10-K

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2004

Commission File No. 1-6571

SCHERING-PLOUGH CORPORATION

(Exact name of registrant as specified in its charter)

New Jersey	22-1918501
(State of incorporation)	(I.R.S. Employer Identification No.)
2000 Galloping Hill Road Kenilworth, N.J. (Address of principal executive offices)	07033 (Zip Code)

Registrant’s telephone number:

(908)-298-4000

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class	Name of Each Exchange on Which Registered
Common Shares, $.50 par value	New York Stock Exchange
Mandatory Convertible Preferred Stock	New York Stock Exchange
Preferred Share Purchase Rights*	New York Stock Exchange

*  At the time of filing, the Rights were not traded separately from the Common Shares.

      Indicate by check mark whether the registrant has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and has been subject to such filing requirements for the past 90 days.     Yes þ          No o

      Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.     o

      Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).     Yes þ          No o

      Aggregate market value of common shares held by non-affiliates computed by reference to the price at which the common shares were last sold as of June 30, 2004 (the last business day of the registrant’s most recently completed second fiscal quarter): $27,193,312,423

      Common Shares outstanding as of February 28, 2005: 1,474,973,248

	Part of Form 10-K
Documents incorporated by reference	incorporated into
Schering-Plough Corporation Proxy Statement for the Annual Meeting of Shareholders on April 26, 2005		Part III

TABLE OF CONTENTS

		Page
PART I
Item 1.	Business		3
Item 2.	Properties		12
Item 3.	Legal Proceedings		13
Item 4.	Submission of Matters to a Vote of Security Holders		18
PART II
Item 5.	Market for Registrant’s Common Equity and Related Stockholder Matters		20
Item 6.	Selected Financial Data		21
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		22
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk		46
Item 8.	Financial Statements and Supplementary Data		47
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		85
Item 9A.	Controls and Procedures		85
	Management’s Report on Internal Control over Financial Reporting		86
PART III
Item 10.	Directors and Executive Officers of the Registrant		89
Item 11.	Executive Compensation		89
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		89
Item 13.	Certain Relationships and Related Transactions		90
Item 14.	Principal Accountant Fees and Services		90
PART IV
Item 15.	Exhibits, Financial Statement Schedules, and Reports on Form 8-K		91
SIGNATURES			95
EX-10.E.VI: REVISED FORM OF EMPLOYMENT AGREEMENT
EX-10.E.XI: SEVERENCE BENEFIT PLAN AS AMENDED AND RESTATED
EX-10.L: RETIREMENT BENEFITS EQUALIZATION PLAN
EX-10.N: CASH LONG-TERM INCENTIVE PLAN
EX-10.O: LONG-TERM PERFORMANCE SHARE UNIT INCENTIVE PLAN
EX-10.W SUMMARY OF DIRECTOR COMPENSATION
EX-12: COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
EX-21: SUBSIDIARIES
EX-23: CONSENT OF DELOITTE & TOUCHE LLP
EX-24: POWER OF ATTORNEY
EX-31.1: CERTIFICATION
EX-31.2: CERTIFICATION
EX-32.1: CERTIFICATION
EX-32.2: CERTIFICATION

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Part I

Item 1. Business

Overview of the Business

      Schering-Plough or the “Company” refers to Schering-Plough Corporation and its subsidiaries, except as otherwise indicated by the context. The trademarks indicated by CAPITAL LETTERS in this 10-K are the property of, licensed to, promoted or distributed by Schering-Plough Corporation, its subsidiaries or related companies.

      Predecessor companies were incorporated in New York in 1928 and New Jersey in 1932. In 1952, the stock of a predecessor company became publicly traded. Schering-Plough Corporation, a New Jersey corporation, was incorporated in 1970 under the name Schering Corporation.

      Schering-Plough is a global science-based health care company with leading prescription, consumer and animal health products. Through internal research and collaborations with business partners, Schering-Plough discovers, develops, manufactures and markets advanced drug therapies to meet important medical needs. Schering-Plough’s vision is to earn the trust of the physicians, patients, customers and shareholders that it serves around the world. Schering-Plough’s worldwide headquarters is in Kenilworth, NJ, and its Web site is www.schering-plough.com.

      In April 2003 the Board of Directors named Fred Hassan as the new Chairman of the Board and Chief Executive Officer of Schering-Plough Corporation. Under his leadership, a new leadership team was recruited and they established the six- to eight-year Action Agenda, a plan directed toward the goals of stabilizing, repairing and turning around Schering-Plough to produce long-term value for shareholders.

      The new management team reorganized the business from one managed along geographic lines, with the primary segments being U.S. and rest-of-world, to a business organized around its products. Currently, major product segments are Prescription Pharmaceuticals, Consumer Health Care and Animal Health. Principal products within each segment are as follows:

      Prescription Pharmaceuticals, which is organized into categories as follows:

      Primary Care including

      Allergy/ Respiratory

      CLARINEX, NASONEX, FORADIL AEROLIZER

      Antibiotics

      AVELOX, CIPRO

      Dermatologicals

      ELOCON

      Erectile Dysfunction

      LEVITRA (Co-promoted with GlaxoSmithKline PLC)

      Specialty Care including

      Anti-infectives

      INTRON A, PEG-INTRON, REBETOL

      Anti-inflammatories

      REMICADE

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      Oncology

      TEMODAR, CAELYX, INTRON A,

      Acute Coronary Care

      INTEGRILIN

      Other

      SUBUTEX, SUBOXONE

      Cholesterol, through the Merck/ Schering-Plough Joint Venture

      ZETIA, VYTORIN

      Consumer Health Care, which is organized into categories as follows:

      Over-the-Counter

      CLARITIN, AFRIN, CORICIDIN, A+D OINTMENT, CORRECTOL, DRIXORAL, GYNE-LOTRIMIN

      Foot Care

      DR. SCHOLL’S, LOTRIMIN, TINACTIN

      Sun Care

      COPPERTONE, BAIN DE SOLEIL, SOLARCAINE

      Animal Health, which is organized into categories as follows:

      Livestock

      BANAMINE, NUFLOR

      Poultry

      PARACOX, UNIVAX-PLUS

      Companion Animal

      HOMEAGAIN

      Aquaculture

      AQUAFLOR, SLICE

      Schering-Plough operates primarily in the prescription pharmaceutical marketplace. However, where appropriate, Schering-Plough has sought and may in the future seek 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 another means of maximizing the return on investments in discovery and development.

Segment Information

      Schering-Plough has three reportable segments: Prescription Pharmaceuticals, Consumer Health Care and Animal Health. The segment sales and profit data that follow are consistent with Schering-Plough’s current management reporting structure, established in the second quarter of 2003. The Prescription Pharmaceuticals segment discovers, develops, manufactures and markets human pharmaceutical products. The Consumer Health Care segment develops, manufactures and markets OTC, foot care and sun care products. The Animal Health segment discovers, develops, manufactures and markets animal health products.

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Net sales by segment:

	Year Ended December 31,
	2004		2003		2002
	(Dollars in millions)
Prescription Pharmaceuticals	$	6,417	$	6,611	$	8,745
Consumer Health Care		1,085		1,026		758
Animal Health		770		697		677
Consolidated net sales	$	8,272	$	8,334	$	10,180

Profit by segment:

	Year Ended December 31,
	2004			2003			2002
	(Dollars in millions)
Prescription Pharmaceuticals	$	13		$	513		$	2,548
Consumer Health Care		234			199			169
Animal Health		88			86			93
Corporate and other		(503	)		(844	)		(247	)
Consolidated (loss)/profit before tax	$	(168	)	$	(46	)	$	2,563

      Corporate and other includes interest income and expense, foreign exchange gains and losses, headquarters expenses, special charges and other miscellaneous items. The accounting policies used for segment reporting are the same as those described in the “Summary of Significant Accounting Policies”, included in Note 1 under Item 8, Financial Statements and Supplementary Data, in this 10-K.

      In 2004, Corporate and other includes Special charges of $153 million, including $119 million of employee termination costs, as well as $27 million of asset impairment charges and $7 million of closure costs primarily related to the exit from a small European research and development facility (see Note 2 “Special Charges” under Item 8, Financial Statements and Supplementary Data, in this 10-K for additional information). It is estimated that the charges relate to the reportable segments as follows: Prescription Pharmaceuticals — $135 million, Consumer Health Care — $3 million, Animal Health — $2 million and Corporate and other — $13 million.

      In 2003, Corporate and other includes Special charges of $599 million, including $179 million of employee termination costs, a $350 million provision to increase litigation reserves, and $70 million of asset impairment charges (see Note 2 “Special Charges” under Item 8, Financial Statements and Supplementary Data, in this 10-K for additional information). It is estimated that the charges relate to the reportable segments as follows: Prescription Pharmaceuticals — $515 million, Consumer Health Care — $25 million, Animal Health — $4 million and Corporate and other — $55 million.

Net sales by geographic area:

	2004		2003		2002
	(Dollars in millions)
United States	$	3,219	$	3,559	$	5,761
Europe and Canada		3,595		3,410		2,923
Latin America		782		716		740
Pacific Area and Asia		676		649		756
Consolidated net sales	$	8,272	$	8,334	$	10,180

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      The Company has subsidiaries in more than 50 countries outside the U.S. No single foreign country, except for France, Italy and Japan, accounted for 5 percent or more of consolidated net sales during the past three years. Net sales are presented in the geographic area in which the Company’s customers are located.

	2004				2003				2002
	(Dollars in millions)
Total International Sales	$	5,053	61	%	$	4,775	57	%	$	4,419	43	%
France		729	9	%		691	8	%		613	6	%
Italy		443	5	%		436	5	%		339	3	%
Japan		385	5	%		414	5	%		524	5	%

Net sales by customer:

	2004				2003				2002
	(Dollars in millions)
McKesson Corporation	$	868	10	%	$	667	8	%	$	2,092	21	%
AmeriSourceBergen Corporation		589	7	%		771	9	%		1,101	11	%

      No single customer, except for McKesson Corporation and AmeriSourceBergen Corporation, two major pharmaceutical and health care products distributors, accounted for 10 percent or more of consolidated net sales during the past three years.

Long-lived assets by geographic location

	2004		2003		2002
	(Dollars in millions)
United States	$	2,447	$	2,507	$	2,477
Ireland		449		444		430
Singapore		884		828		668
Puerto Rico		298		317		300
Other		768		726		613
Total	$	4,846	$	4,822	$	4,488

      Long-lived assets shown by geographic location are primarily property.

      Sales of products comprising 10 percent or more of the Company’s U.S. or international sales for the year ended December 31, 2004, were as follows:

	U.S.		International
	(Dollars in millions)
REMICADE	$	—	$	746
CLARINEX		420		272
OTC CLARITIN		403		16
NASONEX		353		242

      Schering-Plough net sales do not include sales of VYTORIN and ZETIA that are marketed in partnership with Merck, as the Company accounts for this joint venture under the equity method of accounting. See Note 3 “Equity Income in Cholesterol Joint Venture” under Item 8, Financial Statements and Supplementary Data, in this 10-K.

      The Company does not disaggregate assets on a segment basis for internal management reporting and, therefore, such information is not presented.

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Research and Development

      Schering-Plough’s research activities are primarily aimed at discovering and developing new prescription products and enhancements in existing prescription products of medical and commercial significance. Company sponsored research and development expenditures were $1,607 million, $1,469 million and $1,425 million in 2004, 2003 and 2002, respectively. Research expenditures represented approximately 19 percent of consolidated net sales in 2004, 18 percent of consolidated net sales in 2003 and approximately 14 percent of consolidated net sales in 2002.

      Schering-Plough’s research activities are concentrated in the therapeutic areas of allergic and inflammatory disorders, infectious diseases, oncology, cardiovascular diseases, and central nervous system disorders. Schering-Plough also has substantial efforts directed toward biotechnology and immunology. Research activities include expenditures for both internal research efforts and research collaborations with various partners.

      While several pharmaceutical compounds are in varying stages of development, it cannot be predicted when or if these compounds will become available for commercial sale. The Company’s product pipeline lists significant products in development and is available on the Schering-Plough website.

Global Operations

      Non-U.S. operations generate the majority of the Company’s profits and cash flow. Non-U.S. activities are carried out primarily through wholly owned subsidiaries wherever market potential is adequate and circumstances permit. In addition, Schering-Plough is represented in some markets through licensees or other distribution arrangements. Currently Schering-Plough has business operations in over 120 countries and approximately 18,500 employees outside the U.S.

      Non-U.S. operations are subject to certain risks, which are inherent in conducting business overseas. These risks include possible nationalization, expropriation, importation limitations, pricing and reimbursement restrictions, and other restrictive governmental actions or economic destabilization. Also, fluctuations in foreign currency exchange rates can impact Schering-Plough’s consolidated financial results. For additional information on global operations, see Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations and the segment information described above in this 10-K.

Patents, Trademarks and Other Intellectual Property Rights

      Overview. Intellectual property protection is critical to Schering-Plough’s ability to successfully commercialize its product innovations. Schering-Plough owns, has applied for, or has license rights to, a large number of patents, both in the U.S. and in other countries, relating to molecules, products, product uses, formulations, and manufacturing processes. There is no assurance that the patents Schering-Plough is seeking will be granted or that the patents Schering-Plough has been granted would be found valid if challenged. Moreover, patents relating to particular molecules, products, uses, formulations, or processes do not preclude other manufacturers from employing alternative processes or from marketing alternative products or formulations that might successfully compete with the Company’s patented products.

      Outside the U.S., the standard of intellectual property protection for pharmaceuticals varies widely. While many countries have reasonably strong patent laws, other countries currently provide little or no effective protection for inventions or other intellectual property rights. Under the Trade-Related Aspects of Intellectual Property Agreement (TRIPs) administered by the World Trade Organization (WTO), over 140 countries have now agreed to provide non-discriminatory protection for most pharmaceutical inventions and to assure that adequate and effective rights are available to all patent owners. It is possible that changes to this agreement will be made in the future that will diminish or further delay its implementation in developing countries. It is too soon to assess how much, if at all, the Company will be impacted commercially from these changes.

      When a product patent expires, the patent holder often loses effective market exclusivity for the product. This can result in a rapid, sharp and material decline in sales of the formerly patented product, particularly in

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the U.S. However, in some cases the innovator company can obtain additional commercial benefits through manufacturing trade secrets; later-expiring patents on processes, uses, or formulations; trademark use; or marketing exclusivity that may be available under pharmaceutical regulatory laws.

      Schering-Plough’s Intellectual Property Portfolio. Patent protection for certain Schering-Plough molecules, products, processes, and uses are important to Schering-Plough’s business and financial results. For many of the Company’s products, in addition to patents on the compound, Schering-Plough holds other patents on manufacturing processes, formulations, or uses that may extend exclusivity beyond the expiration of the product patent.

      Schering-Plough’s subsidiaries own (or have licensed rights under) a number of patents and patent applications, both in the U.S. and abroad. Patents and patent applications relating to Schering-Plough’s significant products, including, without limitation, CLARINEX, INTRON A, PEG-INTRON, NASONEX, ZETIA and VYTORIN, are of material importance to Schering-Plough.

      Worldwide, Schering-Plough sells all major products under trademarks that also are material in the aggregate to our business and financial results. Trademark protection varies throughout the world, with protection continuing in some countries as long as the mark is used, and in other countries as long as it is registered. Registrations are normally for fixed but renewable terms.

      Patent Challenges Under the Hatch-Waxman Act. The Drug Price Competition and Patent Term Restoration Act of 1984, commonly known as Hatch-Waxman, made a complex set of changes to both patent and new-drug-approval laws in the U.S. Before Hatch-Waxman, no drug could be approved without providing the U.S. Food and Drug Administration (FDA) complete safety and efficacy studies, known as a complete New Drug Application (NDA). Hatch-Waxman authorizes the FDA to approve generic versions of innovative medicines without such information upon the filing of an Abbreviated New Drug Application (ANDA). In an ANDA, the generic manufacturer must demonstrate only bioequivalence between the generic version and the NDA-approved drug — not safety and efficacy.

      Absent a successful patent challenge, the FDA cannot approve an ANDA until after the innovator’s patents expire. However, a generic manufacturer may file an ANDA alleging that one or more of the patents listed in the innovator’s NDA are invalid or not infringed. This allegation is commonly known as a Paragraph IV certification. The innovator must then file suit against the generic manufacturer to protect its patents. If one or more of the NDA-listed patents are successfully challenged, the first filer of a Paragraph IV certification may be entitled to a 180-day period of market exclusivity over all other generic manufacturers. In recent years, generic manufacturers have used Paragraph IV certifications extensively to challenge patents on a wide array of innovative pharmaceuticals, and it is anticipated that this trend will continue.

Employees

      There were approximately 30,500 people employed by Schering-Plough at December 31, 2004.

Marketing Activities and Competition

      Prescription drugs are introduced and made known to physicians, pharmacists, hospitals, managed care organizations and buying groups by trained professional sales representatives, and are sold to hospitals, certain managed care organizations, wholesale distributors and retail pharmacists. Prescription products are also introduced and made known through journal advertising, direct mail advertising, by distributing samples to physicians and through television, radio, internet, print and other advertising media.

      Animal health products are promoted to veterinarians, distributors and animal producers.

      Foot care, OTC and sun care products are sold through wholesale and retail drug, food chain and mass merchandiser outlets, and are promoted directly to the consumer through television, radio, internet, print and other advertising media.

      The pharmaceutical industry is highly competitive and includes other large companies, some substantially larger than Schering-Plough, with substantial resources for research, product development, advertising,

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promotion and field selling support. There are numerous domestic and international competitors in this industry. Some of the principal competitive techniques used by Schering-Plough for its products include research and development of new and improved products, varied dosage forms and strengths and switching prescription products to non-prescription status. In the U.S., many of Schering-Plough’s products are subject to increasingly competitive pricing as managed care groups, institutions, federal and state government entities and agencies and buying groups seek price discounts and rebates. Governmental and other pressures toward the dispensing of generic products may significantly reduce the sales of certain products when they become no longer protected by patents or data exclusivity arrangements with the FDA.

Government Regulation

      Overview. Pharmaceutical companies are subject to extensive regulation by a number of national, state and local agencies. Of particular importance to Schering-Plough are regulation by the FDA, the European Medicines Agency (EMEA) and the Ministry of Health, Labor and Welfare (MHLW) in Japan.

      In the U.S., the FDA has jurisdiction over all Schering-Plough’s businesses and administers requirements covering the testing, approval, safety, effectiveness, manufacturing, labeling and marketing of Schering-Plough’s products. The FDA also regulates the conversion of pharmaceuticals from prescription to OTC status. The extent of FDA requirements and/or reviews affects the amount of resources necessary to develop new products and bring them to market in the U.S.

      Schering-Plough’s activities outside the U.S., the European Union and Japan are also subject to regulatory requirements governing the testing, approval, safety, effectiveness, manufacturing, labeling and marketing of Schering-Plough’s products. These regulatory requirements vary from country to country. Whether or not FDA, MHLW, or EMEA approval has been obtained for a product, approval of the product by comparable regulatory authorities of countries outside of the U.S., Japan or the European Union, as the case may be, must be obtained prior to marketing the product in those countries. The approval process may be more or less rigorous from country to country and the time required for approval may be longer or shorter than that required in the U.S. Approval in one country does not assure that such product will be approved in another country.

      Failure to comply with governmental regulations can result in delays in the release of products, delays in the approvals of new 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.

      Schering-Plough is subject to pharmacovigilance reporting requirements in many countries and other jurisdictions, including the U.S., the European Union (EU) and the EU member states. The requirements differ from jurisdiction to jurisdiction, but all include requirements for reporting adverse events that occur while a patient is using a particular drug in order to alert the manufacturer of the drug and the governmental agency to potential problems.

      FDA Regulation. On an ongoing basis, the FDA regulates the facilities and procedures used to manufacture pharmaceutical products in the U.S. or for sale in the U.S. All products made in such facilities are to be manufactured in accordance with current Good Manufacturing Practices (cGMPs) established by the FDA. The FDA periodically inspects Schering-Plough’s facilities and procedures to evaluate compliance.

      FDA Consent Decree. On May 17, 2002, Schering-Plough announced that it had reached an agreement with the FDA for a consent decree to resolve issues involving Schering-Plough’s compliance with cGMPs at certain manufacturing facilities in New Jersey and Puerto Rico.

      The consent decree requires Schering-Plough to complete a number of actions, including comprehensive cGMP Work Plans for Schering-Plough’s manufacturing facilities in New Jersey and Puerto Rico and revalidation of the finished drug products and bulk active pharmaceutical ingredients manufactured at those facilities.

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      Information about the payments made under the decree, the completion deadlines and possible payments and other ramifications if deadlines are missed all are discussed in detail in Note 14, “Consent Decree” under Item 8, Financial Statements and Supplementary Data, in this 10-K.

      Pricing and Reimbursement Regulation. In most international markets, Schering-Plough 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.

      In recent years, various legislative proposals have been offered in Congress and in many state legislatures that would effect major changes in the affected health care systems. Some states have passed legislation, and further federal and state legislative and administrative proposals are possible. These could include price or patient reimbursement constraints on medicines, mandated discounts, supplemental rebates, expansion of existing governmental programs for new patient populations and restrictions on access to certain products. Similar issues have also arisen in many countries outside of the U.S. It is not possible to predict the outcome of such initiatives and their effect on operations and cash flows cannot be reasonably estimated.

      Schering-Plough cannot predict what net effect the Medicare prescription drug benefit will have on markets and sales. The new Medicare Drug Benefit (Medicare Part D), which will take effect January 1, 2006, will offer voluntary prescription drug coverage, subsidized by Medicare, to over 40 million Medicare beneficiaries through competing private prescription drug plans (PDPs) and Medicare Advantage (MA) plans. Many of Schering-Plough’s leading drugs are already covered under Medicare Part B (e.g. TEMODAR, INTEGRILIN, and INTRON A). Medicare Part B provides payment for physician services which can include prescription drugs administered incident to a physician’s services. Beginning in 2005, the Medicare Part B drugs will be reimbursed in a manner that may limit Schering-Plough’s ability to offer large price concessions or make large price increases on these drugs. Other Schering-Plough drugs have a relatively small portion of their sales to the Medicare population (e.g. CLARINEX, the hepatitis C franchise). Schering-Plough could experience expanded utilization of VYTORIN and ZETIA and new drugs in Schering-Plough’s R&D pipeline. Of greater consequence for Schering-Plough may be the legislation’s impact on pricing, rebates and discounts.

      Other Regulation. Schering-Plough is also subject to the jurisdiction of various other federal and state regulatory and enforcement departments and agencies, such as the Federal Trade Commission (FTC), the Department of Justice and the Department of Health and Human Services in the U.S. Schering-Plough is, therefore, subject to possible administrative and legal proceedings and actions by those organizations. Such actions may result in the imposition of civil and criminal sanctions, which may include fines, penalties and injunctive or administrative remedies.

Information About the Merck Schering-Plough Cholesterol Joint Venture

      In May 2000, the Company and Merck & Co., Inc. (Merck) entered into two separate agreements to jointly develop and market in the U.S. (1) two cholesterol lowering drugs and (2) an allergy/ asthma drug. In December 2001, the cholesterol agreement was expanded to include all countries of the world except Japan. In general, the companies agreed that the collaborative activities under these agreements would operate in a virtual mode to the maximum degree possible by relying on the respective infrastructures of the two companies. These agreements generally provide for equal sharing of development costs and for co-promotion of approved products by each company.

      The cholesterol agreements provide for the Company and Merck to jointly develop ezetimibe (marketed as ZETIA in the U.S. and Asia and EZETROL in Europe):

      i. as a once-daily monotherapy;

      ii. in co-administration with any statin drug, and;

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      iii. as a once-daily fixed-combination tablet of ezetimibe and simvastatin (Zocor), Merck’s cholesterol-modifying medicine. This combination medication (ezetimibe/ simvastatin) is marketed as VYTORIN in the U.S. and as INEGY in many international countries).

      ZETIA/ EZETROL (ezetimibe) and VYTORIN/ INEGY (the combination of ezetimibe/simvastatin) are approved for use in the U.S. and have been launched in several international markets.

      The Company utilizes the equity method of accounting for the joint venture. The cholesterol agreements provide for the sharing of net income/ (loss) based upon percentages that vary by product, sales level and country. In the U.S. market, Schering-Plough receives a greater share of profits on the first $300 of ZETIA sales. Above $300 of ZETIA sales, the companies share profits equally. Schering-Plough’s allocation of joint venture income is increased by milestones earned. Further, either partner’s share of the joint venture’s net income/ (loss) is subject to a reduction if the partner fails to perform a specified minimum number of physician details in a particular country. The partners agree annually to the minimum number of physician details by country.

      The partners bear the costs of their own general sales forces and commercial overhead in marketing joint venture products around the world. In the U.S., Canada and Puerto Rico, the cholesterol agreements provide for a reimbursement to each partner for physician details. This reimbursed amount is equal to each partner’s physician details multiplied by a contractual fixed fee. Schering-Plough reports the receipt of this reimbursement as part of Equity income from cholesterol joint venture as under U.S. GAAP this amount does not represent a reimbursement of specific, incremental, identifiable costs for the Company’s detailing of the cholesterol products in these markets. In addition, this reimbursement amount per physician detail is not reflective of Schering-Plough’s joint venture sales force effort as Schering-Plough’s sales force-related infrastructure costs per physician detail is generally estimated to be higher.

      Costs of the joint venture that the partners contractually share are a portion of manufacturing costs, specifically identified promotion costs (including direct to consumer advertising and direct and identifiable out of pocket promotion) and other agreed upon costs for specific services such as market support, market research, market expansion, a specialty sales force and physician education programs.

      Certain specified research and development expenses are generally shared equally by the partners.

      Due to the virtual nature of the joint venture, the Company incurs substantial costs, such as selling, general and administrative costs, that are not reflected in Equity income from cholesterol joint venture, and are borne by the overall cost structure of the Company. These costs are reported on their respective line items in the Statements of Consolidated Operations. The cholesterol agreements do not provide for any jointly owned facilities and, as such, products resulting from the collaboration are manufactured in facilities owned by either Merck or the Company.

      The allergy/ asthma agreement provides for the development and marketing of a once-daily, fixed-combination tablet containing CLARITIN and Singulair. Singulair is Merck’s once-daily leukotriene receptor antagonist for the treatment of asthma and seasonal allergic rhinitis. In January 2002, the Merck /Schering-Plough respiratory joint venture reported on results of Phase III clinical trials of a fixed-combination tablet containing CLARITIN and Singulair. This Phase III study did not demonstrate sufficient added benefits in the treatment of seasonal allergic rhinitis. The CLARITIN and Singulair combination tablet does not have approval in any country and remains in clinical development.

Raw Materials

      Raw materials essential to Schering-Plough are available in adequate quantities from a number of potential suppliers. Energy is expected to be available to Schering-Plough in sufficient quantities to meet operating requirements.

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Seasonality

      Certain of the Company’s products, particularly the allergy and suncare categories, are seasonal in nature. Seasonal patterns do not have a pronounced effect on the consolidated operations of Schering-Plough.

Environment

      To date, compliance with federal, state and local laws regarding discharge of materials into the environment, or protection of the environment, have not had a material effect on Schering-Plough’s capital expenditures, earnings and competitive position.

Available Information

      Schering-Plough’s 10Ks, 10Qs, 8Ks, and amendments to those reports, filed with the SEC are available free of charge, on Schering-Plough’s website, as soon as reasonably practicable after such materials are electronically filed with the SEC. Schering-Plough’s address on the World Wide Web is schering-plough.com. Since Schering-Plough began this practice in the third quarter 2002, each such report has been available on Schering-Plough’s website within 24 hours of filing. Reports filed by Schering-Plough with the SEC may be read and copied at the SEC’s Public Reference Room at 450 Fifth Street, NW, Washington, DC 20549. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet site at www.sec.gov that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC.

Item 2. Properties

      Schering-Plough’s corporate headquarters is located in Kenilworth, New Jersey. Principal research facilities are located in Kenilworth Union and Summit New Jersey; Palo Alto California; and Elkhorn, Nebraska. Principal manufacturing facilities are as follows:

Location	Product Type
Kenilworth, New Jersey		Pharmaceuticals, Consumer Products
Union, New Jersey		Pharmaceuticals
Miami, Florida		Pharmaceuticals, Consumer Products
Omaha, Nebraska		Animal Health
Cleveland, Tennessee		Consumer Products
Puerto Rico		Pharmaceuticals
Argentina		Pharmaceuticals
Belgium		Pharmaceuticals, Consumer Products
Canada		Pharmaceuticals, Consumer Products
France		Pharmaceuticals, Animal Health
Germany		Animal Health
Ireland		Pharmaceuticals, Consumer Products, Animal Health
Italy		Pharmaceuticals
Japan		Pharmaceuticals, Consumer Products
Mexico		Pharmaceuticals, Consumer Products
Singapore		Pharmaceuticals
Spain		Pharmaceuticals

      On May 17, 2002, Schering-Plough announced that it reached an agreement with the FDA to enter into a consent decree to resolve issues involving Schering-Plough’s compliance with cGMP at certain manufacturing facilities in New Jersey and Puerto Rico. Refer to the Government Regulation section within Item 1 of this 10-K and Note 14, “Consent Decree” under Item 8, Financial Statements and Supplementary Data, in this 10-K for additional information regarding the consent decree.

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      All of the aforementioned properties are owned or leased by Schering-Plough. These properties generally are well maintained, insured and in good operating condition. Schering-Plough’s manufacturing facilities have capacities considered appropriate to meet Schering-Plough’s needs.

Item 3. Legal Proceedings

      Material pending legal proceedings, other than ordinary routine litigation incidental to the business, to which Schering-Plough Corporation or any of its subsidiaries or to which any of their property is subject, are disclosed below.

Patent Matters

      As described in Patents, Trademarks, and Other Intellectual Property Rights under Part I, Business in this 10-K, intellectual property protection is critical to Schering-Plough’s ability to successfully commercialize its product innovations. Litigation regarding Schering-Plough’s intellectual property rights is always pending and is initiated by third parties attempting to abridge Schering-Plough’s rights, as well as by Schering-Plough in protecting its rights. Patent matters described below have a potential material effect on the Company.

      DR. SCHOLL’S FREEZE AWAY Patent. On July 26, 2004, OraSure Technologies filed an action in the U.S. District Court for the Eastern District of Pennsylvania alleging patent infringement by Schering-Plough Healthcare Products by its sale of DR. SCHOLL’S FREEZE AWAY wart removal product. The complaint seeks a permanent injunction and unspecified damages, including treble damages. The FREEZE AWAY product was launched in March 2004. Net sales of this product in 2004 totaled approximately $20 million.

Investigations

      Massachusetts Investigation. The U.S. Attorney’s Office for the District of Massachusetts is investigating a broad range of the Company’s sales, marketing and clinical trial practices and programs along with those of Warrick Pharmaceuticals (Warrick), the Company’s generic subsidiary.

      Schering-Plough has disclosed that, in connection with this investigation, on May 28, 2003, Schering Corporation, a wholly owned and significant operating subsidiary of Schering-Plough, received a letter (the Boston Target Letter) from that Office advising that Schering Corporation (including its subsidiaries and divisions) is a target of a federal criminal investigation with respect to four areas:

      1. Providing remuneration, such as drug samples, clinical trial grants and other items or services of value, to managed care organizations, physicians and others to induce the purchase of Schering pharmaceutical products;

      2. Sale of misbranded or unapproved drugs, which the Company understands to mean drugs promoted for indications for which approval by the U.S. FDA had not been obtained (so-called off-label uses);

      3. Submitting false pharmaceutical pricing information to the government for purposes of calculating rebates required to be paid to the Medicaid program, by failing to include prices of a product manufactured and sold under a private label arrangement with a managed care customer as well as the prices of free and nominally priced goods provided to that customer to induce the purchase of Schering products; and

      4. Document destruction and obstruction of justice relating to the government’s investigation.

      A target is defined in Department of Justice guidelines as a person as to whom the prosecutor or the grand jury has substantial evidence linking him or her to the commission of a crime and who, in the judgment of the prosecutor, is a putative defendant (U.S. Attorney’s Manual, Section 9-11.151).

      The Company has implemented certain changes to its sales, marketing and clinical trial practices and is continuing to review those practices to ensure compliance with relevant laws and regulations. The Company is cooperating with this investigation.

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      See information about prior increases to the liabilities reserved in the financial statements, including in relation to this investigation, under Litigation Charges in Note 2, “Special Charges” and additional information about such reserves and other potential impacts of the outcome of this litigation in the Background section of Note 16, “Legal, Environmental and Regulatory Matters” under Item 8, Financial Statements and Supplementary Data, in this 10-K.

      The outcome of this investigation could include the commencement of civil and/or criminal proceedings involving the imposition of substantial fines, penalties and injunctive or administrative remedies, including exclusion from government reimbursement programs. As discussed in the Background section of Note 16 “Legal, Environmental and Regulatory Matters” contained in Item 8, Financial Statements and Supplemental Data, the Company previously recorded a liability of approximately $250 million related to this investigation. It is reasonably possible that a settlement of the investigation could involve amounts materially in excess of this accrual. This could have a material adverse impact on the Company’s financial condition, cash flows or operations. As required by U.S. GAAP since the Company cannot reasonably estimate the potential final resolution, the Company has recognized the estimated minimum liability. Further, the Company cannot predict the timing of the resolution of these matters or their outcomes.

      NITRO-DUR Investigation. In August 2003, the Company received a civil investigative subpoena issued by the Office of Inspector General of the U.S. Department of Health and Human Services, seeking documents concerning the Company’s classification of NITRO-DUR for Medicaid rebate purposes, and the Company’s use of nominal pricing and bundling of product sales. The Company is cooperating with the investigation. It appears that the subpoena is one of a number addressed to pharmaceutical companies concerning an inquiry into issues relating to the payment of government rebates.

      Consumer Products Matter. The U.S. Department of Justice, Antitrust Division, investigated whether the Company’s Consumer Products Division entered into an agreement with another company to lower the commission rate of a consumer products broker. The Department closed the investigation by letter dated November 9, 2004.

Pricing Matters

      AWP Investigations. The Company continues to respond to investigations by the Department of Health and Human Services, the Department of Justice and certain states into industry and Company practices regarding average wholesale price (AWP). These investigations include a Department of Justice review of the merits of a federal action filed by a private entity on behalf of the U.S. in the U.S. District Court for the Southern District of Florida, as well as an investigation by the U.S. Attorney’s Office for the District of Massachusetts, regarding, inter alia, whether the AWP set by pharmaceutical companies for certain drugs improperly exceeds the average prices paid by dispensers and, as a consequence, results in unlawful inflation of certain government drug reimbursements that are based on AWP. In March 2001, the Company received a subpoena from the Massachusetts Attorney General’s office seeking documents concerning the use of AWP and other pricing and/or marketing practices. The Company has also responded to subpoenas from the Attorney General of California concerning these matters. The Company is cooperating with these investigations. The outcome of these investigations could include the imposition of substantial fines, penalties and injunctive or administrative remedies.

      Prescription Access Litigation. In December 2001, the Prescription Access Litigation project (PAL), a Boston-based group formed in 2001 to litigate against drug companies, filed a class action suit in Federal Court in Massachusetts against the Company. In September 2002, a consolidated complaint was filed in this court as a result of the coordination by the Multi-District Litigation Panel of all federal court AWP cases from throughout the country. The consolidated complaint alleges that the Company and Warrick Pharmaceuticals (Warrick), the Company’s generic subsidiary, conspired with providers to defraud consumers by reporting fraudulently high AWPs for prescription medications reimbursed by Medicare or third-party payers. The complaint seeks a declaratory judgment and unspecified damages, including treble damages.

      Included in the litigation described in the prior paragraph are lawsuits that allege that the Company and Warrick reported inflated AWPs for prescription pharmaceuticals and thereby caused state and federal entities

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and third-party payers to make excess reimbursements to providers. Some of these actions also allege that the Company and Warrick failed to report accurate prices under the Medicaid Rebate Program and thereby underpaid rebates to some States. Some cases filed by State Attorneys General also seek to recover on behalf of citizens of the State and entities located in the State for excess payments as a result of inflated AWPs. These actions, which began in October 2001, have been brought by state Attorneys General, private plaintiffs, nonprofit organizations and employee benefit funds. They allege violations of federal and state law, including fraud, antitrust, Racketeer Influenced Corrupt Organizations Act (RICO) and other claims. During the first quarter of 2004, the Company and Warrick were among five groups of companies put on an accelerated discovery track in the proceeding. In addition, Warrick and the Company are defendants in a number of such lawsuits in state courts. The actions are generally brought by states and/or political subdivisions and seek unspecified damages, including treble and punitive damages.

Securities and Class Action Litigation

      On February 15, 2001, the Company stated in a press release that the FDA had been conducting inspections of the Company’s manufacturing facilities in New Jersey and Puerto Rico and had issued reports citing deficiencies concerning compliance with current Good Manufacturing Practices, primarily relating to production processes, controls and procedures. The next day, February 16, 2001, a lawsuit was filed in the U.S. District Court for the District of New Jersey against the Company and certain named officers alleging violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. Additional lawsuits of the same tenor followed. These complaints were consolidated into one action in the U.S. District Court for the District of New Jersey, and a lead plaintiff, the Florida State Board of Administration, was appointed by the Court on July 2, 2001. On October 11, 2001, a consolidated amended complaint was filed, alleging the same violations described above and purporting to represent a class of shareholders who purchased shares of Company stock from May 9, 2000, through February 15, 2001. The complaint seeks compensatory damages on behalf of the class. The Company’s motion to dismiss the consolidated amended complaint was denied on May 24, 2002. On October 10, 2003, the Court certified the shareholder class. Discovery is ongoing.

      In addition to the lawsuits described above, two lawsuits were filed in the U.S. District Court for the District of New Jersey, and two lawsuits were filed in New Jersey state court against the Company (as a nominal defendant) and certain officers, directors and a former director seeking damages on behalf of the Company, including disgorgement of trading profits made by defendants allegedly obtained on the basis of material non-public information. The complaints in each of those four lawsuits relate to the issues described in the Company’s February 15, 2001 press release, and allege a failure to disclose material information and breach of fiduciary duty by the directors. One of the federal court lawsuits also includes allegations related to the investigations by the U.S. Attorney’s Offices for the Eastern District of Pennsylvania and the District of Massachusetts, the FTC’s administrative proceeding against the Company, and a lawsuit by the state of Texas against Warrick, the Company’s generic subsidiary. Each of these lawsuits is a shareholder derivative action that purports to assert claims on behalf of the Company, but as to which no demand was made on the Board of Directors and no decision had been made on whether the Company can or should pursue such claims. In August 2001, the plaintiffs in each of the New Jersey state court shareholder derivative actions moved to dismiss voluntarily the complaints in those actions, which motions were granted. The two shareholder derivative actions pending in the U.S. District Court for the District of New Jersey have been consolidated into one action, which is in its very early stages. On January 2, 2002, the Company received a demand letter dated December 26, 2001, from a law firm not involved in the derivative actions described above, on behalf of a shareholder who also is not involved in the derivative actions, demanding that the Board of Directors bring claims on behalf of the Company based on allegations substantially similar to those alleged in the derivative actions. On January 22, 2002, the Board of Directors adopted a Board resolution establishing an Evaluation Committee, consisting of three directors, to investigate, review and analyze the facts and circumstances surrounding the allegations made in the demand letter and the consolidated amended derivative action complaint described above, but reserving to the full Board authority and discretion to exercise its business judgment in respect of the proper disposition of the demand. The Committee engaged independent outside

15

counsel to advise it and issued a report on the findings of its investigation to the independent directors of the Board in late October 2002.

      That report determined that the shareholder demand should be refused, and finding no liability on the part of any officers or directors. In November 2002, the full Board adopted the recommendation of the Evaluation Committee.

      The Company is a defendant in a number of purported nationwide or state class action lawsuits in which plaintiffs seek a refund of the purchase price of laxatives or phenylpropanolamine-containing cough/cold remedies (PPA products) they purchased. Other pharmaceutical manufacturers are co-defendants in some of these lawsuits. In general, plaintiffs claim that they would not have purchased or would have paid less for these products had they known of certain defects or medical risks attendant with their use. In the litigation of the claims relating to the Company’s PPA products, courts in the national class action suit and several state class action suits have denied certification and dismissed the suits. A similar application to deny class certification in New Jersey, the only remaining statewide class action suit involving the Company, was granted on September 30, 2004. Approximately 96 individual lawsuits relating to the laxative products, PPA products and recalled albuterol/VANCERIL/VANCENASE inhalers are also pending against the Company seeking recovery for personal injuries or death. In a number of these lawsuits punitive damages are claimed.

      On March 31, 2003, the Company was served with a putative class action complaint filed in the U.S. District Court in New Jersey alleging that the Company, Richard Jay Kogan (who resigned as Chairman of the Board November 13, 2002, and retired as Chief Executive Officer, President and Director of the Company April 20, 2003) and the Company’s Employee Savings Plan (Plan) administrator breached their fiduciary obligations to certain participants in the Plan. In May 2003, the Company was served with a second putative class action complaint filed in the same court with allegations nearly identical to the complaint filed March 31, 2003. On October 6, 2003, a consolidated amended complaint was filed, which names as additional defendants’ seven current and former directors and other corporate officers. The complaint seeks damages in the amount of losses allegedly suffered by the Plan. The Court dismissed this complaint on June 29, 2004. On July 16, 2004, the plaintiffs filed a Notice of Appeal.

Antitrust and FTC Matters

      K-DUR. K-DUR is Schering-Plough’s long-acting potassium chloride product supplement used by cardiac patients. Schering-Plough had settled patent litigation with Upsher-Smith, Inc. (Upsher-Smith) and ESI Lederle, Inc. (Lederle), which had related to generic versions of K-DUR for which Lederle and Upsher Smith had filed Abbreviated New Drug Applications (ANDAs).

      On April 2, 2001, the FTC started an administrative proceeding against Schering-Plough, Upsher-Smith and Lederle. The complaint alleged anti-competitive effects from those settlements.

      In June 2002, the administrative law judge overseeing the case issued a decision that the patent litigation settlements complied with the law in all respects and dismissed all claims against the Company. The FTC Staff appealed that decision to the full Commission.

      On December 18, 2003, the full Commission issued an opinion that reversed the 2002 decision and ruled that the settlements did violate the antitrust laws. The full Commission issued a cease and desist order imposing various injunctive restraints. By opinion filed March 8, 2005 the federal court of appeals set aside that 2003 Commission ruling and vacated the cease and desist order.

      Following the commencement of the FTC administrative proceeding, alleged class action suits were filed in federal and state courts on behalf of direct and indirect purchasers of K-DUR against Schering-Plough, Upsher-Smith and Lederle. These suits all allege essentially the same facts and claim violations of federal and state antitrust laws, as well as other state statutory and/or common law causes of action. These suits seek unspecified damages. Discovery is ongoing.

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SEC Inquiries and Related Litigation

      On September 25, 2003, a lawsuit was filed in New Jersey Superior Court, Union County, against Richard Jay Kogan and the Company’s outside Directors alleging breach of fiduciary duty, fraud and deceit and negligent misrepresentation, all relating to the alleged disclosures made during meetings that were the subject of a 2003 settlement of SEC enforcement proceedings under Regulation FD. The plaintiffs seek imposition of a constructive trust over profits the plaintiffs allege were realized by the defendants from unlawful acts and the plaintiffs seek compensatory damages. The Company removed this case to federal court. The case was remanded to state court. The Company has filed a motion to dismiss.

Pending Administrative Obligations

      As disclosed in Notes 14 “Consent Decree” and 16, “Legal, Environmental and Regulatory Matters”, under Item 8, Financial Statements and Supplementary Data, in this 10-K, Schering-Plough is subject to obligations under the consent decree with FDA and the Corporate Integrity Agreement and potential penalties for failure to comply with such obligations.

Tax Matters

      In October of 2001, IRS auditors asserted that the Company is liable for additional tax for the 1990 through 1992 tax years, based on allegations that two interest rate swaps with an unrelated party should be recharacterized as loans from affiliated companies. In April of 2004, the Company received a formal Notice of Deficiency (Statutory Notice) from the IRS asserting additional federal income tax due. The Company received bills related to this matter from the IRS on September 7, 2004. Payment in the amount of $194 million for income tax and $279 million for interest was made on September 13, 2004. The Company filed refund claims for the tax and interest with the IRS on December 23, 2004. The Company was notified on February 16, 2005, that its refund claims were denied. The Company believes it has complied with all applicable rules and regulations and intends to file a suit for refund for the full amount of the tax and interest.

Environmental Matters

      As discussed in Note 16, “Legal, Environmental and Regulatory Matters”, under Item 8, Financial Statements and Supplementary Data, in this 10-K, the Superfund sites discussed in the Environmental section of that Note are considered normal to Schering-Plough’s business.

Other Matters

      False Claims Act Complaint. In April 2003, the Company received notice of a False Claims Act complaint brought by an individual purporting to act on behalf of the U.S. government against it and approximately 25 other pharmaceutical companies in the U.S. District Court for the Northern District of Texas. The complaint alleged that the pharmaceutical companies, including Schering-Plough, defrauded the U.S. by having made sales to various federal governmental agencies of drugs that were allegedly manufactured in a manner that did not comply with current Good Manufacturing Practices. The court granted Schering-Plough’s motion to dismiss on January 5, 2005.

