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, 1999 Commission file
Number 1-6571
SCHERING-PLOUGH CORPORATION
Incorporated in New Jersey 22-1918501
One Giralda Farms (I.R.S.Employer
Madison, New Jersey 07940-1000 Identification No.)
(973) 822-7000 (telephone number)
Securities registered pursuant to section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
Common Shares, $.50 par value 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 X NO
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.
Common shares outstanding as of January 31, 2000: 1,470,789,125
Aggregate market value of common shares at January 31,
2000 held by non-affiliates based on closing price: $64 billion.
Part of Form 10-K
Documents incorporated by reference incorporated into
Schering-Plough Corporation 1999 Parts I, II and IV
Annual Report to Shareholders
Schering-Plough Corporation Proxy Part III
Statement for the annual meeting of
shareholders on April 25, 2000
Part I
Item 1. Business
The terms "Schering-Plough" and the "Company," as used
herein, refer to Schering-Plough Corporation and its
subsidiaries, except as otherwise indicated by the
context. Schering-Plough Corporation is a holding
company which was incorporated in 1970.
Subsidiaries of Schering-Plough Corporation are engaged
in the discovery, development, manufacturing and
marketing of pharmaceutical products worldwide.
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 historically 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 reports as one
segment. Previously, the Company was organized into two
business units: pharmaceuticals and health care.
Prescription products include: CLARITIN, CLARITIN-D,
NASONEX, PROVENTIL, VANCENASE and VANCERIL,
allergy/respiratory; CEDAX, EULEXIN, GARAMYCIN, INTRON
A, REBETRON Combination Therapy containing REBETOL
capsules and INTRON A injection, REMICADE and TEMODAR,
anti-infective and anticancer; DIPROLENE, DIPROSONE,
ELOCON, and LOTRISONE, dermatologicals; IMDUR,
INTEGRILIN, K-DUR and NITRO-DUR, cardiovasculars;
CELESTONE, and SUBUTEX, other pharmaceuticals.
Animal health products include: NUFLOR, TRIBRISSEN and
CEPRAVIN, antimicrobials; SPOT-ON, PULVEX, AUTOWORM and
TRIATOX, parasiticides; BANAMINE and ELTANAC, non-
steroidal anti-inflammatories; RALGRO, a growth
promotant implant; OTOMAX, OPTIMMUNE, and GENTOCIN
TOPICAL SPRAY, otic, ophthalmic and topical products;
a broad range of vaccines for many species; sutures,
bandages and nutritional products. In June 1997, the
Company purchased the worldwide animal health
operations of Mallinckrodt Inc. The acquisition was
recorded under the purchase method of accounting at a
cost of approximately $490 million, which includes the
assumption of debt and direct costs of the acquisition.
Foot care, OTC and sun care products include: CLEAR
AWAY wart remover; DR. SCHOLL'S foot care products;
LOTRIMIN AF and TINACTIN antifungals; A & D ointment;
AFRIN nasal decongestant; CHLOR-TRIMETON antihistamine;
CORICIDIN and DRIXORAL cold and decongestant products;
CORRECTOL laxative; GYNE-LOTRIMIN for vaginal yeast
infections; COPPERTONE, BAIN DE SOLEIL and SOLARCAINE
sun care products.
Net sales by major therapeutic category for each of the
three years in the period ended December 31, 1999 were
as follows (dollars in millions):
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Allergy & Respiratory $3,850 $3,375 $2,708
Anti-infective and Anticancer 1,738 1,263 1,156
Dermatologicals 682 619 571
Cardiovasculars 673 750 637
Other Pharmaceuticals 792 688 649
Animal Health 678 647 389
Foot Care 348 336 300
OTC 221 218 220
Sun Care 194 181 148
Consolidated net sales $9,176 $8,077 $6,778
</TABLE>
The "Segment Information" as set forth in the Notes to
Consolidated Financial Statements in the Company's 1999
Annual Report to Shareholders is incorporated herein by
reference.
Prescription drugs are introduced and made known to
physicians, pharmacists, hospitals and managed care
organizations by trained professional service
representatives, and are sold to hospitals, managed
care organizations, wholesale distributors and retail
druggists. Prescription products are also promoted
through journal advertising, direct mail advertising,
consumer advertising and by distributing samples to
physicians.
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 Company's subsidiaries own (or have licensed rights
under) a number of patents and patent applications,
both in the United States and abroad. Patents and
patent applications relating to the Company's
significant products, including without limitation the
CLARITIN family of products, INTRON A and REBETRON
Combination Therapy, containing REBETOL (ribavirin)
capsules and INTRON A (interferon alfa-2b) Injection
are of material importance to the Company. Certain
CLARITIN (loratadine) related patents expire in the
next several years. Specifically, the loratadine
compound patent for CLARITIN in the United States
expires in 2002 and the compound patent for
desloratadine, an active metabolite of loratadine,
expires in 2004. These patents are subject to
litigation as described in Item 3, Legal Proceedings,
of this Form 10-K.
Worldwide, the Company's products are sold under
trademarks. Trademarks are considered in the aggregate
to be of material importance to the business and are
protected by registration or common law in the United
States and most other markets where the products are
sold.
Raw materials essential to the Company are available in
adequate quantities from a number of potential
suppliers. Energy is expected to be available to the
Company in sufficient quantities to meet operating
requirements. There was no disruption experienced as a
result of the Year 2000 computer issue.
Seasonal patterns do not have a pronounced effect on
the combined operations of the Company.
There is generally no significant backlog of orders
since the Company's business is normally conducted on
an immediate shipment basis.
The pharmaceutical industry is highly competitive and
includes other large companies with substantial
resources for research, product development, promotion
and field selling support. There are numerous domestic
and international competitors in this industry. Some
of the principal competitive techniques used by the
Company for its products include research and
development of new and improved products, high product
quality, varied dosage forms and strengths, and
switching prescription products to non-prescription
status. In the United States, many of the Company's
products are subject to increasingly competitive
pricing as managed care groups, institutions,
government agencies and other 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.
During 1999 and 1998, 12 percent and 11 percent,
respectively, of consolidated net sales were made to
McKesson HBOC Inc., a major pharmaceutical and health
care products distributor; substantially all of these
sales were in the United States.
Foreign Operations
Foreign activities are carried out primarily through
wholly-owned subsidiaries wherever market potential is
adequate and circumstances permit. In addition, the
Company is represented in some markets through
licensees or other distribution arrangements. There
are approximately 14,500 employees outside the United
States.
Foreign operations are subject to certain risks which
are inherent in conducting business overseas. These
risks include possible nationalization, expropriation,
importation limitations and other restrictive
governmental actions. Also, fluctuations in foreign
currency exchange rates can impact the Company's
consolidated financial results. For additional
information on foreign operations, see "Management's
Discussion and Analysis of Operations and Financial
Condition" and "Segment Information" in the Company's
1999 Annual Report to Shareholders which is
incorporated herein by reference.
Research and Development
The Company's research activities are primarily aimed
at discovering and developing new and enhanced
prescription products of medical and commercial
significance. Company sponsored research and
development expenditures were $1,191 million, $1,007
million and $847 million in 1999, 1998, and 1997,
respectively. Research expenditures represented
approximately 13 percent of consolidated net sales in
each of the three years.
The Company's research activities are concentrated in
the therapeutic areas of allergic and inflammatory
disorders, infectious and cardiovascular diseases,
oncology and central nervous system disorders. The
Company also has substantial efforts directed toward
biotechnology, gene therapy 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.
Government Regulation
Pharmaceutical companies are subject to extensive
regulation by a number of national, state and local
agencies. Of particular importance is the United
States Food and Drug Administration (FDA). It has
jurisdiction over all the Company's businesses and
administers requirements covering the testing,
approval, safety, effectiveness, manufacturing,
labeling and marketing of the Company's products. In
some cases, FDA requirements and/or reviews have
increased the amount of time and money necessary to
develop new products and bring them to market in the
United States.
On an ongoing basis the FDA regulates the facilities
and procedures used to manufacture pharmaceutical
products in the United States or for sale in the United
States. All products made in such facilities must be
manufactured in accordance with "good manufacturing
practices" established by the FDA. The FDA
periodically inspects the Company's facilities and
procedures to assure compliance.
Failure to comply with government 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, fines and other civil or criminal sanctions.
The Company's activities outside the United States are
also subject to regulatory requirements governing the
testing, approval, safety, effectiveness,
manufacturing, labeling and marketing of the Company's
products, which requirements vary from country to
country. Whether or not FDA approval or approval of
the European Medicines Evaluation Agency has been
obtained for a product, approval of the product by
comparable regulatory authorities of countries outside
of the United States 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 United States. Approval in one
country does not assure that such product will be
approved in another country.
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.
In recent years various legislative proposals have been
offered in Congress and in some state legislatures that
would effect major changes in the affected health care
systems. Some states have passed legislation, and
further federal and state proposals are possible.
These could include price or patient reimbursement
constraints on medicines and restrictions on access to
certain products. Similar issues have also arisen in
many countries outside of the United States. It is not
possible to predict the outcome of such initiatives and
their effect on operations and cash flows cannot be
reasonably estimated.
The Company is also subject to the jurisdiction of
various other 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 United States. The
Company 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.
Environment
To date, compliance with federal, state and local
environmental protection laws has not had a materially
adverse effect on the Company. The Company has made
and will continue to make necessary expenditures for
environmental protection. Worldwide capital
expenditures during 1999 included approximately $7
million for environmental control purposes. It is
anticipated that continued compliance with such
environmental regulations will not significantly affect
the Company's financial statements or its competitive
position. For additional information on environmental
matters, see "Legal and Environmental Matters" in the
Notes to Consolidated Financial Statements in the
Company's 1999 Annual Report to Shareholders which is
incorporated herein by reference.
Employees
There were approximately 26,500 people employed by the
Company at December 31, 1999.
Cautionary Factors that May Affect Future Results
(Cautionary Statements Under the Private Securities
Litigation Reform Act of 1995)
This report and other written reports and oral
statement made from time-to-time by the Company may
contain so-called "forward-looking statements," all of
which are subject to risks and uncertainties. One can
identify these forward-looking statements by their use
of words such as "expects," "plans," "will,"
"estimates," "forecasts," "projects," "believes,"
"anticipates," and other words of similar meaning. One
can also identify them by the fact that they do not
relate strictly to historical or current facts. These
statements are likely to address the Company's growth
strategy, financial results, regulatory issues, product
approvals, development programs, litigation and
investigations. One must carefully consider any such
statement and should understand that many factors could
cause actual results to differ from the Company'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. No forward-looking statement
can be guaranteed and actual future results may vary
materially. Although it is not possible to predict or
identify all such factors, they may include the
following:
- Competitive factors including technological
advances attained by competitors, patents granted
to competitors, new products of competitors coming
to the market, generic competition as the
Company's products mature and patent expiration on
products.
- Increased pricing pressure both in the United
States and abroad from managed care buyers,
institutions and government agencies. In the
United States, among other developments,
consolidation among customers may increase price
pressures and may result in various customers
having greater influence over prescription
decisions through formulary decisions and other
policies.
- Government laws and regulations (and changes in
laws and regulations) affecting domestic and
international operations and the enforcement
thereof including, among other laws and
regulations, those resulting from healthcare
reform initiatives in the United States at the
state and federal level and in other countries, as
well as laws and regulations relating to trade,
antitrust, monetary and fiscal policies, taxes,
price controls, and possible nationalization.
- 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 processes of non-U.S.
countries, including, without limitation, delays
in approval of new products.
- Failure to meet "good manufacturing practices"
established by governmental authorities 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, fines and other civil or
criminal sanctions.
- 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.
- Efficacy or safety concerns with respect to
marketed products, whether or not scientifically
justified, leading to recalls, withdrawals or
declining sales.
- Major products such as CLARITIN and INTRON
A/REBETRON Combination Therapy accounted for a
material portion of the Company's 1999 revenues.
If any major product, such as CLARITIN and INTRON
A/REBETRON Combination Therapy, were to become
subject to a problem such as loss of patent
protection, previously unknown side effects or if
a new, more effective treatment should be
introduced, the impact on revenues could be
significant.
- Failure of the Company to foresee and correct
systems and commercial arrangements to address the
new European currency (euro).
- Legal factors, including product liability
claims and other litigation, government
investigations, patent disputes with competitors,
environmental concerns, any of which could
preclude commercialization of products or
negatively affect the profitability of existing
products.
- Economic factors over which the Company has no
control, including changes in inflation, interest
rates and foreign currency exchange rates.
- Changes in tax laws including changes related to
taxation of foreign earnings.
- Changes in accounting standards promulgated by
the American Institute of Certified Public
Accountants, the Financial Accounting Standards
Board or the Securities and Exchange Commission
that are adverse to the Company.
Item 2. Properties
The Company's corporate headquarters is located in
Madison, New Jersey. Principal manufacturing facilities
are located in Kenilworth, New Jersey, Miami, Florida,
Omaha, Nebraska, Cleveland, Tennessee, Puerto Rico,
Argentina, Australia, Belgium, Canada, Colombia,
France, Ireland, Italy, Japan, Mexico, Singapore and
Spain.
