-----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, AgS/RXmOl3X57ocJIrPNPlRW99fYmTMdU9MXSrX0ZhmcEYE7KXMNJXWOSTSkDoj0 wXQKfCp8EhZHvOOKlGzQeA== 0000310158-98-000016.txt : 19981110 0000310158-98-000016.hdr.sgml : 19981110 ACCESSION NUMBER: 0000310158-98-000016 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981109 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: SEC FILE NUMBER: 001-06571 FILM NUMBER: 98740824 BUSINESS ADDRESS: STREET 1: ONE GIRALDA FARMS CITY: MADISON STATE: NJ ZIP: 07940-1000 BUSINESS PHONE: 9738227000 10-Q 1 3RD QUARTER 10-Q 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, 1998 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 (973) 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, 1998: 734,805,557 PART I. - FINANCIAL INFORMATION Item 1. Financial Statements SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED INCOME (UNAUDITED) (Amounts in millions, except per share figures)
Three Months Nine Months Ended Ended September 30 September 30 1998 1997 1998 1997 Sales . . . . . . . . . . . . . $1,986 $1,709 $6,018 $4,997 Costs and expenses: Cost of sales. . . . . . . . . 394 326 1,197 945 Selling, general and administrative. . . . . . 762 681 2,302 1,954 Research and development . . . 257 220 742 608 Other, net . . . . . . . . . . 1 15 6 32 1,414 1,242 4,247 3,539 Income before income taxes. . . 572 467 1,771 1,458 Income taxes. . . . . . . . . . 140 114 434 357 Net Income. . . . . . . . . . . $ 432 $ 353 $1,337 $1,101 Basic earnings per common share $ .59 $ .48 $ 1.82 $ 1.50 Diluted earnings per common share. . . . . . . . . . . . . $ .58 $ .48 $ 1.80 $ 1.49 Dividends per common share. . . $ .22 $ .19 $ .63 $ .545 See notes to consolidated financial statements.
SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED) (Amounts in millions, except per share figures)
September 30, December 31, 1998 1997 Assets Cash and cash equivalents . . . . . . . . $ 937 $ 714 Accounts receivable, net. . . . . . . . . 680 645 Inventories . . . . . . . . . . . . . . . 804 713 Prepaid expenses, deferred income taxes and other current assets . . . . . . . . 1,021 848 Total current assets. . . . . . . . . 3,442 2,920 Property, plant and equipment . . . . . . 3,924 3,750 Less accumulated depreciation . . . . . . 1,343 1,224 Property, net . . . . . . . . . . . . 2,581 2,526 Intangible assets, net. . . . . . . . . . 563 481 Other assets. . . . . . . . . . . . . . . 630 580 $ 7,216 $ 6,507 Liabilities and Shareholders' Equity Accounts payable. . . . . . . . . . . . . $ 861 $ 803 Short-term borrowings and current portion of long-term debt. . . . . . . . 138 581 Other accrued liabilities . . . . . . . . 1,697 1,507 Total current liabilities . . . . . . 2,696 2,891 Long-term debt. . . . . . . . . . . . . . 46 46 Other long-term liabilities . . . . . . . 780 749 Shareholders' Equity: Preferred shares - $1 par value; issued - none. . . . . . . . . . . . . . - - Common shares - $1 par value; issued - 1,015 . . . . . . . . . . . . . 1,015 1,015 Paid-in capital . . . . . . . . . . . . . 255 96 Retained earnings . . . . . . . . . . . . 6,545 5,673 Accumulated other comprehensive income. . (269) (244) Total . . . . . . . . . . . . . . . . 7,546 6,540 Less treasury shares, at cost - 1998, 280 shares; 1997, 282 shares . . . 3,852 3,719 Total shareholders' equity. . . . . . 3,694 2,821 $ 7,216 $ 6,507 See notes to consolidated financial statements.
SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30 (UNAUDITED) (Dollars in millions)
1998 1997 Operating Activities: Net Income. . . . . . . . . . . . . . . . $1,337 $1,101 Depreciation and amortization . . . . . . 172 157 Accounts receivable . . . . . . . . . . . (61) 41 Inventories . . . . . . . . . . . . . . . (73) (55) Prepaid expenses and other assets . . . . (205) (179) Accounts payable and other liabilities . 358 297 Net cash provided by operating activities . . . . . . . . . . . . . . . 1,528 1,362 Investing Activities: Purchase of business, net of cash acquired . . . . . . . . . . . . . . . . - (351) Capital expenditures and purchased software . . . . . . . . . . . . . . . . (227) (231) Proceeds from sales of investments. . . . - 37 Purchases of investments. . . . . . . . . (103) (98) Other, net. . . . . . . . . . . . . . . . (3) (10) Net cash used for investing activities . . . . . . . . . . . . . . . (333) (653) Financing Activities: Dividends paid to common shareholders . . (465) (400) Common shares repurchased . . . . . . . . (109) (56) Short-term borrowings, net. . . . . . . . (433) (100) Repayment of long-term debt . . . . . . . - (3) Other, net. . . . . . . . . . . . . . . . 37 54 Net cash used for financing activities . . . . . . . . . . . . . . . (970) (505) Effect of exchange rates on cash and cash equivalents. . . . . . . . . . . . . (2) (7) Net increase in cash and cash equivalents . 223 197 Cash and cash equivalents, beginning of period . . . . . . . . . . . . . . . . 714 535 Cash and cash equivalents, end of period . $ 937 $ 732 See notes to consolidated financial statements.