      EMEA Pharmacovigilance Matter. During 2003 pharmacovigilance inspections by officials of the British and French medicines agencies conducted at the request of the European Medicines Agency (EMEA), serious deficiencies in reporting processes were identified. Schering-Plough continues to work on its action plan to rectify the deficiencies and provides regular updates to EMEA. The Company does not know what action, if any, the EMEA or national authorities will take in response to these findings. Possible actions include further inspections, demands for improvements in reporting systems, criminal sanctions against the Company and/or responsible individuals and changes in the conditions of marketing authorizations for the Company’s products.

      Biopharma Contract Dispute. Biopharma S.r.l. filed a claim in the Civil Court of Rome on July 21, 2004 (docket no. 57397/2004, 9th Chamber) against certain Schering-Plough subsidiaries. The matter relates

17

to certain contracts dated November 15, 1999 (distribution and supply agreements between Biopharma and a Schering-Plough subsidiary) for distribution by Schering-Plough of generic products manufactured by Biopharma to hospitals and to pharmacists in France; and July 26, 2002 (letter agreement among Biopharma, a Schering-Plough subsidiary and Medipha Sante, S.A., appointing Medipha to distribute products in France). Biopharma alleges that Schering-Plough did not fulfill its duties under the contracts.

      Additional Information on Legal Proceedings. Additional information on legal proceedings, including important financial information, can be found in the Litigation Charges discussion in Note 2, “Special Charges” and Note 16, “Legal, Environmental and Regulatory Matters” contained in Item 8, Financial Statements and Supplementary Data, and in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations in this 10-K.

Item 4. Submission of Matters to a Vote of Security Holders

      Not applicable.

Executive Officers of the Registrant

      The following information regarding executive officers is included herein in accordance with Part III, Item 10. Corporate officers are also listed.

      Officers are elected to serve for one year and until their successors shall have been duly elected.

Name and Current Position		Business Experience	Age
Robert J. Bertolini*		Present position 2003;		43
	Executive Vice President and Chief Financial Officer	Partner, PricewaterhouseCoopers 1993-2003
Richard Bowles III		Present position 2001		53
	Senior Vice President, Global Quality Operations	Vice President Quality, Merck & Company 1997-2000
C. Ron Cheeley*		Present position 2003;		54
	Senior Vice President, Global Human Resources	Group Vice President, Global Compensation and Benefits, Pharmacia Corporation 1998-2003
Carrie S. Cox*		Present position 2003;		47
	Executive Vice President and President Global Pharmaceuticals	Executive Vice President and President, Global Prescription Business, Pharmacia Corporation 1999-2003; Senior Vice President and Head of Global Business Management, Pharmacia & Upjohn 1997-1999
William J. Creelman		Present position 2004;		50
	Vice President, Taxes	Senior Tax Counsel, Pfizer 2003-2004; Vice President Tax — U.S. SmithKline Beecham 1996 to 2003
Douglas J. Gingerella*		Present position 2004;		46
	Vice President and Controller	Vice President, Corporate Audits 1998-2004; Staff Vice President, Corporate Audits 1995-1998
Fred Hassan*		Present position 2003;		59
	Chairman, Chief Executive Officer and President	Chairman of the Board and Chief Executive Officer, Pharmacia Corporation 2001-2003; Chief Executive Officer, Pharmacia Corporation 2000-2001; Chief Executive Officer, Pharmacia & Upjohn 1997-2000
Thomas H. Kelly		Present position 2004;		55
	Vice President Corporate Business Development	Vice President and Controller 1991-2004
Raul E. Kohan*		Present position 1993		53
	Group Head, Global Specialty Operations, and President, Animal Health

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Name and Current Position		Business Experience	Age
Joseph J. LaRosa		Present position 2004;		46
	Vice President, Legal Affairs	Staff Vice President, Secretary and Associate General Counsel 2001-2004 1999-2000; Senior Legal Director 1997-1999; Legal Director 1995-1997
Ian A.T. McInnes		Present position 2004		52
	Senior Vice President 1, Global Supply Chain 1	Executive Vice President, Supply Chain; 2003-2004 Senior Vice President, Global Supply Chain, Pharmacia Corporation; 1994-2003
E. Kevin Moore		Present position 1996		52
	Vice President and Treasurer
Daniel A. Nichols		Present position 1991		64
	Senior Vice President, Taxes
Cecil B. Pickett, Ph.D.*		Present position 2002;		59
	Vice President and President, Schering-Plough Research Institute	Executive Vice President, Discovery Research, Schering-Plough Research Institute 1994-2002
Anne Renahan		Present position 2004;		46
	Vice President, Corporate Audits	Executive Director and Controller, Eisai Inc. 1999-2004
Thomas J. Sabatino, Jr.*		Present Position 2004;		46
	Executive Vice President and General Counsel	Senior Vice President and General Counsel, Baxter International, Inc. 2001-2004; Vice President and General Counsel, Baxter International, Inc. 1997-2001
Brent Saunders*		Present position 2003;		35
	Senior Vice President, Global Compliance and Business Practices	Partner, PricewaterhouseCoopers 2000-2003; Chief Risk Officer, Coventry Health Care 1998-1999
Karl Salnoske		Present Position 2004;		51
	Vice President and Chief Information Officer	CEO, Adaptive Trade 2001-2004; General Manager, IBM 1995-2001
Susan Ellen Wolf		Present position 2004;		50
	Corporate Secretary, Associate General Counsel & Vice President	Various positions in Schering-Plough’s Law Department 2002-2004; Senior Attorney, Delta Airlines 2000-2002

*  Officers as defined in Rule 16a-1(f) under the Securities Exchange Act of 1934.

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Part II

Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters

      The common share dividends, share price data and the approximate number of holders of record are set forth under Item 8, Financial Statements and Supplementary Data, in this 10-K.

      This table provides information with respect to purchases by the Company of its common shares during the fourth quarter of 2004.

ISSUER PURCHASES OF EQUITY SECURITIES

						Total Number of		Maximum Number
						Shares Purchased as		of Shares that May
						Part of Publicly		Yet Be Purchased
	Total Number of			Average Price Paid		Announced Plans or		Under the Plans or
Period	Shares Purchased			per Share		Programs		Programs
October 1, 2004 through October 31, 2004		1,880	(1)	$	17.72		N/A		N/A
November 1, 2004 through November 30, 2004		14,618	(1)	$	18.37		N/A		N/A
December 1, 2004 through December 31, 2004		510,685	(1)	$	18.44		N/A		N/A
Total October 1, 2004 through December 31, 2004		527,183	(1)	$	18.43		N/A		N/A

(1)  All of the shares included in the table above were repurchased pursuant to the Company’s stock incentive program and represent shares delivered to the Company by option holders for payment of the exercise price and tax withholding obligations in connection with stock options and stock awards.

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Item 6. Selected Financial Data

	2004			2003			2002			2001			2000			1999
	(In millions, except per share figures and percentages)
Operating Results
Net sales	$	8,272		$	8,334		$	10,180		$	9,762		$	9,775		$	9,075
(Loss)/income before income taxes(1)		(168	)		(46	)		2,563			2,523			3,188			2,795
Net (loss)/ income(1)		(947	)		(92	)		1,974			1,943			2,423			2,110
Net (loss)/ income available to common shareholders		(981	)		(92	)		1,974			1,943			2,423			2,110
Diluted (loss)/earnings per common share(1)		(0.67	)		(0.06	)		1.34			1.32			1.64			1.42
Basic (loss)/earnings per common share(1)		(0.67	)		(0.06	)		1.35			1.33			1.65			1.44
Research and development expenses		1,607			1,469			1,425			1,312			1,333			1,191
Depreciation and amortization expenses		453			417			372			320			299			264
Financial Position and Cash Flows
Property, net	$	4,593		$	4,527		$	4,236		$	3,814		$	3,362		$	2,939
Total assets		15,911			15,271			14,136			12,174			10,805			9,375
Long-term debt		2,392			2,410			21			112			109			6
Shareholders’ equity		7,556			7,337			8,142			7,125			6,119			5,165
Capital expenditures		489			711			776			759			763			543
Financial Statistics
Net (loss)/ income as a percent of net sales		(11.4	)%		(1.1	)%		19.4	%		19.9	%		24.8	%		23.3	%
Return on average shareholders’ equity		(12.7	)%		(1.2	)%		25.9	%		29.3	%		42.9	%		46.0	%
Net book value per common share(2)	$	4.91		$	4.99		$	5.55		$	4.86		$	4.18		$	3.51
Other Data
Cash dividends per common share	$	.22		$	.565		$	.67		$	.62		$	.545		$	.485
Cash dividends on common shares		324			830			983			911			802			716
Cash dividends on preferred shares		30			—			—			—			—			—
Average shares outstanding used in calculating diluted (loss) earnings per common share		1,472			1,469			1,470			1,470			1,476			1,486
Average shares outstanding used in calculating basic (loss) earnings per common share		1,472			1,469			1,466			1,463			1,465			1,470
Common shares outstanding at year-end		1,474			1,471			1,468			1,465			1,463			1,472

(1)	2004, 2003, 2002 and 2001 include Special charges of $153, $599, $150 and $500, respectively. See Note 2 “Special Charges” under Item 8, Financial Statements and Supplementary Data, in this 10-K for additional information.
(2)	Assumes conversion of all preferred shares into approximately 65 million common shares.

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

EXECUTIVE SUMMARY

Overview of the Company:

      Schering-Plough (the Company) discovers, develops, manufactures and markets medical therapies and treatments to enhance human health. The Company also markets leading consumer brands in the over-the-counter (OTC), foot care and sun care markets and operates a global animal health business.

      As a research-based pharmaceutical company, Schering-Plough’s core strategy is to invest substantial amounts of funds in scientific research with the goal of creating important medical and commercial value. Research and development activities focus on mechanisms to treat serious diseases. There is a high rate of failure inherent in such research and, as a result, there is a high risk that the funds invested in research programs will not generate financial returns. This risk profile is compounded by the fact that this research has a long investment cycle. To bring a pharmaceutical compound from the discovery phase to the commercial phase may take a decade or more. Because of the high-risk nature of research investments, financial resources typically must come from internal sources (operations and cash reserves) or from equity-type capital.

      There are two sources of new products: products acquired through acquisition and licensing arrangements, and products in the Company’s late-stage research pipeline. With respect to acquisitions and licensing, there are limited opportunities for obtaining or licensing critical late-stage products, and these limited opportunities typically require substantial amounts of funding. The Company competes for these opportunities against companies often with far greater financial resources than that of the Company. Due to the present financial situation, it may be challenging for the Company to acquire or license critical late-stage products that will have a positive material financial impact.

      During the past three years, the Company experienced a number of negative events that have strained and continue to strain the Company’s financial resources. These negative events included, but were not limited to, the following matters:

•  Entered into a formal consent decree with the U.S. Food and Drug Administration (FDA) in 2002 and agreed to revalidate manufacturing processes at certain manufacturing sites in the U.S. and Puerto Rico. Significant increased spending associated with manufacturing compliance efforts will continue through the completion of the FDA consent decree obligation. In addition, the Company has found it necessary to discontinue certain older profitable products and outsource other products.

•  Switch of CLARITIN in the U.S., beginning in December 2002 from prescription to OTC status. This switch coupled with private label competition has resulted in a much lower average unit selling price for this product and ongoing intense competition. The Company’s exposure to powerful retail purchasers has also increased.

•  Market shares and sales levels of certain other Company products have fallen significantly and have experienced increased competition. Many of these products compete in declining or volatile markets.

•  Investigations into certain of the Company’s sales and marketing practices by the U.S. Attorney’s Offices in Massachusetts and Pennsylvania. During 2004 the Company made payments totaling $294 million to the U.S. Attorney’s Office for the Eastern District of Pennsylvania in settlement of that investigation. The Massachusetts investigation is continuing and poses significant financial and commercial risks to the Company.

      In response to these matters, beginning in April 2003 the Company appointed a new management team that formulated, and has begun to implement, a six- to eight-year Action Agenda to stabilize, repair and then turn around the Company.

      The Company intends to avail itself of the foreign earnings repatriation provisions of the American Jobs Creation Act of 2004. Under this Act the Company intends to repatriate $9.4 billion of unremitted foreign earnings at a reduced tax rate. This repatriation of funds will provide the Company with greater financial stability.

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Current State of the Business:

      For the past two years the Company’s earnings and cash flow have declined significantly. The overriding cause of this is the loss of marketing exclusivity for two of the Company’s major pharmaceutical products, CLARITIN and REBETOL as well as increased competition in the hepatitis C market.

      Sales and marketing costs have increased due to the need to reinvest in these functions to launch new products as well as a need to stabilize market shares of the Company’s remaining pharmaceutical products.

      Many of the Company’s manufacturing sites operate well below optimum production levels due to sales declines and the reduction in output related to the FDA consent decree. At the same time, overall costs of operating manufacturing sites have significantly increased due to the consent decree and other compliance activities. The Company continues to review the carrying value of these assets for indications of impairment. Future events and decisions may lead to asset impairments and/or related costs.

      The Company continues to pursue its core strategy of supporting its marketed and new products in its research and development pipeline and plans to invest in sales and marketing and scientific research at historical levels. However, this level of investment is not sustainable without a significant increase in profits and cash flow from operations. The ability of the Company to generate profits and significant operating cash flow is directly and predominantly dependent upon the increasing profitability of the Company’s cholesterol franchise (which includes VYTORIN and ZETIA) and to a much lesser extent growing sales and profitability of the base pharmaceutical business products, developing or acquiring new products and controlling expenses. If the Company cannot generate significant operating cash flow, its ability to invest in sales, marketing and research efforts at historical levels may be negatively impacted.

      ZETIA is the Company’s novel cholesterol absorption inhibitor. VYTORIN is the combination of ZETIA and Zocor, Merck’s statin medication. These two products have been launched through a joint venture between the Company and Merck. The cholesterol-reduction market is the single largest pharmaceutical market in the world. VYTORIN and ZETIA are well positioned in this market, but these products compete against other and well established cholesterol management products marketed by companies with financial resources much greater than that of the Company. The financial commitment to compete in this market is shared with Merck and profits from the sales of VYTORIN and ZETIA are also shared with Merck.

      Management cannot provide assurance that profits in the near-term will be sufficient for the Company to maintain its core marketing and research strategies. If a sufficient level of profit and cash flow cannot be achieved, the Company would need to evaluate strategic alternatives. With regard to an examination of strategic alternatives, the contracts with Merck for VYTORIN and ZETIA and the contract with Centocor, Inc. for REMICADE (exhibits 10 (r) and 10 (u), respectively, to the Company’s 2003 Form 10-K) contain provisions related to a change of control, as defined in those contracts. These provisions could result in the aforementioned products being acquired by Merck or reverting back to Centocor, Inc.

Regulatory Environment in which the Company Operates:

      Government regulatory agencies throughout the world regulate the Company’s discovery, development, manufacturing and marketing efforts. The FDA is a central regulator of the Company’s business. Since 2001, the Company has been working with the FDA to resolve issues involving the Company’s compliance with current Good Manufacturing Practices (cGMP) at certain of its manufacturing sites in New Jersey and Puerto Rico. In 2002, the Company reached a formal agreement with the FDA to enter into a consent decree. Under the terms of the consent decree, the Company made payments totaling $500 million and agreed to revalidate the manufacturing processes at these sites. These manufacturing sites have remained open throughout this period; however, the consent decree has placed significant additional controls on production and release of products from these sites, including review and third-party certification of production activities. The third-party certifications and other cGMP improvement projects have resulted in higher costs as well as reduced output at these facilities. In addition, the Company has found it necessary to discontinue certain profitable older products. The Company’s research and development operations have also been negatively impacted by the decree because these operations share common facilities with the manufacturing operations.

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      In the U.S., the pricing of the Company’s pharmaceutical products are subject to competitive pressure as managed care organizations seek price discounts. Also in the U.S., the Company is required to provide statutorily defined rebates to various government agencies in order to participate in Medicaid, the veterans’ health care program and other government-funded programs. In most international markets, the Company operates in an environment of government-mandated cost-containment programs.

      Recently, clinical trials and post-marketing surveillance of certain marketed drugs within the industry have raised safety concerns that have led to recalls, withdrawals or adverse labeling of marketed products. In addition, these situations have raised concerns among some prescribers and patients relating to the safety and efficacy of pharmaceutical products in general. The Company continues to maintain a robust process for monitoring adverse events related to its products around the world. Company personnel have regular, open dialogue with the FDA and other regulators and review product labels and other materials on a regular basis and as new information becomes known.

      On July 30, 2004, Schering-Plough Corporation, the U.S. Department of Justice and the U.S. Attorney’s Office for the Eastern District of Pennsylvania announced a settlement related to certain of the Company’s sales and marketing practices that had been under investigation. Under the terms of the settlement, a subsidiary of Schering-Plough Corporation pled guilty to a single federal criminal charge concerning a payment to a managed care customer. In addition, under the settlement, Schering-Plough Corporation also entered into a five-year corporate integrity agreement (CIA). Failure to comply with the CIA can result in financial penalties. The settlement will not affect the ability of Schering-Plough Corporation to participate in federal healthcare programs.

DISCUSSION OF OPERATING RESULTS

     Net Sales:

      Consolidated net sales in 2004 totaled $8.3 billion, a decrease of $62 million or 1 percent compared with 2003. Consolidated net sales reflected primarily volume declines offset by a favorable foreign exchange rate impact of 4 percent.

      Consolidated 2003 net sales of $8.3 billion decreased $1.8 billion or 18 percent versus 2002, reflecting primarily volume declines offset by a favorable foreign exchange rate impact of 5 percent.

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      Net sales for the years ended December 31, 2004, 2003 and 2002 were as follows:

								% Increase (Decrease)
		2004		2003		2002		2004/2003			2003/2002
		(Dollars in millions)
Prescription Pharmaceuticals		$	6,417	$	6,611	$	8,745		(3	)%		(24	)%
	Remicade		746		540		337		38			60
	Clarinex/ Aerius		692		694		598		0			16
	Nasonex		594		500		523		19			(4	)
	PEG-Intron		563		802		1,015		(30	)		(21	)
	Temodar		459		324		278		42			16
	Integrilin		325		306		304		6			1
	Claritin Rx(a)		321		328		1,802		(2	)		(82	)
	Intron A		318		409		533		(22	)		(23	)
	Rebetol		287		639		1,222		(55	)		(48	)
	Subutex		185		144		103		29			40
	Elocon		168		154		165		9			(7	)
	Caelyx		150		111		71		35			55
	Other Pharmaceutical		1,609		1,660		1,794		(3	)		(7	)
Consumer Health Care			1,085		1,026		758		6			35
	OTC(b)		578		588		275		(2	)		N/M
	Foot Care		331		292		290		13			1
	Sun Care		176		146		193		20			(24	)
Animal Health			770		697		677		10			3
Consolidated net sales		$	8,272	$	8,334	$	10,180		(1	)%		(18	)%

Certain prior year amounts have been reclassified to conform to current year presentation.

N/ M — Not a meaningful percentage.

(a)	Amounts shown for 2004 and 2003 include international sales of CLARITIN Rx only.
(b)	Includes OTC CLARITIN of $419, $432 and $105 in 2004, 2003 and 2002, respectively.

      International net sales of REMICADE, for the treatment of rheumatoid arthritis, psoriatic arthritis, Crohn’s disease and ankylosing spondylitis, were up $206 million or 38 percent in 2004 to $746 million due to greater medical use and expanded indications in European markets. Sales of REMICADE in 2003 were $540 million, up $203 million or 60 percent compared with 2002, primarily in Europe, due to increased patient utilization.

      Global net sales of CLARINEX (marketed as AERIUS in many countries outside the U.S.) for the treatment of seasonal outdoor allergies and year-round indoor allergies were $692 million for 2004, essentially flat versus 2003. Sales outside the U.S. increased 39 percent to $272 million in 2004 due to market share gains and continued conversion from prescription CLARITIN. U.S. sales decreased 16 percent to $420 million in 2004 due to the continued contraction in the U.S. prescription antihistamine market following the launch of OTC CLARITIN and other branded and non-branded nonsedating antihistamines coupled with market share declines. Global net sales of CLARINEX were $694 million in 2003, an increase of 16 percent compared to $598 million in 2002, reflecting the continued conversion of patients from prescription CLARITIN, coupled with the launch of CLARINEX in several international markets.

      Global net sales of NASONEX Nasal Spray, a once-daily corticosteroid nasal spray for allergies, rose 19 percent to $594 million in 2004 primarily due to international sales growth and favorable prior year trade inventory comparisons in the U.S., tempered by a decline in U.S. market share. 2003 sales of NASONEX decreased 4 percent versus 2002 to $500 million due to changes in U.S. trade inventory levels and market share declines in the U.S.

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      Global net sales of PEG-INTRON Powder for Injection, a pegylated interferon product for treating hepatitis C, decreased 30 percent to $563 million compared with 2003 due to ongoing market competition in a contracting market. Market share of PEG-INTRON has been declining, reflecting the entrance of a competitor’s new products in the hepatitis C market in 2003. Sales of PEG-INTRON decreased $213 million or 21 percent to $802 million in 2003 compared to 2002, due primarily to loss of market share.

      Global net sales of INTRON A Injection, for chronic hepatitis B and C and other antiviral and anticancer indications, decreased 22 percent in 2004 to $318 million due primarily to lower demand. Sales of INTRON A were $409 million in 2003, a decline of 23 percent from 2002 due primarily to loss of market share.

      Global net sales of REBETOL Capsules, for use in combination with INTRON A or PEG-INTRON for treating hepatitis C, decreased 55 percent to $287 million due to the launch of generic versions of REBETOL in the U.S. in April 2004 and increased price competition outside the U.S. Sales of REBETOL were $639 million in 2003, a decline of 48 percent from $1.2 billion in 2002, due primarily to loss of market share resulting from new branded competition.

      Global net sales of TEMODAR Capsules, for treating certain types of brain tumors, increased $135 million or 42 percent to $459 million in 2004 due to increased market penetration. Sales of TEMODAR were $324 million in 2003, an increase of 16 percent compared to $278 million in 2002, due to increased market penetration.

      Global net sales of INTEGRILIN Injection, a glycoprotein platelet aggregation inhibitor for the treatment of patients with acute coronary syndrome, which is sold by Schering-Plough, primarily in the U.S., increased $19 million or 6 percent to $325 million in 2004 due to increased patient utilization. Sales of INTEGRILIN were $306 million and $304 million in 2003 and 2002, respectively.

      Millennium Pharmaceuticals, Inc. (“Millennium”) and the Company have a co-promotion agreement for INTEGRILIN. Millennium notified the Company that it intends to exercise its right under the agreement to assume responsibilities for consumer service, managed care contracting, government reporting and physical distribution of INTEGRILIN. As a result, based on the final assumption agreement, as early as the fourth quarter of 2005, the Company may be required to cease the recording of sales of INTEGRILIN and record its share of co-promotion profits as alliance revenue. Currently, the Company anticipates that this change in recording sales of INTEGRILIN would have no impact on earnings.

      International net sales of prescription CLARITIN decreased 2 percent from $328 million in 2003 to $321 million in 2004 due to continued conversion to CLARINEX. In 2002, global sales of prescription CLARITIN were $1.8 billion, reflecting over $1.4 billion of sales in the U.S. prior to its conversion to OTC status.

      International net sales of SUBUTEX Tablets, for the treatment of opiate addiction, increased 29 percent to $185 million due to increased market penetration. Sales of SUBUTEX were $144 million in 2003 and $103 million in 2002. SUBUTEX may be vulnerable to generic competition in the future.

      Global net sales of ELOCON cream, a medium-potency topical steroid, increased 9 percent to $168 million. Sales of ELOCON were $154 million in 2003 and $165 million in 2002. Generic competition is expected to affect sales of this product.

      International sales of CAELYX, for the treatment of ovarian cancer, metastatic breast cancer and Kaposi’s sarcoma, increased 35 percent to $150 million reflecting further adoption of the metastatic breast cancer indication in patients who are at increased cardiac risk. Sales of CAELYX in 2003 increased 55 percent versus 2002 to $111 million, due to increased patient utilization coupled with the launch of the metastatic breast cancer indication.

      Other pharmaceutical net sales include a large number of lower sales volume prescription pharmaceutical products. Several of these products are sold in limited markets outside the U.S., and many are multiple source products no longer protected by patents. The products include treatments for respiratory, cardiovascular, dermatological, infectious, oncological and other diseases.

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      Global net sales of consumer health care products, which include OTC, foot care and sun care products, increased $59 million or 6 percent in 2004 to $1.1 billion. Net sales of foot care products increased $39 million or 13 percent in 2004 due primarily to the strong performance of DR. SCHOLL’S FREEZE AWAY, a new wart remover product. Net sales of sun care products increased $30 million or 20 percent in 2004, primarily due to the timing of orders and shipments. Sales of OTC CLARITIN were $419 million in 2004, a decrease of $13 million or 3 percent from 2003, due to competition from branded and private label loratadine. Net sales of consumer health care products in 2003 increased $268 million or 35 percent compared to 2002, due primarily to increased sales of OTC CLARITIN following its launch in December 2002.

      Global net sales of animal health products increased 10 percent in 2004 to $770 million. Sales were favorably impacted by foreign exchange of 6 percent. Global net sales of animal health products increased 3 percent in 2003, which were favorably impacted by foreign exchange of 7 percent.

Costs, Expenses and Equity Income

      A summary of costs, expenses and equity income for the years ended December 31, 2004, 2003 and 2002 follows:

										% Increase (Decrease)
	2004			2003			2002			2004/2003			2003/2002
	(Dollars in millions)
Cost of sales	$	3,070		$	2,833		$	2,505			8	%		13	%
% of net sales		37.1	%		34.0	%		24.6	%
Selling, general and administrative	$	3,811		$	3,474		$	3,681			10	%		(6	%)
% of net sales		46.1	%		41.7	%		36.2	%
Research and development	$	1,607		$	1,469		$	1,425			9	%		3	%
% of net sales		19.4	%		17.6	%		14.0	%
Other expense (income), net	$	146		$	59		$	(144	)		N/M			N/M
% of net sales		1.8	%		0.7	%		(1.4	%)
Special charges	$	153		$	599		$	150			N/M			N/M
% of net sales		1.8	%		7.2	%		1.5	%
Equity income from cholesterol joint venture	$	(347	)	$	(54	)	$	—			N/M			N/M

N/ M — Not a meaningful percentage.

Certain prior year amounts have been reclassified to conform to current year presentation.

      Cost of sales as a percentage of net sales in 2004 increased over 2003, primarily due to lower production volumes coupled with increased spending related to the FDA consent decree, other manufacturing compliance spending, and efforts to upgrade the Company’s global infrastructure. The absence of European LOSEC revenues and a change in product sales mix, including sales of Bayer licensed products, contributed to the unfavorable comparison as well. The Company’s base pharmaceutical business is competing in many declining or volatile markets. Sales and the cost of sales of base business products have a direct impact on gross margin. Cost of sales as a percentage of net sales in 2003 increased over 2002 due to a change in product sales mix resulting from the loss of U.S. sales of prescription CLARITIN, as well as lower production volumes and increased spending for the Company’s cGMP compliance efforts.

      Substantially all the sales of cholesterol products are not included in the Company’s net sales. The results of the operations of the joint venture are reflected in equity income and have no impact on the Company’s gross and other operating margins.

      Selling, general and administrative expenses (SG&A) increased 10 percent to $3.8 billion in 2004 versus $3.5 billion in 2003 primarily due to the expansion of the sales field force, higher employee related costs and the unfavorable impact of foreign exchange, partially offset by lower promotional spending. The ratio of SG&A to net sales of 46.1 percent in 2004 was higher than the ratio of 41.7 percent in 2003. SG&A expenses

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decreased 6 percent to $3.5 billion in 2003 from $3.7 billion in 2002 due to lower pharmaceutical business marketing spending and lower employee related costs. The ratio of SG&A to net sales of 41.7 percent in 2003 was higher than the ratio of 36.2 percent in 2002, primarily due to lower overall sales reported in 2003.

      Research and development (R&D) spending increased 9 percent to $1.6 billion, representing 19.4 percent of net sales in 2004, and includes an $80 million charge in conjunction with the license from Toyama Chemical Company Ltd. (Toyama) for garenoxacin, a quinolone antibiotic currently in development. Generally, changes in R&D spending reflect the timing of the Company’s funding of both internal research efforts and research collaborations with various partners to discover and develop a steady flow of innovative products.

      In 2004 and 2003, the increase in Other expense (income), net, is primarily the result of higher net interest expense. Other expense (income), net in 2002 included $80 million of income related to the sale of the Company’s U.S. marketing rights for SUBOXONE and SUBUTEX sublingual tablets for the treatment of opioid dependence.

Special Charges:

      The components of Special Charges are as follows:

	2004		2003		2002
	(Dollars in millions)
Litigation charges	$	—	$	350	$	150
Employee termination costs		119		179		—
Asset impairment and related charges		34		70		—
	$	153	$	599	$	150

Litigation Charges

      In 2003 and 2002, litigation reserves were increased by $350 million and $150 million, respectively, primarily as a result of the investigations into the Company’s sales and marketing practices.

Employee Termination Costs

      In August 2003, the Company announced a global workforce reduction initiative. The first phase of this initiative was a Voluntary Early Retirement Program (VERP) in the U.S. Under this program, eligible employees in the U.S. had until December 15, 2003 to elect early retirement and receive an enhanced retirement benefit. Approximately 900 employees elected to retire under the program, of which approximately 850 employees retired through year-end 2004 and approximately 50 employees have staggered retirement dates in 2005. The total cost of this program is approximately $191 million, comprised of increased pension costs of $108 million, increased post-retirement health care costs of $57 million, vacation payments of $4 million and costs related to accelerated vesting of stock grants of $22 million. For employees with staggered retirement dates in 2005, these amounts will be recognized as a charge over the employees’ remaining service periods. Amounts recognized in 2004 and 2003 for this program were $20 million and $164 million, respectively. The amount expected to be recognized in 2005 is $7 million.

      Termination costs not associated with the VERP totaled $99 million and $15 million in 2004 and 2003, respectively.

Asset Impairment and Related Charges

      The Company recorded asset impairment and related charges of $34 million and $70 million in 2004 and 2003, respectively. The charge in 2004 relates primarily to the shutdown of a small European research-and-development facility.

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      The asset impairment and related charges in 2003 were related to the closure of a manufacturing facility in the United Kingdom, the write-down of production equipment related to products that are no longer produced at a manufacturing site operating under the FDA consent decree, the write-down of a drug license and a sun care trade name for which expected cash flows did not support the carrying value.

Summary of Selected Special Charges

      The following summarizes the activity in the accounts related to employee termination costs and asset impairment and related charges:

	Employee			Asset Impairment
	Termination			and Related
	Costs			Charges
	(Dollars in millions)
Special charges incurred during 2003	$	179		$	70
Impairment write-downs		—			(70	)
Credit to retirement benefit plan liability		(144	)		—
Disbursements		(6	)		—
Special charges liability balance at December 31, 2003	$	29		$	—
Special charges incurred during 2004	$	119		$	34
Impairment write-downs		—			(27	)
Credit to retirement benefit plan liability		(20	)		—
Disbursements		(110	)		(7	)
Special charges liability balance December 31, 2004	$	18		$	—

     Equity Income from Cholesterol Joint Venture

      Global cholesterol franchise sales, which include sales made by the Company and the cholesterol joint venture with Merck of VYTORIN and ZETIA, totaled $1.2 billion and $471 million in 2004 and 2003, respectively. VYTORIN has been approved in 25 countries and has been launched in several countries, including the U.S. in July 2004. ZETIA has been approved in 72 countries and was launched in the U.S. and over 40 international markets since November 2002.

      The Company utilizes the equity method of accounting for the joint venture. Sharing of net income is based upon percentages that vary by product, sales level and country. Schering-Plough’s allocation of joint venture income is increased by milestones earned. The partners bear the costs of their own general sales forces and commercial overhead in marketing joint venture products around the world. In the U.S., Canada and Puerto Rico, the joint venture reimburses each partner for a pre-defined amount of physician details that are set on an annual basis. Schering-Plough reports the receipt of this reimbursement as part of equity income as under U.S. GAAP this amount does not represent a reimbursement of specific, incremental, identifiable costs for the Company’s detailing of the cholesterol products in these markets. In addition, this reimbursement amount per physician detail is not reflective of Schering-Plough’s joint venture sales force effort as Schering-Plough’s sales force-related infrastructure costs per physician detail are generally estimated to be higher.

      Costs of the joint venture that the partners contractually share are a portion of manufacturing costs, specifically identified promotion costs (including direct-to consumer advertising and direct and identifiable out-of-pocket promotion) and other agreed-upon costs for specific services such as market support, market research, market expansion, a specialty sales force and physician education programs.

      Certain specified research and development expenses are generally shared equally by the partners.

      Equity income from cholesterol joint venture, as defined, totaled $347 million and $54 million in 2004 and 2003, respectively.

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      During 2004 and 2003, the Company recognized milestones from Merck of $7 million and $20 million, respectively, relating to the approval of ezetimibe/simvastatin in Mexico in 2004 and certain European approvals of ZETIA in 2003. These amounts are included in equity income.

      Under certain other conditions, as specified in the Merck agreements, Merck could pay additional milestones to the Company totaling $125 million.

      It should be noted that the Company incurs substantial costs such as selling costs that are not reflected in Equity income from cholesterol joint venture and are borne entirely by the Company. Prior to 2003, the venture was in the research and development phase and the Company’s share of research and development expense in 2002 was $69 million and was reported in Research and Development in the Statements of Consolidated Operations. In 2003 and 2004 Research and development costs related to the joint venture are included in equity income.

Provision for Income Taxes

      Tax expense was $779 million, $46 million and $589 million in 2004, 2003 and 2002, respectively.

      The tax provision in 2004 includes a charge of approximately $417 million (tax charge of $494 million less $77 million in foreign tax credits) related to the intended repatriation of previously unremitted foreign earnings under the American Jobs Creation Act of 2004 (the Act), $174 million in foreign and state taxes and a valuation allowance of approximately $240 million provided against certain deferred tax assets resulting from changes in Company tax planning strategies triggered by the opportunity to take full advantage of the Act. See discussion of the overall impacts of the Act on the Company below. The 2004 tax provision also includes a U.S. Net Operating Loss (U.S. NOL) carryback benefit of approximately $52 million.

Net (loss)/ income:

      Net loss was $947 million in 2004 versus a loss of $92 million in 2003 and net income of $2.0 billion in 2002.

      Net loss in 2004 includes tax expense of $779 million primarily for the intended repatriation of unremitted foreign earnings and a valuation reserve for net deferred tax assets in the U.S. The net loss in 2004 also reflects higher Selling, general and administrative expenses associated with the build-up of the U.S. sales force for the VYTORIN launch and the addition of sales representatives as a result of the Bayer licensing agreement as well as pre-tax special charges of $153 million, as described above. The 2004 results also include a pre-tax research and development charge of $80 million for the license of garenoxacin from Toyama Chemical Company Ltd.

      Net loss in 2003 includes special charges of $599 million, as described above.

      Net income in 2002 includes special charges of $150 million to increase litigation reserves.

Net loss available to common shareholders:

      The 2004 net loss available to common shareholders includes the deduction of preferred stock dividends of $34 million related to the issuance of the mandatory convertible preferred stock in August 2004.

Impact of the American Jobs Creation Act

      The American Jobs Creation Act of 2004 (the Act) was enacted into law in October 2004. One provision of the Act effectively reduces the tax rate on qualifying repatriation of funds held by foreign-based subsidiaries to 5.25 percent. Normally such repatriations would be taxed at a rate of up to 35 percent.

      To qualify for the reduced tax rate the funds must be repatriated during a one-year period and fund qualifying expenditures in the U.S. The amount of funds that can be repatriated at the reduced tax rate is limited to the amount of unremitted foreign earnings reported in the Company’s 2002 Annual Report.

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      During 2005, the Company intends to repatriate approximately $9.4 billion under the Act, which is the maximum amount of funds qualifying for the reduced tax rate. This repatriation of funds will trigger a U.S. income tax payment in 2005 of approximately $417 million, net of available tax credits. For financial reporting purposes, this tax payment has been recognized as an expense in 2004.

      Repatriating funds under the Act will benefit the Company in the following ways:

•  As discussed in more detail in the Liquidity and Financial Resources section, the Company’s U.S. operations incur significant negative cash flow. It is expected that the repatriations to be made during 2005 under the Act will provide the Company with greater financial stability and the ability to fund the U.S. cash needs for the intermediate term.

•  As disclosed in prior 10-K and 10-Q filings, the Company had intended to fund future U.S. cash flow deficits by repatriating funds in amounts up to its U.S. NOL’s. This strategy would have minimized taxes on such repatriations of funds, but would have also utilized some or all of the U.S. NOL’s and the potential benefit of being able to carry forward these U.S. NOL’s to reduce U.S. taxable income in the future. Under the Act, qualifying repatriations do not reduce U.S. tax losses. As a result of the Act, the Company will have both the cash necessary to fund its U.S. cash needs as well as maintaining the potential benefit of being able to carry forward U.S. NOL’s to reduce U.S. taxable income in the future. This potential future benefit could be significant and is dependent on the Company achieving profitability in the U.S.

      Under U.S. GAAP companies must review and provide a valuation allowance against deferred tax assets that may not have future benefit. The Company has generally established a valuation reserve against net deferred tax assets in the fourth quarter of 2004 due to changes in tax planning strategies triggered by the opportunity to take full advantage of the Act.

      At December 31, 2004 the Company has approximately $1 billion of U.S. NOL’s for tax purposes available to offset future U.S. taxable income through 2024. The Company has in general recorded a valuation allowance on net deferred tax assets in the U.S. The Company expects additional U.S. NOL’s to be generated in 2005. If Congress does not legislate certain technical corrections related to the Act in 2005, the Company’s U.S. NOL’s could be reduced by approximately $675 million.

      As stated above the Company intends to repatriate approximately $9.4 billion during 2005. At December 31, 2004, the Company’s foreign-based subsidiaries held cash and short-term investments totaling approximately $5.8 billion. This amount excludes $1.9 billion in cash that the foreign-based subsidiaries will receive from a counterparty upon termination of an interest rate swap arrangement that the Company will terminate in 2005. Additionally, the foreign-based subsidiaries are expected to generate substantial cash flow during 2005 which will be available to fund the planned repatriation.

LIQUIDITY AND FINANCIAL RESOURCES

Discussion of Cash Flow

      In 2004, operating activities used $154 million of cash. This amount includes the receipt of $404 million for a U.S. tax refund related to the carryback of 2003 U.S. NOL’s and the payment of $473 million to the U.S. government for a tax deficiency relating to certain transactions entered into in 1991 and 1992, and the payment of $294 million under the settlement agreement with the U.S. Attorney’s Office for the Eastern District of Pennsylvania.

      In 2003, operating activities provided approximately $601 million of cash. This amount includes the cash flow benefit from the reduction in accounts receivable following the end of sales of CLARITIN as a prescription product in the U.S. This amount also includes a $250 million payment relating to the FDA consent decree.

      In both 2004 and 2003, operating activities on a worldwide basis generated insufficient cash to fund capital expenditures and dividends. This cash flow deficit is particularly pronounced when disaggregated on a geographic basis. Foreign operations generate cash in excess of local cash needs. However, U.S. operations

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have cash needs well in excess of cash generated in the U.S. The U.S. operations must fund dividend payments, the vast majority of research and development costs and U.S. capital expenditures. In years prior to 2003, overall U.S. cash needs were funded primarily through operations. Following the loss of marketing exclusivity of CLARITIN in December 2002, U.S. profits and cash generation declined materially.

      Cash requirements during 2004 in the U.S. including operating cash needs, capital expenditures, litigation and tax charges, and dividends on common and preferred shares approximated $2.2 billion. The Company borrowed funds and issued equity securities during 2004 as discussed below to finance U.S. operations, and continued to accumulate cash in its foreign-based subsidiaries.

      In 2005, management expects that dividends and capital expenditures on a worldwide basis will again exceed cash generated from operating activities and that U.S. operations will continue to generate negative cash flow. Payments regarding litigation and investigations could increase cash needs. Management expects to fund the overall 2005 U.S. cash flow deficit by using cash and investments currently held by its foreign subsidiaries. The American Jobs Creation Act of 2004, discussed above, will provide the Company with greater financial stability and the ability to fund U.S. cash needs for the intermediate term. Total cash, cash equivalents and short-term investments less total debt was approximately $1.9 billion at December 31, 2004. The Company anticipates this amount to decline in 2005, but remain positive.

      In August 2004 the Company issued 6% mandatory convertible preferred stock (see Note 10 “Shareholders Equity” to the Consolidated Financial Statements) and received net proceeds of $1.4 billion after deducting commissions, discounts and other underwriting expenses. The proceeds were used to reduce short-term commercial paper borrowings, to pay settlement amounts and litigation costs, and fund operating expenses, shareholder dividends and capital expenditures. The preferred stock was issued under the Company’s $2.0 billion shelf registration. As of December 31, 2004, $563 million remains registered and unissued under the shelf registration.

Borrowings and Credit Facilities

      On November 26, 2003, the Company issued $1.25 billion aggregate principal amount of 5.3% senior unsecured notes due 2013 and $1.15 billion aggregate principal amount of 6.5% senior unsecured notes due 2033. Proceeds from this offering of $2.4 billion were used for general corporate purposes, including repaying commercial paper outstanding in the U.S. Upon issuance, the notes were rated A3 by Moody’s Investors Service (Moody’s) and A+ (on Credit Watch with negative implications) by Standard & Poor’s (S&P). The interest rates payable on the notes are subject to adjustment. If the rating assigned to the notes by either Moody’s or S&P is downgraded below A3 or A-, respectively, the interest rate payable on that series of notes would increase. See Note 8 “Short-Term Borrowings, Long-Term Debt and Other Commitments” to the Consolidated Financial Statements for additional information.

      On July 14, 2004, Moody’s lowered its rating on the notes to Baa1. Accordingly, the interest payable on each note increased 25 basis points effective December  1, 2004. Therefore, on December 1, 2004, the interest rate payable on the notes due 2013 increased from 5.3% to 5.55%, and the interest rate payable on the notes due 2033 increased from 6.5% to 6.75%. This adjustment to the interest rate payable on the notes will increase the Company’s interest expense by approximately $6 million annually.

      The Company has two revolving credit facilities totaling $1.5 billion. Both facilities are from a syndicate of major financial institutions. The most recently negotiated facility (May 2004) is a $1.25 billion, five-year credit facility. This facility matures in May 2009 and requires the Company to maintain a total debt to total capital ratio of no more than 60 percent. The second credit facility provides a $250 million line of credit through its maturity date in May 2006 and requires the Company to maintain a total debt to total capital ratio of no more than 60 percent any time the Company is rated at or below Baa3 by Moody’s and BBB- by S&P. These facilities are available for general corporate purposes and are considered as support for the Company’s commercial paper borrowings. These facilities do not require compensating balances; however, a nominal commitment fee is paid. At December 31, 2004, no funds were drawn under either of these facilities.

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      At December 31, 2004, short-term borrowings totaled $1.6 billion. Approximately 93 percent of this was outstanding commercial paper. The commercial paper ratings discussed below have not significantly affected the Company’s ability to issue or rollover its outstanding commercial paper borrowings at this time. However, the Company believes the ability of commercial paper issuers, such as the Company, with one or more short-term credit ratings of P-2 from Moody’s, A-2 from S&P and/or F2 from Fitch Ratings (Fitch) to issue or rollover outstanding commercial paper can, at times, be less than that of companies with higher short-term credit ratings. In addition, the total amount of commercial paper capacity available to such issuers is typically less than that of higher-rated companies. The Company maintains sizable lines of credit with commercial banks, as well as cash and short-term investments held by foreign-based subsidiaries, to serve as alternative sources of liquidity and to support its commercial paper program.

Credit Ratings

      On February 18, 2004, S&P downgraded the Company’s senior unsecured debt ratings to A- from A. At the same time, S&P also lowered the Company’s short-term corporate credit and commercial paper rating to A-2 from A-1. The Company’s S&P rating outlook remains negative.

      On May 11, 2004, the shelf registration, as amended, that allowed the Company to issue up to $2 billion in various debt and equity securities was declared effective by the SEC. On March 3, 2004, S&P assigned the shelf registration a preliminary rating of A- for senior unsecured debt and a preliminary subordinated debt rating of BBB+. As of September 30, 2004, $563 million remains registered and unissued under the shelf registration.

