact of INTRON A in Japan. Health care product sales decreased 2 percent in both the third quarter and nine-month periods. The quarter sales reflect lower sales of allergy/cold and female health products. The nine-month decline in health care product sales reflects continued declines in female health products due to distribution losses and gains made by private label brands, and lower sales of sun care products reflecting a highly competitive market. Income before income taxes from continuing operations increased 12 percent for the quarter as compared with 1994, and represented 26.6 percent of sales versus 27.4 percent last year. For the nine months, income before income taxes from continuing operations grew 14 percent over 1994, representing 28.3 percent of sales compared with 28.0 percent last year. Cost of sales as a percentage of sales increased slightly to 18.9 percent from 18.8 percent in the quarter, principally the result of an unfavorable sales mix of lower margin pharmaceutical products in international markets. For the nine-month period, the cost of sales ratio declined slightly to 19.6 percent from 19.7 percent, as a favorable sales mix of higher margin pharmaceutical products in the U.S. mitigated the impact of the unfavorable international sales mix. Selling, general and administrative expenses represented 40.5 percent of sales in the third quarter compared with 39.2 percent last year. For the nine-month period, the ratio was 38.7 percent versus 38.6 percent in 1994. The increase in the ratios resulted from increased promotional spending in domestic and international markets. Research and development spending rose 5 percent in the quarter, representing 13.2 percent of sales compared with 14.4 percent a year ago. For the nine months, spending grew 6 percent and represented 12.5 percent of sales versus 13.2 percent in 1994. It is anticipated that total research and development expenses will approximate $650 million in 1995. The effective tax rate for continuing operations was 24.5 percent in the three- and nine-month periods of both 1995 and 1994. Earnings per common share from continuing operations advanced 15 percent in the third quarter to $.68 from $.59 in 1994. For the nine-month period, earnings per common share from continuing operations increased 18 percent to $2.19 from $1.86 last year. Excluding the impact of changes in foreign currency exchange rates, earnings per common share from continuing operations would have risen approximately 14 percent in the quarter and 15 percent for the nine months. Liquidity and financial resources - nine months ended September 30, 1995. Cash generated from operations continues to be the Company's major source of funds to finance working capital, additions to property, shareholder dividends and common share repurchases. Cash provided from operations totaled $995.8 million for the first nine months of 1995. This cash funded the spending of $310.4 million for shareholder dividends, $268.0 million for common share repurchases and $167.6 million for capital expenditures. Net cash flow from discontinued operations totaled $79.7 million, and includes the proceeds from the sale of the worldwide contact lens business, related tax benefits and cash results of discontinued operations for the first six months of 1995. In February 1995, the Company completed a $500 million repurchase program, which had begun in 1994. In June 1995, the Board of Directors authorized the purchase of an additional $500 million of common shares. As of September 30 this program was approximately 50 percent complete. The Company's liquidity and financial resources continue to be sufficient to meet its operating needs. PART II OTHER INFORMATION Item 1. Legal Proceedings The penultimate paragraph of Item 3, Legal Proceedings of Part I of the Company's annual report on Form 10-K for the fiscal year ended December 31, 1994, relating to a product liability lawsuit involving THEO-DUR, is incorporated by reference. In June 1995, the Company instituted a lawsuit against its insurance carriers seeking a declaration from the state court in Oregon that the carriers are obligated to indemnify the Company for any punitive damages it may be required to pay in connection with the underlying product liability action. The final paragraph of Item 3, Legal Proceedings of Part I of the Company's annual report on Form 10-K for the fiscal year ended December 31, 1994, relating to certain antitrust actions pending against the Company and other prescription drug manufacturers, is incorporated by reference. More than 145 such actions have been commenced. In addition to the certified federal class action, another such action has been certified as a class of all pharmaceutical consumers in California seeking to recover treble damages for overcharges on prescription drugs purchased at retail. Other cases alleging to be class actions under various state laws have also been brought. Item 6. Exhibits and Reports on Form 8-K a) Exhibits - The following Exhibits are filed with this document: Exhibit Number Description 10(a) - Third Amendment to Employment Agreement between the Company and Richard J. Kogan 10(b) - The Company's Deferred Compensation Plan 11 - Computation of Earnings Per Common Share 27 - Financial Data Schedule 99 - Forward-looking statements by the Company b) Reports on Form 8-K: No report has been filed during the three months ended September 30, 1995. SIGNATURE(S) Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Schering-Plough Corporation (Registrant) Date November 9, 1995 Thomas H. Kelly Vice President and Controller EX-11 2 Exhibit 11 SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES COMPUTATION OF EARNINGS PER COMMON SHARE (Dollars in millions, except per share figures)