The Company's principal research facilities are located
in Kenilworth and Union, New Jersey, Palo Alto and San
Diego, California and Elkhorn, Nebraska.
The major portion of properties are owned by the
Company. These properties are well maintained,
adequately insured and in good operating condition. The
Company's manufacturing facilities have capacities
considered appropriate to meet the Company's needs.
Item 3. Legal Proceedings
Subsidiaries of the Company are defendants in 235
lawsuits involving approximately 400 plaintiffs arising
out of the use of synthetic estrogens by the mothers of
the plaintiffs. In virtually all of these lawsuits,
many other pharmaceutical companies are also named
defendants. The female plaintiffs claim various
injuries, including cancerous or precancerous lesions
of the vagina and cervix and a multiplicity of
pregnancy problems. A number of suits involve infants
with birth defects born to daughters whose mother took
the drug. The total amount claimed against all
defendants in all the suits amounts to more than $1.5
billion. While it is not possible to precisely predict
the outcome of these proceedings, it is management's
opinion that it is remote that any material liability
in excess of the amount accrued will be incurred.
The Company is a party to, or otherwise involved in,
environmental clean-up actions or proceedings under the
Comprehensive Environmental Response, Compensation and
Liability Act (commonly known as Superfund) or under
equivalent state laws. These actions or proceedings
seek to require the owners or operators of facilities
that treated, stored or disposed of hazardous
substances and transporters, and generators of such
substances to remediate contaminated facilities and/or
reimburse the government or private parties for their
clean-up costs. The Company, along with such owners,
operators, transporters and generators, is alleged to
be a potentially responsible party (PRP) as an alleged
generator of hazardous substances found at certain
facilities. In each proceeding, the government or
private litigants allege that any one PRP, including
the Company, is jointly and severally liable for all
clean-up requirements and costs. Although joint and
several liability is alleged, a PRP's share of clean-up
costs is frequently determined on the basis of several
factors, including the type and quantity of hazardous
substances; however, the allocation process varies
greatly from facility to facility and may take years to
complete. The Company's potential share of clean-up
costs also depends on how many other PRPs are involved
in the action or proceeding, insurance coverage,
available indemnity contracts and contribution rights
against other PRPs. While it is not possible to
predict with certainty the outcome of any action or
proceeding, it is management's opinion that it is
remote that any material liability in excess of amounts
accrued will be incurred.
The Company is a defendant in more than 110 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 million, 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 in June
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.
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 has settled all of the state retailer
actions, except California and Alabama. The settlement
amounts were not material to the Company. In addition,
in June 1999, the Alabama Supreme Court reversed the
denial of a motion for judgment on the pleadings in the
Alabama retailer case. The court held that the Alabama
antitrust law did not apply to conspiracies alleged to
be in interstate commerce. Based on that ruling, the
Alabama retailer case has been dismissed.
The Company has settled all of the state consumer
cases, except Alabama, North Dakota, South Dakota, West
Virginia and New Mexico. The settlement amounts were
not material to the Company. A motion is pending to
dismiss the Alabama consumer case based on the Alabama
Supreme Court decision in the retailer case.
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. Also in 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.
Plaintiffs in these antitrust actions generally seek
treble damages in an unspecified amount and an
injunction against the allegedly unlawful conduct.
The Company believes all the antitrust actions are
without merit and is defending itself vigorously.
In March, 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 believes that its actions have been lawful and
proper and is cooperating in the investigation.
However, it is not possible to predict the outcome of
the investigation which could result in the imposition
of fines, penalties and injunctive or administrative
remedies.
In October 1999, the Company received a subpoena from
the U.S. Attorney's Office for the Eastern District of
Pennsylvania, pursuant to the Health Insurance
Portability and Accountability Act of 1996, concerning
the Company's contracts with pharmacy benefit managers
(PBMs) and managed care organizations to provide
disease management services in connection with the
marketing of its pharmaceutical products. It appears
that the subpoena is one of a number addressed to
industry participants including PBMs, managed care
organizations and manufacturers as a part of an inquiry
into, among other things, marketing practices. The
government's inquiry appears to focus on whether the
Company's disease management and other marketing
programs comply with federal health care laws and
whether the value of its disease management programs
should have been included in the calculation of rebates
to the government. The Company believes that its
disease management and other marketing programs have
been designed to comply with the law and that its
rebate calculations have properly excluded the value of
its disease management programs. The Company is
cooperating in the investigation. However, it is not
possible to predict the outcome of the investigation,
which could include the imposition of fines, penalties
and injunctive or administrative remedies. Nor can the
Company predict whether the investigation will affect
its marketing practices or sales.
The Company is a party to an arbitration filed by
Biogen, Inc. (Biogen) in a dispute over the method used
by the Company to determine the amount of royalties
payable to Biogen on sales of REBETRON Combination
Therapy containing REBETOL Capsules and INTRON A
Injection. The Company believes that it should prevail
in this arbitration. However, there can be no
assurance that the Company will prevail.
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.
During 1999, Copley Pharmaceutical, Inc., Teva
Pharmaceuticals, Inc., Novex Pharma and Zenith Goldline
Pharmaceuticals individually notified the Company that
each had submitted an ANDA to the FDA seeking to market
certain generic forms of CLARITIN in the United States
before the expiration of certain of the Company's
patents, and in 2000 Andrx Pharmaceuticals, L.L.C.
(Andrx) made a similar submission relating to CLARITIN-
D 24 Hour tablets. Each has alleged that one or more
of those patents are invalid and unenforceable. In
each case, except Andrx, the Company has filed suit in
federal court seeking a ruling that the applicable ANDA
submission and proposed marketing of a generic product
constitute willful infringement of the Company's patent
and that the challenge to the patent is without merit.
The Company will file a similar suit against Andrx 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.
In January 2000, Hoffmann-La Roche Inc. filed actions
against the Company in United States District Court in
New Jersey and in France alleging that the Company's
PEG-INTRON (peginterferon alfa-2b) infringes Hoffmann-
La Roche Inc.'s patents on certain pegylated
interferons. 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
Not applicable.
Executive Officers of the Registrant
The following information regarding executive officers is
included herein in accordance with Part III, Item 10.
Officers are elected to serve for one year and until their
successors shall have been duly elected.
Name and Current Position Business Experience Age
Richard Jay Kogan Present position 1998; 58
Chairman of the Board President and Chief Executive
and Chief Executive Officer Officer 1996-1998; President
and Chief Operating Officer
1986-1995
Raul E. Cesan Present position 1998; 52
President and Chief Executive Vice President
Operating Officer and President Schering-
Plough Pharmaceuticals
1994-1998
Hugh A. D'Andrade Present position 1996; 61
Vice Chairman and Executive Vice President
Chief Administrative Officer Administration 1984-1995
Joseph C. Connors Present position 1996; 51
Executive Vice President Senior Vice President and
and General Counsel General Counsel 1992-1995
Jack L. Wyszomierski Present position 1996; 44
Executive Vice President Vice President and Treasurer
and Chief Financial Officer 1991-1995
Geraldine U. Foster Present position 1994; 57
Senior Vice President Vice President - Investor
Investor Relations and Relations 1988-1994
Corporate Communications
Daniel A. Nichols Present position 1991 59
Senior Vice President
Taxes
John P. Ryan Present position 1998; 59
Senior Vice President Vice President-Human Resources
Human Resources Schering-Plough Pharmaceuticals
1988-1998
Douglas J. Gingerella Present position 1999; 41
Vice President, Corporate Staff Vice President, Corporate
Audits Audits 1995-1998; Director
Corporate Audits 1991-1995
Thomas H. Kelly Present position 1991 50
Vice President and
Controller
Robert S. Lyons Present position 1991 59
Vice President
Corporate Information
Services
E. Kevin Moore Present position 1996; 47
Vice President and Staff Vice President and
Treasurer Assistant Treasurer 1993-1995;
Treasurer-Europe, The Dun and
Bradstreet Corporation 1990-1993
John E. Nine Present position 1996; 63
Vice President President - Technical Operations
and President, Schering Schering Laboratories 1990-1995
Technical Operations
William J. Silbey Present position 1996; 40
Staff Vice President, Corporate Counsel 1993-1995;
Secretary and Associate Partner - Stearns, Weaver, Miller,
General Counsel Weissler, Alhadeff & Sitterson,
P.A. 1992-1993
Part II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters
The common share dividends and share price data as set
forth in the Company's 1999 Annual Report to
Shareholders are incorporated herein by reference.
Item 6. Selected Financial Data
The Six-Year Selected Financial & Statistical Data as set
forth in the Company's 1999 Annual Report to
Shareholders is incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Management's Discussion and Analysis of Operations and
Financial Condition as set forth in the Company's 1999
Annual Report to Shareholders is incorporated herein by
reference.
Item 7(a). Quantitative and Qualitative Disclosures about
Market Risk
The Market Risk Disclosures as set forth in Management's
Discussion and Analysis of Operations and Financial
Condition in the Company's 1999 Annual Report to
Shareholders is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
The Consolidated Balance Sheets as of December 31, 1999
and 1998, and the related Statements of Consolidated
Income, Consolidated Shareholders' Equity and
Consolidated Cash Flows for each of the three years in
the period ended December 31, 1999, Notes to
Consolidated Financial Statements, the Independent
Auditors' Report of Deloitte & Touche LLP dated
February 11, 2000 and Quarterly Data, as set forth in
the Company's 1999 Annual Report to Shareholders, are
incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
Not applicable.
Part III
Item 10. Directors and Executive Officers of the Registrant
The information concerning directors and nominees for
directors as set forth in the Company's Proxy Statement
for the annual meeting of shareholders on April 25,
2000 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."
Item 11. Executive Compensation
Executive compensation information as set forth in the
Company's Proxy Statement for the annual meeting of
shareholders on April 25, 2000 is incorporated herein
by reference.
Item 12. Security Ownership of Certain Beneficial Owners
and Management
Information concerning security ownership of certain
beneficial owners and management as set forth in the
Company's Proxy Statement for the annual meeting of
shareholders on April 25, 2000 is incorporated herein
by reference.
Item 13. Certain Relationships and Related Transactions
None
Part IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K
(a) 1. Financial Statements
The following consolidated financial statements and
independent auditors' report, included in the Company's
1999 Annual Report to Shareholders, are incorporated
herein by reference.
Statements of Consolidated Income For the
Years Ended December 31, 1999, 1998 and 1997
Statements of Consolidated Shareholders' Equity For the
Years Ended December 31, 1999, 1998 and 1997
Statements of Consolidated Cash Flows For the Years
Ended December 31, 1999, 1998 and 1997
Consolidated Balance Sheets at December 31, 1999 and
1998
Notes to Consolidated Financial Statements
Independent Auditors' Report
(a) 2. Financial Statement Schedules
Page in
Form 10-K
Independent Auditors' Report . . . . . . . . . . . 24
Schedule II - Valuation and Qualifying Accounts. . 25
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.
Financial statements of fifty percent or less owned
companies accounted for by the equity method have been
omitted because, considered individually or in the
aggregate, they do not constitute a significant
subsidiary.
(a) 3. Exhibits
Exhibit
Number Description
3(a) A complete copy of the Certificate of Incorporation
as amended and currently in effect. Incorporated by
reference to Exhibit 3 (i) to the Company's
Quarterly Report for the period ended June
30, 1995 on Form 10-Q; Certificate of Amendment
of Certificate of Incorporation incorporated by
reference to Exhibit 3 to the Company's
Quarterly Report for the period ended June
30, 1997 on Form 10-Q; Certificate of
Amendment of Certificate of Incorporation
incorporated by reference to Exhibit 3(a) to
the Company's Quarterly Report for the period
ended March 31, 1999 on Form 10-Q, 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 Quarterly Report for the
period ended September 30, 1998 on Form 10-Q, 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) Indenture dated as of November 1, 1982 between the
Company and The Chase Manhattan Bank, N.A. as
Trustee. Incorporated by reference to Exhibit 4(a)to
the Company's Registration Statement on Form S-3, File
No. 2-80012.
4(c) 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.
10(a) The Company's Executive Incentive Plan (as amended)
and Trust related thereto.* Plan incorporated by
reference to Exhibit 10 to the Company's Quarterly
Report for the period ended March 31, 1994 on
Form 10-Q; Trust Agreement incorporated by
reference to Exhibit 10(a) to the Company's Annual
Report for 1988 on Form 10-K; amendment to Trust
Agreement incorporated by reference to Exhibit 10(b)
to the Company's Quarterly Report for the period
ended March 31, 1997 on Form 10-Q, File No. 1-6571.
10(b) The Company's 1987 Stock Incentive Plan (as
amended).* Incorporated by reference to Exhibit
10(d) to the Company's Annual Report for 1990 on
Form 10-K, File No. 1-6571.
10(c) The Company's 1992 Stock Incentive Plan (as amended).*
Incorporated by reference to Exhibit 10(d) to the
Company's Annual Report for 1992 on Form 10-K, File
No. 1-6571; amendment of December 11, 1995
incorporated by reference to Exhibit 10(d)to the
Company's Annual Report for 1995 on Form 10-K, File
No. 1-6571.
