UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
Commission file number 1-6571
SCHERING-PLOUGH CORPORATION
Incorporated in New Jersey 22-1918501
One Giralda Farms (I.R.S. Employer Identification No.)
Madison, N.J. 07940-1000 (973) 822-7000
(telephone number)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months, and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
Common Shares Outstanding as of March 31, 1999: 1,472,111,56
PART I. - FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
(UNAUDITED)
(Amounts in millions, except per share figures)
<CAPTION>
Three Months
Ended
March 31
1999 1998
<S> <C> <C>
Net sales . . . . . . . . . . . $2,186 $1,908
Costs and expenses:
Cost of sales. . . . . . . . . 432 380
Selling, general
and administrative. . . . . . 794 712
Research and development . . . 262 224
Other, net . . . . . . . . . . (15) (4)
1,473 1,312
Income before income taxes. . . 713 596
Income taxes. . . . . . . . . . 174 146
Net Income. . . . . . . . . . . $ 539 $ 450
Basic earnings per common share $ .37 $ .31
Diluted earnings per common share $ .36 $ .30
Dividends per common share. . . $ .11 $ .095
See notes to consolidated financial statements.
</TABLE>
<TABLE>
SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(Amounts in millions, except per share figures)
<CAPTION>
March 31, December 31,
1999 1998
<S> <C> <C>
Assets
Cash and cash equivalents . . . . . . . . $ 1,496 $ 1,259
Accounts receivable, net. . . . . . . . . 1,084 704
Inventories . . . . . . . . . . . . . . . 835 841
Prepaid expenses, deferred income
taxes and other current assets . . . . . 992 1,154
Total current assets. . . . . . . . . 4,407 3,958
Property, plant and equipment . . . . . . 4,035 4,068
Less accumulated depreciation . . . . . . 1,350 1,393
Property, net . . . . . . . . . . . . 2,685 2,675
Intangible assets, net. . . . . . . . . . 562 565
Other assets. . . . . . . . . . . . . . . 649 642
$ 8,303 $ 7,840
Liabilities and Shareholders' Equity
Accounts payable. . . . . . . . . . . . . $ 928 $ 1,003
Short-term borrowings and current
portion of long-term debt. . . . . . . . 832 558
Other accrued liabilities . . . . . . . . 1,458 1,471
Total current liabilities . . . . . . 3,218 3,032
Long-term liabilities . . . . . . . . . . 827 806
Shareholders' Equity:
Preferred shares - $1 par value
each; issued - none. . . . . . . . . . . - -
Common shares - $.50 par value;
Issued: 1999 and 1998 - 2,030 . . . . . 1,015 1,015
Paid-in capital . . . . . . . . . . . . . 448 365
Retained earnings . . . . . . . . . . . . 7,178 6,802
Accumulated other comprehensive income. . (277) (238)
Total . . . . . . . . . . . . . . . . 8,364 7,944
Less treasury shares, at cost - 1999
and 1998 - 558 shares . . . . . . . . . 4,106 3,942
Total shareholders' equity. . . . . . 4,258 4,002
$ 8,303 $ 7,840
See notes to consolidated financial statements.
</TABLE>
<TABLE>
SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31
(UNAUDITED)
(Amounts in millions)
<CAPTION>
1999 1998
<S> <C> <C>
Operating Activities:
Net Income. . . . . . . . . . . . . . . . $ 539 $450
Depreciation and amortization . . . . . . 72 56
Accounts receivable . . . . . . . . . . . (407) (166)
Inventories . . . . . . . . . . . . . . . (15) (14)
Prepaid expenses and other assets . . . . (28) (66)
Accounts payable and other liabilities . (32) 62
Net cash provided by operating activities 129 322
Investing Activities:
Capital expenditures . . . . . . . . . . (79) (41)
Reduction of investments. . . . . . . . . 200 -
Purchases of investments. . . . . . . . . (52) (26)
Other, net. . . . . . . . . . . . . . . . 3 (4)
Net cash provided by(used for) investing
activities . . . . . . . . . . . . . . . 72 (71)
Financing Activities:
Short-term borrowings, net. . . . . . . . 284 (128)
Common shares repurchased . . . . . . . . (153) (34)
Dividends paid to common shareholders . . (163) (140)
Other, net. . . . . . . . . . . . . . . . 70 (40)
Net cash provided by (used for) financing
activities . . . . . . . . . . . . . . . 38 (342)
Effect of exchange rates on cash and
cash equivalents. . . . . . . . . . . . . (2) (1)
Net increase (decrease) in cash and
cash equivalents . . . . . . . . . . . . 237 (92)
Cash and cash equivalents, beginning
of period . . . . . . . . . . . . . . . . 1,259 714
Cash and cash equivalents, end of period . $1,496 $622
See notes to consolidated financial statements.
