-----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, SxjOBlUqxY9xDKj+XGeKWNdNqv3uZ7QIaDyY5uu8P4HxqkztI3S0+qSqApTmWbtq k1QM0D4ML8qZRtdj6OO2CQ== 0000898822-03-000905.txt : 20030822 0000898822-03-000905.hdr.sgml : 20030822 20030821175227 ACCESSION NUMBER: 0000898822-03-000905 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20030821 ITEM INFORMATION: Other events FILED AS OF DATE: 20030822 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: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-06571 FILM NUMBER: 03860989 BUSINESS ADDRESS: STREET 1: ONE GIRALDA FARMS CITY: MADISON STATE: NJ ZIP: 07940-1000 BUSINESS PHONE: 9738227000 8-K 1 form8kaug2003.txt FORM 8-K DATED AUGUST 21, 2003 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 AUGUST 21, 2003 Date of Report (Date of Earliest Event Reported) SCHERING-PLOUGH CORPORATION (Exact name of registrant as specified in its charter) NEW JERSEY 1-6571 22-1918501 (State or other jurisdiction (Commission File Number) (IRS Employer of incorporation) Identification Number)
2000 GALLOPING HILL ROAD KENILWORTH, NJ 07033 (Address of principal executive offices, including Zip Code) (908) 298-4000 (Registrant's telephone number, including area code) ITEM 5. OTHER EVENTS AND REGULATION FD DISCLOSURE Schering-Plough today issued a press release titled "Schering-Plough CEO Fred Hassan Completes First 100 Days, '360 Degree Review;' Announces Key Measures to Set Foundation for Turnaround." The press release is filed as Exhibit 99.1 to this 8-K and includes information indicating directions regarding expected 2004 earnings; aggressive cost-cutting actions, including a voluntary early retirement program; and a reduction in the dividend. A letter to shareholders concerning certain of these matters is filed as Exhibit 99.2 to this 8-K. Communications to employees on certain of these matters are filed as Exhibits 99.3, 99.4 and 99.5 to this 8-K. A series of questions and Schering-Plough's answers, called "Frequently Asked Questions" or "FAQs" are attached as Exhibit 99.6 to this 8-K. This 8-K and each Exhibit are also available on Schering-Plough's Investor Relations Web Site at ir.schering-plough.com. 2 DISCLOSURE NOTICE CAUTIONARY FACTORS THAT MAY AFFECT FUTURE RESULTS (CAUTIONARY STATEMENTS UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995). This 8-K, including each Exhibit, and other written and oral statements made from time to time by Schering-Plough may contain "forward-looking statements" within the meaning of the Securities Litigation Reform Act of 1995. Forward-looking statements relate to expectations or forecasts of future events. They use words such as "anticipate," "believe," "could," "estimate," "expect," "forecast," "project," "intend," "plan," "potential," "will," and other words and terms of similar meaning in connection with a discussion of potential future events, circumstances or future operating or financial performance. You can also identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. In particular, forward-looking statements include statements relating to future actions, prospective products, the status of product approvals, future performance or results of current and anticipated products, sales efforts, development programs, expenses and our programs to reduce expenses, the number of employees accepting Schering-Plough's planned voluntary early retirement program and the cost of and savings from that program, the outcome of contingencies such as litigation and investigations, growth strategy and financial results. Any or all of our forward-looking statements here or in other publications may turn out to be wrong. Our actual results may vary materially, and there are no guarantees about the performance of Schering-Plough stock. Schering-Plough does not assume the obligation to update any forward-looking statement. You should carefully consider any forward-looking statement and should understand that many factors could cause actual results to differ from Schering-Plough's forward-looking statements. These factors include inaccurate assumptions and a broad variety of other risks and uncertainties, including some that are known and some that are not. Although it is not possible to predict or identify all such factors, they may include the following: o A significant portion of net sales are made to major pharmaceutical and health care products distributors and major retail chains in the United States. Consequently, net sales and quarterly growth comparisons may be affected by fluctuations in the buying patterns of major distributors, retail chains and other trade buyers. These fluctuations may result from seasonality, pricing, wholesaler buying decisions or other factors. o Competitive factors, including technological advances attained by competitors, patents granted to competitors, new products of competitors coming to the market, new indications for competitive products or generic prescription or OTC competition as Schering-Plough's products mature and patents expire on products. o Increased pricing pressure both in the United States and abroad from managed care organizations, institutions and government agencies and programs. In the United States, among other developments, consolidation among customers may increase pricing pressures and may result in various customers having greater influence over prescription decisions through formulary decisions and other policies. o Government laws and regulations (and changes in laws and regulations) affecting domestic and international operations and the enforcement thereof including, among other laws and regulations, those resulting from healthcare reform initiatives and Medicare drug benefit and drug importation legislation in the United States at the state and federal level and in other countries, as well as laws and regulations relating to trade, antitrust, monetary and fiscal policies, taxes, price controls and possible nationalization. o Patent positions can be highly uncertain and patent disputes are not unusual. An adverse result in a patent dispute can preclude commercialization of products or negatively impact sales of existing products or result in injunctive relief and payment of financial remedies. 3 o Uncertainties of the FDA approval process and the regulatory approval processes of non-U.S. countries, including, without limitation, delays in approval of new products. o Failure to meet Good Manufacturing Practices established by the FDA and other governmental authorities can result in delays in the approval of products, release of products, seizure or recall of products, suspension or revocation of the authority necessary for the production and sale of products, fines and other civil or criminal sanctions. The resolution of manufacturing issues with the FDA discussed in this report are subject to substantial risks and uncertainties. These risks and uncertainties, including the timing, scope and duration of a resolution of the manufacturing issues, will depend on the ability of Schering-Plough to assure the FDA of the quality and reliability of its manufacturing systems and controls, and the extent of remedial and prospective obligations undertaken by Schering-Plough. o Difficulties in product development. Pharmaceutical product development is highly uncertain. Products that appear promising in development may fail to reach market for numerous reasons. They may be found to be ineffective or to have harmful side effects in clinical or pre-clinical testing, they may fail to receive the necessary regulatory approvals, they may turn out not to be economically feasible because of manufacturing costs or other factors or they may be precluded from commercialization by the proprietary rights of others. o Efficacy or safety concerns with respect to marketed products, whether or not scientifically justified, leading to recalls, withdrawals or declining sales. o Major products such as CLARITIN, CLARINEX, INTRON A, PEG-INTRON, REBETOL Capsules and NASONEX accounted for a material portion of Schering-Plough's 2002 revenues. If any major product were to become subject to a problem such as loss of patent protection, OTC availability (as indicated above for CLARITIN and its current and potential OTC competition), previously unknown side effects; if a new, more effective treatment should be introduced; or if the product is discontinued for any reason, the impact on revenues could be significant. Further such information about important new products such as ZETIA or