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 1997 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. Earnings Per Common Share The shares used for basic earnings per common share and diluted earnings per common share are reconciled as follows (number of shares in millions): Three Months Nine Months Ended Ended September 30, September 30, 1998 1997 1998 1997 Average shares outstanding for basic earnings per share . . . . . 734 732 734 732 Dilutive effect of options and deferred stock units . . . . . 11 9 10 8 Average shares outstanding for diluted earnings per share . . . . 745 741 744 740 On September 22, 1998, the Board of Directors voted to increase the authorized common shares from 1.2 billion to 2.4 billion and approved a 2-for-1 stock split. Distribution of the split shares will be made on December 2, 1998 to shareholders of record at the close of business on November 6, 1998. The number of shares and the per share amounts included in these consolidated financial statements are presented before giving effect to the stock split. The pre-split par value of each common share is $1; the post- split par value will be $.50. Proforma earnings per common share on a post-split basis would be as follows: Three Months Nine Months Ended Ended September 30, September 30, 1998 1997 1998 1997 Basic earnings per common share . . . $.29 $.24 $.91 $.75 Diluted earnings per common share . . $.29 $.24 $.90 $.74 Comprehensive Income and Segments In 1997, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income". Comprehensive income is defined as the total change in shareholders' equity during the period other than from transactions with shareholders. For the Company, comprehensive income is comprised of net income, the net change in the accumulated foreign currency translation adjustment account and the net change in unrealized gains and losses on securities classified for SFAS No. 115 purposes as held available for sale. Total comprehensive income for the three months ended September 30, 1998 and 1997 was $436 and $330, respectively. Total comprehensive income for the nine months ended September 30, 1998 and 1997 was $1,312 and $1,040, respectively. Also in 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." As required by the standard, the Company will begin reporting under SFAS No. 131 in its 1998 Annual Report. Inventories Inventories consisted of: September 30, December 31, 1998 1997 Finished products . . . . . . . $406 $334 Goods in process. . . . . . . . 207 191 Raw materials and supplies. . . 191 188 Total inventories . . . . . . $804 $713 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, 1998 were not material. Management believes that, except for the matters discussed in the following paragraphs, it is remote that any material liability in excess of the amounts accrued will be incurred. The Company is a defendant in more than 160 antitrust actions commenced (starting in 1993) in state and federal courts by independent retail pharmacies, chain retail pharmacies and consumers. The plaintiffs allege price discrimination and/or conspiracy between the Company and other defendants to restrain trade by jointly refusing to sell prescription drugs at discounted prices to the plaintiffs. One of the federal cases is a class action on behalf of approximately two-thirds of all retail pharmacies in the United States and alleges a price-fixing conspiracy. The Company has agreed to settle the federal class action for a total of approximately $22 payable over three years. The settlement provides, among other things, that the Company shall not refuse to grant discounts on brand-name prescription drugs to a retailer based solely on its status as a retailer and that, to the extent a retailer can demonstrate its ability to affect market share of a Company brand-name prescription drug in the same manner as a managed care organization with which the retailer competes, it will be entitled to negotiate similar incentives subject to the rights, obligations, exemptions and defenses of the Robinson- Patman Act and other laws and regulations. The United States District Court in Illinois approved the settlement of the federal class action on June 21, 1996. In June 1997, the Seventh Circuit Court of Appeals dismissed all appeals from that settlement, and it is not subject to further review. In addition, in August 1997, the Seventh Circuit ruled that there was sufficient evidence of participation in the alleged conspiracy by certain wholesalers to require them to proceed to trial. In May 1998, the Company settled six of the federal antitrust cases brought by 26 food and drug chain retailers and several independent retail stores. Plaintiffs in these cases comprise collectively approximately one-fifth of the prescription drug retail market. The settlement amounts were not material to the Company. Four of the state antitrust cases have been certified as class actions. Two are class actions on behalf of certain retail pharmacies in California and Wisconsin, and the other two are class actions in California and the District of Columbia on behalf of consumers of prescription medicine. In addition, actions have been brought in Alabama and Tennessee purportedly on behalf of consumers in Alabama, Tennessee and several other states. Plaintiffs are seeking to maintain the actions as class actions. The Court in the Tennessee case has conditionally certified a class of consumers. The Company has settled the retailer class action in Wisconsin and an alleged class action in Minnesota and those settlements have been approved by their respective courts; the settlement amounts were not significant. The Company has also recently settled in principal the consumer cases in all of the states except Alabama, California and the purported multi-state class case in Tennessee. Court approval of those settlements is currently being sought, and the Court in Michigan has already approved the settlement of the action in that state; the settlement amounts are not material. Plaintiffs generally seek treble damages in an unspecified amount and an injunction against the allegedly unlawful conduct. The Company believes that all of the antitrust actions are without merit and is defending itself vigorously. In April 1997, certain of the