</TABLE>
SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Amounts in millions, except per share figures)
Basis of Presentation
The unaudited financial statements included herein have been
prepared pursuant to the rules and regulations of the Securities
and Exchange Commission for reporting on Form 10-Q. Certain
information and footnote disclosures normally included in
financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. The statements should be
read in conjunction with the accounting policies and notes to
consolidated financial statements included in the Company's 1998
Annual Report on Form 10-K.
In the opinion of management, the financial statements reflect
all adjustments necessary for a fair statement of the operations
for the interim periods presented.
New Accounting Pronouncement
In June 1998, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards (SFAS) No.
133, "Accounting for Derivative Instruments and Hedging
Activities." The Company plans to adopt SFAS No. 133 effective
January 1, 2000. Management does not deem it cost-effective to
engage in a formula-based program using derivative instruments to
hedge its market risks; accordingly, this statement is not
expected to materially impact the Company's financial statements.
Earnings Per Common Share
The shares used for basic earnings per common share and diluted
earnings per common share are reconciled as follows (number of
shares in millions):
Three Months
Ended March 31,
1999 1998
Average shares outstanding for
basic earnings per share . . . . . 1,472 1,466
Dilutive effect of options and
deferred stock units . . . . . . . 19 19
Average shares outstanding for
diluted earnings per share . . . . 1,491 1,485
Comprehensive Income
Total comprehensive income for the three months ended March 31,
1999 and 1998 was $499 and $444, respectively.
Segment Reporting
Schering-Plough is a worldwide research-based pharmaceutical
company engaged in the discovery, development, manufacturing and
marketing of pharmaceutical products. Discovery and development
efforts target the field of human health. However, application
in the field of animal health can result from these efforts. The
Company views animal health applications as a means to maximize
the return on investments in discovery and development. The
Company operates primarily in the prescription pharmaceutical
marketplace. However, the Company has sought regulatory approval
to switch prescription products to over-the-counter (OTC) status
as a means of extending a product's life cycle. In this way the
OTC marketplace is yet another means of maximizing the return on
investments in discovery and development. Effective January 1,
1999, the Company changed the structure of its internal
organization to reflect this focus on pharmaceutical research and
development. As a result, the Company will report as one
segment. Previously, the Company was organized into two business
units: pharmaceuticals and healthcare.
Net sales by major therapeutic category for the:
Three Months
Ended
March 31
1999 1998
Allergy & Respiratory . . . . . . . $866 $753
Anti-infectives & Anticancer. . . . 422 311
Dermatologicals . . . . . . . . . . 151 160
Cardiovasculars . . . . . . . . . . 160 173
Other Pharmaceuticals . . . . . . . 204 149
Animal Health . . . . . . . . . . . 153 145
Foot Care . . . . . . . . . . . . . 83 72
OTC . . . . . . . . . . . . . . . . 62 62
Sun Care . . . . . . . . . . . . . 85 83
Consolidated Net Sales. . . . . . . $2,186 $1,908
Inventories
Inventories consisted of: March 31, December 31,
1999 1998
Finished products . . . . . . . $395 $483
Goods in process. . . . . . . . 237 174
Raw materials and supplies. . . 203 184
Total inventories . . . . . . $835 $841
Legal and Environmental Matters
The Company has responsibilities for environmental clean-up under
various state, local and federal laws, including the
Comprehensive Environmental Response, Compensation and Liability
Act, commonly known as Superfund. At several Superfund sites (or
equivalent sites under state law), the Company is alleged to be a
potentially responsible party (PRP). The Company estimates its
obligations for clean-up costs for Superfund sites based on
information obtained from the federal Environmental Protection
Agency, an equivalent state agency, and/or studies prepared by
independent engineers, and on the probable costs to be paid by
other PRPs. The Company records a liability for environmental
assessments and/or clean-up when it is probable a loss has been
incurred and the amount can reasonably be estimated.