other important products in our pipeline may impact future revenues. o Legal factors, including product liability claims and other litigation, government investigations, patent disputes with competitors and environmental concerns, any of which could preclude commercialization of products or negatively affect the profitability of existing products. o Economic factors over which Schering-Plough has no control, including changes in inflation, interest rates and foreign currency exchange rates. o Instability, disruption or destruction in a geographic region important to us - due to the location of our manufacturing facilities, distribution facilities or customers - regardless of cause, including war, terrorism, riot, civil insurrection or social unrest; and natural or man-made disasters, including famine, flood, fire, earthquake and storm. o Changes in tax laws including changes related to taxation of foreign earnings. o Changes in accounting standards promulgated by the American Institute of Certified Public Accountants, the Financial Accounting Standards Board or the Securities and Exchange Commission that would require a significant change to Schering-Plough's accounting practices. For further details and a discussion of these and other risks and uncertainties, see Schering-Plough's Securities and Exchange Commission (SEC) filings, including Schering-Plough's 2003 Second Quarter 10-Q filed with the Commission on July 31, 2003 and future SEC filings. 4 ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS (c) Exhibits. The following exhibits are filed with this 8-K: 99.1 Press Release titled "Schering-Plough CEO Fred Hassan Completes First 100 Days, '360 Degree Review;' Announces Key Measures to Set Foundation for Turnaround" issued August 21, 2003 99.2 Letter to Shareholders dated August 21, 2003 99.3 Message to Employees from Fred Hassan, Chairman of the Board and CEO, dated August 21, 2003 99.4 Memo to Employees from Executive Management Team regarding Value Enhancement Initiative dated August 21, 2003 99.5 Letter to Employees from C. Ron Cheeley, Senior Vice President of Global Human Resources, regarding Voluntary Early Retirement Program dated August 21, 2003 99.6 Frequently Asked Questions and Answers, FAQs, dated August 21, 2003 SIGNATURES 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 hereunto duly authorized. Schering-Plough Corporation By: /s/ THOMAS H. KELLY ----------------------------- Thomas H. Kelly Vice President and Controller Date: August 21, 2003 5 Exhibit Index The following exhibits are filed with this 8-K: 99.1 Press Release titled "Schering-Plough CEO Fred Hassan Completes First 100 Days, '360 Degree Review;' Announces Key Measures to Set Foundation for Turnaround" issued August 21, 2003 99.2 Letter to Shareholders dated August 21, 2003 99.3 Message to Employees from Fred Hassan, Chairman of the Board and CEO, dated August 21, 2003 99.4 Memo to Employees from Executive Management Team regarding Value Enhancement Initiative dated August 21, 2003 99.5 Letter to Employees from C. Ron Cheeley, Senior Vice President of Global Human Resources, regarding Voluntary Early Retirement Program dated August 21, 2003 99.6 Frequently Asked Questions and Answers, FAQs, dated August 21, 2003 6 EX-99.1 3 exh991to8kaugust2103.txt EXHIBIT 99.1 TO 8-K EXHIBIT 99.1 For Release: IMMEDIATELY Contact: Denise Foy (908) 298-7616 SCHERING-PLOUGH CEO FRED HASSAN COMPLETES FIRST 100 DAYS, '360 DEGREE REVIEW;' ANNOUNCES KEY MEASURES TO SET FOUNDATION FOR TURNAROUND KENILWORTH, N.J., Aug. 21, 2003 - Following a 100-day, "360-degree" review of the inherited company situation requested by the Board of Directors, Schering-Plough's new Chairman and CEO Fred Hassan today announced key actions to stabilize and repair Schering-Plough and set a solid foundation for a turnaround. "My review of the situation we inherited confirmed the need for aggressive measures, including aggressive cost containment and cost cutting in order to stabilize the company and to create a realistic base on which to build a turnaround," said Hassan. "My review also confirmed that we have a commitment to make significant strategic investments in ZETIA and the ZETIA/simvastatin combination product in order to achieve their market potential. "My review additionally concluded that we must make major investments to build value in some exciting research projects," added Hassan. "We will be featuring these projects at our previously announced analyst meeting scheduled for November." Hassan also noted that, due to the downward slopes in sales and market share of key profit-generating products, that his new management team is addressing, earnings per share (EPS) in the second half of 2003 are likely to be lower than the level registered in the first half and, also, EPS in 2004 are likely to be lower than the EPS level for 2003. [All comparisons exclude any possible charges for unusual items.] In line with this review, Hassan announced the following actions: o A reduction in the quarterly dividend from 17 cents to 5.5 cents per common share. -more- -2- "The previous dividend level is not realistic given the company's reduced revenues, the need to conserve cash in the United States for inherited regulatory and legal issues, and the need to invest for future growth," said Hassan. o Accelerated and intensified cost-cutting actions within the company that are expected to deliver in excess of the $200 million in annual savings previously announced as a cost-savings target in the 2003 second quarter earnings press release. The key cost-cutting actions that are being implemented immediately include: o Elimination of bonuses for 2003 under the company's standard plans. Although Hassan could have earned an incentive as high as $2 million for achieving his personal objectives to implement the company's Action Agenda, he voluntarily gave up this opportunity. o Zero payout of the targeted 15 percent profit sharing for all employees. This marks the first time in 47 years that profit sharing has not been paid by the company. o All routine employee merit increases are frozen through 2004, with exceptions only where local contracts or practices prevent this action, for customer-contact employees, for employees dedicated to fulfillment of the company's Consent Decree obligations and other business-critical employees. o Launch of a Voluntary Early Retirement Program in the United States today. Based on an eligible population of 2,900 U.S.-based employees, the company anticipates a headcount reduction of 1,000 or more. The company anticipates a pre-tax charge of approximately $150 million in the 2003 fourth quarter related to this program. This is the first phase of a global workforce reduction in all areas of the company, excluding customer-contact employees, employees dedicated to the fulfillment of the company's Consent Decree obligations and other business-critical employees. Other phases will follow on a global basis. o Global procurement programs to replace fragmented site- and business unit- based purchasing. -more- -3- o Tight controls globally on new hires and major cutbacks in travel costs, meeting costs and general expenses. Among these actions will be the sale of the company's Gulfstream G-IV airplane. To set the right tone at the top, there will also be an elimination of executive privileges, including the closing of executive dining rooms, cutbacks in executive travel options and elimination of non-standard executive health plans. Said Hassan, "We will all be making sacrifices as a result of these actions. We remain confident that, by taking these actions, we will set a strong foundation for long-term growth." Schering-Plough will conduct a conference call at 7 p.m. today to review the information provided in this press release. Investor Relations will host the conference call and will respond to investor questions. The conference call will not exceed one hour in duration. To listen live to the call, dial 1-706-634-5003. A replay of the call will be available starting at approximately 10 p.m. on August 21 through 5 p.m. on August 28. To listen to the replay, dial 1-706-645-9291 and enter the conference ID #2454395. A live audio webcast of the conference call also will be available to all interested parties via http://ir.schering-plough.com. Those wishing to listen live to the conference call should go to the Web site and select "Presentations/Webcasts" from the menu bar. Software needed to listen to the webcast (Windows Media