SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
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Form 11-K
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[X] ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2004
Commission file number 2-84723
SCHERING-PLOUGH EMPLOYEES' SAVINGS PLAN
(Full Title of Plan)
Schering-Plough Corporation
2000 Galloping Hill Road
Kenilworth, New Jersey 07033
(Name of Issuer of Securities Held Pursuant to the Plan and
Address of Principal Executive Offices)
SCHERING-PLOUGH EMPLOYEES' SAVINGS PLAN
TABLE OF CONTENTS
PAGE
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 3
FINANCIAL STATEMENTS:
Statements of Net Assets Available for
Benefits as of December 31, 2004 and 2003 4
Statements of Changes in Net Assets Available
for Benefits for the Years Ended December 31, 2004 and 2003 5
Notes to Financial Statements 6-11
SUPPLEMENTAL SCHEDULE:
Form 5500, Schedule H, Part IV, Line 4i - Schedule of
Assets (Held at End of Year) as of December 31, 2004 12
SIGNATURE(S) 13
EXHIBIT I - Consent of Independent Registered Public Accounting Firm 14
All other schedules required by Section 2520.103-10 of the Department of Labor's
Rules and Regulations for Reporting and Disclosure under the Employee Retirement
Income Security Act of 1974 have been omitted because they are not applicable.
2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Participants of
Schering-Plough Employees' Savings Plan
We have audited the accompanying statements of net assets available for benefits
of the Schering-Plough Employees' Savings Plan (the "Plan") as of December 31,
2004 and 2003, and the related statements of changes in net assets available for
benefits for the years then ended. These financial statements are the
responsibility of the Plan's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Plan is not required to have,
nor were we engaged to perform, an audit of its internal control over financial
reporting. Our audits included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Plan's internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, 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 financial statements present fairly, in all material
respects, the net assets available for benefits of the Plan as of December 31,
2004 and 2003, and the changes in net assets available for benefits for the
years then ended in conformity with accounting principles generally accepted in
the United States of America.
Our audits were conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedule of assets (held
at end of year) as of December 31, 2004, is presented for the purpose of
additional analysis and is not a required part of the basic financial
statements, but is supplementary information required by the Department of
Labor's Rules and Regulations for Reporting and Disclosure under the Employee
Retirement Income Security Act of 1974. This schedule is the responsibility of
the Plan's management. Such schedule has been subjected to the auditing
procedures applied in our audit of the basic 2004 financial statements and, in
our opinion, is fairly stated in all material respects when considered in
relation to the basic financial statements taken as a whole.
/s/ Deloitte & Touche LLP
Parsippany, New Jersey
June 27, 2005
3
SCHERING-PLOUGH EMPLOYEES' SAVINGS PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
AS OF DECEMBER 31, 2004 AND 2003
($ in 000s)
2004 2003
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ASSETS
PARTICIPANT-DIRECTED INVESTMENTS:
Vanguard Funds $1,273,275 $379,973
Schering-Plough Stock Fund 342,976 80,604
Loan Fund 25,806 7,797
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Total Investments 1,642,057 468,374
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RECEIVABLES:
Employer contributions 129 -
Participant contributions 131 61
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Total Contributions Receivables 260 61
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Net Assets Available For Benefits $1,642,317 $468,435
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The accompanying notes are an integral part of these Financial Statements.
4
SCHERING-PLOUGH EMPLOYEES' SAVINGS PLAN
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
($ in 000s)
2004 2003
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ADDITIONS
Investment income:
Dividend income, registered investment companies $ 21,037 $ 5,090
Dividend income, Schering-Plough Stock Fund 1,692 2,515
Interest income, participant loans 835 554
Net appreciation in fair value of investments 117,947 46,561
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Net investment income 141,511 54,720
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Contributions:
Employer contributions 47,538 -
Participant contributions 71,873 55,163
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Total contributions 119,411 55,163
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Transfers in from Profit-Sharing Incentive Plan (Note 1) 1,014,051 -
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Total additions 1,274,973 109,883
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DEDUCTIONS
Benefits paid to participants 101,091 30,515
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Increase in net assets 1,173,882 79,368
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Net assets available for benefits:
Beginning of year 468,435 389,067
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End of year $1,642,317 $468,435
========== ========
The accompanying notes are an integral part of these Financial Statements.