The Company is also involved in various other claims and legal
proceedings of a nature considered normal to its business,
including product liability cases. The estimated costs the
Company expects to pay in these cases are accrued when the
liability is considered probable and the amount can reasonably be
estimated. Consistent with trends in the pharmaceutical industry,
the Company is self-insured for certain events.
The recorded liabilities for the above matters at March 31, 1999
were not material. Expected insurance recoveries have not been
considered in determining the costs for environmental-related
liabilities. Management believes that, except for the matters
discussed in the following paragraphs, it is remote that any
material liability in excess of the amounts accrued will be
incurred.
The Company is a defendant in more than 160 antitrust actions
commenced (starting in 1993) in state and federal courts by
independent retail pharmacies, chain retail pharmacies and
consumers. The plaintiffs allege price discrimination and/or
conspiracy between the Company and other defendants to restrain
trade by jointly refusing to sell prescription drugs at
discounted prices to the plaintiffs.
One of the federal cases is a class action on behalf of
approximately two-thirds of all retail pharmacies in the United
States and alleges a price-fixing conspiracy. The Company agreed
to settle the federal class action for a total of $22, which has
been paid in full. The settlement provides, among other things,
that the Company shall not refuse to grant discounts on brand-
name prescription drugs to a retailer based solely on its status
as a retailer and that, to the extent a retailer can demonstrate
its ability to affect market share of a Company brand-name
prescription drug in the same manner as a managed care
organization with which the retailer competes, it will be
entitled to negotiate similar incentives subject to the rights,
obligations, exemptions and defenses of the Robinson-Patman Act
and other laws and regulations. The United States District Court
in Illinois approved the settlement of the federal class action
on June 21, 1996. In June 1997, the Seventh Circuit Court of
Appeals dismissed all appeals from that settlement, and it is not
subject to further review. The defendants that did not settle
the class action proceeded to trial in September 1998. The trial
ended in November 1998 with a directed verdict in the defendants'
favor.
Three of the state antitrust cases have been certified as class
actions. Two are class actions on behalf of certain retail
pharmacies in California and Wisconsin, and the other is a class
action in the District of Columbia, on behalf of consumers of
prescription medicine. In addition, an action has been brought in
Alabama purportedly on behalf of consumers in Alabama and several
other states. Plaintiffs are seeking to maintain the action as a
class action. The Company has settled the retailer class action
in Wisconsin and the alleged class action in Minnesota. The
settlements of the state antitrust cases in Wisconsin and
Minnesota have been approved by the respective courts. The
settlement amounts were not significant. In August 1998, a class
action was brought in Tennessee purportedly on behalf of
consumers in Tennessee and several other states. The court has
conditionally certified a class of consumers, but has stayed the
case pending the resolution of an earlier filed Tennessee case,
which the Company has settled in principle. In April 1999, a
state consumer case was filed in state court in North Dakota. The
Company has also recently settled the state consumer cases in all
of the states except Alabama, Tennessee and North Dakota. Court
approval of those settlements has been obtained. The settlement
amounts were not material to the Company.
Plaintiffs in these antitrust actions generally seek treble
damages in an unspecified amount and an injunction against the
allegedly unlawful conduct.
In May 1998, the Company settled six of the federal antitrust
cases brought by 26 food and drug chain retailers and several
independent retail stores. Plaintiffs in these cases comprise
collectively approximately one-fifth of the prescription drug
retail market. In April 1999, the Company settled federal
antitrust cases brought by independent pharmacists and small
pharmacy chains comprising about 2% of the prescription drug
retail market. The settlement amounts were not material to the
Company.
In April 1997, certain of the plaintiffs in the federal class
action commenced another purported class action in United States
District Court in Illinois against the Company and the other
defendants who settled the previous federal class action. The
complaint alleges that the defendants conspired not to implement
the settlement commitments following the settlement discussed
above. The District Court has denied the plaintiffs' motion for
a preliminary injunction hearing.