10(d) The Company's 1997 Stock Incentive Plan.*
Incorporated by reference to Exhibit 10 to the
Company's Quarterly Report for the period ended
September 30, 1997 on Form 10-Q; Amendment to 1997
Stock Incentive Plan incorporated by reference to
Exhibit 10(a) to the Company's Quarterly Report
for the period ended March 31, 1999 on Form 10-Q,
File No. 1-6571.
10(e)(i) Employment agreement between the Company and Richard
J. Kogan (as amended).* Incorporated by reference to
Exhibit 10(e)(ii) to the Company's Annual Report
for 1989 on Form 10-K; first amendment incorporated
by reference to Exhibit 10(b) to the Company's
Quarterly Report for the period ended June 30, 1994
on Form 10-Q; second amendment incorporated by
reference to Exhibit 10(e)(ii) to the Company's
Annual Report for 1994 on Form 10-K; third amendment
incorporated by reference to Exhibit 10(a) to the
Company's Quarterly Report for the period ended
September 30, 1995 on Form 10-Q; fourth amendment
incorporated by reference to Exhibit 10(b) to the
Company's Quarterly Report for the period ended March
31, 1998 on Form 10-Q; fifth amendment incorporated by
reference to Exhibit 10(e)(ii) to the Company's Annual
Report for 1998 on Form 10-K, File No. 1-6571.
10(e)(ii) Employment agreement between the Company and Hugh A.
D'Andrade (as amended).* Incorporated by
reference to Exhibit 10(c) to the Company's
Quarterly Report for the period ended June 30, 1994
on Form 10-Q; first amendment incorporated by
reference to Exhibit 10(e)(iii) to the Company's
Annual Report for 1994 on Form 10-K, File No.
1-6571; second amendment incorporated by reference to
Exhibit 10(e)(iii) to the Company's Annual Report for
1995 on Form 10-K; third amendment incorporated by
reference to Exhibit 10(c) to the Company's Quarterly
Report for the period ended March 31, 1998 on Form
10-Q; fourth amendment incorporated by reference to
Exhibit 10(e)(iii) to the Company's Annual Report for
1998 on Form 10-K, File No. 1-6571.
10(e)(iii) 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 Annual Report for 1994 on
Form 10-K; Form of amendment incorporated by reference
to Exhibit 10(a) to the Company's Quarterly Report for
the period ended September 30, 1999 on Form 10-Q, File
No. 1-6571.
10(e)(iv) Employment agreement between the Company and Raul E.
Cesan.* Incorporated by reference to Exhibit 10(e)(vi)
to the Company's Annual Report for 1998 on Form 10-K,
File No. 1-6571.
10(e)(v) Employment agreement between the Company and Robert P.
Luciano (as amended).* Incorporated by reference to
Exhibit 10(e)(i) to the Company's Annual Report for
1989 on Form 10-K; first amendment incorporated by
reference to Exhibit 10(a) to the Company's Quarterly
Report for the period ended June 30, 1994 on Form 10-Q;
second amendment incorporated by reference 10(e)(i) to
the Company's Annual Report for 1994 on Form 10-K;
third amendment incorporated by reference to
Exhibit 10(a) to the Company's Quarterly Report for
the period ended March 31, 1998 on Form 10-Q,
File No. 1-6571.
10(e)vi Agreement between the Company and Robert P. Luciano.*
Incorporated by reference to Exhibit 10(d) to the
Company's Quarterly Report for the period ended March
31, 1998 on Form 10-Q, File No. 1-6571.
10(f) Amended and Restated Directors Deferred Compensation
Plan and Trust related thereto.* Incorporated by
reference to Exhibit 10 (b) to the Company's Quarterly
Report for the period ended September 30, 1999 on Form
10-Q; Trust Agreement incorporated by reference to
Exhibit 10 (a) to the Company's Annual Report for 1998
on Form 10-K; amendment to Trust Agreement incorporated
by reference to Exhibit 10 (b) to the Company's
Quarterly Report for the period ended March 31, 1997 on
Form 10-Q, File No. 1-6571.
10(g) Supplemental Executive Retirement Plan and Trust
related thereto.* Incorporated by reference to Exhibit
10(e) to the Company's Quarterly Report for the period
ended March 31, 1998 on Form 10-Q; amendment
incorporated by reference to Exhibit 10(a) to the
Company's Quarterly Report for the period ended
September 30, 1998 on Form 10-Q; Amended
and Restated Trust Agreement incorporated by reference
to Exhibit 10(g)to the Company's Annual Report for 1998
on Form 10-K, File No. 1-6571.
10(h) Amended and Restated Directors' Stock Award Plan.*
Incorporated by reference to Exhibit 10 (c)to the
Company's Quarterly Report for the period ended
September 30, 1999 on Form 10-Q, File No. 1-6571.
10(i) Deferred Compensation Plan.* Incorporated by reference
to Exhibit 10(b) to the Company's Quarterly Report for
the period ended September 30, 1995 on Form 10-Q, File
No. 1-6571.
10(j) Amended and Restated Directors Deferred Stock
Equivalency Program.* Incorporated by reference to
Exhibit 10(d) to the Company's Quarterly Report for the
period ended September 30, 1999 on Form 10-Q, 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 Annual Report for 1997
on Form 10-K; amendments incorporated by reference to
Exhibit 10(g) to the Company's Quarterly Report for the
period ended March 31, 1998 on Form 10-Q, File No.
1-6571.
10(l) The Company's Retirement Benefits Equalization Plan.*
Incorporated by reference to Exhibit 10(f) to the
Company's Quarterly Report for the period ended March
31, 1998 on Form 10-Q; amendment incorporated by
reference to Exhibit 10(b) to the Company's Quarterly
Report for the period ended September 30, 1998 on Form
10-Q, File No. 1-6571.
12 Computation of Ratio of Earnings to Fixed Charges
(filed with this document).
13 The Financial Section of the Company's 1999 Annual
Report to Shareholders. With the exception of those
portions of said Annual Report which are specifically
incorporated by reference in this Form 10-K (filed with
this document),such report shall not be deemed filed as
part of this Form 10-K.
21 Subsidiaries of the registrant (filed with this
document).
23 Consents of experts and counsel (filed with this
document).
24 Power of attorney (filed with this document).
27 Financial Data Schedule (filed with this document).
All other exhibits are not applicable. Copies of above
exhibits will be furnished upon request.
* Compensatory plan, contract or arrangement.
(b) Reports on Form 8-K.
None
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)
Date March 2, 2000 By /s/ Thomas H. Kelly
Thomas H. Kelly
Vice President and Controller
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.
By * By *
Richard Jay Kogan Donald L. Miller
Chairman of the Board and Chief Director
Executive Officer and Director
By * By *
Raul E. Cesan H. Barclay Morley
President and Chief Operating Director
Officer and Director
By * By *
Jack L. Wyszomierski Carl E. Mundy, Jr.
Executive Vice President and Director
Chief Financial Officer
By * By *
Thomas H. Kelly Richard de J. Osborne
Vice President and Controller Director
and Principal Accounting Officer
By * By *
Hans W. Becherer Patricia F. Russo
Director Director
By * By *
Hugh A. D'Andrade William A. Schreyer
Director Director
By * By *
David C. Garfield Robert F. W. van Oordt
Director Director
By * By *
Regina E. Herzlinger Arthur F. Weinbach
Director Director
By * By *
Robert P. Luciano James Wood
Director Director
*By /s/Thomas H. Kelly Date: March 2, 2000
Thomas H. Kelly
Attorney-in-fact
INDEPENDENT AUDITORS' REPORT
Schering-Plough Corporation:
We have audited the financial statements of Schering-
Plough Corporation and subsidiaries as of December 31,
1999 and 1998, and for each of the three years in the
period ended December 31, 1999, and have issued our
report thereon dated February 11, 2000; such financial
statements and report are included in your 1999 Annual
Report to Shareholders and are incorporated herein by
reference. Our audits also included the financial
statement schedule of Schering-Plough Corporation and
subsidiaries, listed in Item 14. This financial
statement schedule is the responsibility of the
Company's management. Our responsibility is to express
an opinion based on our audits. In our opinion, such
financial statement schedule, when considered in
relation to the basic financial statements taken as a
whole, presents fairly in all material respects the
information set forth therein.
/s/DELOITTE & TOUCHE LLP
Parsippany, New Jersey
February 11, 2000
SCHEDULE II
<TABLE>
SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
(Dollars in millions)
<CAPTION>
Valuation and qualifying accounts deducted from assets to which
they apply:
Allowances for accounts receivable:
RESERVE RESERVE RESERVE
FOR DOUBTFUL FOR CASH FOR CLAIMS
ACCOUNTS DISCOUNTS AND OTHER TOTAL
<S> <C> <C> <C> <C>
1999
Balance at beginning of
year $ 51 $ 18 $ 29 $ 98
Additions:
Charged to costs and
expenses 17 146 12 175
Deductions from reserves (8) (142) (30) (180)
Effects of foreign
exchange (1) - - (1)
Balance at end of year $ 59 $ 22 $ 11 $ 92
1998
Balance at beginning of
year $ 49 $ 14 $ 24 $ 87
Additions:
Charged to costs and
expenses 14 133 19 166
Deductions from reserves (12) (129) (14) (155)
Balance at end of year $ 51 $ 18 $ 29 $ 98
1997
Balance at beginning of
year $ 50 $ 12 $ 11 $ 73
Additions:
Charged to costs and
expenses 17 103 20 140
Deductions from reserves (18) (101) (7) (126)
Balance at end of year $ 49 $ 14 $ 24 $ 87
</TABLE>
<TABLE>
Exhibit 12
SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in millions)
<CAPTION>
Year Ended December 31,
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Income Before Income Taxes from
Continuing Operations . . . . . .$2,795 $2,326 $1,913 $1,606 $1,395
Add : Fixed Charges
Interest Expense . . . . . . . . . 29 19 40 45 57
1/3 Rentals. . . . . . . . . . . . 22 19 15 12 11
Capitalized Interest . . . . . . . 12 9 15 11 11
Total Fixed Charges. . . . . . . 63 47 70 68 79
Less: Capitalized Interest . . . . . 12 9 15 11 11
Add : Amortization of
Capitalized Interest. . . . . . . . 7 7 5 5 5
Earnings Before Income Taxes and
Fixed Charges (other than
Capitalized Interest) . . . . . . $2,853 $2,371 $1,973 $1,668 $1,468
Ratio of Earnings to Fixed Charges 45 50 28 25 19
"Earnings" consist of income before income taxes and fixed
charges (other than capitalized interest). "Fixed
charges" consist of interest expense, capitalized interest
and one-third of rentals which Schering-Plough believes to
be a reasonable estimate of an interest factor on leases.
</TABLE>
Exhibit 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS AND
FINANCIAL CONDITION
NET SALES
Consolidated net sales in 1999 totaled $9.2 billion, an
increase of 14 percent over 1998, due to volume growth
of 13 percent and price increases of 1 percent.
Foreign exchange had a less than 1 percent impact on
the sales increase. Net sales in the United States
increased 14 percent versus 1998 and advanced 13
percent internationally. Foreign exchange negatively
impacted the international sales growth by 1 percent.
Consolidated 1998 net sales of $8.1 billion advanced 19
percent over 1997, reflecting volume growth of 19
percent and price increases of 2 percent, tempered by
unfavorable foreign exchange of 2 percent. The
acquisition of the Mallinckrodt Inc. animal health
business in June 1997 favorably impacted sales growth
by 3 percent. The sales of this business were included
for only half the year in 1997 and for the full year in
1998.
Net sales by major therapeutic category for the years
ended 1999, 1998 and 1997 were as follows ($ in
millions):
<TABLE>
<CAPTION>
% Increase (Decrease)
1999 1998 1997 1999/98 1998/97
<S> <C> <C> <C> <C> <C>
Allergy & Respiratory $3,850 $3,375 $2,708 14% 25 %
Anti-infective & Anticancer 1,738 1,263 1,156 38 9
Dermatologicals 682 619 571 10 8
Cardiovasculars 673 750 637 (10) 18
Other Pharmaceuticals 792 688 649 16 6
Animal Health 678 647 389 5 66
Foot Care 348 336 300 3 12
Over-the-Counter (OTC) 221 218 220 1 (1)
Sun Care 194 181 148 7 22
Consolidated net sales $9,176 $8,077 $6,778 14% 19 %
</TABLE>
Worldwide net sales of allergy and respiratory products
increased 14 percent in 1999 and 25 percent in 1998,
due to continued strong market growth for the CLARITIN
line of nonsedating antihistamines. Worldwide net
sales of the CLARITIN brand totaled $2.7 billion in
1999, $2.3 billion in 1998 and $1.7 billion in 1997.
Franchise sales of nasal inhaled steroid products,
which include VANCENASE allergy products and NASONEX, a
once-daily corticosteroid for allergic rhinitis,
increased in 1999 and 1998 due to market expansion in
the United States and the launch of NASONEX in several
international markets. Sales of VANCERIL, an orally
inhaled steroid for asthma, declined $14 million in
1999 due to manufacturing issues and branded
competition.