plaintiffs in the federal class action commenced another purported class action in United States District Court in Illinois against the Company and the other defendants who settled the previous federal class action. The complaint alleges that the defendants conspired not to implement the settlement commitments following the settlement discussed above. The District Court has denied the plaintiffs' motion for a preliminary injunction hearing. The Company believes the action is without merit and is defending itself vigorously. On March 13, 1996, the Company was notified that the United States Federal Trade Commission (FTC) is investigating whether the Company, along with other pharmaceutical companies, conspired to fix prescription drug prices. The investigation is ongoing. The Company vigorously denies that it has engaged in any price- fixing conspiracy. The Company is a defendant in a state court action in Texas brought by Foxmeyer Health Corporation, the parent of a pharmaceutical wholesaler that filed for bankruptcy in August 1996, which has now been removed to Federal Bankruptcy Court in Dallas. The case is against another pharmaceutical wholesaler and 11 pharmaceutical companies, and alleges that the defendants conspired to drive the plaintiff's wholesaler subsidiary out of business. The plaintiff is seeking damages in the amount of $400. A motion for summary judgment is pending in the Delaware bankruptcy of the bankrupt wholesaler. New Accounting Pronouncement In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities". SFAS No. 133 must be adopted by the Company no later than January 1, 2000. SFAS No. 133 requires that all derivative instruments be recorded on the balance sheet at their fair value. Changes in the fair value of derivatives that do not qualify as hedges shall be recorded each period in the income statement. If specified criteria are met, derivatives can qualify as a hedge of forecasted cash flow transactions or a hedge of the fair value of assets, liabilities or firm commitments. Changes in the fair value of an effective cash flow hedge shall be recorded in other comprehensive income. The amount recorded in other comprehensive income shall be reclassified into the income statement when the forecasted transaction is recorded in the income statement. The effect of all other changes in fair value of derivatives shall be recorded in the income statement. If the derivative qualifies as a fair value hedge, the hedged asset, liability or firm commitment shall also be recorded at its fair value, with the effect of changes in their fair value recorded in the income statement. For effective fair value hedges, changes in the fair value of the derivative instrument will be offset in the income statement by changes in the hedged item's fair value. As stated in the 1997 Annual Report to shareholders, management has determined that it is not cost effective to engage in a formula-based program using derivative instruments to hedge its market risks. Accordingly, this statement is not expected to impact the Company's financial statements. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations - three and nine months ended September 30, 1998 compared with the corresponding periods in 1997. Sales Consolidated sales for the third quarter advanced $277 million or 16 percent compared with the same period in 1997. For the nine months, sales rose $1.0 billion or 20 percent over 1997. Excluding the effect of foreign currency exchange rate fluctuations, consolidated sales grew 18 percent in the quarter and 23 percent for the nine-month period. Excluding the first six months of 1998 revenues from the Mallinckrodt animal health business (acquired as of June 30, 1997), sales for the nine-month period would have increased 16 percent. This performance reflects worldwide sales of the CLARITIN brand of $635 million and $1,758 million for the quarter and nine-month period, respectively, compared with $448 million and $1,337 million for the corresponding periods in 1997. Domestic prescription pharmaceutical sales increased 24 percent for the 1998 third quarter and 26 percent for the nine-month period. Sales of allergy/respiratory products advanced 30 percent in the quarter and 31 percent for the nine-month period, due to continued strong growth of the CLARITIN brand of nonsedating antihistamines. Franchise sales of nasal inhaled steroid products, which includes VANCENASE allergy products and NASONEX, a once-daily corticosteroid for allergic rhinitis, increased in the quarter due to market expansion and for the year-to-date period due to market expansion and market share growth. Sales of VANCERIL asthma products advanced year-to-date primarily reflecting market growth. U.S. sales of cardiovascular products rose 1 percent in the quarter and 20 percent for the nine months. The nine month increase reflects market expansion and market share gains for IMDUR, a once-daily oral nitrate for angina and K-Dur, a sustained-release potassium supplement. Domestic sales of anti-infective and anticancer products increased 31 percent in the quarter and 20 percent for the nine- month period, primarily due to Intron A and Rebetron Combination Therapy for the treatment of chronic hepatitis C in relapse patients. U.S. sales of dermatological products decreased 25 percent for the quarter, but increased 12 percent for the nine-month period. This was due to varying trade buying patterns. Year-to-date growth was primarily due to higher sales of LOTRISONE, an antifungal/anti-inflammatory cream, and ELOCON, a mid-potency topical corticosteroid. International ethical pharmaceutical product sales increased 6 percent for the third quarter and 5 percent for the nine-month period. Excluding the impact of foreign currency exchange rate fluctuations, sales would have risen 12 percent in both periods. Sales of allergy/respiratory products advanced 8 percent for the quarter and 10 percent for the nine-month period, led by CLARITIN in most world markets. International dermatological product sales grew 12 percent in the quarter and 13 percent for the nine-month period, led by ELOCON. Cardiovascular product sales grew 14 percent for the third quarter and 18 percent for the nine months, led by higher sales of NITRO-DUR, a transdermal nitroglycerin