SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------------------
Form 11-K
-----------------------------------
[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
-----------------------------------
THE SCHERING-PLOUGH PUERTO RICO EMPLOYEES' RETIREMENT SAVINGS PLAN
(Full Title of Plan)
Schering-Plough Corporation
2000 Galloping Hill Road
Kenilworth, NJ 07033
(Name of Issuer of Securities Held Pursuant to the Plan and
Address of Principal Executive Offices)
THE SCHERING-PLOUGH PUERTO RICO
EMPLOYEES' RETIREMENT SAVINGS PLAN
TABLE OF CONTENTS
Page
----
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.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Participants of
The Schering-Plough Puerto Rico Employees' Retirement Savings Plan
We have audited the accompanying statements of net assets available for benefits
of The Schering-Plough Puerto Rico Employees' Retirement 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
THE SCHERING-PLOUGH PUERTO RICO
EMPLOYEES' RETIREMENT SAVINGS PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
AS OF DECEMBER 31, 2004 AND 2003
2004 2003
ASSETS ----------- -----------
PARTICIPANT-DIRECTED INVESTMENTS:
Vanguard Funds $22,892,875 $20,279,825
Schering-Plough Stock Fund 4,320,846 2,913,363
Loan Fund 1,632,277 1,826,086
----------- -----------
Total Investments 28,845,998 25,019,274
----------- -----------
RECEIVABLES:
Employer contributions 97,574 -
Participant contributions 103,959 185,594
----------- -----------
Total Contributions Receivables 201,533 185,594
----------- -----------
Net Assets Available For Benefits $29,047,531 $25,204,868
=========== ===========
The accompanying notes are an integral part of these Financial Statements
4
THE SCHERING-PLOUGH PUERTO RICO
EMPLOYEES' RETIREMENT SAVINGS PLAN
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
2004 2003
----------- -----------
ADDITIONS
Investment income:
Dividend income, registered investment companies $ 435,351 $ 303,944
Dividend income, Schering-Plough Stock Fund 40,509 88,947
Interest income, participant loans 80,597 105,825
Net appreciation in fair value of investments 2,223,705 2,645,291
----------- -----------
Net investment income 2,780,162 3,144,007
----------- -----------
Contributions:
Employer contributions 2,153,062 -
Participant contributions 3,065,212 3,058,446
----------- -----------
Total contributions 5,218,274 3,058,446
----------- -----------
Total additions 7,998,436 6,202,453
----------- -----------
DEDUCTIONS
Benefits paid to participants 4,155,773 1,626,576
----------- -----------
Increase in net assets 3,842,663 4,575,877
----------- -----------
Net assets available for benefits:
Beginning of year 25,204,868 20,628,991
----------- -----------
End of year $29,047,531 $25,204,868
=========== ===========
The accompanying notes are an integral part of these Financial Statements
5
THE SCHERING-PLOUGH PUERTO RICO
EMPLOYEES' RETIREMENT SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
1. DESCRIPTION OF PLAN
The Schering-Plough Puerto Rico Employees' Retirement Savings Plan (the
"Plan") is a defined contribution plan established effective April 1,
1990. The Plan is intended to encourage retirement savings by eligible
employees of Schering-Plough Products LLC (the "Sponsor" or the "Company")
and any of its affiliated companies that adopt the Plan. Vanguard
Fiduciary Trust Company ("Vanguard"), the recordkeeper, is a trust company
incorporated under Chapter 10 of the Pennsylvania Banking Code, and a
wholly-owned subsidiary of The Vanguard Group, Inc. Banco Santander serves
as the Plan's trustee.
Generally, all Puerto Rico employees of Schering-Plough Products LLC and
Schering-Plough del Caribe, Inc. are eligible to participate in the Plan
on the date of employment. The participants may elect to have their salary
deferral contributions allocated to any of the investment funds available
under this Plan.
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.