Nine Months Ended September 30, 1995 1994 Income From Continuing Operations . . . . . $ 813.6 $ 714.7 Discontinued Operations: Income(Loss) From Operations. . . . . . . (10.2) 3.5 Loss on Disposal. . . . . . . . . . . . . (156.2) - Net Income. . . . . . . . . . . . . . . . . $ 647.2 $ 718.2 Earnings per Common Share, As Reported: Average Number of Common Shares Outstanding (in thousands). . . . . . . . . 371,204 385,058 Earnings per Common Share: Continuing Operations . . . . . . . . . . $ 2.19 $ 1.86 Discontinued Opertions: Income(loss) From Operations. . . . . . (.03) .01 Loss on Disposal. . . . . . . . . . . . (.42) - Total . . . . . . . . . . . . . . . . . . . $ 1.74 $ 1.87 Earnings per Common Share, Assuming Full Dilution: (a) Average Number of Common Shares Outstanding (in thousands) . . . . . . . . 371,204 385,058 Shares Contingently Issuable for Stock Incentive Plans and Warrant Agreements (in thousands). . . . . . . . . 5,376 4,508 Average Number of Common Shares and Common Share Equivalents Outstanding (in thousands) . . . . . . . . . . . . . . 376,580 389,566 Earnings per Common Share: Continuing Operations . . . . . . . . . . $ 2.16 $ 1.83 Discontinued Opertions: Income(loss) From Operations. . . . . . (.03) .01 Loss on Disposal. . . . . . . . . . . . (.41) - Earnings per Common Share, Assuming Full Dilution. . . . . . . . . . . . . . . $ 1.72 $ 1.84 (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-27 3
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS AND RELATED EXHIBITS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1000 9-MOS DEC-31-1995 SEP-30-1995 336700 0 557000 0 468100 1929900 3050100 1027000 4554200 2219400 86300 503000 0 0 1192500 4554200 3813500 3813500 746100 746100 475100 0 0 1077600 264000 813600 (166400) 0 0 647200 1.74 1.72
EX-99 4 Company Statements Relating To Forward Looking Information (Filed Pursuant to Rule 175) 1. Extract from press releases issued by the Company on October 16 and 19, 1995: Mr. Robert P. Luciano, Chairman and Chief Executive Officer, commenting on the Company's earnings per share for 1995 stated that he expects earnings per share for the full year 1995 will come in at slightly more than $2.80. EX-10 5 Exhibit 10(a) THIRD AMENDMENT TO EMPLOYMENT AGREEMENT THIS THIRD AMENDMENT to the Employment Agreement by and between SCHERING-PLOUGH CORPORATION, a New Jersey corporation (the "Company"), and RICHARD J. KOGAN (the "Employee") dated as of September 26, 1989, as amended as of June 28, 1994, and as further amended as of March 1, 1995 (as so amended, the "Employment Agreement"), made and entered into as of this 24th day of October, 1995. WITNESSETH THAT WHEREAS, the Board of Directors of the Company (the "Board") has requested that the Employee serve, and the Employee has agreed to serve, as Chief Executive Officer of the Company, effective as of January 1, 1996; and WHEREAS, the Company and the Employee wish to amend the Employment Agreement to reflect such position, 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. Section 1 of the Employment Agreement is hereby amended to read in its entirety as follows: The Company agrees to employ the Employee and the Employee agrees to remain in the employ of the Company, in accordance with the terms and provisions of this Agreement, for the period beginning on January 1, 1996, and ending as of the close of business on December 31, 2000 (the "Employment Period"); provided, however, that unless on or before the July 1 immediately preceding each December 31 on which the Employment Period would otherwise end, either party delivers to the other party a written notice of its election to terminate such employment on such December 31, the Employment Period shall be extended for additional two year periods commencing on the January 1 immediately succeeding such December 31 and ending on the second anniversary of such December 31. In the event a Change of Control (as defined in Section 11(c) below) occurs at a time when the remaining term of the Employment Period is less than three years, the Employment Period shall be extended for a three-year period commencing on the Effective Date (as defined in Section 11(d) below) and ending on the third anniversary of the Effective Date. Notwithstanding anything else herein, if not previously terminated, the Employment Period shall terminate on June 30, 2006. 2. The first sentence of Section 2(a) is hereby amended to read in its entirety as follows: During the Employment Period, the Employee shall be employed as Chief Executive Officer of the Company. 3. The first sentence of Section 3(a) is hereby amended to read in its entirety as follows: So long as the Employee is employed by the Company, he shall be paid an annual base salary ("Annual Base Salary") at the rate of not less than $900,000 per year, in substantially equal semi-monthly installments, and subject to any and all required withholdings and deductions for Social Security, income taxes and the like. 4. Subparagraph (j) of Section 3 is hereby amended by adding the following new subparagraph (v) at the end thereof: (v) Deferred Compensation Plan. During the Employment Period, so long as the Employee is employed by the Company, a plan (the "DCP") whereby the Employee may elect annually, at his option, to defer any of the following year's compensation that would be subject to the limitation on deductibility contained in Section 162(m) of the Internal Revenue Code of 1986, as amended. 