patch for angina. International sales of anti-infectives and anticancer products increased 10 percent in the third quarter and 8 percent for the nine months. The growth was attributable to higher sales of INTRON A in the quarter and nine-month period. Worldwide sales of animal health products increased 24 percent in the quarter and 105 percent for the nine months. Excluding the impact of first six months 1998 revenues of $212 million from Mallinckrodt, sales for the first nine months of 1998 would have increased 13 percent. Sales of health care products increased 2 percent for the third quarter and 9 percent for the first nine months of 1998. The higher sales were recorded in foot care products for both periods, while sales of sun care products increased for the nine- month period. Sales of over-the-counter products decreased slightly for both periods primarily due to declines in the GYNE- LOTRIMIN vaginal antifungal line. Income before income taxes increased 22 percent for the quarter compared with 1997, and represented 28.8 percent of sales versus 27.3 percent last year. For the nine months, income before taxes grew 21 percent over 1997, representing 29.4 percent of sales compared with 29.2 percent last year. Cost of sales as a percentage of sales increased to 19.9 percent in the quarter from 19.1 percent in 1997, and for the first nine months, the ratio increased to 19.9 percent from 18.9 percent in 1997 due to the inclusion of Mallinckrodt products, which have lower margins, and due to the higher royalties paid on licensed products. Selling, general and administrative expenses represented 38.4 percent of sales in the third quarter compared with 39.8 percent last year. For the nine-month period, the ratio was 38.3 percent versus 39.1 percent in 1997. The decreases in the ratio are the result of sales increases outpacing expense growth. Research and development spending rose 17 percent in the quarter, representing 12.9 percent of sales for both 1998 and 1997. For the nine-month period, spending grew 22 percent, and represented 12.3 percent of sales versus 12.2 percent in 1997. The higher spending reflects the Company's funding of both internal research efforts and research collaborations with various partners to develop a steady flow of innovative products and line extensions. The effective tax rate was 24.5 percent in the three and nine- month periods of both 1998 and 1997. Basic earnings per common share advanced 23 percent in the third quarter to $.59 from $.48 in 1997. Diluted earnings per common share advanced 21 percent to $.58 from $.48 for the same period. For the nine-month period, basic earnings per common share rose 21 percent to $1.82 from $1.50 in 1997, and diluted earnings per common share rose 21 percent to $1.80 from $1.49 in 1997. Excluding the impact of fluctuations in foreign currency exchange rates, basic earnings per common share would have increased approximately 23 percent for the quarter and 25 percent for the nine-month period and diluted earnings per common share would have increased approximately 21 percent for the quarter and approximately 23 percent for the nine-month period. Year 2000: Many computer systems ("IT systems") and equipment and instruments with embedded microprocessors ("non-IT systems") were designed to only recognize the last two digits of a calendar year. With the arrival of the Year 2000, these systems and microprocessors may encounter operating problems due to their inability to distinguish years after 1999 from years preceding 1999. As a result, the Company is engaged in an extensive project to remediate or replace its date-sensitive IT systems and non-IT systems. The project involves four phases: (1) compiling an inventory of IT and non-IT systems; (2) distinguishing "critical" systems from "non-critical" systems; (3) remediating or replacing IT and non- IT systems; and (4) testing the remediated or replaced IT and non-IT systems. "Critical" systems for this purpose include such systems as those which may affect health/safety or product manufacturing and those which may significantly affect product distribution and customer service. Also, certain research systems have been designated as critical. The following chart indicates the estimated state of completion, as well as the planned date of completion of each phase of the project: Planned Planned September December December 1998 1998 1999 Inventory of IT and non-IT Systems 100% 100% Identify critical and non-critical IT and non-IT systems 100% 100% Remediation or replacement of critical systems 65% 95% 100% Testing critical systems 60% 90% 100% The estimated cost of the Year 2000 project is approximately $50 million, of which approximately $20 million will be for replacements. As of September 30, 1998, $30 million of costs have been incurred, of which $20 million has been expensed. Estimated 1998 expense for this project is $10 million. The annual expense of this project is approximately ten percent of the Company's overall annual IT budget. No other significant information systems projects have been deferred as a result of the Company's Year 2000 project. The book value of computers, software and equipment that will require write-off as a result of not being Year 2000 compliant is immaterial. The Company's internal auditors are reviewing progress on the Year 2000 project and provide evaluations of the Company's readiness to senior management on a regular basis. The Company expects to complete its Year 2000 project by December 1999. Consequently, the Company believes that the Year 2000 issue will not have a material adverse effect on the Company's internal operating systems. However, the Company's operations may be impacted in the event that computer disruption is encountered by third parties with whom the Company conducts significant business. These third parties include wholesalers, distributors, managed care organizations, hospitals, suppliers, clinical researchers, research partners and government agencies. The Company has initiated communications with these third parties concerning their state of readiness, and intends to continue these communications throughout 1999. To date, these third parties have generally not identified significant risks of business disruption due to Year 