      On April 29, 2004, Moody’s placed the Company’s senior unsecured credit rating of A3 on its Watchlist for possible downgrade based upon concerns related to market share declines, litigation risks and a high degree of reliance on the success of VYTORIN. On July 14, 2004, Moody’s lowered the Company’s senior unsecured credit rating from A3 to Baa1, lowered the Company’s senior unsecured shelf registration rating from (P)A3 to (P)Baa1, lowered the Company’s subordinated shelf registration rating from (P)Baa1 to (P)Baa2, lowered the Company’s cumulative and non-cumulative preferred stock shelf registration rating from (P)Baa2 to (P)Baa3, confirmed the Company’s P-2 commercial paper rating and removed the Company from the Watchlist. Moody’s rating outlook for the Company is negative. See the Borrowings and Credit Facilities section above for a discussion of the impact of Moody’s rating downgrade on the interest rates payable on the Company’s long-term debt.

      On November 20, 2003, Fitch downgraded the Company’s senior unsecured and bank loan ratings to A- from A+, and its commercial paper rating to F-2 from F-1. The Company’s rating outlook remained negative. In announcing the downgrade, Fitch noted that the sales decline in the Company’s leading product franchise, at that time the INTRON franchise, was greater than anticipated, and that it was concerned that total Company growth is reliant on the performance of two key growth drivers, ZETIA and REMICADE, in the near term. On August 4, 2004, Fitch affirmed the Company’s A-senior unsecured rating and bank loan rating and the F-2 commercial paper rating, and reiterated the negative outlook.

      The Company’s credit rating could decline further. The impact of such decline could reduce the availability of commercial paper borrowing and would increase the interest rate on the Company’s long-term debt. As discussed above, the Company believes that the repatriation of funds under the American Jobs Creation Act of 2004 will allow the Company to fund its U.S. cash needs for the intermediate term.

Financial Arrangements Containing Credit Rating Downgrade Triggers

      The Company has an interest rate swap arrangement in effect with a counterparty bank that is subject to credit rating triggers. The arrangement utilizes two long-term interest rate swap contracts, one between a foreign-based subsidiary of the Company and a bank and the other between a U.S. subsidiary of the Company and the same bank. The two contracts have equal and offsetting terms and are covered by a master netting arrangement. The contract involving the foreign-based subsidiary permits the subsidiary to prepay a portion of its future obligation to the bank, and the contract involving the U.S. subsidiary permits the bank to prepay a portion of its future obligation to the U.S. subsidiary. Interest is paid on the prepaid balances by both parties at

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market rates. Prepayments totaling $1.9 billion have been made under both contracts as of December 31, 2004.

      The arrangement originally provided that in the event the Company failed to maintain the required minimum credit ratings, the counterparty may terminate the transaction by designating an early termination date not earlier than 36-months following the date of such notice to terminate. Both S&P’s and Moody’s current credit ratings are below the specified minimum. As of the date of this 10-K, the counterparty has not given the Company notice to terminate.

      On December 1, 2004, the Company and the counterparty mutually agreed to amend the swap contracts. The Company and the counterparty have agreed to a phased termination of the arrangement, including repayment of all prepaid amounts based on an agreed schedule. The scheduled terminations and associated repayment of the prepaid amounts will begin no later than March 30, 2005, and will end no later than January 15, 2009.

      In addition, under the amended agreement, the 36-month grace period that previously applied in the event the counterparty gives notice of termination as a result of the Company’s failure to maintain the required minimum credit ratings has been extended to January 15, 2009. In the event that the counterparty gives the Company a termination notice under this provision, all scheduled terminations and associated payments will continue according to the agreed repayment schedule during the time between delivery of the termination notice and January 15, 2009.

      The provisions in the original arrangement, which also allowed the counterparty to give a 12-month notice to terminate the transaction if, on the 10th anniversary of the transaction (November 17, 2007), the Company’s credit ratings were not at least A2 by Moody’s and A by S&P, have been eliminated. In their place, the Company has accepted a new credit trigger which provides that the counterparty may terminate the transaction should the Company fail to maintain a long-term, U.S. dollar denominated, senior unsecured indebtedness rating of at least BBB by S&P or Baa2 by Moody’s. Termination under this provision would be on the later of November 16, 2007, or 60 days from the date the Company receives such notice to terminate. Should the Company fail to meet the minimum credit requirement resulting in an early termination under this provision, all scheduled swap terminations and associated payments will continue through the termination date.

      The Company may, at its option, accelerate the scheduled terminations and associated payments for a nominal fee. On February 28, 2005, the Company’s foreign-based subsidiary and U.S. subsidiary each gave notice to the counterparty to terminate the arrangement. Accordingly, all prepaid amounts will be repaid by the respective obligor. The Company will repay its U.S. obligation with funds repatriated under the American Jobs Creation Act of 2004 (see above section entitled “Impact of the American Jobs Creation Act”).

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Contractual Obligations

      Payments due by period under the Company’s known contractual obligations at December 31, 2004, are as follows:

		Payments Due By Period
				Less						More
				than						than
		Total		1 Year		1-3 Years		3-5 Years		5 Years
		(Dollars in millions)
Long-term debt obligations(1)		$	2,392	$	—	$	—	$	—	$	2,392
Operating lease obligations			317		80		115		81		41
Purchase obligations:
	Advertising contracts		153		146		7		—		—
	Research contracts(2)		134		129		5		—		—
	Capital expenditure commitments		154		151		3		—		—
	Other purchase orders(3)		998		992		6		—		—
Other recorded long-term liabilities(4)			534		18		20		20		476
Total		$	4,682	$	1,516	$	156	$	101	$	2,909

(1)	Long-term debt obligations include the $1,250 million aggregate principal amount of 5.55 percent senior, unsecured notes due 2013 and $1,150 million aggregate principal amount of 6.75 percent senior, unsecured notes due 2033. See Note 8 “Short-Term Borrowings, Long-Term Debt and Other Commitments” to the Consolidated Financial Statements for additional information.
(2)	Research contracts do not include any potential milestone payments to be made since such payments are contingent on the occurrence of certain events. The table also excludes those research contracts that are cancelable by the Company without penalty.
(3)	Other open purchase orders consist of both cancelable and noncancelable inventory and expense items.
(4)	This caption includes obligations, based on undiscounted amounts, for estimated payments under certain of the Company’s pension plans that do not hold qualified assets and estimated payments under the Company’s deferred compensation plans.

Environmental Matters

      The Company has responsibilities for environmental cleanup under various state, local and federal laws, including the Comprehensive Environmental Response, Compensation and Liability Act, commonly known as Superfund. Environmental expenditures have not had and, based on information currently available, are not anticipated to have a material impact on the Company. See Note 16 “Legal, Environmental and Regulatory Matters” to the Consolidated Financial Statements for additional information.

Additional Factors Influencing Operations

      In the U.S., many of the Company’s pharmaceutical products are subject to increasingly competitive pricing as managed care groups, institutions, government agencies and other groups seek price discounts. In most international markets, the Company operates in an environment of government-mandated cost-containment programs. In the U.S. market, the Company and other pharmaceutical manufacturers are required to provide statutorily defined rebates to various government agencies in order to participate in Medicaid, the veterans’ health care program and other government-funded 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 to control costs.

      Since the Company is unable to predict the final form and timing of any future domestic or international governmental or other health care initiatives, including the passage of laws permitting the importation of pharmaceuticals into the U.S., their effect on operations and cash flows cannot be reasonably estimated.

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Similarly, the effect on operations and cash flows of decisions of government entities, managed care groups and other groups concerning formularies and pharmaceutical reimbursement policies cannot be reasonably estimated.

      The Company cannot predict what net effect the Medicare prescription drug benefit will have on markets and sales. The new Medicare Drug Benefit (Medicare Part D), which will take effect January 1, 2006, will offer voluntary prescription drug coverage, subsidized by Medicare, to over 40 million Medicare beneficiaries through competing private prescription drug plans (PDPs) and Medicare Advantage (MA) plans. Many of the Company’s leading drugs are already covered under Medicare Part B (e.g., TEMODAR, INTEGRILIN and INTRON A). Medicare Part B provides payment for physician services which can include prescription drugs administered incident to a physician’s services. Beginning in 2005 the Medicare Part B drugs will be reimbursed in a manner that may limit Schering-Plough’s ability to offer larger price concessions or make large price increases on these drugs. Other Schering-Plough drugs have a relatively small portion of their sales to the Medicare population (e.g., CLARINEX, the hepatitis C franchise). The Company could experience expanded utilization of VYTORIN and ZETIA and new drugs in the Company’s R&D pipeline. Of greater consequence for the Company may be the legislation’s impact on pricing, rebates and discounts.

      A significant portion of net sales is made to major pharmaceutical and health care products distributors and major retail chains in the U.S. 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.

      The market for pharmaceutical products is competitive. The Company’s operations may be affected by technological advances of competitors, industry consolidation, patents granted to competitors, new products of competitors, new information from clinical trials of marketed products or post-marketing surveillance and generic competition as the Company’s products mature. In addition, patent positions are increasingly being challenged by competitors, and the outcome can be highly uncertain. 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.

      The Company launched OTC CLARITIN in the U.S. in December 2002. Also in December 2002, a competing OTC loratadine product was launched in the U.S. and private-label competition was introduced.

      The Company continues to market CLARINEX (desloratadine) 5 mg Tablets for the treatment of allergic rhinitis, which combines the indication of seasonal allergic rhinitis with the indication of perennial allergic rhinitis, as well as the treatment of chronic idiopathic urticaria, or hives of unknown cause. The ability of the Company to capture and maintain market share for CLARINEX and OTC CLARITIN in the U.S. market will depend on a number of factors, including: additional entrants in the market for allergy treatments; clinical differentiation of CLARINEX from other allergy treatments and the perception of the extent of such differentiation in the marketplace; the pricing differentials among OTC CLARITIN, CLARINEX, other allergy treatments and generic OTC loratadine; the erosion rate of OTC CLARITIN and CLARINEX sales upon the entry of additional generic OTC loratadine products; and whether or not one or both of the other branded second-generation antihistamines are switched from prescription to OTC status. CLARINEX is experiencing intense competition in the prescription U.S. allergy market. The prescription allergy market has been shrinking since the OTC switch of CLARITIN in December 2002. Additionally, the Company is implementing new marketing efforts to address market share performance for CLARINEX.

      The switch of CLARITIN to OTC status and the introduction of competing OTC loratadine have resulted in a rapid, sharp and material decline in CLARITIN sales in the U.S. and the Company’s results of operations. U.S. sales of prescription CLARITIN products were $25 million or 0.3 percent of the Company’s consolidated global sales in 2003 and $1.4 billion or 14 percent in 2002. Sales of CLARINEX in the U.S. and abroad have also been materially adversely affected by the presence of generic OTC loratadine and OTC CLARITIN. In light of the factors described above, management believes that the Company’s December 2002 introduction of OTC CLARITIN, as well as the introduction of a competing OTC loratadine product in December 2002 and additional entrants of generic OTC loratadine products in the market, have had a rapid, sharp and material adverse effect on the Company’s results of operations in 2003 and 2004.

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      PEG-INTRON and REBETOL combination therapy for hepatitis C has contributed substantially to sales in 2003 and 2002 and to a lesser extent in 2004. During the fourth quarter of 2002, a competing pegylated interferon-based combination product, including a brand of ribavirin, received regulatory approval in most major markets, including the U.S. The overall market share of the hepatitis C franchise has declined sharply, reflecting this new market competition. In addition, the overall market value has contracted. Management believes that the ability of PEG-INTRON and REBETOL combination therapy to maintain market share will continue to be adversely affected by competition in the hepatitis C marketplace.

      Generic forms of ribavirin entered the U.S. market in April 2004. In October 2004, another generic ribavirin was approved by the FDA. The generic forms of ribavirin compete with the Company’s REBETOL (ribavirin) Capsules in the U.S. Prior to the second half of 2004 the REBETOL patents were material to the Company’s business.

      As a result of the introduction of a competitor for pegylated interferon and the introduction of generic ribavirin, the value of an important Company product franchise has been severely diminished and earnings and cash flow have been materially and negatively impacted.

      In October 2002, Merck/ Schering-Plough Pharmaceuticals announced that the FDA approved ZETIA (ezetimibe) 10 mg for use either by itself or together with statins for the treatment of elevated cholesterol levels. In March 2003, the Company announced that ezetimibe (EZETROL, as marketed in Europe) had successfully completed the European Union (EU) mutual recognition procedure (MRP). With the completion of the MRP process, the 15 EU member states as well as Iceland and Norway can grant national marketing authorization with unified labeling for EZETROL. EZETROL has been launched in many international markets.

      The Merck/ Schering-Plough partnership also developed a once-daily tablet combining ezetimibe with simvastatin (Zocor), Merck’s cholesterol-modifying medicine. This product is marketed as VYTORIN in the U.S. and INEGY in many international markets. Ezetimibe/simvastatin has been approved for marketing in several countries, including Germany in April of 2004 and in Mexico in March of 2004. On July 23, 2004, Merck/ Schering-Plough Pharmaceuticals announced that the FDA had approved VYTORIN. INEGY completed the MRP in Europe on October 1, 2004.

      In September 2004, the Company announced that it entered into an agreement with Bayer intended to enhance the companies’ pharmaceutical resources. The agreement was entered into by the Company primarily for strategic purposes.

      Commencing in October 2004, in the U.S. and Puerto Rico, the Company began marketing, selling and distributing Bayer’s primary care products including AVELOX and CIPRO under an exclusive license agreement. The Company will pay Bayer royalties in excess of 50 percent on these products based on sales, which will have an unfavorable impact on the Company’s gross margin percentage.

      Also commencing in October 2004, the Company assumed Bayer’s responsibilities for U.S. commercialization activities related to the erectile dysfunction medicine LEVITRA under Bayer’s co-promotion agreement with GlaxoSmithKline PLC. The Company reports its share of LEVITRA results as alliance revenue.

      Additionally, under the terms of the agreement, Bayer supports the promotion of certain of the Company’s oncology products in the U.S. and key European markets for a defined period of time.

      In Japan, upon regulatory approval Bayer will co-market the Company’s cholesterol absorption inhibitor ZETIA. This arrangement does not include the rights to any future cholesterol combination product. ZETIA was filed with regulatory authorities in Japan during the fourth quarter of 2003.

      This agreement with Bayer potentially restricts the Company from marketing products in the U.S. that would compete with any of the products under the strategic alliance. As a result, the Company expects that it may need to sublicense rights to garenoxacin, the quinolone antibacterial agent that the Company licensed from Toyama. The Company is exploring its options with regard to garenoxacin and will continue to fulfill its commitments to Toyama under its arrangement, including taking the product through regulatory approval.

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      Uncertainties inherent in government regulatory approval processes, including, among other things, delays in approval of new products, formulations or indications, may also affect the Company’s operations. The effect of regulatory approval processes on operations cannot be predicted.

      The Company is subject to the jurisdiction of various national, state and local regulatory agencies and is, therefore, subject to potential administrative actions. Of particular importance is the FDA in the U.S. It has jurisdiction over all the Company’s businesses and administers requirements covering the testing, safety, effectiveness, approval, manufacturing, labeling and marketing of the Company’s products. From time to time, agencies, including the FDA, may require the Company to address various manufacturing, advertising, labeling or other regulatory issues, such as those noted below relating to the Company’s current manufacturing issues. Failure to comply with governmental regulations can result in delays in the release of products, seizure or recall of products, suspension or revocation of the authority necessary for the production and sale of products, discontinuance of products, fines and other civil or criminal sanctions. Any such result could have a material adverse effect on the Company’s financial position and its results of operations. Additional information regarding government regulation that may affect future results is provided in Part I, Item I, Business, in this annual report on Form 10-K. Additional information about cautionary factors that may affect future results is provided under the caption Cautionary Factors That May Affect Future Results (Cautionary Statements Under the Private Securities Litigation Reform Act of 1995) in this Management’s Discussion and Analysis of Operations and Financial Condition.

      As included in Note 14 “Consent Decree,” to the Consolidated Financial Statements, on May 17, 2002, the Company announced that it had reached an agreement with the FDA for a consent decree to resolve issues involving the Company’s compliance with current Good Manufacturing Practices at certain manufacturing facilities in New Jersey and Puerto Rico. The U.S. District Court for the District of New Jersey approved and entered the consent decree on May  20, 2002.

      Under terms of the consent decree, the Company agreed to pay a total of $500 million to the U.S. government in two equal installments of $250 million; the first installment was paid in May 2002 and the second installment was paid in May 2003. As previously reported, the Company accrued a $500 million provision for this consent decree in the fourth quarter of 2001.

      The consent decree requires the Company to complete a number of actions. In the event certain actions agreed upon in the consent decree are not satisfactorily completed on time, the FDA may assess payments for each deadline missed. The consent decree required the Company to develop and submit for the FDA’s concurrence comprehensive cGMP Work Plans for the Company’s manufacturing facilities in New Jersey and Puerto Rico that are covered by the decree. The Company received FDA concurrence with its proposed cGMP Work Plans on May 14, 2003. The cGMP Work Plans contain a number of Significant Steps whose timely and satisfactory completion are subject to payments of $15,000 per business day for each deadline missed. These payments may not exceed $25 million for 2002, and $50 million for each of the years 2003, 2004 and 2005. These payments are subject to an overall cap of $175 million.

      In connection with its discussions with the FDA regarding the Company’s cGMP Work Plans, and pursuant to the terms of the decree, the Company and the FDA entered into a letter agreement dated April 14, 2003. In the letter agreement, the Company and the FDA agreed to extend by six months the time period during which the Company may incur payments as described above with respect to certain of the Significant Steps whose due dates are December 31, 2005. The letter agreement does not increase the yearly or overall caps on payments described above.

      In addition, the decree requires the Company to complete programs of revalidation of the finished drug products and bulk active pharmaceutical ingredients manufactured at the covered manufacturing facilities. The Company is required under the consent decree to complete its revalidation programs for bulk active pharmaceutical ingredients by September 30, 2005, and for finished drugs by December 31, 2005. In general, the timely and satisfactory completions of the revalidations are subject to payments of $15,000 per business day for each deadline missed, subject to the caps described above. However, if a product scheduled for revalidation has not been certified as having been validated by the last date on the validation schedule, the FDA may assess a payment of 24.6 percent of the net domestic sales of the uncertified product until the

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validation is certified. Any such payment would not be subject to the caps described above. Further, in general, if a product scheduled for revalidation under the consent decree is not certified within six months of its scheduled date, the Company must cease production of that product until certification is obtained. The completion of the Significant Steps in the Work Plans and the completion of the revalidation programs are subject to third-party expert certification, as well as the FDA’s acceptance of such certification.

      The consent decree provides that if the Company believes that it may not be able to meet a deadline, the Company has the right, upon the showing of good cause, to request extensions of deadlines in connection with the cGMP Work Plans and revalidation programs. However, there is no guarantee that FDA will grant any such requests.

      Although the Company believes it has made significant progress in meeting its obligations under the consent decree, it is possible that (1) the Company may fail to complete a Significant Step or a revalidation by the prescribed deadline; (2) the third-party expert may not certify the completion of the Significant Step or revalidation; or (3) the FDA may disagree with an expert’s certification of a Significant Step or revalidation. In such a case, it is possible that the FDA may assess payments as described above.

      The Company would expense any payments assessed under the decree if and when incurred.

      In addition, the failure to meet the terms of the consent decree could result in delays in approval of new 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.

      In April 2003, the Company received notice of a False Claims Act complaint brought by an individual purporting to act on behalf of the U.S. government against it and approximately 25 other pharmaceutical companies in the U.S. District Court for the Northern District of Texas. The complaint alleges that the pharmaceutical companies, including the Company, have defrauded the U.S. by having made sales to various federal governmental agencies of drugs that were allegedly manufactured in a manner that did not comply with current Good Manufacturing Practices. The Company and the other defendants filed a motion to dismiss the second amended complaint in this action on April 12, 2004.

      The Company is subject to pharmacovigilance reporting requirements in many countries and other jurisdictions, including the U.S., the European Union (EU) and the EU member states. The requirements differ from jurisdiction to jurisdiction, but all include requirements for reporting adverse events that occur while a patient is using a particular drug in order to alert the manufacturer of the drug and the governmental agency to potential problems.

      During 2003 pharmacovigilance inspections by officials of the British and French medicines agencies conducted at the request of the European Agency for the Evaluation of Medicinal Products (EMEA), serious deficiencies in reporting processes were identified. The Company is taking urgent actions to rectify these deficiencies as quickly as possible. The Company does not know what action, if any, the EMEA or national authorities will take in response to these findings. Possible actions include further inspections, demands for improvements in reporting systems, criminal sanctions against the Company and/or responsible individuals and changes in the conditions of marketing authorizations for the Company’s products.

      The Company sells numerous upper respiratory products which contain pseudoephedrine (PSE), an FDA-approved ingredient for the relief of nasal congestion. The Company’s annual sales of upper respiratory products that contain PSE totaled approximately $195 million in 2004 and approximately $160 million in 2003. These products include all CLARITIN-D products as well as some DRIXORAL, CORICIDIN and CHLOR-TRIMETON products. The Company understands that PSE has been used in the illicit manufacture of methamphetamine, a dangerous and addictive drug. As of February 2005, 12 states and Canada have enacted regulations concerning the sale of PSE, including limiting the amount of these products that can be purchased at one time, or requiring that these products be located behind the pharmacist’s counter, with the stated goal of deterring the illicit/illegal manufacture of methamphetamine. An additional eight states have enacted limits on the quantity of PSE any person can possess. To date, the regulations have not had a material impact on the Company’s operations or financial results.

39

      As described more specifically in Note 16 “Legal, Environmental and Regulatory Matters” to the Consolidated Financial Statements, the pricing, sales and marketing programs and arrangements, and related business practices of the Company and other participants in the health care industry are under increasing scrutiny from federal and state regulatory, investigative, prosecutorial and administrative entities. These entities include the Department of Justice and its U.S. Attorney’s Offices, the Office of Inspector General of the Department of Health and Human Services, the FDA, the Federal Trade Commission (FTC) and various state Attorneys General offices. Many of the health care laws under which certain of these governmental entities operate, including the federal and state anti-kickback statutes and statutory and common law false claims laws, have been construed broadly by the courts and permit the government entities to exercise significant discretion. In the event that any of those governmental entities believes that wrongdoing has occurred, one or more of them could institute civil or criminal proceedings, which, if instituted and resolved unfavorably, could subject the Company to substantial fines, penalties and injunctive or administrative remedies, including exclusion from government reimbursement programs, and the Company also cannot predict whether any investigations will affect its marketing practices or sales. Any such result could have a material adverse impact on the Company, its financial condition, cash flows or results of operations.

Impact of Recently Issued Accounting Standards

      In November 2004, the FASB issued Statement of Financial Accounting Standard (SFAS) 151 Inventory Costs. This SFAS requires that abnormal spoilage be expensed in the period incurred (as opposed to inventoried and amortized to income over inventory usage) and that fixed production facility overhead costs be allocated over the normal production level of a facility. This SFAS is effective for inventory costs incurred for annual periods beginning after June 15, 2005. The Company does not anticipate any material impact from the implementation of this accounting standard.

      In December 2004 the FASB issued SFAS 123R (Revised 2004) Share Based Payment. Statement 123R requires companies to recognize compensation expense in an amount equal to the fair value of all share-based payments granted to employees. Companies are required to implement this SFAS in July 2005 by recognizing compensation on all share-based grants made after July 1, 2005, and for the unvested portion of share-based grants made prior to July 1, 2005. Restatement of previously issued statements is allowed, but not required. The Company is currently evaluating the various implementation options available and related financial impacts under SFAS 123R.

Critical Accounting Policies

      The following accounting policies are considered significant because changes to certain judgments and assumptions inherent in these policies could affect the Company’s financial statements:

•  Revenue Recognition

•  Rebates, Discounts and Returns

•  Provision for Income Taxes

•  Impairment of Intangible Assets and Property

•  Accounting for Legal and Regulatory Matters

Revenue Recognition

      The Company’s pharmaceutical products are sold to direct purchasers (e.g., wholesalers, retailers and certain health maintenance organizations). Price discounts and rebates on such sales are paid to federal and state agencies as well as to indirect purchasers and other market participants (e.g., managed care organizations that indemnify beneficiaries of health plans for their pharmaceutical costs and pharmacy benefit managers).

40

      The Company recognizes revenue when title and risk of loss pass to the purchaser and when reliable estimates of the following can be determined:

      i. commercial discount and rebate arrangements;

      ii. rebate obligations under certain Federal and state governmental programs and;

      iii. sales returns in the normal course of business.

      When recognizing revenue, the Company estimates and records the applicable commercial and governmental discounts and rebates as well as sales returns that have been or are expected to be granted or made for products sold during the period. These amounts are deducted from sales for that period. Estimates recorded in prior periods are re-evaluated as part of this process. If reliable estimates of these items cannot be made, the Company defers the recognition of revenue.

      Revenue recognition for new products is based on specific facts and circumstances including estimated acceptance rates from established products with similar marketing characteristics. Absent the ability to make reliable estimates of rebates, discounts and returns, the Company would defer revenue recognition.

      Product discounts granted are based on the terms of arrangements with direct, indirect and other market participants as well as market conditions, including prices charged by competitors. Rebates are estimated based on sales terms, historical experience, trend analysis and projected market conditions in the various markets served. The Company evaluates market conditions for products or groups of products primarily through the analysis of wholesaler and other third-party sell-through and market research data as well as internally generated information. Data and information provided by purchasers and obtained from third parties are subject to inherent limitations as to their accuracy and validity.

      Sales returns are generally estimated and recorded based on historical sales and returns information, analysis of recent wholesale purchase information, consideration of stocking levels at wholesalers and forecasted demand amounts. Products that exhibit unusual sales or return patterns due to dating, competition or other marketing matters are specifically investigated and analyzed as part of the formulation of accruals.

      During 2004, the Company entered into agreements with the major U.S. pharmaceutical wholesalers. These agreements deal with a number of commercial issues, such as product returns, timing of payment, processing of chargebacks and the quantity of inventory held by these wholesalers. With respect to the quantity of inventory held by these wholesalers, these agreements provide a financial disincentive for these wholesalers to acquire quantities of product in excess of what is necessary to meet current patient demand. Through the use of this monitoring and the above noted agreements, the Company expects to avoid situations where the Company’s shipments of product are not reflective of current demand.

Rebates, Discounts and Returns

      Rebate accruals for federal and state governmental programs were $155 million at December 31, 2004, and $127 million at December 31, 2003. Commercial discounts and other rebate accruals were $123 million at December 31, 2004, and $211 million at December 31, 2003, respectively. These and other rebate accruals are established in the period the related revenue was recognized, resulting in a reduction to sales and the establishment of a liability, which is included in other accrued liabilities.

      In the case of the governmental rebate programs, the Company’s payments involve interpretations of relevant statutes and regulations. These interpretations are subject to challenges and changes in interpretive guidance by governmental authorities. The result of such a challenge or change could affect whether the estimated governmental rebate amounts are ultimately sufficient to satisfy the Company’s obligations. Additional information on governmental inquiries focused in part on the calculation of rebates is contained in Note 16 “Legal, Environmental and Regulatory Matters” to the Consolidated Financial Statements. In addition, it is possible that, as a result of governmental challenges or changes in interpretive guidance, actual rebates could materially exceed amounts accrued.

41

      The following summarizes the activity in the accounts related to accrued rebates, sales returns and discounts:

	Year Ended
	December 31, 2004
	(Dollars
	in millions)
Accrued Rebates/ Returns/ Discounts, Beginning of Period	$	487
Provision for Rebates		417
Payments		(476	)
		(59	)
Provision for Returns		17
Returns		(39	)
		(22	)
Provision for Discounts		282
Discounts granted		(256	)
		26
Accrued Rebates/ Returns/ Discounts, End of Period	$	432

      Management makes estimates and uses assumptions in recording the above accruals. Actual amounts paid in the current period were consistent with those previously estimated.

Provision for Income Taxes

      As of December 31, 2004, taxes have not been provided on approximately $2.2 billion of undistributed earnings of foreign subsidiaries, after considering the impact of the American Jobs Creation Act of 2004. If certain assets associated with these earnings are repatriated to the U.S., additional tax provisions may be necessary.

      Tax contingencies are recorded to address potential exposures involving tax positions taken that could be challenged by taxing authorities. These potential exposures result from the varying application of statutes, rules, regulations and interpretations, including (1) intercompany terms of cross-border agreements between affiliates, for which management believes its intercompany terms are based on sound economic facts and circumstances and (2) utilization of cash held by foreign subsidiaries (investment in U.S. property). The Company’s estimate of the accrual for tax contingencies contains assumptions based on past experiences and judgments about potential actions by taxing jurisdictions. It is reasonably possible that the ultimate resolution of any tax matters may be materially greater or less than the amounts accrued.

      The Company records a tax valuation allowance to reduce its deferred tax assets to the amount that is more likely than not to be realized. The Company has considered ongoing prudent and feasible tax planning strategies in assessing the need for a valuation allowance. In the event the Company were to determine that it would be able to realize all or a portion of its net deferred tax assets, an adjustment to the deferred tax asset would increase income in the period such determination would be made. Likewise, should the Company subsequently determine that it would not be able to realize all or a portion of its net deferred tax asset in the future, an adjustment to the deferred tax asset would be charged to income in the period such determination was made.

Impairment of Intangible Assets and Property

      Intangible assets representing the capitalized costs of purchased goodwill, patents, licenses and other forms of intellectual property totaled $580 million at December 31, 2004. Annual amortization expense in each of the next five years is estimated to be approximately $50 million per year based on the intangible assets recorded as of December 31, 2004. The value of these assets is subject to continuing scientific, medical and

42

marketplace uncertainty. For example, if a marketed pharmaceutical product were to be withdrawn from the market for safety reasons or if marketing of a product could only occur with pronounced warnings, amounts capitalized for such a product may need to be reduced due to impairment. Events giving rise to impairment are an inherent risk in the pharmaceutical industry and cannot be predicted. Management regularly reviews intangible assets for possible impairment.

      The Company’s manufacturing sites operate well below optimum levels due to sales declines and the reduction in output related to the FDA consent decree. At the same time, overall costs of operating manufacturing sites have increased due to the consent decree and other compliance activities. The impact of this is a material increase in manufacturing costs. The Company continues to review the carrying value of these assets for indications of impairment. Future events and decisions may lead to asset impairments and/or related costs.

Accounting for Legal and Regulatory Matters

      Management judgments and estimates are also required in the accounting for legal and regulatory matters. In particular, the Company has recognized estimated minimum liabilities in connection with certain of the government investigations into its sales and marketing activities. The ultimate resolution of this matter could involve amounts materially in excess of amounts accrued. This could have a material adverse impact on the Company’s financial condition, cash flows or operations. See Note 16 “Legal, Environmental and Regulatory Matters” to the Consolidated Financial Statements.

Market Risk Disclosure

      The Company is exposed to market risk primarily from changes in foreign currency exchange rates and, to a lesser extent, from interest rates and equity prices. The following describes the nature of these risks.

Foreign Currency Exchange Risk

      The Company has subsidiaries in more than 50 countries. In 2004, sales outside the U.S. accounted for approximately 61 percent of global sales. Virtually all these sales were denominated in currencies of the local country. As such, the Company’s reported profits and cash flows are exposed to changing exchange rates.

      To date, management has not deemed it cost effective to engage in a formula-based program of hedging the profits and cash flows of foreign operations using derivative financial instruments. Because the Company’s foreign subsidiaries purchase significant quantities of inventory payable in U.S. dollars, managing the level of inventory and related payables and the rate of inventory turnover provides a level of protection against adverse changes in exchange rates. The risk of adverse exchange rate change is also mitigated by the fact that the Company’s foreign operations are widespread.

      In addition, at any point in time, the Company’s foreign subsidiaries hold financial assets and liabilities that are denominated in currencies other than U.S. dollars. These financial assets and liabilities consist primarily of short-term, third-party and intercompany receivables and payables. Changes in exchange rates affect these financial assets and liabilities. Gains or losses that arise from translation do not affect net income.

      On occasion, the Company has used derivatives to hedge specific short-term risk situations involving foreign currency exposures. However, these derivative transactions have not been material.

Interest Rate and Equity Price Risk

      The only financial assets exposed to changes in interest rates and/or equity prices are the debt and equity securities held in non-qualified trusts for employee benefits. These assets totaled $153 million at December 31, 2004. Due to the long-term nature of the liabilities that these trust assets will fund, the Company’s exposure to market risk is deemed to be low.

      Financial obligations exposed to variability in interest expense are long-term and short-term borrowings. The Company maintains a cash and cash equivalent portfolio in excess of the amount of borrowings.

43

Accordingly, the Company has mitigated its exposure for changes in interest rates relating to its financial obligations.

      The Company has long-term debt outstanding, on which a 10 percent decrease in interest rates would change the fair value of the debt by $127 million. However, the Company does not expect to refund this debt.

Disclosure Notice

      Cautionary Factors That May Affect Future Results (Cautionary Statements Under the Private Securities Litigation Reform Act of 1995)

      Management’s Discussion and Analysis of Financial Condition and Results of Operations and other sections of this report and other written reports and oral statements made from time to time by the Company 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, ability to access the capital markets, prospective products, the status of product approvals, future performance or results of current and anticipated products, sales efforts, development programs, estimates of rebates, discounts and returns, expenses and programs to reduce expenses, the cost of and savings from reductions in work force, the outcome of contingencies such as litigation and investigations, growth strategy and financial results.

      Any or all forward-looking statements here or in other publications may turn out to be wrong. Actual results may vary materially, and there are no guarantees about Schering-Plough’s financial and operational performance or the performance of Schering-Plough stock. Schering-Plough does not assume the obligation to update any forward-looking statement.

      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:

•  A significant portion of net sales are made to major pharmaceutical and health care products distributors and major retail chains in the U.S. 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.

•  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, and new and existing generic, prescription and/or OTC products that compete with products of Schering-Plough or the Merck/ Schering-Plough Pharmaceuticals joint venture (such as competition from OTC statins, like the one approved for use in the U.K., the impact of which in the cholesterol reduction market is not yet known).

•  Increased pricing pressure both in the U.S. and abroad from managed care organizations, institutions and government agencies and programs. In the U.S., 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.

•  The potential impact of the Medicare Prescription Drug, Improvement and Modernization Act of 2003; possible other U.S. legislation or regulatory action affecting, among other things, pharmaceutical pricing and reimbursement, including Medicaid and Medicare; involuntary approval of prescription medicines for over-the- counter use; and other health care reform initiatives and drug importation

44

	legislation. Legislation or regulations in markets outside the U.S. affecting product pricing, reimbursement or access. Laws and regulations relating to trade, antitrust, monetary and fiscal policies, taxes, price controls and possible nationalization.
•	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.
•	Uncertainties of the FDA approval process and the regulatory approval and review processes in other countries, including, without limitation, delays in approval of new products.
•	Failure to meet current 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 Schering-Plough’s 10-Ks, 10-Qs and 8-Ks 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.
•	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.
•	Post-marketing issues. Once a product is approved and marketed, clinical trials of marketed products or post-marketing surveillance may raise efficacy or safety concerns. Whether or not scientifically justified, this new information could lead to recalls, withdrawals or adverse labeling of marketed products, which may negatively impact sales. Concerns of prescribers or patients relating to the safety or efficacy of Schering-Plough products, or other companies’ products or pharmaceutical products generally, may also negatively impact sales.
•	Major products such as CLARITIN, CLARINEX, INTRON A, PEG-INTRON, REBETOL Capsules, REMICADE, TEMODAR and NASONEX accounted for a material portion of Schering-Plough’s 2004 revenues. If any major product were to become subject to a problem such as loss of patent protection, OTC availability of the Company’s product or a competitive product (as has been disclosed for CLARITIN and its current and potential OTC competition), previously unknown side effects; if a new, more effective treatment should be introduced; generic availability of competitive products; or if the product is discontinued for any reason, the impact on revenues could be significant. Also, such information about important new products, such as ZETIA and VYTORIN, or important products in our pipeline, may impact future revenues. Further, sales of VYTORIN may negatively impact sales of ZETIA.
•	Unfavorable outcomes of government (local and federal, domestic and international) investigations, litigation about product pricing, product liability claims, other litigation and environmental concerns could preclude commercialization of products, negatively affect the profitability of existing products, materially and adversely impact Schering-Plough’s financial condition and results of operations, or contain conditions that impact business operations, such as exclusion from government reimbursement programs.
•	Economic factors over which Schering-Plough has no control, including changes in inflation, interest rates and foreign currency exchange rates.

45

•  Instability, disruption or destruction in a significant geographic region — due to the location of 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, storm or disease.

•  Changes in tax laws including changes related to taxation of foreign earnings.

•  Changes in accounting and auditing standards promulgated by the American Institute of Certified Public Accountants, the Financial Accounting Standards Board, the SEC, or the Public Company Accounting Oversight Board 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 past and future SEC reports and filings.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

      See the Market Risk Disclosures as set forth in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operation

46

Item 8.      Financial Statements and Supplementary Data

Index to Financial Statements

Statements of Consolidated Operations for the Years Ended December 31, 2004, 2003 and 2002	48
Statements of Consolidated Cash Flows for the Years Ended December 31, 2004, 2003 and 2002	49
Consolidated Balance Sheets at December 31, 2004 and 2003	50
Statements of Consolidated Shareholders’ Equity for the Years Ended December 31, 2004, 2003 and 2002	51
Notes to Consolidated Financial Statements	52
Report of Independent Registered Public Accounting Firm	84

47

SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES

STATEMENTS OF CONSOLIDATED OPERATIONS

	For the Years Ended December 31,
(Amounts in millions, except per share figures)	2004			2003			2002
Net sales	$	8,272		$	8,334		$	10,180
Cost of sales		3,070			2,833			2,505
Selling, general and administrative		3,811			3,474			3,681
Research and development		1,607			1,469			1,425
Other expense (income), net		146			59			(144	)
Special charges		153			599			150
Equity income from cholesterol joint venture		(347	)		(54	)		—
(Loss)/income before income taxes		(168	)		(46	)		2,563
Income tax expense		779			46			589
Net (loss)/income	$	(947	)	$	(92	)	$	1,974
Preferred stock dividends		34			—			—
Net (loss)/income available to common shareholders	$	(981	)	$	(92	)	$	1,974
Diluted (loss)/earnings per common share	$	(.67	)	$	(.06	)	$	1.34
Basic (loss)/earnings per common share	$	(.67	)	$	(.06	)	$	1.35

The accompanying notes are an integral part of these Consolidated Financial Statements.

48

SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES

STATEMENTS OF CONSOLIDATED CASH FLOWS

		For the Years Ended
		December 31,
(Amounts in millions)		2004			2003			2002
Operating Activities:
Net (loss)/income		$	(947	)	$	(92	)	$	1,974
Adjustments to reconcile net (loss)/income to net cash (used for) provided by operating activities:
	Tax refund from U.S. loss carryback		404			—			—
	Payments of additional U.S. tax		(473	)		—			—
	Special charges		(265	)		593			150
	Depreciation and amortization		453			417			372
Changes in assets and liabilities:
	Accounts receivable		(7	)		603			7
	Inventories		92			(152	)		(248	)
	Prepaid expenses and other assets		174			(259	)		(242	)
	Accounts payable and other liabilities		174			(668	)		(56	)
	Income taxes payable		241			159			23
Net cash (used for) provided by operating activities			(154	)		601			1,980
Investing Activities:
Capital expenditures			(489	)		(711	)		(776	)
Dispositions of property and equipment			7			10			6
Proceeds from transfer of license			118			—			—
Purchases of investments			(264	)		(153	)		(482	)
Reduction of investments			—			70			303
Other, net			7			(6	)		(19	)
Net cash used for investing activities			(621	)		(790	)		(968	)
Financing Activities:
Cash dividends paid to common shareholders			(324	)		(830	)		(983	)
Cash dividends paid to preferred shareholders			(30	)		—			—
Proceeds from preferred stock issuance, net			1,394			—			—
Net change in short-term borrowings			546			(399	)		770
Issuance of long-term debt			—			2,369			—
Reductions of long-term debt			(18	)		—			—
Other, net			(34	)		(258	)		13
Net cash provided by (used for) financing activities			1,534			882			(200	)
Effect of exchange rates on cash and cash equivalents			7			4			(7	)
Net increase in cash and cash equivalents			766			697			805
Cash and cash equivalents, beginning of year			4,218			3,521			2,716
Cash and cash equivalents, end of year		$	4,984		$	4,218		$	3,521

The accompanying notes are an integral part of these Consolidated Financial Statements.

49

SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	At December 31,
(Amounts in millions, except per share figures)	2004			2003
ASSETS
Current Assets:
Cash and cash equivalents	$	4,984		$	4,218
Short-term investments		851			587
Accounts receivable, less allowances: 2004, $173; 2003, $116		1,407			1,329
Inventories		1,580			1,651
Deferred income taxes		309			575
Prepaid expenses and other current assets		872			890
Total current assets		10,003			9,250
Property, at cost:
Land		79			78
Buildings and improvements		3,198			3,009
Equipment		2,999			2,911
Construction in progress		809			819
Total		7,085			6,817
Less accumulated depreciation		2,492			2,290
Property, net		4,593			4,527
Goodwill		209			212
Other intangible assets, net		371			407
Other assets		735			875
Total assets	$	15,911		$	15,271
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	978		$	1,030
Short-term borrowings and current portion of long-term debt		1,569			1,023
U.S., foreign and state income taxes		858			1,008
Accrued compensation		484			315
Other accrued liabilities		1,319			1,429
Total current liabilities		5,208			4,805
Long-term Liabilities:
Long-term debt		2,392			2,410
Deferred income taxes		111			207
Other long-term liabilities		644			512
Total long-term liabilities		3,147			3,129
Commitments and contingent liabilities (Note 16)
Shareholders’ Equity:
Mandatory convertible preferred shares — $1 par value; issued: 29; $50 per share face value		1,438			—
Common shares — authorized shares: 2,400, $.50 par value; issued: 2,030		1,015			1,015
Paid-in capital		1,234			1,272
Retained earnings		9,613			10,918
Accumulated other comprehensive income		(300	)		(426	)
Total		13,000			12,779
Less treasury shares: 2004, 555; 2003, 559; at cost		5,444			5,442
Total shareholders’ equity		7,556			7,337
Total liabilities and shareholders’ equity	$	15,911		$	15,271

The accompanying notes are an integral part of these Consolidated Financial Statements.

50

SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES

STATEMENTS OF CONSOLIDATED SHAREHOLDERS’ EQUITY

														Accumulated
	Mandatory													Other			Total
	Convertible													Compre-			Share-
	Preferred		Common		Paid-in			Retained			Treasury			hensive			holders’
(Amounts in millions)	Shares		Shares		Capital			Earnings			Shares			Income			Equity
Balance January 1, 2002		—	$	1,015	$	1,112		$	10,849		$	(5,428	)	$	(423	)	$	7,125
Comprehensive income:
Net income									1,974									1,974
Foreign currency translation															5			5
Minimum pension liability, net of tax															(18	)		(18	)
Realized gain reclassified to income, net of tax															(28	)		(28	)
Other															(13	)		(13	)
Total comprehensive income																		1,920
Cash dividends on common shares									(983	)								(983	)
Stock incentive plans						91						(11	)					80
Balance December 31, 2002		—		1,015		1,203			11,840			(5,439	)		(477	)		8,142
Comprehensive income:
Net loss									(92	)								(92	)
Foreign currency translation															218			218
Minimum pension liability, net of tax															(178	)		(178	)
Unrealized gain on investments available for sale, net of tax															13			13
Other															(2	)		(2	)
Total comprehensive income (loss)																		(41	)
Cash dividends on common shares									(830	)								(830	)
Stock incentive plans						69						(3	)					66
Balance December 31, 2003		—		1,015		1,272			10,918			(5,442	)		(426	)		7,337
Comprehensive income:
Net loss									(947	)								(947	)
Foreign currency translation															107			107
Minimum pension liability															14			14
Unrealized gain on investments available for sale															5			5
Total comprehensive income (loss)																		(821	)
Issuance of preferred stock		1,438				(44	)											1,394
Cash dividends on common shares									(324	)								(324	)
Dividends on preferred shares									(34	)								(34	)
Stock incentive plans						6						(2	)					4
Balance December 31, 2004	$	1,438	$	1,015	$	1,234		$	9,613		$	(5,444	)	$	(300	)	$	7,556

The accompanying notes are an integral part of these Consolidated Financial Statements.

51

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions, except per share figures)

1.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

      Principles of Consolidation: The consolidated financial statements include Schering-Plough Corporation and its subsidiaries (the Company). Intercompany balances and transactions are eliminated. Certain prior year amounts have been reclassified to conform to the current year presentation.

      Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and use assumptions that affect certain reported amounts and disclosures. Actual amounts may differ.

      Equity Method of Accounting: The Company accounts for its interest in the Merck & Co., Inc. (Merck) joint venture using the equity method of accounting as the Company has significant influence over operating and financial policies. Accordingly, the Company’s share of earnings in the Merck joint venture is included in consolidated net (loss)/income. Revenue from the sales of VYTORIN and ZETIA are recognized by the joint venture when title and risk of loss has passed to the customer. Equity income from the joint venture excludes any profit arising from transactions between the Company and the joint venture until such time as there is an underlying profit realized by the joint venture in a transaction with a party other than the Company or Merck. See Note 3 “Equity Income From Cholesterol Joint Venture” for information regarding this joint venture.