SALARY DEFERRAL CONTRIBUTIONS - The Plan is designed to permit eligible
employees to elect to have a portion of their salary contributed to the
Plan on their behalf ("Salary Deferral Contributions"). Under the
provisions of the Plan, Salary Deferral Contributions can range from 1% to
10% of the employee's earnings, in increments of 1%, subject to certain
regulated limits. Salary Deferral Contributions and any earnings accrued
thereon are fully and immediately vested to the participant.
PARTICIPANT ACCOUNTS AND VESTING - Each participant's account is credited
with the participant's contribution and allocations of Plan earnings
(losses). Allocations are based on participant earnings or account
balances, as defined. 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 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
- Vanguard U.S. Growth Fund Investor Shares
- Vanguard Wellington Fund Investor Shares
- Vanguard Windsor Fund Investor Shares
6
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
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 contributions 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 any
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
Puerto Rico Employees' Retirement Savings Plan 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 due to death, disability
or retirement, 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. For termination of
service due to other reasons, a participant may receive the value of the
account as a lump sum distribution. Alternatively, all participants whose
account balances exceeds $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. Active participants may
elect to withdraw all or a portion of their accounts at any time after age
59-1/2.
CHANGES TO PLAN ON JANUARY 1, 2004 - Effective January 1, 2004, the Plan
Sponsor amended the Plan to incorporate a matching contribution. For
employees who elect to make contributions to the Plan, the Company will
make a matching contribution (dollar for dollar) up to 5% of compensation.
The Company matching contribution, and any earnings accrued thereon, are
fully and immediately vested.
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.
7
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
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 received 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 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.
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 was amended and restated effective January 1, 1995. The plan
received a favorable determination letter dated February 18, 1997 issued
by the Puerto Rico Department of the Treasury stating that the Plan meets
the requirements of Section 1165(a) of the Puerto Rico Internal Revenue
Code of 1995, as amended (the "PR Code"). The Plan was also amended
effective January 1, 1996 and October 1, 1996 pursuant to Amendment No. 2.
The Puerto Rico Department of the Treasury issued a favorable
determination letter dated April 14, 1997 in connection with the
qualification of Amendment No. 2.
The trust of the Plan is intended to be exempt from taxation under Section
1165(a) of the PR Code, and pursuant to Section 1022(i)(1) of ERISA under
Section 501(a) of the United States Internal Revenue Code of 1986, as
amended. Therefore, no provision for income taxes has been included in the
Plan's financial statements.
8
NOTES TO FINANCIAL STATEMENTS -- continued
As long as the Plan is qualified under the PR Code and related
regulations, participants will generally not be taxed on salary-deferred
contributions until the year received. In addition, the earnings
attributable to such contributions held by the trustee are also generally
exempt from taxation until the taxable year in which they are withdrawn by
or distributed to the participant.
The Plan's tax counsel believes that the Plan is designed in compliance
with the applicable requirements of the PR Code, and the Plan
Administrator believes that the Plan is currently being operated in
material compliance with the applicable requirements of the PR Code.
5. EXEMPT PARTY-IN-INTEREST TRANSACTIONS
Contributions are transmitted from the trustee, Banco Santander, to the
recordkeeper, Vanguard, which invests cash received, interest and dividend
income and makes distributions to the participants. The recordkeeper also
administers the collection of interest and principal on the participant
loans. These transactions qualify as permitted party-in-interest
transactions.
Certain Plan investments are shares of mutual funds managed by the
recordkeeper. 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 the recordkeeper was
$22,892,875 and $20,279,825, 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 $4,320,846 and $2,913,363, respectively. As
of December 31, 2004 and 2003, the Plan held 11,492 and 9,298 units,
respectively of common stock of Schering-Plough. During the years ended
December 31, 2004 and 2003, the Plan recorded dividend income of $40,509
and $88,947, respectively.
Certain administrative functions are performed by officers or employees of
the Sponsor who also may 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 Sponsor.