Player) is available via the site and should be downloaded prior to the beginning of the webcast. The webcast is also accessible via the Schering-Plough corporate Web site, www.schering-plough.com, by clicking on the "View Webcasts" link. A replay of the webcast will be available starting at approximately 10 p.m. on August 21 through 5 p.m. on August 28. Shareholders and other stakeholders also are invited to read the "Letter to Shareholders" from Fred Hassan addressing subjects discussed in this release. The letter can be found on the Investor Relations Web site. DISCLOSURE NOTICE: Cautionary Factors that May Affect Future Results (Cautionary Statements Under the Private Securities Litigation Reform Act of 1995). This press release may contain "forward-looking statements" within the meaning of the Securities Litigation Reform Act of 1995. Forward-looking statements relate to -more- -4- expectations or forecasts of future events. They use words such as "anticipate," "believe," "could," "estimate," "expect," "forecast," "project," "intend," "plan," "potential," "will," and other words and terms of similar meaning in connection with a discussion of potential future events, circumstances or future operating or financial performance. You can also identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. In particular, forward-looking statements include statements relating to future actions, prospective products, the status of product approvals, future performance or results of current and anticipated products, sales efforts, development programs, expenses and our programs to reduce expenses, the number of employees accepting Schering-Plough's planned voluntary early retirement program and the number of and savings from that program, the outcome of contingencies such as litigation and investigations, growth strategy and financial results. Any or all of our forward-looking statements here or in other publications may turn out to be wrong. Our actual results may vary materially, and there are no guarantees about the performance of Schering-Plough stock. Schering-Plough does not assume the obligation to update any forward-looking statement. You should carefully consider any forward-looking statement and should understand that many factors could cause actual results to differ from Schering-Plough's forward-looking statements. These factors include inaccurate assumptions and a broad variety of other risks and uncertainties, including some that are known and some that are not. For further details and a discussion of these and other risks and uncertainties, see Schering-Plough's Securities and Exchange Commission (SEC) filings, including Schering-Plough's 2003 Second Quarter 10-Q filed with the SEC on July 31, 2003, the 8-K filed August 21, 2003 and future SEC filings. Schering-Plough is a research-based company engaged in the discovery, development, manufacturing and marketing of pharmaceutical products worldwide. ### EX-99.2 4 exh992to8kaugust2103.txt EXHIBIT 99.2 TO 8-K EXHIBIT 99.2 August 21, 2003 Dear Shareholder: Following a 100-day, 360-degree review of our company situation, I have announced important initiatives to stabilize our position and to create the foundation on which we can begin to build growth. You will find the details of these actions in a press release issued today. (IR.SCHERING-PLOUGH.COM) In summary, these initiatives consist of a cut in the quarterly dividend to 5.5 Cents per share and an array of cost-cutting actions within the company that will exceed the $200 million in annual internal cost savings that we previously set as a goal. There are two main reasons for these very significant actions: The first reason for these actions is the negative situation that we inherited. In hindsight it is clear that by depending on just one large product, a company in our industry runs a high risk of problems and unanticipated challenges, and that is what we have seen. We have now made a thorough, realistic assessment of the situation, and have decided upon the tough but realistic actions we must take to deal with reality as it is, not as we might wish it to be. The reality we face is that in addition to serious weaknesses in the basic business. We have inherited a downward slope of declining sales and market share of key products. On top of that, we inherit an unusual combination of regulatory and legal challenges. This combination of challenges requires major investments and also requires us, as a matter of prudence, to preserve our cash resources. The second reason for the actions we are taking is the positive growth potential that we have ahead of us. With ZETIA, and the ZETIA/simvastatin combination product, we have an attractive long-term opportunity with expected patent life going past 2015. However, this opportunity includes very clear obligations related to adequately funding the launch of the combination product. The recent approval of a new competitor - with an unexpected label - has significantly increased the "noise" level in the cholesterol market. This means that we must consider further investment in both ZETIA and the combination product in order to compete effectively. Another positive finding from my review of the business was to identify some potentially exciting R&D projects, including early stage projects in HIV, cancer and other areas. This pipeline is good for a company of our size. Indeed, in my judgment, our early-stage pipeline compares well even with the pipelines of some of our larger competitors. In order to maximize the value of these projects, we will be making additional, prudent investments. This combination of inherited challenges and new opportunities makes it imperative that we do the right thing in controlling our discretionary costs and explains the tough actions that we are taking. Even with these actions, as we indicate in our press release today, earnings per share (EPS) in the second half of 2003 are likely to be lower than the level registered in the first half and, also, EPS in 2004 are likely to be lower than the EPS level for 2003. [All comparisons exclude any possible charges for unusual items.] This reflects what we have said since we began the work to fix and then build Schering-Plough: It will take time, and it will not be easy. It will take great effort to flatten out the declining performance slope, and then more effort to get performance rising upward again. But I believe we can do it. Critical to success will be a sense of urgency within our company about saving costs and driving growth. The announcements we have made today, including the very real sacrifices we are demanding of all our people, will bring this urgency alive. I feel confident that we can count on the people of this company to respond with toughness and mettle. I am well aware that the patience of all of our shareholders has been tested severely by the situation into which this company has fallen. We are committed to taking the right, necessary measures to transform this organization and build growth. We ask for your renewed support as we strive to turn this situation around. With your support, I am confident we can succeed. Sincerely, Fred Hassan DISCLOSURE NOTICE Cautionary Factors that May Affect Future Results (Cautionary Statements Under the Private Securities Litigation Reform Act of 1995). This letter may contain "forward-looking statements" within the meaning of the Securities Litigation Reform Act of 1995. Forward-looking statements relate to expectations or forecasts of future events. They use words such as "anticipate," "believe," "could," "estimate," "expect," "forecast," "project," "intend," "plan," "potential," "will," and other words and terms of similar meaning in connection with a discussion of potential future events, circumstances or future operating or financial performance. You can also identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. In particular, forward-looking statements include statements relating to future actions, prospective products, the status of product approvals, future performance or results of current and anticipated products, sales efforts, development programs, expenses and our programs to reduce expenses, the number of employees accepting Schering-Plough's planned voluntary early retirement program and the number of and savings from that program, the outcome of contingencies such as litigation and investigations, growth strategy and financial results. Any or all of our forward-looking statements here or in