Net sales of worldwide anti-infective and anticancer
products rose 38 percent compared with 1998. Growth was
led by combined worldwide sales of INTRON A (interferon
alfa-2b) and REBETRON Combination Therapy, containing
REBETOL (ribavirin) Capsules and INTRON A Injection,
which totaled $1.1 billion, up 56 percent from 1998.
Sales of these products grew because of increased use
in the treatment of chronic hepatitis C. The U.S. and
international launches of TEMODAR, a chemotherapy agent
for treating certain types of brain tumors, also
contributed to the increase in this therapeutic
category's sales in 1999. These sales increases were
moderated by lower sales of EULEXIN, a prostate cancer
therapy, due to generic and branded competition. In
1998, worldwide net sales of anti-infective and
anticancer products increased 9 percent due to INTRON A
and the mid-year 1998 introduction of REBETRON
Combination Therapy in the United States. This
increase was moderated by lower sales of EULEXIN due to
generic and branded competition.
Dermatological products' worldwide net sales increased
10 percent in 1999 and 8 percent in 1998, due to higher
sales of LOTRISONE, an antifungal/anti-inflammatory
cream, and ELOCON, a medium-potency topical steroid.
Worldwide net sales of cardiovascular products declined
10 percent in 1999, due to generic competition in the
United States against IMDUR, an oral nitrate for
angina, and NORMODYNE, an alpha-beta blocker for
hypertension. Partially offsetting these declines were
higher U.S. sales of INTEGRILIN, a platelet receptor
glycoprotein IIb/IIIa inhibitor, due to increased
market penetration following its launch in the second
quarter of 1998. Sales of K-DUR, a sustained-release
potassium chloride supplement, increased in 1999 due to
market share growth. In 1998, worldwide net sales of
cardiovascular products advanced 18 percent, reflecting
U.S. market expansion and market share growth for IMDUR
and K-DUR.
Other pharmaceuticals consist of products that do not
fit into the Company's major therapeutic categories,
such as SUBUTEX, a treatment for opiate addiction, and
revenues received from Novo Nordisk related to the
Company's co-promotion agreement for PRANDIN, an oral
antidiabetic agent.
Worldwide sales of animal health products increased 5
percent in 1999. Sales growth was driven by NUFLOR, a
broad-spectrum, multi-species antibiotic, and BANAMINE,
a non-steroidal anti-inflammatory agent. Sales of
animal health products in 1998 increased 66 percent
over 1997. Adjusting for the 1997 acquisition of the
Mallinckrodt animal health business, 1998 sales would
have increased 12 percent. Sales growth in 1998 was
again driven by BANAMINE and NUFLOR.
Foot care product sales rose 3 percent in 1999 led by
increases in the DR. SCHOLL'S insoles product line due
to new product introductions and line extensions.
Sales grew 12 percent in 1998, reflecting increases in
the DR. SCHOLL'S and antifungal product lines.
Over-the-counter (OTC) product sales increased 1
percent in 1999 due to a strong spring cough/cold
season. OTC product sales decreased slightly in 1998.
Sun care sales were up 7 percent in 1999 primarily due
to market growth. In 1998, sales grew 22 percent due to
early 1999 season purchases.
<TABLE>
SUMMARY OF COSTS AND EXPENSES:
(Dollars in millions)
<CAPTION>
% Increase
1999 1998 1997 1999/98 1998/97
<S> <C> <C> <C> <C> <C>
Cost of sales . . . . . . $1,800 $1,601 $1,308 12 % 22 %
% of net sales. . . . . . 19.6 % 19.8 % 19.3 %
Selling, general and
administrative . . .. . $3,434 $3,141 $2,664 9 % 18 %
% of net sales. . . . . . 37.4 % 38.9 % 39.3 %
Research and development. $1,191 $1,007 $ 847 18 % 19 %
% of net sales. . . . . . 13.0 % 12.5 % 12.5 %
</TABLE>
Cost of sales as a percentage of net sales in 1999
decreased slightly versus 1998, due to favorable sales
mix. The increase of 1998 cost of sales as a
percentage of net sales versus 1997 reflects higher
royalties and the inclusion of Mallinckrodt animal
health products, which generally have lower gross
margins.
Selling, general and administrative expenses in 1999
and 1998 decreased as a percentage of sales as sales
growth outpaced expansion of the field force and
increased promotional and selling-related spending.
Research and development expenses grew 18 percent to
$1.2 billion and represented 13.0 percent of sales in
1999. In 1998, research and development expenses
increased 19 percent over 1997 and represented 12.5
percent of sales. The higher spending in both years
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 Company expects research and development
spending for 2000 to increase by approximately 15
percent.
INCOME BEFORE INCOME TAXES
Income before income taxes totaled $2.8 billion in
1999, an increase of 20 percent over 1998. In 1998,
income before income taxes was $2.3 billion, up 22
percent over $1.9 billion in 1997.
INCOME TAXES
The Company's effective tax rate was 24.5 percent for
the years 1999, 1998 and 1997. The effective tax rate
for each period was lower than the U.S. statutory
income tax rate principally due to tax incentives in
certain jurisdictions where manufacturing facilities
are located. For additional information, see "Income
Taxes" in the Notes to Consolidated Financial
Statements.
NET INCOME
Net income in 1999 increased 20 percent to $2.1
billion. Net income in 1998 increased 22 percent over
1997. Differences in year-to-year exchange rates had a
less than 1 percent impact on net income growth in
1999. After eliminating exchange differences in 1998,
net income would have risen approximately 24 percent.
EARNINGS PER COMMON SHARE
Diluted earnings per common share rose 20 percent in
1999 to $1.42 and 22 percent in 1998 to $1.18. Foreign
currency exchange had no impact on 1999 diluted
earnings per common share. The strengthening of the
U.S. dollar against most foreign currencies decreased
growth in earnings per common share in 1998. Excluding
the impact of exchange rate fluctuations, diluted
earnings per common share would have increased
approximately 24 percent in 1998. Basic earnings per
common share increased 20 percent in 1999 to $1.44 and
22 percent in 1998 to $1.20.
Under existing share repurchase programs authorized by
the Board of Directors, approximately 18 million common
shares were repurchased during 1999, 1998 and 1997. A
$1 billion program was authorized in September 1997 and
commenced in January 1998. At December 31, 1999,
approximately 13.3 million shares had been acquired
under the 1997 authorization and the program was
approximately 65 percent complete.
YEAR 2000
Many computer systems ("IT systems") and equipment and
instruments with embedded microprocessors ("non-IT
systems") had been designed to recognize only the last
two digits of a calendar year. As previously reported,
the Company undertook an extensive project to remediate
or replace its date-sensitive IT and non-IT systems.
These systems have functioned properly since the first
of the year and management believes that future
operations will be unaffected by these matters. The
Company did not experience any significant increase in
product sales as a result of Year 2000 concerns.
As of December 31, 1999, the Company spent $66 million
on the Year 2000 remediation/replacement project; $20
million has been capitalized and $46 million has been
expensed. The expense for 1999 was $17 million, which
is approximately 10 percent of the Company's overall
annual information systems budget. Additional costs to
repair or replace non-critical, non-IT equipment will
continue into the year 2000, but the costs are not
expected to be significant.
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.
EURO
On January 1, 1999, certain member countries of the
European Union established a new common currency, the
euro. Also on January 1, 1999, the participating
countries fixed the rate of exchange between their
existing legacy currencies and the euro. The new euro
currency will eventually replace the legacy currencies
currently in use in each of the participating
countries. Euro bills and coins will not be issued
until January 1, 2002.
Companies operating within the participating countries
may, at their discretion, choose to operate in either
legacy currencies or the euro until January 1, 2002.
The Company expects the majority of its affected
subsidiaries to continue to operate in their respective
legacy currencies during the next two years. The
Company can, however, accommodate transactions for
customers and suppliers operating in either legacy
currency or euros.
The Company believes that the creation of the euro will
not significantly change its market risk with respect
to foreign exchange. Having a common European currency
may result in certain changes to competitive practices,
product pricing and marketing strategies. Although we
are unable to quantify these effects, if any,
management at this time does not believe the creation
of the euro will have a material effect on the Company.
ACQUISITION
In June 1997, the Company acquired the worldwide animal
health operations of Mallinckrodt Inc. for
approximately $490 million, which includes the
assumption of debt and direct costs of the acquisition.
The addition of the Mallinckrodt operations has created
broader product lines and expanded geographic
distribution capabilities for our animal health
products. For additional information, see
"Acquisition" in the Notes to Consolidated Financial
Statements.
ENVIRONMENTAL MATTERS
The Company has obligations for environmental clean-up
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. For additional
information, see "Legal and Environmental Matters" in
the Notes to Consolidated Financial Statements.
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 to control
costs.
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. Similarly, the effect on
operations and cash flows of decisions of managed care
groups and other buying groups concerning formularies,
pharmaceutical reimbursement policies and availability
of the Company's pharmaceutical products cannot be
reasonably estimated.
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 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.
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.
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 Food and Drug
Administration (FDA) in the United States. 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. 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, fines and other
civil or criminal sanctions.
From time to time, the Company has received Warning
Letters from the FDA pertaining to various
manufacturing issues. Among these, the Company has
received a Warning Letter from the FDA relating
specifically to manufacturing issues identified during
FDA inspections of the Company's aerosol products
(albuterol and VANCERIL) manufacturing facilities in
New Jersey. The Company is implementing remedial
actions at these facilities. The Company has met with
the FDA on several occasions to apprise the agency of
the scope and status of these activities. An FDA
inspection of the Company's New Jersey manufacturing
facilities is ongoing. The Company cannot predict
whether its remedial actions will resolve the FDA's
concerns, whether the FDA will take any further action
or the effect of this matter on the Company's
operations.
Under certain circumstances, the Company may deem it
advisable to initiate product recalls. In 1999, the
Company voluntarily chose to initiate several recalls,
including a recall of certain shipments of albuterol
and VANCERIL manufactured at its New Jersey facilities.
LIQUIDITY AND FINANCIAL RESOURCES
Cash generated from operations continues to be the
Company's major source of funds to finance working
capital, capital expenditures, acquisitions,
shareholder dividends and common share repurchases.
Cash provided by operating activities totaled $1,893
million in 1999, $2,026 million in 1998 and $1,845
million in 1997. Year-to-year changes in cash provided
by operating activities result from the timing of
receipts and disbursements as well as from an overall
net investment in working capital necessitated by the
growth in the business.
Capital expenditures amounted to $543 million in 1999,
$389 million in 1998 and $405 million in 1997.
Commitments for future capital expenditures totaled
$179 million at December 31, 1999.
Cash flow related to financing activities included
equity proceeds as well as proceeds from short-term
borrowings. Common shares repurchased in 1999
totaled 9.9 million shares at a cost of $504 million.
In 1998, 3.4 million shares were repurchased for $141
million and, in 1997, 4.8 million shares were
repurchased at a cost of $132 million.
Dividend payments of $716 million were made in 1999,
compared with $627 million in 1998 and $542 million in
1997. Dividends per common share were $0.485 in 1999,
up from $0.425 in 1998 and $0.368 in 1997.
Cash and cash equivalents totaled $1,876 million,
$1,259 million and $714 million at December 31, 1999,
1998 and 1997, respectively. Short-term borrowings and
current portion of long-term debt totaled $728 million
at year-end 1999, $558 million in 1998 and $581 million
in 1997.
The Company's ratio of debt to total capital remained
at 12 percent in 1999. The Company's liquidity and
financial resources continued to be sufficient to meet
its operating needs. As of December 31, 1999, the
Company had $1.2 billion in unused lines of credit,
including $876 million available under the $1 billion
multi-currency unsecured revolving credit facility
expiring in 2001. The Company had A-1+ and P-1 ratings
for its commercial paper, and AA and Aa2 general bond
ratings from Standard & Poor's and Moody's,
respectively, as of December 31, 1999.
MARKET RISK DISCLOSURES
The Company is exposed to market risk primarily from
changes in foreign currency exchange rates and, to a
lesser extent, from interest rates. The following
describes the nature of the risks and demonstrates
that, in general, such market risk is not material to
the Company.
Foreign Currency Exchange Risk
The Company operates in more than 40 countries
worldwide. In 1999, sales outside the United States
accounted for approximately 36 percent of worldwide
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. In 1999, changes in
foreign exchange rates reduced sales by less than 1
percent and had no impact on 1999 diluted earnings per
common share.
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.
In addition, the risk of adverse exchange rate change
is mitigated by the fact that the Company's foreign
operations are widespread. The widespread nature of
the Company's foreign operations is the primary reason
that the overall economic weakness in certain Latin
American countries is not expected to significantly
impact future operations of the Company.
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. For the most part, however, gains or
losses arise from translation and, as such, do not
significantly 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 financial assets of the Company that are exposed to
changes in interest rates and equity prices include
debt and equity securities held in non-qualified trusts
for employee benefits and equity securities acquired in
connection with in-licensing arrangements. The trust
investments totaled approximately $185 million at
December 31, 1999. Due to the long-term nature of the
liabilities that these assets fund, the Company's
exposure to market risk is low. A decline in market
value of these investments would not necessitate any
near-term funding of the trusts. In connection with
certain research and development in- licensing
arrangements, on occasion the Company acquires equity
securities of the licensee company. These investments
are generally accounted for as available-for-sale and,
as such, carried at market value. The total market
value of these investments at December 31, 1999, was
$119 million. See "Financial Instruments" in the Notes
to Consolidated Financial Statements for additional
information. The other financial assets of the Company
do not give rise to significant interest rate risk due
to their short duration.