The Company believes all the antitrust actions are without merit
and is defending itself vigorously.
On March 13, 1996, the Company was notified that the United
States Federal Trade Commission (FTC) is investigating whether
the Company, along with other pharmaceutical companies, conspired
to fix prescription drug prices. The investigation is ongoing.
The Company vigorously denies that it has engaged in any price-
fixing conspiracy.
The Company is a defendant in a state court action in Texas
brought by Foxmeyer Health Corporation, the parent of a
pharmaceutical wholesaler that filed for bankruptcy in August
1996. The case is against another pharmaceutical wholesaler and
11 pharmaceutical companies and alleges that the defendants
conspired to drive the plaintiff's wholesaler subsidiary out of
business. The complaint also alleged that the defendants defamed
the wholesaler and interfered with its business. There are
related actions pending in the Delaware bankruptcy proceedings of
the wholesaler and certain of the plaintiff's claims against the
Company have been dismissed. The Company believes that this
action is without merit and is defending itself vigorously
against all claims.
In February 1998, Geneva Pharmaceuticals, Inc. (Geneva) submitted
an Abbreviated New Drug Application (ANDA) to the U.S. Food and
Drug Administration (FDA) seeking to market a generic form of
CLARITIN in the United States several years before the expiration
of the Company's patents. Geneva has alleged that certain of the
Company's U.S. CLARITIN patents are invalid and unenforceable.
The CLARITIN patents are material to the Company's business. In
March 1998, the Company filed suit in federal court seeking a
ruling that Geneva's ANDA submission constitutes willful
infringement of the Company's patents and that its challenge to
the Company's patents is without merit. The Company believes
that it should prevail in the suit. However, as with any
litigation, there can be no assurance that the Company will
prevail.
Copley Pharmaceutical, Inc. (Copley) and Teva Pharmaceuticals,
Inc. (Teva) notified the Company in February 1999 and April 1999,
respectively, that each had submitted an ANDA to the FDA seeking
to market a generic form of CLARITIN Syrup in the United States
before the expiration of certain of the Company's patents. Each
of Copley and Teva has alleged that one of those patents is
invalid and unenforceable. In March 1999, the Company filed suit
in federal court seeking a ruling that Copley's ANDA submission
and proposed marketing of a generic syrup constitutes willful
infringement of the Company's patent and that its challenge to
the patent is without merit. The Company will file a similar
suit against Teva in federal court. The Company believes that it
should prevail in these suits. However, as with any litigation,
there can be no assurance that the Company will prevail.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations - three months ended March 31, 1999
compared with the corresponding period in 1998.
Sales
Consolidated sales for the first quarter advanced $278 million or
15 percent compared with the same period in 1998. Excluding the
effect of foreign currency exchange rate fluctuations,
consolidated sales grew 14 percent in the quarter. This
performance reflects worldwide sales of the CLARITIN brand of
$565 million for the quarter as compared with $436 million for
the corresponding period in 1998.
Net sales by major therapeutic category for the first quarter
were as follows:
$ - Millions
1999 1998
Allergy & Respiratory $ 866 $ 753
Anti-infectives & Anticancer 422 311
Dermatologicals 151 160
Cardiovasculars 160 173
Other Pharmaceuticals 204 149
Animal Health 153 145
Foot Care 83 72
OTC 62 62
Sun Care 85 83
Consolidated Net Sales $2,186 $1,908
Worldwide net sales of allergy/respiratory products advanced 15
percent in the quarter due to continued strong growth of the
CLARITIN brand of nonsedating antihistamines. Franchise sales of
nasal inhaled steroid products, which includes NASONEX, a once-
daily corticosteroid for allergic rhinitis and VANCENASE allergy
products, were essentially flat as increases in international
markets were offset by decreases in our domestic business. The
decline in the U.S. business is due to timing of trade purchases
which offset increased market growth.
Net sales of anti-infective and anticancer products worldwide
increased 36 percent, primarily due to the 1998 U.S. introduction
of REBETRON Combination Therapy containing REBETOL Capsules and
INTRON A Injection for treatment of chronic hepatitis C in
relapse patients. International sales of INTRON A also
contributed to the sales increase due to the 1998 launch of
INTRON A solution in a multidose pen in several European markets.