other publications may turn out to be wrong. Our actual results may vary materially, and there are no guarantees about the performance of Schering-Plough stock. Schering-Plough does not assume the obligation to update any forward-looking statement. You should carefully consider any forward-looking statement and should understand that many factors could cause actual results to differ from Schering-Plough's forward-looking statements. These factors include inaccurate assumptions and a broad variety of other risks and uncertainties, including some that are known and some that are not. For further details and a discussion of these and other risks and uncertainties, see Schering-Plough's Securities and Exchange Commission (SEC) filings, including Schering-Plough's 2003 Second Quarter 10-Q filed with the SEC on July 31, 2003, the 8-K filed August 21, 2003 and future SEC filings. Schering-Plough is a research-based company engaged in the discovery, development, manufacturing and marketing of pharmaceutical products worldwide. EX-99.3 5 exh993to8kaug2103.txt EXHIBIT 99.3 TO 8-K EXHIBIT 99.3 A MESSAGE FROM THE CEO To All Schering-Plough People Worldwide Dear Colleagues: We have just issued a press release, a letter from me to our shareholders and Frequently Asked Questions regarding the challenges we face at our company and actions we are taking to respond. The press release is posted on the company's Internet site at www.schering-plough.com, S-PeWorld and the Outlook Action Desk. The press release and the shareholder letter reflect the outcome of the 360-degree review of the company that I made during my first 100 days on the job and presented to my Board colleagues. We clearly tell our investors that earnings per share (EPS) in the second half of 2003 are likely to be lower than the level registered in the first half and, also, EPS in 2004 are likely to be lower than the EPS level for 2003. [All comparisons exclude any possible charges for unusual items.] We also tell our investors that we will need to cut the quarterly dividend from 17 cents per quarter to 5.5 cents per common share. A dividend cut has not occurred among any of our U.S. pharma peers in recent memory. So you can see why we need to get very serious about the New Thinking, New Capabilities and New Urgency that must be the drivers of our five-point Action Agenda for transforming Schering-Plough. Now is the time for us to show our toughness and our mettle. We must embed Business Integrity, Quality and Compliance into the DNA of our company. We must all focus on three activities that will help us pull our company out of its problems. 1. Sell more. 2. Improve product flow. 3. Reduce costs. You will recall that, at the time of our Global Town Hall Meeting during my first week on the job in April, I stated that we must reduce our costs given the smaller size of our company following the loss of prescription CLARITIN - and I have kept on saying it. My 100-day, 360-degree review confirms that cost reduction is absolutely imperative to our survival and future growth. Another big reason for bringing down our discretionary costs is so that we can invest needed resources into our growth opportunities, including REMICADE, ZETIA and the ZETIA/simvastatin combination product. So, I think it is clear that our cost reduction focus is not in conflict with our longer-term growth strategy. Smart cost reduction is ESSENTIAL to our longer-term growth strategy. I know that many of us have been working hard on costs for some time. However, we must attack our cost structure with a renewed sense of urgency. We must achieve a profound attitude change in every part of our fine company. We must become VERY tough on costs. Each person in our organization must think like an owner. By thinking like owners, we will get on track for the growth we know we can deliver. As you will read in other communications today, we are taking very serious actions to eliminate standard bonuses this year in many parts of the company, to eliminate profit-sharing for this year, and to freeze merit increases. I myself am giving up a major incentive that I could have received this year for progress on our Action Agenda. These are painful actions but they are necessary. Given the very big gap between expected performance and what is being delivered, we have no choice but to eliminate these areas of incentive and other additive compensation where we can. Our shareowners would not accept anything less. You will be asking: When will we again see incentives? Going forward, beginning in 2004, we will have in place a new compensation system that properly rewards high performance. We will set realistic but tough annual objectives each year. So long as we perform, we plan to pay out incentives. In summary: We must embed our commitment to Integrity, Quality and Compliance into our company DNA. Each one of us must ask ourselves every day: Am I doing my best to contribute to one or all of our three growth activities: 1. Sell more. 2. Improve product flow. 3. Reduce costs. I thank you in advance for continuing to respond to our challenges with courage and resilience. I look forward to your team spirit in implementing our Value Enhancement Initiative - and in showing all of our stakeholders that we can transform Schering-Plough into a high performance global company. Sincerely, Fred Hassan EX-99.4 6 exh994to8kaugust2103.txt EXHIBIT 99.4 TO 8-K EXHIBIT 99.4 VEI INTERNAL ANNOUNCEMENT To: All Schering-Plough Colleagues Worldwide From: Executive Management Team RE: VALUE ENHANCEMENT INITIATIVE (VEI) Dear Colleagues: Today we are launching important new actions on the previously announced Value Enhancement Initiative (VEI). These actions have four objectives: 1. BRING DOWN OUR COSTS AND INFRASTRUCTURE TO REFLECT OUR SMALLER SIZE FOLLOWING THE LOSS OF PRESCRIPTION CLARITIN - WITHOUT DAMAGING OUR GROWTH POTENTIAL OR IMPACTING OUR COMPLIANCE AND BUSINESS INTEGRITY COMMITMENTS. 2. CREATE MORE EFFICIENT, GLOBALIZED SYSTEMS AND WORK PROCESSES, AND DE-LAYERED STRUCTURES WITH MINIMAL DUPLICATION TO IMPROVE COST EFFECTIVENESS AND PROVIDE BETTER SERVICE TO INTERNAL AND EXTERNAL CUSTOMERS. 3. IMPLEMENT HR POLICIES AND PROCESSES THAT WILL BETTER REWARD, INCENTIVIZE AND DEVELOP OUR PEOPLE TO DELIVER HIGH PERFORMANCE. 4. MAKE SURE THAT HIGH RETURN ON INVESTMENT (ROI) ACTIVITIES ARE PROPERLY RESOURCED. Achieving these objectives is critical to the success of our five-phase Action Agenda for Schering-Plough over the next five to eight years: Stabilize. Repair. Turnaround. Build for growth. Breakout. The initiatives we are announcing today are tough actions responding to tough challenges. However, they are not the kind of actions that create a shrinking company with declining long-term sales and declining long-term earnings per share (EPS). Rather, our actions are geared to help transform Schering-Plough into a lean, strong and resilient organization that will reverse our downward performance and become a long-term growth leader in our industry. o BRING DOWN OUR COSTS AND INFRASTRUCTURE TO REFLECT OUR SMALLER SIZE FOLLOWING THE LOSS OF PRESCRIPTION CLARITIN - WITHOUT DAMAGING OUR GROWTH POTENTIAL OR IMPACTING OUR COMPLIANCE AND BUSINESS INTEGRITY COMMITMENTS. We have already committed to achieve $200 million in annual savings. We must now commit to exceed that goal. Here is how we will get there: o Implement a U.S. Voluntary Early Retirement Program and other workforce reduction programs including reductions in contract workforces. You will learn more about the U.S. Voluntary Early Retirement Program, and eligibility for it, in a letter from Human Resources that is being issued to all Schering-Plough employees via e-mail today. o Freeze all routine merit increases through 2004, with exceptions only where local contracts or practices prevent this action, for customer-contact employees, for employees engaged in fulfillment of the company's Consent Decree obligations and other business-critical employees. Any exceptions to be approved by the head of Global HR. o Reduce annual travel and entertainment expenses by over $10 million. In addition to companywide reductions, this will include the sale of the Gulfstream G-IV company airplane. To set the right behaviors from the top, we will also be halting and reducing a variety of executive privileges. These steps include closing executive dining rooms, sharp reductions in executive travel options, elimination of special executive health plans and other actions. o Renegotiate