The financial obligations of the Company that are
exposed to changes in interest rates are generally
limited to short-term borrowings and a $200 million
equity-type security issued in 1999. All other
borrowings are not significant. Although the
borrowings are, for the most part, floating rate
obligations, the interest rate risk posed by these
borrowings is low because the amount of this obligation
is small in relation to annual cash flow. The Company
has the ability to pay off these borrowings quickly if
interest rates were to increase significantly.
Interest Rate Swaps
In 1991 and 1992, the Company utilized interest rate
swaps as part of its international cash management
strategy. For additional information, see "Financial
Instruments" in the Notes to Consolidated Financial
Statements. These swaps subject the Company to a
moderate degree of market risk. The Company accounts
for these swaps using fair value accounting, with
changes in the fair value recorded in earnings. The
fair value of these swaps was an asset of $1 million at
December 31, 1999. The fair value of these swaps at
December 31, 1998, was less than $100 thousand. It is
estimated that a 10 percent change in interest rate
structure could change the fair value of the swaps by
approximately $2 million.
During 1999, the Company purchased a $200 million
variable rate, three-month time deposit. The Company
intends to roll over this time deposit every three
months until November 2003. To hedge the future
variable interest receipts on this time deposit, the
Company entered into an interest rate swap that matures
in November 2003. Under this swap, the Company
receives a fixed rate and pays a three-month variable
rate. The fair value of this swap was a $6 million
liability at December 31, 1999. It is estimated that a
10 percent change in interest rate structure could
change the fair value of the swap by approximately $5
million.
CAUTIONARY FACTORS THAT MAY AFFECT FUTURE RESULTS
This annual report and other written reports and oral
statements made from time to time by the Company may
contain so-called "forward-looking statements," all of
which are subject to risks and uncertainties. One can
identify these forward-looking statements by the use of
such words as "expects," "plans," "will," "estimates,"
"forecasts," "projects," "believes" and other words of
similar meaning. One also can identify them by the
fact that they do not relate strictly to historical or
current facts. These statements are likely to address
the Company's growth strategy, financial results,
regulatory issues, product approvals, development
programs, litigation and investigations. One must
carefully consider any such statement and should
understand that many factors could cause actual results
to differ from the Company'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. No forward-looking statement can be
guaranteed, and actual future results may vary
materially.
The Company does not assume the obligation to update
any forward-looking statement. One should carefully
evaluate such statements in light of factors described
in the Company's filings with the Securities and
Exchange Commission, especially on Forms 10-K, 10-Q and
8-K (if any). In Item 1 of the Company's annual report
on Form 10-K for the year ended December 31, 1999, the
Company discusses in more detail various important
factors that could cause actual results to differ from
expected or historic results. The Company notes these
factors for investors as permitted by the Private
Securities Litigation Reform Act of 1995. One should
understand that it is not possible to predict or
identify all such factors. Consequently, the reader
should not consider any such list to be a complete
statement of all potential risks or uncertainties.
SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES
<TABLE>
STATEMENTS OF CONSOLIDATED INCOME
(Amounts in millions, except per share figures)
<CAPTION>
For the Years Ended December 31, 1999 1998 1997
<S> <C> <C> <C>
Net sales . . . . . . . . . . . . . . . . . . . $9,176 $8,077 $6,778
Costs and Expenses:
Cost of sales . . . . . . . . . . . . . . . 1,800 1,601 1,308
Selling, general and administrative. . . . . 3,434 3,141 2,664
Research and development . . . . . . . . . . 1,191 1,007 847
Other (income) expense, net. . . . . . . . . (44) 2 46
Total costs and expenses . . . . . . . . . . 6,381 5,751 4,865
Income before income taxes . . . . . . . . . . 2,795 2,326 1,913
Income taxes . . . . . . . . . . . . . . 685 570 469
Net income. . . . . . . . . . . . . . . . . . . $2,110 $1,756 $1,444
Diluted earnings per common share . . . . . . . $1.42 $ 1.18 $.97
Basic earnings per common share . . . . . . . . $1.44 $ 1.20 $.98
See Notes to Consolidated Financial Statements.
</TABLE>
SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES
<TABLE>
STATEMENTS OF CONSOLIDATED CASH FLOWS
(Amounts in millions)
<CAPTION>
For the Years Ended December 31, 1999 1998 1997
<S> <C> <C> <C>
Operating Activities:
Net income . . . . . . . . . . . . . . . . . . . $2,110 $1,756 $1,444
Depreciation and amortization . . . . . . . . . 264 238 200
Accounts receivable . . . . . . . . . . . . . . (352) (67) (40)
Inventories . . . . . . . . . . . . . . . . . . (150) (102) (43)
Prepaid expenses and other assets. . . . . . . . (76) (116) (127)
Accounts payable and other liabilities . . . . . 97 317 411
Net cash provided by operating activities . . . 1,893 2,026 1,845
Investing Activities:
Capital expenditures . . . . . . . . . . . . . . (543) (389) (405)
Purchases of investments . . . . . . . . . . . . (338) (319) (77)
Reduction of investments . . . . . . . . . . . . 215 - 36
Purchase of business, net of cash acquired . . . - - (354)
Other, net . . . . . . . . . . . . . . . . . . . 3 - (8)
Net cash used for investing activities . . . . . (663) (708) (808)
Financing Activities:
Cash dividends paid to common shareholders . . . (716) (627) (542)
Common shares repurchased . . . . . . . . . . . (504) (141) (132)
Net change in short-term borrowings . . . . . . 187 (19) (290)
Repayment of long-term debt . . . . . . . . . . (2) (42) (1)
Other, net, primarily equity proceeds. . . . . . 424 57 116
Net cash used for financing activities . . . . . (611) (772) (849)
Effect of exchange rates on cash and cash equivalents (2) (1) (9)
Net increase in cash and cash equivalents . . . . 617 545 179
Cash and cash equivalents, beginning of year . . . 1,259 714 535
Cash and cash equivalents, end of year . . . . . . $1,876 $1,259 $ 714
See Notes to Consolidated Financial Statements.
</TABLE>
SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES
<TABLE>
CONSOLIDATED BALANCE SHEETS
(Amounts in millions, except per share figures)
<CAPTION>
At December 31, 1999 1998
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents . . . . . . . . $1,876 $1,259
Accounts receivable, less allowances:
1999, $92; 1998, $98 . . . . . . . . . . 1,022 704
Inventories . . . . . . . . . . . . . . 958 841
Prepaid expenses, deferred income taxes
and other current assets . . . . . . . . 1,053 1,154
Total current assets . . . . . . . . . . 4,909 3,958
Property, at cost:
Land . . . . . . . . . . . . . . . . . 50 48
Buildings and improvements . . . . . . . 1,922 1,836
Equipment . . . . . . . . . . . . . . . . 1,760 1,677
Construction in progress . . . . . . . . 654 507
Total . . . . . . . . . . . . . . . . . . 4,386 4,068
Less accumulated depreciation . . . . . . 1,447 1,393
Property, net . . . . . . . . . . . . . . 2,939 2,675
Intangible assets, net . . . . . . . . . . . . 588 565
Other assets . . . . . . . . . . . . . . . . . 939 642
$9,375 $7,840
1999 1998
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable . . . . . . . . . . . . . . . . . $ 966 $1,003
Short-term borrowings and current portion of
long-term debt . . . . . . . . . . . . . . . . . 728 558
U.S., foreign and state income taxes . . . . . . . 502 505
Accrued compensation . . . . . . . . . . . . . . . 301 279
Other accrued liabilities . . . . . . . . . . . . . 712 687
Total current liabilities . . . . . . . . . . . . . 3,209 3,032
Long-term Liabilities:
Deferred income taxes . . . . . . . . . . . . . . . 284 291
Other long-term liabilities . . . . . . . . . . . . 717 515
Total long-term liabilities . . . . . . . . . . . . 1,001 806
Shareholders' Equity:
Preferred shares - authorized shares: 50,
$1 par value; issued: none . . . . . . . . . . . . - -
Common shares - authorized shares:
2,400, $.50 par value; issued: 2,030 . . . . . . . 1,015 1,015
Paid-in capital . . . . . . . . . . . . . . . . . . 675 365
Retained earnings . . . . . . . . . . . . . . . . . 8,196 6,802
Accumulated other comprehensive income . . . . . . (233) (238)
Total . . . . . . . . . . . . . . . . . . . . . . . 9,653 7,944
Less treasury shares: 558, at cost . . . . . . . . 4,488 3,942
Total shareholders' equity . . . . . . . . . . . . 5,165 4,002
$9,375 $7,840
See Notes to Consolidated Financial Statements.
</TABLE>
SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES
<TABLE>
STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY
(Amounts in millions)
<CAPTION>
Accumulated
Other Total
Compre- Share-
Common Paid-in Retained Treasury hensive holders'
Shares Capital Earnings Shares Income Equity
<S> <C> <C> <C> <C> <C> <C>
Balance December 31, 1996 $507 $172 $5,081 $(3,560) $(140) $2,060
Comprehensive income:
Net income 1,444 1,444
Foreign currency translation,
net of tax (101) (101)
Unrealized gain (loss) on
investments held available
for sale, net (3) (3)
Total comprehensive income 1,340
Cash dividends on common
shares (542) (542)
Stock incentive plans 122 (27) 95
Common shares repurchased (132) (132)
Effect of 2-for-1 stock split 508 (198) (310)
Balance December 31, 1997 1,015 96 5,673 (3,719) (244) 2,821
Comprehensive income:
Net income 1,756 1,756
Foreign currency translation,
net of tax 5 5
Unrealized gain (loss) on
investments held available
for sale, net 1 1
Total comprehensive income 1,762
Cash dividends on common
shares (627) (627)
Stock incentive plans 269 (82) 187
Common shares repurchased (141) (141)
Balance December 31, 1998 1,015 365 6,802 (3,942) (238) 4,002
Comprehensive income:
Net income 2,110 2,110
Foreign currency translation,
net of tax (54) (54)
Unrealized gain (loss) on
investments held available
for sale, net 59 59
Total comprehensive income 2,115
Cash dividends on common
shares (716) (716)
Stock incentive plans 310 (42) 268
Common shares repurchased (504) (504)
Balance December 31, 1999 $1,015 $675 $8,196 $(4,488) $ (233) $5,165
See Notes to Consolidated Financial Statements.
</TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share figures)
ACCOUNTING POLICIES
Principles of Consolidation - The consolidated
financial statements include Schering-Plough
Corporation and its subsidiaries. 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.
Cash and Cash Equivalents - Cash and cash equivalents
include operating cash and highly liquid investments,
generally with maturities of three months or less.
Inventories - Inventories are valued at the lower of
cost or market. Cost is determined by using the last-
in, first-out method for a substantial portion of
inventories located in the United States. The cost of
all other inventories is determined by the first-in,
first-out method.
Depreciation - Depreciation is provided over the
estimated useful lives of the properties, generally by
use of the straight-line method. Average useful lives
are 50 years for buildings, 25 years for building
improvements and 12 years for equipment. Depreciation
expense was $208, $191 and $166 in 1999, 1998 and 1997,
respectively.
Intangible Assets - Intangible assets principally
include goodwill, licenses, patents and trademarks.
Intangible assets are recorded at cost and amortized on
the straight-line method over periods not exceeding 40
years. Accumulated amortization of intangible assets
was $188 and $138 at December 31, 1999 and 1998,
respectively. Intangible assets are periodically
reviewed to determine recoverability by comparing their
carrying values to undiscounted expected future cash
flows.
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.
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.
Net foreign exchange losses included in income were $6,
$2 and $6 in 1999, 1998 and 1997, respectively.
Accumulated Other Comprehensive Income - Accumulated
other comprehensive income consists of the accumulated
foreign currency translation adjustment account and
accumulated unrealized gains and losses on securities
classified for Statement of Financial Accounting
Standards (SFAS) No. 115 purposes as held available for
sale. At December 31, 1999 and 1998, the accumulated
foreign currency translation adjustment account, net of
tax, totaled $301 and $247, respectively.
Revenue Recognition - Revenues from the sale of
products are recorded at the time goods are shipped to
customers.
Earnings Per Common Share - 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 the exercise of stock
options. Basic earnings per common share are computed
by dividing income by the weighted-average number of
common shares outstanding.
The shares used to calculate basic earnings per common
share and diluted earnings per common share are
reconciled as follows:
<TABLE>
<CAPTION>
(shares in millions)
1999 1998 1997
<S> <C> <C> <C>
Average shares outstanding
for basic earnings per share . . . . 1,470 1,468 1,464
Dilutive effect of options
and deferred stock units . . . . . . 16 20 16
Average shares outstanding
for diluted earnings per share . . . 1,486 1,488 1,480
</TABLE>
As of December 31, 1999, there were 9 million options
outstanding with exercise prices higher than the
average price of the Company's common stock during
1999. Accordingly, these options are not included in
the dilutive effects indicated above.