5
SCHERING-PLOUGH EMPLOYEES' SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
1. DESCRIPTION OF PLAN
The Schering-Plough Employees' Savings Plan (the "Plan") is a defined
contribution plan maintained for the benefit of United States employees of
Schering-Plough Corporation (the "Company") and its participating subsidiaries.
Generally, all such employees are eligible to participate in the Plan on the
date of employment. Schering Corporation, a subsidiary of the Company, is the
Plan Sponsor.
The following brief description of the Plan is provided for general information
purposes only. Participants should refer to the Plan document for more complete
information.
GENERAL - On September 10, 2004, the Schering-Plough Employees' Profit-Sharing
Incentive Plan (the "Profit Sharing Plan") merged into the Plan in order to
reduce administrative expenses and burden. As a result of this merger, assets
totaling $1,014,051,000 were transferred at their fair market value into the
Plan. The merger did not impact the combined monetary value of participants'
accounts under the two plans.
SALARY DEFERRAL CONTRIBUTIONS - Each plan year participants may contribute from
1% to 50% of pretax annual compensation, up to an annual IRS maximum. For the
2003 plan year, highly compensated employees were limited to 6% of pretax annual
compensation, up to an annual IRS maximum. Also, the Economic Growth and Tax
Relief Reconciliation Act of 2001 permits catch-up contributions that are
designed to provide individuals age 50 and above with additional pre-tax
retirement savings opportunity. As such, eligible participants in the Plan could
contribute an additional $3,000 in 2004.
PARTICIPANT ACCOUNTS AND VESTING - Each participant's account is credited with
the participant's contributions and earnings (losses) thereon. Participants have
a non-forfeitable right to their contributions plus (minus) actual earnings
(losses) thereon which vest fully and immediately.
INVESTMENT OPTIONS - Upon enrollment in the Plan, participants may direct their
contributions into any of the following Vanguard Fiduciary Trust Company
("Vanguard") investment options:
- Vanguard 500 Index Fund Investor Shares
- Vanguard Explorer Fund Investor Shares
- Vanguard Intermediate-Term Investment-Grade Fund Investor Shares
- Vanguard International Growth Fund Investor Shares
- Vanguard LifeStrategy Conservative Growth Fund
- Vanguard LifeStrategy Growth Fund
- Vanguard LifeStrategy Income Fund
- Vanguard LifeStrategy Moderate Growth Fund
- Vanguard Short-Term Investment-Grade Fund Investor Shares
- Vanguard Treasury Money Market Fund
6
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
- Vanguard U.S. Growth Fund Investor Shares
- Vanguard Wellington Fund Investor Shares
- Vanguard Windsor Fund Investor Shares
Effective July 2004, the Vanguard Short-Term Corporate Fund was renamed the
Vanguard Short-Term Investment-Grade Fund Investor Shares, and the Vanguard
Intermediate-Term Corporate Fund was renamed the Vanguard Intermediate-Term
Investment-Grade Fund Investor Shares.
Participants may also direct their contribution to the:
- Schering-Plough Stock Fund - This fund is comprised of Schering-Plough
common stock and a small percentage of cash as required for liquidity
purposes. Participants may contribute up to a maximum investment election
of 50% of their salary deferral contribution into this fund or allocate no
more than 50% of the value of his or her accounts at the time of
reallocation to this fund.
- Loan Fund - Participants may borrow from their fund accounts up to the
lesser of one-half of their account or $50,000 (reduced by certain amounts
attributable to outstanding loans). Loan transactions are treated as a
transfer between the investment funds and the loan fund. These loans,
which reduce a participant's account balance in the event of default, bear
a fixed rate of interest as determined to be reasonable by the
Schering-Plough Employee Benefits Committee, and are repayable over
periods not exceeding five years, except loans relating to a principal
residence, which are repayable over a period not to exceed 20 years.
