<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
--- SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
--- EXCHANGE ACT OF 1934
For the transition period from____________to__________
Commission file number 1-11557
PHARMACIA & UPJOHN, INC.
(Exact name of Registrant as specified in its charter)
Delaware 98-0155411
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Knyvett House, The Causeway, Staines, Middlesex TW18 3BA England
(Address of principal executive offices) (Zip Code)
Registrant's telephone number,
including area code 44 181 956 0043
Securities registered pursuant to Section 12(b) of the Act:
Common Stock (par value $.01) New York Stock Exchange
(Title of class) (Name of each exchange on which registered)
Securities registered pursuant to Section 12(g) of the Act:
None.
Indicate by check mark whether the Registrant (1) 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 (or for such shorter period that the
Registrant was required to file such reports), and (2) 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. [X]
The registrant estimates the aggregate market value of the voting stock held by
non-affiliates of the registrant (based upon the NYSE--Composite Transactions
closing price on January 31, 1996 as reported in The Wall Street Journal and
treating all executive officers and directors of the Company and all beneficial
owners of 5% or more of the Registrant's voting stock as affiliates) was
approximately $21,051,180,622.
The number of shares of Common Stock, $.01 par value, outstanding as of January
31, 1996 is 507,256,263 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the 1996 Proxy Statement are incorporated into Parts III and IV of
this report.
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PART I
ITEM 1. BUSINESS
Pharmacia & Upjohn, Inc., ("P&U") was incorporated under the laws of
the State of Delaware in 1995 for the purpose of facilitating the combination
(the "Combination") of The Upjohn Company ("Upjohn") and Pharmacia Aktiebolag
("Pharmacia"). Upjohn is a wholly owned subsidiary of P&U, and P&U owns
approximately 99% of Pharmacia. P&U conducts global corporate management
operations through a subsidiary in Staines, Middlesex, England, and has regional
headquarters in Stockholm, Sweden, Milan, Italy and Kalamazoo, Michigan. As a
result of the Combination, P&U is among the largest pharmaceutical companies in
the world.
The Combination occurred pursuant to the Combination Agreement
(the "Combination Agreement"), dated as of August 20, 1995, among Pharmacia,
Upjohn, P&U and Pharmacia & Upjohn Subsidiary, Inc., a Delaware corporation
wholly owned by P&U into which Upjohn merged. Outstanding Pharmacia shares
were exchanged for shares of P&U pursuant to an Exchange Offer whereby
Pharmacia became a direct subsidiary of P&U. The remaining Pharmacia shares
will be acquired by P&U later this year pursuant to a compulsory acquisition
process under Swedish law.
The Combination has been accounted for as a pooling of interests.
Accordingly, all prior-year data have been combined as if the companies had been
merged during all periods reported. P&U reports its operations as a single
industry segment - pharmaceutical products. In addition to prescription
pharmaceutical products, P&U's businesses include consumer and animal health
pharmaceuticals, diagnostic systems, biotechnological products and
pharmaceutical chemical and contract manufacturing.
Capitalized terms marked by an asterisk are trademarks of P&U or its
subsidiaries. DOXIDAN and SURFAK, trademarks of Hoechst-Roussel
Pharmaceuticals Inc., are included in this report. HEMOPURE, a trademark of
Biopure Corporation, is inlcuded in this report. LUVOX, a trademark of Solvay
Duphar B.V. is included in this report. OGEN, a trademark of Abbott
Laboratories is included in this report.
BUSINESS
GENERAL
P&U directly or through its subsidiaries (the "Company") manufactures
and sells its prescription pharmaceuticals in many countries worldwide. The
Company's principal markets are the United States, Western Europe, Japan, the
Pacific Region, Latin America, the Middle East and Canada. Smaller markets are
in Eastern Europe, Russia, India, China and South America.
The Company manufactures and markets a broad line of prescription
drugs, primarily central nervous system agents, growth hormones, nonsteroidal
anti-inflammatory and analgesic agents, anticarcinogen agents, antibiotics,
steroids, contraceptives, oral antidiabetes agents, female and reproductive
health products, products to aid smoking cessation and a hair growth product.
Many of these products are concentrated in medical areas with clearly defined
patient groups, in which purchasing decisions are made by a relatively limited
number of specialist doctors and hospital purchasing groups to whom the Company
markets with focused sales teams. These are principally products which were
developed or invented in its laboratories or for which licenses to make, use and
sell such products have been obtained from others.
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The Company also manufactures for distribution to the general public
certain nonprescription drugs and manufactures pharmaceutical chemicals and
intermediates for use in its own products and for sales to specialist doctors,
hospital purchasing groups, general practitioners, industry and academia. In
addition, the Company researches, develops, manufactures and markets
pharmaceutical and vaccine products for both food and companion animals for sale
to veterinarians, feed manufacturers and livestock producers. Further, the
Company markets specialty products in hospital care, diagnostics and
biotechnology equipment and other products.
PRESCRIPTION PHARMACEUTICALS
The Company researches, develops, manufactures and markets high-value
human pharmaceutical products to health care providers worldwide.
Principal Products
Central Nervous System Disorder Products. The Company
produces three major drugs for Central Nervous System ("CNS") disorders,
XANAX*, HALCION* and SERMION*. XANAX Tablets, containing alprazolam, are used
for symptomatic relief of anxiety with and without depressive symptoms and for
the treatment of panic disorder. The U.S. compound patent for XANAX expired in
late 1993, resulting in intense generic competition that caused a significant
decline in sales of XANAX, which was partially offset by the Company's sales of
generic alprazolam. The use patent for the panic disorder indication for XANAX
expires in 2002. HALCION Tablets, containing triazolam, are a hypnotic agent
for the treatment of insomnia. The U.S. compound patent on HALCION also
expired in late 1993, resulting in generic competition that reduced sales of
the product. SERMION, launched in the 1960s, is used primarily to treat
cognitive and behavioral disorders related to senile dementia. SERMION has no
patent protection and competes with peripheral vasodilators and nootropics.
The Company launched DOSTINEX* (cabergoline) in Europe and
Australia in 1995 as a lactation inhibitor (to stop the secretion of breast
milk).
Oral Antidiabetes Agents. The Company's major oral
antidiabetes agents are MICRONASE* Tablets, containing glyburide, and GLYNASE*
PresTab Tablets, also containing glyburide, for the treatment of
non-insulin-dependent diabetes.
