-----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, BK4nKAqYn3E2hO7O7A3922LVklX9bsI1r1Rl6QAlYPJhkkMWI/07ZSlHeTFJnUos xY700J7frTStDbKn+QO4mw== 0000310158-99-000009.txt : 19990514 0000310158-99-000009.hdr.sgml : 19990514 ACCESSION NUMBER: 0000310158-99-000009 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990513 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: 99619694 BUSINESS ADDRESS: STREET 1: ONE GIRALDA FARMS CITY: MADISON STATE: NJ ZIP: 07940-1000 BUSINESS PHONE: 9738227000 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 March 31, 1999 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 March 31, 1999: 1,472,111,56 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 Ended March 31 1999 1998 Net sales . . . . . . . . . . . $2,186 $1,908 Costs and expenses: Cost of sales. . . . . . . . . 432 380 Selling, general and administrative. . . . . . 794 712 Research and development . . . 262 224 Other, net . . . . . . . . . . (15) (4) 1,473 1,312 Income before income taxes. . . 713 596 Income taxes. . . . . . . . . . 174 146 Net Income. . . . . . . . . . . $ 539 $ 450 Basic earnings per common share $ .37 $ .31 Diluted earnings per common share $ .36 $ .30 Dividends per common share. . . $ .11 $ .095 See notes to consolidated financial statements.
SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED) (Amounts in millions, except per share figures)
March 31, December 31, 1999 1998 Assets Cash and cash equivalents . . . . . . . . $ 1,496 $ 1,259 Accounts receivable, net. . . . . . . . . 1,084 704 Inventories . . . . . . . . . . . . . . . 835 841 Prepaid expenses, deferred income taxes and other current assets . . . . . 992 1,154 Total current assets. . . . . . . . . 4,407 3,958 Property, plant and equipment . . . . . . 4,035 4,068 Less accumulated depreciation . . . . . . 1,350 1,393 Property, net . . . . . . . . . . . . 2,685 2,675 Intangible assets, net. . . . . . . . . . 562 565 Other assets. . . . . . . . . . . . . . . 649 642 $ 8,303 $ 7,840 Liabilities and Shareholders' Equity Accounts payable. . . . . . . . . . . . . $ 928 $ 1,003 Short-term borrowings and current portion of long-term debt. . . . . . . . 832 558 Other accrued liabilities . . . . . . . . 1,458 1,471 Total current liabilities . . . . . . 3,218 3,032 Long-term liabilities . . . . . . . . . . 827 806 Shareholders' Equity: Preferred shares - $1 par value each; issued - none. . . . . . . . . . . - - Common shares - $.50 par value; Issued: 1999 and 1998 - 2,030 . . . . . 1,015 1,015 Paid-in capital . . . . . . . . . . . . . 448 365 Retained earnings . . . . . . . . . . . . 7,178 6,802 Accumulated other comprehensive income. . (277) (238) Total . . . . . . . . . . . . . . . . 8,364 7,944 Less treasury shares, at cost - 1999 and 1998 - 558 shares . . . . . . . . . 4,106 3,942 Total shareholders' equity. . . . . . 4,258 4,002 $ 8,303 $ 7,840 See notes to consolidated financial statements.
SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31 (UNAUDITED) (Amounts in millions)
1999 1998 Operating Activities: Net Income. . . . . . . . . . . . . . . . $ 539 $450 Depreciation and amortization . . . . . . 72 56 Accounts receivable . . . . . . . . . . . (407) (166) Inventories . . . . . . . . . . . . . . . (15) (14) Prepaid expenses and other assets . . . . (28) (66) Accounts payable and other liabilities . (32) 62 Net cash provided by operating activities 129 322 Investing Activities: Capital expenditures . . . . . . . . . . (79) (41) Reduction of investments. . . . . . . . . 200 - Purchases of investments. . . . . . . . . (52) (26) Other, net. . . . . . . . . . . . . . . . 3 (4) Net cash provided by(used for) investing activities . . . . . . . . . . . . . . . 72 (71) Financing Activities: Short-term borrowings, net. . . . . . . . 284 (128) Common shares repurchased . . . . . . . . (153) (34) Dividends paid to common shareholders . . (163) (140) Other, net. . . . . . . . . . . . . . . . 70 (40) Net cash provided by (used for) financing activities . . . . . . . . . . . . . . . 38 (342) Effect of exchange rates on cash and cash equivalents. . . . . . . . . . . . . (2) (1) Net increase (decrease) in cash and cash equivalents . . . . . . . . . . . . 237 (92) Cash and cash equivalents, beginning of period . . . . . . . . . . . . . . . . 1,259 714 Cash and cash equivalents, end of period . $1,496 $622 See notes to consolidated financial statements.
SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Amounts 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 1998 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. New Accounting Pronouncement In June 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities." The Company plans to adopt SFAS No. 133 effective January 1, 2000. Management does not deem it cost-effective to engage in a formula-based program using derivative instruments to hedge its market risks; accordingly, this statement is not expected to materially impact the Company's financial statements. 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 Ended March 31, 1999 1998 Average shares outstanding for basic earnings per share . . . . . 1,472 1,466 Dilutive effect of options and deferred stock units . . . . . . . 19 19 Average shares outstanding for diluted earnings per share . . . . 1,491 1,485 Comprehensive Income Total comprehensive income for the three months ended March 31, 1999 and 1998 was $499 and $444, respectively. Segment Reporting Schering-Plough is a worldwide research-based pharmaceutical company engaged in the discovery, development, manufacturing and marketing of pharmaceutical products. Discovery and development efforts target the field of human health. However, application in the field of animal health can result from these efforts. The Company views animal health applications as a means to maximize the return on investments in discovery and development. The Company operates primarily in the prescription pharmaceutical marketplace. However, the Company has sought regulatory approval to switch prescription products to over-the-counter (OTC) status as a means of extending a product's life cycle. In this way the OTC marketplace is yet another means of maximizing the return on investments in discovery and development. Effective January 1, 1999, the Company changed the structure of its internal organization to reflect this focus on pharmaceutical research and development. As a result, the Company will report as one segment. Previously, the Company was organized into two business units: pharmaceuticals and healthcare. Net sales by major therapeutic category for the: Three Months Ended March 31 1999 1998 Allergy & Respiratory . . . . . . . $866 $753 Anti-infectives & Anticancer. . . . 422 311 Dermatologicals . . . . . . . . . . 151 160 Cardiovasculars . . . . . . . . . . 160 173 Other Pharmaceuticals . . . . . . . 204 149 Animal Health . . . . . . . . . . . 153 145 Foot Care . . . . . . . . . . . . . 83 72 OTC . . . . . . . . . . . . . . . . 62 62 Sun Care . . . . . . . . . . . . . 85 83 Consolidated Net Sales. . . . . . . $2,186 $1,908 Inventories Inventories consisted of: March 31, December 31, 1999 1998 Finished products . . . . . . . $395 $483 Goods in process. . . . . . . . 237 174 Raw materials and supplies. . . 203 184 Total inventories . . . . . . $835 $841 Legal and Environmental Matters The Company has responsibilities for environmental clean-up under various state, local and federal laws, including the Comprehensive Environmental Response, Compensation and Liability Act, commonly known as Superfund. At several Superfund sites (or equivalent sites under state law), the Company is alleged to be a potentially responsible party (PRP). The Company estimates its obligations for clean-up costs for Superfund sites based on information obtained from the federal Environmental Protection Agency, an equivalent state agency, and/or studies prepared by independent engineers, and on the probable costs to be paid by other PRPs. The Company records a liability for environmental assessments and/or clean-up when it is probable a loss has been incurred and the amount can reasonably be estimated. The Company is also involved in various other claims and legal proceedings of a nature considered normal to its business, including product liability cases. The estimated costs the Company expects to pay in these cases are accrued when the liability is considered probable and the amount can reasonably be estimated. Consistent with trends in the pharmaceutical industry, the Company is self-insured for certain events. The recorded liabilities for the above matters at March 31, 1999 were not material. Expected insurance recoveries have not been considered in determining the costs for environmental-related liabilities. Management believes that, except for the matters discussed in the following paragraphs, it is remote that any material liability in excess of the amounts accrued will be incurred. 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 agreed to settle the federal class action for a total of $22, which has been paid in full. 