PAYMENT OF BENEFITS - On termination of service or attainment of age 65, a
participant (or his beneficiary in the event of death) may elect to receive
either a cash lump sum amount, fixed or variable installments not to exceed the
life expectancy of the participant and the participant's beneficiary, shares of
Company stock (with respect to amounts invested in the Schering-Plough Stock
Fund), or certain combinations of the foregoing. Notwithstanding the foregoing,
if a participant's account equals $5,000 or less as of the date of distribution,
his account will be paid in a lump sum. Alternatively, participants whose
account balances exceed $5,000 can elect to defer receipt of their account up to
age 70 -1/2. Distribution of all or a portion of a participant's account, prior
to termination of employment, may be granted by the sponsor in the case of
financial hardship and participants may be able to take in-service distributions
from accounts transferred to the Plan from the Profit Sharing Plan. Active
participants may elect to withdraw all or a portion of their accounts at any
time after age 70.
CHANGES TO PLAN ON JANUARY 1, 2004 - Effective January 1, 2004, the Plan Sponsor
amended the Plan to incorporate a nonelective Company contribution and a
matching contribution. All employees eligible to participate in the Plan receive
a Company contribution of 3% of eligible earnings, whether they elect to make
contributions to the Plan or not. For employees who elect to make contributions
to the Plan, the Company will make a matching contribution (dollar for dollar)
up to 2% of compensation. The Company matching contribution, and any earnings
7
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
(losses) accrued thereon, are fully and immediately vested. In addition, highly
compensated employees can contribute up to 50% of compensation.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF ACCOUNTING AND PRESENTATION - The financial statements of the Plan have
been prepared on an accrual basis in accordance with accounting principles
generally accepted in the United States of America and are presented in
accordance with the financial reporting requirements of the Employee Retirement
Income Security Act of 1974 ("ERISA") as permitted by the Securities and
Exchange Commission.
INVESTMENT VALUATION AND INCOME RECOGNITION - The Plan's investments are stated
at fair value. Shares of registered investment companies are valued at quoted
market prices, which represent the net asset value of shares held by the Plan at
year-end.
The Schering-Plough Stock Fund is valued using the unit accounting method
whereby a participant's account value is expressed in units of participation
rather than number of shares of Schering-Plough common stock.
The closing stock prices of Schering-Plough Corporation common stock at December
31, 2004 and 2003 were $20.88 and $17.39, respectively.
Purchases and sales of securities are recorded on a trade-date basis. Interest
income is recorded on the accrual basis. Dividend income is recorded on the
ex-dividend date. Dividends recorded in the Schering-Plough Stock Fund are
reinvested in Schering-Plough common stock units.
Participant loans are valued at cost which approximates fair value.
WITHDRAWALS AND BENEFIT PAYMENTS - Withdrawals and benefit payments are recorded
when paid.
USE OF ESTIMATES - The preparation of financial statements in conformity with
generally accepted accounting principles requires Plan management to make
estimates and use assumptions that affect the reported amounts of assets and
liabilities and changes therein, and disclosure of contingent assets and
liabilities. Actual results could differ from those estimates.
RISKS AND UNCERTAINTIES - The Plan provides for various investment options.
Investment securities, in general, are exposed to various risks, such as
interest rate, credit and overall market volatility. Due to the level of risk
associated with certain investment securities, it is reasonably possible that
changes in the value of investment securities will occur in the near term and
that such changes could materially affect participants' account balances and the
amounts reported in the financial statements.
ADMINISTRATIVE EXPENSES - Administrative expenses of the Plan are paid by the
Plan Sponsor as provided in the Plan Document.
8
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
3. PLAN TERMINATION
Although it has not expressed any intent to do so, the sponsor has the right
under the Plan to terminate the Plan subject to provisions of ERISA.