existing supplier contracts and implement global purchasing across unit lines. We seek savings in excess of 6 percent in the first two years. o Eliminate nonessential IT projects, duplicative programs and projects companywide, and noncritical projects currently in the budget. o Eliminate noncritical business meetings, limit attendance and cut the running costs of business-essential meetings. We seek annual savings in excess of 30 percent. o Enforce tight worldwide headcount controls and require approval by the appropriate Executive Management Team member and the head of Global HR of all exceptions. CEO approval will be required for all exceptions over a base salary of $100,000. o CREATE EFFICIENT, GLOBALIZED SYSTEMS AND WORK PROCESSES, AND DE-LAYERED STRUCTURES WITH MINIMAL DUPLICATION TO IMPROVE COST EFFECTIVENESS AND PROVIDE BETTER SERVICE TO INTERNAL AND EXTERNAL CUSTOMERS. o Aggressively implement globalized functions and shared services operating model. This means, for example, that we implement global standard practices and processes for business units and enabling functions. Where we have multiple units and businesses in the same geography, we will install a single team in support areas to serve all units and businesses. o Simplify and de-layer organizational structure so that people at the working level are as close as possible to senior management. o Implement global planning and templates for the Global Pharmaceutical Business. For example, we will implement global templates and action plans for key products to be tailored locally versus "ground-up" plans created in each market. This will save time and money, and will deliver better results for customers. O IMPLEMENT HR POLICIES AND PROCESSES THAT WILL BETTER REWARD, INCENTIVIZE AND DEVELOP OUR PEOPLE TO DELIVER HIGH PERFORMANCE. We must change our company from what might be viewed as an "entitlement" model to a high performance model in which individuals and units are rewarded based on what they deliver. Also, we must dramatically upgrade the training and development support for our people. O BECAUSE OF THE COMPANY'S POOR PERFORMANCE FOR 2003, NO STANDARD BONUSES WILL BE PAID FOR THIS YEAR. ----------- ---------------------------------- This reflects the dramatic gap between expectations for our company's performance and what is actually being delivered this year. O BECAUSE OF THE COMPANY'S POOR PERFORMANCE FOR 2003, NO PROFIT SHARING PAYOUT WILL OCCUR FOR THIS YEAR. -----------------\ ------------------------------- This also reflects the dramatic gap between expectations for our company's performance and what is actually being delivered this year. o IMPLEMENT A NEW HIGH-PERFORMANCE COMPENSATION SYSTEM. Starting in 2004, a new compensation system will be implemented to reward high performance at all levels in the company and to build a high-performance culture. This new compensation system will include an incentive compensation plan for 2004 and for subsequent years that will be based on realistic but tough objectives. We expect that the annual compensation plans will deliver payouts each year so long as the company's realistic but tough annual objectives are met. o IMPLEMENT ENHANCED TRAINING AND DEVELOPMENT PLANS ON A GLOBAL BASIS. Global HR will have accountability to develop consistent and systematic programs globally to support capabilities development of Schering-Plough people. o SPECIAL CUSTOMER-CONTACT PAY AND INCENTIVE PLANS. Customer-contact personnel will have new pay and incentive plans developed based on industry norms and, meantime, will be EXEMPT from the zero bonus and incentive payout policy that we are announcing for 2003 in order to assure that we continue to bring in maximum revenue at this critical time. o MAKE SURE THAT HIGH RETURN ON INVESTMENT (ROI) ACTIVITIES ARE PROPERLY RESOURCED. o Significant funds to be allocated immediately to support REMICADE in Europe. o Major additional resources to be allocated to support ZETIA launches and ZETIA/simvastatin clinical development and launches. o Major additional resources to be allocated to support key pipeline product projects. Further companywide and unit-specific announcements will be made in the coming days on all of these actions, how they will be implemented and how they will affect business units and individuals. The steps announced today are part of a rolling program of VEI actions. Further actions will be announced as they are decided. The test that each further action will have to pass is whether it will contribute to the transformation of Schering-Plough into a long-term growth leader in our industry. All the actions announced today have come from recommendations by our people. In order to assure that we continue to capitalize on value-building ideas from the people of Schering-Plough, we will be establishing a "VEI hotline" e-mail box ----------------------- beginning in September. Suggestions via the hotline will go directly to the VEI implementation team and to senior members of management. These are very challenging times for our company. The VEI actions we are implementing - and other actions that will follow - are essential to reversing our downward performance and transforming Schering-Plough into a high-performance company. We know that these measures will make additional demands on everyone. These measures will mean sacrifices for all our people. These measures are necessary, however, if we are to put our company on a trajectory of success. Thank you for your support. EX-99.5 7 exhibit995to8k.txt EXHIBIT 99.5 TO 8-K Exhibit 99.5 [letter from C. Ron Cheeley, Senior Vice President Global Human Resources] August 21, 2003 Dear Colleague: As you will have read in the recent message from the EMT regarding our Value Enhancement Initiative, we will be offering a Voluntary Early Retirement Program to employees who are 50 years or older during 2003 with at least 5 years of vesting service. There are some limited exceptions to eligibility for this program including customer contact employees, employees dedicated to the fulfillment of the Company's consent decree obligations and other business critical employees. This program will make a significant contribution to long-term cost containment as part of the Company's Action Agenda. We believe it can also be an important personal opportunity for individual colleagues. In essence, this new program allows eligible employees to retire earlier without sacrificing the additional pension benefits they would have accrued had they continued working additional years. As you can appreciate, a program of this size requires a considerable initial investment on the part of the Company but delivers significant payroll and expense reduction in the coming years. We believe it is the right decision for our Company at this time. It is important to emphasize that this is a completely voluntary program. While the terms of the program will be detailed in future communications, the basic idea is that, for those choosing to participate, five years of benefit service will be added to their length of service (up to maximum of 45 years) and five years will be added to their age (up to the normal retirement age of 65) for purposes of calculating pension benefits under the Company's retirement plan. For those who elect to participate, their last day worked will be December 31, 2003 with retirement effective January 1, 2004. This program will also be available to those who have previously retired with a retirement date earlier in 2003. We recognize that the decision to retire is both complex and extremely personal, and we are encouraging eligible employees to learn more about this important offer. Therefore, to assist employees in making informed decisions, additional information (including how other compensation and benefits will be impacted) will be provided to eligible employees within the coming month through written materials and meetings conducted by Human Resources and Benefits representatives. Questions about the program should be addressed to those representatives. Sincerely, EX-99.6 8 exh996to8kaug2103.txt EXHIBIT 99.6 TO 8-K EXHIBIT 99.6 AUGUST 21, 2003 INVESTOR FREQUENTLY ASKED QUESTIONS AND ANSWERS FROM TIME TO TIME, INVESTOR RELATIONS WILL PROVIDE FAQS ON VARIOUS TOPICS OF INTEREST TO INVESTORS. THE FOLLOWING IS A COMPILATION OF FREQUENTLY ASKED QUESTIONS AND ANSWERS. WHEN WILL THE VALUE ENHANCEMENT INITIATIVE (VEI) AND OTHER ACTIONS ANNOUNCED TODAY BE IMPLEMENTED? WHAT IS THE SCHEDULE? These programs