-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VC7eHokY+zryR64jBCwyV4lSyx/0WW7z8ErVjb2A3Co0WXrTZi343blfCK9GVOQU BMf24C4rmvV6eiPM1eODfA== 0000310158-00-000001.txt : 20000307 0000310158-00-000001.hdr.sgml : 20000307 ACCESSION NUMBER: 0000310158-00-000001 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000302 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SCHERING PLOUGH CORP CENTRAL INDEX KEY: 0000310158 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 221918501 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-06571 FILM NUMBER: 559419 BUSINESS ADDRESS: STREET 1: ONE GIRALDA FARMS CITY: MADISON STATE: NJ ZIP: 07940-1000 BUSINESS PHONE: 9738227000 10-K 1 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):
1999 1998 1997 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
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 SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997 (Dollars in millions)
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 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
EX-12 2 Exhibit 12 SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (Dollars in millions)
Year Ended December 31, 1999 1998 1997 1996 1995 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.
EX-13 3 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):
% Increase (Decrease) 1999 1998 1997 1999/98 1998/97 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 %
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. SUMMARY OF COSTS AND EXPENSES: (Dollars in millions)
% Increase 1999 1998 1997 1999/98 1998/97 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 %
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 STATEMENTS OF CONSOLIDATED INCOME (Amounts in millions, except per share figures)
For the Years Ended December 31, 1999 1998 1997 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.
SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED CASH FLOWS (Amounts in millions)
For the Years Ended December 31, 1999 1998 1997 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.
SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Amounts in millions, except per share figures)
At December 31, 1999 1998 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.
SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY (Amounts in millions)
Accumulated Other Total Compre- Share- Common Paid-in Retained Treasury hensive holders' Shares Capital Earnings Shares Income Equity 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.
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:
(shares in millions) 1999 1998 1997 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
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.
December 31, 1999 December 31, 1998 Carrying Estimated Carrying Estimated Value Fair Value Value Fair Value 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 - -
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 Interest costs were as follows:
1999 1998 1997 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
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. A summary of treasury share transactions follows (shares in millions):
1999 1998 1997 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
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. The following table summarizes stock option activity over the past three years under the current and prior plans (number of options in millions):
1999 1998 1997 Weighted- Weighted- Weighted- Number Average Number Average Number Average Of Exercise of Exercise of Exercise Options Price Options Price Options Price 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
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. 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:
1999 1998 1997 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
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 Year-end inventories consisted of the following:
1999 1998 Finished products. . . . . . . . . . . . . . $437 $483 Goods in process . . . . . . . . . . . . . . 267 174 Raw materials and supplies . . . . . . . . . 254 184 Total inventories . . . . . . . . . . . . . $958 $841
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. The components of net pension and other post-retirement benefit (income) expense were as follows:
Post-retirement Health Care Retirement Plans Benefits 1999 1998 1997 1999 1998 1997 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)
The components of the changes in the benefit obligations were as follows:
Post-retirement Health Care Retirement Plans Benefits 1999 1998 1999 1998 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
The components of the changes in plan assets were as follows:
Post-retirement Health Care Retirement Plans Benefits 1999 1998 1999 1998 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
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. The following is a reconciliation of the funded status of the plans to the Company's balance sheet at December 31:
Post-retirement Health Care Retirement Plans Benefits 1999 1998 1999 1998 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)
The weighted-average assumptions employed at December 31, 1999 and 1998 were:
Post-retirement Health Care Retirement Plans Benefits 1999 1998 1999 1998 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%
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 U.S. and foreign operations contributed to income before income taxes as follows:
1999 1998 1997 United States . . . . . . . . . . . . . . . . $2,031 $1,609 $1,349 Foreign . . . . . . . . . . . . . . . . . . . 764 717 564 Total income before income taxes. . . . . . . $2,795 $2,326 $1,913
The components of income tax expense were as follows:
1999 1998 1997 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
The difference between the U.S. statutory tax rate and the Company's effective tax rate was due to the following:
1999 1998 1997 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%
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. QUARTERLY DATA (UNAUDITED)
Three Months Ended March 31, June 30, September 30, December 31, 1999 1998 1999 1998 1999 1998 1999 1998 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
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. Net Sales by Major Therapeutic Category
1999 1998 1997 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
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. Net Sales by Geographic Area
1999 1998 1997 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
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. Long-lived Assets by Geographic Location
1999 1998 1997 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
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 SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES SIX-YEAR SELECTED FINANCIAL & STATISTICAL DATA (Dollars in millions, except per share figures)
1999 1998 1997 1996 1995 1994 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
EX-21 4 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 EX-23 5 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 EX-24 6 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 EX-27 7
5 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. 1,000,000 YEAR DEC-31-1999 JAN-1-1999 DEC-31-1999 1876 0 1022 92 958 4909 4386 1447 9375 3209 6 0 0 1015 4150 9375 9176 9176 1800 1800 1191 17 29 2795 685 2110 0 0 0 2110 1.44 1.42
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