5. Section 3 is hereby amended by adding the following new paragraph (k) at the end thereof: (k) Protection of Unfunded Plans. At all times during the Employment Period, the Company shall have established and made contributions to a grantor trust or trusts, the assets of which are (x) sufficient to provide, on an actuarial basis as determined by the Company at least once a year, all benefits accrued and compensation deferred by the Employee pursuant to the Unfunded Plans (as hereinafter defined), together with all interest and other credited earnings thereon, and (y) subject to the claims of the Company's creditors in the event of bankruptcy or insolvency. The foregoing is not intended to cause any of the Unfunded Plans to cease to be an unfunded plan for purposes of the Employee Retirement Income Security Act of 1974, as amended. The Employee shall have no beneficial interest in the assets of any such trust, and the rights of the Employee to benefits pursuant to the Unfunded Plans shall at all times be those of a general creditor of the Company. As used in this paragraph (k), the term "Unfunded Plans" means the Cash Bonus Plans, the SRP, the Basic SERP, the Retirement Benefits Equalization Plan, the Profit Sharing Benefits Equalization Plan, the DCP and any successor or replacement plans thereto. 6. The first sentence of paragraph (g) of Section 5 is hereby amended by striking the words "second proviso" and by substituting therefor the word "proviso." 7. The second sentence of Section 11(a) is hereby amended by striking the words "either Chief Operating Officer or." 8. The definition of "Change of Control" contained in Section 11(c) of the Employment Agreement shall be amended by adding the following proviso at the end of clause (i) of subparagraph (i) thereof: and provided, further, that if any Person's beneficial ownership of the Outstanding Company Voting Stock or Outstanding Company Voting Securities reaches or exceeds 20% as a result of a transaction described in clause (A) or (B) of the foregoing proviso, and such Person subsequently acquires beneficial ownership of additional common stock or 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 Stock or Outstanding Company Voting Securities; 9. This Third Amendment shall become effective as of January 1, 1996. 10. Except as provided above, the Employment Agreement shall continue in effect without alteration as in effect on the date hereof. The Employment Agreement, as amended by this Third Amendment, constitutes the entire agreement of the parties and supersedes all prior agreements and understandings with respect to the subject matter hereof and thereof. 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. /s/Richard J. Kogan Richard J. Kogan SCHERING-PLOUGH CORPORATION /s/Robert P. Luciano Robert P. Luciano Chairman of the Board 10/95 kogan EX-10 6 Exhibit 10(b) SCHERING-PLOUGH CORPORATION DEFERRED COMPENSATION PLAN Article I -- Definitions The following words and phrases, as used herein, have the following meaning unless a different meaning is plainly required by the context: "Affiliated Company" - any corporation, partnership, or other legal entity controlled directly or indirectly by the Company. "Board" - the Board of Directors of the Company. "Code" - the Internal Revenue Code of 1986, as amended. "Committee" - the Executive Compensation and Organization Committee appointed by the Board. "Company" - Schering-Plough Corporation, a New Jersey corporation. "Company Stock" - the Common Shares, par value $l per share, of the Company. "Company Stock Unit Account" - an account established to record the aggregate of all Company Stock Units credited to the account of Participants under the Plan. "Nonqualifying Compensation" - any compensation that is subject to the limitation on deductibility contained in Section 162(m) of the Code and the rules and regulations thereunder by reason of being "applicable employee remuneration" as defined therein. "Former Participant" - a person no longer in the employ of the Company or an Affiliated Company who is entitled to receive a distribution under the Plan. "Fund A" - a fund deemed to be invested in the Merrill Lynch one- to ten-year Treasury Index. "Fund B" - a fund deemed to be invested in the Standard and Poors 500 Index. "Fund C" - a fund deemed to be invested in thirty-day United States Treasury Bills. "Participant" - any employee of the Company or an Affiliated Company in a salary grade of E-6 or above. "Plan" - this Plan, either in its present form or as hereafter amended. "Terminated Participant" - any employee of the Company or an Affiliated Company who is no longer in a salary grade of E-6 or above. Article II -- Purpose The purpose of the Plan is to provide an opportunity to Participants to defer receipt of compensation that may be nondeductible by the Company pursuant to Section 162(m) of the Code. The Plan is an unfunded plan maintained primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees. Article III -- Deferral of Nonqualifying Compensation 1. A Participant may, prior to the commencement of any year, or with respect to a new Participant prior to the date of commencement of his employment, elect to have all his Nonqualifying Compensation for such year deferred