Anti-Inflammatory Agents. The Company markets ANSAID*
Tablets, a nonsteroidal anti-inflammatory product containing flurbiprofen, for
treatment of osteoarthritis and rheumatoid arthritis, and MOTRIN* Tablets, a
nonsteroidal anti-inflammatory product containing ibuprofen, used in the
treatment of rheumatoid arthritis and osteoarthritis and as a general analgesic
for mild to moderate pain, including dysmenorrhea. Neither product is subject
to significant patent protection.
Antibiotic Products. The Company and its subsidiaries provide
a broad line of antibiotic products including CLEOCIN* and LINCOCIN* products.
CLEOCIN PHOSPHATE* is an injectable form of clindamycin that is used in the
treatment of certain life-threatening anaerobic infections. CLEOCIN T* is a
topical formulation for treatment of acne. CLEOCIN VAGINAL CREAM* is used to
treat bacterial vaginosis. LINCOCIN is used in the treatment of serious
infections caused by many strains of gram-positive bacteria. The Company has
exclusive U.S. marketing rights to VANTIN* Tablets and Oral Suspension, an
advanced cephalosporin antibiotic, under patents licensed from Sankyo Company,
Ltd., which rights will become semi-exclusive in 1997. The Company also
markets ZEFAZONE* Sterile Powder, another cephalosporin antibiotic, under
license from Sankyo.
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Steroid Hormone Products. The Company markets several steroid
hormones having a variety of uses, including the treatment of allergic
reactions, inflammation, asthma and certain hormone deficiencies. The most
important synthetic hormone is PROVERA* Tablets, which is a female sex hormone
replacement agent. The Company produces various forms of chemical
modifications of hormones, under the trademark MEDROL*, which is used to treat
a number of inflammatory and allergic conditions. SOLU-CORTEF* Sterile Powder
and SOLU-MEDROL* Sterile Powder are injectable corticosteroid products. The
Company also markets DEPO-PROVERA* Contraceptive Injection, which lost
marketing exclusivity in the U.S. in late 1995, and OGEN Tablets and Vaginal
Cream, an estrogen replacement product, licensed from Abbott Laboratories.
Prostaglandin Products. The Company also markets certain
prostaglandin products, including PROSTIN E2* Vaginal Suppository, which is
generally used for pregnancy disorders, and PROSTIN VR PEDIATRIC* Sterile
Solution, for cardiovascular use. PREPIDIL* Gel, used for cervical ripening,
is protected by U.S. patents until 2003.
Peptide Hormones. The Company's primary product in the area
of growth hormones and growth factors is GENOTROPIN*, a recombinant human
growth hormone identical to the body's own hormone, which was recently launched
in the U.S. GENOTROPIN was developed by Pharmacia after initial molecular
biological development by Genentech, Inc. ("Genentech"). GENOTROPIN, which
promotes longitudinal bone growth, is used for the treatment of children of
short stature whose condition is due to insufficient growth hormone secretion
or to Turner's syndrome, an inherited chromosomal defect in girls. GENOTROPIN
has also been approved to treat adults who have growth hormone deficiency.
Lawsuits have been filed against the Company in the United
States, Japan and Sweden alleging that the manufacturing of GENOTROPIN infringes
third party patent rights. At this preliminary stage of the proceedings, the
outcome of the actions cannot be determined.
Pursuant to an agreement, entered into prior to the
Combination, between Pharmacia and Genentech, Genentech had exclusive marketing
rights for its comparable growth hormone product in the United States and
Canada, while Pharmacia had exclusive marketing rights for GENEOTROPIN in the
rest of the world. In November 1995, the mutually exclusive marketing periods
ended, however, to date, this has not caused a material negative impact on the
Company's sales of GENOTROPIN.
Plasma Products. The Company manufactures pharmaceuticals
from blood plasma for use in three main areas: the treatment of hemophilia,
immunology (primarily as protection against infection) and intensive care. The
Company's largest selling plasma product is A TENATIV*, which is used for
preventing blood clots and treating coagulation disturbances. Other plasma
products include OCTONATIV-M, a coagulation factor VIII product used for
treating hemophilia A, and ALBUMIN, which is used as a plasma expander in
intensive care. The Company has announced its intention to sell this business.
Antithrombosis. In the antithrombosis area, the Company
focuses on products for the prevention and treatment of thrombosis (blood
clots) and acute myocardial infarction. FRAGMIN*, the Company's principal
cardiovascular product, is a low molecular weight heparin for the prevention of
thrombosis in connection with surgery, during hemodialysis (the removal of
waste substances by circulating blood through a dialyzer that functions as an
artificial kidney) and in the treatment of acute deep vein thrombosis. The
Company recently launched FRAGMIN in the U.S. and is currently seeking to
increase the number of countries where FRAGMIN is approved for sale.
Ophthalmics. HEALON*, the Company's principal ophthalmics
product, is a viscoelastic substance which includes sodium hyaluronate and is
used primarily in cataract surgery to facilitate the implantation of plastic
intraocular lenses ("IOLs") without injuring the sensitive cells lining the
cornea and functions as a soft surgical instrument. The Company markets HEALON
directly to ophthalmologists in Europe, the United States and Japan and through
independent
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distributors in certain other countries. The Company believes that HEALON is
the global market leader of viscoelastic products used in ophthalmic surgery.
The U.S. patent for HEALON expires in 1996 and may adversely effect sales of
HEALON.
The Company also produces IOLs made of PMMA
(polymethylmethacrylate), which are surgically implanted in the eye to replace
the natural lens when it becomes cloudy and partly opaque because of cataracts.
The customer groups for HEALON and IOLs are the same. Competition in the IOL
market is intense, causing pressure on prices and a slight decline in the
Company's sales volume and market share.
Inflammatory Bowel Diseases/Rheumatoid Arthritis. Within the
autoimmunity field, the Company focuses on treatments for inflammatory bowel
diseases ("IBD"), including ulcerative colitis, Crohn's disease, and rheumatoid
arthritis. SALAZOPYRIN* (sulfasalazin), introduced in 1941, is widely used in
the treatment of IBD. SALAZOPYRIN is marketed by the Company in Europe and the
United States and through independent distributors in Japan and over 30 other
countries, primarily to gastroenterologists and colo-rectal surgeons.