are effective immediately. Some actions will begin to have an immediate impact, (e.g. travel and entertainment expense reductions), while others will be rolled out over the coming days and weeks, (e.g. the U.S. Voluntary Early Retirement Program [VERP]). Savings are expected to begin flowing in 2004. THE NEW CHAIRMAN AND CEO, FRED HASSAN, HAS SAID BEFORE THAT YOU CANNOT CUT A COMPANY TO GROWTH. DOES THIS ANNOUNCEMENT MEAN THERE HAS BEEN A CHANGE IN STRATEGY FROM THE PREVIOUSLY ANNOUNCED `FIX AND BUILD' STRATEGY? The `fix and build' strategy for Schering-Plough has not changed. Cost savings and re-allocations of resources are essential to the `repair' phase of the Action Agenda in order to create a solid foundation for the `turnaround' phase and longer-term growth. HOW CONFIDENT IS THE COMPANY THAT THESE ACTIONS WILL ACHIEVE THE $200 MILLION IN ANNUAL SAVINGS THAT THE COMPANY HAD PREVIOUSLY DISCLOSED? The Company expects to exceed its previously stated goal of $200 million in annual savings over time as the Company transforms its business model. The Company anticipates a pre-tax charge of approximately $150 million in the 2003 fourth quarter related to the U.S. Voluntary Early Retirement Program. Additional charges may follow. SOME FINANCIAL ANALYSTS HAVE NOTED THAT MORE COST SAVINGS ARE NEEDED. WILL THE COMPANY IMPLEMENT ADDITIONAL COST-CUTTING MEASURES? The Company expects to exceed its previously stated goal of $200 million in annual savings. The Company has accelerated and intensified its financial assessments based on the completion of the CEO's 100-day, 360-degree review of the business. As Fred Hassan noted on the 2003 second quarter earnings conference call, "We will not shortchange our shareholders for the long term. We'll do the right thing. If we get opportunities that go beyond that number, we will go beyond that number." The Company is determined to transform Schering-Plough into a lean and efficient organization. Further cost-savings will be announced as opportunities are identified. HOW MANY EMPLOYEES ARE EXPECTED TO PARTICIPATE IN THE U.S. VOLUNTARY EARLY RETIREMENT PROGRAM (VERP)? Based on an eligible population of 2,900 U.S.-based employees, the Company anticipates a headcount reduction of 1,000 or more. The Company anticipates a pre-tax charge of approximately $150 million in the 2003 fourth quarter related to this program. This is the first phase of a global workforce reduction in all areas of the Company, excluding customer-contact personnel, employees dedicated to the fulfillment of the Company's consent decree obligation, and other business critical employees. Other phases will follow on a global basis. IS THERE A MECHANISM FOR RETAINING `WOULD LIKE TO KEEP' EMPLOYEES OTHERWISE ELIGIBLE FOR THE VERP? Yes, there are plans in place to retain critical employees. WILL ADDITIONAL MEASURES BE IMPLEMENTED TO FURTHER REDUCE HEADCOUNT? WILL THERE BE INVOLUNTARY EMPLOYEE REDUCTIONS? We will take necessary measures to reduce our costs, but we will not take actions that endanger our overall growth strategy. Today's announcement reflects the first phase of a global work force reduction program in all areas of the company, excluding customer-contact personnel, employees dedicated to the fulfillment of the Company's consent decree obligations and other business critical employees. If needed, we will implement further phases of headcount reductions on a global basis as we go forward. These will be targeted to support our growth strategy. ARE ALL TOP AND SENIOR MANAGERS GIVING UP THEIR BONUSES AND PROFIT SHARING FOR THIS YEAR? Bonuses for 2003 under the Company's standard plans have been eliminated. Fred Hassan has voluntarily given up an opportunity to earn an incentive as high as $2 million for achieving his personal objectives to implement the Company's Action Agenda. The targeted 15 percent profit sharing for all employees will have a zero payout for 2003. IS FRED HASSAN'S INCENTIVE FOR HIS PERSONAL OBJECTIVES STATED IN HIS EMPLOYMENT CONTRACT? No, it would be unusual for annual objectives to be specified in an employment contract. Fred Hassan's annual incentives were established by the Board of Directors. - 2 - THE COMPANY HAS SAID THAT THE EARNINGS PER SHARE (EPS) IN THE SECOND HALF OF 2003 ARE LIKELY TO BE LOWER THAN THE LEVEL REGISTERED IN THE FIRST HALF AND THAT EPS IN 2004 ARE LIKELY TO BE LOWER THAN THE EPS LEVEL FOR 2003. (ALL COMPARISONS EXCLUDE ANY POSSIBLE CHARGES FOR UNUSUAL ITEMS.) WHAT ARE THE MAIN FACTORS BEHIND THIS CAUTIONARY OUTLOOK? The second half of 2003 should benefit from increasing U.S. ZETIA alliance revenue comparisons. However, we expect this benefit to be more than offset by: 1) Difficult year-over-year comparisons due to declining U.S. market shares of key products including PEG-INTRON/REBETOL, CLARINEX/CLARITIN and NASONEX. Note: The following chart is based upon IMS data and is being provided for trend-line information only. IMS data does not reflect all prescription channels (i.e. IMS data primarily includes retail, mail order and long-term prescription information).
TRx Market Shares Product Jul `02 Jan `03 Jul `03 - ------- ------- ------- ------- PEG-INTRON 89.0% 86.4% 62.6% REBETOL 100.0% 98.8% 74.0% CLARINEX/CLARITIN RX 39.4% 23.0% 15.1% a) NASONEX 24.2% 24.9% 22.2%
a) Based on IMS Information as of July '03 Actuals for the Total Defined Antihistamine Market. Total Defined Antihistamine Market includes CLARINEX, CLARINEX REDITAB, CLARITIN, CLARITIN REDITAB, CLARITIN-D12, CLARITIN-D24, AND CLARITIN Syrup. Even if the Company succeeds in stabilizing the declining market share trends and ultimately increasing market shares, the comparison of the 2003 second half to the 2004 first half is difficult because of the declining market share trends during the 2003 first half. The recovery requires a two-step process. First, it involves actions to stabilize declining market share trends followed by actions to increase market share performance. This recovery process is expected to take some time and will not be a "quick fix." 2) The Company has launched a major effort, which it refers to as the Value Enhancement Initiative or VEI, to obtain better value from its expenditures across the organization. The Company is aggressively reviewing all aspects of its spending with a particular emphasis on reducing general and administrative (G&A) costs as well as improving its purchasing productivity. The Company has already identified opportunities for savings through the elimination of redundant spending, global operational efficiencies and personnel cost-containment measures. As a result of intensified and accelerated actions, the Company now expects to exceed the previously stated goal of $200 million in annual savings. The extra savings over this level will be needed in 2004 to fund the obligations related to ZETIA/simvastatin - especially in light of the recent approval of a new competitor in the competitive cholesterol-lowering market and the other very promising product development and promotional opportunities. - 3 - 3) The loss of REBETOL exclusivity in the U.S. (2002 U.S. sales of $865 million) as well as the introduction of multiple private-label competitors for OTC CLARITIN after the 180-day period of exclusivity expires for the first OTC generic competitor - are expected to negatively impact 2003 and 2004 results. 