said late Thursday that it would cut its quarterly dividend to 5.5 cents from 17 cents, reflecting the company's financial woes and the need to rebuild its economic foundation.
The dividend cut, the first by a major U.S. pharmaceutical company in at least 20 years, is only part of the efforts by Fred Hassan, the company's chairman and CEO, to repair the Kenilworth, N.J.-based company. The company announced other big cutbacks as well.
"The previous dividend level is not realistic given the company's reduced revenues, the need to conserve cash and the inherited regulatory and legal issues and the need to invest for future growth," said Hassan, in his most stinging comments about the stewardship of his predecessor Richard Jay Kogan. Hassan joined the company in mid-April.
"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," Hassan said.
The dividend-cut news was not unexpected. Many analysts had predicted or promoted a dividend cut for the past several months. The CEO did not identify how much he wanted to save by the dividend cut and other moves. Hassan said:
The company must accelerate and intensify cost-cutting beyond the $200 million in savings originally announced as a target for 2003.
The company will eliminate bonuses for this year under its standard bonus plans. That means Hassan will forego up to $2 million in potential bonuses.
Employees won't get any profit-sharing payments for the first time in 47 years. And all routine employee merit raises will be frozen through 2004, except in rare circumstances.
Employees will be encouraged to retire early based on certain criteria. Hassan is seeking the departure of at least 1,000 people out of an eligible group of 2,900 people in the U.S. "This is the first phase of a global workforce reduction in all areas of the company," Hassan said.
The company will institute "tight controls" on hiring and "major cutbacks" in travel and meeting costs, and general expenses. Schering-Plough will sell its corporate jet, close its executive lunch room and eliminate nonstandard executive health plans.
Since he joined the company, Hassan had been articulating his concerns about costs in talks with analysts and in documents filed with the
Securities and Exchange Commission
. It was clear to Wall Street that Hassan had long graduated from the "if" stage of planning a financial makeover to the "when" and "what" stages.
Last month, Standard & Poor's lowered its corporate rating on Schering-Plough to A-plus from AA-minus, reducing its short-term corporate credit and commercial paper ratings to A-1 from A-1-plus.
Schering-Plough's stock closed Thursday at $16.48, up 1.5%, or 24 cents.