      Cash and Cash Equivalents: Cash and cash equivalents include operating cash and highly liquid investments, generally with original maturities of three months or less. Included in cash and cash equivalents is approximately $72 and $40 in restricted cash at December 31, 2004 and 2003 respectively.

      Investments: Investments are carried at their market value and all are classified as available-for-sale.

      Inventories: Inventories are valued at the lower of cost or market. Cost is determined by using the last-in, first-out (LIFO) method for a substantial portion of inventories located in the U.S. The cost of all other inventories is determined by the first-in, first-out method (FIFO).

      Depreciation of Property and Equipment: Depreciation is provided over the estimated useful lives of the properties, generally by use of the straight-line method.

      Useful lives of property are as follows:

Asset Category	Years
Buildings		50
Building Improvements		25
Equipment		3 - 15

      Depreciation expense was $340, $304 and $250 in 2004, 2003 and 2002, respectively.

      The Company reviews the carrying value of property and equipment for indications of impairment in accordance with Statement of Financial Accounting Standard (SFAS) 144 Accounting for the Impairment and Disposal of Long-Lived Assets.

      Foreign Currency Translation: The net assets of most of the Company’s foreign subsidiaries are translated into U.S. dollars using current exchange rates. The U.S. dollar effects that arise from translating the net assets of these subsidiaries at changing rates are recorded in the foreign currency translation adjustment account, which is included in other comprehensive income. For the remaining foreign subsidiaries, non-monetary assets and liabilities are translated using historical rates, while monetary assets and liabilities are translated at current rates, with the U.S. dollar effects of rate changes included in income.

52

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      Exchange gains and losses arising from translating intercompany balances of a long-term investment nature are recorded in the foreign currency translation adjustment account. Other exchange gains and losses are included in income.

      Accumulated Other Comprehensive Income: Accumulated other comprehensive income primarily consists of the accumulated foreign currency translation adjustment account, unrealized gains and losses on securities classified as available for sale and a minimum pension liability adjustment.

      The components of accumulated other comprehensive income at December 31 were:

	2004			2003
Accumulated foreign currency translation	$	(131	)	$	(238	)
Minimum pension liability, net of tax		(182	)		(196	)
Accumulated unrealized gains (losses) on investments available for sale, net of tax		13			8
Total	$	(300	)	$	(426	)

      Gross unrealized pre-tax gains on investments in 2004 and 2003 were $5 and $20, respectively; unrealized losses were immaterial.

      Revenue Recognition: The Company’s pharmaceutical products are sold to direct purchasers (e.g., wholesalers, retailers and certain health maintenance organizations). Price discounts and rebates on such sales are paid to federal and state agencies as well as to indirect purchasers and other market participants (e.g., managed care organizations that indemnify beneficiaries of health plans for their pharmaceutical costs and pharmacy benefit managers).

      The Company recognizes revenue when title and risk of loss pass to the purchaser and when reliable estimates of the following can be determined:

      i. commercial discount and rebate arrangements;

      ii. rebate obligations under certain federal and state governmental programs and;

      iii. sales returns in the normal course of business.

      When recognizing revenue the Company estimates and records the applicable commercial and governmental discounts and rebates as well as sales returns that have been or are expected to be granted or made for products sold during the period. These amounts are deducted from sales for that period. Estimates recorded in prior periods are re-evaluated as part of this process. If reliable estimates of these items cannot be made, the Company defers the recognition of revenue.

      Earnings Per Common Share: In 2004, diluted loss per common share excludes the effect of shares issuable through deferred stock units, the exercise of stock options and the impact of the conversion of mandatory convertible preferred shares because including these securities in the earnings per share calculation would be antidilutive as it would result in a lower loss per share.

      In 2003, diluted loss per common share excludes the effect of shares issuable through deferred stock units and through the exercise of stock options because including these securities would be antidilutive.

      In 2002, diluted earnings per common share are computed by dividing income by the sum of the weighted-average number of common shares outstanding plus the dilutive effect of shares issuable through deferred stock units and through the exercise of stock options.

      For all periods presented, basic earnings per common share are computed by dividing income/(loss) available to common shareholders by the weighted-average number of common shares outstanding.

53

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      The shares used to calculate basic and diluted earnings per common share are reconciled as follows for the year ended December 31:

	2004		2003		2002
	(Shares in millions)
Average shares outstanding for basic earnings per share		1,472		1,469		1,466
Dilutive effect of options and deferred stock units		—		—		4
Average shares outstanding for diluted earnings per share		1,472		1,469		1,470

      The equivalent of 86 million, 77 million and 47 million common shares issuable under the Company’s stock incentive plans were excluded from the computation of diluted earnings per share as of December 31, 2004, 2003 and 2002, respectively, because their effect would have been antidilutive. In addition, 27 million common shares issuable upon conversion of the Company’s mandatory convertible preferred stock were excluded from the computation of diluted loss per share because their effect would have been antidilutive.

      Goodwill and Other Intangible Assets: SFAS 142, “Goodwill and Other Intangible Assets,” requires that intangible assets acquired either individually or with a group of other assets be initially recognized and measured based on fair value. An intangible with a finite life is amortized over its useful life, while an intangible with an indefinite life, including goodwill, is not amortized.

      The Company evaluates goodwill for impairment using a fair value-based test. If goodwill is determined to be impaired, it is written down to its estimated fair value. The Company’s goodwill is primarily related to the Animal Health business.

      The components of Other intangible assets, net are as follows at December 31:

	2004						2003
	Gross						Gross
	Carrying		Accumulated				Carrying		Accumulated
	Amount		Amortization		Net		Amount		Amortization		Net
Patents and licenses	$	558	$	287	$	271	$	614	$	318	$	296
Trademarks and other		144		44		100		149		38		111
Total other intangible assets	$	702	$	331	$	371	$	763	$	356	$	407

      These intangible assets are amortized on the straight-line method over their respective useful lives. The residual value of intangible assets is estimated to be zero.

      During 2004 the Company recorded intangible assets related to the license and co-promotion agreements related to LEVITRA and AVELOX of $140. These amounts will be amortized over the effective useful lives of the agreements ranging from seven to 14 years. Also during 2004, the net carrying amount of patents and licenses was reduced by approximately $118 as a result of Bristol-Myers Squibb’s reacquisition of co-promotion rights of TEQUIN in the U.S.

      In 2003, the Company paid $11 for patent and licensing rights; these costs will be amortized over approximately nine years.

      Amortization expense related to other intangible assets in 2004, 2003 and 2002 was $42, $55 and $66, respectively. All intangible assets are reviewed to determine their recoverability by comparing their carrying values to their expected undiscounted future cash flows when events or circumstances warrant such a review.

      Accounting for Stock-Based Compensation: Currently the Company accounts for its stock compensation arrangements using the intrinsic value method. No stock-based employee compensation cost is reflected in net (loss)/income, other than for the Company’s deferred stock units, as stock options granted under all other plans had an exercise price equal to the market value of the underlying common stock on the date of

54

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

grant. The Company’s deferred stock units and stock options are issued under the Company’s Stock Incentive Plans (see Note 12).

      In December 2004 the Financial Accounting Standards Board (FASB) issued SFAS 123R (Revised 2004), “Share Based Payment.” Statement 123R requires companies to recognize compensation expense in an amount equal to the fair value of all share-based payments granted to employees. Companies are required to implement this SFAS in July 2005 by recognizing compensation on all share-based grants made after July 1, 2005, and for the unvested portion of share-based grants made prior to July 1, 2005. Restatement of previously issued statements is allowed, but not required. The Company is currently evaluating the various implementation options and related financial impacts available under SFAS 123R.

      The following table reconciles net (loss)/income available to common shareholders and basic/diluted (loss)/earnings per common share, as reported, to pro forma net (loss)/income available to common shareholders and basic/diluted (loss)/earnings per common share, as if the Company had expensed the grant-date fair value of both stock options and deferred stock units as permitted by SFAS 123, “Accounting for Stock-Based Compensation.”

		2004			2003			2002
Net (loss)/income available to common shareholders, as reported		$	(981	)	$	(92	)	$	1,974
Add back: Expense included in reported net income for deferred stock units, net of tax in 2003 and 2002			59			66			69
Deduct: Pro forma expense as if both stock options and deferred stock units were charged against net income, net of tax in 2003 and 2002			(160	)		(143	)		(150	)
Pro forma net (loss)/income available to common shareholders using the fair value method		$	(1,082	)	$	(169	)	$	1,893
Diluted (loss)/earnings per common share:
	Diluted (loss)/earnings per common share, as reported	$	(0.67	)	$	(0.06	)	$	1.34
	Pro forma diluted (loss)/earnings per common share using the fair value method		(0.74	)		(0.12	)		1.29
Basic (loss)/earnings per common share:
	Basic (loss)/earnings per common share, as reported	$	(0.67	)	$	(0.06	)	$	1.35
	Pro forma basic (loss)/earnings per common share using the fair value method		(0.74	)		(0.12	)		1.29

      The weighted-average fair value of options granted in 2004, 2003 and 2002 was $6.15, $5.29 and $11.25, respectively. These fair values were estimated using the Black-Scholes option-pricing model, based on the following assumptions:

	2004			2003			2002
Dividend yield		1.7	%		1.4	%		1.3	%
Volatility		33	%		34	%		35	%
Risk-free interest rate		3.9	%		2.9	%		4.3	%
Expected term of options (in years)		7			5			5

55

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

2.     SPECIAL CHARGES

      The components of special charges for the year ended December 31 are as follows:

	2004		2003		2002
Litigation charges	$	—	$	350	$	150
Employee termination costs		119		179		—
Asset impairment and related charges		34		70		—
	$	153	$	599	$	150

Litigation Charges

      In 2003 and 2002, litigation reserves were increased by $350 and $150, respectively, primarily as a result of the investigations into the Company’s sales and marketing practices (see Note 16 for additional information).

Employee Termination Costs

      In August 2003, the Company announced a global workforce reduction initiative. The first phase of this initiative was a Voluntary Early Retirement Program (VERP) in the U.S. Under this program, eligible employees in the U.S. had until December 15, 2003 to elect early retirement and receive an enhanced retirement benefit. Approximately 900 employees elected to retire under the program, of which approximately 850 employees retired through year-end 2004 and approximately 50 employees have staggered retirement dates in 2005. The total cost of this program is approximately $191, comprised of increased pension costs of $108, increased post-retirement health care costs of $57, vacation payments of $4 and costs related to accelerated vesting of stock grants of $22. For employees with staggered retirement dates in 2005, these amounts will be recognized as a charge over the employees’ remaining service periods. This delayed expense recognition follows the guidance in SFAS 146, Accounting for Costs Associated with Exit or Disposal Activities. Amounts recognized, relating to this program, during the years ended December 31, 2004 and 2003 were $20 and $164, respectively.

      Termination costs not associated with the VERP totaled $99 and $15 in 2004 and 2003, respectively.

Asset Impairment and Related Charges

      Asset impairment charges have been recognized in accordance with SFAS 142, “Goodwill and Other Intangible Assets” and SFAS 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” For the year ended December 31, 2004, the Company recognized asset impairment charges of $27 based on discounted cash flows, and other charges of $7 related primarily to the shutdown of a small European research-and-development facility.

      For the year ended December 31, 2003, the Company recognized asset impairment charges related to the following:

•  Asset impairment charges totaling $26 were recognized based on discounted cash flow analysis related to the facilities and equipment at two of the Company’s manufacturing sites.

•  An asset impairment charge of $27 based on discounted cash flows was recognized related to the intangible asset for a licensed cancer therapy drug that was sold in countries outside the U.S.

•  An impairment charge of $17 related to the trade name of the Company’s high-end sun care brand was recognized based on discounted cash flows.

56

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Summary of Selected Special Charges

      The following summarizes the activity in the accounts related to employee termination costs and asset impairment charges:

				Asset
	Employee			Impairment
	Termination			and Related
	Costs			Charges
Special charges incurred during 2003	$	179		$	70
Impairment write-downs		—			(70	)
Credit to retirement benefit plan liability		(144	)		—
Disbursements		(6	)		—
Special charges liability balance at December 31, 2003	$	29		$	—
Special charges incurred during 2004	$	119		$	34
Impairment write-downs		—			(27	)
Credit to retirement benefit plan liability		(20	)		—
Disbursements		(110	)		(7	)
Special charges liability balance at December 31, 2004	$	18		$	—

      The balance at December 31, 2004, represents distributions to be made after year-end 2004.

3.     EQUITY INCOME FROM CHOLESTEROL JOINT VENTURE

      In May 2000, the Company and Merck entered into two separate agreements to jointly develop and market in the U.S. (1) two cholesterol lowering drugs and (2) an allergy/asthma drug. In December 2001, the cholesterol agreement was expanded to include all countries of the world except Japan. In general, the companies agreed that the collaborative activities under these agreements would operate in a virtual mode to the maximum degree possible by relying on the respective infrastructures of the two companies. These agreements generally provide for equal sharing of research and development costs and for co-promotion of approved products by each company.

      The cholesterol agreements provide for the Company and Merck to jointly develop ezetimibe (marketed as ZETIA in the U.S. and Asia and EZETROL in Europe):

      i. as a once-daily monotherapy;

      ii. in co-administration with any statin drug, and;

      iii. as a once-daily fixed-combination tablet of ezetimibe and simvastatin (Zocor), Merck’s cholesterol-modifying medicine. This combination medication (ezetimibe/simvastatin) is marketed as VYTORIN in the U.S. and as INEGY in many international countries.

      ZETIA/ EZETROL (ezetimibe) and VYTORIN/ INEGY (the combination of ezetimibe/simvastatin) are approved for use in the U.S. and have been launched in several international markets.

      The Company utilizes the equity method of accounting for the joint venture. The cholesterol agreements provide for the sharing of net income/(loss) based upon percentages that vary by product, sales level and country. In the U.S. market, Schering-Plough receives a greater share of profits on the first $300 of ZETIA sales. Above $300 of ZETIA sales, the companies share profits equally. Schering-Plough’s allocation of joint venture income is increased by milestones earned. Further, either partner’s share of the joint venture’s net income/(loss) is subject to a reduction if the partner fails to perform a specified minimum number of physician details in a particular country. The partners agree annually to the minimum number of physician details by country.

57

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      The partners bear the costs of their own general sales forces and commercial overhead in marketing joint venture products around the world. In the U.S., Canada and Puerto Rico, the cholesterol agreements provide for a reimbursement to each partner for physician details that are set on an annual basis. This reimbursed amount is equal to each partner’s physician details multiplied by a contractual fixed fee. Schering-Plough reports the receipt of this reimbursement as part of Equity income from cholesterol joint venture as under U.S. GAAP this amount does not represent a reimbursement of specific, incremental, identifiable costs for the Company’s detailing of the cholesterol products in these markets. In addition, this reimbursement amount per physician detail is not reflective of Schering-Plough’s joint venture sales force effort as Schering-Plough’s sales force-related infrastructure costs per physician detail are generally estimated to be higher.

      Costs of the joint venture that the partners contractually share are a portion of manufacturing costs, specifically identified promotion costs (including direct-to-consumer advertising and direct and identifiable out-of-pocket promotion) and other agreed upon costs for specific services such as market support, market research, market expansion, a specialty sales force and physician education programs.

      Certain specified research and development expenses are generally shared equally by the partners.

      The following information provides a summary of the components of the Company’s Equity income from cholesterol joint venture for the year ended December 31:

		2004			2003
		(Unaudited)
Schering-Plough’s share of net income/(loss) (including milestones of $7 and $20 in 2004 and 2003, respectively)		$	244		$	(11	)
Reimbursement to Schering-Plough for physician details			121			68
Elimination of intercompany profit and other, net			(18	)		(3	)
	Total equity income from cholesterol joint venture	$	347		$	54

      During 2004 and 2003, the Company earned milestones of $7 and $20, respectively, relating to the approval of ezetimibe/simvastatin in Mexico in 2004 and certain European approvals of ezetimibe in 2003. Under certain other conditions, as specified in the agreements, Merck could pay additional milestones to the Company totaling $125.

      Equity income from the joint venture excludes any profit arising from transactions between the Company and the joint venture until such time as there is an underlying profit realized by the joint venture in a transaction with a party other than the Company or Merck.

      Due to the virtual nature of the joint venture, the Company incurs substantial costs, such as selling, general and administrative costs, that are not reflected in “Equity income from cholesterol joint venture” and are borne by the overall cost structure of the Company. These costs are reported on their respective line items in the Statements of Consolidated Operations. The cholesterol agreements do not provide for any jointly owned facilities and, as such, products resulting from the joint venture are manufactured in facilities owned by either Merck or the Company.

      As discussed above, the Company accounts for the Merck/ Schering-Plough Cholesterol Partnership under the equity method of accounting. As such, the Company’s net sales do not include the sales of this joint venture. Prior to 2003, the joint venture was in the research and development phase and the Company’s share of research and development expense in 2002 of $69 was reported in Research and development in the Statements of Consolidated Operations.

      The allergy/asthma agreement provides for the development and marketing of a once-daily, fixed-combination tablet containing CLARITIN and Singulair. Singulair is Merck’s once-daily leukotriene receptor antagonist for the treatment of asthma and seasonal allergic rhinitis. In January 2002, the Merck/ Schering-Plough respiratory joint venture reported on results of Phase III clinical trials of a fixed-combination tablet

58

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

containing CLARITIN and Singulair. This Phase III study did not demonstrate sufficient added benefits in the treatment of seasonal allergic rhinitis. The CLARITIN and Singulair combination tablet does not have approval in any country and remains in clinical development.

4.     OTHER EXPENSE (INCOME), NET

      The components of other expense (income), net are as follows:

	2004			2003			2002
Interest cost incurred	$	188		$	92		$	52
Less: amount capitalized on construction		(20	)		(11	)		(24	)
Interest expense		168			81			28
Interest income		(80	)		(57	)		(75	)
Foreign exchange (gains) losses		5			1			(2	)
Other, net		53			34			(95	)
Total	$	146		$	59		$	(144	)

      Other, net in 2002 includes a gain of $80 from the sale of U.S. marketing rights for SUBOXONE and SUBUTEX. Cash paid for interest, net of amounts capitalized, was $166, $46 and $26 in 2004, 2003 and 2002, respectively.

5.     INCOME TAXES

      The components of consolidated (loss)/income before income taxes for the years ended December 31 are as follows:

	2004			2003			2002
United States	$	(1,548	)	$	(1,169	)	$	642
Foreign		1,380			1,123			1,921
Total (loss)/income before income taxes	$	(168	)	$	(46	)	$	2,563

      The components of income tax expense/ (benefit) for the years ended December 31 are as follows:

	Federal			State			Foreign			Total
2004
Current	$	365		$	24		$	182		$	571
Deferred		240			(14	)		(18	)		208
Total	$	605		$	10		$	164		$	779
2003
Current	$	(299	)	$	21		$	187		$	(91	)
Deferred		126			—			11			137
Total	$	(173	)	$	21		$	198		$	46
2002
Current	$	273		$	40		$	263		$	576
Deferred		4			—			9			13
Total	$	277		$	40		$	272		$	589

59

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      The American Jobs Creation Act of 2004 (the Act) was enacted on October 22, 2004. One provision of the Act effectively reduces the tax rate on qualifying repatriation of earnings held by foreign-based subsidiaries to 5.25 percent. Normally, such repatriations would be taxed at a rate of up to 35 percent. In the fourth quarter of 2004, the Company made the decision that it intends to repatriate approximately $9.4 billion under the Act, which is the maximum amount of foreign earnings qualifying for the reduced rate. This intended repatriation of earnings will trigger a U.S. federal tax payment in 2005 of approximately $417 (tax charge of $494 less $77 in foreign tax credits) and a state tax payment of approximately $6. These amounts have been reflected in current income tax expense. Prior to the Act, the Company did not provide deferred taxes on undistributed earnings of foreign subsidiaries as the Company had intended to indefinitely reinvest all these undistributed earnings in foreign subsidiaries.

      The Company has the intent to indefinitely reinvest any undistributed earnings of foreign subsidiaries that are not repatriated under the Act and therefore has not provided deferred taxes on approximately $2,200 of undistributed foreign earnings. Determining the tax liability that would arise if these earnings were remitted is not practicable. The amount would depend on a number of factors, including the amount of the earnings distributed and whether the U.S. operations were generating taxable profits or losses.

      During 2004, the Company generated approximately $1,300 in U.S. Net Operating Losses (U.S. NOL’s) for tax purposes. Approximately $300 of these U.S. NOL’s are eligible for carryback benefits under U.S. tax law resulting in a benefit of $52. During 2003, the Company generated approximately $1,500 in U.S. NOL’s for U.S. tax purposes resulting in a benefit of $452 as of December 31, 2003. All U.S NOL’s generated in 2003 were utilized to recoup past U.S. taxes paid by the Company through carryback benefits allowed under U.S. tax law.

      In the fourth quarter of 2004, due to changes in tax planning strategies triggered by the Company’s intent to repatriate earnings under the Act, management was no longer able to conclude that it was more likely than not that it would realize the benefit of net U.S. deferred tax assets. Therefore, in general, a valuation allowance on net U.S. deferred tax assets was established at December 31, 2004. The impact on income tax expense for 2004 of providing a valuation allowance on U.S. net deferred tax assets was $240.

      The difference between income taxes based on the U.S. statutory tax rate and the Company’s income tax expense for the years ending December 31 was due to the following:

		2004			2003			2002
Income tax expense/(benefit) at U.S. statutory rate		$	(59	)	$	(16	)	$	897
Increase/(decrease) in taxes resulting from:
	Lower rates in other jurisdictions, net		(319	)		(308	)		(378	)
	Federal tax on repatriated foreign earnings under the Act, net of credits		417			—			—
	U.S. NOL for which no tax benefit was recorded		384			—			—
	Provision for valuation allowance of net U.S. deferred tax assets		240			—			—
	Nondeductible litigation reserves		—			123			—
	Reserves for tax litigation		—			200			—
	Research tax credit		—			(13	)		(12	)
	State income tax		10			13			36
	Permanent differences		98			28			—
	All other, net		8			19			46
Income tax at effective tax rate		$	779		$	46		$	589

60

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      The lower rates in other jurisdictions, net, are primarily attributable to certain employment and capital investment actions taken by the Company. As a result, income from manufacturing activities in these jurisdictions is subject to lower tax rates through at least 2015.

      As of December 31, 2004 and 2003, the Company had total deferred tax assets of $790 and $1,031, respectively, and deferred tax liabilities of $562 and $595, respectively. Reclassification of certain 2003 U.S. amounts to deferred tax assets from liabilities has been made to conform to the current year presentation. A valuation allowance on net U.S. deferred tax assets was established at December 31, 2004. Valuation allowances recorded against deferred tax assets at December 31 2004 and 2003 were $406 and $61, respectively. Significant deferred tax liabilities at December 31, 2004 and 2003 were for depreciation differences, $333 and $318, respectively, and benefit plans, $52 and $76, respectively.

      Net consolidated income tax payments/(refunds), exclusive of payments related to the tax audits discussed below, during 2004, 2003 and 2002 were $(144), $196 and $584, respectively.

      As of December 31, 2004, the Company’s U.S. federal income tax returns have been audited through 1992. Tax contingencies are recorded to address potential exposures involving tax positions taken that could be challenged by taxing authorities. These potential exposures result from the varying application of statutes, rules, regulations and interpretations, including (1) intercompany terms of cross border arrangements between affiliates, for which management believes its intercompany terms are based upon sound economic facts and circumstances and (2) utilization of cash held by foreign subsidiaries (investment in U.S. property). The Company’s estimate of the accrual for tax contingencies contains assumptions based on past experiences and judgments about potential actions by taxing jurisdictions. It is reasonably possible that the ultimate resolution of any tax matters may be materially greater or less than the amount accrued.

      In October of 2001, IRS auditors asserted, in reports, that the Company is liable for additional tax for the 1990 through 1992 tax years. The reports allege that two interest rate swaps that the Company entered into with an unrelated party should be recharacterized as loans from affiliated companies. In April of 2004, the Company received a formal Notice of Deficiency (Statutory Notice) from the IRS asserting additional federal income tax due. The Company received bills related to this matter from the IRS on September 7, 2004. Payment in the amount of $194 for income tax and $279 for interest was made on September 13, 2004. The Company filed refund claims for the tax and interest with the IRS on December 23, 2004. The Company was notified on February 16, 2005, that its refund claims were denied by the IRS. The Company believes it has complied with all applicable rules and regulations and the Company intends to file a suit for refund for the full amount of the tax and interest. The Company’s existing tax reserves were adequate to cover the above-mentioned payments.

6.     PRODUCT LICENSES & ACQUISITIONS

      During 2004, the Company entered into a collaboration and license agreement with Toyama Chemical Co. Ltd (Toyama). Under the terms of the agreement, the Company has acquired the exclusive worldwide rights, excluding Japan, Korea and China, to develop, use and sell garenoxacin, Toyama’s quinolone antibacterial agent currently in development. In connection with the execution of the agreement, the Company incurred a charge in the second quarter of 2004 for an up-front fee of $80 to Toyama. This amount has been expensed and reported in Research and development for the year ended December 31, 2004, in the Statements of Consolidated Operations.

      In September 2004, the Company announced that it entered into a strategic alliance with Bayer intended to enhance the companies’ pharmaceutical resources. In October 2004, in the U.S. and Puerto Rico, the Company began to market, sell and distribute Bayer’s primary care products including AVELOX and CIPRO under an exclusive license agreement. The Company will pay Bayer substantial royalties on these products based on sales. In addition, the Company assumed Bayer’s responsibilities for U.S. commercialization activities related to the erectile dysfunction medicine LEVITRA under Bayer’s co-promotion agreement with GlaxoSmithKline PLC. The Company will report its share of LEVITRA results as alliance revenue.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      Additionally, under the terms of the agreements, Bayer will also support the promotion of certain of the Company’s oncology products in the U.S. and key European markets for a defined period of time.

      In Japan, upon regulatory approval, Bayer will co-market the Company’s cholesterol absorption inhibitor ZETIA (ezetimibe). This arrangement does not include the rights to any future cholesterol combination product.

      The agreements with Bayer provide for an upfront payment to be made by the Company of $140 for the licensing rights to LEVITRA and AVELOX. The Company will receive and record deferred revenue of $120 related to the sale of ZETIA co-promotion rights to Bayer. This deferred revenue will begin to be recognized upon regulatory approval in Japan. Under certain circumstances, if ZETIA does not receive regulatory/marketing approval in Japan by a certain date this amount will be required to be repaid to Bayer.

      The agreements with Bayer restrict the Company from marketing certain products in the U.S. that would compete with AVELOX, CIPRO and LEVITRA. As a result, the Company expects that it may need to sublicense rights to garenoxacin, the quinolone antibacterial agent that the Company licensed from Toyama. The Company is exploring its options with regard to garenoxacin and will continue to fulfill its commitments to Toyama under its arrangement, including taking the product through regulatory approval.

      On February 14, 2005 the Company acquired most of the assets of NeoGenesis Pharmaceuticals for approximately $18. NeoGenesis applies novel screening and chemistry technologies to discover new drug candidates.

7.     INVENTORIES

      Inventories consisted of the following at December 31:

	2004		2003
Finished products	$	630	$	664
Goods in process		651		648
Raw materials and supplies		299		339
Total inventories	$	1,580	$	1,651

      Inventories valued on a last-in, first-out basis comprised approximately 19 percent of total inventories at December 31, 2004 and 2003. The estimated replacement cost of total inventories at December 31, 2004 and 2003 was $1,624 and $1,704, respectively.

8.     SHORT-TERM BORROWINGS, LONG-TERM DEBT AND OTHER COMMITMENTS

Short-Term Borrowings

      In general, short-term borrowings consist of commercial paper issued in the U.S., bank loans and notes payable. Commercial paper outstanding at December 31, 2004 and 2003 was $1,464 and $939, respectively. The weighted-average interest rate for short-term borrowings at December 31, 2004 and 2003 was 2.6 percent and 1.8 percent, respectively.

Credit Facilities

      The Company has two revolving credit facilities totaling $1.5 billion. Both facilities are from a syndicate of major financial institutions. The most recently negotiated facility (May 2004) is a $1.25 billion, five-year credit facility. This facility matures in May 2009 and requires the Company to maintain a total debt to total capital ratio of no more than 60 percent. The second credit facility provides a $250 line of credit through its maturity date in May 2006 and requires the Company to maintain a total debt to total capital ratio of no more than 60 percent any time the Company is rated at or below Baa3 by Moody’s and BBB- by S&P. These

62

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

facilities are available for general corporate purposes and are considered as support for the Company’s commercial paper borrowings. These facilities do not require compensating balances; however, a nominal commitment fee is paid. At December 31, 2004, no funds were drawn under either of these facilities. In addition, the Company’s foreign subsidiaries had approximately $287 available in unused lines of credit from various financial institutions at December 31, 2004.

Long-Term Debt

      In November 2003, the Company issued $1,250 aggregate principal amount of 5.3 percent senior unsecured notes due 2013 and $1,150 aggregate principal amount of 6.5 percent senior unsecured notes due 2033. Interest is payable semi-annually. The net proceeds from this offering were $2,369. Upon issuance, the notes were rated A3 by Moody’s Investors Service, Inc. (Moody’s), and A+ (on CreditWatch with negative implications) by Standard & Poor’s Rating Services (S&P). The interest rates payable on the notes are subject to adjustment as follows:

      Subsequent to issuance if the rating assigned to the notes by Moody’s changes to one of the ratings set forth below, the interest rate payable on that series of notes will increase by the additional interest rate set forth in the table below; similarly, if the rating assigned to the notes by S&P changes to one of the ratings set forth in the table below, the interest rate payable on that series of notes will increase again by the additional interest rate set forth in the table below:

Additional Interest Rate	Moody’s Rating		S&P Rating
0.25%		Baa1		BBB-
0.50%		Baa2		BBB
0.75%		Baa3		BBB-
1.00%		Baa1 or below		BB- or below

      In no event will the interest rate for any of the notes increase by more than 2 percent above the initial coupon rates of 5.3 percent and 6.5 percent, respectively. If either Moody’s or S&P subsequently upgrades its ratings, the interest rates will be correspondingly reduced, but not below 5.3 percent or 6.5 percent, respectively. Furthermore, the interest rate payable on a particular series of notes will return to 5.3 percent and 6.5 percent, respectively, and the rate adjustment provisions will permanently cease to apply if, following a downgrade by both Moody’s and S&P below A3 or A-, respectively, both Moody’s and S&P raise their rating to A3 and A-, respectively, or better.

      On July 14, 2004, Moody’s lowered its rating of the notes to Baa1 and, accordingly, the interest payable on each note increased by 25 basis points, effective December 1, 2004. Therefore, effective on December 1, 2004, the interest rate payable on the notes due 2013 increased from 5.3 percent to 5.55 percent and the interest rate payable on the notes due 2033 increased from 6.5 percent to 6.75 percent. This adjustment to the interest rate payable on the notes will increase the Company’s interest expense by $6 annually.

      The notes are redeemable in whole or in part, at the Company’s option at any time, at a redemption price equal to the greater of (1) 100 percent of the principal amount of such notes and (2) the sum of the present values of the remaining scheduled payments of principal and interest discounted using the rate of treasury notes with comparable remaining terms plus 25 basis points for the 2013 notes or 35 basis points for the 2033 notes.

Shelf Registration

      On May 11, 2004, the Company’s shelf registration, as amended, was declared effective by the Securities and Exchange Commission (SEC). The shelf registered for issuance up to $2 billion in various debt and equity securities. Subsequently, the Company issued $1.438 billion face amount of mandatory convertible preferred stock on August 10, 2004, under the shelf. As of December 31, 2004, $563 principal amount of

63

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

securities remains registered and unissued. See Note 10 “Shareholder’s Equity” for additional information on the preferred stock issuance.

Changes in Credit Ratings

      On February 18, 2004, S&P downgraded the Company’s senior unsecured debt ratings to A- from A. At the same time, S&P also lowered the Company’s short-term corporate credit and commercial paper rating to A-2 from A-1. The Company’s S&P rating outlook remains negative.

      On March 3, 2004, S&P assigned the shelf registration a preliminary rating of A- for senior unsecured debt and a preliminary subordinated debt rating of BBB+.

      On April 29, 2004, Moody’s placed the Company’s senior unsecured credit rating of A3 on its Watchlist for possible downgrade based upon concerns related to market share declines, litigation risks and a high degree of reliance on the success of VYTORIN. On July 14, 2004, Moody’s lowered the Company’s senior unsecured credit rating from A3 to Baa1, lowered the Company’s senior unsecured shelf registration rating from (P)A3 to (P)Baa1, lowered the Company’s subordinated shelf registration rating from (P)Baa1 to (P)Baa2, lowered the Company’s cumulative and non-cumulative preferred stock shelf registration rating from (P)Baa2 to (P)Baa3, confirmed the Company’s P-2 commercial paper rating and removed the Company from the Watchlist. Moody’s rating outlook for the Company is negative.

      On November 20, 2003, Fitch Ratings (Fitch) downgraded the Company’s senior unsecured and bank loan ratings to A- from A+, and its commercial paper rating to F2 from F1. The Company’s Rating Outlook remained negative. In announcing the downgrade, Fitch noted that the sales decline in the Company’s leading product franchise, at that time the INTRON franchise, was greater than anticipated, and that it was concerned that total Company growth was reliant on the performance of two key growth drivers, ZETIA and REMICADE, in the near term. On August 4, 2004, Fitch affirmed the Company’s A- senior unsecured rating and bank loan rating and the F-2 commercial paper rating, and reiterated the negative outlook.

Commitments

      Total rent expense amounted to $100 in 2004, $91 in 2003 and $81 in 2002. Future annual minimum rental commitments on non-cancelable operating leases as of December 31, 2004, are as follows: 2005, $80; 2006, $65; 2007, $50; 2008, $43; 2009, $38; with aggregate minimum lease obligations of $41 due thereafter. As of December 31, 2004, the Company has commitments totaling $151 related to capital expenditures to be made in 2005.

9.     FINANCIAL INSTRUMENTS

      SFAS 133, “Derivative Instruments and Financial Hedging Activities” as amended, requires all derivatives to be recorded on the balance sheet at fair value. This accounting standard also provides that the effective portion of qualifying cash flow hedges be recognized in income when the hedged item affects income; that changes in the fair value of derivatives that qualify as fair value hedges, along with the change in the fair value of the hedged risk, be recognized as they occur; and that changes in the fair value of derivatives that do not qualify for hedge treatment, as well as the ineffective portion of qualifying hedges, be recognized in income as they occur.

Risks, Policy and Objectives

      The Company is exposed to market risk, primarily from changes in foreign currency exchange rates and, to a lesser extent, from interest rate and equity price changes. From time to time, the Company will hedge selective foreign currency risks with derivatives. Generally, however, management has not deemed it cost effective to engage in a formula-based program of hedging the profits and cash flows of foreign operations using derivative financial instruments. Because the Company’s foreign subsidiaries purchase significant

64

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

quantities of inventory payable in U.S. dollars, managing the level of inventory and related payables and the rate of inventory turnover provides a natural level of protection against adverse changes in exchange rates. Furthermore, the risk of adverse exchange rate change is mitigated by the fact that the Company’s foreign operations are widespread. On a limited basis, the Company will hedge selective exposures to mitigate interest rate risks.

      The Company mitigates credit risk on derivative instruments by dealing only with counterparties considered to be financially sound. Accordingly, the Company does not anticipate loss for non-performance. The Company does not enter into derivative instruments to generate trading profits.

      The table below presents the carrying values and estimated fair values for the Company’s financial instruments, including derivative financial instruments at December 31. Estimated fair values were determined based on market prices, where available, or dealer quotes.

	2004				2003
	Carrying		Estimated		Carrying		Estimated
	Value		Fair Value		Value		Fair Value
ASSETS:
Cash and cash equivalents	$	4,984	$	4,984	$	4,218	$	4,218
Short-term investments		851		851		587		587
Long-term investments		153		157		177		182
LIABILITIES:
Short-term borrowings and current portion of long-term debt		1,569		1,569		1,023		1,023
Long-term debt		2,392		2,600		2,410		2,496
Interest rate swap contracts		—		—		1		1

Long-term Investments

      Long-term investments, which are included in other non-current assets, primarily consist of debt and equity securities held in non-qualified trusts to fund long-term employee benefit obligations, which are included as liabilities in the Consolidated Balance Sheets. These assets can only be used to fund the related liabilities.

      Long-term investments are classified as available for sale and are carried at fair value. Realized gains from the sale of securities classified as available for sale were $0 in 2004, $0 in 2003 and $43 in 2002. Proceeds from these sales totaled $0, $0 and $80, respectively. Realized gains are recorded in other expense (income), net.

Interest Rate Swap Contracts

      The Company has an interest rate swap arrangement in effect with a counterparty bank that is subject to credit rating triggers. The arrangement utilizes two long-term interest rate swap contracts, one between a foreign-based subsidiary of the Company and a bank and the other between a U.S. subsidiary of the Company and the same bank. The two contracts have equal and offsetting terms and are covered by a master netting arrangement. The contract involving the foreign-based subsidiary permits the subsidiary to prepay a portion of its future obligation to the bank, and the contract involving the U.S. subsidiary permits the bank to prepay a portion of its future obligation to the U.S. subsidiary. Interest is paid on the prepaid balances by both parties at market rates. Prepayments totaling $1.9 billion have been made under both contracts as of December 31, 2004.

      The arrangement originally provided that in the event the Company failed to maintain the required minimum credit ratings, the counterparty may terminate the transaction by designating an early termination

65

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

date not earlier than 36 months following the date of such notice to terminate. Both S&P’s and Moody’s current credit ratings are below the specified minimum. As of March 8, 2005, the counterparty has not given the Company notice to terminate.

      On December 1, 2004, the Company and the counterparty mutually agreed to amend the swap contracts. The Company and the counterparty have agreed to a phased termination of the arrangement, including repayment of all prepaid amounts based on an agreed schedule. The scheduled terminations and associated repayment of the prepaid amounts will begin no later than March 30, 2005, and will end no later than January 15, 2009.

      In addition, under the amended agreement, the 36-month grace period that previously applied in the event the counterparty gives notice of termination as a result of the Company’s failure to maintain the required minimum credit ratings has been extended to January 15, 2009. In the event that the counterparty gives the Company a termination notice under this provision, all scheduled terminations and associated payments will continue according to the agreed repayment schedule during the time between delivery of the termination notice and January 15, 2009.

      The provisions in the original arrangement, which also allowed the counterparty to give a 12-month notice to terminate the transaction if, on the 10th anniversary of the transaction (November 17, 2007), the Company’s credit ratings were not at least A2 by Moody’s and A by S&P, have been eliminated. In their place, the Company has accepted a new credit trigger which provides that the counterparty may terminate the transaction should the Company fail to maintain a long-term, U.S. dollar denominated, senior unsecured indebtedness rating of at least BBB by S&P or Baa2 by Moody’s. Termination under this provision would be on the later of November 16, 2007, or 60 days from the date the Company receives such notice to terminate. Should the Company fail to meet the minimum credit requirement resulting in an early termination under this provision, all scheduled swap terminations and associated payments will continue through the termination date.

      The Company may, at its option, accelerate the scheduled terminations and associated payments for a nominal fee. On February 28, 2005, the Company’s foreign-based subsidiary and U.S. subsidiary each gave notice to the counterparty to terminate the arrangement. Accordingly, all prepaid amounts will be repaid by the respective obligor. The Company will repay its U.S. obligation with funds repatriated under the American Jobs Creation Act of 2004.

      In 1991 and 1992, the Company utilized interest rate swaps as part of its international cash management strategy. The notional principal of the 1991 arrangement was $650, and the notional principal of the 1992 arrangement was $950. Both arrangements had 20-year terms. The fair value of these swaps was a liability of $1 at December 31, 2003. On May 10, 2004, all of the interest rate swaps related to the $650 and $950 swap arrangements were terminated, and the impact on the Company’s Statements of Consolidated Operations was not material.

10.     SHAREHOLDERS’ EQUITY

      The Company has authorized 50,000,000 shares of preferred stock that consists of: 12,000,000 preferred shares designated as Series A Junior Participating Preferred Stock, 28,750,000 preferred shares designated as 6% Mandatory Convertible Preferred Stock, and 9,250,000 preferred shares whose designations have not yet been determined.

Mandatory Convertible Preferred Stock

      On August 10, 2004, the Company issued 28,750,000 shares of 6% mandatory convertible preferred stock (the Preferred Stock) with a face value of $1.44 billion. Net proceeds to the Company were $1.4 billion after deducting commissions, discounts and other underwriting expenses. The proceeds are being used for general corporate purposes, including the reduction of commercial paper borrowings.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      The mandatory conversion date of the shares is September 14, 2007. On this date, each share will automatically convert into between 2.2451 and 2.7840 common shares of the Company depending on the average closing price of the Company’s common shares over a period immediately preceding the mandatory conversion date, as defined in the prospectus. The preferred shareholders may elect to convert at any time prior to September 14, 2007, at the minimum conversion ratio of 2.2451 common shares per share of the Preferred Stock. Additionally, if at any time prior to the mandatory conversion date, the closing price of the Company’s common shares exceeds $33.41 (for at least 20 trading days within a period of 30 consecutive trading days), the Company may elect to cause the conversion of all, but not less than all, of the Preferred Stock then outstanding at the same minimum conversion ratio of 2.2451 common shares for each preferred share.

      The Preferred Stock accrues dividends at an annual rate of 6 percent on shares outstanding. The dividends are cumulative from the date of issuance and, to the extent the Company is legally permitted to pay dividends and the Board of Directors declares a dividend payable, the Company will pay dividends on each dividend payment date. The dividend payment dates are March 15, June 15, September 15 and December 15, with the first dividend having been paid on December 15, 2004.

Treasury Stock

      A summary of treasury share transactions for the year ended December 31 is as follows:

	2004			2003			2002
	(Shares in millions)
Share balance at January 1		559			562			565
Shares issued under stock incentive plans		(4	)		(3	)		(3	)
Share balance at December 31		555			559			562

Preferred Share Purchase Rights

      The Company has Preferred Share Purchase Rights outstanding that are attached to and presently only trade with the Company’s common shares and are not exercisable. The rights will become exercisable only if a person or group acquires 20 percent or more of the Company’s common stock or announces a tender offer that, if completed, would result in ownership by a person or group of 20 percent or more of the Company’s common stock. Should a person or group acquire 20 percent or more of the Company’s outstanding common stock through a merger or other business combination transaction, each right will entitle its holder (other than such acquirer) to purchase common shares of Schering-Plough having a market value of twice the exercise price of the right. The exercise price of the rights is $100.

      Following the acquisition by a person or group of beneficial ownership of 20 percent or more but less than 50 percent of the Company’s common stock, the Board of Directors may call for the exchange of the rights (other than rights owned by such acquirer), in whole or in part, at an exchange ratio of one common share or one two-hundredth of a share of Series A Junior Participating Preferred Stock per right. Also, prior to the acquisition by a person or group of beneficial ownership of 20 percent or more of the Company’s common stock, the rights are redeemable for $.005 per right at the option of the Board of Directors. The rights will expire on July 10, 2007, unless earlier redeemed or exchanged. The Board of Directors is also authorized to reduce the 20 percent thresholds referred to above to not less than the greater of (i) the sum of .001 percent and the largest percentage of the outstanding shares of common stock then known to the Company to be beneficially owned by any person or group of affiliated or associated persons and (ii) 10 percent, except that, following the acquisition by a person or group of beneficial ownership of 20 percent or more of the Company’s common stock, no such reduction may adversely affect the interests of the holders of the rights.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

11.     INSURANCE COVERAGE

      The Company maintains insurance coverage with such deductibles and self-insurance as management believes adequate for its needs under current circumstances. Such coverage reflects market conditions (including cost and availability) existing at the time it is written, and the relationship of insurance coverage to self-insurance varies accordingly. As a result of recent external events, the availability of insurance has become more restrictive. Management considers the impact of these changes as it continually assesses the best way to provide for its insurance needs in the future. The Company now self-insures a higher proportion of risk than in the past (especially as it relates to products’ liability).

12.     STOCK INCENTIVE PLANS

      Under the terms of the Company’s 2002 Stock Incentive Plan, which was approved by the Company’s shareholders, 72 million of the Company’s common shares may be granted as stock options or awarded as deferred stock units to officers and certain employees of the Company through December 2007. As of December 31, 2004, 27 million options and deferred stock units remain available for future year grants under the 2002 Stock Incentive Plan. Option exercise prices equal the market price of the common shares at their grant dates. Options expire no later than 10 years after the date of grant. Standard options granted in 2004 had a three-year vesting term, while those granted in 2003 and prior generally had a one-year vesting term. Other option grants vest over longer periods ranging from three to nine years. Deferred stock units are payable in an equivalent number of common shares; the shares are distributable in a single installment or in three or five equal annual installments generally commencing three years from the date of the award.