Worldwide sales of cardiovascular products decreased 7 percent
for the quarter primarily due to lower sales of IMDUR, an oral
nitrate for angina, due to generic product introductions, and K-
DUR, a sustained-released potassium supplement, due to unusually
high trade purchases in the first quarter of 1998. Partially
offsetting these declines were sales of INTEGRILIN injection, a
platelet receptor glycoprotein inhibitor licensed for co-
marketing from COR Therapeutics.
Other pharmaceuticals consist of products that do not fit into
the Company's major therapeutic categories and include bulk
manufacturing and alliance revenues.
Net sales of foot care products increased 15 percent driven by
higher sales of insoles reflecting new product introductions and
increased sales of antifungal products, TINACTIN and LOTRIMIN.
Income before income taxes increased 20 percent for the quarter
compared with 1998, and represented 32.6 percent of sales versus
31.3 percent last year.
Cost of sales as a percentage of sales decreased slightly to 19.8
percent in the quarter from 19.9 percent in 1998 due to product
mix improvements.
Selling, general and administrative expenses represented 36.3
percent of sales in the first quarter of 1999 compared with 37.3
percent last year. The decrease in this ratio is the result of
sales increases outpacing expense growth.
Research and development spending rose 17 percent in the quarter
representing 12.0 percent of sales in 1999 compared to 11.7
percent in 1998. The higher spending reflects the Company's
funding of both internal research efforts and research
collaborations with various partners to develop a steady flow of
innovative products.
The effective tax rate was 24.5 percent in the three month
periods of both 1999 and 1998.
Diluted earnings per common share advanced 20 percent in the
first quarter to $.36 from $.30 in 1998. Foreign currency
exchange rate changes had no impact on diluted earnings per
common share for the first quarter of 1999.
Basic earnings per common share advanced 19 percent to $.37 from
$.31 for the same period.
Year 2000
Many computer systems ("IT systems") and equipment and
instruments with embedded microprocessors ("non-IT systems") were
designed to recognize only the last two digits of a calendar
year. With the arrival of the Year 2000, these systems and
microprocessors may encounter operating problems due to their
inability to distinguish years after 1999 from years preceding
1999. As a result, the Company is engaged in an extensive project
to remediate or replace its date-sensitive IT systems and non-IT
systems.
The project involves four phases: (1) compiling an inventory of
IT and non-IT systems; (2) distinguishing "critical" systems from
"non-critical" systems; (3) remediating or replacing IT and non-
IT systems; and (4) testing the remediated or replaced IT and
non-IT systems. "Critical" systems for this purpose include
systems that may affect health and safety, product manufacturing,
product distribution, customer service and certain research
systems.
The following chart indicates the estimated state of completion
of each phase of this project as of March 31, 1999:
IT Systems Non-IT Systems
Inventory systems 100% 100%
Identify critical and
non-critical systems 100% 100%
Remediate or replace systems 99% 65%
Testing systems 95% 65%
The Company expects to complete all phases of this project for
all IT systems and all critical, non-IT systems by December 31,
1999. Work on non-critical, non-IT systems may continue into the
year 2000.
The estimated maximum cost of the Year 2000 project is
approximately $95 million. Approximately 55 percent of the $95
million will be of an expense nature and 45 percent will be for
capitalizable replacements. As of March 31, 1999, $46 million of
the $95 million has been incurred; $15 million has been
capitalized and $31 million has been expensed. No other
significant information systems projects have been deferred as a
result of the Company's Year 2000 project. The book value of
computers, software and equipment that will need to be written-
off as a result of not being Year 2000 compliant is immaterial.
The Company's internal auditors are reviewing progress on the
Year 2000 project and provide evaluations of the Company's
readiness to senior management on a regular basis.
Management believes that the Year 2000 issue will not have a
material adverse effect on the Company's internal operating
systems. However, the Company's operations may be impacted in
the event that computer disruption is encountered by third
parties with whom the Company conducts significant business.
These third parties include wholesalers, distributors, managed
care organizations, hospitals, suppliers, clinical researchers,
research partners and government agencies. The Company has
initiated communications with these third parties concerning
their state of readiness and intends to continue these
communications throughout 1999. However, the Company can provide
no assurance that these third parties will not experience
business disruption.