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. The defendants that did not settle the class action proceeded to trial in September 1998. The trial ended in November 1998 with a directed verdict in the defendants' favor. Three 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 is a class action in the District of Columbia, on behalf of consumers of prescription medicine. In addition, an action has been brought in Alabama purportedly on behalf of consumers in Alabama and several other states. Plaintiffs are seeking to maintain the action as a class action. The Company has settled the retailer class action in Wisconsin and the alleged class action in Minnesota. The settlements of the state antitrust cases in Wisconsin and Minnesota have been approved by the respective courts. The settlement amounts were not significant. In August 1998, a class action was brought in Tennessee purportedly on behalf of consumers in Tennessee and several other states. The court has conditionally certified a class of consumers, but has stayed the case pending the resolution of an earlier filed Tennessee case, which the Company has settled in principle. In April 1999, a state consumer case was filed in state court in North Dakota. The Company has also recently settled the state consumer cases in all of the states except Alabama, Tennessee and North Dakota. Court approval of those settlements has been obtained. The settlement amounts were not material to the Company. Plaintiffs in these antitrust actions generally seek treble damages in an unspecified amount and an injunction against the allegedly unlawful conduct. 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. In April 1999, the Company settled federal antitrust cases brought by independent pharmacists and small pharmacy chains comprising about 2% of the prescription drug retail market. The settlement amounts were not material to the Company. 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 all the antitrust actions are 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. 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 complaint also alleged that the defendants defamed the wholesaler and interfered with its business. There are related actions pending in the Delaware bankruptcy proceedings of the wholesaler and certain of the plaintiff's claims against the Company have been dismissed. The Company believes that this action is without merit and is defending itself vigorously against all claims. In February 1998, Geneva Pharmaceuticals, Inc. (Geneva) submitted an Abbreviated New Drug Application (ANDA) to the U.S. Food and Drug Administration (FDA) seeking to market a generic form of CLARITIN in the United States several years before the expiration of the Company's patents. Geneva has alleged that certain of the Company's U.S. CLARITIN patents are invalid and unenforceable. The CLARITIN patents are material to the Company's business. In March 1998, the Company filed suit in federal court seeking a ruling that Geneva's ANDA submission constitutes willful infringement of the Company's patents and that its challenge to the Company's patents is without merit. The Company believes that it should prevail in the suit. However, as with any litigation, there can be no assurance that the Company will prevail. Copley Pharmaceutical, Inc. (Copley) and Teva Pharmaceuticals, Inc. (Teva) notified the Company in February 1999 and April 1999, respectively, that each had submitted an ANDA to the FDA seeking to market a generic form of CLARITIN Syrup in the United States before the expiration of certain of the Company's patents. Each of Copley and Teva has alleged that one of those patents is invalid and unenforceable. In March 1999, the Company filed suit in federal court seeking a ruling that Copley's ANDA submission and proposed marketing of a generic syrup constitutes willful infringement of the Company's patent and that its challenge to the patent is without merit. The Company will file a similar suit against Teva in federal court. The Company believes that it should prevail in these suits. However, as with any litigation, there can be no assurance that the Company will prevail. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations - three months ended March 31, 1999 compared with the corresponding period in 1998. Sales Consolidated sales for the first quarter advanced $278 million or 15 percent compared with the same period in 1998. Excluding the effect of foreign currency exchange rate fluctuations, consolidated sales grew 14 percent in the quarter. This performance reflects worldwide sales of the CLARITIN brand of $565 million for the quarter as compared with $436 million for the corresponding period in 1998. Net sales by major therapeutic category for the first quarter were as follows: $ - Millions 1999 1998 Allergy & Respiratory $ 866 $ 753 Anti-infectives & Anticancer 422 311 Dermatologicals 151 160 Cardiovasculars 160 173 Other Pharmaceuticals 204 149 Animal Health 153 145 Foot Care 83 72 OTC 62 62 Sun Care 85 83 Consolidated Net Sales $2,186 $1,908 