9
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
6. NET APPRECIATION (DEPRECIATION) IN FAIR VALUE OF INVESTMENTS
During 2004 and 2003, the Plan's 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
----------- -----------
*Vanguard 500 Index Fund Investor Shares $ 720,705 $ 1,680,484
*Schering-Plough Stock Fund 700,662 (680,005)
*Vanguard Windsor Fund Investor Shares 384,360 906,573
*Vanguard Explorer Fund Investor Shares 242,413 439,707
*Vanguard International Growth Fund Investor Shares 85,230 102,017
*Vanguard Wellington Fund Investor Shares 46,714 107,590
*Vanguard LifeStrategy Growth Fund 21,740 21,987
*Vanguard LifeStrategy Moderate Growth Fund 18,177 24,923
*Vanguard U.S. Growth Fund Investor Shares 12,606 26,158
*Vanguard LifeStrategy Conservative Growth Fund 6,061 8,331
*Vanguard LifeStrategy Income Fund 3,621 6,404
*Vanguard Intermediate-Term Investment-Grade Fund Investor Shares (5,062) (600)
*Vanguard Short-Term Investment-Grade Fund Investor Shares (13,522) 1,722
----------- -----------
Net Appreciation in Fair Value of Investments $ 2,223,705 $ 2,645,291
=========== ===========
* 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
---------- ----------
*Vanguard 500 Index Fund Investor Shares, 80,061 and 79,171 shares, respectively $8,937,998 $8,128,468
*Schering-Plough Stock Fund, 11,492 and 9,298 units, respectively 4,320,846 2,913,363
*Vanguard Windsor Fund Investor Shares, 216,376 and 216,722 shares, respectively 3,909,921 3,523,905
*Vanguard Treasury Money Market Fund, 3,202,520 and 2,945,416 shares, respectively 3,202,520 2,945,416
*Vanguard Explorer Fund Investor Shares, 27,633 and 27,438 shares, respectively 2,060,616 1,800,510
*Loan Fund 1,632,277 1,826,086
* 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
THE SCHERING-PLOUGH PUERTO RICO
EMPLOYEES' RETIREMENT SAVINGS PLAN
FORM 5500, SCHEDULE H, PART IV, LINE 4i
SCHEDULE OF ASSETS (HELD AT END OF YEAR)
AS OF DECEMBER 31, 2004
Identity of Issuer,
Borrower, Lessor or Description of investment including maturity date, rate
Similar Party of interest, collateral, par or maturity value Current Value
------------------- ---------------------------------------------------------- -------------
* Vanguard 500 Index Fund Investor Shares $ 8,937,998
* Vanguard Windsor Fund Investor Shares 3,909,921
* Vanguard Treasury Money Market Fund 3,202,520
* Vanguard Explorer Fund Investor Shares 2,060,616
* Vanguard Wellington Fund Investor Shares 1,128,158
* Vanguard Short-Term Investment-Grade Fund Investor Shares 1,088,537
* Vanguard Intermediate -Term Investment-Grade Fund Investor Shares 898,499
* Vanguard International Growth Fund Investor Shares 620,321
* Vanguard LifeStrategy Growth Fund 261,116
* Vanguard LifeStrategy Moderate Growth Fund 247,786
* Vanguard U.S. Growth Fund Investor Shares 208,189
* Vanguard LifeStrategy Income Fund 181,006
* Vanguard LifeStrategy Conservative Growth Fund 148,208
-------------
Total Vanguard Registered Investment Company Fund 22,892,875
-------------
* Schering - Schering-Plough Stock Fund 4,320,846
Plough Corporation
* Various participants Outstanding loan balance (interest rates
ranging from 5.00% to 10.50%, maturing from 1 to 20 years) 1,632,277
-------------
Total Assets Held at End of Year $ 28,845,998
=============
* 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.
The Schering-Plough Puerto Rico Employees'
Retirement Savings Plan
Date: June 28, 2005 By: /s/ Vincent Sweeney
-------------------------------------
Name: Vincent Sweeney
Title: Plan Administrator
13