      The following table summarizes stock option activity over the past three years under the current and prior plans, all of which have been approved by the Company’s shareholders:

					2004					2003					2002
					Weighted-					Weighted-					Weighted-
		Number			Average		Number			Average		Number			Average
		of			Exercise		of			Exercise		of			Exercise
		Options			Price		Options			Price		Options			Price
		(Number of options in millions)
Outstanding at January 1			71		$	30.15		54		$	35.40		50		$	35.18
	Granted		19			18.12		23			17.57		8			34.21
	Exercised		(2	)		12.12		(1	)		9.40		(1	)		11.64
	Canceled or expired		(9	)		32.37		(5	)		33.19		(3	)		40.31
Outstanding at December 31			79		$	27.43		71		$	30.15		54		$	35.40
Exercisable at December 31			50		$	32.07		43		$	34.94		35		$	34.48

      Summarized information about stock options outstanding and exercisable at December 31, 2004 is as follows:

			Outstanding
							Exercisable
			Weighted-
			Average		Weighted-				Weighted-
	Number		Remaining		Average		Number		Average
	of		Term in		Exercise		of		Exercise
Exercise Price Range	Options		Years		Price		Options		Price
			(Number of options in millions)
Under $20		46		7.4	$	17.49		19	$	16.99
$20 to $30		1		7.6		24.46		—		24.85
$30 to $40		16		5.2		36.56		16		36.61
Over $40		16		5.3		46.35		15		46.39
		79						50

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      In 2004, 2003 and 2002, the Company awarded deferred stock units totaling 3.4 million, 3.2 million and 2.9 million, respectively.

13.     RETIREMENT PLANS AND OTHER POST-RETIREMENT BENEFITS

      The Company has defined benefit pension plans covering eligible employees in the U.S. and certain foreign countries, and the Company provides post-retirement health care benefits to its eligible U.S. retirees and their dependents. The measurement date for the majority of these plans is December 31.

      Net pension expense in 2004 was $132 compared with net pension expense in 2003 of $117. It is estimated that a one-half percent reduction in the expected long-term rate of return on consolidated plan assets would increase pension expense by approximately $7. It is estimated that a one-half percent reduction in the discount rate would increase pension expense by approximately $19.

      Also, at December 31, 2004, the Company has an unrecognized net actuarial loss of $636. Gains and losses arise primarily from plan assets earning more or less than the long-term expected rate of return and from changes in pension discount rates. If there were no gains in the future to offset the $636 net unrecognized loss, amortization of these losses would ultimately increase annual pension expense by approximately $32.

      The components of net pension and other post-retirement benefits expense were as follows:

										Post-retirement Health
	Retirement Plans									Care Benefits
	2004			2003			2002			2004			2003			2002
Service cost	$	91		$	71		$	60		$	13		$	9		$	7
Interest cost		102			85			79			22			18			15
Expected return on plan assets		(115	)		(118	)		(114	)		(16	)		(18	)		(19	)
Amortization, net		27			(1	)		(2	)		2			—			(1	)
Termination benefits(1)		18			70			—			2			9			—
Curtailment(1)		—			8			—			—			46			—
Settlement(1)		9			2			—			—			—			—
Net pension and other post-retirement benefits expense	$	132		$	117		$	23		$	23		$	64		$	2

(1)  Termination benefits, curtailment and settlement costs in 2004 and 2003 primarily relate to the matters discussed in Note 2 “Special Charges.”

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      The components of the changes in the benefit obligations were as follows:

								Post-retirement
								Health Care
		Retirement Plans						Benefits
		2004			2003			2004			2003
Benefit obligations at January 1		$	1,822		$	1,378		$	431		$	265
	Service cost		91			71			13			9
	Interest cost		102			85			22			18
	Assumption changes		10			43			—			—
	Effects of exchange rate changes		41			48			—			—
	Benefits paid		(119	)		(98	)		(20	)		(15	)
	Actuarial losses		34			138			44			97
	Plan amendments		8			63			(33	)		—
	Medicare Act subsidy		—			—			(48	)		—
	Termination benefits(1)		6			83			—			11
	Curtailment(1)		—			8			—			46
	Settlement(1)		—			3			—			—
Benefit obligations at December 31		$	1,995		$	1,822		$	409		$	431
Benefit obligations of over- funded plans		$	11		$	17		$	—		$	—
Benefit obligations of under- funded plans			1,984			1,805			409			431

(1)  Termination benefits, Curtailment and Settlement costs in 2004 and 2003 primarily relate to the matters discussed in Note 2 “Special Charges”.

      The components of the changes in plan assets were as follows:

								Post-retirement
								Health Care
		Retirement Plans						Benefits
		2004			2003			2004			2003
Fair value of plan assets, primarily stocks and bonds, at January 1		$	1,319		$	1,090		$	200		$	176
	Actual gain (loss) on plan assets		113			192			17			39
	Contributions		82			99			—			—
	Effects of exchange rate changes		34			36			—			—
	Benefits paid		(119	)		(98	)		(20	)		(15	)
Fair value of plan assets at December 31		$	1,429		$	1,319		$	197		$	200
Plan assets of over-funded plans		$	12		$	18		$	—		$	—
Plan assets of under-funded plans			1,417			1,301			197			200

      In addition to the plan assets indicated above, at December 31, 2004 and 2003, securities of $71 and $79, respectively, were held in non-qualified trusts designated to provide pension benefits for certain under-funded plans.

      At December 31, 2004 and 2003, the accumulated benefit obligation for the retirement plans was $1,672 and $1,531, respectively. The aggregated accumulated benefit obligation and fair value of plan assets for retirement plans with an accumulated benefit obligation in excess of plan assets is $1,331 and $1,029, respectively, at December 31, 2004, and $1,245 and $995, respectively, at December 31, 2003.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      Contributions to the retirement plans and for post-retirement health care benefits in 2005 are currently estimated to be approximately $50.

      The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid:

			Post-retirement
	Retirement		Health Care
	Plans		Benefits(1)
2005	$	87	$	23
2006		85		24
2007		86		25
2008		90		26
2009		93		27
Years 2010-2014		588		149

(1)  Expected benefit payments have not been reduced for expected subsidy payments under the Medicare Act of $0, $2, $2, $2, $3 and $15 in 2005, 2006, 2007, 2008, 2009 and 2010-2014, respectively.

      The following is a reconciliation of the funded status of the plans to the Company’s balance sheet:

							Post-retirement
							Health Care
	Retirement Plans						Benefits
	2004			2003			2004			2003
Benefit obligations in excess of plan assets	$	(566	)	$	(503	)	$	(212	)	$	(231	)
Unrecognized net transition assets		—			(2	)		—			—
Unrecognized prior service costs		78			75			(2	)		(2	)
Unrecognized net actuarial loss		636			628			133			175
Net assets at December 31	$	148		$	198		$	(81	)	$	(58	)

      Amounts recognized in the balance sheet consist of:

							Post-retirement
							Health Care
	Retirement Plans						Benefits
	2004			2003			2004			2003
Prepaid benefit cost	$	124		$	107		$	—		$	—
Accrued benefit cost		(312	)		(258	)		(81	)		(58	)
Intangible assets		49			48			—			—
Accumulated other comprehensive income		287			301			—			—
Net assets at December 31	$	148		$	198		$	(81	)	$	(58	)

      As of December 31, 2004 and 2003, the Company’s additional minimum pension liability was $335 and $349, respectively, primarily related to domestic retirement plans. This resulted in an adjustment to accumulated other comprehensive income, net of tax, of $(14) and $178 in 2004 and 2003, respectively.

71

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      The consolidated weighted-average assumptions used to determine benefit obligations at December 31 were:

							Post-retirement
	Retirement						Health Care
	Plans						Benefits
	2004			2003			2004			2003
Discount rate		5.6	%		5.7	%		6.0	%		6.0	%
Rate of increase in future compensation		3.9	%		3.9	%		N/A			N/A

      The consolidated weighted-average assumptions used to determine net cost for the years ended December 31 were:

							Post-retirement
	Retirement						Health Care
	Plans						Benefits
	2004			2003			2004			2003
Discount rate		5.7	%		6.3	%		6.0	%		6.7	%
Long-term expected rate of return on plan assets		7.6	%		8.5	%		7.5	%		8.0	%
Rate of increase in future compensation		3.9	%		3.9	%		N/A			N/A

      The long-term expected rate of return on plan assets is derived proportionally from return assumptions determined for each of the major asset classes, principally equities, fixed income and real estate. The return expectations for each of these asset classes are based largely on assumptions about economic growth and inflation, which are supported by long-term historical data.

      The weighted-average assumed health care cost inflation rate used for post-retirement measurement purposes is 10 percent for 2005, trending down to 4.5 percent by 2011. A 1 percent increase in the assumed health care cost trend rate would increase combined post-retirement service and interest cost by $7 and the post-retirement benefit obligation by $55. A 1 percent decrease in the assumed health care cost trend rate would decrease combined post-retirement service and interest cost by $6 and the post-retirement benefit obligation by $45.

      In accordance with FASB Staff Position 106-2, Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the Medicare Act), the Company began accounting for the effect of the federal subsidy under the Medicare Act in the third quarter of 2004. As a result, the Company’s accumulated benefit obligation for other post-retirement benefits was reduced by $48, and the Company’s net other post-retirement benefits expense was reduced by $7 during 2004. The reduction in the other post-retirement benefits expense consists of reductions in service cost, interest cost and net amortization of $2, $3 and $2, respectively.

Plan Assets at Fair Value

      The asset allocation for the consolidated retirement plans at December 31, 2004 and 2003, and the target allocation for 2005 are as follows:

					Percentage of
					Plan Assets at
		Target			December 31,
		Allocation
Asset Category		2005			2004			2003
Equity Securities			59	%		60	%		62	%
Debt Securities			34			33			31
Real Estate			7			7			7
	Total		100	%		100	%		100	%

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      The asset allocation for the post-retirement health care benefit trusts at December 31, 2004 and 2003, and the target allocation for 2005 are as follows:

					Percentage of
					Plan Assets at
		Target			December 31,
		Allocation
Asset Category		2005			2004			2003
Equity Securities			70	%		74	%		78	%
Debt Securities			30			26			22
	Total		100	%		100	%		100	%

      The Company’s investments related to these plans are broadly diversified, consisting primarily of equities and fixed income securities, with an objective of generating long-term investment returns that are consistent with an acceptable level of overall portfolio market value risk.

      In 2003 and 2002, the Company had a defined contribution profit-sharing plan covering substantially all its full-time domestic employees who have completed one year of service. The annual contribution was determined by a formula based on the Company’s income, shareholders’ equity and participants’ compensation. Profit-sharing expense totaled $98 in 2002. There was no profit sharing contribution in 2003 as determined by the formula described above. The Company no longer makes contributions to this plan.

      In 2004, the Company began to make contributions to an existing defined contribution savings plan equal to 3 percent of eligible employee earnings, plus a matching of up to 2 percent of eligible employee earnings based on employee contributions to this plan. The total Company contributions to this plan in 2004 were $48.

14. CONSENT DECREE

      On May 17, 2002, Schering-Plough announced that it had reached an agreement with the FDA for a consent decree to resolve issues involving Schering-Plough’s compliance with current Good Manufacturing Practices (cGMP) at certain manufacturing facilities in New Jersey and Puerto Rico. The U.S. District Court for the District of New Jersey approved and entered the consent decree on May 20, 2002.

      Under terms of the consent decree, Schering-Plough agreed to pay a total of $500 to the U.S. government in two equal installments of $250; the first installment was paid in May 2002, and the second installment was paid in May 2003. As previously reported, Schering-Plough accrued a $500 provision for this consent decree in the fourth quarter of 2001.

      The consent decree requires Schering-Plough to complete a number of actions, including comprehensive cGMP Work Plans for Schering-Plough’s manufacturing facilities in New Jersey and Puerto and revalidation of the finished drug products and bulk active pharmaceutical ingredients manufactured at those facilities.

      Under the decree, the scheduled completion dates are December 31, 2005, for cGMP Work Plans; September 30, 2005, for revalidation programs for bulk active pharmaceutical ingredients; and December 31, 2005, for revalidation programs for finished drugs.

      The cGMP Work Plans contain a number of Significant Steps whose timely and satisfactory completion are subject to payments of $15 thousand per business day for each deadline missed. These payments may not exceed $25 for 2002, and $50 for each of the years 2003, 2004 and 2005. These payments are subject to an overall cap of $175.

      In general, the timely and satisfactory completions of the revalidations are subject to payments of $15 thousand per business day for each deadline missed, subject to the caps described above. However, if a product scheduled for revalidation has not been certified as having been validated by the last date on the validation schedule, the FDA may assess a payment of 24.6 percent of the net domestic sales of the uncertified product until the validation is certified. Further, in general, if a product scheduled for revalidation under the

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

consent decree is not certified within six months of its scheduled date, Schering-Plough must cease production of that product until certification is obtained.

      The completion of the Significant Steps in the Work Plans and the completion of the revalidation programs are subject to third-party expert certification, as well as the FDA’s acceptance of such certification.

      The consent decree provides that if Schering-Plough believes that it may not be able to meet a deadline, Schering-Plough has the right, upon the showing of good cause, to request extensions of deadlines in connection with the cGMP Work Plans and revalidation programs. However, there is no guarantee that the FDA will grant any such requests.

      Although Schering-Plough believes it has made significant progress in meeting its obligations under the consent decree, it is possible that (1) Schering-Plough may fail to complete a Significant Step or a revalidation by the prescribed deadline; (2) the third-party expert may not certify the completion of the Significant Step or revalidation; or (3) the FDA may disagree with an expert’s certification of a Significant Step or revalidation. In such a case, it is possible that the FDA may assess payments as described above.

      Schering-Plough would expense any payments assessed under the decree if and when incurred.

15. SEGMENT INFORMATION

      The Company has three reportable segments: Prescription Pharmaceuticals, Consumer Health Care and Animal Health. The segment sales and profit data that follow are consistent with the Company’s current management reporting structure. The Prescription Pharmaceuticals segment discovers, develops, manufactures and markets human pharmaceutical products. The Consumer Health Care segment develops, manufactures and markets OTC, foot care and sun care products. The Animal Health segment discovers, develops, manufactures and markets animal health products.

Net sales by segment:

	Year Ended December 31,
	2004		2003		2002
Prescription Pharmaceuticals	$	6,417	$	6,611	$	8,745
Consumer Health Care		1,085		1,026		758
Animal Health		770		697		677
Consolidated net sales	$	8,272	$	8,334	$	10,180

Profit by segment:

	Year Ended December 31,
	2004			2003			2002
Prescription Pharmaceuticals	$	13		$	513		$	2,548
Consumer Health Care		234			199			169
Animal Health		88			86			93
Corporate and other		(503	)		(844	)		(247	)
Consolidated (loss)/profit before tax	$	(168	)	$	(46	)	$	2,563

      Corporate and other includes interest income and expense, foreign exchange gains and losses, headquarters expenses, special charges and other miscellaneous items. The accounting policies used for segment reporting are the same as those described in Note 1 “Summary of Significant Accounting Policies.”

      In 2004, Corporate and other includes Special charges of $153, including $119 of employee termination costs, as well as $27 of asset impairment charges and $7 of closure costs primarily related to the exit from a

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

small European research-and-development facility (see Note 2 “Special Charges” for additional information). It is estimated that the charges relate to the reportable segments as follows: Prescription Pharmaceuticals — $135, Consumer Health Care — $3, Animal Health — $2 and Corporate and other — $13.

      In 2003, Corporate and other includes Special charges of $599, including $179 of employee termination costs, a $350 provision to increase litigation reserves, and $70 of asset impairment charges (see Note 2 “Special Charges” for additional information). It is estimated that the charges relate to the reportable segments as follows: Prescription Pharmaceuticals — $515, Consumer Health Care — $25, Animal Health — $4 and Corporate and other — $55.

Net Sales by Major Product:

		2004		2003		2002
Prescription Pharmaceuticals		$	6,417	$	6,611	$	8,745
	REMICADE		746		540		337
	CLARINEX/AERIUS		692		694		598
	NASONEX		594		500		523
	PEG-INTRON		563		802		1,015
	TEMODAR		459		324		278
	INTEGRILIN		325		306		304
	CLARITIN Rx		321		328		1,802
	INTRON A		318		409		533
	REBETOL		287		639		1,222
	SUBUTEX		185		144		103
	ELOCON		168		154		165
	CAELYX		150		111		71
	Other pharmaceutical		1,609		1,660		1,794
Consumer Health Care			1,085		1,026		758
	OTC (includes OTC CLARITIN sales in 2004 and 2003 of $419 and $432, respectively)		578		588		275
	Foot care		331		292		290
	Sun care		176		146		193
Animal Health			770		697		677
Consolidated net sales		$	8,272	$	8,334	$	10,180

Net Sales by Geographic Area:

	2004		2003		2002
United States	$	3,219	$	3,559	$	5,761
Europe and Canada		3,595		3,410		2,923
Latin America		782		716		740
Pacific Area and Asia		676		649		756
Consolidated net sales	$	8,272	$	8,334	$	10,180

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      The Company has subsidiaries in more than 50 countries outside the U.S. No single foreign country, except for France, Italy and Japan, accounted for 5 percent or more of consolidated net sales during the past three years. Net sales are presented in the geographic area in which the Company’s customers are located.

	2004				2003				2002
Total International Sales	$	5,053	61	%	$	4,775	57	%	$	4,419	43	%
France		729	9	%		691	8	%		613	6	%
Italy		443	5	%		436	5	%		339	3	%
Japan		385	5	%		414	5	%		524	5	%

Net Sales by Customer:

	2004				2003				2002
McKesson Corporation	$	868	10	%	$	667	8	%	$	2,092	21	%
AmeriSourceBergen Corporation		589	7	%		771	9	%		1,101	11	%

      No single customer, except for McKesson Corporation and AmeriSourceBergen Corporation, two major pharmaceutical and health care products distributors, accounted for 10 percent or more of consolidated net sales during the past three years.

Long-lived Assets by Geographic Location:

	2004		2003		2002
United States	$	2,447	$	2,507	$	2,477
Ireland		449		444		430
Singapore		884		828		668
Puerto Rico		298		317		300
Other		768		726		613
Total	$	4,846	$	4,822	$	4,488

      Long-lived assets shown by geographic location are primarily property.

      Sales of products comprising 10 percent or more of the Company’s U.S. or international sales for the year ended December 31, 2004, were as follows:

	U.S.		International
REMICADE	$	—	$	746
CLARINEX		420		272
OTC CLARITIN		403		16
NASONEX		353		242

      Schering-Plough net sales do not include sales of VYTORIN and ZETIA that are marketed in partnership with Merck, as the Company accounts for this joint venture under the equity method of accounting. See Note 3 “Equity Income From Cholesterol Joint Venture.”

      The Company does not disaggregate assets on a segment basis for internal management reporting and, therefore, such information is not presented.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

16.      LEGAL, ENVIRONMENTAL AND REGULATORY MATTERS

Background

      The Company is involved in various claims, investigations and legal proceedings.

      The Company records a liability for contingencies when it is probable that a liability has been incurred and the amount can be reasonably estimated. The Company adjusts its liabilities for contingencies to reflect the current best estimate of probable loss or minimum liability as the case may be. Where no best estimate is determinable the company records the minimum amount within the most probable range of its liability. Expected insurance recoveries have not been considered in determining the amounts of recorded liabilities for environmental-related matters.

      If the Company believes that a loss contingency is reasonably possible, rather than probable, or the amount of loss cannot be estimated, no liability is recorded. However, where a liability is reasonably possible, disclosure of the loss contingency is made.

      The Company reviews the status of the matters discussed in the remainder of this Note on an ongoing basis. From time to time, the Company may settle or otherwise resolve these matters on terms and conditions management believes are in the best interests of the Company. Resolution of any or all of the items discussed in the remainder of this Note, individually or in the aggregate, could have a material adverse effect on the Company’s results of operations, cash flows or financial condition.

      Resolution (including settlements) of matters of the types set forth in the remainder of this Note, and in particular under Investigations, frequently involve fines and penalties of an amount that would be material to its financial condition, cash flows or results of operations. Resolution of such matters may also involve injunctive or administrative remedies that would adversely impact the business such as exclusion from government reimbursement programs, which in turn would have a material adverse impact on the business, future financial condition, cash flows or the results of operations. There are no assurances that the Company will prevail in any of the matters discussed in the remainder of this Note, that settlements can be reached on acceptable terms (including the scope of the release provided and the absence of injunctive or administrative remedies that would adversely impact the business such as exclusion from government reimbursement programs) or in amounts that do not exceed the amounts reserved. Even if an acceptable settlement were to be reached, there can be no assurance that further investigations or litigations will not be commenced raising similar issues, potentially exposing the Company to additional material liabilities. The outcome of the matters discussed below under Investigations could include the commencement of civil and/or criminal proceedings involving the imposition of substantial fines, penalties and injunctive or administrative remedies, including exclusion from government reimbursement programs. Total liabilities reserved reflect an estimate (and in the case of the Investigations, an estimate of the minimum liability), and any final settlement or adjudication of any of these matters could possibly be less than, or could materially exceed the liabilities recorded in the financial statements and could have a material adverse impact on the Company’s financial condition, cash flows or operations. Further, the Company cannot predict the timing of the resolution of these matters or their outcomes.

      Except for the matters discussed in the remainder of this Note, the recorded liabilities for contingencies at December 31, 2004, and the related expenses incurred during the year ended December 31, 2004, were not material. In the opinion of management, based on the advice of legal counsel, the ultimate outcome of these matters, except matters discussed in the remainder of this Note, will not have a material impact on the Company’s results of operations, cash flows or financial condition.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      During 2002 and 2003, the Company increased its litigation contingent liabilities by $500 as a result of the investigations by the U.S. Attorney’s Office for the District of Massachusetts and the U.S. Attorney’s Office for the Eastern District of Pennsylvania. As noted below the Pennsylvania investigation has been settled and payments have been made. The Company previously recorded a liability of approximately $250 related to the Massachusetts investigation. It is reasonably possible that a settlement of the Massachusetts investigation could involve amounts materially in excess of this accrual. This could have a material adverse impact on the Company’s financial condition, cash flows or operations. As required by U.S. GAAP, since the Company cannot reasonably estimate the potential final resolution, the Company has recognized the estimated minimum liability for the Massachusetts investigation.

Patent Matters

      DR. SCHOLL’S FREEZE AWAY Patent. On July 26, 2004, OraSure Technologies filed an action in the U.S. District Court for the Eastern District of Pennsylvania alleging patent infringement by Schering-Plough HealthCare Products by its sale of DR. SCHOLL’S FREEZE AWAY wart removal product. The complaint seeks a permanent injunction and unspecified damages, including treble damages. The FREEZE AWAY product was launched in March 2004. Net sales of this product in 2004 totaled approximately $20.

Investigations

      Pennsylvania Investigation. On July 30, 2004, Schering-Plough Corporation, the U.S. Department of Justice and the U.S. Attorney’s Office for the Eastern District of Pennsylvania announced settlement of the previously disclosed investigation by that Office. Under the settlement, Schering Sales Corporation, an indirect wholly owned subsidiary of Schering-Plough Corporation, pled guilty to a single federal criminal charge concerning a payment to a managed care customer. In connection with the settlement:

•  The aggregate settlement amount was $345.5 in fines and damages. Schering-Plough Corporation was credited with $53.6 that was previously paid in additional Medicaid rebates, leaving a net settlement amount of $291.9. The $291.9 plus interest was paid in 2004.

•  Schering Sales Corporation will be excluded from participating in federal health care programs. The settlement will not affect the ability of Schering-Plough Corporation to participate in those programs.

•  Schering-Plough Corporation entered into a five-year corporate integrity agreement with the Office of the Inspector General of the Department of Health and Human Services, under which Schering-Plough Corporation agreed to implement specific measures to promote compliance with regulations on issues such as marketing. Failure to comply can result in financial penalties.

      The Company cannot predict the impact of this settlement, if any, on other outstanding investigations.

      Massachusetts Investigation. The U.S. Attorney’s Office for the District of Massachusetts is investigating a broad range of the Company’s sales, marketing and clinical trial practices and programs along with those of Warrick Pharmaceuticals (Warrick), the Company’s generic subsidiary.

      Schering-Plough has disclosed that, in connection with this investigation, on May 28, 2003, Schering Corporation, a wholly owned and significant operating subsidiary of Schering-Plough, received a letter (the Boston Target Letter) from that Office advising that Schering Corporation (including its subsidiaries and divisions) is a target of a federal criminal investigation with respect to four areas:

      1. Providing remuneration, such as drug samples, clinical trial grants and other items or services of value, to managed care organizations, physicians and others to induce the purchase of Schering pharmaceutical products;

      2. Sale of misbranded or unapproved drugs, which the Company understands to mean drugs promoted for indications for which approval by the U.S. FDA had not been obtained (so-called off-label uses);

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      3. Submitting false pharmaceutical pricing information to the government for purposes of calculating rebates required to be paid to the Medicaid program, by failing to include prices of a product manufactured and sold under a private label arrangement with a managed care customer as well as the prices of free and nominally priced goods provided to that customer to induce the purchase of Schering products; and

      4. Document destruction and obstruction of justice relating to the government’s investigation.

      A target is defined in Department of Justice guidelines as a person as to whom the prosecutor or the grand jury has substantial evidence linking him or her to the commission of a crime and who, in the judgment of the prosecutor, is a putative defendant (U.S. Attorney’s Manual, Section 9-11.151).

      The Company has implemented certain changes to its sales, marketing and clinical trial practices and is continuing to review those practices to ensure compliance with relevant laws and regulations. The Company is cooperating with this investigation.

      See information about prior increases to the liabilities reserved in the financial statements, including in relation to this investigation, under Litigation Charges in Note 2, “Special Charges” and additional information about such reserves and the other potential impacts of the outcome of this investigation in the Background section of this Note.

      The Company previously recorded a liability of approximately $250 related to this investigation. It is reasonably possible that a settlement of the investigation could involve amounts materially in excess of this accrual. This could have a material adverse impact on the Company’s financial condition, cash flows or operations. As required by U.S. GAAP, since the Company cannot reasonably estimate the potential final resolution, the Company has recognized the estimated minimum liability.

      NITRO-DUR Investigation. In August 2003, the Company received a civil investigative subpoena issued by the Office of Inspector General of the U.S. Department of Health and Human Services seeking documents concerning the Company’s classification of NITRO-DUR for Medicaid rebate purposes, and the Company’s use of nominal pricing and bundling of product sales. The Company is cooperating with the investigation. It appears that the subpoena is one of a number addressed to pharmaceutical companies concerning an inquiry into issues relating to the payment of government rebates.

Pricing Matters

      AWP Investigations. The Company continues to respond to investigations by the Department of Health and Human Services, the Department of Justice and certain states into industry and Company practices regarding average wholesale price (AWP). These investigations include a Department of Justice review of the merits of a federal action filed by a private entity on behalf of the U.S. in the U.S. District Court for the Southern District of Florida, as well as an investigation by the U.S. Attorney’s Office for the District of Massachusetts, regarding, inter alia, whether the AWP set by pharmaceutical companies for certain drugs improperly exceeds the average prices paid by dispensers and, as a consequence, results in unlawful inflation of certain government drug reimbursements that are based on AWP. In March 2001, the Company received a subpoena from the Massachusetts Attorney General’s office seeking documents concerning the use of AWP and other pricing and/or marketing practices. The Company has also responded to subpoenas from the Attorney General of California concerning these matters. The Company is cooperating with these investigations. The outcome of these investigations could include the imposition of substantial fines, penalties and injunctive or administrative remedies.

      Prescription Access Litigation. In December 2001, the Prescription Access Litigation project (PAL), a Boston-based group formed in 2001 to litigate against drug companies, filed a class action suit in Federal Court in Massachusetts against the Company. In September 2002, a consolidated complaint was filed in this court as a result of the coordination by the Multi-District Litigation Panel of all federal court AWP cases from throughout the country. The consolidated complaint alleges that the Company and Warrick Pharmaceuticals,

79

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

the Company’s generic subsidiary, conspired with providers to defraud consumers by reporting fraudulently high AWPs for prescription medications reimbursed by Medicare or third-party payers. The complaint seeks a declaratory judgment and unspecified damages, including treble damages.

      Included in the litigation described in the prior paragraph are lawsuits that allege that the Company and Warrick reported inflated AWPs for prescription pharmaceuticals and thereby caused state and federal entities and third-party payers to make excess reimbursements to providers. Some of these actions also allege that the Company and Warrick failed to report accurate prices under the Medicaid Rebate Program and thereby underpaid rebates to some states. Some cases filed by State Attorneys General also seek to recover on behalf of citizens of the State and entities located in the State for excess payments as a result of inflated AWPs. These actions, which began in October 2001, have been brought by state Attorneys General, private plaintiffs, nonprofit organizations and employee benefit funds. They allege violations of federal and state law, including fraud, antitrust, Racketeer Influenced Corrupt Organizations Act (RICO) and other claims. During the first quarter of 2004, the Company and Warrick were among five groups of companies put on an accelerated discovery track in the proceeding. In addition, Warrick and the Company are defendants in a number of such lawsuits in state courts. The actions are generally brought by states and/or political subdivisions and seek unspecified damages, including treble and punitive damages.

Securities and Class Action Litigation

      On February 15, 2001, the Company stated in a press release that the FDA had been conducting inspections of the Company’s manufacturing facilities in New Jersey and Puerto Rico and had issued reports citing deficiencies concerning compliance with current Good Manufacturing Practices, primarily relating to production processes, controls and procedures. The next day, February 16, 2001, a lawsuit was filed in the U.S. District Court for the District of New Jersey against the Company and certain named officers alleging violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. Additional lawsuits of the same tenor followed. These complaints were consolidated into one action in the U.S. District Court for the District of New Jersey, and a lead plaintiff, the Florida State Board of Administration, was appointed by the Court on July 2, 2001. On October 11, 2001, a consolidated amended complaint was filed, alleging the same violations described in the second sentence of this paragraph and purporting to represent a class of shareholders who purchased shares of Company stock from May 9, 2000, through February 15, 2001. The complaint seeks compensatory damages on behalf of the class. The Company’s motion to dismiss the consolidated amended complaint was denied on May 24, 2002. On October 10, 2003, the Court certified the shareholder class. Discovery is ongoing.

      In addition to the lawsuits described in the immediately preceding paragraph, two lawsuits were filed in the U.S. District Court for the District of New Jersey, and two lawsuits were filed in New Jersey state court against the Company (as a nominal defendant) and certain officers, directors and a former director seeking damages on behalf of the Company, including disgorgement of trading profits made by defendants allegedly obtained on the basis of material non-public information. The complaints in each of those four lawsuits relate to the issues described in the Company’s February 15, 2001, press release, and allege a failure to disclose material information and breach of fiduciary duty by the directors. One of the federal court lawsuits also includes allegations related to the investigations by the U.S. Attorney’s Offices for the Eastern District of Pennsylvania and the District of Massachusetts, the FTC’s administrative proceeding against the Company, and the lawsuit by the state of Texas against Warrick, the Company’s generic subsidiary. The U.S. Attorney’s investigations and the FTC proceeding are described herein. The Texas litigation is described in previously filed 10-Ks and 10-Qs. Each of these lawsuits is a shareholder derivative action that purports to assert claims on behalf of the Company, but as to which no demand was made on the Board of Directors and no decision had been made on whether the Company can or should pursue such claims. In August 2001, the plaintiffs in each of the New Jersey state court shareholder derivative actions moved to dismiss voluntarily the complaints in those actions, which motions were granted. The two shareholder derivative actions pending in the U.S. District Court for the District of New Jersey have been consolidated into one action, which is in its very

80

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

early stages. On January 2, 2002, the Company received a demand letter dated December  26, 2001, from a law firm not involved in the derivative actions described above, on behalf of a shareholder who also is not involved in the derivative actions, demanding that the Board of Directors bring claims on behalf of the Company based on allegations substantially similar to those alleged in the derivative actions. On January 22, 2002, the Board of Directors adopted a Board resolution establishing an Evaluation Committee, consisting of three directors, to investigate, review and analyze the facts and circumstances surrounding the allegations made in the demand letter and the consolidated amended derivative action complaint described above, but reserving to the full Board authority and discretion to exercise its business judgment in respect of the proper disposition of the demand. The Committee engaged independent outside counsel to advise it and issued a report on the findings of its investigation to the independent directors of the Board in late October 2002. That report determined that the shareholder demand should be refused, and finding no liability on the part of any officers or directors. In November 2002, the full Board adopted the recommendation of the Evaluation Committee.

      The Company is a defendant in a number of purported nationwide or state class action lawsuits in which plaintiffs seek a refund of the purchase price of laxatives or phenylpropanolamine-containing cough/cold remedies (PPA products) they purchased. Other pharmaceutical manufacturers are co-defendants in some of these lawsuits. In general, plaintiffs claim that they would not have purchased or would have paid less for these products had they known of certain defects or medical risks attendant with their use. In the litigation of the claims relating to the Company’s PPA products, courts in the national class action suit and several state class action suits have denied certification and dismissed the suits. A similar application to deny class certification in New Jersey, the only remaining statewide class action suit involving the Company, was granted on September 30, 2004. Approximately 96 individual lawsuits relating to the laxative products, PPA products and recalled albuterol/VANCERIL/VANCENASE inhalers are also pending against the Company seeking recovery for personal injuries or death. In a number of these lawsuits punitive damages are claimed.

      Litigation filed in 2003 in the U.S. District Court in New Jersey alleging that the Company, Richard Jay Kogan, the Company’s Employee Savings Plan (Plan) administrator, several current and former directors, and certain corporate officers breached their fiduciary obligations to certain participants in the Plan. The complaint seeks damages in the amount of losses allegedly suffered by the Plan. The complaint was dismissed on June 29, 2004. The plaintiffs’ appeal is pending.

      A 2003 lawsuit filed in the New Jersey Superior Court, Chancery Division, Union County alleging breach of fiduciary duty by the outside directors relating to the Company’s receipt of the Boston Target Letter (described under the Investigations section in this Note) was dismissed in September 2004 upon consent of the parties.

Antitrust and FTC Matters

      K-DUR. K-DUR is Schering-Plough’s long-acting potassium chloride product supplement used by cardiac patients. Schering-Plough had settled patent litigation with Upsher-Smith, Inc. (Upsher-Smith) and ESI Lederle, Inc. (Lederle), which had related to generic versions of K-DUR for which Lederle and Upsher Smith had filed Abbreviated New Drug Applications (ANDAs). On April 2, 2001, the FTC started an administrative proceeding against Schering-Plough, Upsher-Smith and Lederle. The complaint alleged anti-competitive effects from those settlements. In June 2002, the administrative law judge overseeing the case issued a decision that the patent litigation settlements complied with the law in all respects and dismissed all claims against the Company. The FTC Staff appealed that decision to the full Commission. On December 18, 2003, the full Commission issued an opinion that reversed the 2002 decision and ruled that the settlements did violate the antitrust laws. The full Commission issued a cease and desist order imposing various injunctive restraints. By opinion filed March 8, 2005, the federal court of appeals set aside that 2003 Commission ruling and vacated the cease and desist order.

81

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      Following the commencement of the FTC administrative proceeding, alleged class action suits were filed in federal and state courts on behalf of direct and indirect purchasers of K-DUR against Schering-Plough, Upsher-Smith and Lederle. These suits all allege essentially the same facts and claim violations of federal and state antitrust laws, as well as other state statutory and/or common law causes of action. These suits seek unspecified damages. Discovery is ongoing.

SEC Inquiries and Related Litigation

      On September 9, 2003, the SEC and the Company announced settlement of the SEC enforcement proceeding against the Company and Richard Jay Kogan, former chairman and chief executive officer, regarding meetings held with investors the week of September 30, 2002, and other communications. Without admitting or denying the allegations, the Company agreed not to commit future violations of Regulation FD and related securities laws and paid a civil penalty of $1 (million). Mr. Kogan paid a civil penalty of $50 thousand.

      On September 25, 2003, a lawsuit was filed in New Jersey Superior Court, Union County, against Richard Jay Kogan and the Company’s outside Directors alleging breach of fiduciary duty, fraud and deceit and negligent misrepresentation, all relating to the alleged disclosures made during the meetings mentioned above. The Company removed this case to federal court. The case was remanded to state court. The Company has filed a motion to dismiss.

Other Matters

      EMEA Pharmacovigilance Matter. During 2003 pharmacovigilance inspections by officials of the British and French medicines agencies conducted at the request of the European Agency for the Evaluation of Medicinal Products (EMEA), serious deficiencies in reporting processes were identified. Schering-Plough continues to work on its action plan to rectify the deficiencies and provides regular updates to EMEA. The Company does not know what action, if any, the EMEA or national authorities will take in response to these findings. Possible actions include further inspections, demands for improvements in reporting systems, criminal sanctions against the Company and/or responsible individuals and changes in the conditions of marketing authorizations for the Company’s products.

      Biopharma Contract Dispute. Biopharma S.r.l. filed a claim in the Civil Court of Rome on July 21, 2004 (docket No. 57397/2004, 9th Chamber) against certain Schering-Plough subsidiaries. The matter relates to certain contracts dated November 15, 1999, (distribution and supply agreements between Biopharma and a Schering-Plough subsidiary) for distribution by Schering-Plough of generic products manufactured by Biopharma to hospitals and to pharmacists in France; and July 26, 2002 (letter agreement among Biopharma, a Schering-Plough subsidiary and Medipha Sante, S.A., appointing Medipha to distribute products in France). Biopharma alleges that Schering-Plough did not fulfill its duties under the contracts.

Tax Matters

      In October 2001, IRS auditors asserted, in reports, that the Company is liable for additional tax for the 1990 through 1992 tax years. The reports allege that two interest rate swaps that the Company entered into with an unrelated party should be recharacterized as loans from affiliated companies. In April 2004, the Company received a formal Notice of Deficiency (Statutory Notice) from the IRS asserting additional federal income tax due. The Company received bills related to this matter from the IRS on September 7, 2004. Payment in the amount of $194 for income tax and $279 for interest was made on September 13, 2004. The Company filed refund claims for the tax and interest with the IRS on December 23, 2004. The Company was notified on February 16, 2005, that its refund claims were denied by the IRS. The Company believes it has complied with all applicable rules and regulations and intends to file a suit for refund for the full amount of the tax and interest. The Company’s tax reserves were adequate to cover the above-mentioned payments.

82

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Environmental

      The Company has responsibilities for environmental cleanup 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). Except where a site is separately disclosed, the Company believes that it is remote at this time that there is any material liability in relation to such sites. The Company estimates its obligations for cleanup costs for Superfund sites based on information obtained from the federal Environmental Protection Agency (EPA), 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 cleanup when it is probable a loss has been incurred and the amount can be reasonably estimated.

83

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of Schering-Plough Corporation

      We have audited the accompanying consolidated balance sheets of Schering-Plough Corporation and subsidiaries (the “Company”) as of December 31, 2004 and 2003, and the related consolidated statements of operations, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2004. Our audits also included the financial statement schedule listed at Item 15. These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits.

      We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

      In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Schering-Plough Corporation and subsidiaries as of December 31, 2004 and 2003, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2004, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

      We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company’s internal control over financial reporting as of December 31, 2004, based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 8, 2005 expressed an unqualified opinion on management’s assessment of the effectiveness of the Company’s internal control over financial reporting and an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

/s/     Deloitte & Touche LLP

Parsippany, New Jersey

March 8, 2005

84

SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES

QUARTERLY DATA (UNAUDITED)

		Three Months Ended
		March 31					June 30						September 30						December 31
		2004			2003		2004			2003			2004			2003			2004			2003
		(Dollars in millions, except per share figures)
Net sales		$	1,963		$	2,082	$	2,147		$	2,308		$	1,978		$	1,998		$	2,184		$	1,948
Cost of sales			740			658		790			784			711			652			829			739
Gross profit			1,223			1,424		1,357			1,524			1,267			1,346			1,355			1,209
Selling, general and administrative			914			843		979			938			892			873			1,026			821
Research and development			372			322		451			369			378			382			406			395
Other (income) expense, net			36			13		43			(4	)		34			41			33			10
Special charges			70			—		42			20			26			350			15			229
Equity (income)/loss from cholesterol joint venture			(78	)		30		(77	)		(26	)		(95	)		(24	)		(98	)		(33	)
(Loss)/income before income taxes			(91	)		216		(81	)		227			32			(276	)		(27	)		(213	)
Income tax (benefit)/expense			(18	)		43		(16	)		45			6			(11	)		807			(32	)
Net (loss)/income		$	(73	)	$	173	$	(65	)	$	182		$	26		$	(265	)	$	(834	)	$	(181	)
Dividends on preferred shares			—			—		—			—			12			—			22			—
Net (loss)/income available to common shareholders		$	(73	)	$	173	$	(65	)	$	182		$	14		$	(265	)	$	(856	)	$	(181	)
Diluted (loss)/earnings per common share		$	(.05	)	$	.12	$	(.04	)	$	.12		$	.01		$	(.18	)	$	(.58	)	$	(.12	)
Basic (loss)/earnings per common share			(.05	)		.12		(.04	)		.12			.01			(.18	)	$	(.58	)		(.12	)
Dividends per common share			.055			.17		.055			.17			.055			.17			.055			.055
Common share prices:
	High		18.97			23.68		18.70			20.47			19.98			19.35			21.12			17.39
	Low		15.96			15.45		16.10			16.82			17.55			14.95			16.72			14.52
Average shares outstanding for diluted EPS (in millions)			1,471			1,470		1,472			1,471			1,475			1,469			1,473			1,470
Average shares outstanding for basic EPS (in millions)			1,471			1,468		1,472			1,469			1,472			1,469			1,473			1,470

      See Special Charges footnote in the Notes to Consolidated Financial Statements for additional information relating to Special Charges.

      The Company’s common shares are listed and principally traded on the New York Stock Exchange. The approximate number of holders of record of common shares as of January 31, 2005 was 41,000.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

      Not applicable.

Item 9A. Controls and Procedures

      Management, including the chief executive officer and the chief financial officer, has evaluated the Company’s disclosure controls and procedures as of the end of the period covered by this 10-K and has concluded that the Company’s disclosure controls and procedures are effective. They also concluded that there were no changes in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

85

Management’s Report on Internal Control over Financial Reporting

      The Management of Schering-Plough Corporation is responsible for establishing and maintaining adequate internal control over financial reporting. Schering-Plough’s internal control system is designed to provide reasonable assurance to the Company’s Management and Board of Directors regarding the preparation and fair presentation of published financial statements.

      All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

      Schering-Plough’s Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2004. In making this assessment, Management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control — Integrated Framework. Based on its assessment Management believes that, as of December 31, 2004, the Company’s internal control over financial reporting is effective based on those criteria.

      Schering-Plough’s independent auditors, Deloitte & Touche LLP, have issued an attestation report on Management’s assessment of the Company’s internal control over financial reporting. Their report follows.

86

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of Schering-Plough Corporation

      We have audited management’s assessment, included in the accompanying Management’s Report on Internal Control over Financial Reporting, that Schering-Plough Corporation and subsidiaries (the “Company”) maintained effective internal control over financial reporting as of December 31, 2004, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.

      We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.

      A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

      Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

      In our opinion, management’s assessment that the Company maintained effective internal control over financial reporting as of December 31, 2004, is fairly stated, in all material respects, based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2004, based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

87

      We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and financial statement schedule as of and for the year ended December 31, 2004 of the Company and our report dated March 8, 2005 expressed an unqualified opinion on those financial statements and financial statement schedule.

/s/     Deloitte & Touche LLP

Parsippany, New Jersey

March 8, 2005

88

Part III

Item 10. Directors and Executive Officers of the Registrant

      The information concerning directors and nominees for directors as set forth under the captions Proposal One: Election of Directors and Stock Ownership in the Company’s Proxy Statement for the annual meeting of shareholders on April  26, 2005 is incorporated herein by reference.

      Information required as to executive officers is included in Part I of this filing under the caption Executive Officers of the Registrant.

      The Company’s Board of Directors has determined that the Company has at least one audit committee financial expert serving on its audit committee. The financial expert is Arthur F. Weinbach, and he is independent as defined in the New York Stock Exchange Listing standards, the more restrictive Schering-Plough Board Independence Standard found in the Schering-Plough Corporate Governance Guidelines (available on the Web site and also included in the Proxy Statement) and as required under Rule 10A-3(b)(1) under the Securities Exchange Act of 1934, as amended.

      The Company has adopted Standards of Global Business Practices applicable to all employees, including the chief executive officer, chief financial officer and controller. The Standards of Global Business Practices are incorporated by reference as Exhibit 14 to this 10-K.

      A written copy of the Standards of Global Business Practices, as well as the Directors Code of Conduct and Ethics, will be provided at no charge by writing to the Corporate Secretary, Schering-Plough Corporation, 2000 Galloping Hill Road, Mail Stop K-1-4525, Kenilworth, New Jersey 07033. Also, these documents are available on the Schering-Plough Web site at www.Schering-Plough.com (see Investor Relations/ Corporate Governance/ Codes of Conduct)

Item 11. Executive Compensation

      Executive compensation information as set forth under the caption Executive Compensation in the Company’s Proxy Statement for the annual meeting of shareholders on April 26, 2005 is incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

      Information concerning security ownership of certain beneficial owners and management as set forth under the caption “Stock Ownership” in the Company’s Proxy Statement for the annual meeting of shareholders on April 26, 2005 is incorporated herein by reference.