2000. However, the Company can provide no assurance that these third parties will not experience business disruption. The Company currently believes that the most reasonably likely worst case scenario concerning the Year 2000 involves potential business disruption among the third parties with whom it conducts significant business. If a number of these third parties (including, in particular, wholesalers, managed care organizations and clinical researchers) experience business disruption due to a Year 2000 computer problem, the Company's results of operations and cash flow could be materially adversely affected. During 1999, the Company intends to develop contingency plans to address potential business disruptions at these third parties. Contingency planning may include increasing inventory levels, establishing secondary sources of supply and manufacturing, and maintaining back-up lines of communications with our customers. However, it is unlikely that any contingency plan can fully mitigate the impact of significant business disruptions among these third parties. The estimates and conclusions in this description of the Year 2000 issue contain forward-looking statements and are based on management's estimates of future events. Risks to completing the Year 2000 project include the continued availability of resources and qualified information systems personnel. Euro: On January 1, 1999, certain member countries of the European Union will establish a new common currency, the euro. Also, on January 1, 1999 the participating countries will irrevocably fix the rate of exchange between their existing currencies (legacy currencies) and the euro. The new euro currency is intended to eventually replace the legacy currencies presently in use in each of the participating countries. Euro bills and coins will not be issued until January 1, 2002. Companies operating within the participating countries may, at their discretion, choose to operate in either legacy currencies or the euro until January 1, 2002. The Company expects its affected subsidiaries to continue to operate in their respective legacy currency for at least two years. The Company has prepared a euro implementation plan which will allow it to accommodate transactions for customers and suppliers operating in either legacy currency or euros as of January 1, 1999. The cost to the Company to develop and implement this plan is not material. The Company believes that the creation of the euro will not significantly change its market risk with respect to foreign exchange. Having a common European currency may result in certain changes to competitive techniques, product pricing and marketing strategies. Although we are unable to quantify these impacts, if any, at this time, management does not believe the creation of the euro will have a material effect on the Company. Additional Factors Influencing Operations In the United States, many of the Company's pharmaceutical products are subject to increasingly competitive pricing as managed care groups, institutions, government agencies and other buying groups seek price discounts. In most international markets, the Company operates in an environment of government- mandated cost containment programs. Several governments have placed restrictions on physician prescription levels and patient reimbursements, emphasized greater use of generic drugs and enacted across-the-board price cuts as methods of cost control. Since the Company is unable to predict the final form and timing of any future domestic and international governmental or other health care initiatives, their effect on operations and cash flows cannot be reasonably estimated. The market for pharmaceutical products is competitive. The Company's operations may be affected by technological advances of competitors, patents granted to competitors, new products of competitors and generic competition as the Company's products mature. In addition, patent positions can be highly uncertain and an adverse result in a patent dispute can preclude commercialization of products or negatively affect sales of existing products. The effect on operations of competitive factors and patent disputes cannot be predicted. Uncertainties inherent in government regulatory approval processes, including among other things delays in approval of new products, may also affect the Company's operations. The effect on operations of regulatory approval processes cannot be predicted. Liquidity and financial resources - nine months ended September 30, 1998 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 by operating activities was $1.5 billion for the first nine months of 1998. Cash was used to pay shareholder dividends of $465 million, reduce short-term borrowing by $433 million, fund capital expenditures of $227 million, repurchase shares for $109 million and purchase investments for $103 million. In October 1997, the Board of Directors authorized the repurchase of $1 billion of the Company's common shares. As of September 30, 1998 this program was approximately eleven percent complete. In April 1998, the Board of Directors increased the quarterly dividend by 16 percent to $.22 from $.19 per common share. In September 1998, the Board of Directors authorized a 2-for-1 stock split of the Company's common shares. The distribution of the split shares will be made on December 2, 1998, to the shareholders of record at the close of business on November 6, 1998. The Company's liquidity and financial resources continue to be sufficient to meet its operating needs. Market Risk Disclosures As discussed in the 1997 Annual Report to Shareholders, the Company's exposure to market risk from changes in foreign currency exchange rates and interest rates, in general, is not material. Cautionary Statements for Forward Looking Information Management's discussion and analysis set forth above contains certain forward looking statements, including statements regarding the Company's financial position and results of operations. These forward looking statements are based on current expectations. Certain factors have been identified by the Company in Exhibit 99 of the Company's December 31, 1997, Form 10-K filed with the Securities and Exchange Commission, which could cause the Company's actual results to