SALAZOPYRIN has had no patent protection since the 1960s and is subject to
competition from other products and therapies, as well as to some generic
competition.
In 1985, Pharmacia introduced SALAZOPYRIN in the form of
SALAZOPYRIN EN-tabs for the treatment of rheumatoid arthritis. SALAZOPYRIN
EN-tabs are marketed by the Company in Europe, primarily to rheumatologists.
The Company has applied for approval to market SALAZOPYRIN EN-tabs in Japan and
the United States.
The development by Pharmacia of DIPENTUM*, another product for
the treatment of persons with IBD, with fewer observed side effects than
SALAZOPYRIN, was based on experience gained from SALAZOPYRIN. DIPENTUM was
launched in 1988. It is currently marketed by the Company in the United States
(only for maintenance treatment of remission in patients intolerant to
sulfasalazin) and Europe and through independent distributors in five other
countries. Although DIPENTUM has patent protection in the countries in which
it is marketed, it competes with other products.
Urology/Gynecology. In the second half of 1993, Pharmacia
introduced ESTRING*, a product designed to reduce estrogen deficiency in women
through low dose substitution. The product is currently marketed to
gynecologists in Sweden, Finland and Denmark, and in the United Kingdom.
ESTRING, a local hormone replacement therapy for post-menopausal women, is a
soft intravaginal plastic ring that secretes a low dose of natural estrogen
over a period of three months. The product competes with ointments which are
intended for local daily application. The Company has submitted applications
to have ESTRING approved throughout Europe as well as in the United States,
Canada and Australia. An application is being prepared in Japan as well.
In the area of bleeding control, Pharmacia has marketed
CYKLOKAPRON*, primarily in Europe, for over 25 years for the treatment of
menorrhagia (abnormally excessive menstruation).
The Company's products for urinary incontinence are
DRIDASE/DITROPAN* and CETIPRIN NOVUM*, and it has an additional new compound in
the area of urinary incontinence, tolterodine, in Phase III clinical trials.
Oncology/Immunology. The Company is one of the world's
leading producers of anticancer drugs. Its most important products in the
oncology area are FARMORUBICIN* and ADRIAMYCIN*. Each of these products is
used in the treatment of breast cancer as well as other
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solid tumors and both are among the world's most frequently prescribed
anticancer drugs. ADRIAMYCIN was the Company's first anthracycline
preparation. The related patent expired in 1990. Subsequent research efforts
to reduce the toxicity and increase the efficacy of ADRIAMYCIN led to the
development of FARMORUBICIN, a second generation anthracycline antibiotic used
primarily to treat solid tumors (primarily breast and bladder cancer) and
lymphomas. Although a number of product patents relating to FARMORUBICIN
expire in mid-to-late 1990s, patents on the best-selling formulation of
FARMORUBICIN do not expire until after the year 2000.
The Company also produces ZAVEDOS*/IDAMYCIN (idarubicin), an
anthracycline used to treat acute leukemia that can be administered both
intravenously and orally, as well as ESTRACYT*, which is used for the treatment
of advanced prostrate cancer. Based on clinical tests to date, ZAVEDOS is
superior to standard therapy in extending the survival of certain patients who
suffer from acute myeloblastic leukemia. Although a number of product patents
relating to ZAVEDOS expire in the mid-to-late 1990s, patents on what the
Company believes to be its most valuable commercial formulations of ZAVEDOS do
not expire until 2002. ESTRACYT has no patent protection and is subject to
competition from other products and therapies. Following approval in May 1995,
ZINECARD was launched in the United States and Canada. ZINECARD* is a new
preparation for reducing cardiac side-effects in women with metastatic breast
cancer who are undergoing treatment with doxorubicin (ADRIAMYCIN).
In 1993, Pharmacia launched a new product, MYCOBUTIN*, for the
prevention of Mycobacterium Avium Complex ("MAC"), a fatal bacterial infection
that is one of the most common causes of death for HIV-positive individuals and
people with AIDS. MYCOBUTIN is marketed to specialists in infectious diseases
and to internists. The relevant patent rights in the United States have
recently been extended until 1999. Such patent rights expire in Europe in
2001.
Circulation/Pain/Generics. The Company has a number of
products aimed at the outpatient prescription market primarily in the Nordic
area that are focused on hypertension, angina pectoris (strain of the heart
muscle resulting from decreased blood supply) and pain control. The largest
selling products in 1994 were CARDIZEM for the treatment of hypertension and
angina pectoris and DOLCONTIN/CONTA-LGIN/MS CONTIN for controlling chronic
pain, each of which is inlicensed. Other products in the area of circulatory
diseases are MONOKET OD and SORBANGIL for antianginal therapy.
Hospital Care. The nutrition therapeutic area comprises a
number of products for intravenous nutrition, including products that meet the
body's nutritional needs for fat amino acid solutions, vitamin and trace
elements. The Company's largest selling nutritional product is the fat
emulsion INTRALIPID*, launched in 1962. INTRALIPID has no patent protection
and competes with a limited number of other fat emulsions in all its major
markets. Although sales of INTRALIPID in recent years have not shown
significant growth, the compound is increasingly being used in mixed products
and as a vehicle for delivery of third-party products.
The anesthesia therapeutic area primarily develops,
manufactures and markets fat-soluble anesthetic preparations for intravenous
use. In 1991, Pharmacia entered into a marketing agreement with Ohmeda
(formerly Anaquest), a division of BOC Healthcare, which granted the Company
the European marketing rights to Ohmeda's inhalation anesthetic compound,
SUPRANE. Pharmacia began marketing SUPRANE in Sweden and the United Kingdom
during 1993. SUPRANE has also been registered and is currently marketed in
several additional countries. During 1994, Pharmacia was granted the European
marketing rights to isoflurane and enflurane, two additional inhalation
anesthetic compounds produced by Ohmeda.
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Disease Management. The Company participates in the disease
management business, through its Greenstone Healthcare Solutions subsidiary,
providing services in prevention, screening, diagnosis, treatment, case
management, education and outcome assessment.
CONSUMER PRODUCTS
The Company develops, manufactures and markets nonprescription
health care products to drug stores, food stores, and mass merchandisers in the
United States and Europe.