Worldwide net sales of allergy/respiratory products advanced 15 percent in the quarter due to continued strong growth of the CLARITIN brand of nonsedating antihistamines. Franchise sales of nasal inhaled steroid products, which includes NASONEX, a once- daily corticosteroid for allergic rhinitis and VANCENASE allergy products, were essentially flat as increases in international markets were offset by decreases in our domestic business. The decline in the U.S. business is due to timing of trade purchases which offset increased market growth. Net sales of anti-infective and anticancer products worldwide increased 36 percent, primarily due to the 1998 U.S. introduction of REBETRON Combination Therapy containing REBETOL Capsules and INTRON A Injection for treatment of chronic hepatitis C in relapse patients. International sales of INTRON A also contributed to the sales increase due to the 1998 launch of INTRON A solution in a multidose pen in several European markets. Worldwide sales of cardiovascular products decreased 7 percent for the quarter primarily due to lower sales of IMDUR, an oral nitrate for angina, due to generic product introductions, and K- DUR, a sustained-released potassium supplement, due to unusually high trade purchases in the first quarter of 1998. Partially offsetting these declines were sales of INTEGRILIN injection, a platelet receptor glycoprotein inhibitor licensed for co- marketing from COR Therapeutics. Other pharmaceuticals consist of products that do not fit into the Company's major therapeutic categories and include bulk manufacturing and alliance revenues. Net sales of foot care products increased 15 percent driven by higher sales of insoles reflecting new product introductions and increased sales of antifungal products, TINACTIN and LOTRIMIN. Income before income taxes increased 20 percent for the quarter compared with 1998, and represented 32.6 percent of sales versus 31.3 percent last year. Cost of sales as a percentage of sales decreased slightly to 19.8 percent in the quarter from 19.9 percent in 1998 due to product mix improvements. Selling, general and administrative expenses represented 36.3 percent of sales in the first quarter of 1999 compared with 37.3 percent last year. The decrease in this ratio is the result of sales increases outpacing expense growth. Research and development spending rose 17 percent in the quarter representing 12.0 percent of sales in 1999 compared to 11.7 percent in 1998. 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. The effective tax rate was 24.5 percent in the three month periods of both 1999 and 1998. Diluted earnings per common share advanced 20 percent in the first quarter to $.36 from $.30 in 1998. Foreign currency exchange rate changes had no impact on diluted earnings per common share for the first quarter of 1999. Basic earnings per common share advanced 19 percent to $.37 from $.31 for the same period. Year 2000 Many computer systems ("IT systems") and equipment and instruments with embedded microprocessors ("non-IT systems") were designed to recognize only 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 systems that may affect health and safety, product manufacturing, product distribution, customer service and certain research systems. The following chart indicates the estimated state of completion of each phase of this project as of March 31, 1999: IT Systems Non-IT Systems Inventory systems 100% 100% Identify critical and non-critical systems 100% 100% Remediate or replace systems 99% 65% Testing systems 95% 65% The Company expects to complete all phases of this project for all IT systems and all critical, non-IT systems by December 31, 1999. Work on non-critical, non-IT systems may continue into the year 2000. The estimated maximum cost of the Year 2000 project is approximately $95 million. Approximately 55 percent of the $95 million will be of an expense nature and 45 percent will be for capitalizable replacements. As of March 31, 1999, $46 million of the $95 million has been incurred; $15 million has been capitalized and $31 million has been expensed. 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 need to be written- 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. Management 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. 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 flows could be materially adversely affected. During 1999, the Company will endeavor 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 backup 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. Certain third parties, such as retail pharmacies and wholesalers, may order extra inventory as part of their contingency planning. The impact to the Company of such contingency planning by third parties cannot be predicted. 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. 