4) In light of the declining prescription demand for key products, the Company is working to reduce U.S. trade inventories of certain products. WHY IS THE COMPANY BEING IMPACTED BY NEGATIVE EPS AND CASH FLOW? There are a number of different factors to consider: FIRST, the U.S. patent exclusivity for prescription CLARITIN expired on December 19, 2002. Prescription CLARITIN had been a major contributor to the Company's U.S. sales and profits. SECOND, to compensate for the massive gross profit loss due to the U.S. expiration of prescription CLARITIN, the Company reduced its sales force infrastructure in the 2002 third quarter and also reduced promotional expenses. While cost savings were generated by these expense reductions, they were more than offset by the gross profit losses resulting from the impact on market shares for many of the Company's products. THIRD, the Company signed a consent decree with the FDA on May 17, 2002 and received FDA concurrence with its proposed cGMP Work Plan on May 14, 2003. The consent decree requires a massive effort to complete hundreds of milestones by December 2005. This is expected to result in a significant increase in manufacturing overhead costs at the same time that production volume in the affected plants is rapidly declining. FOURTH, the Company is responding to investigations related to its U.S. sales, marketing and clinical trial practices. The scope, timing and resolution of these investigations cannot be estimated at this time. For further details see Schering-Plough's 2003 Second Quarter 10-Q filed with the Securities and Exchange Commission (SEC) on July 31, 2003. FIFTH, the Company has a commitment to make significant strategic investments in ZETIA and the ZETIA/simvastatin combination product in order to achieve their market potential. The high level of competitive activity in the cholesterol-lowering market will require a substantial investment on our part. - 4 - WHEN WILL THE COMPANY PROVIDE GUIDANCE FOR 2003 AND 2004? As reported in the August 21, 2003, Press Release, Hassan noted that, "Due to the downward slopes in sales and market share of key profit-generating products, that his new management team is addressing, earnings per share (EPS) in the second half of 2003 are likely to be lower than the level registered in the first half, and also EPS in 2004 are likely to be lower than the EPS level for 2003 (All comparisons exclude any possible charges for unusual items)." The Company will provide an earnings update after it gains better visibility into the many moving parts affecting its outlook. WILL THE LAUNCH OF THE NEW COMPETITOR, CRESTOR, IN THE CHOLESTEROL LOWERING MARKET, IMPACT THE POTENTIAL FOR ZETIA AND THE ZETIA/SIMVASTATIN COMBINATION PRODUCT? The recent approval of a new competitor has significantly increased the `noise' level in the cholesterol-lowering market. This means that we must consider further investments in both ZETIA and the fixed combination product in order to compete effectively. The cholesterol-lowering market is large and growing - with room for many competing products. WHEN WILL INVESTORS START TO SEE SOME EARLY SIGNS OF THE TURNAROUND PHASE OF THE ACTION AGENDA? Right now, the Company is focusing on the first three phases of the Action Agenda: stabilize, repair and then turnaround. It is expected that this will be an 18 to 24 month effort. Stemming the market share declines of our products is a big challenge. WILL THE COMPANY CHANGE MANY OF ITS PEOPLE AS FRED HASSAN DID DURING THE PHARMACIA AND UPJOHN REPAIR AND TURNAROUND PHASES? Every situation is different. In the case of Schering-Plough, significant changes have already been made - and there are more to come. Fred Hassan has said that through improvements in people, products and processes Schering-Plough will become a better performing company. It all starts with people. Schering-Plough has good people but we need to add selected talent to help the Company become better. Schering-Plough has been lucky to attract people from the former Pharmacia. These people had been hand picked as among the best in the industry, and who had worked as a team in achieving the successful global turnaround of P&U. DO YOU PLAN TO TAKE A RESTRUCTURING CHARGE? The Company anticipates a pre-tax charge of approximately $150 million in the 2003 fourth quarter related to the U.S. Voluntary Early Retirement Program. Additional charges may follow. - 5 - WHEN DO YOU EXPECT TO FILE THE ZETIA/SIMVASTATIN COMBINATION PRODUCT? The ZETIA/simvastatin fixed combination tablet is in Phase III clinical trials, with an FDA filing targeted for late 2003. WHEN DO YOU EXPECT APPROVAL FOR THE ZETIA/SIMVASTATIN COMBINATION PRODUCT? We have not predicted the timing for approval of the ZETIA/simvastatin fixed combination tablet. WHEN CAN INVESTORS EXPECT TO HEAR FROM MR. HASSAN AGAIN? Schering-Plough will report its 2003 third quarter results in October. Mr. Hassan will lead the 2003 third quarter earnings conference call and will only comment on the Company's third quarter results. An analyst meeting in New York City is being planned for November 18, at which time Mr. Hassan will review the Company's prospects and provide further details of his strategy for future growth. WILL THE COMPANY PROVIDE 2003 GUIDANCE ON THE THIRD QUARTER EARNINGS CONFERENCE CALL? As reported in the August 21, 2003 Press Release, Hassan noted that, "Due to the downward slopes in sales and market share of key profit-generating products, that his new management team is addressing, earnings per share (EPS) in the second half of 2003 are likely to be lower than the level registered in the first half, and also EPS in 2004 are likely to be lower than the EPS level for 2003 (All comparisons exclude any possible charges for unusual items)." The Company will provide an earnings update after it gains better visibility into the many moving parts affecting its outlook. IS THERE A WAY TO SAVE MORE MONEY AND IMPROVE THE COMPANY'S PROFIT OUTLOOK? Aggressive cost-containment and cost-cutting measures are being made in order to stabilize the Company and to create the foundation on which the Company can begin to build growth. Mr. Hassan noted that the Company has "positive growth potential" ahead and he believes that the Company can be turned around. With ZETIA and the ZETIA/simvastatin combination product, there is an attractive long-term opportunity that requires adequate funding. Another positive finding from the review of the business is some potentially exciting research projects including early stage projects in HIV, cancer and other areas. In order to maximize the value of these projects, the Company will be making additional, prudent investments. - 6 - NOW THAT SCHERING-PLOUGH IS NO LONGER SELLING PRESCRIPTION CLARITIN, WHY NOT CUT THE SALES FORCE? This has already been tried - and it turned out counter productive to longer-term shareholder value. The Company reduced its sales force infrastructure in the 2002 third quarter and also reduced promotional expenses. While cost-savings were generated by these expense reductions, they were more than offset by the gross profit losses resulting from the impact on market shares for many of the Company's products. IS THE COMPANY PLANNING TO GLOBALIZE AND RATIONALIZE ITS SUPPLY CHAIN - ASSUMING IT MEETS THE OBLIGATIONS UNDER THE CONSENT DECREE? Yes. Improvement in manufacturing productivity will become easier once the Company has successfully completed the requirements under the consent decree. The Company will, however, remain committed to a high standard of Business Integrity, Quality and Compliance. WHY DID MR. HASSAN TAKE THIS JOB? Mr. Hassan is energized by the challenges and even though the level of challenges may be more apparent, he remains confident that the Company can ultimately be turned around. WHY HAS THE COMPANY DECIDED TO REDUCE THE QUARTERLY DIVIDEND NOW? HAVE YOU RUN OUT OF OTHER OPTIONS LIKE BORROWING OR REPATRIATING OFF-SHORE CASH? The previous dividend level is not realistic given the Company's reduced revenues, the prudent desire to conserve cash for previously disclosed regulatory and legal issues and the need to invest for future growth. WHY IS THE COMPANY REDUCING THE QUARTERLY DIVIDEND WHEN IT HAS IN EXCESS OF $4 BILLION IN CASH ON THE BALANCE SHEET AND GIVEN THE FAVORABLE TAX STATUS OF DIVIDENDS IN THE UNITED STATES? The previous dividend level is not realistic given the Company's reduced revenues, the prudent desire to conserve cash for previously disclosed regulatory and legal issues and the need to invest for future growth. Substantially all cash and cash equivalents and short-term investments are held by wholly-owned, foreign-based subsidiaries. For further details on liquidity and financial resources, see Schering-Plough's 2003 Second Quarter 10-Q filed with the SEC on July 31, 2003. When the Company believes that the time is appropriate, the dividend will be increased. - 7 - HAS THE COMPANY ALREADY DONE ALL THE COST-CUTTING INTERNALLY THAT CAN BE DONE? IF NOT, WHY IS IT REDUCING THE DIVIDEND BEFORE IT COMPLETES ITS INTERNAL EXPENSE CONTROLS? Dividends are customarily a small part of long-term shareholder returns. We have outlined a number of cost-cutting initiatives in today's press release. The key cost-cutting actions that are being implemented immediately include: elimination of the Company's standard bonuses for 2003, suspension of the profit sharing plan for all employees, freezes on merit increases, implementation of a reduction in the work force (including the U.S. Voluntary Early Retirement program announced today), elimination of executive privileges, tight controls on new