differ materially from expected and historical results. Exhibit 99 from the Form 10-K is incorporated by reference herein PART II OTHER INFORMATION Item 1. Legal Proceedings The fifth 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, 1997, relating to state antitrust cases, is incorporated herein by reference. In August, a class action was brought in Tennessee purportedly on behalf of consumers in Tennessee. The court has conditionally certified a class of consumers. Item 5. Other Information Under rules recently adopted by the Securities and Exchange Commission, if a shareholder notifies the Company after January 29, 1999 of an intent to present a proposal at the Company's 1999 Annual Meeting, the Company may have the right to exercise its discretionary voting authority with respect to such proposal, if presented at the meeting, without including information regarding such proposal in its proxy materials. Shareholder proposals to be presented at the 1999 Annual Meeting must be received by the Company on or before November 27, 1998 for inclusion in the proxy statement and proxy card relating to that meeting. Item 6. Exhibits and Reports on Form 8-K a) Exhibits - The following Exhibits are filed with this document: Exhibit Number Description 4 - Amendment to Bylaws effective September 22, 1998. 10(a) - Amendment to Supplemental Executive Retirement Plan. 10(b) - Amendment to Retirement Benefits Equalization Plan. 27 - Financial Data Schedule b) Reports on Form 8-K: No report has been filed during the three months ended September 30, 1998. 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, 1998 /s/Thomas H. Kelly Thomas H. Kelly Vice President and Controller EX-4 2 AMENDMENT TO BY-LAWS EXHIBIT 4 SCHERING-PLOUGH CORPORATION AMENDMENT TO BY-LAWS Effective September 22, 1998, pursuant to a resolution of the Board of Directors, the By-laws of Schering-Plough Corporation have been amended as follows: 1. By deleting the second, third and fourth sentences of the second paragraph of Section 2 of Article III and replacing such sentences with the following: "For business to be properly brought before an annual meeting by a shareholder, the shareholder must have given timely notice thereof in writing to the Secretary of the Corporation and such business must otherwise be a proper matter for shareholder action. To be timely, a shareholder's notice shall be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the 90th day nor earlier than the close of business on the 120th day prior to the first anniversary of the preceding year's annual meeting; provided, however, that in the event that the date of the annual meeting is more than 30 days before or more than 60 days after such anniversary date, notice by the shareholder to be timely must be so delivered not earlier than the close of business on the 120th day prior to such annual meeting and not later than the close of business on the later of the 90th day prior to such annual meeting or the 10th day following the day on which public announcement of the date of such meeting is first made by the Corporation. In no event shall the public announcement of an adjournment of an annual meeting commence a new time period for the giving of a shareholder's notice as described above. Such shareholder's notice shall set forth (a) as to any business that the shareholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting and any material interest in such business of such shareholder and the beneficial owner, if any, on whose behalf the proposal is made; and (b) as to the shareholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made (i) the name and address of such shareholder as they appear on the Corporation's books, and of such beneficial owner and (ii) the class and number of shares of the Corporation which are owned beneficially and of record by such shareholder and such beneficial owner." 2. By deleting the phrase "by oral telegraph and written notice given to each director not less than forty-eight hours before such meeting" from Section 5 of Article V and replacing such phrase with the following: "Notice of any special meeting of directors shall be given to each director at his business or residence in writing by hand delivery, first-class or overnight mail or courier service, telegram or facsimile transmission, or orally by telephone. If mailed by first-class mail, such notice shall be deemed adequately delivered when deposited in the United States mails so addressed, with postage thereon prepaid, at least five (5) days before such meeting. If by telegram, overnight mail or courier service, such notice shall be deemed adequately delivered when the telegram is delivered to the telegraph company or the notice is delivered to the overnight mail or courier service company at least twenty-four (24) hours before such meeting. If by facsimile transmission, such notice shall be deemed adequately delivered when the notice is transmitted at least twelve (12) hours before such meeting. If by telephone or by hand delivery, the notice shall be given at least twelve (12) hours prior to the time set for the meeting. A meeting may be held at any time without notice if all the directors are present or if those not present waive notice of the meeting. Members of the Board of Directors, or any committee thereof, may participate in a meeting of the Board of Directors or such committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at such meeting. EX-10 3 EXHIBIT 10(a) AMENDMENT TO SCHERING-PLOUGH CORPORATION SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN The Schering-Plough Corporation Supplemental Executive Retirement Plan (the "SERP"), as amended and restated to February 24, 1998, is hereby amended effective as of November 1, 1998 as follows: 1. SECTION 1, Definitions, is hereby amended to add the following new definition: "Change of Control Termination Date" means the date, following a Change of Control, as of which a Participant or Former Participant ceases to be an employee of the Corporation or any of its Affiliates. 