The Company currently believes that the most reasonably likely
worst case scenario concerning the Year 2000 involves potential
business disruption among the third parties with whom it conducts
significant business. If a number of these third parties
(including, in particular, wholesalers, managed care
organizations and clinical researchers) experience business
disruption due to a Year 2000 computer problem, the Company's
results of operations and cash flows could be materially
adversely affected.
During 1999, the Company will endeavor to develop contingency
plans to address potential business disruptions at these third
parties. Contingency planning may include increasing inventory
levels, establishing secondary sources of supply and
manufacturing and maintaining backup lines of communications with
our customers. However, it is unlikely that any contingency plan
can fully mitigate the impact of significant business disruptions
among these third parties.
Certain third parties, such as retail pharmacies and wholesalers,
may order extra inventory as part of their contingency planning.
The impact to the Company of such contingency planning by third
parties cannot be predicted.
The estimates and conclusions in this description of the Year
2000 issue contain forward-looking statements and are based on
management's estimates of future events. Risks to completing the
Year 2000 project include the continued availability of resources
and qualified information systems personnel.
Additional Factors Influencing Operations
In the United States, many of the Company's pharmaceutical
products are subject to increasingly competitive pricing as
managed care groups, institutions, government agencies and other
buying groups seek price discounts. In most international
markets, the Company operates in an environment of government-
mandated cost containment programs. Several governments have
placed restrictions on physician prescription levels and patient
reimbursements, emphasized greater use of generic drugs and
enacted across-the-board price cuts as methods of cost control.
Since the Company is unable to predict the final form and timing
of any future domestic and international governmental or other
health care initiatives, their effect on operations and cash
flows cannot be reasonably estimated.
The market for pharmaceutical products is competitive. The
Company's operations may be affected by technological advances of
competitors, patents granted to competitors, new products of
competitors and generic competition as the Company's products
mature. In addition, patent positions can be highly uncertain
and an adverse result in a patent dispute can preclude
commercialization of products or negatively affect sales of
existing products. The effect on operations of competitive
factors and patent disputes cannot be predicted.
Uncertainties inherent in government regulatory approval
processes, including among other things delays in approval of new
products, may also affect the Company's operations. The effect
on operations of regulatory approval processes cannot be
predicted.
Liquidity and financial resources - three months ended March 31,
1999
Cash generated from operations continues to be the Company's
major source of funds to finance working capital, additions to
property, shareholder dividends and common share repurchases.
Cash provided by operating activities was $129 million for the
first three months of 1999. In 1998, cash provided by operations
was $322 million. The decrease in 1999 is temporary and is due
to the timing of trade purchases within the quarter. In the first
quarter of 1999, cash was used to pay shareholder dividends of
$163 million, fund capital expenditures of $79 million, and
repurchase shares for $153 million.
In October 1997, the Board of Directors authorized the repurchase
of $1 billion of the Company's common shares. As of March 31,
1999 this program was approximately 29 percent complete.
In April 1999, the Board of Directors increased the quarterly
dividend by 14 percent to $.125 from $.11 per common share.
In September 1998, the Board of Directors authorized a 2-for-1
stock split of the Company's common shares. The distribution of
the split shares was made on December 2, 1998, to the
shareholders of record at the close of business on November 6,
1998. Certain 1998 amounts have been restated to reflect this
stock split.
The Company's liquidity and financial resources continue to be
sufficient to meet its operating needs.
Cautionary Statements for Forward Looking Information
Management's discussion and analysis set forth above contains
certain forward looking statements, including statements
regarding the Company's financial position and results of
operations. These forward looking statements are based on
current expectations. Certain factors have been identified by
the Company in Exhibit 99 of the Company's December 31, 1998,
Form 10-K filed with the Securities and Exchange Commission,
which could cause the Company's actual results to differ
materially from expected and historical results. Exhibit 99 from
the Form 10-K is incorporated by reference herein.
Item 3.
Market Risk Disclosures
As discussed in the 1998 Annual Report to Shareholders, the
Company's exposure to market risk from changes in foreign
currency exchange rates and interest rates, in general, is not
material.