      Equity Compensation Plan Information — The following information relates to plans under which equity securities of the Company may be issued to employees or directors. The Company has no plans under which equity securities may be issued to non-employees (except that under the 2002 Stock Incentive Plan and predecessor plans, certain stock options may be transferable to family members of the employee-optionee or related trusts).

89

		Column A			Column B		Column C
							Number of securities
							remaining available For
					Weighted-average		future issuance under equity
		Number of securities to be issued			exercise price of		compensation plans
		upon exercise of outstanding			outstanding options,		(excluding securities reflected
Plan Category		options, warrants and rights			warrants and rights		in Column A)
Equity compensation plans approved by security holders 2002 Stock Incentive Plan and Predecessor Plans			79,223,543		$	27.43		27,278,493
Equity compensation plans not approved by security holders
	Directors Stock Award Plan*		N/A			N/A		553,008
	Schering-Plough (Ireland) Share Purchase Scheme**		N/A			N/A		**
Non-plan inducement awards not approved by security holders			300,000 restricted shares	***		N/A		0
Total								27,831,501

*  The Plan provides an annual grant of 3,000 shares of common stock to each non-employee director. Directors may defer awards into stock units that pay out in shares of common stock when the deferral period ends.

**  The Plan permits employees who reside in Ireland to enjoy tax advantages by having some or all of their Christmas bonus and between 1% and 5% of their pay passed to a trustee. The trustee purchases shares of common stock in the open market and allocates the shares to the employees’ accounts. No more than 10,000 Irish pounds by an employee may be deferred in a year. Employees may not sell or withdraw shares allocated to their accounts for two to three years.

***  Represents restricted shares awarded pursuant to Restricted Shares Agreements outside of any equity compensation plan adopted by the Company. Mr. Hassan was awarded 200,000 restricted shares upon the commencement of his employment in April 2003. Ms. Cox was awarded 100,000 restricted shares upon the commencement of her employment in May 2003. Both awards of restricted shares vest upon the third anniversary of the award date. Such non-plan awards were authorized by the Compensation Committee of the Board but have not been approved by the stockholders of the Company.

Item 13. Certain Relationships and Related Transactions

      Information concerning certain relationships and related transactions as set forth under the caption “Certain Transactions” in the Company’s Proxy Statement for the annual meeting of shareholders on April 26, 2005 is incorporated herein by reference.

Item 14. Principal Accountant Fees and Services

      Information concerning principal accountant fees and services as set forth under the caption “Proposal Two: Ratification of Designation of Independent Registered Public Accountants” in the Company’s Proxy Statement for the annual meeting of shareholders on April 26, 2005 is incorporated herein by reference.

90

Part IV

Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K

      (a) 1. The financial statements are set forth under Item 8 of this 10-K.

      (a) 2. Financial Statement Schedule

	Page in
	10-K
Schedule II — Valuation and Qualifying Accounts		97

      Schedules not included have been omitted because they are not applicable or not required or because the required information is set forth in the financial statements or the notes thereto. Columns omitted from schedules filed have been omitted because the information is not applicable.

      Separate financial statements and notes thereto for the Merck/ Schering-Plough Cholesterol Partnership have not been included in this 10-K and are required to be included in accordance with Rule 3-09 of Regulation S-X. Pursuant to Rule 3-09(b) of Regulation S-X, the Company will include these separate financial statements and notes thereto in an amendment to the 10-K.

Exhibit
Number		Description
	3(a)	Restated Certificate of Incorporation, incorporated by reference to Exhibit 3(i) to the Company’s 10-Q for the period ended September 30, 2004; File No. 1-6571
	3(b)	A complete copy of the By-Laws as amended and currently in effect, incorporated by reference to Exhibit 4(2) to the Company’s Registration Statement on Form S-3, File No. 333-853; amendment to By-Laws effective September 22, 1998 incorporated by reference to Exhibit 4 to the Company’s 10-Q for the period ended September 30, 1998; amendment to By-Laws effective April  24, 2001 incorporated by reference to Exhibit 4 to the Company’s 10-Q for the period ended March 31, 2001; amendment to By-Laws effective December 3, 2001 incorporated by reference to Exhibit 3(b) to the Company’s 10-K for the year ended December 31, 2001, File No. 1-6571.
	4(a)	Rights Agreement between the Company and the Bank of New York dated June 24, 1997, incorporated by reference to Exhibit 1 to the Form 8-A filed by the Company on June 30, 1997, File No. 1-6571.
	4(b)	Form of Participation Rights Agreement between the Company and the Chase Manhattan Bank (National Association) as Trustee, incorporated by reference to Exhibit 4.6 to the Company’s Registration Statement on Form S-4, Amendment No. 1, File No. 33-65107.
	4(c)(i)	Indenture, dated November 26, 2001, between the Company and The Bank of New York as Trustee, incorporated by reference to Exhibit 4.1 to the Company’s 8-K filed November 28, 2003, File No. 1-6571.
	4(c)(ii)	First Supplemental Indenture (including Form of Note), dated November 26, 2003, incorporated by reference from 8-K filed November 28, 2003, File No. 1-6571.
	4(c)(iii)	Second Supplemental Indenture (including Form of Note), dated November 26, 2003, incorporated by reference from 8-K filed November 28, 2003, File No. 1-6571.
	4(c)(iv)	5.30% Global Senior Note, due 2013, incorporated by reference to Exhibit 4(c)(iv) to the Company’s 10-K for the year ended December 31, 2003, File No. 1-6571.
	4(c)(v)	6.50% Global Senior Note, due 2033, incorporated by reference to Exhibit 4(c)(v) to the Company’s Annual Report for 2003 on Form 10-K, File No. 1-6571.
	10(a)(i)	The Company’s Executive Incentive Plan (as amended) and Trust related thereto, incorporated by reference to Exhibit 10 to the Company’s 10-Q for the period ended March 31, 1994; Executive Incentive Plan (as amended and restated to October 1, 2000), incorporated by reference to Exhibit 10(a)(i) to the Company’s 10-K for the year ended December 31, 2000, File No. 1-6571.*

91

Exhibit
Number		Description
	10(a)(ii)	Trust Agreement, incorporated by reference to Exhibit 10(a) to the Company’s -K for the year ended December 31, 1988; amendment to Trust Agreement incorporated by reference to Exhibit 10(b) to the Company’s 10-Q for the period ended March 31, 1997; Amended and Restated Defined Contribution Trust incorporated by reference to Exhibit 10(a)(ii) to the Company’s 10-K for the year ended December 31, 2000, File No. 1-6571.*
	10(b)	The Company’s 1992 Stock Incentive Plan (as amended), incorporated by reference to Exhibit 10(d) to the Company’s 10-K for the year ended December 31, 1992, File No. 1-6571; 1992 Stock Incentive Plan (as amended to December 11, 1995) incorporated by reference to Exhibit 10(d) to the Company’s 10-K for the year ended December 31, 1995, File No. 1-6571; Amendment to the 1992 Stock Incentive Plan (effective February 25, 2003) incorporated by reference to Exhibit 10(b) to the Company’s 10-K for the year ended December 31, 2002, File No. 1-6571.*
	10(c)	The Company’s 1997 Stock Incentive Plan (as amended), incorporated by reference to Exhibit 10 to the Company’s 10-Q for the period ended September 30, 1997; Amendment to 1997 Stock Incentive Plan (effective February 22, 1999) incorporated by reference to Exhibit 10(a) to the Company’s 10-Q for the period ended March 31, 1999, File No. 1-6571; Amendment to the 1997 Stock Incentive Plan (effective February 25, 2003) incorporated by reference to Exhibit 10(c) to the Company’s 10-K for the year ended December 31, 2002, File No. 1-6571.*
	10(d)	The Company’s 2002 Stock Incentive Plan, incorporated by reference to the Company’s Proxy Statement for the annual meeting of shareholders on April 23, 2002; Amendment to the 2002 Stock Incentive Plan (effective February 25, 2003) incorporated by reference to Exhibit 10(d) to the Company’s 10-K for the year ended December 31, 2002, File No. 1-6571.*
	10(e)(i)	Employment Agreement dated as of April 20, 2003 between Fred Hassan and Schering-Plough Corporation, incorporated by reference to Exhibit 99.2 to the Schering-Plough Corporation 8-K filed April 21, 2003, File No. 1-6571.*
	10(e)(ii)	Employment Agreement dated as of May 12, 2003 between Carrie Cox and Schering-Plough Corporation, incorporated by reference to Exhibit 99.6 to the Schering-Plough Corporation 8-K filed May 13, 2003, File No. 1-6571.*
	10(e)(iii)	Letter agreement dated November 4, 2003 between Robert Bertolini and Schering-Plough Corporation incorporated by reference to Exhibit 10(e)(iii) to the Company’s 10-K for the year ended December 31, 2003, File No. 1-6571.*
	10(e)(iv)	Employment Agreement effective upon a change of control dated as of November 17, 2003 between Robert Bertolini and Schering-Plough Corporation incorporated by reference to Exhibit 10(e)(iv) to the Company’s 10-K for the year ended December 31, 2003, File No. 1-6571.*
	10(e)(v)	Letter agreement dated March 11, 2004 between Thomas J. Sabatino, Jr. and Schering-Plough Corporation, incorporated by reference to Exhibit 10 to the Company’s 10-Q for the period ended March 31, 2004, File No. 1-6571.*
	10(e)(vi)	Revised form of employment agreement effective upon a change of control between the Company and certain executives for new agreements beginning in June 2004.*
	10(e)(vii)	Form of employment agreement between the Company and its executive officers effective upon a change of control, incorporated by reference to Exhibit 10(e)(iv) to the Company’s 10-K for the year ended December 31, 1994; Form of amendment incorporated by reference to Exhibit 10(a) to the Company’s 10-Q for the period ended September 30, 1999; Forms of amendment effective January 1, 2002 incorporated by reference to Exhibits 10(e) (ii)(A) and(B) to the Company’s 10-K for the year ended December 31, 2001; Form of employment agreement between the Company and its executive officers effective upon a change of control incorporating all prior amendments through January 1, 2002 and for new agreements effective beginning January 1, 2002, incorporated by reference to Exhibit 10(e)(ii)(C) to the Company’s Annual Report for 2001 on Form 10-K, File no. 1-6571.*

92

Exhibit
Number		Description
	10(e)(x)	Supplement to employment agreement effective upon a change of control (described in Exhibit 10(e)(vii) of this document index) dated as of January 1, 2002 between Schering-Plough Corporation and Raul Kohan incorporated by reference to Exhibit 10(e)(x) to the Company’s 10-K for the year ended December 31, 2003, File No. 1-6571.*
	10(e)(xi)	The Company’s Severance Benefit Plan (as amended and restated effective December 17, 2004).*
	10(e)(xii)	The Company’s Savings Advantage Plan, incorporated by reference to Exhibit 4.1 to the Company’s S-8 filed December 8, 2004, File No. 333-121089.*
	10(f)	The Company’s Directors Deferred Compensation Plan (as amended to October 26, 1999) and Trust related thereto, incorporated by reference to Exhibit 10(b) to the Company’s 10-Q for the period ended September 30, 1999; Trust Agreement incorporated by reference to Exhibit 10(a) to the Company’s 10-K for the year ended December 31, 1998; amendment to Trust Agreement incorporated by reference to Exhibit 10(b) to the Company’s 10-Q for the period ended March 31, 1997; Amended and Restated Defined Contribution Trust incorporated by reference to Exhibit 10(a)(ii) to the Company’s 10-K for the year ended December 31, 2000, File No. 1-6571.*
	10(g)	The Company’s Supplemental Executive Retirement Plan and Trust related thereto, incorporated by reference to Exhibit 10(e) to the Company’s 10-Q for the period ended March 31, 1998; Amendment to the Supplemental Executive Retirement Plan (effective November 1, 1998) incorporated by reference to Exhibit 10(a) to the Company’s 10-Q for the period ended September 30, 1998; Second Amendment to the Supplemental Executive Retirement Plan (effective as of October 1, 2000) incorporated by reference to Exhibit 10(g) to the Company’s 10-K for the year ended December 31, 2000; Amended and Restated SERP Rabbi Trust Agreement incorporated by reference to Exhibit 10(g) to the Company’s 10-K for the year ended December 31, 1998, File No. 1-6571.*
	10(h)	The Company’s Directors Stock Award Plan (amended and restated through February 25, 2003), incorporated by reference to Exhibit 10(h) to the Company’s 10-K for the year ended December 31, 2002, File No. 1-6571.*
	10(i)	The Company’s Deferred Compensation Plan, incorporated by reference to Exhibit 10(b) to the Company’s 10-Q for the period ended September 30, 1995; Deferred Compensation Plan (as amended and restated to October 1, 2000) incorporated by reference to Exhibit 10(h) to the Company’s 10-K for the year ended December 31, 2000, File No. 1-6571.*
	10(k)	The Company’s Form of Split Dollar Agreement and related Collateral Assignment between the Company and its Executive Officers, incorporated by reference to Exhibit 10(l) to the Company’s 10-K for the year ended December 31, 1997; amendments incorporated by reference to Exhibit 10(g) to the Company’s 10-Q for the period ended March 31, 1998, File No. 1-6571.*
	10(l)	The Company’s Retirement Benefits Equalization Plan (as amended and restated to January 1, 2004).*
	10(m)	The Company’s Operations Management Team Incentive Plan incorporated by reference to Exhibit 10(m) to the Company’s 10-K for the year ended December 31, 2003, File No. 1-6571.*
	10(n)	The Company’s Cash Long-Term Incentive Plan (as amended and restated effective January 24, 2005).*
	10(o)	The Company’s Long-Term Performance Share Unit Incentive Plan (as amended and restated effective January 24, 2005).*
	10(p)	Transformational Performance Contingent Shares Program incorporated by reference to Exhibit 10(p) to the Company’s 10-K for the year ended December 31, 2003, File No. 1-6571.*
	10(q)	Cholesterol Governance Agreement, dated as of May 22, 2000, by and among the Company, Merck & Co., Inc. and the other parties signatory thereto, incorporated by reference to Exhibit 99.2 to the Company’s Current Report on Form 8-K dated October 21, 2002.†

93

Exhibit
Number			Description
	10(r)		First Amendment to the Cholesterol Governance Agreement, dated as of December 18, 2001, by and among the Company, Merck & Co., Inc. and the other parties signatory thereto, incorporated by reference to Exhibit 99.3 to the Company’s Current Report on Form 8-K dated October 21, 2002. †
	10(s)		Master Agreement, dated as of December 18, 2001, by and among the Company, Merck & Co., Inc. and the other parties signatory thereto, incorporated by reference to Exhibit 99.4 to the Company’s Current Report on Form 8-K dated October 21, 2002. †
	10	.2(t)	Letter Agreement dated April 14, 2003 relating to Consent Decree incorporated by reference to Exhibit 99.3 to the Company’s 10-Q for the period ended March 31, 2003, File No. 1-6571.
	10(u)		Distribution agreement between the Company and Centocor, Inc., dated April 3, 1998. †
	10(v)		Amended and Restated Directors’ Deferred Stock Equivalencey Program, Incorporated by Reference to Exhibit 10(d) to the Company’s 10-Q for the period ended September 30, 1999.
	10(w)		Summary of Director Compensation.
	12		Computation of Ratio of Earnings to Fixed Charges.
	14		Standards of Global Business Practices (covers all employees, including Senior Financial Officers), incorporated by reference to Exhibit 14 to 8-K filed September 30, 2004.
	21		Subsidiaries of the registrant.
	23		Consent of Deloitte & Touche LLP.
	24		Power of attorney.
	31	.1	Sarbanes-Oxley Act of 2002, Section 302 Certification for Chairman of the Board, Chief Executive Officer and President.
	31	.2	Sarbanes-Oxley Act of 2002, Section 302 Certification for Executive Vice President and Chief Financial Officer.
	32	.1	Sarbanes-Oxley Act of 2002, Section 906 Certification for Chairman of the Board, Chief Executive Officer and President.
	32	.2	Sarbanes-Oxley Act of 2002, Section 906 Certification for Executive Vice President and Chief Financial Officer.

*  Compensatory plan, contract or arrangement.

†  Certain portions of the exhibit have been omitted pursuant to a request for confidential treatment. The non-public information has been filed separately with the Securities and Exchange Commission pursuant to rule 24b-2 under the Securities Exchange Act of 1934, as amended.

      Copies of above exhibits will be furnished upon request.

94

SIGNATURES

      Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Schering-Plough Corporation

(Registrant)

By  /s/ Douglas J. Gingerella

Douglas J. Gingerella

Vice President and Controller

(Duly Authorized Officer

and Chief Accounting Officer)

Date March 8, 2005

      Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.

/s/ Fred Hassan Fred Hassan	Chairman of the Board, Chief Executive Officer and President
/s/ Robert J. Bertolini Robert J. Bertolini	Executive Vice President and Chief Financial Officer
/s/ Douglas J. Gingerella Douglas J. Gingerella	Vice President and Controller
* Hans W. Becherer	Director
* Philip Leder, M.D.	Director
* Eugene R. McGrath	Director
* Carl E. Mundy, Jr.	Director
* Richard de J. Osborne	Director
* Patricia F. Russo	Director
* Kathryn C. Turner	Director

95

* Robert F. W. van Oordt		Director
* Arthur F. Weinbach		Director
*By	/s/ Douglas J. Gingerella Douglas J. Gingerella Attorney-in-fact

Date: March 8, 2005

96

SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES

SCHEDULE II. VALUATION AND QUALIFYING ACCOUNTS

For the Years Ended December 31, 2004, 2003 and 2002

      Valuation and qualifying accounts deducted from assets to which they apply:

      Allowances for accounts receivable:

	Reserve for			Reserve			Reserve
	Doubtful			for Cash			for Claims
	Accounts			Discounts			and Other			Total
	(Dollars in millions)
2004
Balance at beginning of year	$	60		$	22		$	35		$	117
Additions:
Charged to costs and expenses		16			105			159			280
Deductions from reserves		(11	)		(103	)		(114	)		(228	)
Effects of foreign exchange		2			1			1			4
Balance at end of year	$	67			25			81		$	173
2003
Balance at beginning of year	$	68		$	39		$	27		$	134
Additions:
Charged to costs and expenses		18			112			40			169
Deductions from reserves		(29	)		(131	)		(34	)		(194	)
Effects of foreign exchange		3			2			2			7
Balance at end of year	$	60		$	22		$	35		$	116
2002
Balance at beginning of year	$	68		$	34		$	21		$	123
Additions:
Charged to costs and expenses		22			168			17			207
Deductions from reserves		(22	)		(164	)		(12	)		(198	)
Effects of foreign exchange		—			1			1			2
Balance at end of year	$	68		$	39		$	27		$	134

97 EX-10.E.VI 2 y05567exv10wewvi.htm EX-10.E.VI: REVISED FORM OF EMPLOYMENT AGREEMENT

Exhibit 10(e)(vi)

CHANGE OF CONTROL EMPLOYMENT AGREEMENT

          AGREEMENT by and between Schering-Plough Corporation, a New Jersey corporation (the “Company”) and ___, (the “Executive”), is dated as of the ___day of ___, 200_.

          The Board of Directors of the Company (the “Board”), has determined that it is in the best interests of the Company and its shareholders to assure that the Company will have the continued dedication of the Executive, notwithstanding the possibility, threat or occurrence of a Change of Control (as defined below) of the Company. The Board believes it is imperative to diminish the inevitable distraction of the Executive by virtue of the personal uncertainties and risks created by a pending or threatened Change of Control and to encourage the Executive’s full attention and dedication to the Company currently and in the event of any threatened or pending Change of Control, and to provide the Executive with compensation and benefits arrangements upon a Change of Control which ensure that the compensation and benefits expectations of the Executive will be satisfied and which are competitive with those of other corporations. Therefore, in order to accomplish these objectives, the Board has caused the Company to enter into this Agreement.

          NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:

          1. Certain Definitions.

            (a) The “Effective Date” shall mean the first date during the Change of Control Period (as defined in Section 1(b)) on which a Change of Control (as defined in Section 2) occurs. Anything in this Agreement to the contrary notwithstanding, if a Change of Control occurs and if the Executive’s employment with the Company is terminated prior to the date on which the Change of Control occurs, and if it is reasonably demonstrated by the Executive that such termination of employment (i) was at the request of a third party who has taken steps reasonably calculated to effect a Change of Control or (ii) otherwise arose in connection with or anticipation of a Change of Control, then for all purposes of this Agreement the “Effective Date” shall mean the date immediately prior to the date of such termination of employment.

            (b) The “Change of Control Period” shall mean the period commencing on the date hereof and ending on the earlier of (x) the third anniversary of the date hereof and (y) the date the Executive’s employment terminates. Prior to the expiration of the Change of Control Period, the Company and the Executive may, upon mutual agreement but without obligation, execute an amendment to this Agreement to extend the length of the Change of Control Period.

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          2. Change of Control. For the purpose of this Agreement, a “Change of Control” shall mean a Change of Control as defined in the Company’s 2002 Stock Incentive Plan.

          3. Employment Period. The Company hereby agrees to continue the Executive in its employ, and the Executive hereby agrees to remain in the employ of the Company subject to the terms and conditions of this Agreement, for the period commencing on the Effective Date and ending on the earlier of (x) the third anniversary of such date and (y) the Executive’s 65th birthday (the “Employment Period”).

          4. Terms of Employment.

          (a) Position and Duties.

               (i) During the Employment Period, (A) the Executive’s position (including status, offices, titles and reporting requirements), authority, duties and responsibilities shall be at least commensurate in all material respects with the most significant of those held, exercised and assigned at any time during the 120-day period immediately preceding the Effective Date and (B) the Executive’s services shall be performed at the location where the Executive was employed immediately preceding the Effective Date or any office or location less than 35 miles from such location and in the same state.

               (ii) During the Employment Period, and excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive agrees to devote reasonable attention and time during normal business hours to the business and affairs of the Company and, to the extent necessary to discharge the responsibilities assigned to the Executive hereunder, to use the Executive’s reasonable best efforts to perform faithfully and efficiently such responsibilities. During the Employment Period it shall not be a violation of this Agreement for the Executive to (A) serve on corporate, civic or charitable boards or committees, (B) deliver lectures, fulfill speaking engagements or teach at educational institutions and (C) manage personal investments, so long as such activities do not significantly interfere with the performance of the Executive’s responsibilities as an employee of the Company in accordance with this Agreement. It is expressly understood and agreed that to the extent that any such activities have been conducted by the Executive prior to the Effective Date, the continued conduct of such activities (or the conduct of activities similar in nature and scope thereto) subsequent to the Effective Date shall not thereafter be deemed to interfere with the performance of the Executive’s responsibilities to the Company.

          (b) Compensation.

          (i) Base Salary. During the Employment Period, the Executive shall receive an annual base salary (“Annual Base Salary”),

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which shall be paid at a semi-monthly rate, at least equal to twenty-four times the highest semi-monthly base salary paid or payable, including any base salary which has been earned but deferred, to the Executive by the Company and its affiliated companies in respect of the twelve-month period immediately preceding the month in which the Effective Date occurs. During the Employment Period, the Annual Base Salary shall be reviewed no more than 12 months after the last salary increase awarded to the Executive prior to the Effective Date and thereafter at least annually. Any increase in Annual Base Salary shall not serve to limit or reduce any other obligation to the Executive under this Agreement. Annual Base Salary shall not be reduced after any such increase and the term Annual Base Salary as utilized in this Agreement shall refer to Annual Base Salary as so increased. As used in this Agreement, the term “affiliated companies” shall include any company controlled by, controlling or under common control with the Company.

               (ii) Annual Bonus. In addition to Annual Base Salary, the Executive shall be awarded, for each fiscal year ending during the Employment Period, an annual bonus in cash at least equal to the Executive’s highest annual target incentive opportunity under the Company’s annual incentive plan applicable to the Executive (the “Incentive Plan”), or any comparable bonus under any predecessor or successor plan, for any of the last three full fiscal years prior to the Effective Date (the “Annual Bonus”). Each such Annual Bonus shall be paid no later than the end of the third month of the fiscal year next following the fiscal year for which the Annual Bonus is awarded, unless the Executive shall elect to defer the receipt of such Annual Bonus.

               (iii) Incentive, Savings and Retirement Plans. During the Employment Period, the Executive shall be entitled to participate in all incentive, profit-sharing, stock option, stock award, savings and retirement plans and programs applicable generally to other peer executives of the Company and its affiliated companies, but in no event shall such plans and programs provide the Executive with incentive opportunities (measured with respect to both regular and special incentive opportunities, to the extent, if any, that such distinction is applicable), savings opportunities and retirement benefit opportunities, in each case, less favorable, in the aggregate, than the most favorable of those provided by the Company and its affiliated companies for the Executive under such plans and programs as in effect at any time during the 120-day period immediately preceding the Effective Date or if more favorable to the Executive, those provided generally at any time after the Effective Date to other peer executives of the Company and its affiliated companies.

               (iv) Welfare Benefit Plans. During the Employment Period, the Executive and/or the Executive’s family, as the case may be, shall be eligible for participation in and shall receive all benefits under welfare benefit plans and programs provided by the Company and its affiliated companies (including, without limitation, medical, prescription, dental, disability, employee life, group life,

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accidental death and travel accident insurance plans and programs) to the extent applicable generally to other peer executives of the Company and its affiliated companies, but in no event shall such plans and programs provide the Executive with benefits which are less favorable, in the aggregate, than the most favorable of such plans and programs in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, those provided generally at any time after the Effective Date to other peer executives of the Company and its affiliated companies.

               (v) Expenses. During the Employment Period, the Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Executive in accordance with the most favorable policies and procedures of the Company and its affiliated companies in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies.

               (vi) Fringe Benefits. During the Employment Period, the Executive shall be entitled to fringe benefits, including, without limitation, tax and financial planning services, payment of club dues, and, if applicable, use of an automobile and payment of related expenses and use of Company aircraft, in accordance with the most favorable plans and policies of the Company and its affiliated companies in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies.

               (vii) Office and Support Staff. During the Employment Period, the Executive shall be entitled to an office or offices of a size and with furnishings and other appointments, and to personal secretarial and other assistance, at least equal to the most favorable of the foregoing provided to the Executive by the Company and its affiliated companies at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as provided generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies.

               (viii) Vacation. During the Employment Period, the Executive shall be entitled to paid vacation in accordance with the most favorable plans and practices of the Company and its affiliated companies as in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies.

          5. Termination of Employment.

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               (a) Death or Disability. The Executive’s employment shall terminate automatically upon the Executive’s death during the Employment Period. If the Company determines in good faith that the Disability of the Executive has occurred during the Employment Period (pursuant to the definition of Disability set forth below), it may give to the Executive written notice in accordance with Section 12(b) of this Agreement of its intention to terminate the Executive’s employment. In such event, the Executive’s employment with the Company shall terminate effective on the 30th day after receipt of such notice by the Executive (the “Disability Effective Date”), provided that, within the 30 days after such receipt, the Executive shall not have returned to full-time performance of the Executive’s duties. For purposes of this Agreement, “Disability” shall mean the absence of the Executive from the Executive’s duties with the Company on a full-time basis for 180 consecutive business days as a result of incapacity due to mental or physical illness which is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to the Executive or the Executive’s legal representative.

               (b) Cause. The Company may terminate the Executive’s employment during the Employment Period for Cause. For purposes of this Agreement, “Cause” shall mean termination initiated by the Company or by the Executive incident to or connected with a finding that the Executive has engaged, whether in connection with Executive’s employment with the Company or otherwise, in misappropriation, theft, embezzlement, kick-backs, bribery, or other deliberate, gross or willful misconduct or dishonest acts or omissions, including, but not limited to, commission of a felony.

               (c) Good Reason. The Executive’s employment may be terminated by the Executive for Good Reason. For purposes of this Agreement, “Good Reason” shall mean any of the events described in (i)-(iii) below if the Company fails to cure such events within 20 business days after receiving notice thereof from the Executive:

          (i) the assignment to the Executive of any duties that are materially inconsistent with the Executive’s education, training and experience, or that result in a significant diminution in the Executive’s status or title (as described in this Agreement), it being understood that a change in the person to whom the Executive reports does not constitute “Good Reason”;

          (ii) any significant reduction by the Company of the Executive’s total compensation in the aggregate, unless such reduction was part of a reduction approved by the Company’s Board of Directors (or a Committee thereof) for one or more employees in addition to the Executive; or

          (iii) any failure by the Company to comply with any of the provisions of Section 3 of this Agreement.

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          (d) Notice of Termination. Any termination by the Company for Cause, or by the Executive for Good Reason, shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 12(b) of this Agreement. For purposes of this Agreement, a “Notice of Termination” means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive’s employment under the provision so indicated and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than thirty days after the giving of such notice). The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting such fact or circumstance in enforcing the Executive’s or the Company’s rights hereunder.

          (e) Date of Termination. “Date of Termination” means (i) if the Executive’s employment is terminated by the Company for Cause, or by the Executive for Good Reason, the date of receipt of the Notice of Termination or any later date specified therein, as the case may be, (ii) if the Executive’s employment is terminated by the Company other than for Cause or Disability, the Date of Termination shall be the date on which the Company notifies the Executive of such termination and (iii) if the Executive’s employment is terminated by reason of death or Disability, the Date of Termination shall be the date of death of the Executive or the Disability Effective Date, as the case may be.

          6. Obligations of the Company upon Termination.

          (a) Good Reason; Other Than for Cause, Death or Disability. If, during the Employment Period, the Company shall terminate the Executive’s employment other than for Cause or Disability or the Executive shall terminate employment for Good Reason:

               (i) the Company shall pay to the Executive in a lump sum in cash within 30 days after the Date of Termination the aggregate of the following amounts:

               A. the sum of (1) the Executive’s Annual Base Salary through the Date of Termination to the extent not theretofore paid, (2) the product of (x) the Executive’s Annual Bonus and (y) a fraction, the numerator of which is the number of days in the current fiscal year through the Date of Termination, and the denominator of which is 365 and (3) any accrued vacation pay, in each case to the extent not theretofore paid (the sum of the amounts described in clauses (1), (2), and

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(3) shall be hereinafter referred to as the “Accrued Obligations”); and

               B. the amount equal to the product of (1) the lesser of (x) three and (y) the number of days after the Date of Termination and on or before the Executive’s 65th birthday, divided by 365, times (2) the sum of (A) the Executive’s Annual Base Salary, (B) the Executive’s Annual Bonus and (C) the greater of the highest contributions made under the Company’s Employees’ Profit Sharing Incentive Plan and the Company’s Profit Sharing Benefits Equalization Plan or the highest aggregate Company contribution to the Executive’s account under the Company’s qualified and nonqualified defined contribution retirement plans, for any of the three calendar years preceding the Date of Termination; and

               C. an amount equal to the excess of (a) the actuarial equivalent of the benefit under the Company’s qualified defined benefit retirement plan (the “Retirement Plan”) (utilizing actuarial assumptions no less favorable to the Executive than those in effect under the Company’s Retirement Plan immediately prior to the Effective Date), and the actuarial equivalent of the benefit under any excess or supplemental retirement plans in which the Executive participates (together, the “SERP”) (utilizing actuarial assumptions no less favorable to the Executive than those in effect under the SERP immediately prior to the Effective Date) which the Executive would have received if the Executive’s employment had continued for three years after the Date of Termination or through age 65, if sooner, assuming for this purpose that all accrued benefits were fully vested, and, assuming that the Executive’s compensation in each of the three years (or the shorter period to age 65, if applicable) would have been that required by Section 4(b)(i) and Section 4(b)(ii), over (b) the actuarial equivalent of the Executive’s actual benefit (paid or payable), if any, under the Retirement Plan and the SERP as of the Date of Termination;

               (ii) for the lesser of (x) three years after the Executive’s Date of Termination and (y) the period through the Executive’s 65th birthday, or such longer period as may be provided by the terms of the appropriate plan, program, the Company shall continue benefits to the Executive and/or the Executive’s family at least equal to those which would have been provided to them in accordance with the plans and programs described in Section 4(b)(iv) of this Agreement if the Executive’s employment had not been terminated or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies and their families, provided, however, that if the Executive becomes reemployed with another employer and is eligible to receive medical or other welfare benefits under another employer provided plan, the medical and other welfare benefits described herein shall be secondary to those provided under such other plan during such applicable period of eligibility; and provided further, that if Executive’s participation

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in any such program could result in adverse or unintended tax consequences to any participant in such program, the Company shall be entitled to pay such Executive the cost of equivalent benefits outside such program or provide such executive with substantially equivalent benefits through a separate program without regard to the tax treatment applicable to such payment or separate program in lieu of permitting the Executive to participate in such program;

               (iii) to the extent not theretofore paid or provided, the Company shall timely pay or provide to the Executive any other amounts or benefits required to be paid or provided or which the Executive is eligible to receive under any plan, program, policy, contract, or agreement of the Company and its affiliated companies (such other amounts and benefits shall be hereinafter referred to as the “Other Benefits”);

               (iv) the Company shall waive any and all “reduction factors” imposed as a result of Executive’s age with respect to the Executive’s nonqualified supplemental or excess employee pension benefit plan if the Executive is at least age 50 as of the Date of Termination.;

               (v) in addition to the benefits provided in subparagraph (a)(ii) of this Section 6, if the Executive is age 50 or older as of the Date of Termination, the Executive shall become immediately eligible for coverage under the Company’s retiree medical plan or any replacement or successor plan (including, without limitation, any supplemental coverage applicable to executives). If the Company is unable to provide the Executive with coverage under such plans, policies and programs, the Company shall provide the Executive with separate comparable coverage but in no event less favorable, in the aggregate, than the most favorable of such plans, policies and programs in effect for retirees immediately prior to the Effective Date.

          (b) Death. If the Executive’s employment is terminated by reason of the Executive’s death during the Employment Period, this Agreement shall terminate without further obligations to the Executive’s legal representatives under this Agreement, other than for payment of Accrued Obligations and the timely payment or provision of Other Benefits. Accrued Obligations shall be paid to the Executive’s estate or beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of Termination. With respect to the provision of Other Benefits, the term Other Benefits as utilized in this Section 6(b) shall include, without limitation, and the Executive’s estate and/or beneficiaries shall be entitled to receive, benefits at least equal to the most favorable benefits provided by the Company and affiliated companies to the estates and beneficiaries of peer executives of the Company and such affiliated companies under such plans, programs, and policies relating to death benefits and survivor benefits, if any, as in effect with respect to other peer executives and their beneficiaries at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive’s estate and/or the Executive’s beneficiaries, as in effect on the date of the Executive’s death with respect to other

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peer executives of the Company and its affiliated companies and their beneficiaries.

          (c) Disability. If the Executive’s employment is terminated by reason of the Executive’s Disability during the Employment Period, this Agreement shall terminate without further obligations to the Executive, other than for payment of Accrued Obligations and the timely payment or provision of Other Benefits. Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination. With respect to the provision of Other Benefits, the term Other Benefits as utilized in this Section 6(c) shall include, without limitation, and the Executive shall be entitled after the Disability Effective Date to receive, disability and other benefits at least equal to the most favorable of those generally provided by the Company and its affiliated companies to disabled executives and/or their families in accordance with such plans, programs, and policies relating to disability, if any, as in effect generally with respect to other peer executives and their families at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive and/or the Executive’s family, as in effect at any time thereafter generally with respect to other peer executives of the Company and its affiliated companies and their families.

          (d) Cause; Other than for Good Reason. If the Executive’s employment shall be terminated for Cause during the Employment Period, this Agreement shall terminate without further obligations to the Executive other than the obligation to pay to the Executive (x) his Annual Base Salary through the Date of Termination, (y) the amount of any compensation previously deferred by the Executive, and (z) Other Benefits, in each case to the extent theretofore unpaid. If the Executive voluntarily terminates employment during the Employment Period, excluding a termination for Good Reason, this Agreement shall terminate without further obligations to the Executive, other than for Accrued Obligations and the timely payment or provision of Other Benefits. In such case, all Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination.

          7. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or limit the Executive’s continuing or future participation in any plan, program, or policy provided by the Company or any of its affiliated companies and for which the Executive may qualify, nor, subject to Section 12(f), shall anything herein limit or otherwise affect such rights as the Executive may have under any contract or agreement with the Company or any of its affiliated companies. Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan, policy, practice or program of or any contract or agreement with the Company or any of its affiliated companies at or subsequent to the Date of Termination shall be payable in accordance with such plan, policy, practice or program or contract or agreement except as explicitly modified by this Agreement. In the event that an amendment to an employee benefit plan adopted after the effective date of this Agreement specifically

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conflicts with an express promise made in this Agreement, the Company shall have the right to honor the promise through comparable means outside the affected employee benefit plan without regard to any differences in the tax impact to the Executive.

          8. Full Settlement. The Company’s obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement and such amounts shall not be reduced whether or not the Executive obtains other employment. The Company agrees to pay, to the full extent permitted by law, all legal fees and expenses up to $25,000 which the Executive may reasonably incur as a result of any contest by the Company, the Executive or others of the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof (including as a result of any contest by the Executive about the amount of any payment pursuant to this Agreement); provided, however, that if the Company ultimately prevails in a court of competent jurisdiction with regard to any such contest, the Executive agrees to reimburse the Company for any and all legal fees and expenses paid by the Company in accordance with this sentence. Such amounts shall become payable within 30 days after the expiration of the applicable period to appeal such outcome or, if an appeal is taken, 30 days after final resolution of such appeal. Interest shall accrue on any delayed payment at the applicable Federal rate provided for in Section 7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended (the “Code”).

          9. Certain Additional Payments.

          (a) Anything in this Agreement to the contrary notwithstanding and except as set forth below, in the event it shall be determined that any payment or distribution in the nature of compensation (within the meaning of Section 280G(b)(2) of the Code) to or for the benefit of the Executive, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise (each, a “Payment”) would be subject to the excise tax imposed by Section 4999 of the Code (together with any interest or penalties imposed with respect to such excise tax, the “Excise Tax”), then the Executive shall be entitled to receive an additional payment (“Gross-Up Payment”) in an amount such that after payment by the Executive of all taxes (and any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. The Company’s obligation to make Gross-Up Payments under this Section 9 shall not be conditioned upon the Executive’s termination of employment.

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          (b) Subject to the provisions of Section 9(c), all determinations required to be made under this Section 9, including whether and when a Gross-Up Payment is required, the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by Deloitte & Touche or such other certified public accounting firm that is serving as the Company’s primary independent auditors at the time (the “Accounting Firm”). The Accounting Firm shall provide detailed supporting calculations both to the Company and the Executive within 15 business days of the receipt of notice from the Executive that there has been a Payment or such earlier time as is requested by the Company. In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the Change of Control, the Executive may appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to this Section 9, shall be paid by the Company to the Executive within ten days of the receipt of the Accounting Firm’s determination. Any determination by the Accounting Firm shall be binding upon the Company and the Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made (“Underpayment”), consistent with the calculations required to be made hereunder. In the event the Company exhausts or does not seek to pursue its remedies pursuant to Section 9(c) and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive.

          (c) The Executive shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten business days after the Executive is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which the Executive gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall:

          (i) give the Company any information reasonably requested by the Company relating to such claim,

          (ii) take such action in connection with contesting such claim as the Company shall reasonably

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request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company,

          (iii) cooperate with the Company in good faith in order effectively to contest such claim, and

          (iv) permit the Company to participate in any proceedings relating to such claim;

provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest, and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax, income tax or other tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 9(c), the Company shall control all proceedings taken in connection with such contest and, at its sole discretion, may pursue or forgo any and all administrative appeals, proceedings, hearings and conferences with the applicable taxing authority in respect of such claim and may, at its sole discretion, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that, if the Company directs the Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the Executive, on an interest-free basis, and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income in connection with such advance; and further provided, that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company’s control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder, and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority.

          (d) If, after the receipt by the Executive of a Gross-Up Payment or an amount advanced by the Company pursuant to Section 9(c), the Executive becomes entitled to receive any refund with respect to the Excise Tax to which such Gross-Up Payment relates or with respect to such claim, the Executive shall (subject to the Company’s complying with the requirements of Section 9(c), if applicable) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by the Company pursuant

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to Section 9(c), a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid.

          (e) Notwithstanding any other provision of this Agreement, the Company may, in its sole discretion, withhold and pay over to the Internal Revenue Service or any other applicable taxing authority, for the benefit of the Executive, all or any portion of any Gross-Up Payment, and the Executive hereby consents to such withholding.

          10. Confidential Information. The Executive shall hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company or any of its affiliated companies, and their respective businesses, which shall have been obtained by the Executive during the Executive’s employment by the Company or any of its affiliated companies and which shall not be or become public knowledge (other than by acts by the Executive or representatives of the Executive in violation of this Agreement). After termination of the Executive’s employment with the Company, the Executive shall not, without the prior written consent of the Company or as may otherwise be required by law or legal process, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it. In no event shall an asserted violation of the provisions of this Section 10 constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement.

          11. Successors.

               (a) This Agreement is personal to the Executive and without the prior written consent of the Company shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive’s legal representatives.

               (b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns.

               (c) The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, “Company” shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise.

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          12. Miscellaneous.

               (a) This Agreement shall be governed by and construed in accordance with the laws of the State of New Jersey, without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives.

               (b) All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows:

          If to the Executive:

          [Name and Address]

          If to the Company:

          Schering-Plough Corporation

          2000 Galloping Hill Road

          Kenilworth, New Jersey 07033

          Attention: Chief Executive Officer

or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee.

               (c) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement.

               (d) The Company may withhold from any amounts payable under this Agreement such Federal, state, local or foreign taxes as shall be required to be withheld pursuant to any applicable law or regulation.

               (e) The Executive’s or the Company’s failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right the Executive or the Company may have hereunder, including, without limitation, the right of the Executive to terminate employment for Good Reason pursuant to Section 5(c) of this Agreement, shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement.

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               (f) The Executive and the Company acknowledge that, except as may otherwise be provided under any other written agreement between the Executive and the Company, the employment of the Executive by the Company is “at will” and, subject to Section 1(a) hereof, prior to the Effective Date, the Executive’s employment may be terminated by either the Executive or the Company at any time prior to the Effective Date, in which case the Executive shall have no further rights under this Agreement. From and after the Effective Date this Agreement shall supersede any prior agreement between the parties with respect to the subject matter hereof.

          IN WITNESS WHEREOF, the Executive has hereunto set the Executive’s hand and, pursuant to the authorization from its Board of Directors, the Company has caused these presents to be executed in its name on its behalf, all as of the day and year first above written.

[Executive’s Name]

SCHERING-PLOUGH CORPORATION

By

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EX-10.E.VI

EXHIBIT 10.E.VI

EX-10.E.XI

Exhibit 10(e)(xi)

Schering-Plough Corporation

Severance Benefit Plan

Amended and Restated Effective December 17, 2004

Preamble

     Schering-Plough Corporation (“Schering-Plough”) established the Schering-Plough Severance Benefit Plan (the “Plan”) for the purpose of providing severance benefits to certain Employees whose employment terminates on or after February 4, 2004. The Plan constitutes a formal employee welfare benefit plan under the Employee Retirement Income Security Act of 1974, as amended (“ERISA”). The Plan is hereby amended and restated, effective for all terminations occurring on or after December 17, 2004, and supersedes any policy, plan, or program theretofore maintained or in effect under which Schering-Plough, or any of its U.S. affiliated companies (or their predecessors), ever made payments of severance benefits prior to December 17, 2004.

     The Plan, as set forth herein, is intended to alleviate in part or in full financial hardships that may be experienced by certain of those Employees of Schering-Plough and its U.S. affiliated companies, whose employment is terminated for certain reasons. In essence, benefits under the Plan are intended to be supplemental unemployment benefits. The Plan is not intended to be included in the definitions of “employee pension benefit plan” and “pension plan” set forth under Section 3(2) of ERISA as a “severance pay arrangement” within the meaning of Section 3(2)(b)(i) of ERISA. Rather, the Plan is intended to meet the descriptive requirements of a plan constituting a “severance pay plan” within the meaning of regulations published by the Secretary of Labor at Title 29, Code of Federal Regulations, Section 2510.3-2(b). Accordingly, the benefits paid by the Plan are not deferred compensation and no employee shall have a vested right to such benefits.

     The Plan shall continue until such time as it is amended or terminated in accordance with Article 6.

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Table of Contents

	Page
Article 1 Definitions		1
Article 2 Participation and Eligibility for Benefits		6
Article 3 Benefits		8
Article 4 Method of Severance Payments		11
Article 5 The Administrative Committee		12
Article 6 Amendment and Termination		13
Article 7 Claims Procedures		14
Article 8 Miscellaneous		16

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Article 1
Definitions

When used herein, the following terms shall have the meanings set forth below.