2. SECTION 3, Eligibility for Benefits, is hereby amended by deleting Section 3.1 in its entirety and replacing it with the following language: "Each Participant or Former Participant is eligible to commence receiving benefits under this Plan on one of the following dates, as such dates are defined or provided for herein or in the relevant Basic Plan, as applicable. (a) Normal Retirement Date. (b) Early Retirement Date. (c) Deferred or Postponed Retirement Date. (d) Change of Control Termination Date. 3. SECTION 4.3 is hereby amended by deleting it in its entirety and replacing it with the following language: "The Benefit of a Participant or Former Participant retiring on an Early Retirement Date or terminating employment following a Change of Control shall be an annual benefit payable monthly commencing on the first day of the calendar month coincident with or next following his Early Retirement Date or Change of Control Termination Date, as the case may be, equal to 2% of his Average Final Earnings multiplied by his years of Service in E-grade pay status, or after ten years of Service in any pay status all Service except Service subsequent to removal from E-grade pay status, up to twenty years plus 1% of his Average Final Earnings for each such year of Service in excess of twenty years, inclusive of his Other Retirement Income and his Basic Plan Benefit, and reduced by the following factors depending upon his age on such Early Retirement Date or Change of Control Termination Date, as the case may be: Age at Early Age at Early Retirement Date Retirement Date or Change of Control or Change of Control Termination Date Reduction Factor Termination Date Reduction Factor 64 0 49 56% 63 0 48 59% 62 0 47 62% 61 4% 46 65% 60 8% 45 67.5% 59 12% 44 70% 58 16% 43 72% 57 20% 42 74% 56 24% 41 76% 55 28% 40 78% 54 33.5% 39 79.5% 53 39% 38 81% 52 44% 37 82% 51 48% 36 83% 50 52% 35 84% provided however, that the Benefit payable to a Participant or Former Participant who retires while an active employee on an Early Retirement Date on or after he has attained age 60 and has at least 10 years of Service in E-grade pay status shall not be less than an annual benefit payable monthly commencing on the first day of the calendar month coincident with or next following his Retirement equal to 35% of his Average Final Earnings, inclusive of his Other Retirement Income and his Basic Plan Benefit." The Benefit of a Participant or Former Participant, whose employment is terminated other than by Retirement, disability, death, or following a Change of Control, 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. 4. SECTION 4.6 is hereby amended by deleting it in its entirety and replacing it with the following language to permit a lump sum payout upon termination of employment following a Change of Control: "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 (x) in cash on his Early Retirement Date, Normal Retirement Date, Deferred or Postponed Retirement Date, or Change of Control Termination 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 such Early Retirement Date, Normal Retirement Date, Deferred or Postponed Retirement Date, or Change of Control Termination Date, as the case may be, or on the fifth, tenth, fifteenth or twentieth anniversary of his Early Retirement Date, Normal Retirement Date, Deferred or Postponed Retirement Date, or Change of Control Termination Date, as the case may be, or (y) in two, three, four, five, ten, fifteen, or twenty equal annual cash installments commencing on his Early Retirement Date, Normal Retirement Date, Deferred or Postponed Retirement Date, or Change of Control Termination 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 such Early Retirement Date, Normal Retirement Date, Deferred or Postponed Retirement Date, or Change of Control Termination Date, as the case may be. If a Participant or a Former Participant terminates his employment by Retirement or following a Change of Control 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 (x) in cash 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 or on the fifth, tenth, fifteenth, or twentieth anniversary of the Optional Survivor's Benefit Payment Date, or (y) in two, three, four, five, ten, fifteen, or twenty equal annual cash installments 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 or Change of Control Termination Date, except that in the case of a Participant or Former Participant whose employment is terminated other than by Retirement or following a Change of Control, 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 of 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 Change of Control Termination Date, or the first day of the month coincident with or next following his death, as the case may be, with interest payable at the three-month U.S. Treasury bill rate as reported in The Wall Street Journal on the first business day of each calendar quarter. 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, or if benefits under this Plan are payable to a Participant or Former Participant prior to 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, Change of Control Termination 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, Change of Control Termination 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, Change of Control Termination 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 or Change of Control Termination Date, 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, Change of Control Termination Date 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 semi-annually. Interest on any such amount shall be paid on the date such amount is paid or, at the election of the Participant or Former Participant, as the case may be, such interest shall be paid currently on a semiannual basis (with such election to be made on or before the last date on which a Participant's Lump Sum Election or Survivor's Lump Sum Election, as applicable, may be made). 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 semi-annually." 