hires and major cutbacks in travel costs, meeting costs and general expenses. WHY HASN'T THE COMPANY ISSUED ANY SECURITIES UNDER ITS $2 BILLION SHELF REGISTRATION? The Company intends to issue securities under the $2 billion shelf registration when appropriate. WHEN WAS THE LAST TIME THAT SCHERING-PLOUGH REDUCED ITS QUARTERLY DIVIDEND? The Company's records on the dividend dating back to 1971 do not reflect any reductions in the dividend. WHO DECIDED TO REDUCE THE DIVIDEND? WAS IT THE BOARD OF DIRECTORS OR THE NEW CHAIRMAN AND CEO, FRED HASSAN? Upon the hiring of the new chairman and CEO, Fred Hassan, the Board of Directors requested that Fred Hassan make a "three hundred and sixty degree review" of the Company including its finances and the dividend. Based on this review, the Board of Directors determined to make the change in the dividend policy. IS THE BUSINESS AT SCHERING-PLOUGH WORSE THAN MR. HASSAN EXPECTED WHEN HE JOINED THE COMPANY? GIVEN THE STATE OF THE BUSINESS NOW, IS FRED HASSAN GOING STAY? Mr. Hassan is energized by the challenges and even though the level of challenges may be more apparent, he remains confident that the Company can ultimately be turned around. - 8 - IS THIS DIVIDEND REDUCTION AN INDICATION THAT THE FUTURE OF THE COMPANY IS BLEAK? IS THERE ANYTHING TO LOOK FORWARD TO? The aggressive cost-containment and cost-cutting measures are being made in order to stabilize the Company and to create the foundation on which the Company can begin to build growth. Mr. Hassan noted that the Company has "positive growth potential" ahead and he believes that it can be turned around. With ZETIA and the ZETIA/simvastatin combination product, there is an attractive long-term opportunity that requires adequate funding. Another positive finding from the review of the business is some potentially exciting R&D projects including early stage projects in HIV, cancer and and other areas. In order to maximize the value of these projects, the Company will be making additional, prudent investments. When the Company believes that the time is appropriate, the dividend will be increased. WILL THE CURRENT DIVIDEND PAYMENT EVER BE RESTORED? The Company is not forecasting future dividend payments. However, when the Company believes that the time is appropriate, the dividend will be increased. WHY DID THE COMPANY HAVE TO REDUCE THE DIVIDEND BY SO MUCH? The previous dividend level is not realistic given the Company's reduced revenues, the prudent desire to conserve cash for the previously disclosed regulatory and legal issues and the need to invest for future growth. IN THE 2003 SECOND QUARTER EARNINGS CONFERENCE CALL, FRED HASSAN NOTED IN AN ANSWER TO A QUESTION ABOUT THE DIVIDEND THAT THE COMPANY HAS A STRONG BALANCE SHEET. IS THAT NO LONGER TRUE? IF THE COMPANY STILL HAS A STRONG BALANCE SHEET, WHY DID IT REDUCE THE DIVIDEND. The Company still has a strong balance sheet. The previous dividend level is not realistic given the Company's reduced revenues, the prudent desire to conserve cash for the previously disclosed regulatory and legal issues and the need to invest for future growth. WHAT IS THE CURRENT PAYOUT RATIO BASED ON PROJECTED 2003 AND 2004 EARNINGS? The Company has not provided numerical earnings guidance for 2003 and 2004. - 9 - IN ADDITION TO THE DIVIDEND BEING REDUCED, WHAT OTHER COST-SAVING INITIATIVES ARE BEING IMPLEMENTED AND WHAT WILL BE THE COST SAVINGS? The key cost-cutting actions that are being implemented immediately include: elimination of the Company's standard bonuses for 2003, zero payout of the profit sharing plan for all employees, freezes on merit increases, implementation of a reduction in the work force (including the Voluntary Early Retirement Program announced today), elimination of executive privileges, tight controls on new hires and major cutbacks in travel costs, meeting costs and general expenses. Fred Hassan has voluntarily given up an opportunity to earn an incentive as high as $2 million for achieving his personal objectives to implement the Company's Action Agenda. WHAT IS THE COMPANY PLANNING TO DO WITH THE CASH IT IS SAVING FROM REDUCING THE DIVIDEND? IS THE COMPANY PLANNING TO DO AN ACQUISITION? The aggressive cost-containment and cost-cutting measures are being made in order to stabilize the Company and to create the foundation on which the Company can begin to build growth. Mr. Hassan noted that the Company has "positive growth potential" ahead and he believes that it can be turned around. With ZETIA and the ZETIA/simvastatin combination product, there is an attractive long-term opportunity that requires adequate funding. Another positive finding from the review of the business is some potentially exciting R&D projects including early stage projects in HIV, cancer and other areas. In order to maximize the value of these projects, the Company will be making additional, prudent investments. WHY DIDN'T THE COMPANY JUST SELL THE ANIMAL HEALTH OR CONSUMER HEALTH CARE BUSINESSES INSTEAD? ARE THERE OTHER ASSETS THAT COULD HAVE BEEN SOLD? There is good business logic for maintaining the Animal Health and Consumer health Care businesses. However, the Company will always evaluate good opportunities for accretive or strategic divestitures. IS THE COMPANY STILL GOING TO PAY THE PREVIOUSLY ANNOUNCED THIRD QUARTER DIVIDEND WHICH IS PAYABLE ON AUGUST 26, 2003? The regular quarterly dividend of 17 cents per common share announced on June 24, 2003, will be made on August 26, 2003, to shareholders of record at the close of business on August 1, 2003. IS IT FAIR TO EXEMPT SOME EMPLOYEES FROM THE ZERO PAYOUT ON BONUSES? It is the right thing to do for the Company's business and long-term growth plans. The Company must sustain our revenues to survive and grow. Also the Company must assure continued strong progress on our business integrity and compliance actions. Where incentives are essential to this, the Company will maintain them but it will be on a highly targeted basis. - 10 - WITH THE IMPLEMENTATION OF THE U.S. VOLUNTARY EARLY RETIREMENT PROGRAM, WILL THE COMPANY LOSE SOME OF ITS BEST PEOPLE? The Company will identify and keep people that it believes should be retained from this group for competitive reasons. DISCLOSURE NOTICE CAUTIONARY FACTORS THAT MAY AFFECT FUTURE RESULTS (CAUTIONARY STATEMENTS UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995). These Frequently Asked Questions may contain "forward-looking statements" within the meaning of the Securities Litigation Reform Act of 1995. Forward-looking statements relate to expectations or forecasts of future events. They use words such as "anticipate," "believe," "could," "estimate," "expect," "forecast," "project," "intend," "plan," "potential," "will," and other words and terms of similar meaning in connection with a discussion of potential future events, circumstances or future operating or financial performance. You can also identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. In particular, forward-looking statements include statements relating to future actions, prospective products, the status of product approvals, future performance or results of current and anticipated products, sales efforts, development programs, expenses and our programs to reduce expenses, the number of employees accepting Schering-Plough's planned voluntary early retirement program and the cost of and savings from that program, the outcome of contingencies such as litigation and investigations, growth strategy and financial results. Any or all of our forward-looking statements here or in other publications may turn out to be wrong. Our actual results may vary materially, and there are no guarantees about the performance of Schering-Plough stock. Schering-Plough does not assume the obligation to update any forward-looking statement. YOU SHOULD CAREFULLY CONSIDER ANY FORWARD-LOOKING STATEMENT AND SHOULD UNDERSTAND THAT MANY FACTORS COULD CAUSE ACTUAL RESULTS TO DIFFER FROM SCHERING-PLOUGH'S FORWARD-LOOKING STATEMENTS. THESE FACTORS INCLUDE INACCURATE ASSUMPTIONS AND A BROAD VARIETY OF OTHER RISKS AND UNCERTAINTIES, INCLUDING SOME THAT ARE KNOWN AND SOME THAT ARE NOT. FOR FURTHER DETAILS AND A DISCUSSION OF THESE AND OTHER RISKS AND UNCERTAINTIES, SEE SCHERING-PLOUGH'S SECURITIES AND EXCHANGE COMMISSION (SEC) FILINGS, INCLUDING SCHERING-PLOUGH'S 2003 SECOND QUARTER 10-Q FILED WITH THE COMMISSION ON JULY 31, 2003, THE 8-K FILED AUGUST 21, 2003 AND FUTURE SEC FILINGS. - 11 - -----END PRIVACY-ENHANCED MESSAGE-----