The Company manufactures and distributes products which do not
require a prescription, including MOTRIN IB* Tablets, Caplets and Gelcaps, an
analgesic; KAOPECTATE* products, for diarrhea; CORTAID* products,
anti-inflammatory topical products; the family of UNICAP* vitamin products;
DRAMAMINE*, anti-motion sickness medicines; and MYCITRACIN*, an antibiotic
ointment for treatment of minor skin infections and burns. The Company also
holds a license from Hoechst-Roussel Pharmaceuticals Inc. for exclusive United
States rights to the nonprescription laxative products DOXIDAN and SURFAK. The
Company also has a U.S. marketing arrangement with McNeil Consumer Products
Company whereby the Company has certain rights to several ibuprofen-based and
other products being developed by McNeil.
In addition, the Company produces and sells ROGAINE* Topical
Solution, a 2% solution of minoxidil applied topically to restore hair growth
in men with male pattern baldness and in women with androgenetic alopecia or
hereditary hair loss. The product is also sold in numerous foreign countries.
The United States patents covering ROGAINE expired in early 1996. ROGAINE was
recently approved for over the counter sale in the U.S.
The Company also develops, manufactures and markets NICORETTE*
and NICOTROL* for smokers who seek a medical product to aid in smoking
cessation. NICORETTE chewing gum was recently approved for over the counter
sales in the U.S. and will be marketed by SmithKline Beecham Consumer
Pharmaceuticals. The Company's NICORETTE chewing gum and transdermal patch
administer nicotine to the body through slow-release formulations in order to
alleviate withdrawal symptoms. Although the Company's U.S. patent covering
nicotine polacrilex, the active ingredient in NICORETTE chewing gum, expired in
August 1992, NICORETTE chewing gum is likely to be protected from generic
competition in the United States until 1999 due to additional regulatory
exclusivity provided by U.S. legislation. In other countries, the Company has
no patent protection for NICORETTE chewing gum; however, the NICORETTE
transdermal patch is patented in selected jurisdictions.
DIAGNOSTICS
The Company is the world leader in the area of in vitro
allergy diagnostics. The Company's main allergy diagnostic product, the
Pharmacia CAP System*, was introduced by Pharmacia in 1989. It is a highly
automated laboratory system that enables testing from patient blood samples for
allergenic sensitivity to nearly 500 substances. The Company believes that no
competitor in the allergy diagnostic business markets a product that can test
allergenic sensitivity to as many different substances. The Company markets
the Pharmacia CAP System to diagnostic laboratories worldwide. Patents on the
Pharmacia CAP System expire in 2003.
The Company's largest market for allergy diagnostics is Japan,
while sales in the United States are relatively low because of the relatively
high incidence of more traditional in vivo (skin prick) diagnostic testing by
medical professionals in the United States.
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BIOTECHNOLOGY
The Company is one of the world's leading suppliers of
biotechnology equipment. It develops, manufactures and sells systems, reagents
and chemicals for pharmaceutical and biotechnology companies and for life
science research in the public and private sectors. The business area's
traditional products are for use in laboratory-scale chromatography and
electrophoresis, two key separation technologies for biomolecules. The Company
also produces reagents, chemicals and systems used by researchers to perform
experiments in the areas of molecular and cell biology, and media and systems
devoted to large-scale purification of substances prepared by biotechnological
methods in the pharmaceutical industry. The Company's business objective is to
satisfy the needs of biotech supply customers by providing them with value-
added, knowledge-based products and services for the development and
commercialization of applications in the biotechnology field.
In recent years, the market for biotechnology research
instruments and other products has been adversely affected by budgeting
constraints in universities and publicly funded research centers, resulting in
increasing competition and downward price pressure.
CHEMICAL AND CONTRACT MANUFACTURING
The Company researches, develops, manufactures and markets
bulk pharmaceutical chemicals and selected high-technology specialty
(nonpharmaceutical) chemicals. In addition, the Company manufactures finished
dosage forms for sale to third parties.
ANIMAL HEALTH
The Company researches, develops, manufactures and markets a
broad range of pharmaceutical and vaccine products for both food and companion
animals to meet the market needs of veterinarians, feed manufacturers and
livestock producers. The Company ranks approximately tenth in the world in
terms of market share of total animal health product sales. Approximately 55%
of the total animal health product sales are in the U.S.
The Company develops, manufactures and sells animal
pharmaceutical products and animal feed additives, the sales of which fluctuate
with changes in the agricultural economy. These products are sold worldwide to
veterinarians, feed manufacturers, distributors and growers who choose the
Company's products primarily because of their efficacy and suitability for
particular uses, as well as price and quality. Major products include NAXCEL*
Sterile Powder, an antibiotic for bovine and swine respiratory disease and
early chick mortality; LINCO-SPECTIN* Soluble Powder and Premix, a combination
lincomycin/spectinomycin antibiotic; LINCOMIX* 20 and LINCOMIX 50 Feed
Medication, which are feed-additive antibiotics; MGA* Premix, which is a
growth-promoting feed additive for feedlot heifers; various products for the
treatment of mastitis, including PIRSUE*; DELTA ALBAPLEX* Tablets and
LINCOCIN*, which are small-animal antibiotics; and LUTALYSE* Sterile Solution,
which is used to synchronize breeding performance in mares and cattle. In
addition, the Company sells a line of animal health vaccines through Oxford
Veterinary Laboratories, Inc. (Bio-Vac Labs, Inc.).
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GEOGRAPHIC INFORMATION
The table below shows the Company's operations by geographic area. All
the sales are presented by originating area. U.S. exports to third-party
customers are less than 10 percent of U.S. sales. Sales between geographic areas
are priced to reflect consideration of economic circumstances and the
regulations of countries in which the transferring entities are located. These
transfers are eliminated in consolidation.