5. Except as specified above, the SERP is hereby ratified and confirmed without amendment. EX-10 4 EXHIBIT 10(b) AMENDMENT TO SCHERING-PLOUGH CORPORATION RETIREMENT BENEFITS EQUALIZATION PLAN The Schering-Plough Corporation Retirement Benefits Equalization Plan (the "BEP"), as amended and restated to February 24, 1998, is hereby amended effective as of November 1, 1998, as follows: 1. Section V.1 is hereby amended by adding the following proviso to the end of the first sentence thereof: "provided that following a Change of Control, all participants shall be eligible to commence receiving a supplemental pension benefit under this Plan notwithstanding whether such participant is then entitled to commence receiving a pension benefit under the Retirement Plan." 2. Section V.2 is hereby amended by deleting it in its entirety and replacing it with the following language to permit a lump sum payout upon termination of employment following a Change of Control: "Notwithstanding Section V.1 of this Plan, 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 (X) in cash on his Early Retirement Date, Normal Retirement Date, Deferred or Postponed Retirement Date, or Change of Control Termination 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 such Early Retirement Date, Normal Retirement Date, Deferred or Postponed Retirement Date, or Change of Control Termination Date, as the case may be, or on the fifth, tenth, fifteenth or twentieth anniversary of his Early Retirement Date, Normal Retirement Date, Deferred or Postponed Retirement Date, or Change of Control Termination Date, as the case may be, or (Y) in two, three, four, five, ten, fifteen, or twenty equal annual cash installments commencing on his Early Retirement Date, Normal Retirement Date, Deferred or Postponed Retirement Date, or Change of Control Termination 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 such Early Retirement Date, Normal Retirement Date, Deferred or Postponed Retirement Date, or Change of Control Termination Date, as the case may be. If a participant or a former participant terminates his employment by retirement or following a Change of Control 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 obligation of Schering Corporation (the "Company") or any affiliate 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 (X) in cash on the Optional Survivor's Benefit Payment Date (as defined in Section V.3) 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 or on the fifth, tenth, fifteenth, or twentieth anniversary of the Optional Survivors Benefit Payment Date, or (Y) in two, three, four, five, ten, fifteen or twenty equal annual cash installments 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 V.2, 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 or Change of Control Termination Date, except that in the case of a participant or former participant whose employment is terminated other than by retirement or following a Change of Control, 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 (as defined in Section V.3), 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 V.2, 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 V.2, 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, Change of Control Termination Date, or the first day of the month coincident with or next following his death, as the case may be, with interest payable at the three-month U.S. Treasury bill rate as reported in The Wall Street Journal on the first business day of the calendar quarter. If benefits under this Plan are payable to a participant or former participant in a different form than his retirement benefits under the Retirement Plan, or if benefits under this Plan are payable to a participant or former participant prior to his retirement benefits under the Retirement Plan, the amount of the offset provided in this Plan for such participant's or former participant's benefit under the Retirement Plan 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, Change of Control Termination 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, Change of Control Termination 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, Change of Control Termination Date, or date of death under the Retirement 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 or Change of Control Termination Date, as the case may be, 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, Change of Control Termination Date, 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 (as defined in Section V.3), compounded semi-annually. Interest on any such amount shall be paid on the date such amount is paid or, at the election of the participant or former participant, as the case may be, such interest shall be paid currently on a semiannual basis (with such election to be made on or before the last date on which a Participant's Lump Sum Election or Survivor's Lump Sum Election, as applicable, may be made). 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 Retirement 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 semi-annually." 3. Section V.3 is hereby amended to add the following new definition: "Change of Control Termination Date" means the date, following a Change of Control, as of which a participant or former ceases to be an employee of the Company or any of its affiliates. and the following language at the end of such sections: "All capitalized terms used herein and not otherwise defined shall have the meaning set forth in the Retirement Plan." 4. Section V, Equalized Benefits, is hereby amended by adding a new Section V.4 at the end thereof, reading in its entirety as follows: "The supplemental pension benefit of a participant who is entitled to benefits under this Plan due to a Change of Control shall be reduced by the factors set forth on Annex A hereto depending upon his age on the relevant Change of Control Termination Date." 5. Except as specified above, the BEP is hereby ratified and confirmed without amendment. Annex A Age on Change of Control Termination Date Reduction Factor 64 4% 63 8% 62 12% 61 16% 60 20% 59 26.6% 58 32.5% 57 37.8% 56 42.6% 55 46.9% 54 50.9% 53 54.7% 52 58.3% 51 61.7% 50 64.9% 49 67.7% 48 70.1% 47 72.1% 46 74.0% 45 75.8% 44 77.5% 43 79.1% 42 80.6% 41 82.0% 40 83.3% 39 84.5% 38 85.6% 37 86.6% 36 87.6% 35 88.6% EX-27 5
5 This schedule contains summary financial information extracted from Schering-Plough Corporation and subsidiaries consolidated Financial Statements for the nine months ended September 30, 1998, and is qualified in its entirety by reference to such financial statements. 1000000 9-MOS DEC-31-1998 SEP-30-1998 937 0 680 0 804 3442 3924 1343 7216 2696 46 0 0 1015 2679 7216 6018 6018 1197 1197 742 0 0 1771 434 1337 0 0 0 1337 1.82 1.80
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