4. FEDERAL INCOME TAX STATUS
The Plan received a favorable determination letter dated May 30, 2003 issued by
the Internal Revenue Service indicating that the Plan meets the requirements of
Section 401(a) of the Internal Revenue Code of 1986, as amended ("IRC"), and
that the trust of the Plan is exempt from taxation under Section 501(a) of the
IRC. Therefore, no provision for income taxes has been included in the Plan's
financial statements.
The Plan's tax counsel believes that the Plan continues to be designed in
material compliance with the applicable requirements of the IRC, and the Plan
Administrator believes that the Plan is currently being operated in material
compliance with the applicable requirements of the IRC.
5. EXEMPT PARTY-IN-INTEREST TRANSACTIONS
Contributions are held and managed by The Vanguard Group, Inc. (the "Trustee"),
which invests cash received, interest and dividend income and makes
distributions to the participants. The Trustee also administers the
participant's payment of interest and principal on participant loans. These
transactions qualify as permitted party-in-interest transactions.
Certain Plan investments are shares of mutual funds managed by the Vanguard
Fiduciary Trust Company, a wholly-owned subsidiary of The Vanguard Group, Inc.
The Vanguard Group, Inc. is the trustee as defined by the Plan. These
transactions qualify as permitted party-in-interest transactions. As of December
31, 2004 and 2003, the total market value of investments in the mutual funds
managed by Vanguard Fiduciary Trust was $1,273,275,000 and $379,973,000,
respectively.
Certain Plan investments are shares of the Company's stock. These transactions
qualify as permitted party-in-interest transactions. As of December 31, 2004 and
2003, the total market value of investments in the Schering-Plough Stock Fund
was $342,976,000 and $80,604,000, respectively. As of December 31, 2004 and
2003, the Plan held 912,219 and 257,240 units, respectively of common stock of
Schering-Plough. During the years ended December 31, 2004 and 2003, the Plan
recorded dividend income of $1,692,000 and $2,515,000, respectively.
On September 10, 2004, the Profit Sharing Plan was merged into the Plan. This
transaction qualifies as a permitted party-in-interest transaction. The total
fair market value of the transfer of assets into the Plan was $1,014,051,000.
Certain administrative functions are performed by officers or employees of the
Company or its subsidiaries who may also be participants in the Plan. These
actions qualify as permitted party-in-interest activities. No such officer or
employee receives compensation from the Plan.
All plan administration expenses are paid by the Company.
9
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
6. NET APPRECIATION (DEPRECIATION) IN FAIR VALUE OF INVESTMENTS
During 2004 and 2003, investments (including gains and losses on investments
bought and sold, as well as held during the year) appreciated (depreciated) in
value as follows:
2004 2003
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($ in 000s)
*Schering-Plough Stock Fund $ 36,461 $ (20,698)
*Vanguard Windsor Fund Investor Shares 30,385 26,421
*Vanguard Explorer Fund Investor Shares 18,453 13,531
*Vanguard 500 Index Fund Investor Shares 15,397 14,248
*Vanguard International Growth Fund Investor Shares 7,066 3,396
*Vanguard Wellington Fund Investor Shares 4,628 6,173
*Vanguard LifeStrategy Growth Fund 2,080 1,036
*Vanguard U.S. Growth Fund Investor Shares 1,861 1,441
*Vanguard LifeStrategy Moderate Growth Fund 1,284 612
*Vanguard LifeStrategy Conservative Growth Fund 560 223
*Vanguard LifeStrategy Income Fund 184 156
*Vanguard Intermediate-Term Investment-Grade Fund Investor Shares (115) 15
*Vanguard Short-Term Investment-Grade Fund Investor Shares (297) 7
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Net Appreciation in Fair Value of Investments $ 117,947 $ 46,561
========= ==========
* Permitted party-in-interest to the Plan.