<TABLE>
<CAPTION>
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Geographic areas for years ended 1995 1994 1993
December 31
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<S> <C> <C> <C>
Sales to customers (includes exports):
United States $ 2,205,208 $ 2,428,585 $2,576,782
Sweden 643,706 603,283 655,351
Other Europe 2,655,852 2,378,568 2,150,390
Japan and Pacific 1,047,689 903,567 758,953
Other 396,614 390,357 366,011
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Interarea transfers from:
United States 569,170 494,501 452,600
Sweden 1,011,938 856,239 755,474
Other Europe 635,106 565,784 498,404
Japan and Pacific 21,161 11,062 6,790
Other 20,721 22,180 23,319
Eliminations (2,258,096) (1,949,766) (1,736,587)
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$ 6,949,069 $ 6,704,360 $6,507,487
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Earnings from continuing operations
before income taxes:
United States $ 398,623 $ 563,435 $ 508,487
Sweden 300,763 290,335 310,477
Other Europe 308,091 296,493 (107,280)
Japan and Pacific 89,265 49,116 56,627
Other 39,651 71,897 9,425
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$ 1,136,393 $ 1,271,276 $ 777,736
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Identifiable assets, December 31:
United States $ 4,291,947 $ 4,227,195 $3,801,893
Sweden 3,315,370 2,875,230 2,513,289
Other Europe 2,808,482 2,901,311 2,378,874
Japan and Pacific 800,559 736,405 714,411
</TABLE>
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<TABLE>
<S> <C> <C> <C>
Other 244,243 206,987 207,809
Discontinued operations, net 278,344
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$11,460,601 $10,947,128 $9,894,620
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</TABLE>
PRODUCTION
The Company produces its products mainly in the United States,
Sweden, Belgium, Italy, Japan and Puerto Rico, with smaller production
facilities throughout the world.
The Company purchases a variety of raw materials for use in
its manufacturing processes. When available, the Company has a policy of
maintaining multiple sources of supply for materials. The Company obtains its
supplies of raw materials from a number of countries. The Company has not
experienced any difficulty in obtaining a sufficient supply of raw materials in
recent years and believes that it will be able to obtain them in sufficient
quantities in the future. However, the price of its raw materials may vary
from year to year.
MARKETING AND DISTRIBUTION
The Company's products are sold worldwide. The Company
markets its products through its own marketing companies or through local
distributors and licensees. As part of its ongoing commitment to its
customers, the Company periodically organizes educational programs to provide
specialist doctors with information on the most recent product innovations and
scientific advances.
The Company's marketing companies are organized by
geographical markets to meet the requirements of the markets in which they
operate.
The Company has a joint marketing agreement with Solvay S.A.
to jointly market in the United States and certain European countries Solvay's
LUVOX (fluvoxamine), a product for treatment of obsessive-compulsive disorder
and depression (the product is approved for depression in Europe and Canada but
not yet in the United States). Under the same agreement, Solvay S.A. jointly
markets HALCION and XANAX in the United States and certain European countries.
COMPETITION
The pharmaceutical industry is highly competitive. The
Company's principal competitors consist of major international corporations
with substantial resources. A drug may be subject to competition from
alternative therapies during the period of patent protection and thereafter it
will also be open to competition from generic products. The manufacturers of
generic products typically do not bear the related research and development
costs and consequently are able to offer generic products at considerably lower
prices than the branded equivalents. A research-based pharmaceutical company
will therefore normally seek to achieve a sufficiently high profit margin and
sales volume during the period of patent protection to justify the original
investment and to fund research for the future. There are, however, a number
of factors which may enable products to remain profitable once patent
protection has ceased. These include the establishment of a strong brand image
with the prescriber or the consumer, supported by an active trademark
registration and enforcement policy, and the development of a broader range of
alternative formulations than the generic manufacturer typically supplies.
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As is the case for the pharmaceutical industry in general, the
introduction of new products and processes by competitors may affect pricing
levels or result in product replacement for existing products, and there can be
no assurances that any of the Company's products may not become outmoded,
notwithstanding patent or trademark protection. In addition, increasing
governmental and other pressures towards the dispensing of generic products in
substitution for brand-name drugs may increase competition for products no
longer covered by patents.
Over the last few years, the pharmaceutical industry has
experienced increased vertical and horizontal consolidation, and the breadth of
products offered and distribution capabilities of a company may become a
competitive feature. The Company competes with other pharmaceutical companies
in discovering or licensing new chemical entities useful in treating medical
conditions. In addition, significant changes in marketing conditions are
occurring in the United States, Swedish and foreign pharmaceutical markets,
including decreased pricing flexibility, restrictions on promotional and
marketing practices and the impact of managed care, particularly with respect
to product selections and pricing concessions.
The Company's competitive position depends in part upon its
ability to develop innovative, cost-effective new products, as well as new
indications for, and improvements in, existing products. Its competitive
position also depends upon, among other things, its ability to compete on the
basis of price as well as to maintain a reputation for quality, efficacy and
cost-effectiveness with the specialist doctors and hospital purchasing groups
to which its products are targeted, as well as with the wider group of
customers which includes pharmacies, wholesalers, hospitals and insurers.
In addition, the Company's ability to maintain long-standing
and interactive relationships with specialist doctors and its ability to
attract and retain qualified scientific and other personnel, develop and
implement production and marketing plans, obtain and maintain patent protection
for selected products in its significant markets and secure adequate capital
resources are also important competitive factors.
PRODUCT REGULATION
Like other pharmaceutical companies, the Company is subject to
strict controls on the manufacture, labelling, distribution and marketing of
its products. Further controls exist on the non-clinical and clinical
development of pharmaceutical products. Of particular importance is the
requirement to obtain and maintain regulatory approval for a pharmaceutical
product from a country's national regulatory authority before such product may
be marketed in a particular country.
The submission of an application to a regulatory authority
does not guarantee that a license to market the product will be granted.
Furthermore, each regulatory authority may impose its own requirements and may
refuse to grant, or may require additional data before granting an approval,
even though the relevant product has been approved in another country.
Regulatory authorities also have administrative powers that include product
recalls, seizure of products and other sanctions.
The United States, Europe, Japan, Australia and Canada have
very high standards for technical appraisal and consequently, in most cases, a
lengthy approval process. The time taken to obtain approval varies by country,
but generally takes from six months to four years from the date of application,
depending upon the quality of the data produced, the degree of control
exercised by the regulatory authority, the efficiency of its review procedure
and the nature of the product. The trend in recent years has been towards
lengthening regulatory reviews, greater regulation and higher standards with
higher levels of standardization among jurisdictions.
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In Europe, the European Agency for the Evaluation of Medicinal
Products (the "Medicinal Products Agency") was created in July 1993 and opened
on January 1, 1995. Based in London, the Medicinal Products Agency will give
opinions on medicinal products by using two new procedures, a centralized
community procedure and a decentralized procedure, the latter being based on
the principle of mutual recognition of assessments.