Recently Issued Accounting Standard - In June 1998, the
Financial Accounting Standards Board (FASB) issued SFAS
No. 133, "Accounting for Derivative Instruments and
Hedging Activities." SFAS No. 133, as amended by SFAS
No. 137, requires adoption by the Company no later than
January 1, 2001. The Company plans to adopt SFAS No.
133 at that time. This statement is not expected to
materially impact the Company's financial statements
because the Company makes limited use of derivative
financial instruments.
ACQUISITION
On June 30, 1997, the Company acquired the worldwide
animal health business of Mallinckrodt Inc. for
approximately $490, which includes the assumption of
debt and direct costs of the acquisition. The
acquisition was recorded under the purchase method of
accounting. The excess of the purchase price over the
fair value of identifiable net assets acquired is
included in intangible assets, net. The results of
operations of the purchased animal health business have
been included in the Company's Statements of
Consolidated Income from the date of acquisition. Pro
forma results of the Company, assuming the acquisition
had been made at the beginning of each period
presented, would not be materially different from the
results reported.
FINANCIAL INSTRUMENTS
The table below presents the carrying values and
estimated fair values for the Company's financial
instruments, including derivative financial
instruments. Estimated fair values were determined
based on market prices, where available, or dealer
quotes.
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
Carrying Estimated Carrying Estimated
Value Fair Value Value Fair Value
<S> <C> <C> <C> <C>
ASSETS:
Cash and cash equivalents $1,876 $1,876 $1,259 $1,259
Debt and equity investments 532 532 213 213
Interest rate swap contracts 6 (6) - -
LIABILITIES:
Short-term borrowings and
current portion of long-
term debt 728 728 558 558
Long-term debt 6 6 4 4
Other financing instruments 208 193 - -
</TABLE>
Credit and Market Risk
Most financial instruments expose the holder to credit
risk for non-performance and to market risk for changes
in interest and currency rates. The Company mitigates
credit risk on derivative instruments by dealing only
with financially sound counterparties. Accordingly,
the Company does not anticipate loss for non-
performance. The Company does not enter into
derivative instruments to generate trading profits.
Refer to "Market Risk Disclosures" in Management's
Discussion and Analysis of Operations and Financial
Condition for a discussion regarding the market risk of
the Company's financial instruments.
Debt and Equity Investments
Investments, which are primarily included in other non-
current assets, consist of a time deposit, equity
securities of licensee companies and debt and equity
securities held in non-qualified trusts to fund benefit
obligations. Investments are primarily classified as
available for sale and are carried at fair value, with
unrealized gains and losses, net of tax, reported in
other comprehensive income. Gross unrealized gains in
1999 were $59; gross unrealized losses in 1999 were not
material. Gross unrealized gains and losses in 1998 and
1997 were not material.
Interest Rate Swap Contracts
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 is $650 and the notional principal of the
1992 arrangement is $950. Both arrangements have 20-
year terms. At December 31, 1999, the arrangements
provide for the payment of interest based upon LIBOR
and the receipt of interest based upon an annual
election of various floating rates. As a result, the
Company remains subject to a moderate degree of market
risk through maturity of the swaps. These interest
rate swaps are recorded at fair value, with changes in
fair value recorded in earnings. Annual net cash flows
for payments and receipts under these interest rate
swap contracts are not material. The net asset or
liability under these interest rate swaps is recorded
in other current assets or other accrued liabilities,
as applicable.
To hedge future variable interest receipts on a $200
time deposit purchased in 1999, the Company entered
into an interest rate swap that matures in November
2003. Under the swap, the Company will receive 5.6
percent on a notional principal of $200 and will pay
three-month LIBOR. The differential paid or earned on
this interest rate swap has been designated as a hedge
and is reflected as an adjustment to interest income
over the life of the swap.
COMMITMENTS
Total rent expense amounted to $65 in 1999, $58 in 1998
and $44 in 1997. Future minimum rental commitments on
non-cancelable operating leases as of December 31,
1999, range from $31 in 2000 to $7 in 2004, with
aggregate minimum lease obligations of $20 due
thereafter. The Company has commitments related to
future capital expenditures totaling $179 as of
December 31, 1999.
BORROWINGS
The Company has a $1 billion committed, multi-currency
unsecured revolving credit facility expiring in 2001
from a syndicate of financial institutions. This
facility is available for general corporate purposes
and is considered as support for the Company's
commercial paper borrowings. This line of credit does
not require compensating balances; however, a nominal
commitment fee is paid. At December 31, 1999, $124 had
been drawn down under this facility. In addition, the
Company's foreign subsidiaries had available $314 in
unused lines of credit from various financial
institutions at December 31, 1999. Generally, these
foreign credit lines do not require commitment fees or
compensating balances and are cancelable at the option
of the Company or the financial institutions.
Short-term borrowings consist of commercial paper
issued in the United States, bank loans, notes payable
and amounts drawn down under the revolving credit
facility. Commercial paper outstanding at December 31,
1999 and 1998 was $495 and $339, respectively. The
weighted-average interest rate for short-term
borrowings at December 31, 1999 and 1998 was 6.9
percent and 5.7 percent, respectively.
The Company has a shelf registration statement on file
with the Securities and Exchange Commission covering
the issuance of up to $200 of debt securities. The
terms of these securities will be determined at the
time of sale. As of December 31, 1999, no debt
securities have been issued pursuant to this
registration.
FINANCING
During 1999, a subsidiary of the Company issued $200 of
equity-type securities. The securities bear a LIBOR-
based yield that is substantially fixed through
November 28, 2003; thereafter, the Company can elect to
reset the rate annually or substantially fix the rate
for the next five years. At December 31, 1999, the rate
was 5.6 percent. The Company can call the securities
at any time after November 30, 2004, or earlier under
certain circumstances. The holders can put the
securities back to the Company at any time after
November 30, 2027, or earlier under certain
circumstances. Because of the put and call features,
this obligation is included in other long-term
liabilities.
INTEREST COSTS AND INCOME
<TABLE>
Interest costs were as follows:
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Interest cost incurred . . . . . . . . $41 $28 $55
Less: amount capitalized on
construction . . . . . . . . . 12 9 15
Interest expense . . . . . . . . . . . $29 $19 $40
Cash paid for interest, net of
amount capitalized . . . . . . . . $28 $19 $37
</TABLE>
Interest income for 1999, 1998 and 1997 was $103, $59
and $56, respectively. Interest income and interest
expense are included in other (income) expense, net.
SHAREHOLDERS' EQUITY
On September 22, 1998, the Board of Directors voted to
increase the number of authorized common shares from
1.2 billion to 2.4 billion and approved a 2-for-1 stock
split. Distribution of the split shares was made on
December 2, 1998. On April 22, 1997, the Board of
Directors voted to increase the number of authorized
common shares from 600 million to 1.2 billion and
approved a 2-for-1 stock split. Distribution of these
split shares was made on June 3, 1997. All per share
amounts herein have been adjusted to reflect both stock
splits.
<TABLE>
A summary of treasury share transactions follows
(shares in millions):
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Share balance at January 1 558 282 142
Shares issued under stock
incentive plans (10) (9) (4)
Purchase of treasury shares 10 3 2
Effect of 2-for-1 stock split - 282 142
Share balance at December 31 558 558 282
</TABLE>
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
which, 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.
STOCK INCENTIVE PLANS
Under the terms of the Company's 1997 Stock Incentive
Plan, 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 2002. Option exercise prices equal
the market price of the common shares at their grant
dates. Options expire not later than 10 years after
the date of grant. Standard options granted generally
have a one-year vesting term. Other options granted
vest 20 percent per year for five years starting five
years after the date of grant. Deferred stock units
are payable in an equivalent number of common shares;
the shares are distributable in a single installment or
in five equal annual installments generally commencing
one year from the date of the award.
<TABLE>
The following table summarizes stock option activity
over the past three years under the current and prior
plans (number of options in millions):
<CAPTION>
1999 1998 1997
Weighted- Weighted- Weighted-
Number Average Number Average Number Average
Of Exercise of Exercise of Exercise
Options Price Options Price Options Price
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
January 1. . . . 42 $19.31 42 $12.20 41 $ 9.57
Granted . . . . 9 52.86 11 39.06 9 20.57
Exercised . . . (8) 13.96 (10) 10.47 (8) 7.76
Canceled
or expired. . . (1) 32.79 (1) 30.87 - -
Outstanding at
December 31 . . 42 $27.34 42 $19.31 42 $12.20
Options exercisable
at December 31 . 27 $21.16 25 $12.02 26 $ 9.28
</TABLE>
The Company accounts for its stock compensation
arrangements using the intrinsic value method. If the
fair value method of accounting was applied as defined
in SFAS No. 123, "Accounting for Stock-Based
Compensation," the Company's pro forma net income would
have been $2,044, $1,704 and $1,421 for 1999, 1998 and
1997, respectively. Pro forma diluted earnings per
share would have been $1.38, $1.15 and $.96 for 1999,
1998 and 1997, respectively, and pro forma basic
earnings per share would have been $1.39, $1.16 and
$.97 for 1999, 1998 and 1997, respectively.
<TABLE>
The weighted-average fair value per option granted in
1999, 1998 and 1997 was $12.38, $9.24 and $4.60,
respectively. The fair values were estimated using the
Black-Scholes option pricing model based on the
following assumptions:
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Dividend yield 2.2% 2.4% 2.6%
Volatility 23% 24% 20%
Risk-free interest rate 5.1% 5.5% 6.1%
Expected term of options (in years) 5 5 5
</TABLE>
In 1999, 1998 and 1997, the Company awarded deferred
stock units totaling 2.4 million, 2.5 million and 3.0
million, respectively. The expense recorded in 1999,
1998 and 1997 for deferred stock units was $61, $45 and
$32, respectively.
INVENTORIES
<TABLE>
Year-end inventories consisted of the following:
<CAPTION>
1999 1998
<S> <C> <C>
Finished products. . . . . . . . . . . . . . $437 $483
Goods in process . . . . . . . . . . . . . . 267 174
Raw materials and supplies . . . . . . . . . 254 184
Total inventories . . . . . . . . . . . . . $958 $841
</TABLE>
Inventories valued on a last-in, first-out basis
comprised approximately 31 percent and 28 percent of
total inventories at December 31, 1999 and 1998,
respectively. The estimated replacement cost of total
inventories at December 31, 1999 and 1998 was $972 and
$864, respectively.
RETIREMENT PLANS AND OTHER POST-RETIREMENT BENEFITS
The Company has defined benefit pension plans covering
eligible employees in the United States and certain
foreign countries, and the Company provides post-
retirement health care benefits to its eligible U.S.
retirees and their dependents.
<TABLE>
The components of net pension and other post-retirement
benefit (income) expense were as follows:
<CAPTION>
Post-retirement
Health Care
Retirement Plans Benefits
1999 1998 1997 1999 1998 1997
<S> <C> <C> <C> <C> <C>
<C>
Service cost $42 $41 $37 $5 $5 $4
Interest cost 62 59 54 11 11 11
Expected return on plan assets (101) (89) (81) (18) (17) (15)
Amortization, net (5) (6) (5) (2) (1) (1)
Net $(2) $5 $5 $(4) $(2) $(1)
</TABLE>
<TABLE>
The components of the changes in the benefit
obligations were as follows:
<CAPTION>
Post-retirement
Health Care
Retirement Plans Benefits
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Benefit obligations at January 1. . . . $987 $867 $177 $162
Service cost . . . . . . . . . . . . . 42 41 5 5
Interest cost . . . . . . . . . . . . . 62 59 11 11
Assumption changes. . . . . . . . . . . (101) 51 (20) 10
Effects of exchange rate changes. . . . (9) 5 - -
Benefits paid . . . . . . . . . . . . . (41) (62) (11) (8)
Actuarial (gains) and losses . . . . . 22 22 8 (3)
Plan amendments . . . . . . . . . . . . 6 4 - -
Benefit obligations at December 31. . . $968 $987 $170 $177
Benefit obligations of overfunded plans $740 $790 $170 $177
Benefit obligations of underfunded plans 228 197
</TABLE>
<TABLE>
The components of the changes in plan assets were as
follows:
<CAPTION>
Post-retirement
Health Care
Retirement Plans Benefits
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Fair value of plan assets, primarily
stocks and bonds, at January 1 . . . . $1,145 $1,039 $228 $210
Actual return on plan assets . . . . . 188 135 42 26
Contributions . . . . . . . . . . . . . 14 13 - -
Effects of exchange rate changes . . . (9) - - -
Benefits paid . . . . . . . . . . . . (39) (42) (11) (8)
Fair value of plan assets at December 31 $1,299 $1,145 $259 $228
Plan assets of overfunded plans $1,219 $1,086 $259 $228
Plan assets of underfunded plans 80 59
</TABLE>
In addition to the plan assets indicated above, at
December 31, 1999 and 1998, securities of $79 and $70,
respectively, were held in non-qualified trusts
designated to provide pension benefits for certain
underfunded plans.