1.01	“Administrative Committee” means Schering-Plough Corporation’s Employee Benefits Committee or its designee.
1.02	“Base Pay” means the Employee’s highest Weekly Base Rate of Pay during the 12 month period prior to the his or her termination.
	In the case of a Termination Due to Change of Control, Base Pay shall mean the sum of (a) Employee’s highest Weekly Base Rate of Pay during the 12 month period prior to his or her termination or, if greater, the Employee’s Weekly Base Rate of Pay in effect immediately prior to such Change of Control, and (b) an amount equal to 1/52 of the Employee’s annual Target Incentive.
1.03	“Benefits” means the benefits that a Participant is eligible to receive pursuant to Article 3 of the Plan.
1.04	“Change of Control” means a Change of Control (or Change in Control) as defined in the Company’s 2002 Stock Incentive Plan and any successor to such plan.
1.05	“Company” means Schering-Plough Corporation and its U.S. affiliated companies.
1.06	“Comparable Position” means employment with the Company or a successor employer in which the individual’s level of responsibilities would not constitute a Demotion. For purposes of a Termination Due to Change of Control, a position shall not be a Comparable Position if such position would require the Employee’s principal business location to be relocated more than 50 miles from the Employee’s principal business location immediately prior to the Change of Control.
1.07	“Corporate Integrity Agreement” means the five-year settlement agreement entered into between the Company and the Office of Inspector General of the U.S. Department of Health and Human Services, effective July 29, 2004.
1.08	“Demotion” means continued employment in a position that, as determined by the Administrative Committee, constitutes a demotion under Schering-Plough’s U.S. compensation guidelines or a position that is one or more levels lower on a Company-recognized career ladder, whether or not such employment is with the Company or a successor employer.

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1.09	“Decline to Relocate” means a termination of a Participant’s employment as a result of his or her rejection of an offer of continued employment in the same position or a Comparable Position that would require relocation of the Participant’s principal business location of more than 50 miles.
1.10	“Employee” means any regular full-time or regular part-time employee of the Company who is employed in the United States and as to whom the terms and conditions of employment are not covered by a collective bargaining agreement unless the collective bargaining agreement specifically provides for coverage under the Plan. For this purpose, a regular part-time employee shall be an employee who is regularly scheduled to work approximately 20 to 32 hours per week. The term “Employee” shall not include (i) temporary employees (including college coops, summer employees, high school coops, flexible workforce employees and any other such temporary classifications), (ii) any individual characterized by the Company as an “independent contractor” or as a “contract worker,” (iii) officers and other employees of the Company who are parties to employment agreements, (iv) officers or other employees of the Company who participate in any severance plan of the Company that provides for the payment of severance benefits in connection with a Change of Control of the Company and such individual qualifies for the payment of such benefits, or (v) any other individual who is not treated by the Company as an employee for purposes of withholding federal income taxes, regardless of any contrary Internal Revenue Service, governmental, or judicial determination relating to such employment status or tax withholding. In the event that an individual engaged in an independent contractor or similar non-employee capacity is subsequently reclassified by the Company, the Internal Revenue Service, or a court as an employee, such individual, for purposes of the Plan, shall be deemed an Employee from the actual (and not effective) date of such classification, unless expressly provided otherwise by the Company.
1.11	“Employment Service Date” means the first day on which an individual became an Employee.
1.12	“Employment Termination Date” means the date on which the employment of the Employee by the Company is terminated.
1.13	“ERISA” means the Employee Retirement Income Security Act of 1974, as amended.
1.14	“Job Elimination” means a termination of a Participant’s employment by the Company due to job elimination, as determined by the Administrative Committee in its sole discretion, for purposes of the Plan only.
1.15	“Job Restructuring” means a termination of a Participant’s employment by the Company due to a change in required competencies or qualifications for the

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	Participant’s job, as determined by the Administrative Committee in its sole discretion, for purposes of the Plan only.
1.16	“Misconduct” means conduct which includes (a) falsification of company records/misrepresentation; (b) theft; (c) acts or threats of violence; (d) refusal to carry out assigned work; (e) unauthorized possession of alcohol or illegal drugs on company premises; (f) being under the influence of alcohol or illegal drugs during work hours; (g) willful intent to damage or destroy company property; (h) violation of the Business Conduct Policy; (i) acts of discrimination/harassment; (j) conduct jeopardizing the integrity of our products; (k) violation of Company rules, policies, and/or practices; or (l) other conduct considered to be detrimental to the Company.
1.17	“Participant” means any Terminated Employee eligible for Benefits in accordance with Article 2.
1.18	“Plan” means the Schering-Plough Severance Benefit Plan, as set forth herein, and as the same may from time to time be amended.
1.19	“Plan Year” means the period commencing on each January 1 during which the Plan is in effect and ending on the subsequent December 31.
1.20	“Severance Benefit Plan Committee” means the Committee that reviews initial benefit claims under the Plan, which shall be comprised of no less than three members who shall include the Company’s Executive Director of Global Benefits, and Vice Presidents of Human Resources representing the Company’s major operating groups as the Company shall appoint.
1.21	“Target Incentive” means an Employee’s target incentive for any given year under the Company’s annual incentive plan applicable to the Employee immediately preceding his or her termination. Notwithstanding the foregoing sentence, in the event of a Termination Due to Change of Control, Target Incentive shall mean the greater of the Target Incentive described in the preceding sentence or the Target Incentive in effect immediately preceding the Change of Control.
1.22	“Terminated Employee” means an Employee who has experienced an Employment Termination Date.
1.23	“Termination Due to Change of Control” means a termination of a Participant’s employment by the Company within two years following a Change of Control that is involuntary or that is as a result of his or her written rejection of an offer of continued employment with the Company or an affiliate if such employment is not a Comparable Position. For purposes of the preceding sentence, an involuntary termination shall be deemed to occur as of the sixtieth (60th) day (or such longer period of time as the Company shall establish not to exceed one year)

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	immediately following the later of (i) the date on which the Participant rejects in writing an offer of continued employment with the Company or an affiliate for a position that is not a Comparable Position; or (ii) the date of the Change of Control.
1.24	“Termination Due to Non-Performance” means a termination of an Employee’s employment by the Company due to the Employee’s failure to perform his or her job assignments in a satisfactory manner, as determined by the Administrative Committee in its sole discretion, for purposes of the Plan only. In addition, a Termination Due to Non-Performance means a termination of an Employee’s employment by the Company due to the Employee being deemed an “ineligible person” pursuant to the Corporate Integrity Agreement.
1.25	“Termination Due to Workforce Restructuring” means termination of an Employee’s employment by the Company due to a Decline to Relocate, a Job Elimination, a Job Restructuring, or such other termination determined by the Administrative Committee.
	An Employee who has been absent from employment on a (i) short-term disability leave, or (ii) long-term disability leave or “medical no pay” leave lasting, in both cases, for a period of less than two years shall be deemed to have suffered a Termination Due to Workforce Restructuring if neither the Employee’s latest position nor a Comparable Position exists for the Employee once he or she is released to return to work. Nothing in this paragraph shall prevent such an Employee from experiencing a Termination Due to Workforce Restructuring as a result of a Job Elimination, Job Restructuring, or other determination by the Administrative Committee or its designee to the extent otherwise provided under this Plan.
1.26	“Voluntary Resignation” means a resignation that is a voluntary separation from employment initiated by the Employee.
1.27	“Weekly Base Rate of Pay” means

(a)	for a regular full-time Employee paid on a weekly payroll period basis, the Employee’s weekly rate of pay.
(b)	for a regular full-time Employee paid on a bi-monthly payroll period basis, the Employee’s rate of pay for one payroll period divided by 2.166.
(c)	for a regular part-time Employee paid on any hourly basis, the Employee’s highest base hourly rate during the last 12 months multiplied by the average number of weekly hours worked during that 12 month period.

1.28   “Years of Service” means the total number of a participant’s full years of active service with the Company subject to the following rules:

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(a)	For purposes of determining a Participant’s number of Years of Service, a full year of active service is any consecutive twelve-month period of service occurring after the Participant’s most recent break in service lasting one year or more. For example, a Participant whose Employment Service Date is June 21, 2003 will be credited with one Year of Service at the end of the business day June 20, 2004 provided that he or she has been continuously employed by the Company through that date.
(b)	For purposes of determining a Participant’s number of Years of Service, such Participant shall be treated as if his Employment Termination Date was December 31 of the calendar year in which his or her actual Employment Termination Date occurs.
(c)	Any break in a participant’s active service for a period of less than one year shall be disregarded for purposes of calculating a Participant’s number of Years of Service. For example, a Participant who was hired on June 1, 2000, was terminated on February 3, 2002, rehired on December 18, 2002, and terminated again on March 3, 2003 shall have three Years of Service under the Plan.

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Article 2
Participation and Eligibility for Benefits

2.01   Eligibility.

(a)	Subject to Sections 2.01(b), 2.02, and 2.03, any Terminated Employee (other than an employee who is employed in Puerto Rico) who has provided the Company with at least 90 consecutive days of service and incurs a Termination Due to Workforce Restructuring, a Termination Due to Non-Performance, or a Termination Due to Change of Control shall become a Participant and shall be eligible for Benefits in accordance with the provisions of this Plan. A Terminated Employee who is eligible to participate in the Plan as a result of a Termination Due to Change of Control shall not otherwise be deemed to have incurred a Termination Due to Workforce Restructuring or a Termination Due to Non-Performance.
(b)	Notwithstanding anything herein to the contrary, a Terminated Employee shall not be considered to have incurred a Termination Due to Workforce Restructuring, a Termination Due to Non-Performance, or a Termination Due to Change of Control for the purposes of the Plan, if his or her employment is discontinued due to (i) a Voluntary Resignation; (ii) voluntary resignation after reaching early or normal retirement date under the Company’s qualified pension plan; (iii) the divestiture of a business unit of the Company if the Employee is offered a Comparable Position with the Company or a successor employer; (iv) a rejection of an offer of a Comparable Position that is not a Decline to Relocate; (v) a Decline to Relocate and such Terminated Employee was on international assignment immediately preceding his or her termination; (vi) discharge for Misconduct; (vii) being placed on layoff status; (viii) failure to transfer to another location after initially accepting the transfer within the acceptance period of the offer; (ix) a termination of employment during or immediately following a long-term disability leave or a “medical no pay” leave lasting, in each case, at least two years; (x) death; or (xi) his or her refusal to cooperate with the screening process pursuant to the Corporate Integrity Agreement.
(c)	Notwithstanding anything herein to the contrary, in no event shall any Employee or former Employee who is receiving benefits under a Company-sponsored long-term disability plan or who is in “medical no pay” status, in each case, for a period of two years or more at or immediately preceding the time of his or her termination of employment be eligible for Benefits under this Plan.

2.02   Termination of Eligibility for Benefits. A Participant shall cease to participate in the Plan, and all Benefits shall cease upon the occurrence of the earliest of:

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(a)	Termination of the Plan prior to, or more than two years following, a Change of Control;
(b)	Inability of the Company to pay Benefits when due;
(c)	Completion of payment to the Participant of the Benefits for which the Participant is eligible; and
(d)	The Administrative Committee’s determination, in its sole discretion, of the occurrence of the Employee’s Misconduct, regardless of whether such determination occurs before or after the Employee’s Employment Termination Date, unless the Administrative Committee determines in its sole discretion that Misconduct shall not cause the cessation of Benefits in a particular case. Notwithstanding the foregoing, the Administrative Committee must act in good faith in making such a determination at any time within the two years following a Change of Control.

2.03   Waiver and Release. Notwithstanding anything in the Plan to the contrary, unless determined otherwise by the Administrative Committee in its sole discretion, no Benefits shall be due or paid under the Plan to any Employee, unless the Employee executes (and does not rescind) a written waiver and release, in a form prescribed by Schering-Plough, of any and all claims against Schering-Plough, its affiliates, and all related parties arising out of the Employee’s employment or termination of employment.

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Article 3
Benefits

3.01	Amount of Severance Pay. The amount of severance pay payable to a Participant shall be equal to the number of weeks of the Participant’s Base Pay corresponding to his or her Years of Service at his or her Employment Termination Date as set forth on that portion of Exhibit A applicable to the reason for his or her termination from employment (determined by the Company, in its sole discretion) as listed on Exhibit A hereto.
	In the event of a Termination Due to Change of Control, the amount of severance pay payable to a Participant shall be equal to the number of weeks of the Participant’s Base Pay corresponding to his or her Years of Service at his or her Employment Termination Date as set forth under Column B of Exhibit B applicable to his or her band as listed on Exhibit B hereto.
	Notwithstanding the foregoing, in the event of a Termination Due to Change of Control for a Participant who was an E-grade employee as of December 31, 2003, the amount of severance pay payable to the Participant shall be equal to the greater of the benefits as listed under Column A and B under Exhibit B hereto as applicable to E-grade employees and to his or her Years of Service at his or her Employment Termination Date.
	Notwithstanding the foregoing, in the event of a Termination Due to Change of Control for a Participant who was a weekly/hourly or a semi-monthly employee as of December 31, 2003, the amount of severance pay payable to the Participant shall be equal to the greater of the benefits as listed under Column A and B under Exhibit B hereto as applicable to his or her pay status and Years of Service at his or her Employment Termination Date.
3.02	Medical and Dental Benefits. A Participant covered under any of the Company’s group medical and dental plans prior to his or her Employment Termination Date shall be provided the opportunity to elect to continue such coverage in accordance with the provisions of the Consolidated Omnibus Budget Reconciliation Act of 1985, Section 4980B of the Internal Revenue Code of 1986, as amended, and Section 601, et seq., of ERISA (“COBRA”) and in accordance with the Company’s regular COBRA coverage payment practices.
	Participants who experience a Termination Due to Workforce Restructuring or Termination due to Non-Performance shall be eligible to continue medical and dental benefits under COBRA coverage at active employee rates, as the same may be changed from time to time, for the greater of (a) three months or (b) the number of weeks of severance under Section 3.01 (to a maximum of 12 months) following his or her Employment Termination Date.

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	Participants who experience a Termination Due to Change of Control shall be eligible (a) to continue medical and dental benefits under COBRA coverage at active employee rates, as the same may be changed from time to time, for the greater of (1) three months or (2) the number of weeks of severance pay under Section 3.01 (to a maximum of 18 months) following his or her Employment Termination Date, and (b) for retiree medical benefits under the terms of the retiree medical coverage generally applicable to the Company’s retiree medical eligible retirees provided that such Participants are at least age 50 at the time of their termination of employment.
3.03	Life Insurance. Participants who experience a Termination Due to Workforce Restructuring or Termination Due to Non-Performance shall be eligible to receive continued basic life insurance coverage for the greater of (a) three months or (b) the number of weeks of severance under Section 3.01 (to a maximum of 12 months) following his or her Employment Termination Date.
	Participants who experience a Termination Due to Change of Control shall be eligible to receive continued basic life insurance coverage for the greater of (a) three months or (b) the number of weeks of severance under Section 3.01 (to a maximum of 18 months) following his or her Employment Termination Date. At the end of the coverage period, the Participant may convert the life insurance coverage to a personal policy.
3.04	Incentive Plan Payments. A Participant’s entitlement to an incentive payment under the annual incentive plan applicable to such Participant following a termination of employment and the amount of such incentive payment, if any, shall be determined solely be reference to the applicable terms of such annual incentive plan, provided, however, for purposes of calculating a Participant’s severance pay with respect to a Termination Due to Change of Control, a Participant’s Base Pay shall include a pro rata portion of his or her Target Incentive as described under the definition of Base Pay in Section 1.02 of the Plan.
3.05	Reduction for Other Payments; Offsets. The Benefits payable hereunder to any Participant shall be reduced by any and all payments required to be made by the Company or its affiliates under federal, state, and local law, under any employment agreement or special severance arrangement or under any other separation policy, plan, or program. The Benefits payable hereunder to any Participant shall also be reduced by (i) any benefits previously paid to such Participant under this or any other separation or severance plan sponsored by the Company with respect to any periods of service with respect to which Benefits are being paid under this Plan; and (ii) any and all amounts that the Participant owes to the Company or an affiliate.

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3.06	Effect on Other Benefit Plans. Except as expressly provided herein, nothing under the Plan shall constitute an extension of eligibility for, or the vesting or exercise periods relating to, any employee benefit or equity compensation plan or an agreement with the Company.
3.07	Different Severance Benefits. Notwithstanding the foregoing, the Human Resources representative having jurisdiction over the Participant may recommend, and the Senior Vice President Global Human Resources, acting on behalf of the Company, will have complete discretion to approve a different amount of severance pay and/or benefits, either higher or lower (including no severance pay and/or benefits at all), than otherwise provided on Exhibit A, provided that no such discretion shall be applicable to a Termination Due to Change of Control.
3.08	Change of Control Notification. Not later than six months following a Change of Control, the Company shall notify all of its otherwise eligible Employees (who were Employees as of the day immediately before the Change of Control) who have not been given notice of termination of whether they will, until the second anniversary of such Change of Control, continue in the same job, be offered a Comparable Position, or be involuntarily terminated.

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Article 4
Method of Severance Payments

4.01   Method of Payment. The severance pay to which a Participant is eligible, as calculated pursuant to Article 3, shall be paid in accordance with the provisions of this Article 4.

(a)	Severance payments payable under this Plan shall be made in a single sum cash payment.
(b)	Payment shall be made by mailing to the last address provided by the Participant to the Company. Separate payment(s) shall be made to pay any earned and unused vacation pay for the year during which the Employment Termination Date occurs. In no event shall interest be credited on any amounts for which a Participant may become eligible.
(c)	In general, payments shall be made as promptly as practicable after the participant’s Employment Termination Date, the execution of the release required under Section 2.03, and the expiration of the required release revocation period.

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Article 5
The Administrative Committee

5.01   Authority and Duties. The Administrative Committee shall have the full power, authority, and discretion to construe, interpret, and administer the Plan, to correct deficiencies therein, and to supply omissions. All decisions, actions, and interpretations of the Administrative Committee shall be final, binding, and conclusive upon the parties, subject only to determinations by the applicable claims fiduciary with respect to denied claims for Benefits. Unless the Administrative Committee determines otherwise, the Human Resources Managers of the Company shall have the authority to act on behalf of the Administrative Committee in all respects set forth in this Section 5.01.

5.02   Records. The Company shall supply to the Administrative Committee all records and information necessary to the performance of the Administrative Committee’s duties.

5.03   Payment. The Company shall make payments of Benefits, in such amount as determined by the Administrative Committee under Article 3, from its general assets to Participants in accordance with the terms of the Plan, as directed by the Administrative Committee.

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Article 6
Amendment and Termination

The Plan may be amended, suspended, discontinued, or terminated at any time by the Board of Directors of Schering-Plough Corporation or its designee, in whole or in part, for any reason, and without either the consent of or the prior notification to any Participant. No such amendment shall give the Company the right to recover any amount paid to a Participant prior to the date of such amendment. Any such amendment, however, may cause the cessation and discontinuance of payments of Benefits to any person or persons under the Plan. No such amendment made following a Change of Control may reduce the benefits to which any Participant may become entitled in the two years following such Change of Control.

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Article 7
Claims Procedures

7.01   Claim. Each eligible terminated Employee may contest the administration of Benefits by completing and filing with the Severance Benefit Plan Committee a written request for review in the manner specified by the Administrative Committee. Each such application must be filed within 60 days following the Employee’s termination of employment and must be supported by such information as the Severance Benefit Plan Committee deems relevant and appropriate.

7.02   Appeals of Denied Claims for Benefits. In the event that any claim for benefits is denied in whole or in part, the claimant whose claim has been so denied shall be notified of such denial by the Severance Benefit Plan Committee within 90 days of receipt of the claim (unless the Severance Benefit Plan Committee determines that special circumstances require an extension of time of up to an additional 90 days for processing the claim). The notice advising of the denial shall specify the reason(s) for denial, make specific reference to relevant Plan provisions, describe any additional material or information necessary for the claimant to perfect the claim (explaining why such material or information is needed), and shall advise the claimant of the procedure for the appeal of such denial and a statement of the claimant’s right to bring a civil action under Section 502(a) of ERISA following an adverse benefit determination on appeal. All appeals shall be made by the following procedure:

(a)	A claimant whose claim has been denied shall file with the Administrative Committee a notice of desire to appeal the denial. Such notice shall be filed within 60 days of notification by the Severance Benefits Plan Committee of the initial claim denial, be made in writing, and set forth all of the facts upon which the appeal is based. Appeals not timely filed shall be barred.
(b)	The Administrative Committee shall consider the merits of the claimant’s written presentations, the merits of any facts or evidence in support of the denial of benefits, and such other facts and circumstances as the Administrative Committee shall deem relevant.
(c)	The Administrative Committee shall render a determination upon the appealed claim within 60 days of its receipt of such appeal (unless the Administrative Committee determines that special circumstances require an extension of time of up to an additional 60 days for processing the appeal). The determination shall specify the reason(s) for the denial, make specific reference to relevant Plan provisions, and contain a statement of the claimant’s right to bring a civil action under Section 502(a) of ERISA.
(d)	The determination so rendered shall be binding upon all parties.

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No Employee may bring a civil action under Section 502(a) of ERISA until the Employee has exhausted his or her rights under this Section 7.02.

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Article 8
Miscellaneous

8.01   Nonalienation of Benefits. None of the payments, benefits, or rights of any Participant shall be subject to any claim of any creditor, and, in particular, to the fullest extent permitted by law, all such payments, benefits and rights shall be free from attachment, garnishment, trustee’s process, or any other legal or equitable process available to any creditor of such Participant. No Participant shall have the right to alienate, anticipate, commute, plead, encumber, or assign any of the benefits or payments which he/she may expect to receive, contingently or otherwise, under the Plan.

8.02   No Contract of Employment. Neither the establishment of the Plan, nor any modification thereof, nor the creation of any fund, trust or account, nor the payment of any benefits shall be construed as giving any Participant or Employee, or any person whosoever, the right to be retained in the service of the Company, and all Participants and other Employees shall remain subject to discharge to the same extent as if the Plan had never been adopted.

8.03   Severability of Provisions. If any provision of the Plan shall be held invalid or unenforceable, such invalidity or unenforceability shall not affect any other provisions hereof, and the Plan shall be construed and enforced as if such provisions had not been included.

8.04   Heirs, Assigns, and Personal Representatives. The Plan shall be binding upon the heirs, executors, administrators, successors, and assigns of the parties, including each Participant, present and future.

8.05   Headings and Captions. The headings and captions herein are provided for reference and convenience only, shall not be considered part of the Plan, and shall not be employed in the construction of the Plan.

8.06   Number. Except where otherwise clearly indicated by context, the singular shall include the plural, and vice-versa.

8.07   Unfunded Plan. The Plan shall not be funded. No Participant shall have any right to, or interest in, any assets of Schering-Plough that may be applied by Schering-Plough to the payment of Benefits.

8.08   Payments to Incompetent Persons, Etc. Any benefit payable to or for the benefit of a minor, an incompetent person or other person incapable of receipting therefor shall be deemed paid when paid to such person’s guardian or to the party providing or reasonably appearing to provide for the care of such person, and such payment shall fully discharge Schering-Plough, the Administrative Committee and all other parties with respect thereto.

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8.09   Lost Payees. Benefits shall be deemed forfeited if the Administrative Committee is unable to locate a Participant to whom Benefits are due. Such Benefits shall be reinstated if application is made by the Participant for the forfeited Benefits within one year of the Participant’s Employment Termination Date and while the Plan is in operation.

8.10   Controlling Law. The Plan shall be construed and enforced according to the laws of the State of New Jersey to the extent not superseded by federal law.

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Schering-Plough Corporation

Severance Pay Plan

Exhibit A

Termination Due to Workforce Restructuring

(chart shows amount of severance pay in weeks of Base Pay (as defined in Section 1.02))

		Bands D-O;	Bands D-O;
Years of Service	Bands A-C	Base <$275,000	Base ³ $275,000
1	15	26	39
2	15	26	39
3	15	26	39
4	15	26	39
5	15	26	39
6	17	26	39
7	19	26	39
8	21	26	41
9	23	28	43
10	25	30	45
11	27	32	47
12	29	34	49
13	31	36	51
14	33	38	53
15	35	40	55
16	37	42	57
17	39	44	59
18	41	46	61
19	43	48	63
20	45	50	65
21	47	52	67
22	49	54	69
23	51	56	71
24	53	58	73
25	55	60	75
26	57	62	77
27	59	64	79
28	61	66	81
29	63	68	83
30 and above	65	70	85

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Schering-Plough Corporation
Severance Pay Plan
Exhibit A (Cont’d)

Termination Due to Non-Performance

(chart shows amount of severance pay in weeks of Base Pay (as defined in Section 1.02))

Years of Service	Bands A-O
1	8
2	8
3	8
4	8
5	8
6	8
7	8
8	8
9	9
10	10
11	11
12	12
13	13
14	14
15	15
16	16
17	17
18	18
19	19
20	20
21	21
22	22
23	23
24	24
25	25
26	26
27	27
28	28
29	29
30 and above	30

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Schering-Plough Corporation
Severance Pay Plan
Exhibit B

Termination Due to Change of Control

(chart shows amount of severance pay in weeks of Base Pay (as defined in section 1.02*))

Column A Column B

					Bands D-O;	Bands D-O;
Weekly /	Semi-		Years of		Base <	Base ³
Hourly	Monthly	E-Grade	Service	Bands A-C	$275,000	$275,000
8	16	32	1	25	47	81
8	16	32	2	25	47	81
12	16	32	3	25	47	81
16	16	32	4	25	47	81
20	20	40	5	25	47	81
24	24	48	6	28	47	81
28	28	56	7	32	47	81
32	32	64	8	35	47	86
36	36	72	9	38	50	90
40	40	80	10	41	54	94
44	44	88	11	45	58	98
48	48	96	12	48	61	102
52	52	104	13	51	65	106
56	56	104	14	55	68	110
60	60	104	15	58	72	115
64	64	104	16	61	76	119
68	68	104	17	64	79	123
72	72	104	18	68	83	127
76	76	104	19	71	86	131
80	80	104	20	74	90	135
84	84	104	21	77	94	139
88	88	104	22	81	97	144
92	92	104	23	84	101	148
96	96	104	24	87	104	152
100	100	104	25	90	108	156
104	104	104	26	94	112	160
104	104	104	27	97	115	164
104	104	104	28	100	119	168
104	104	104	29	104	122	173
104	104	104	30 and above	107	126	177

*For purposes of this Exhibit B, the definition of Base Pay (see section 1.02) is based upon Weekly Base Rate of Pay plus an amount equal to 1/52 of the Employee’s annual Target Incentive.

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EX-10.L

Exhibit 10(l)

SCHERING-PLOUGH RETIREMENT BENEFITS EQUALIZATION PLAN

(As Amended and Restated to January 1, 2004)

I. Purpose of Plan

The purpose of this Plan is to provide a means of equalizing the benefits of those employees participating in the Schering-Plough Corporation Retirement Plan (the “Retirement Plan”) whose benefits under the Retirement Plan are or will be limited by application of the Employee Retirement Income Security Act of 1974 and the Internal Revenue Code of 1986 or as subsequently amended (the “Code”).

II. Administration of the Plan

The Plan shall be administered by the Secretary of Schering- Plough Corporation, and all questions arising in connection with the Plan shall be determined by the Executive Compensation and Organization Committee of Schering-Plough Corporation (the “Committee”). The Secretary and the Committee may employ and rely upon such legal counsel, such actuaries, such accountants, and such agents as they may deem advisable. Decisions of the Committee shall be conclusive and binding upon all persons. Except as otherwise provided in paragraph 4 of Section VI, the Committee may delegate in writing part or all of its authority under this Plan to such party or parties as it may deem necessary or appropriate.

III. Participation in the Plan

All members of the Retirement Plan shall be eligible to participate in this Plan whenever their compensation or benefits under the Retirement Plan as from time to time in effect would exceed the limitations on eligible compensation and/or benefits imposed by Sections 401 and 415 of the Code, respectively.

IV. Compensation and Benefit Limitations

For purposes of this Plan and the Retirement Plan, the limitations on eligible compensation under Section 401(a)(17) of the Code shall be deemed to be reached when a participant’s eligible compensation under the Retirement Plan, commencing January 1, 2000, exceeds $170,000 or such other amount as the Secretary of the Treasury shall pronounce. The limitations imposed by Section 415 of the Code shall be deemed to be reached when the benefits otherwise payable to the participant in the Retirement Plan for a given plan year would exceed the maximum allowable under the Code.

V. Equalized Benefits

     1. Each eligible member of the Retirement Plan and his beneficiaries shall receive a supplemental pension benefit equal to the benefit which would have been payable to them under the Retirement Plan, without regard for any provision therein incorporating limitations imposed by Sections 401 and 415 of the Code, to the extent that such benefit otherwise payable under the Retirement Plan exceeds the benefit limitations as described in Section IV of this Plan. Such supplemental pension benefits shall be payable in accordance with all the terms and conditions applicable to the member’s benefits under the Retirement Plan, including whatever optional benefits he may have elected. Notwithstanding the foregoing, the benefit of any Pilot under this Plan shall be reduced, but not below zero, by the benefit payable to such Pilot under the Pilots’ Retirement Plan.

For purposes of determining the supplemental pension benefit under this Plan only for a Participant who also participates in the Schering-Plough Corporation Supplemental Executive Retirement Plan, the following definition of “Average Final Compensation” shall be used to calculate a Participant’s benefit under the Retirement Plan:

“‘Average Final Compensation’ means the average annual Compensation of a Member during the 60 consecutive months in the last 120 or fewer months of his or her Benefit Service affording the highest such average, or during all of the months of his or her Benefit Service if less than 60 months; provided, however, that individual components of Compensation shall be included in months that are retroactive to their effective date of inclusion into the definition of Compensation.”

     2. Notwithstanding Section V.1 of this Plan, a participant or former participant who was categorized as an E-grade employee of Schering-Plough Corporation or any of its subsidiaries (“E-grade Participant”) may elect (the “Participant’s Lump Sum Election”) to receive payment of the actuarial equivalent of the aggregate of his benefits under this Plan and any survivor’s benefit payable to his surviving spouse under this Plan in a lump sum (X) in cash on his Early Retirement Date, Normal Retirement Date, Deferred or Postponed Retirement Date, or Change of Control Termination Date, or the first day of any month thereafter not later than the first day of the month coincident with or next following the second anniversary of such Early Retirement Date, Normal Retirement Date, Deferred or Postponed Retirement Date, or Change of Control Termination Date, as the case may be, or on the fifth, tenth, fifteenth or twentieth anniversary of his Early Retirement Date, Normal Retirement Date, Deferred or Postponed Retirement Date, or Change of Control Termination Date, as the case may be, or (Y) in two, three, four, five, ten, fifteen, or twenty equal annual cash installments commencing on his Early Retirement Date, Normal Retirement Date, Deferred or Postponed Retirement Date, or Change of Control Termination Date, or the first day of any month thereafter not later than the first day of the month coincident with or next following the second anniversary of such Early Retirement Date, Normal Retirement Date, Deferred or Postponed Retirement Date, or Change of Control Termination Date, as the case may be; provided, however, that such E-grade Participant may not elect a different form of payment or payment commencement date than those he elects under the Schering-Plough Supplemental Executive Retirement Plan. If an E-grade Participant terminates his employment by retirement or following a Change of Control and dies with a Participant’s

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Lump Sum Election in effect but prior to the payment of the full amount of such lump sum or annual installments, payment of the unpaid amount thereof shall be made to his surviving spouse, designated beneficiary or estate in accordance with such Election. Payment made in accordance with either of the two preceding sentences to the E-grade Participant, his surviving spouse, designated beneficiary or estate shall constitute full and complete satisfaction of the obligation of Schering Corporation (the “Company”) or any affiliate in respect of the benefits of such E-grade Participant and any survivor’s benefit of his surviving spouse. If an E-grade Participant dies before retirement, the Company shall have no obligation in respect of his benefits under this Plan and shall be obligated to pay any survivor’s benefit, if, but only if, his spouse shall survive him. If the E-grade Participant does not make the Participant’s Lump Sum Election, he may nevertheless elect (the “Survivor’s Lump Sum Election”) that if he should die prior to termination of employment, his surviving spouse shall receive the actuarial equivalent of her survivor’s benefit, if any, in a lump sum (X) in cash on the Optional Survivor’s Benefit Payment Date (as defined in Section V.3) or the first day of any month thereafter not later than the first day of the month coincident with or next following the second anniversary of the Optional Survivor’s Benefit Payment Date or on the fifth, tenth, fifteenth, or twentieth anniversary of the Optional Survivor’s Benefit Payment Date, or (Y) in two, three, four, five, ten, fifteen or twenty equal annual cash installments commencing on the Optional Survivor’s Benefit Payment Date or the first day of any month thereafter not later than the first day of the month coincident with or next following the second anniversary of the Optional Survivor’s Benefit Payment Date; provided, however, that such surviving spouse may not elect a different form of payment or payment commencement date than those she elects under the Schering-Plough Supplemental Executive Retirement Plan. A E-grade Participant may make any election pursuant to this Section V.2, or may modify or rescind such an election previously made: (a), in the case of an election of a form of benefit other than a lump sum or annual installments pursuant to a Participant’s Lump Sum Election or a Survivor’s Lump Sum Election, at any time prior to the E-grade Participant’s retirement or Change of Control Termination Date, except that in the case of an E-grade Participant whose employment is terminated other than by retirement or following a Change of Control, such election, modification or rescission must be made at least 90 days prior to his Normal Retirement Date; (b), in the case of a Participant’s Lump Sum Election by an E-grade Participant whose retirement occurs on or after October 1, 1994, and on or before July 1, 1995, at least 30 days prior to the date of his retirement; (c), in the case of a Participant’s Lump Sum Election by an E-grade Participant who is not covered by clause (b) of this sentence, not later than the end of the calendar year preceding the calendar year in which the termination of his employment occurs and at least six months prior to such termination of employment; and (d), in the case of a Survivor’s Lump Sum Election, at least six months prior to his death; provided, however, that in the event of a Change of Control (as defined in Section V.3), an E-grade Participant may make a Participant’s Lump Sum Election or a Survivor’s Lump Sum Election, or modify or rescind such an Election previously made, within a period of 60 days following such Change of Control but in no event later than 30 days prior to the date of the termination of his employment. Any election pursuant to this Section V.2, or any modification or rescission of a previous election, shall be made in writing and filed with the Committee before the applicable limitation of time specified in this Section V.2, and any election purported to be filed after the applicable limitation of time shall be void. Unless otherwise specified in the written form of election, the actuarial equivalent of the benefits payable to an E-grade Participant who has made a Participant’s Lump Sum Election, and the actuarial equivalent of any survivor’s benefit

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payable to his surviving spouse pursuant to a Survivor’s Lump Sum Election, shall be paid in five equal annual installments commencing on his Early Retirement Date, Normal Retirement Date, Deferred or Postponed Retirement Date, Change of Control Termination Date, or the first day of the month coincident with or next following his death, as the case may be, with interest payable at the three-month U.S. Treasury bill rate as reported in The Wall Street Journal on the first business day of the calendar quarter. If benefits under this Plan are payable to an E-grade Participant in a different form than his retirement benefits under the Retirement Plan, or if benefits under this Plan are payable to an E-grade Participant prior to his retirement benefits under the Retirement Plan, the amount of the offset provided in this Plan for such E-grade Participant’s benefit under the Retirement Plan shall be actuarially converted into the form of benefit payable under this Plan but solely for purposes of calculating the amount of such offset. Notwithstanding any provision of this Plan to the contrary, a lump sum payment shall be made in lieu of any installments if the actuarial equivalent of the aggregate of any Participant’s benefits under this Plan and any Survivor’s Benefit payable to his surviving spouse under this Plan is less than or equal to $5,000 or such other amount as may be established by the Committee from time to time. The mandatory lump sum payment payable under the preceding sentence shall be determined (i) in the case of an E-grade Participant, on the basis of the interest rate published by the Pension Benefit Guaranty Corporation as of the first day of the Plan Year of distribution for determining lump sum distributions under Section 417(e) of the Code and the 1983 GAM mortality table, and (ii) in the case of any other Participant, in accordance with all the terms applicable to mandatory lump sum payments to such Participant or surviving spouse under the Retirement Plan. The amount of any other lump sum payment under this Plan shall be equal to the actuarial present value of the benefits payable under this Plan to an E-grade Participant or surviving spouse of an E-grade Participant calculated as of the Early Retirement Date, Normal Retirement Date, Deferred or Postponed Retirement Date, Change of Control Termination Date, or date of death of the E-grade Participant, as the case may be, by utilizing (a) the interest rate determined as of such Retirement Date, Change of Control Termination Date, or date of death under the regulations of the Pension Benefit Guaranty Corporation for determining the present value of a lump sum distribution on plan termination that were in effect on September 1, 1993, and (b) the 1983 GAM mortality table. The amount of any annual installment shall be calculated by converting the benefits payable under this Plan to an E-grade Participant or E-grade Participant’s surviving spouse, as the case may be, into a lump sum amount in accordance with the preceding sentence and by dividing such amount by the number of installments elected or deemed to have been elected by the E-grade Participant. The amount of any lump sum or annual installment of the benefit of any E-grade Participant that is not paid within fifteen days after the date of his retirement or Change of Control Termination Date, as the case may be, and the amount of any lump sum or annual installment of any survivor’s benefit of his surviving spouse that is not paid within fifteen days after the Optional Survivor’s Benefit Payment Date, shall bear interest from such fifteenth day after the date of retirement, Change of Control Termination Date, or the Optional Survivor’s Benefit Payment Date, as the case may be, to but excluding the date of payment of such amount, at the Deferral Rate (as defined in Section V.3), compounded semi-annually. Interest on any such amount shall be paid on the date such amount is paid or, at the election of the E-grade Participant, such interest shall be paid currently on a semiannual basis (with such election to be made on or before the last date on which a Participant’s Lump Sum Election or Survivor’s Lump Sum Election, as applicable, may be made). If the benefits under this Plan are to continue after an E-grade Participant’s death for the benefit of his spouse or a

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designated beneficiary, then such E-grade Participant shall have the right at any time to change the recipient of the survivorship benefit payable under this Plan; provided, however, that any such change, if made after the applicable deadline set forth in the Retirement Plan, shall not affect the amount of the benefit payable under this Plan as originally calculated or the term for which such benefit is payable, also as originally calculated. The Committee may, in its sole discretion, defer the payment of any lump sum or initial annual installment to an E-grade Participant who is a “covered employee” as defined in Section 162(m) of the Code, if such payment would be subject to such Section’s limitation on deductibility; provided, however, that such payment shall not be deferred to a date later than the earliest date in the year in which such payment would not be subject to such limitation; and further provided that the Company shall, at the time of payment of any amount so deferred, pay interest thereon from the due date thereof at the Deferral Rate, compounded semi-annually.

     3. The following terms, when used in this Plan, shall have the meanings given below:

          (a) “Change of Control” means a Change of Control as defined in the 1992 Stock Incentive Plan of Schering-Plough Corporation.

          (b) “Change of Control Termination Date” means the date, following a Change of Control, as of which a participant or former participant ceases to be an employee of the Company or any of its affiliates.

          (c) “Deferral Rate” means a rate, at the option of the participant or former participant, as the case may be, either (a) equal to the actual yield on three-month U.S. Treasury bills as reported in the Wall Street Journal on the first business day of each calendar quarter or (b) as reported in the Wall Street Journal (or, if not reported in the Wall Street Journal, as reported in a similar widely recognized business publication) on the first business day following the retirement or death, as the case may be, of the Participant or Former Participant, equal to the actual yield on U.S. Treasury securities with a maturity equal to the period for which a lump sum or annual installment payment is deferred pursuant to a Participant’s Lump Sum Election or a Survivor’s Lump Sum Election or action by the Committee under Section V.2 hereof (or if there are no U.S. Treasury securities of such maturity, then the functional equivalent thereof). The Deferral Rate shall be selected by the participant or former participant, as the case may be, at or before the time that a Participant’s Lump Sum Election or Survivor’s Lump Sum Election, as applicable, is made.

          (d) “Optional Survivor’s Benefit Payment Date” means (a), in the case of a participant or former participant having at least ten years of employment with the Company or an affiliate, the first day of the month coincident with or next following the date of his death and (b), in the case of a participant or former participant having less than ten years of employment with the Company or an affiliate, the first day of the month coincident with or next following (i) the date on which the participant or former participant would have attained age 55 or, (ii) if later, the date on which the participant or former participant dies.

          (e) “Pilot” or “Pilots” means a member who is also eligible to receive a benefit under the Pilots’ Retirement Plan.

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          (f) “Pilots’ Retirement Plan” means the Schering-Plough Corporation Pilots’ Supplemental Retirement Plan.

All capitalized terms used herein and not otherwise defined shall have the meaning set forth in the Retirement Plan.

     4. The supplemental pension benefit of a participant who is entitled to benefits under this Plan due to a Change of Control shall be reduced by the factors set forth on Annex A hereto depending upon his age on the relevant Change of Control Termination Date.

VI. Miscellaneous

     1. Neither the establishment of this Plan nor the participation therein shall confer upon any person any right to be continued as an employee of the Company or any affiliated company, and the Company reserves the right to discharge any employee whenever in its sole judgment the interest of the Company or any affiliated company so requires.

     2. All expenses of administering this Plan shall be borne by the Company.

     3. No benefit under this Plan shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, or charge, or subject to attachment, garnishment, or other legal process.

     4. This Plan may be amended or terminated at any time by action of the Company’s Board of Directors. In the event of termination, no contributions shall be made thereafter, except for a year preceding the year in which termination occurs and provided that no such amendment or termination shall affect any right or obligation with respect to any contribution theretofore made, or the rights of a participant, terminated participant, former participant or beneficiary to receive amounts credited to his account.

     5. The Plan is intended to constitute a nonqualified deferred compensation arrangement maintained for a select group of management or highly compensated employees within the meaning of Title I of ERISA. Benefits payable under this Plan shall not be funded and shall be paid out of the general funds of the Company and/or its affiliates.

     6. The Company may withhold from any payment required to be made under the Plan any federal, state or local taxes required by law to be withheld with respect to such payment and such sums as the Company may reasonably estimate are necessary to cover any other amounts for which the Company may be legally liable and which may be assessed with regard to such payment.

     7. The masculine pronoun shall include the feminine wherever appropriate.

     8. The Plan shall be construed, administered, and enforced under ERISA and the laws of the State of New Jersey, except where ERISA controls.

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Annex A

Age on Change of Control
Termination Date	Reduction Factor
64	4%
63	8%
62	12%
61	16%
60	20%
59	26.6%
58	32.5%
57	37.8%
56	42.6%
55	46.9%
54	50.9%
53	54.7%
52	58.3%
51	61.7%
50	64.9%
49	67.7%
48	70.1%
47	72.1%
46	74.0%
45	75.8%
44	77.5%
43	79.1%
42	80.6%
41	82.0%
40	83.3%
39	84.5%
38	85.6%
37	86.6%
36	87.6%
35	88.6%

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EX-10.N

Exhibit 10(n)

SCHERING-PLOUGH
CORPORATION
Cash Long-Term
Incentive Plan

(as amended and restated effective January 24, 2005)

Schering-Plough Corporation Cash Long-Term Incentive Plan

1. Plan Objective

     The Schering-Plough Corporation Cash Long-Term Incentive Plan (referred to as the “Plan”) is designed to encourage results-oriented actions on the part of key executives of Schering-Plough Corporation (the “Company”) that will drive the achievement of specific business objectives.

2. Eligibility

     Management employees of the Company and its subsidiaries who are members of the Operations Management Team (OMT) and other key executives are eligible to participate in the Plan. The Administrator (as defined in Section 3 below) shall select the Operations Management Team members and other key executives who shall participate in the Plan (the “Participants”).

3. Administration

     (a) The Plan shall be administered by the Compensation Committee of the Board of Directors with respect to executives who are subject to the reporting requirements of Section 16 of the Exchange Act of 1934, as amended (“Section 16 Executives”), and the Plan shall be administered by the Chief Executive Officer of the Company (“CEO”) with respect to all other employees. The CEO may delegate his authority to administer the Plan to an individual or committee. The term “Administrator” shall mean the Compensation Committee, as applied to Section 16 Executives, and the CEO or such individual or committee to which authority has been delegated, as applied to all other employees.

     (b) The Administrator shall have full power and authority to establish the rules and regulations relating to the Plan, to interpret the Plan and those rules and regulations, to select Participants for the Plan, to determine each Participant’s target award, performance goals and final award, to make all factual and other determinations in connection with the Plan, and to take all other actions necessary or appropriate for the proper administration of the Plan, including the delegation of such authority or power, where appropriate.

     (c) All powers of the Administrator shall be executed in its sole discretion, in the best interest of the Company, not as a fiduciary, and in keeping with the objectives of the Plan and need not be uniform as to similarly situated individuals. The Administrator’s administration of the Plan, including all such rules and regulations, interpretations, selections, determinations, approvals, decisions, delegations, amendments, terminations and other actions, shall be final and binding on the Company and all employees of the

Company and its subsidiaries, including the Participants and their respective beneficiaries.

     (d) The Administrator may establish appropriate terms and conditions to accommodate newly hired and transferred employees. Unless otherwise determined by the Administrator, the target award for a newly hired or transferred employee shall be prorated based on a fraction, the numerator of which is the number of months such Participant will participate in the Plan during the performance period (rounded to the nearest whole month) and the denominator of which is 36.