In the United States, most human and animal pharmaceutical
products manufactured or sold by the Company are subject to regulation by the
U.S. Food and Drug Administration ("FDA") as well as by other federal and state
agencies. The FDA regulates the introduction of new drugs, advertising of
prescription drug products, manufacturing, laboratory and clinical practices,
labeling, packaging and record- keeping with respect to drug products. The FDA
also reviews the safety and effectiveness of marketed drugs and may require
withdrawal of products from the market and modification of labeling claims
where necessary. In addition, the manufacturing, marketing and use of Animal
Health products are closely regulated in all major markets including the
Department of Agriculture ("USDA") which regulates Animal Health products
within the United States.
Government approval of new drugs under the federal Food, Drug
and Cosmetic Act requires substantial evidence of safety and efficacy. As a
result of this requirement, as interpreted by the FDA, the length of time and
the laboratory and clinical information required for approval of a New Drug
Application ("NDA") is considerable.
The FDA has adopted streamlined procedures for the approval of
duplicate drugs (drugs containing the same active ingredient as the
originator's product), including Abbreviated New Drug Applications ("ANDAs").
Approval of ANDAs may not be made effective prior to expiration of valid
patents. The FDA has established a similar expedited approval process for
antibiotics. The availability of the ANDA and expedited antibiotic approval
processes has reduced the time period and expense required to obtain FDA
approval of some competing products and has facilitated generic competition.
At the state level, so-called "generic substitution"
legislation permits the dispensing pharmacist to substitute a different
manufacturer's version of a drug for the one prescribed. In a number of
states, such substitution is mandatory unless precluded by the prescribing
physician.
United States pharmaceutical manufacturers are required to
provide rebates to state governments for prescriptions covered by Medicaid.
The issue of further price controls on sales of prescription drugs continues to
be considered in Congress and various states, and additional federal or state
legislation to limit prices of prescription drugs is possible.
It is difficult to predict the ultimate effect of streamlined
approval of duplicate or generic drugs, "generic substitution," the Medicaid
reimbursement and rebate programs and possible price limitations. However, the
Company believes that its development of patented and exclusively licensed
products may moderate the impact of programs and legislation focusing mainly on
products available from multiple suppliers.
PRICING
In addition to the normal competitive forces that affect the
level of prices, a further constraint exists in the form of price controls in
most countries in which the Company sells its products. These controls arise
either by law or because the government or other health care providers in a
particular jurisdiction are the principal purchasers of the product or
reimburse purchasers for the cost of the product. Price control mechanisms
operate differently from jurisdiction to jurisdiction and can result in large
price differentials between markets, which may be aggravated
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by currency fluctuations. These price differentials are exploited by traders
(parallel importers) who purchase branded products in lower- priced markets for
resale in higher-priced markets.
PATENTS AND TRADEMARKS
The Company considers that the overall protection from its
patents and trademarks and from licenses under patents belonging to others is
of material value. However, no single patent or license is believed to be of
material importance in relation to the business as a whole.
RESEARCH AND DEVELOPMENT
The Company aims to direct its research and development effort
to develop new innovative pharmaceuticals and other health care products
offering high therapeutic benefits in a number of therapeutic areas in which
the Company believes it has the ability to establish a leading global position.
The Company also seeks to expand the markets for its existing products by
identifying new indications and administrative forms as well as by expanding
their international market penetration. The Company concentrates its research
and development resources on selected areas both where it has inhouse expertise
and where there are identified substantial unmet medical needs. The Company's
research and development activities focus on medically important therapeutic
areas, including diseases of the central nervous system, oncology, critical
care medicine, infectious diseases, female and reproductive health, nutritional
deficiencies, metabolic diseases, ophthalmology, urology and inflammatory
disorders, and are conducted principally in the Company's three operational
headquarters in Kalamazoo, Michigan, Stockholm/Uppsala, Sweden and Milan,
Italy.
The research and development process has historically taken
from 10 to 15 years from discovery to initial product launch and is conducted
in various stages. During each stage of development, there is a substantial
risk that the desired objectives will not be achievable and that the product
will therefore have to be abandoned or the objectives modified. During the
"preclinical" stage, generally the first two to four years, research scientists
search for the active substance in the laboratory and perform pharmacology and
toxicology studies of effects in various animals. Before testing in humans, an
application for the compound must be filed and processed by the requisite
regulatory authorities, which may take up to one year or longer. Testing in
humans is performed in different clinical phases to assure the safety and
efficacy of the new compound. In clinical phase I, studies to establish the
tolerance, absorption, distribution, metabolism and excretion of the compound
are performed on healthy human subjects. Clinical phase II studies are
performed on a limited number of patients and clinical phase III comparative
studies are performed on a larger number of patients in order to establish
efficacy and safety. Together, phases I, II and III typically take from three
to five years to complete. Thereafter, an application containing all data for
the proposed drug is sent to regulatory authorities for approval, which may
take an additional one to two years. Further clinical trials, called phase IV
trials, are generally carried out after product launch to continue to monitor
the efficacy and safety of a new drug.
Following is a listing of the Company's most important
compounds in Phase II and later development:
PHASE II
adozelesin - solid tumors and leukemia
atevirdine - AIDS/HIV
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bropirimine - antiviral
exemestane - breast cancer
FA31A - rheumatoid arthritis
Hemopure Sterile Solution - blood supplement
latanoprost (combination) - glaucoma
pramipexole - schizophrenia and depression
thymoctonan - chronic viral hepatitis
9-AC (9-amino camptothesin) - solid tumors
Following is a listing of the Company's most important
compounds in Phase III development:
PHASE III
Freedox - spinal cord injury and ischemic stroke
Recombinant factor VIII - bleeding/bleeding disorders
Linomide - multiple sclerosis
Reboxetine - depression
Remisar - bladder cancer
Rescriptor - AIDS
SnET2 - skin cancer
tolterodine - urinary incontinence
triptorelin - prostate cancer and endometriosis
Cycloprovera - contraception
Following is a listing of compounds where applications have
been submitted by the Company for regulatory approval:
APPLICATIONS SUBMITTED
Atgam - immuno-suppressant
cabergoline - Parkinson's Disease
Caverject (Europe) - erectile dysfunction
Cleocin/Dalacin Vaginal Cream (3-day) - antibiotic
Colestid Granules OTC switch - cholesterol lowering
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Glamin - nutrition
Camptosar (irinotecan) - colorectal, lung and cervical cancer
Xalatan - glaucoma
lomerizine (Japan) - migraine
Neolipid - nutrition
pramipexole - Parkinson's Disease
Promedrol (Europe and Japan) - asthma transplantation
Rogaine 5% Topical Solution - hair loss
Structolipid - nutrition
Vantin - pharyngitis
The following discussion of certain of the Company's original
compounds currently in phase II or later clinical development is organized
according to therapeutic area and not by business area. In addition,
applications have been filed seeking approvals for new indications,
formulations or markets for a number of other existing products.