PART II OTHER INFORMATION
Item 1. Legal Proceedings
Item 3, Legal Proceedings, of Part I of the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1998,
is incorporated by reference.
Reference is made to the first paragraph of Item 3, Legal
Proceedings, of Part I of the Company's Annual Report on Form 10-
K for the fiscal year ended December 31, 1998, relating to
lawsuits arising out of the use of synthetic estrogens.
Subsidiaries of the Company are defendants in 250 lawsuits
involving approximately 460 plaintiffs. The total amount claimed
against all defendants in all the suits amounts to more than $1.5
billion.
Reference is made to the fifth paragraph of Item 3, Legal
Proceedings, of Part I of the Company's Annual Report on Form 10-
K for the fiscal year ended December 31, 1998, relating to state
antitrust cases. During the first quarter of 1999, the Company
agreed to settle the consumer class action in California for
approximately $1.625 million in cash and $8.34 million in free
products donated to certain California public health clinics.
Court approval has been obtained in all of the state consumer
cases where settlements have been reached. In April 1999, a
state consumer case was filed in state court in North Dakota.
State consumer cases remain in Alabama, Tennessee and North
Dakota.
Reference is made to the seventh paragraph of Item 3, Legal
Proceedings, of Part I of the Company's Annual Report on Form 10-
K for the fiscal year ended December 31, 1998, relating to
federal antitrust cases brought by retailers. In April 1999, the
Company settled federal antitrust cases brought by independent
pharmacists and small pharmacy chains comprising about 2% of the
prescription drug retail market. The settlement amount is not
material to the Company.
Reference is made to the twelfth paragraph of Item 3, Legal
Proceedings, of Part I of the Company's Annual Report on Form 10-
K for the fiscal year ended December 31, 1998, relating to
CLARITIN patent litigation. Copley Pharmaceutical, Inc. (Copley)
and Teva Pharmaceuticals, Inc. (Teva) notified the Company in
February 1999 and April 1999, respectively, that each had
submitted an Abbreviated New Drug Application (ANDA) to the U.S.
Food and Drug Administration seeking to market a generic form of
CLARITIN Syrup in the United States before the expiration of
certain of the Company's patents. Each of Copley and Teva has
alleged that one of those patents is invalid and unenforceable.
In March 1999, the Company filed suit in federal court seeking a
ruling that Copley's ANDA submission and proposed marketing of
generic syrup constitutes willful infringement of the Company's
patent and that its challenge to the patent is without merit.
The Company will file a similar suit in federal court concerning
the Teva ANDA submission. The Company believes that it should
prevail in these suits. However, as with any litigation, there
can be no assurance that the Company will prevail.
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Annual Meeting of Shareholders was held on April 27,
1999.
(b) Not applicable.
(c) The designation by the Board of Directors of Deloitte &
Touche LLP to audit the books and accounts of the
Corporation for the year ended December 31, 1999 was
ratified by a vote of shares as follows:
FOR AGAINST ABSTAIN
1,263,847,338 1,876,040 3,827,563
All of the nominees for director were elected for a three-year
term by a vote of shares, as follows:
FOR WITHHELD
Hans W. Becherer 1,262,564,040 6,986,901
Raul E. Cesan 1,262,628,585 6,922,356
Regina E. Herzlinger 1,262,425,289 7,125,652
Robert F. W. Van Oordt 1,262,334,800 7,216,141
James Wood 1,261,914,457 7,636,484
The 1999 Executive Incentive Bonus Program, adopted by the Board
of Directors of the Corporation and as presented to the
Shareholders on April 27, 1999, was adopted by a vote of shares
as follows:
FOR AGAINST ABSTAIN
1,205,262,999 52,982,118 11,305,824
(d) None
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits - The following Exhibits are filed with this
document:
Exhibit
Number Description
3(a) - Amendment to Certificate of Incorporation
10(a) - Amendment to 1997 Stock Incentive Plan
27 - Financial Data Schedule
b) Reports on Form 8-K:
No report was filed during the three months ended March 31,
1999.
