Following a 100-day, "360-degree" review of the inherited company situation requested by the board of directors, Schering-Plough's new Chairman and CEO Fred Hassan announced key actions to stabilize and repair Schering-Plough and set a solid foundation for a turnaround.
"My review of the situation we inherited confirmed the need for aggressive measures, including aggressive cost containment and cost cutting in order to stabilize the company and to create a realistic base on which to build a turnaround," said Hassan. "My review also confirmed that we have a commitment to make significant strategic investments in Zetia and the Zetia/simvastatin combination product in order to achieve their market potential.
"My review additionally concluded that we must make major investments to build value in some exciting research projects," added Hassan. "We will be featuring these projects at our previously announced analyst meeting scheduled for November."
Hassan also noted that, due to the downward slopes in sales and market share of key profit-generating products that his new management team is addressing, earnings per share (EPS) in the second half of 2003 are likely to be lower than the level registered in the first half and, also, EPS in 2004 are likely to be lower than the EPS level for 2003. (All comparisons exclude any possible charges for unusual items.)
In line with this review, Hassan announced the following actions:
--A reduction in the quarterly dividend from 17 cents to 5.5 cents per common share.
"The previous dividend level is not realistic given the company's reduced revenues, the need to conserve cash for inherited regulatory and legal issues, and the need to invest for future growth," said Hassan.
--Accelerated and intensified cost-cutting actions within the company that are expected to deliver in excess of the $200 million in annual savings previously announced as a cost-savings target in the 2003 second quarter earnings press release.
The key cost-cutting actions that are being implemented immediately include:
--Elimination of bonuses for 2003 under the company's standard plans. Although Hassan could have earned an incentive as high as $2 million for achieving his personal objectives to implement the company's Action Agenda, he voluntarily gave up this opportunity.
--Zero payout of the targeted 15 per cent profit sharing for all employees. This marks the first time in 47 years that profit sharing has not been paid by the company.
--All routine employee merit increases are frozen through 2004, with exceptions only where local contracts or practices prevent this action, for customer-contact employees, for employees dedicated to fulfillment of the company's Consent Decree obligations and other business-critical employees.
--Launch of a Voluntary Early Retirement Program in the United States. Based on an eligible population of 2,900 U.S.-based employees, the company anticipates a headcount reduction of 1,000 or more. The company anticipates a pre-tax charge of approximately $150 million in the 2003 fourth quarter related to this program. This is the first phase of a global workforce reduction in all areas of the company, excluding customer-contact employees, employees dedicated to the fulfillment of the company's Consent Decree obligations and other business-critical employees. Other phases will follow on a global basis.
--Global procurement programs to replace fragmented site- and business unit-based purchasing.
--Tight controls globally on new hires and major cutbacks in travel costs, meeting costs and general expenses. Among these actions will be the sale of the company's Gulfstream G-IV airplane. To set the right tone at the top, there will also be an elimination of executive privileges, including the closing of executive dining rooms, cutbacks in executive travel options and elimination of non-standard executive health plans.
Said Hassan, "We will all be making sacrifices as a result of these actions. We remain confident that, by taking these actions, we will set a strong foundation for long-term growth."