<TABLE>
The following is a reconciliation of the funded status
of the plans to the Company's balance sheet at December
31:
<CAPTION>
Post-retirement
Health Care
Retirement Plans Benefits
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Plan assets in excess of benefit
obligations . . . . . . . . . . . . . $331 $158 $89 $51
Unrecognized net transition asset . . . (37) (45) - -
Unrecognized prior service costs. . . . 16 12 (5) (6)
Unrecognized net actuarial (gain) . . . (189) (14) (85) (51)
Net asset (liability) . . . . . . . . . $121 $111 $(1) $(6)
</TABLE>
<TABLE>
The weighted-average assumptions employed at December
31, 1999 and 1998 were:
<CAPTION>
Post-retirement
Health Care
Retirement Plans Benefits
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Discount rate 7.0% 6.6% 7.5% 6.5%
Long-term expected rate of return on
plan assets 9.5% 9.9% 9.0% 9.0%
Rate of increase in future compensation 3.9% 4.1%
</TABLE>
The weighted-average assumed health care cost trend
rates used for post-retirement measurement purposes
were 6.6 percent for 2000, trending down to 5.0 percent
by 2002. A 1 percent increase or decrease in the
assumed health care cost trend rate would increase or
decrease combined post-retirement service and interest
cost by $3 and the post-retirement benefit obligation
by $24.
The Company has a defined contribution profit-sharing
plan covering substantially all its full-time domestic
employees who have completed one year of service. The
annual contribution is determined by a formula based on
the Company's income, shareholders' equity and
participants' compensation. Profit-sharing expense
totaled $74, $66 and $58 in 1999, 1998 and 1997,
respectively.
INCOME TAXES
<TABLE>
U.S. and foreign operations contributed to income
before income taxes as follows:
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
United States . . . . . . . . . . . . . . . . $2,031 $1,609 $1,349
Foreign . . . . . . . . . . . . . . . . . . . 764 717 564
Total income before income taxes. . . . . . . $2,795 $2,326 $1,913
</TABLE>
<TABLE>
The components of income tax expense were as follows:
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Current:
Federal. . . . . . . . . . . . . . . . . $464 $442 $306
Foreign . . . . . . . . . . . . . . . . 185 184 160
State. . . . . . . . . . . . . . . . . . 13 14 10
Total current. . . . . . . . . . . . . . 662 640 476
Deferred:
Federal and state. . . . . . . . . . . . 46 (19) 30
Foreign. . . . . . . . . . . . . . . . . (23) (51) (37)
Total deferred . . . . . . . . . . . . . 23 (70) (7)
Total income tax expense . . . . . . . . . $685 $570 $469
</TABLE>
<TABLE>
The difference between the U.S. statutory tax rate and
the Company's effective tax rate was due to the
following:
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
U.S. statutory tax rate. . . . . . . . . . 35.0% 35.0% 35.0%
Increase (decrease) in taxes resulting
from:
Lower rates in other jurisdictions,
net . . . . . . . . . . . . . . . . . . (10.5) (10.6) (10.0)
Research tax credit . . . . . . . . . . (.8) (.8) (.6)
All other, net . . . . . . . . . . . . . .8 .9 .1
Effective tax rate . . . . . . . . . . . . 24.5% 24.5% 24.5%
</TABLE>
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
2018.
As of December 31, 1999 and 1998, the Company had total
deferred tax assets of $733 and $741, respectively, and
deferred tax liabilities of $521 and $506,
respectively. Valuation allowances are not
significant. Significant deferred tax assets at
December 31, 1999 and 1998 were for operating costs not
currently deductible for tax purposes and totaled $389
and $425, respectively. Significant deferred tax
liabilities at December 31, 1999 and 1998 were for
depreciation differences, $222 and $233, respectively,
and retirement plans, $67 and $61, respectively. Other
current assets include deferred income taxes of $507
and $521 at December 31, 1999 and 1998, respectively.
Deferred taxes are not provided on undistributed
earnings of foreign subsidiaries (considered to be
permanent investments), which at December 31, 1999,
approximated $5,020. Determining the tax liability
that would arise if these earnings were remitted is not
practicable.
As of December 31, 1999, the U.S. Internal Revenue
Service has completed its examination of the Company's
tax returns for all years through 1988, and there are
no unresolved issues outstanding for those years.
Total income tax payments during 1999, 1998 and 1997
were $502, $458 and $368, respectively.
LEGAL AND 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. 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 cleanup 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 cleanup 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
December 31, 1999 and 1998 and the related expenses
incurred during the three years ended December 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 110 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 in June 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.
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 has settled all of the state retailer
actions, except California and Alabama. The settlement
amounts were not material to the Company. In addition,
in June 1999, the Alabama Supreme Court reversed the
denial of a motion for judgment on the pleadings in the
Alabama retailer case. The court held that the Alabama
antitrust law did not apply to conspiracies alleged to
be in interstate commerce. Based on that ruling, the
Alabama retailer case has been dismissed.
The Company has settled all of the state consumer
cases, except Alabama, North Dakota, South Dakota, West
Virginia and New Mexico. The settlement amounts were
not material to the Company. A motion is pending to
dismiss the Alabama consumer case based on the Alabama
Supreme Court decision in the retailer case.
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. Also in 1999, the Company settled federal
antitrust cases brought by independent pharmacists and
small pharmacy chains comprising about 2 percent of the
prescription drug retail market. 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.
The Company believes all the antitrust actions are
without merit and is defending itself vigorously.
In March 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 believes
that its actions have been lawful and proper and is
cooperating in the investigation. However, it is not
possible to predict the outcome of the investigation,
which could result in the imposition of fines,
penalties and injunctive or administrative remedies.
In October 1999, the Company received a subpoena from
the U.S. Attorney's Office for the Eastern District of
Pennsylvania, pursuant to the Health Insurance
Portability and Accountability Act of 1996, concerning
the Company's contracts with pharmacy benefit managers
(PBMs) and managed care organizations to provide
disease management services in connection with the
marketing of its pharmaceutical products. It appears
that the subpoena is one of a number addressed to
industry participants including PBMs, managed care
organizations and manufacturers as a part of an inquiry
into, among other things, marketing practices. The
government's inquiry appears to focus on whether the
Company's disease management and other marketing
programs comply with federal health care laws and
whether the value of its disease management programs
should have been included in the calculation of rebates
to the government. The Company believes that its
disease management and other marketing programs have
been designed to comply with the law and that its
rebate calculations have properly excluded the value of
its disease management programs. The Company is
cooperating in the investigation. However, it is not
possible to predict the outcome of the investigation,
which could include the imposition of fines, penalties
and injunctive or administrative remedies. Nor can the
Company predict whether the investigation will affect
its marketing practices or sales.
The Company is a party to an arbitration filed by
Biogen, Inc. (Biogen) in a dispute over the method used
by the Company to determine the amount of royalties
payable to Biogen on sales of REBETRON Combination
Therapy containing REBETOL Capsules and INTRON A
Injection. The Company believes that it should prevail
in this arbitration. However, there can be no
assurance that the Company will prevail.
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.
During 1999, Copley Pharmaceutical, Inc., Teva
Pharmaceuticals, Inc., Novex Pharma and Zenith Goldline
Pharmaceuticals individually notified the Company that
each had submitted an ANDA to the FDA seeking to market
certain generic forms of CLARITIN in the United States
before the expiration of certain of the Company's
patents, and in 2000 Andrx Pharmaceuticals, L.L.C.
(Andrx) made a similar submission relating to CLARITIN-
D 24 Hour tablets. Each has alleged that one or more
of those patents are invalid and unenforceable. In
each case, except Andrx, the Company has filed suit in
federal court seeking a ruling that the applicable ANDA
submission and proposed marketing of a generic product
constitute willful infringement of the Company's patent
and that the challenge to the patent is without merit.
The Company will file a similar suit against Andrx 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.
In January 2000, Hoffman-La Roche Inc. filed actions
against the Company in United States District Court in
New Jersey and in France alleging that the Company's
PEG-INTRON (peginterferon alfa-2b) infringes Hoffman-La
Roche Inc.'s patents on certain pegylated interferons.
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.
<TABLE>
QUARTERLY DATA (UNAUDITED)
<CAPTION>
Three Months Ended March 31, June 30, September 30, December 31,
1999 1998 1999 1998 1999 1998 1999 1998
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales . . . . $2,186 $1,908 $2,451 $2,124 $2,236 $1,986 $2,303 $2,059
Cost of sales. . . 432 380 472 423 438 394 458 404
Gross profit . . . 1,754 1,528 1,979 1,701 1,798 1,592 1,845 1,655
Selling, general
and
administrative . . 794 712 963 828 814 762 863 839
Research and
development . . 262 224 297 261 305 257 327 265
Other (income)
expense, net . . (15) (4) (7) 9 (7) 1 (15) (4)
Income before
income taxes . . 713 596 726 603 686 572 670 555
Income taxes . . 174 146 179 148 168 140 164 136
Net income. . . . $ 539 $ 450 $ 547 $ 455 $ 518 $ 432 $ 506 $419
Diluted earnings
per common share . $ .36 $ .30 $ .37 $ .31 $ .35 $ .29 $ .34 $.28
Basic earnings per
common share . . .37 .31 .37 .31 .35 .29 .35 .29
Dividends per
common share . . .11 .095 .125 .11 .125 .11 .125 .11
Common share prices:
High . . . . . 58 7/8 42 3/4 60 3/4 46 11/16 56 53 17/32 56 7/8 57 1/2
Low . . . . . 51 1/8 30 27/32 43 5/16 39 1/16 41 9/16 43 40 3/4 45 13/16
Average shares
outstanding for
diluted EPS
(in millions) . . 1,491 1,485 1,486 1,488 1,484 1,490 1,483 1,489
Average shares
outstanding for
basic EPS
(in millions) . . 1,472 1,466 1,470 1,467 1,469 1,469 1,470 1,470
</TABLE>
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
December 31, 1999, was 46,000.
SEGMENT INFORMATION
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 historically 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 reports as one segment.
Previously, the Company was organized into two business
units: pharmaceuticals and health care. Prior year
information has been restated on this basis.
<TABLE>
Net Sales by Major Therapeutic Category
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Allergy & Respiratory . . . . $3,850 $3,375 $2,708
Anti-infective & Anticancer . 1,738 1,263 1,156
Dermatologicals . . . . . . . 682 619 571
Cardiovasculars . . . . . . . 673 750 637
Other Pharmaceuticals . . . . 792 688 649
Animal Health . . . . . . . . 678 647 389
Foot Care . . . . . . . . . . 348 336 300
OTC . . . . . . . . . . . . . 221 218 220
Sun Care. . . . . . . . . . . 194 181 148
Consolidated net sales. . . . $9,176 $8,077 $6,778
Consolidated income
before income taxes. . $2,795 $2,326 $1,913
</TABLE>
The Company operates in more than 40 countries outside
the United States. Sales outside the United States
comprised 36 percent, 37 percent and 39 percent of
consolidated net sales in 1999, 1998 and 1997,
respectively. No single foreign country accounted for
more than 5 percent of consolidated net sales during
the past three years.
<TABLE>
Net Sales by Geographic Area
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
United States. . . . . . . . . . . . $5,835 $5,113 $4,151
Europe and Canada. . . . . . . . . . 2,157 1,889 1,620
Latin America. . . . . . . . . . . . 614 578 453
Pacific Area and Asia. . . . . . . . 570 497 554
Consolidated net sales . . . . . . . $9,176 $8,077 $6,778
</TABLE>
Net sales are presented in the geographic area in which
the Company's customers are located. During 1999 and
1998, 12 percent and 11 percent, respectively, of
consolidated net sales were made to McKesson HBOC,
Inc., a major pharmaceutical and health care products
distributor. During 1997, no single customer accounted
for more than 10 percent of consolidated net sales.
<TABLE>
Long-lived Assets by Geographic Location
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
United States. . . . . . . . . . . . $1,738 $1,516 $1,348
Ireland. . . . . . . . . . . . . . . 340 338 340
Singapore. . . . . . . . . . . . . . 260 268 271
Puerto Rico. . . . . . . . . . . . . 173 160 161
Other . . . . . . . . . . . . . . . 621 598 606
Total. . . . . . . . . . . . . . . . $3,132 $2,880 $2,726
</TABLE>
Long-lived assets shown by geographic location are
primarily property.
REPORT BY MANAGEMENT
Management is responsible for the preparation and the
integrity of the accompanying financial statements.
These statements are prepared in accordance with
generally accepted accounting principles and require
the use of estimates and assumptions that affect the
reported amounts of assets, liabilities, sales and
expenses. In management's opinion, the consolidated
financial statements present fairly the Company's
results of operations, financial position and cash
flows. All financial information in this Annual Report
is consistent with the financial statements.