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 - three months ended March 31, 1999 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 $129 million for the first three months of 1999. In 1998, cash provided by operations was $322 million. The decrease in 1999 is temporary and is due to the timing of trade purchases within the quarter. In the first quarter of 1999, cash was used to pay shareholder dividends of $163 million, fund capital expenditures of $79 million, and repurchase shares for $153 million. In October 1997, the Board of Directors authorized the repurchase of $1 billion of the Company's common shares. As of March 31, 1999 this program was approximately 29 percent complete. In April 1999, the Board of Directors increased the quarterly dividend by 14 percent to $.125 from $.11 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 was made on December 2, 1998, to the shareholders of record at the close of business on November 6, 1998. Certain 1998 amounts have been restated to reflect this stock split. The Company's liquidity and financial resources continue to be sufficient to meet its operating needs. 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, 1998, 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. Item 3. Market Risk Disclosures As discussed in the 1998 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. PART II OTHER INFORMATION Item 1. Legal Proceedings Item 3, Legal Proceedings, of Part I of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1998, is incorporated by reference. Reference is made to the first 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, 1998, relating to lawsuits arising out of the use of synthetic estrogens. Subsidiaries of the Company are defendants in 250 lawsuits involving approximately 460 plaintiffs. The total amount claimed against all defendants in all the suits amounts to more than $1.5 billion. Reference is made to 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, 1998, relating to state antitrust cases. During the first quarter of 1999, the Company agreed to settle the consumer class action in California for approximately $1.625 million in cash and $8.34 million in free products donated to certain California public health clinics. Court approval has been obtained in all of the state consumer cases where settlements have been reached. In April 1999, a state consumer case was filed in state court in North Dakota. State consumer cases remain in Alabama, Tennessee and North Dakota. Reference is made to the seventh 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, 1998, relating to federal antitrust cases brought by retailers. In April 1999, the Company settled federal antitrust cases brought by independent pharmacists and small pharmacy chains comprising about 2% of the prescription drug retail market. The settlement amount is not material to the Company. Reference is made to the twelfth 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, 1998, relating to CLARITIN patent litigation. Copley Pharmaceutical, Inc. (Copley) and Teva Pharmaceuticals, Inc. (Teva) notified the Company in February 1999 and April 1999, respectively, that each had submitted an Abbreviated New Drug Application (ANDA) to the U.S. Food and Drug Administration seeking to market a generic form of CLARITIN Syrup in the United States before the expiration of certain of the Company's patents. Each of Copley and Teva has alleged that one of those patents is invalid and unenforceable. In March 1999, the Company filed suit in federal court seeking a ruling that Copley's ANDA submission and proposed marketing of generic syrup constitutes willful infringement of the Company's patent and that its challenge to the patent is without merit. The Company will file a similar suit in federal court concerning the Teva ANDA submission. The Company believes that it should prevail in these suits. However, as with any litigation, there can be no assurance that the Company will prevail. Item 4. Submission of Matters to a Vote of Security Holders (a) The Annual Meeting of Shareholders was held on April 27, 1999. (b) Not applicable. (c) The designation by the Board of Directors of Deloitte & Touche LLP to audit the books and accounts of the Corporation for the year ended December 31, 1999 was ratified by a vote of shares as follows: FOR AGAINST ABSTAIN 1,263,847,338 1,876,040 3,827,563 All of the nominees for director were elected for a three-year term by a vote of shares, as follows: FOR WITHHELD Hans W. Becherer 1,262,564,040 6,986,901 Raul E. Cesan 1,262,628,585 6,922,356 Regina E. Herzlinger 1,262,425,289 7,125,652 Robert F. W. Van Oordt 1,262,334,800 7,216,141 James Wood 1,261,914,457 7,636,484 The 1999 Executive Incentive Bonus Program, adopted by the Board of Directors of the Corporation and as presented to the Shareholders on April 27, 1999, was adopted by a vote of shares as follows: FOR AGAINST ABSTAIN 1,205,262,999 52,982,118 11,305,824 (d) None Item 6. Exhibits and Reports on Form 8-K a) Exhibits - The following Exhibits are filed with this document: Exhibit Number Description 3(a) - Amendment to Certificate of Incorporation 10(a) - Amendment to 1997 Stock Incentive Plan 27 - Financial Data Schedule b) Reports on Form 8-K: No report was filed during the three months ended March 31, 1999. 