Ophthalmology. The Company's compound XALATAN* (latanoprost) is in
development for the possible treatment of glaucoma, the largest indication in
ophthalmology. XALATAN reduces intraocular pressure by means of a new mechanism
of action. The Company has finalized phase III clinical trials for XALATAN and
has submitted an application for registration in Europe, the U.S. and Japan and
has received a positive recommendation from the FDA advisory committee. A line
extension program is ongoing. The development program for XALATAN will be
further expanded with combination therapy and new formulations. Several
projects relating to cataract surgery and state-of-the-art soft intraocular
lenses were launched in Europe in late 1995.
Central Nervous System Disorders. In the CNS area, the Company has
three potential products in late stage clinical development: cabergoline,
pramipexole and reboxetine.
Cabergoline has preferential D2 receptor agonist activity with
extremely long-lasting dopamine agonist effect. Cabergoline was recently
launched in certain European countries for the treatment of hyperprolactinemia.
The compound is also in late development worldwide as a potential treatment for
Parkinson's Disease, a relatively frequent and progressively disabling illness
of the advanced age, where Cabergoline may be particularly useful for its longer
duration of action and more convenient administration compared with other
similar drugs. A registration dossier has been filed in major European
countries and the Company has received approval in the UK, Denmark and
Switzerland for use in treatment of Parkinson's Disease. Phase III studies are
in progress in the United States and Japan (for filing projected in 1996/97).
Continued studies with Cabergoline aim at documenting the product as a first
line treatment for Parkinson's disease, especially for patients with early onset
of disease.
Pramipexole has preferential D3 receptor agonist activity and is under
development for Parkinson's Disease, depression and schizophrenia The compound
was licensed from, and is being co-developed with, Boehringer-Ingelheim, with
plans for worldwide co-marketing. The Company
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filed an NDA in late 1995. The NDA includes three North American studies, which
produced good results at well-tolerated doses for both early and late stage
Parkinson's Disease. The European filing will be dependent on finalization of
a European early disease study (enrollment completed) as well as a
bromocriptine comparator trial. Plans are for a centralized EU application by
late 1996 for Parkinson's Disease. The pramipexole compound patent expires in
2005 in Europe and Japan, and in 2006 in the U.S. The competition for
Parkinson's Disease drugs includes L-dopa, cabergoline, bromocriptine,
pergolide, lisuride and ropinirole. Phase II studies for depression and
schizophrenia are expected to be completed in 1996. If activity is
demonstrated, Phase III programs would then be initiated.
Reboxetine is an antidepressant agent which has a different side
effect profile compared with other drugs due to a different mechanism of
action. Clinical phase III studies have been completed in Europe and a European
filing is planned in 1996.
Oncology. This area represents a major research commitment for the
Company with discovery and development efforts directed and focused to finding
effective treatments for various forms of tumors, particularly those which
respond poorly, or are resistant, to currently available therapy.
This research is conducted primarily in Nerviano/Milan, Italy,
Kalamazoo, Michigan and in new laboratories in Lund, Sweden, designed and
equipped specifically for discovery research in tumor biology and
immunotherapy. The research programs cover chemotherapy, hormone therapy,
immunotherapy of cancer as well as novel approaches and mechanisms of antitumor
action which are being pursued mainly in discovery phase. Exemestane is a
hormonal anticancer agent that is being tested as a potential treatment for
advanced breast cancer. Phase III studies are being activated in Europe and the
US, and phase II clinical trials are in progress in Japan.
CAMPTOSAR(*) -- CPT-11 (irinotecan hydrochloride), an injectable DNA
toposomerase-I inhibitor pro-drug licensed from Yakult Honsha for U.S.
territory, is in clinical development in the U.S. for refractory colorectal
cancer. Clinical data shows a positive dose-dependent response rate. An NDA for
refractory colorectal cancer has been filed in the U.S. under an accelerated
approval process.
In the U.S. and Latin America, Phase II cervical and small cell lung
cancer studies have also been conducted. The Phase II non-small cell lung study
is closed, and Phase III planning has begun for colorectal and non-small cell
lung trials. Also, Phase I studies for oral CPT- 11 are underway to determine
the maximal tolerated dose.
Linomide is an oral immunomodulator which is currently being tested in
multiple sclerosis studies, following positive animal studies indicating
potential efficacy in autoimmune disorders. Phase II clinical studies have
also been encouraging and is now being expanded in a Phase III program.
9-Aminocamptothecin with a novel mechanism of action is being tested
in phase II clinical trials for the treatment of solid tumors (i.e., colon
cancer, lung cancer, etc.) in cooperation with the US National Cancer Institute
under a CRADA (Contract Research and Development Agreement). The Company has
agreed with the Federal Trade Commission to provide an exclusive U.S. license
to certain of the Company's research and development assets for the compound to
a third party.
Adozelesin is a novel potent cancer agent targeted for treatment of
leukemia and solid tumors. Phase II studies are underway in Japan in
collaboration with Yakult Honsha. Early clinical results indicate activity in
acute myeloid leukemia, with severe, prolonged myelosuppression. The compound
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appears to have minimal route and schedule dependence. The U.S. patent was
issued in 1990. Principal competition is ADRIAMYCIN, cisplatin and 5-FU.
REMISAR(*) (bropirimine) is an oral oncolytic and immunomodulator
targeted for treatment of bladder cancer in situ. Development is in late stage
Phase III. The U.S. patent was issued in 1995. Primary competition is from the
current intravesicular products.
Zinecard, the first drug with demonstrated activity in the reduction
of anthracycline induced cardiac toxicity, has been recently approved and
launched in the U.S. and Canada as an adjunct to patients treated with
Adriamycin for advanced breast cancer.
In addition, the Company is actively pursuing new indications for the
anthracycline drugs Epirubicin (in solid tumors) and Idarubicin (in hematologic
malignancies). Idarubicin is the first anthracycline effective when
administered orally and is already approved and marketed, in some European
countries, for a convenient oral use in capsule form.