Effective July 2004, the Vanguard Short-Term Corporate Fund was renamed the
Vanguard Short-Term Investment-Grade Fund Investor Shares, and the Vanguard
Intermediate-Term Corporate Fund was renamed the Vanguard Intermediate-Term
Investment-Grade Fund Investor Shares.
10
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
7. INVESTMENTS
The following investments represented 5% or more of the Plan's net assets
available for benefits at:
December 31
2004 2003
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($ in 000s)
*Schering-Plough Stock Fund, 912,219 and 257,240 units,
respectively $ 342,976 $ 80,604
*Vanguard Windsor Fund Investor Shares, 18,358,923 and
6,331,184 shares, respectively 331,746 102,945
*Vanguard 500 Index Fund Investor Shares, 1,925,887 and
698,884 shares, respectively 215,006 71,754
*Vanguard Treasury Money Market Fund, 183,693,467 and
56,648,190 shares, respectively 183,693 56,648
*Vanguard Wellington Fund Investor Shares, 5,485,800 and
1,490,581 shares, respectively 165,616 42,944
*Vanguard Explorer Fund Investor Shares, 1,918,219 and
702,727 shares, respectively 143,042 46,113
* Permitted party-in-interest to the Plan.
Effective July 2004, the Vanguard Short-Term Corporate Fund was renamed the
Vanguard Short-Term Investment-Grade Fund Investor Shares, and the Vanguard
Intermediate-Term Corporate Fund was renamed the Vanguard Intermediate-Term
Investment-Grade Fund Investor Shares.
11
SCHERING-PLOUGH EMPLOYEES' SAVINGS PLAN
FORM 5500, SCHEDULE H, PART IV, LINE 4 I - SCHEDULE OF ASSETS
(HELD AT END OF YEAR)
AS OF DECEMBER 31, 2004
($ in 000s)
Identity of Issuer,
Borrower, Lessor Description of investment including maturity date,
or Similar Party rate of interest, collateral, par or maturity value Current Value
------------------- ------------------------------------------------------- -------------
* Vanguard Windsor Fund Investor Shares $ 331,746
* Vanguard 500 Index Fund Investor Shares 215,006
* Vanguard Treasury Money Market Fund 183,693
* Vanguard Wellington Fund Investor Shares 165,616
* Vanguard Explorer Fund Investor Shares 143,042
* Vanguard International Growth Fund Investor Shares 58,198
* Vanguard Short-Term Investment-Grade Fund Investor Shares 41,145
* Vanguard Intermediate-Term Investment-Grade Fund Investor Shares 33,390
* Vanguard LifeStrategy Growth Fund 26,712
* Vanguard U.S. Growth Fund Investor Shares 24,790
* Vanguard LifeStrategy Moderate Growth Fund 22,509
* Vanguard LifeStrategy Conservative Growth Fund 15,405
* Vanguard LifeStrategy Income Fund 12,023
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Total Vanguard Registered Investment Company Funds 1,273,275
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* Schering-Plough Schering-Plough Stock Fund 342,976
Corporation
* Various Outstanding Loan Balance (interest rates ranging
participants from 5.00% to 11.50%, maturing from 1 to 20 years) 25,806
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Total Assets Held at End of Year $ 1,642,057
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* Permitted party-in-interest to the Plan.
Effective July 2004, the Vanguard Short-Term Corporate Fund was renamed the
Vanguard Short-Term Investment-Grade Fund Investor Shares, and the Vanguard
Intermediate-Term Corporate Fund was renamed the Vanguard Intermediate-Term
Investment-Grade Fund Investor Shares.
Cost information is not required for participant-directed investments and
therefore is not included.
12
SIGNATURE(S)
Pursuant to the requirements of the Securities Exchange Act of 1934, the
trustees (or other persons who administer the Plan) have duly caused this Annual
Report to be signed on its behalf by the undersigned hereunto duly authorized.
Schering-Plough Employees' Savings Plan
Date: June 28, 2005 By: /s/ Vincent Sweeney
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Name: Vincent Sweeney
Title: Plan Administrator
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