The Company maintains, and management relies on, a
system of internal accounting controls and related
policies and procedures that provide reasonable
assurance of the integrity and reliability of the
financial statements. The system provides, at
appropriate cost and within the inherent limitations of
all internal control systems, that transactions are
executed in accordance with management's authorization,
are properly recorded and reported in the financial
statements and that assets are safeguarded. The
Company's internal accounting control system provides
for careful selection and training of supervisory and
management personnel and requires appropriate
segregation of responsibilities and delegation of
authority. In addition, the Company maintains a
corporate code of conduct for purposes of determining
possible conflicts of interest, compliance with laws
and confidentiality of proprietary information.
The Company's independent auditors, Deloitte & Touche
LLP, audit the annual consolidated financial
statements. They evaluate the Company's internal
accounting controls and perform tests of procedures and
accounting records to enable them to express their
opinion on the fairness of these statements. In
addition, the Company has an internal audit function
that regularly performs audits using programs designed
to test compliance with Company policies and
procedures, and to verify the adequacy of internal
accounting controls and other financial policies. The
internal auditors' and independent auditors'
recommendations concerning the Company's system of
internal accounting controls have been considered and
appropriate action has been taken with respect to those
recommendations.
The Finance, Compliance and Audit Committee of the
Board of Directors consists solely of non-employee
directors. The Committee meets periodically with
management, the internal auditors and the independent
auditors to review audit results, financial reporting,
internal accounting controls and other financial
matters. Both the independent auditors and internal
auditors have full and free access to the Committee.
/S/ Richard Jay Kogan /S/Jack L. Wyszomierski /S/Thomas H. Kelly
Chairman Executive Vice President Vice President
of the Board and and Chief Financial and Controller
Chief Executive Officer
Officer
INDEPENDENT AUDITORS' REPORT
DELOITTE & TOUCHE
Schering-Plough Corporation, its Directors and
Shareholders:
We have audited the accompanying consolidated balance
sheets of Schering-Plough Corporation and subsidiaries
as of December 31, 1999 and 1998, and the related
consolidated statements of income, shareholders' equity
and cash flows for each of the three years in the
period ended December 31, 1999. These financial
statements are the responsibility of the Company's
management. Our responsibility is to express an
opinion on these financial statements based on our
audits.
We conducted our audits in accordance with generally
accepted auditing standards. 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 at December 31, 1999 and 1998, and the
results of their operations and their cash flows for
each of the three years in the period ended December
31, 1999, in conformity with generally accepted
accounting principles.
/S/DELOITTE & TOUCHE LLP
Parsippany, New Jersey
February 11, 2000
<TABLE>
SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES
SIX-YEAR SELECTED FINANCIAL & STATISTICAL DATA
(Dollars in millions, except per share figures)
<CAPTION>
1999 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
Operating Results
Net Sales . . . . . . . . . . . $9,176 $8,077 $6,778 $5,656 $5,104 $4,537
Income before income taxes. . . . 2,795 2,326 1,913 1,606 1,395 1,227
Income from continuing operations 2,110 1,756 1,444 1,213 1,053 926
Discontinued operations . . . . . - - - - (166) (4)
Net income. . . . . . . . . . . . 2,110 1,756 1,444 1,213 887 922
Diluted earnings per common share
from continuing operations . . 1.42 1.18 .97 .82 .70 .60
Diluted earnings per common share 1.42 1.18 .97 .82 .59 .60
Basic earnings per common share
from continuing operations. . . 1.44 1.20 .98 .82 .71 .61
Discontinued operations . . . . - - - - (.11) (.01)
Basic earnings per common share . 1.44 1.20 .98 .82 .60 .60
Investments
Research and development. . . . .$1,191 $1,007 $ 847 $ 723 $ 657 $ 610
Capital expenditures. . . . . . . 543 389 405 336 304 286
Financial Condition
Property, net . . . . . . . . . .$2,939 $2,675 $2,526 $2,246 $2,099 $2,082
Total assets. . . . . . . . . . . 9,375 7,840 6,507 5,398 4,665 4,326
Long-term debt. . . . . . . . . . 6 4 46 46 87 186
Shareholders' equity. . . . . . . 5,165 4,002 2,821 2,060 1,623 1,574
Net book value per common share . 3.51 2.72 1.93 1.41 1.11 1.06
Financial Statistics
Income from continuing operations
as a percent of sales. . . . . . 23.0% 21.7% 21.3% 21.4% 20.6% 20.4%
Net income as a percent of sales. 23.0% 21.7% 21.3% 21.4% 17.4% 20.3%
Return on average shareholders'
equity. . . . . . . . . . . . . 46.0% 51.5% 59.2% 65.9% 55.5% 58.4%
Effective tax rate. . . . . . . . 24.5% 24.5% 24.5% 24.5% 24.5% 24.5%
Other Data
Cash dividends per common share .$ .485 $ .425 $ .368 $ .32 $ .281 $ .248
Cash dividends on common shares . 716 627 542 474 416 379
Depreciation and amortization . . 264 238 200 173 157 145
Number of employees . . . . . . .26,500 25,100 22,700 20,600 20,100 20,000
Average shares outstanding
for diluted earnings per common
share (in millions) . . . . . . 1,486 1,488 1,480 1,487 1,498 1,547
Average shares outstanding
for basic earnings per common
share (in millions) . . . . . . 1,470 1,468 1,464 1,471 1,479 1,530
Common shares outstanding
at year-end (in millions) . . . 1,472 1,472 1,465 1,461 1,457 1,488
</TABLE>
Schering-Plough Corporation and Subsidiaries
Subsidiaries of the Registrant
As of December 31, 1999
Exhibit 21
State or Country
or Incorporation
Subsidiaries of Registrant or Organization
AESCA Chemisch Pharmazeutische Fabrik GmbH Austria
American Image Productions, Inc. Tennessee
American Scientific Laboratories, Inc. Delaware
Ark Products Limited United Kingdom
Avondale Chemical Co., Ltd. Ireland
Beneficiadora e Industrializadora S.A. de C.V. Mexico
Canji, Inc. Delaware
Chemibiotic (Ireland) Limited Ireland
Colombia Veterinary Holdings, Inc. Panama
Coopers Animal Health Limited United Kingdom
Coopers Brasil Ltda. Brazil
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
Essex (Taiwan) Ltd. Taiwan
Essex Chemie A.G. 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
Integrated Therapeutics Group, Inc. Delaware
Key Pharma Russia
Key Pharma S.A. Ecuador
Key Pharma S.A. Argentina
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-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
Mallinckrodt Veterinary Limited Ireland
MedAdvisor, Inc. Delaware
Medexa, S.A. de C.V. Mexico
Med-Nim (Proprietary) Limited South Africa
P.T. Schering-Plough Indonesia Indonesia
Pharmaceutical Supply Corporation Delaware
Pharmaco(Canada) Inc. Canada
Pharmaco, Inc. Delaware
Pitman-Moore Animal Health Limited New Zealand
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 S.p.A. Italy
Plough Services AG Switzerland
PPL, Inc. Tennessee
Pro Medica AB Sweden
Professional Pharmaceutical Corporation Delaware
Professional Vaccine 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 MyHealth Solutions, Inc. Delaware
Schering Plough (South Korea) South Korea
Schering Sales Corporation Delaware
Schering Sales Management, Inc. Nevada
Schering Transamerica Corporation New Jersey
Schering-Plough (Bray) Limited 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 Limited New Zealand
Schering-Plough Animal Health Limited Australia
Schering-Plough Animal Health Limited Hong Kong
Schering-Plough Animal Health Limited Thailand
Schering-Plough Animal Health Operations Sdn Bhd Malaysia
Schering-Plough Animal Health Sales Corporation Delaware
Schering-Plough Animal Health Sdn Bhd Malaysia
Schering-Plough Animal Health, Inc. Philippines
Schering-Plough Animal-Health Corporation Delaware
Schering-Plough Animal-Health Pte. Ltd. Singapore
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 Philippines
Schering-Plough del Caribe, Inc. New Jersey
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 Grenada Limited Grenada
Schering-Plough HealthCare Products Advertising Corp. Tennessee
Schering-Plough HealthCare Products Sales Corporation California
Schering-Plough HealthCare Products, Inc. Delaware
Schering-Plough Holdings France 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 Company, Inc. Delaware
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 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 Products Caribe, Inc. Puerto Rico
Schering-Plough Products LLC Puerto Rico
Schering-Plough Products, Inc. Delaware
Schering-Plough Pty. Limited Australia
Schering-Plough Real Estate Company, Inc. Delaware
Schering-Plough Real Property Holdings, Inc. Delaware
Schering-Plough Research Institute Delaware
Schering-Plough S.A. France
Schering-Plough S.A. Paraguay
Schering-Plough S.A. Panama
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 Tibbi Urunler Ticaret, A.S. Turkey
Schering-Plough Veterinaire France
Schering-Plough Veterinaria, S.A. de C.V. Mexico
Schering-Plough Veterinary Belgium NV Belgium
Schering-Plough Veterinary Corporation Nevada
Schering-Plough Veterinary Ltd. Thailand
Schering-Plough Veterinary Nederland BV Netherlands
Schering-Plough Veterinary Operations, Inc. Delaware
Schering-Plough Veterinary S.A. Greece
Sentipharm A.G. Switzerland
Shanghai Schering-Plough Pharmaceutical Company, Ltd. China
SOL Limited Bermuda
SP Biotech, S.A. Spain
SP Flight Operations, Inc. Delaware
SP HealthCare Products Corp. Delaware
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
Suntan Sensations, Inc. California
Syntro Corporation Delaware
Syntro Zeon, LC Kansas
SyntroVenture Corporation Kansas
SyntroVet Incorporated Kansas
Tasman Vaccine Laboratory (UK) Limited United Kingdom
Technobiotic Ltd. Australia
The Coppertone Corporation Florida
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
Werthenstein Chemie A.G. Switzerland
White Laboratories Ltd. United Kingdom
White Laboratories of Canada Ltd. Canada
White Laboratories, Inc. New Jersey
Exhibit 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration
Statements No. 2-83963, No. 33-19013, No. 33-50606, No. 333-30331
and No.333-87077 on Form S-8, Registration Statement No. 333-853
on Form S-3, Post Effective Amendment No. 1 to Registration
Statement No. 2-84723 on Form S-8, Post Effective Amendment No. 1
to Registration Statement No. 2-80012 on Form S-3, Post Effective
Amendment No. 1 to Registration Statement No. 2-77740 on Form S-3
and Registration Statements No. 333-12909 and No. 333-30355 on
Form S-3 of our reports dated February 11, 2000, appearing in and
incorporated by reference in the Annual Report on Form 10-K of
Schering-Plough Corporation for the year ended December 31, 1999.
/s/ DELOITTE & TOUCHE, LLP
Parsippany, New Jersey
March 2, 2000
EXHIBIT 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 William J.
Silbey, Thomas H. Kelly and Edward Smith, 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, 1999 (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 22nd day of February, 2000.
/s/ Richard Jay Kogan /s/ Jack L. Wyszomierski
Richard Jay Kogan, Chairman and Jack L. Wyszomierski, Executive
Chief Executive Officer; Director Vice President and Chief Financial
Officer
/s/ Thomas H. Kelly /s/ H. Barclay Morley
Thomas H. Kelly, Vice President H. Barclay Morley
and Controller; Principal Director
Accounting Officer
/s/ Hans W. Becherer /s/ Carl E. Mundy, Jr.
Hans W. Becherer Carl E. Mundy, Jr.
Director Director
/s/ Raul E. Cesan /s/ Richard de J. Osborne
Raul E. Cesan Richard de J. Osborne
Director Director
/s/ Hugh A. D'Andrade /s/ Patricia F. Russo
Hugh A. D'Andrade Patricia F. Russo
Director Director
/s/ David C. Garfield /s/ William A. Schreyer
David C. Garfield William A. Schreyer
Director Director
/s/ Regina E. Herzlinger /s/ Robert F. W. van Oordt
Regina E. Herzlinger Robert F. W. van Oordt
Director Director
/s/ Robert P. Luciano /s/ Arthur F. Weinbach
Robert P. Luciano Arthur F. Weinbach
Director Director
/s/ Donald L. Miller /s/ James Wood
Donald L. Miller James Wood
Director Director
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains financial data extracted from Schering-Plough Corporation
Consolidated Financial Statements and 10-K schedules for the year ended December
31, 1999, and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-1-1999
<PERIOD-END> DEC-31-1999
<CASH> 1876
<SECURITIES> 0
<RECEIVABLES> 1022
<ALLOWANCES> 92
<INVENTORY> 958
<CURRENT-ASSETS> 4909
<PP&E> 4386
<DEPRECIATION> 1447
<TOTAL-ASSETS> 9375
<CURRENT-LIABILITIES> 3209
<BONDS> 6
0
0
<COMMON> 1015
<OTHER-SE> 4150
<TOTAL-LIABILITY-AND-EQUITY> 9375
<SALES> 9176
<TOTAL-REVENUES> 9176
<CGS> 1800
<TOTAL-COSTS> 1800
<OTHER-EXPENSES> 1191
<LOSS-PROVISION> 17
<INTEREST-EXPENSE> 29
<INCOME-PRETAX> 2795
<INCOME-TAX> 685
<INCOME-CONTINUING> 2110
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2110
<EPS-BASIC> 1.44
<EPS-DILUTED> 1.42
</TABLE>