4. Target Awards and Performance Goals

     (a) The Administrator shall establish for each Participant a target award that will be payable if and to the extent that the Company attains the performance goals for the specified performance period or otherwise in connection with a change in control (as defined in the Company’s 2002 Stock Incentive Plan (hereinafter referred to as a “Change in Control”). The target award shall be equal to three times the highest annual incentive target amount established for the Participant during the performance period under the Company’s annual incentive plan applicable to the Participant, or such other amount as the Administrator determines.

     (b) The Administrator shall establish the performance goals for each performance period. Unless the Administrator determines otherwise, the performance goals shall be based on (i) the Company’s achievement of its targeted earnings per share growth, and (ii) the Company’s total earnings per share growth ranking as compared to its peer group, all as set forth on Exhibit A. The Administrator may adjust the performance goals as it deems appropriate to take into account corporate transactions or other extraordinary events that occur during the performance period.

     (c) The peer group consists of the following companies:

Abbott Laboratories

Bristol-Myers Squibb Company

Eli Lilly and Company

Johnson & Johnson

Merck & Company, Inc.

Pfizer, Inc.

Wyeth

The Administrator may adjust the peer group from time to time as it deems appropriate, including the addition, deletion or replacement of companies, to take into account mergers and other changes in the companies consisting of the peer group.

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5. Calculation of Incentive Awards

     (a) At the end of the performance period, the Administrator shall compute each Participant’s incentive award for the performance period, which shall be the greater of the award calculated pursuant to subsection (i) or (ii) below:

          (i) The Administrator shall determine whether and to what extent the performance goals have been met for each fiscal year of the performance period, based on the Company’s performance for each fiscal year, and the applicable percentage for each year, according to the matrix described on Exhibit A. The Administrator shall compute an award for each year of the performance period equal to one-third of the Participant’s target award multiplied by the applicable percentage for the year according to Exhibit A. The Participant’s incentive award earned for the performance period shall equal the sum of the awards earned for each of the three fiscal years of the performance period.

          (ii) The Administrator shall determine whether and to what extent the performance goals have been met for the entire three-year performance period, based on the Company’s cumulative performance for the performance period. The Administrator shall then determine the percentage of the target award that is earned for the performance period based on such cumulative performance according to the matrix described on Exhibit A. For purposes of this subsection (ii), the Company’s performance and the performance goals on Exhibit A shall be determined on a compounded basis for the three-year performance period.

     (b) The Administrator shall compute each Participant’s incentive award for the performance period based on the Company’s achievement of the performance goals. Each Participant’s incentive award will be subject to vesting as described in Section 6 below. On or around March 15, 2007, the Company shall credit each Participant’s incentive award to a book account established for the Participant under the Schering-Plough Corporation Savings Advantage Plan. All amounts credited to a Participant’s book account under the Savings Advantage Plan shall be administered according to the vesting provisions of Section 6 and the terms and conditions of the Savings Advantage Plan. Distributions from the Participant’s vested book account will be made according to the terms and conditions of the Savings Advantage Plan.

     (c) Participants must be employed on December 31, 2006 in order to be eligible for an incentive award under the Plan, except as described below or except as the Administrator may otherwise determine. Unless the Administrator determines otherwise:

          (i) Participants who die during the performance period will receive a pro-rated award, which will be calculated at the end of the performance period and will be based on the Company’s performance during the entire performance period. The pro-rated award will be calculated from the date on which the Participant became eligible for the Plan to the date of the Participant’s death, rounded to the nearest whole month. The

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Company will credit the pro-rated award to a book account established for the Participant under the Savings Advantage Plan on or around March 15, 2007.

          (ii) Participants who retire during the performance period will receive a pro-rated award, which will be calculated at the end of the performance period and will be based on the Company’s performance during the entire performance period. Retirement age is age 55, provided the Participant has at least one full year of service. The pro-rated award will be calculated from the date on which the Participant became eligible for the Plan to the date of the Participant’s retirement, rounded to the nearest whole month. The Company will credit the pro-rated award to a book account established for the Participant under the Savings Advantage Plan on or around March 15, 2007.

          (iii) Participants who leave the Company under a Company-sponsored disability program during the performance period will receive a pro-rated award, which will be calculated at the end of the performance period and will be based on the Company’s performance during the entire performance period. The pro-rated award will be calculated from the date on which the Participant became eligible for the Plan to the Participant’s termination date, rounded to the nearest whole month. The Company will credit the pro-rated award to a book account established for the Participant under the Savings Advantage Plan on or around March 15, 2007.

          (iv) If a Change in Control of the Company occurs during the performance period, the following provisions shall apply:

          (A) Participants who are then employed by the Company or an Affiliate (as defined in the Savings Advantage Plan) will receive a pro-rated award, which will be calculated as of the date of the Change in Control and will be based on the greater of (i) the Participant’s target award or (ii) an award calculated by the Administrator based on period-to-date performance by the Company as of the date of the Change in Control. The pro-rated award will be calculated from the date on which the Participant became eligible for the Plan to the effective date of the Change in Control, rounded to the nearest whole month. Participants who retired, died or were disabled during the performance period as described above shall receive pro-rated incentive awards as described above but based on the Company’s performance as of the date of the Change in Control. The Company will credit the pro-rated award to a book account established for the Participant under the Savings Advantage Plan as soon as administratively feasible upon the effective date of the Change in Control, and such amount will be fully vested and non-forfeitable.

          (B) If a Participant remains employed by the Company or an Affiliate for a period of two years following the Change in Control or is involuntarily terminated (which term shall be deemed to include for all purposes under this Plan, as applicable, a termination for Good Reason (as such term is defined in the Participant’s employment agreement) other than for cause (as defined below), within two years after

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the Change in Control, the Participant’s award for the performance period will be increased to 200% of the Participant’s target award for the performance period, if such amount is greater than the award previously calculated for the performance period pursuant to paragraph (A) above. The Company will credit any additional award amount to the book account established for the Participant under the Savings Advantage Plan immediately upon the earlier of (i) the second anniversary of the Change in Control or (ii) the date the Participant’s employment is involuntarily terminated without cause. Any earnings previously credited to the Participant’s account under the Savings Advantage Plan with respect to the previously calculated award will remain in the Participant’s account.

          (v) If a Change in Control of the Company occurs during the period commencing on December 31, 2006 and ending on December 31, 2008, and if a Participant remains employed by the Company or an Affiliate for a period of two years following the Change in Control or is involuntarily terminated, other than for cause, within two years after the Change in Control, the Participant’s incentive award shall immediately be fully vested. Any earnings previously credited to the Participant’s account under the Savings Advantage Plan with respect to the vested award will remain in the Participant’s account.

          (vi) For purposes of this Section 5(c), the term “cause” shall have the meaning given that term, if applicable to the Participant, in the written employment agreement between the Participant and the Company or an Affiliate as in effect on the date of the Participant’s termination of employment or in 2002 Stock Incentive Plan.

     (d) The Administrator may establish appropriate terms and conditions to accommodate newly hired and transferred employees. The Administrator reserves the right to accelerate vesting on a pro-rata basis whenever the Administrator deems such action appropriate.

6. Vesting of Incentive Awards

     (a) If a Participant earns an incentive award as described in Section 5 for the performance period, 25% of the incentive award will be vested as of the end of the performance period. The remaining portion of the Participant’s incentive award will vest over a two-year period, as follows, if the Participant continues to be employed by the Company or an Affiliate through the applicable vesting date:

Vesting Date	Portion of the Incentive Award that Vests
December 31, 2007		50	%
December 31, 2008		25	%

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     (b) If a Participant retires, leaves the Company under a Company-sponsored disability program or dies while employed by the Company or an Affiliate, the Participant’s incentive award shall be fully vested at the end of the performance period or at the time such event occurs, whichever is later. If a Participant’s employment with the Company and its Affiliates terminates for any other reason, any unvested incentive award, including all unvested earnings credited with respect to the incentive award, shall be forfeited to the Company as of his or her termination date. A transfer of employment among the Company and its Affiliates shall not be considered a termination of employment for purposes of the Plan.

     (c) Notwithstanding the foregoing, each Participant’s incentive award shall become fully vested upon a Change in Control.

     (d) Earnings credited with respect to a Participant’s incentive award will vest pro-rata as the underlying incentive award vests.

7. Changes to Performance Goals and Target Awards

     At any time prior to the final determination of awards, the Administrator may adjust the performance goals and target awards to reflect a change in corporate capitalization (such as a stock split or stock dividend), or a corporate transaction (such as a merger, consolidation, separation, reorganization or partial or complete liquidation), or to reflect equitably the occurrence of any extraordinary event, any change in applicable accounting rules or principles, any change in the Company’s method of accounting, any change in applicable law, any change due to any merger, consolidation, acquisition, reorganization, stock split, stock dividend, combination of shares or other changes in the Company’s corporate structure or shares, or any other change of a similar nature.

8. Amendments and Termination

     The Company may at any time amend or terminate the Plan by action of the Compensation Committee; provided that no amendment or termination may be made after a Change in Control that adversely affects Participants’ benefits computed under Section 5(c)(iv) by the Administrator as in effect before the Change in Control. The Administrator shall have the right to modify the terms of the Plan as may be necessary or desirable to comply with the laws or local customs of countries in which the Company operates or has employees.

9. Miscellaneous Provisions

     (a) This Plan is not a contract between the Company and the Participants. Neither the establishment of this Plan, nor any action taken hereunder, shall be construed as giving any Participant any right to be retained in the employ of the Company or any of its subsidiaries. Nothing in the Plan, and no action taken pursuant to the Plan, shall affect the right of the Company or a subsidiary to terminate a Participant’s employment at any

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time and for any or no reason. Except as provided in Section 8, the Company is under no obligation to continue the Plan.

     (b) A Participant’s right and interest under the Plan may not be assigned or transferred, except as provided in Section 5(c) of the Plan upon death, and any attempted assignment or transfer shall be null and void and shall extinguish, in the Company’s sole discretion, the Company’s obligation under the Plan to pay awards with respect to the Participant. The Company’s obligations under the Plan may be assigned to any corporation which acquires all or substantially all of the Company’s assets or any corporation into which the Company may be merged or consolidated.

     (c) The Plan shall be unfunded. The Company shall not be required to establish any special or separate fund, or to make any other segregation of assets, to assure payment of awards. The Company’s obligations hereunder shall constitute a general, unsecured obligation, awards shall be paid solely out of the Company’s general assets, and no Participant shall have any right to any specific assets of the Company.

     (d) The Company shall have the right to deduct from awards or any other payments of wages any and all federal, state and local taxes or other amounts required by law to be withheld.

     (e) The Company’s obligation to pay compensation as herein provided is subject to any applicable orders, rules or regulations of any government agency or office having authority to regulate the payment of wages, salaries, and other forms of compensation.

     (f) The validity, construction, interpretation and effect of the Plan shall exclusively be governed by and determined in accordance with the laws of the State of New Jersey.

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EX-10.O

Exhibit 10(o)

SCHERING-PLOUGH CORPORATION
LONG-TERM PERFORMANCE SHARE UNIT INCENTIVE PLAN

(as amended and restated effective January 24, 2005)

1. Plan Objective

     Schering-Plough Corporation (the “Company”) has established the Schering-Plough Corporation Long-Term Performance Share Unit Incentive Plan (referred to as the “Plan”) which is designed to encourage results-oriented actions on the part of elected officers and certain other key executives of the Company that will drive the achievement of specific business objectives.

2. Eligibility

     Management employees of the Company and its subsidiaries who are elected officers of the Company or other key executives are eligible to participate in the Plan. The Administrator (as defined in Section 3 below) shall select the elected officers and other key executives who shall participate in the Plan (the “Participants”).

3. Administration

     (a) The Plan shall be administered by the Compensation Committee of the Board of Directors with respect to executives who are subject to the reporting requirements of Section 16 of the Exchange Act of 1934, as amended (“Section 16 Executives”), and the Plan shall be administered by the Chief Executive Officer of the Company (“CEO”) with respect to all other employees. The CEO may delegate his authority to administer the Plan to an individual or committee. The term “Administrator” shall mean the Compensation Committee, as applied to Section 16 Executives, and the CEO or such individual or committee to which authority has been delegated, as applied to all other employees.

     (b) The Administrator shall have full power, discretion and authority to establish the rules and regulations relating to the Plan, to interpret the Plan and those rules and regulations, to select Participants for the Plan, to determine each Participant’s target award, performance goals and final award, to make all factual and other determinations in connection with the Plan, and to take all other actions necessary or appropriate for the proper administration of the Plan, including the delegation of such authority, discretion or power, where appropriate.

     (c) All powers of the Administrator shall be executed in its sole discretion, in the best interest of the Company, not as a fiduciary, and in keeping with the objectives of the Plan and need not be uniform as to similarly situated individuals. The Administrator’s administration of the Plan, including all such rules and regulations, interpretations, selections, determinations, approvals, decisions, delegations, amendments, terminations and other actions, shall be final and binding on the Company and all employees of the Company and its subsidiaries, including the Participants and their respective beneficiaries.

4. Target Awards and Performance Goals

     (a) The Administrator shall establish for each Participant a target award, which shall be expressed as phantom stock units and shall be payable if and to the extent that the Company attains the performance goals for the performance period as described below or otherwise in connection with a change in control (as defined in the Company’s 2002 Stock Incentive Plan (hereinafter referred to as a “Change in Control”). The target award shall be equal to three times the annual incentive target amount in effect for the Participant at the beginning of the performance period under the Company’s annual incentive plan applicable to the Participant, or such other amount as the Administrator determines, divided by the Company’s stock price on January 2, 2004. The Company’s stock price shall be the closing price of the Company’s common stock on January 2, 2004 as reported on the New York Stock Exchange. The target award shall be expressed as phantom stock units, each of which shall represent one hypothetical share of common stock of the Company.

     (b) The performance period is the three-year period beginning January 1, 2004 and ending December 31, 2006. The Administrator shall establish the performance goals for the performance period. Unless the Administrator determines otherwise, the performance goals shall be based on (i) the Company’s achievement of its targeted three-year compounded total shareholder return for the performance period, and (ii) the Company’s total shareholder return ranking as compared to its peer group for the performance period all as set forth on Exhibit A. The performance period is the three-year period beginning January 1, 2004 and ending December 31, 2006. The Administrator may adjust the performance goals as it deems appropriate to take into account corporate transactions or other extraordinary events that occur during the performance period. For purposes of this plan total shareholder return means the price of the common stock of the Company at the end of the performance period plus dividends paid on the common stock during the Performance Period, divided by the price of the common stock of the Company at the beginning of the Performance Period. The price of the common stock of the Company is determined by the average closing quotation price of the Company stock on the New York Stock Exchange (NYSE) or such other national securities exchange as may be designated by the Committee, during the 30 days of quotation immediately prior to the applicable date (the “Fair Market Value”).

     (c) The peer group consists of the following companies:

Abbott Laboratories

Bristol-Myers Squibb Company

Eli Lilly and Company

Johnson & Johnson

Merck & Company, Inc.

Pfizer, Inc.

Wyeth

The Administrator may adjust the peer group from time to time as it deems appropriate, including the addition, deletion or replacement of companies, to take into account mergers and other changes in the companies comprising the peer group.

     (d) The Administrator may establish appropriate terms and conditions to accommodate newly hired and transferred employees. Unless otherwise determined by the Administrator, the target award for a newly hired or transferred employee shall be prorated based on a fraction, the numerator of which is the number of months such Participant will participate in the Plan during the performance period (rounded to the nearest whole month) and the denominator of which is 36. The target award shall be equal to three times the annual incentive target amount in effect for the Participant on his or her first date of employment with the Company or on the date of transfer, as applicable, or such other amount as the Administrator determines, divided by the Company’s stock price on the first date of employment with the Company or the date of transfer, as applicable. The Company’s stock price shall be the closing price of the Company’s common stock on the applicable date, as reported on the New York Stock Exchange.

5. Calculation of Incentive Awards

     (a) At the end of the performance period, the Administrator shall determine whether and to what extent the performance goals have been met and the percentage of the target awards that are earned.

     (b) The Administrator shall rely on the audited financial statements of the Company and its subsidiaries to determine whether and to what extent the performance goals are met.

     (c) The Administrator shall compute each Participant’s incentive award for the performance period based on the Company’s achievement of the performance goals. Each Participant’s incentive award will be subject to vesting as described in Section 6 below. As a Participant’s incentive award vests pursuant to Section 6 of this Plan, the Company shall credit the Fair Market Value of each Participant’s vested incentive award to the Participant’s account under the Schering-Plough Corporation Savings Advantage Plan (the “Savings Advantage Plan”). Such credited amount shall be deemed to be invested in the investment options available under the Savings Advantage Plan in accordance with the Participant’s then current election applicable to new deferrals under that plan. All amounts credited to a Participant’s book account under the Savings Advantage Plan shall be administered according to the terms and conditions of the Savings Advantage Plan. Savings Advantage Plan distributions shall be made exclusively in accordance with the terms and conditions of the Savings Advantage Plan.

     (d) Participants must be employed on December 31, 2006 in order to be eligible for an incentive award under the Plan, except as described below or except as the Administrator may otherwise determine. Unless the Administrator determines otherwise:

          (i) Participants who die during the performance period will receive a pro-rated award, which will be calculated at the end of the performance period and will be based on the Company’s performance during the entire performance period. The pro-rated award will be

the award calculated for the entire performance period, multiplied by a fraction, the numerator of which is the number of months during which the Participant participated in the Plan during the performance period before the Participant’s death (rounded to the nearest whole month) and the denominator of which is 36. The Company will credit the Fair Market Value of the pro-rated award to a book account established for the Participant under the Savings Advantage Plan on or around March 15, 2007.

          (ii) Participants who retire during the performance period will receive a pro-rated award, which will be calculated at the end of the performance period and will be based on the Company’s performance during the entire performance period. Retirement age is age 55, provided the Participant has at least one full year of service. The pro-rated award will be the award calculated for the entire performance period, multiplied by a fraction, the numerator of which is the number of months during which the Participant participated in the Plan during the performance period before the Participant’s retirement (rounded to the nearest whole month) and the denominator of which is 36. The Company will credit the Fair Market Value of the pro-rated award to a book account established for the Participant under the Savings Advantage Plan on or around March 15, 2007.

          (iii) Participants who leave the Company under a Company-sponsored disability program during the performance period will receive a pro-rated award, which will be calculated at the end of the performance period and will be based on the Company’s performance during the entire performance period. The pro-rated award will be the award calculated for the entire performance period, multiplied by a fraction, the numerator of which is the number of months during which the Participant participated in the Plan during the performance period before the Participant’s termination date (rounded to the nearest whole month) and the denominator of which is 36. The Company will credit the Fair Market Value of the pro-rated award to a book account established for the Participant under the Savings Advantage Plan on or around March 15, 2007.

          (iv) If a Change in Control of the Company occurs during the performance period, the following provisions shall apply:

               (A) Participants who are then employed by the Company or an Affiliate (as defined below) will receive a pro-rated award. The award will first be calculated as of the date of the Change in Control based on the greater of (i) the Participant’s target award or (ii) an award calculated by the Administrator based on period-to-date performance by the Company as of the date of the Change in Control. The pro-rated award will be the award computed pursuant to the preceding sentence multiplied by a fraction, the numerator of which is the number of months during which the Participant participated in the Plan during the performance period before the effective date of the Change in Control (rounded to the nearest whole month), and the denominator of which is 36. Participants who retired, died or were disabled during the performance period as described above shall receive pro-rated incentive awards as described in subsections (i), (ii) and (iii) above but based on the Company’s performance to the date of the Change in Control. The Company will credit the Fair Market Value of the pro-rated award to a book account established for the Participant under the Savings

Advantage Plan as soon as administratively feasible upon the effective date of the Change in Control and such amount will be fully vested and non-forfeitable.

               (B) If a Participant remains employed by the Company or an Affiliate for a period of two years following the Change in Control or is involuntarily terminated (which term shall be deemed to include for all purposes under this Plan, as applicable, a termination for Good Reason (as such term is defined in the Participant’s employment agreement) other than for cause (as defined below), within two years of a Change in Control, the Participant shall be credited with an additional award equal to an amount calculated by subtracting the amount of the prorated award earned as of the date of the Change in Control in accordance with Subsection (A) above (without regard to any subsequent earnings or losses thereon) from an amount equal to 200% of the Participant’s target award for the performance period, if such amount is greater than the award previously calculated for the performance period pursuant to paragraph (A) above. The Company will credit the Fair Market Value of any additional award amount to the book account established for the Participant under the Savings Advantage Plan immediately upon the earlier of (i) the second anniversary of the Change in Control or (ii) the date the Participant’s employment is involuntarily terminated without cause. Any earnings or other amounts previously credited to the Participant’s account under the Savings Advantage Plan with respect to the previously calculated award will remain in the Participant’s account.

          (v) For purposes of this Plan, the term “Affiliate” shall have the meaning given that term in the Savings Advantage Plan. The term “cause” shall have the meaning given that term, if applicable to the Participant, in the written employment agreement between the Participant and the Company or an Affiliate as in effect on the date of the Participant’s termination of employment or in the Schering-Plough Corporation 2002 Stock Incentive Plan.

6. Vesting of Incentive Awards

     (a) If a Participant earns an incentive award as described in Section 5 for the performance period, 25% of the incentive award will be vested as of the end of the performance period. The remaining portion of the Participant’s incentive award will vest over a two-year period, as follows, if the Participant continues to be employed by the Company or an Affiliate through the applicable vesting date:

Vesting Date	Portion of the Incentive Award that Vests
December 31, 2007		50%
December 31, 2008		25%

     (b) If a Participant retires, leaves the Company under a Company-sponsored disability program or dies while employed by the Company or an Affiliate, the Participant’s incentive award shall be fully vested at the end of the performance period or at the time such event occurs, whichever is later. If a Participant’s employment with the Company and its

Affiliates terminates for any other reason, any unvested incentive award, shall be forfeited to the Company as of his or her termination date. A transfer of employment among the Company and its Affiliates shall not be considered a termination of employment for purposes of the Plan.

     (c) The Administrator reserves the right to accelerate vesting on a pro-rata basis or in full whenever the Administrator deems such action appropriate.

     (d) Notwithstanding the foregoing, the incentive award of each Participant who is employed by the Company or an Affiliate at the time of a Change in Control, or who retired, died or left the Company under a Company-sponsored disability program on or before the date of the Change in Control, shall become fully vested upon a Change in Control.

7. Changes to Performance Goals and Target Awards

     At any time prior to the final determination of awards, the Administrator may adjust the performance goals and target awards to reflect a change in corporate capitalization (such as a stock split or stock dividend), or a corporate transaction (such as a merger, consolidation, separation, reorganization or partial or complete liquidation), or to reflect equitably the occurrence of any extraordinary event, any change in applicable accounting rules or principles, any change in the Company’s method of accounting, any change in applicable law, any change due to any merger, consolidation, acquisition, reorganization, stock split, stock dividend, combination of shares or other changes in the Company’s corporate structure or shares, or any other change of a similar nature.

8. Amendments and Termination

     The Company may at any time amend or terminate the Plan by action of the Executive Compensation and Organization Committee; provided that no amendment or termination may be made after a Change in Control that adversely affects Participants’ benefits computed under Section 5(d) for the performance period. The Administrator shall have the right to modify the terms of the Plan as may be necessary or desirable to comply with the laws or local customs of countries in which the Company operates or has employees.

9. Miscellaneous Provisions

     (a) This Plan is not a contract between the Company and the Participants. Neither the establishment of this Plan, nor any action taken hereunder, shall be construed as giving any Participant any right to be retained in the employ of the Company or any of its subsidiaries. Nothing in the Plan, and no action taken pursuant to the Plan, shall affect the right of the Company or a subsidiary to terminate a Participant’s employment at any time and for any or no reason. The Company is under no obligation to continue the Plan.

     (b) A Participant’s right and interest under the Plan may not be assigned or transferred, except as provided in Section 5(d) of the Plan upon death, and any attempted assignment or transfer shall be null and void and shall extinguish, in the Company’s sole discretion, the Company’s obligation under the Plan to pay awards with respect to the

Participant. The Company’s obligations under the Plan may be assigned to any corporation which acquires all or substantially all of the Company’s assets or any corporation into which the Company may be merged or consolidated.

     (c) The Plan shall be unfunded. The Company shall not be required to establish any special or separate fund, or to make any other segregation of assets, to assure payment of awards. The Company’s obligations hereunder shall constitute a general, unsecured obligation, awards shall be paid solely out of the Company’s general assets, and no Participant shall have any right to any specific assets of the Company.

     (d) All claims for benefits under this Plan shall be reviewed pursuant to the claims procedures contained in the Savings Advantage Plan.

     (e) The Company shall have the right to deduct from awards or any other payments of wages any and all federal, state and local taxes or other amounts required by law to be withheld.

     (f) The Company’s obligation to pay compensation as herein provided is subject to any applicable orders, rules or regulations of any government agency or office having authority to regulate the payment of wages, salaries, and other forms of compensation.

     (g) A Participant’s acceptance of benefits under the Plan shall constitute the Participant’s acceptance of all terms of the Plan, including the discretionary authority of the Administrator.

     (h) The validity, construction, interpretation and effect of the Plan shall exclusively be governed by and determined in accordance with the laws of the State of New Jersey.

EX-10.W

Exhibit 10(w)

Summary of Director Compensation

Fred Hassan receives no compensation for services rendered in his capacity as a Director. Other Directors receive compensation pursuant to the Directors Compensation Plan. These other Directors receive no compensation, directly or indirectly, from Schering-Plough other than pursuant to the Directors Compensation Plan.

The Directors Compensation Plan includes stock, stock equivalent and cash components described below. Certain components were increased on April 27, 2004 by the Board upon recommendation of the Nominating and Corporate Governance Committee and other revisions were also made at that time. This was the first increase in any component of Director compensation since 1999 and brought total Directors compensation into the middle range of the total compensation paid by other U.S. pharmaceutical companies in the Peer Group. Components of the Directors Compensation Plan are as follows.

Stock and Stock Equivalents:

•   Directors Stock Award Plan under which Directors receive 3,000 common shares annually, increased from 2,500 shares. Directors have the option to defer the award into Deferred Stock Units, which grow/diminish in values as if invested in Schering-Plough common shares (with dividends reinvested) and are paid out in common shares at the end of a specified deferral period.

•   Directors Stock Equivalency Program under which Directors receive an annual award of phantom stock equivalent units valued at $25,000 (no increase from prior years) which grow/diminish in value as if invested in Schering-Plough common shares (with dividends reinvested) until termination of service as a Director, at which time they are paid out in cash.

Cash:

•   Board Retainer increased from $39,000 to $50,000.

•   Committee Retainer, a new retainer of $15,000 for the Audit Committee and $10,000 for each of the other Board Committees (there is no retainer for the Executive Committee).

•   Committee Chair Retainer, a new retainer of $5,000 paid to the Chair of each Committee except the Executive Committee.

•   Meeting Fees, eliminated (prior to April 27, 2004, fees of $1,000 per meeting were paid).

•   Special Assignment Fee, $1,500 raised from $1,000 per assignment, such as meetings with investors or the government regarding Schering-Plough business.

•   Deferral option under the Directors Deferred Compensation Plan, which permits Directors to defer any cash compensation. They may elect whether deferred cash compensation grows/diminishes in value as if invested in Schering-Plough common shares(with dividends reinvested) or earns interest at a market rate. Deferred amounts are paid in cash at the end of a specified deferral period.

EX-12

Exhibit 12

SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in millions)

	Years Ended December 31
	2004				2003			2002		2001		2000
(Loss)/Income Before Income Taxes	$	(168	)		$	(46	)	$	2,563	$	2,523	$	3,188
Less: Equity Income		347				54			—		—		—
(Loss)/Income Before Income Taxes and Equity Income		(515	)			(100	)		2,563		2,523		3,188
Add Fixed Charges:
Preference Dividends		34				—			—		—		—
Interest Expense		168				81			28		40		44
One-third of Rental Expense		30				30			27		24		24
Capitalized Interest		20				11			24		25		20
Total Fixed Charges		252				122			79		89		88
Less: Capitalized Interest		20				11			24		25		20
Less: Preference Dividends		34				—			—		—		—
Add: Amortization of Capitalized Interest		9				9			8		7		7
Add: Distributed Income of Equity Investees		228				32			—		—		—
(Loss)/Earnings Before Income Taxes and Fixed Charges (other than Capitalized Interest)	$	(80	)		$	52		$	2,626	$	2,594	$	3,263
Ratio of Earnings to Fixed Charges		(0.3	)	*		0.4			33.2		29.1		37.1

*For the year ended December 31,2004, earnings were insufficient to cover fixed charges by $332.

“Earnings” consist of (loss)/income before income taxes and equity income, plus fixed charges (other than capitalized interest and preference dividends), amortization of capitalized interest and distributed income of equity investee. “Fixed charges” consist of interest expense, capitalized interest, preference dividends and one-third of rentals which Schering-Plough believes to be a reasonable estimate of an interest factor on leases.

EX-21

Exhibit 21

Schering-Plough Corporation and Subsidiaries
Subsidiaries of the Registrant
As of December 31, 2004

	State or Country
	of Incorporation
Subsidiaries of Registrant	or Organization
AESCA Pharma GmbH	Austria
American Image Productions, Inc.	Tennessee
American Scientific Laboratories, Inc.	Delaware
Aquaculture Holdings Limited (UK)	United Kingdom
Aquaculture Vaccines (Ireland) Limited	Ireland
Aquaculture Vaccines Limited (UK)	United Kingdom
Ark Products Limited	United Kingdom
AVL Holdings Limited (UK)	United Kingdom
Avondale Chemical Co., Ltd.	Ireland
Bain de Soleil Company, The	Delaware
Beneficiadora e Industrializadora S.A. de C.V.	Mexico
Brazil Holdings Ltd.	Bermuda
Canji, Inc.	Delaware
Chemibiotic (Ireland) Limited	Ireland
Colombia Veterinary Holdings, Inc.	Panama
Coopers Animal Health Limited	United Kingdom
Coopers Brasil Ltda.	Brazil
Coopers Uruguay S.A.	Uruguay
Coppertone Corporation, The	Florida
Dashtag	United Kingdom
Desarrollos Farmaceuticos Y Cosmeticos S.A.	Spain
DNAX Research Institute of Molecular & Cellular Biology, Inc.	California
Douglas Industries, Inc.	Delaware
Dr. Scholl’s Foot Comfort Shops, Inc.	Delaware
Dunconor Limited	Ireland
Essex (Taiwan) Ltd.	Taiwan
Essex Chemie A.G.	Switzerland
Essex Chemie International Foundation	Switzerland
Essex Farmaceutica Portuguesa, Lda	Portugal
Essex Farmaceutica S.A.	Colombia
Essex Italia S.p.A.	Italy
Essex Pharma GmbH	Germany
Essex Pharmaceuticals, Inc.	Philippines
Essexfarm S.A.	Ecuador
Farmaceutica Essex, S.A.	Spain
Garden Insurance Co., Ltd.	Bermuda
Giralda Investments Ltd.	Switzerland
Global Animal Management Inc.	Delaware

Schering-Plough Corporation and Subsidiaries
Subsidiaries of the Registrant
As of December 31, 2004

	State or Country
	of Incorporation
Subsidiaries of Registrant	or Organization
Integrated Therapeutics Group, Inc.	Delaware
Key Pharma	Russia
Key Pharma S.A.	Ecuador
Key Pharma, A.G.	Switzerland
Key Pharma, S.A.	Spain
Key Pharmaceuticals Export Co., Inc.	U.S. Virgin Islands
Key Pharmaceuticals, Inc.	Florida
Kirby Medical Products Cia Ltda	Chile
Kirby Pharmaceutical S.A.	Spain
Kirby-Warrick Pharmaceuticals Limited	United Kingdom
Laboratorio Essex, C.A.	Venezuela
Laboratorio S.P. White’s, C.A.	Venezuela
Laboratorios Essex S.A.	Argentina
Loftus Bryan Chemicals Limited	Ireland
Macol, S.A.	Colombia
MedAdvisor, Inc.	Delaware
Medexa, S.A. de C.V.	Mexico
Med-Nim (Proprietary) Limited	South Africa
MSP Distribution Services (C) LLC	Nevada
MSP Distribution Services (R) LLC	Nevada
MSP Marketing Services (C) LLC	Nevada
MSP Marketing Services (R) LLC	Nevada
MSP Technology (US) Company LLC	Delaware
P.T. Schering-Plough Indonesia	Indonesia
Pharmaceutical Supply Corporation	Delaware
Pharmaco (Canada) Inc.	Canada
Pharmaco, Inc.	Delaware
Plough (Australia) Pty. Limited	Australia
Plough (UK) Limited	United Kingdom
Plough Benelux S.A.	Belgium
Plough Broadcasting Co., Inc.	Delaware
Plough Consumer Products (Asia) Ltd.	Hong Kong
Plough Consumer Products (Philippines) Inc.	Philippines
Plough de Venezuela, C.A.	Venezuela
Plough Export, Inc.	Tennessee
Plough Farma, Lda. (Portugal)	Portugal
Plough France S.A.	France
Plough Hellas Limited	Greece
Plough Laboratories, Inc.	Tennessee
Plough Services AG	Switzerland

2

Schering-Plough Corporation and Subsidiaries
Subsidiaries of the Registrant
As of December 31, 2004

	State or Country
	of Incorporation
Subsidiaries of Registrant	or Organization
PPL, Inc.	Tennessee
Pro Medica AB	Sweden
Professional Pharmaceutical Corporation	Delaware
Scheramex S.A. de C.V.	Mexico
Scherico, Ltd.	Switzerland
Schering Canada Inc.	Canada
Schering Corporation	New Jersey
Schering Institutional Sales Corporation	Delaware
Schering Laboratories Advertising Inc.	Delaware
Schering MSP Corporation	Nevada
Schering MSP Pharmaceutical LP	Nevada
Schering MyHealth Solutions, Inc.	Delaware
Schering Plough (Korea)	Korea
Schering Sales Corporation	Delaware
Schering Sales Management, Inc.	Nevada
Schering Transamerica Corporation	New Jersey
Schering-Plough (India) Limited	India
Schering-Plough (Ireland) Company	Ireland
Schering-Plough (Proprietary) Limited	South Africa
Schering-Plough A/S	Norway
Schering-Plough A/S	Denmark
Schering-Plough AB	Sweden
Schering-Plough Animal Health	Ireland
Schering-Plough Animal Health Limited	New Zealand
Schering-Plough Animal Health Limited	Thailand
Schering-Plough Animal Health Operations Sdn Bhd	Malaysia
Schering-Plough Animal Health Sdn Bhd	Malaysia
Schering-Plough Animal Health, Inc.	Philippines
Schering-Plough Animal-Health Corporation	Delaware
Schering-Plough Bermuda Ltd.	Bermuda
Schering-Plough B.V.	Netherlands
Schering-Plough C.A.	Venezuela
Schering-Plough Central East A.G.	Switzerland
Schering-Plough China, Ltd.	Bermuda
Schering-Plough Compania Limitada	Chile
Schering-Plough Coordination Center N.V./S.A.	Belgium
Schering-Plough Corp., U.S.A.	Delaware
Schering-Plough Corporation	New Jersey
Schering-Plough Corporation	Philippines
Schering-Plough del Caribe, Inc.	New Jersey

3

Schering-Plough Corporation and Subsidiaries
Subsidiaries of the Registrant
As of December 31, 2004

	State or Country
	of Incorporation
Subsidiaries of Registrant	or Organization
Schering-Plough del Ecuador, S.A.	Ecuador
Schering-Plough del Peru S.A.	Peru
Schering-Plough External Affairs, Inc.	Delaware
Schering-Plough Farma Lda.	Portugal
Schering-Plough Farmaceutica Ltda.	Brazil
Schering-Plough Foundation, Inc.	Delaware
Schering-Plough HealthCare Products Advertising Corp.	Tennessee
Schering-Plough HealthCare Products Sales Corporation	California
Schering-Plough HealthCare Products, Inc.	Delaware
Schering-Plough Holdings (Ireland) Company	Ireland
Schering-Plough Holdings France, SAS	France
Schering-Plough Holdings Ltd.	United Kingdom
Schering-Plough II — Veterinaria, Lda.	Portugal
Schering-Plough INT Limited	United Kingdom
Schering-Plough International Employees Inc.	Delaware
Schering-Plough International, Inc.	Delaware
Schering-Plough Investment Co., Inc.	Delaware
Schering-Plough Investments Company GmbH	Switzerland
Schering-Plough Investments Limited	Delaware
Schering-Plough Kabushiki Kaisha	Japan
Schering-Plough Labo N.V.	Belgium
Schering-Plough Legislative Resources, L.L.C.	Delaware
Schering-Plough Limited	Iran
Schering-Plough Limited	Taiwan
Schering-Plough Limited	Thailand
Schering-Plough Limited	United Kingdom
Schering-Plough Ltd.	Switzerland
Schering-Plough Luxembourg, S.a.r.L	Luxembourg
Schering-Plough N.V./S.A.	Belgium
Schering-Plough Overseas Limited	Delaware
Schering-Plough OY (Finland)	Finland
Schering-Plough Pensions Ireland Limited	Ireland
Schering-Plough Pharmaceutical Industrial and Commercial S.A.	Greece
Schering-Plough Pharmaceuticals, Inc.	Delaware
Schering-Plough Polska Spoka	Poland
Schering-Plough Products Caribe, Inc.	Cayman Islands
Schering-Plough Products LLC	Delaware
Schering-Plough Products, Inc.	Delaware
Schering-Plough Pty. Limited	Australia
Schering-Plough Real Estate Company, Inc.	Delaware

4

Schering-Plough Corporation and Subsidiaries
Subsidiaries of the Registrant
As of December 31, 2004

	State or Country
	of Incorporation
Subsidiaries of Registrant	or Organization
Schering-Plough Research Institute	Delaware
Schering-Plough S.A.	France
Schering-Plough S.A.	Paraguay
Schering-Plough S.A.	Panama
Schering-Plough S.A.	Dominican Republic
Schering-Plough S.A.	Argentina
Schering-Plough S.A.	Colombia
Schering-Plough S.A.	Spain
Schering-Plough S.A.	Uruguay
Schering-Plough S.A. de C.V.	Mexico
Schering-Plough S.p.A.	Italy
Schering-Plough Sante Animale	France
Schering-Plough Sdn. Bhd.	Malaysia
Schering-Plough Singapore Pte. Ltd.	Singapore
Schering-Plough Singapore Research Pte. Ltd.	Singapore
Schering-Plough Tibbi Urunler Ticaret, A.S.	Turkey
Schering-Plough Veterinaire	France
Schering-Plough Veterinaria, S.A. de C.V.	Mexico
Schering-Plough Veterinary Corporation	Nevada
Schering-Plough Veterinary Ltd.	Thailand
Schering-Plough Veterinary Nederland BV	Netherlands
Schering-Plough Veterinaria S.A.	Argentina
Sentipharm A.G.	Switzerland
Shanghai Schering-Plough Pharmaceutical Company, Ltd.	China
SOL Limited	Bermuda
S-P Bermuda	Bermuda
SP Biotech, S.A.	Spain
SP Flight Operations, Inc.	Delaware
SP HealthCare Products Corp.	Delaware
S-P Holding GmbH	Austria
SP Neurotech, S.A.	Spain
S-P RIL Limited (United Kingdom)	United Kingdom
S-P Veterinary (UK) Limited	United Kingdom
S-P Veterinary Holdings Limited	United Kingdom
S-P Veterinary Limited	United Kingdom
S-P Veterinary Pensions Limited	United Kingdom
Summit Property Company LLC, The	Delaware
Suntan Sensations, Inc.	California
Takeda Schering-Plough Animal Health Kabushiki Kaisha	Japan
Tasman Vaccine Laboratory (UK) Limited	United Kingdom

5

Schering-Plough Corporation and Subsidiaries
Subsidiaries of the Registrant
As of December 31, 2004

	State or Country
	of Incorporation
Subsidiaries of Registrant	or Organization
Technobiotic Ltd.	Australia
Trading Pharma AG	Switzerland
Undra S.A. de C.V.	Mexico
UNICET, SAS	France
Warrick Pharmaceuticals Corporation	Delaware
Warrick Pharmaceuticals Limited (United Kingdom)	United Kingdom
Welnex Pharmaceuticals Limited	India
Werthenstein Chemie A.G.	Switzerland
White Laboratories of Canada Ltd.	Canada
White Laboratories, Inc.	New Jersey
White Pharma, S.A.	Argentina

6

EX-23

Exhibit 23

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in Registration Statements No. 2-83963, No. 33-50606, No. 333-30331, No. 333-87077, No. 333-91440, No. 333-104714, No. 333-105567, No. 333-105568, No. 333-112421 and No. 333-121089 on Form S-8, Post Effective Amendment No. 1 to Registration Statement No. 2-84723 on Form S-8, Post Effective Amendment No. 1 to Registration Statement No. 333-105567 on Form S-8 and Registration Statements No. 333-12909, No. 333-853, No. 333-30355 and No. 333-113222 on Form S-3, of our reports dated March 8, 2005, relating to the financial statements and financial statement schedule of Schering-Plough Corporation and management’s report of the effectiveness of internal control over financial reporting, appearing in this Annual Report on Form 10-K of Schering-Plough Corporation for the year ended December 31, 2004.

/s/ Deloitte & Touche LLP

Parsippany, New Jersey
March 8, 2005

EX-24

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned officers and/or directors of Schering-Plough Corporation, a New Jersey corporation (herein called the “Corporation”), does hereby constitute and appoint Robert Bertolini, Douglas J. Gingerella and Susan Ellen Wolf, or any of them, his or her true and lawful attorney or attorneys and agent or agents, to do any and all acts and things and to execute any and all instruments which said attorney or attorneys and agent or agents may deem necessary or advisable to enable the Corporation to comply with the Securities Exchange Act of 1934, as amended, and any rules, regulations, requirements or requests of the Securities and Exchange Commission thereunder or in respect thereof in connection with the filing under said Act of the Annual Report of the Corporation on Form 10-K for the fiscal year ended December 31, 2004 (herein called the “Form 10-K”); including specifically, but without limiting the generality of the foregoing, the power and authority to sign the respective names of the undersigned officers and/or directors as indicated below to the Form 10-K and/or to any amendment of the Form 10-K and each of the undersigned does hereby ratify and confirm all that said attorney or attorneys and agent or agents, or any of them, shall do or cause to be done by virtue hereof.

IN WITNESS WHEREOF, each of the undersigned has subscribed these presents this 23rd day of February, 2005.

Fred Hassan, Chairman of	Robert J. Bertolini, Executive
the Board, Chief	Vice President and Chief Financial
Executive Officer and President	Officer
Douglas J. Gingerella, Vice President	Richard de J. Osborne, Director
and Controller; Principal
Accounting Officer
Hans W. Becherer, Director	Patricia F. Russo, Director
Philip Leder, M.D., Director	Kathryn C. Turner, Director
Eugene R. McGrath, Director	Robert F. W. van Oordt, Director
Carl E. Mundy, Jr., Director	Arthur F. Weinbach, Director

EX-31.1

Exhibit 31.1

Certification

I, Fred Hassan, Chairman of the Board, Chief Executive Officer and President, certify that:

1. I have reviewed this annual report on Form 10-K of Schering-Plough Corporation (the “registrant”);

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a–15(e) and 15d–15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a–15(f) and 15d–15(f)) for the registrant and have:

         (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

         (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

         (c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

         (d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

         (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

         (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 8, 2005

/s/ Fred Hassan

Fred Hassan
Chairman of the Board, Chief Executive Officer and President

EX-31.2

Exhibit 31.2

Certification

I, Robert J. Bertolini, Executive Vice President and Chief Financial Officer, certify that:

1. I have reviewed this annual report on Form 10-K of Schering-Plough Corporation (the “registrant”);

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a–15(e) and 15d–15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a–15(f) and 15d–15(f)) for the registrant and have:

         (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

         (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

         (c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

         (d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

         (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

         (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 8, 2005

/s/ Robert J. Bertolini

Robert J. Bertolini
Executive Vice President and Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION

I, Fred Hassan, Chairman of the Board, Chief Executive Officer and President of Schering-Plough Corporation, certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) the Annual Report on Form 10-K for the year ended December 31, 2004 (the “Annual Report”) which this statement accompanies fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78m); and

(2) information contained in the Annual Report fairly presents, in all material respects, the financial condition and results of operations of Schering-Plough Corporation.

Dated: March 8, 2005

/s/ Fred Hassan

Fred Hassan
Chairman of the Board,
Chief Executive Officer
and President

EX-32.2

Exhibit 32.2

CERTIFICATION

I, Robert J. Bertolini, Executive Vice President and Chief Financial Officer of Schering-Plough Corporation, certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) the Annual Report on Form 10-K for the year ended December 31, 2004 (the “Annual Report”) which this statement accompanies fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78m); and

(2) information contained in the Annual Report fairly presents, in all material respects, the financial condition and results of operations of Schering-Plough Corporation.

Dated: March 8, 2005

/s/ Robert J. Bertolini

Robert J. Bertolini
Executive Vice President and
Chief Financial Officer