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