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 May 13, 1999 /s/Thomas H. Kelly Thomas H. Kelly Vice President and Controller S:\2188\1999 1st qtr 10q.doc 05/13/99 12:46 PM S:\2188\1999 1st qtr 10q.doc 9 05/13/99 12:46 PM S:\2188\1999 1st qtr 10q.doc 05/13/99 12:46 PM - 20 - EX-3 2 Exhibit 3(a) CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF SCHERING-PLOUGH CORPORATION Pursuant to the provisions of Section 14A:7-15.l(3) of the New Jersey Business Corporation Act, the undersigned corporation executes the following Certificate of Amendment to its Certificate of Incorporation: 1. The name of the Corporation is Schering-Plough Corporation 2. The following amendment to the Certificate of Incorporation was approved by the Board of Directors and adopted on the 22nd day of September, 1998: RESOLVED, that (i) the Corporation declare and it hereby does declare a two-for-one division of Common Shares, par value $1 per share (the "Common Shares"), of the Corporation to be effected in the form of a 100% stock distribution (the "Distribution") payable on December 2, 1998 (the "Distribution Date") to each holder of record of Common Shares of the Corporation issued and outstanding and to the Corporation in respect of the Common Shares held in its treasury, in each case at the close of business on November 6, 1998 (the "Record Date"), and (ii) the Certificate of Incorporation of the Corporation, as heretofore amended, be and the same hereby is amended, effective on the Distribution Date, so that Article THIRD shall read in its entirety as follows: Third: The aggregate number of shares which the Corporation shall have authority to issue shall be two billion four hundred fifty million (2,450,000,000) shares to consist of: (a) Two billion four hundred million (2,400,000,000) Common Shares of the par value of Fifty Cents ($0.50) per share, and (b) Fifty million (50,000,000) Preferred Shares of the par value of One Dollar ($1.00) per share issuable in series to consist of: (i) One million, five hundred thousand (1,500,000) Preferred Shares designated "Series A Junior Participating Preferred Stock," and (ii) Forty-eight million, five hundred thousand (48,500,000) Preferred Shares whose designations have not yet been determined. 3. The amendment to the Certificate of Incorporation set forth in paragraph 2, hereinabove, will not adversely affect the rights or preferences of the holders of outstanding shares of any class or series and will not result in the percentage of authorized shares that remains unissued after the share division exceeding the percentage of authorized shares that was unissued before the share division. 4. The class of shares subject to the division is the Common Shares, and the number of Common Shares subject to the division is 1,014,748,470, constituting all the issued Common Shares. The 1,014,748,470 issued Common Shares are to be divided into 2,029,496,940 Common Shares. 5. The effective date of this Amendment to the Certificate of Incorporation shall be December 2, 1998. Dated this 1st day of October, 1998. Schering-Plough Corporation By:/s/Thomas H. Kelly Thomas H. Kelly Vice President and Controller 37919-1.DOC 2 D:\certificate of amendment to Cert. of Inc.(stock split) November 1998.DOC EX-10 3 Exhibit 10(a) AMENDMENT TO SCHERING-PLOUGH CORPORATION 1997 STOCK INCENTIVE PLAN The Schering-Plough Corporation 1997 Stock Incentive Plan is hereby amended, effective February 22, 1999, by deleting Paragraph 6(c) thereof and substituting therefore the following: (c) Except as provided in Paragraphs 6(f), 6(g), 6(h), and 13, no option shall be exercisable during the year ending on the first anniversary date of the granting of the option or, if the Committee so determines at the time of grant or subsequent thereto: (i) during such lesser period not less than six months and one day from the date of grant or (ii) in the case of Transferable Options (as defined below) such option may become exercisable immediately upon transfer. exhibit 10(a) 3-31-99 10Q.doc EX-27 4
5 This schedule contains financial data extracted from Schering-Plough Corporation and subsidiaries consolidated financial statements for the three months ended March 31, 1999, and is qualified in its entirety by reference to such financial statements. 1000000 3-MOS DEC-31-1999 MAR-31-1999 1496 0 1084 0 835 4407 4035 1350 8303 3218 0 0 0 1015 3243 8303 2186 2186 432 432 262 0 0 713 174 539 0 0 0 539 .37 .36
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