SIGNATURE(S)
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
Schering-Plough Corporation
(Registrant)
Date May 13, 1999 /s/Thomas H. Kelly
Thomas H. Kelly
Vice President and Controller
S:\2188\1999 1st qtr 10q.doc 05/13/99 12:46 PM
S:\2188\1999 1st qtr 10q.doc 9 05/13/99 12:46 PM
S:\2188\1999 1st qtr 10q.doc 05/13/99 12:46 PM
- 20 -
Exhibit 3(a)
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
SCHERING-PLOUGH CORPORATION
Pursuant to the provisions of Section 14A:7-15.l(3) of the New
Jersey Business Corporation Act, the undersigned corporation
executes the following Certificate of Amendment to its
Certificate of Incorporation:
1. The name of the Corporation is Schering-Plough Corporation
2. The following amendment to the Certificate of Incorporation
was approved by the Board of Directors and adopted on the
22nd day of September, 1998:
RESOLVED, that (i) the Corporation declare and it hereby
does declare a two-for-one division of Common Shares, par
value $1 per share (the "Common Shares"), of the Corporation
to be effected in the form of a 100% stock distribution (the
"Distribution") payable on December 2, 1998 (the
"Distribution Date") to each holder of record of Common
Shares of the Corporation issued and outstanding and to the
Corporation in respect of the Common Shares held in its
treasury, in each case at the close of business on November
6, 1998 (the "Record Date"), and (ii) the Certificate of
Incorporation of the Corporation, as heretofore amended, be
and the same hereby is amended, effective on the
Distribution Date, so that Article THIRD shall read in its
entirety as follows:
Third: The aggregate number of shares which the
Corporation shall have authority to issue shall be two
billion four hundred fifty million (2,450,000,000)
shares to consist of:
(a) Two billion four hundred million
(2,400,000,000) Common Shares of the par value of Fifty
Cents ($0.50) per share, and
(b) Fifty million (50,000,000) Preferred Shares
of the par value of One Dollar ($1.00) per share
issuable in series to consist of:
(i) One million, five hundred thousand
(1,500,000) Preferred Shares designated "Series A
Junior Participating Preferred Stock," and
(ii) Forty-eight million, five hundred
thousand (48,500,000) Preferred Shares whose
designations have not yet been determined.
3. The amendment to the Certificate of Incorporation set forth
in paragraph 2, hereinabove, will not adversely affect the
rights or preferences of the holders of outstanding shares
of any class or series and will not result in the percentage
of authorized shares that remains unissued after the share
division exceeding the percentage of authorized shares that
was unissued before the share division.
4. The class of shares subject to the division is the Common
Shares, and the number of Common Shares subject to the
division is 1,014,748,470, constituting all the issued
Common Shares. The 1,014,748,470 issued Common Shares are
to be divided into 2,029,496,940 Common Shares.
5. The effective date of this Amendment to the Certificate of
Incorporation shall be December 2, 1998.
Dated this 1st day of October, 1998.
Schering-Plough Corporation
By:/s/Thomas H. Kelly
Thomas H. Kelly
Vice President and Controller
37919-1.DOC
2
D:\certificate of amendment to Cert. of Inc.(stock split) November 1998.DOC
Exhibit 10(a)
AMENDMENT TO
SCHERING-PLOUGH CORPORATION
1997 STOCK INCENTIVE PLAN
The Schering-Plough Corporation 1997 Stock Incentive Plan is hereby amended,
effective February 22, 1999, by deleting Paragraph 6(c) thereof
and substituting therefore the following:
(c) Except as provided in Paragraphs 6(f), 6(g), 6(h), and 13, no option
shall be exercisable during the year ending on the first anniversary date of
the granting of the option or, if the Committee so determines at the time of
grant or subsequent thereto: (i) during such lesser period not less than six
months and one day from the date of grant or (ii) in the case of
Transferable Options (as defined below) such option may become
exercisable immediately upon transfer.
exhibit 10(a) 3-31-99 10Q.doc
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<LEGEND>
This schedule contains financial data extracted from Schering-Plough
Corporation and subsidiaries consolidated financial statements for the three
months ended March 31, 1999, and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<MULTIPLIER> 1000000
<S> <C>
<PERIOD-TYPE> 3-MOS
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<PERIOD-END> MAR-31-1999
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