until the earliest of his retirement, disability, death, other termination of employment, or, except for amounts credited to the Company Stock Unit Account, the repeal of Section 162(m) of the Code (herein called "the deferral period"). Such election may include an election as to the number of annual installments, in multiples of five but not exceeding thirty, over which such deferred amount shall be paid. If no installments are specified, the election shall be deemed an election to receive the deferred amount in a lump sum. Lump sum payments and the first of any installment payments shall be made on the 90th day after the termination of the deferral period or, at the Participant's election, made at the time of the election to defer an award, on the April 1st of the calendar year following the year of the termination of such deferral period. The amount so deferred shall be expressed and credited to each Participant in terms of compensation units (herein called "Units") which shall, in accordance with the election of the Participant, consist of Fund A Units, Fund B Units, Fund C Units, or Company Stock Units, or any combination thereof. A Participant may elect a separate deferral period and separate payment schedules with respect to Fund A Units, Fund B Units, Fund C Units or Company Stock Units. The cash equivalent of all deferred amounts designated as Fund A Units, Fund B Units, and Fund C Units shall be credited respectively to the Fund A Account, the Fund B Account, and the Fund C Account. The aggregate deferred amounts designated as Company Stock Units shall be credited to the Company Stock Unit Account. The foregoing elections shall be irrevocable. 2. The Company shall establish a separate deferred account for each Participant representing his participation in Fund A, Fund B, Fund C, or the Company Stock Unit Account. As of the January 1 following the year in which a Participant's deferred Nonqualifying Compensation was earned, the Company shall credit to each such deferred account of each Participant a number of Units and fractional Units equal to the number of Units and fractional Units determined by dividing the amount of such Participant's deferred Nonqualifying Compensation by the Unit Value of Fund A, Fund B, Fund C or one share of Company Stock, whichever is applicable. The Unit Value of Fund A, Fund B, and Fund C shall be determined as of any valuation date by dividing the fair market value of each of such Funds at such date by the number of Units then outstanding to the credit of all Participants, Former Participants or Terminated Participants, respectively, with respect to each such Fund, excluding amounts to be credited as of such date. The Unit Value of one share of Company Stock for various purposes hereunder shall be the closing price of one share of Company Stock on the New York Stock Exchange on the day in question; or if there were no sales on that day, then the closing price on such Exchange on the nearest preceding day on which there were sales. 3. When dividends are paid from time to time with respect to Company Stock, the Company shall calculate the amount which would have been payable in cash or property on the total Company Stock Units in all deferred accounts on each dividend payment date as if each Company Stock Unit represented one issued and outstanding share of Company Stock. The number of Company Stock Units equal to the aggregate amount of such dividends (based on the Unit Value of one share of Company Stock on the payment date with respect to such dividend) shall be credited to the Company Stock Unit Account, and each deferred account representing a participation in the Company Stock Unit Account shall be credited with its pro rata share of such number of Company Stock Units. In the event of any capital stock adjustment to Company Stock, the Company Stock Unit Account and each such deferred account shall be correspondingly adjusted as of the date of such capital stock adjustment. 4. Upon expiration of any deferral period, an amount of cash equal to the Unit Value of Units credited to a Participant's, Terminated Participant's, or Former Participant's deferred accounts shall be payable either in a lump sum or in the number of annual installments payable as specified by a Participant in his election under paragraph 1 of this Article. Any lump sum payment shall be valued as of the end of the most recent calendar month prior to the payment date. The amount of each installment payment shall be determined by dividing the aggregate Unit Value of the Units credited to the Participant's, Terminated Participant's or Former Participant's deferred accounts valued as of the end of the most recent calendar month prior to the payment date by the remaining number of unpaid installments; provided, however, that the Committee may, in its absolute discretion, approve any other method of determining the amount of each installment payment in order to achieve approximately equal installment payments over the installment period. The Committee may, in its sole discretion, where a Participant, Terminated Participant or Former Participant has terminated his employment and where it finds such action necessary to avoid severe financial hardship to a Participant, Terminated Participant or Former Participant or their respective beneficiaries, direct at any time that payment of any installment or lump sum be accelerated or that any remaining installments due to a Participant, Terminated Participant or Former Participant or their respective beneficiaries or estates shall be paid in a lump sum. A severe financial hardship must result from the illness of or an unexpected accident or casualty to the Participant, Terminated Participant or Former Participant or a member of his or her family or to his or her property, or due to other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant, Terminated Participant or Former Participant. A severe financial hardship shall not exist to the extent the loss or expense is covered by insurance or can be met by the sale of other liquid assets of the Participant, Terminated Participant or Former Participant. Unforeseeable hardship shall not include the college expenses of a child or the costs of purchasing a residence. The amount of any distribution hereunder shall not exceed the amount needed to meet the severe financial hardship. Any benefits payable under the Plan shall be equitably reduced to reflect any payments made from any trust established by the Corporation to meet its obligations under this Plan. Anything in this Plan to the contrary notwithstanding, the Committee may, in its sole discretion, further defer the payment of any lump sum or annual installment otherwise payable under paragraph 1 of this Article III to any Participant, Former Participant or Terminated Participant, if such payment would be nondeductible by the Company at the time it would otherwise be paid by reason of the limitation of Section 162(m) of the Code; provided, however, that such payment shall be made on the earliest date on which it would no longer be nondeductible by the Company by reason of such limitation; and provided further, however, that in no event shall the Committee so defer any such payment for more than two years. A Participant, Terminated Participant or Former Participant shall hold in trust and promptly refund to the Company at its request any amount covered by a deferral election or credited to his deferred account under this Plan, if by reason of a miscalculation or other mistake by the Company such amount is received by him before it is due and payable in accordance with this Plan. 5. Designations of beneficiaries shall be made in writing filed with the Company in such form and in such manner as the Company may from time to time prescribe. Beneficiaries may be changed by a Participant, Terminated Participant or Former Participant in the same manner at any time prior to death, and may thereafter be designated or changed by a surviving beneficiary eligible to receive any payment unless a successor beneficiary to such surviving beneficiary has been designated by the Participant, Terminated Participant, Former Participant or prior beneficiary. If a Participant, Terminated Participant, Former Participant or beneficiary eligible to receive any payment dies without a surviving beneficiary having been designated, or with his estate or a trust designated as the beneficiary, his interest under the Plan shall be distributed to the legal representative of his estate, or to the trustee of any such trust, in a lump sum on the 90th day after his death. 6. A Participant, Former Participant, or Terminated Participant who has a balance in any of the deferred accounts may elect to have his interest in such accounts reallocated among the deferred accounts as follows: (i) the election shall be in writing and shall be delivered to the Corporation on or before the 20th calendar day of the month in which the reallocation is to be effective; (ii) the reallocation shall be effected as of the last business day of the month designated, or as soon thereafter as practicable; (iii) a reallocation may only be made once during any calendar year by a Participant, Former Participant, or Terminated Participant; and (iv) in no event may a Participant, Former Participant, or Terminated Participant subject to Section 16 of the Securities Exchange Act of 1934 reallocate any balance from the Company Stock Unit Account to any other deferred account. Article IV -- Administration of the Plan The Plan shall be administered by or under the direction of the Committee, and all questions arising in connection with the Plan shall be determined by the Committee. The officers of the Company and the Committee may employ and rely upon such legal counsel, consultants, accountants and agents as they may deem advisable. Decisions of the Committee shall be conclusive and binding upon all persons. Article V -- Amendment or Termination The Plan may be amended or terminated at any time by action of the Board; provided, however, that no such amendment or termination shall affect the rights of a Participant, Terminated Participant, Former Participant or beneficiary to receive amounts credited to his deferred account. Article VI -- Miscellaneous 1. Neither the establishment of the Plan nor participation therein shall confer upon any person any right to be continued as an employee of the Company or an Affiliated Company, and the Company reserves the right to discharge any employee whenever in its sole judgment the interest of the Company or an Affiliated Company so requires. 2. All expenses of administering the Plan shall be paid by the Company. 3. No benefit under the Plan shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, or charge or subject to attachment, garnishment, or other legal process. 4. The Plan shall be construed, administered and enforced according to the laws of the State of New Jersey. 20476-1 -----END PRIVACY-ENHANCED MESSAGE-----