Bleeding/Bleeding Disorders. The Company's recombinant factor VIII
(r-VIII SQ), currently in phase III clinical trials, is being developed as a
substitute for plasma derived factor VIII for prophylaxis and treatment of
hemophilia A patients. r-VIII SQ is a unique B-domain deleted molecule with
potentially less immunogenic activities and which can be formulated without
addition of human albumin. The high potency of the product may make it possible
to supply administration kits for home treatment. The Company is seeking a
partner to co-develop and market r-VIII SQ.
Antithrombosis. Fragmin, a low molecular weight heparin used mainly
for prevention and treatment of deep venous thrombosis, has recently been
approved in the U.S. for prevention of deep venous thrombosis in patients
undergoing abdominal surgery. An application for an extension of this
indication has been submitted to the FDA and applications for further
indications are in preparation.
In a large clinical study presented recently, Fragmin was also shown
to be effective in patients with unstable angina pectoris or small myocardial
infarctions. The number of patients who had a new myocardial infarction or who
died was less than half in the group treated with Fragmin compared to the group
that did not receive this treatment (placebo group).
Nutrition. The product Structolipid, based on structured
triglycerides, is produced semisynthetically and has been patented for its
unique composition. It contains medium-long fatty acids which can be
administered to the patient safely and reliably. A wide range of modern IV
nutrition compounds is currently under development. The first amino acid
solution containing glutamin (Glamin) is in the process of launch in Europe.
These products will provide critically ill patients with new, more specific
therapies putting them on the road to rapid recovery.
Therapeutic nutrition is a growing area where nutritional substrates
with directed action in specific conditions can be developed. GLIO is in early
development and provides glutamine in a stable form with high bioavailability
and appears to have beneficial effect on gut and immune function in conjunction
with chemo and/or radiation therapy.
Urology/Gynecology. A new chemical entity, tolterodine, is in late
phase III clinical testing for urinary urge and mixed incontinence. The
compound has great selectivity for the receptors in the urinary bladder,
indicating a favorable side effect profile, and is the first described
antimuscarinic agent with bladder selective effect. Estring is a new delivery
system for the local treatment of symptoms of urogenital estrogen deficiency.
It is a vaginal ring with an inner core containing
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estradiol. Launches have taken place in the Scandinavian countries and the UK.
An application for approval has been submitted in the U.S. Cycloprovera, a
sustained release preparation of the contraceptive PROVERA, is at present in
clinical Phase III studies.
Autoimmunity. FA31A is a substance at present entering phase IIb
studies for treatment of rheumatoid arthritis. It represents a new generation
of disease modifying agents, a group of drugs with substantially increased
usage in autoimmune disorders as rheumatoid arthritis.
Growth/Growth Disorders. Research and development in the area of
growth and growth factors is concentrated on a broader spectrum of indications
for Genotropin including use in adults as hormone replacement therapy (for
which approval has already been received in the major European countries, New
Zealand and China), and for uremia. In addition, the Company is researching
the further development of convenience products to administer Genotropin as
well as on studying other indications of catabolic state such as burns.
In addition, metabolic disturbances that may be treated by growth
hormones are being researched and long-term research is focused on the mode of
action of growth factors and their receptors.
Cardiology. Corvert (ibutilide fumarate) is a parenteral Class III
antiarrhythmic for the treatment of atrial flutter and fibrillation. The NDA
was recently approved by the U.S. FDA.
Clinical data showed that Corvert was approximately 40% effective in
cardioversion to sinus rhythm, and when administered in one or two 1 mg doses
intravenously, Corvert can be used in patients with depressed cardiac function
with equally good results. Clinical data demonstrated relatively few side
effects and a low incidence (2-4%) of proarrhythmic events.
The U.S. patent issued October 13, 1992, and there is patent
protection in Europe, Japan and Mexico. The competition is amiodarone (p.o. &
IV), Sotalol (p.o.) and Bretyllium, along with many Class I antiarrhythmics.
Infection. Thymoctonan, currently in phase II clinical trials, is an
immunomodulator based on a synthetic octapeptide. The compound is currently
under investigation for the treatment of chronic hepatitis.
The Company is also pursuing new indications for the antimycobacterial
agent Mycobutin, the first drug approved for the prevention of certain
opportunistic infections in AIDS patients.
Rescriptor Tablets (delaverdine mesylate), a non-nucleoside reverse
transcriptase inhibitor for the treatment of AIDS and HIV
seropositive/asymptomatic patients, is currently in Phase III development and
has received positive results. The U.S. compound patent was filed in December
1990. An NDA is planned to be submitted to FDA in 1996.
Oxazolidinones are antibiotics that have a novel mechanism of action:
inhibition of mRNA translation. Two agents are in Phase I testing (oral and IV
multiple day dosing) for evaluation of safety and human pharmacokinetics. In
vitro studies show them to be effective against gram-positive bacteria
including antibiotic-resistant strains of staphylococci, streptococci and
enterococci. Adequate plasma levels have been obtained in normal healthy
volunteers with both agents and one has been selected to move into Phase II
testing. There have been no unexpected side effects with either agent.
International patent protection is afforded until 2013. A patent application is
pending in the U.S.
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Emulsion Technology. The Company has extensive experience in the area
of fat emulsions for IV administration and has developed special expertise in
the formulation and processing of drugs in emulsions. The Company continues to
focus on the development of fat emulsions for IV administration in the field of
nutrition as well as in anesthesia.
Extensive collaboration is ongoing with pharmaceutical companies to
provide material and technological support for their preclinical and clinical
studies and full scale manufacturing of the products.
A new application of this technology is imaging. The CT-emulsion is
developed as a liver specific diagnostic for the imaging of cancer. The
Company will seek an outside partner to develop and market this compound.
CRITICAL CARE
Freedox (tirilazad mesylate) is a parenteral multimechanistic
antioxidant that limits ischemia and trauma-induced lipid peroxidation in
animal models. Applications for severe subarachnoid hemorrhage (SAH)
indications have been filed in 33 countries with 14 approvals received for the
indication in males at a dose of 6 mg/kg/day. Several other European countries
are actively reviewing the file and meetings are scheduled to answer any
outstanding questions. The Phase II/III SAH studies demonstrated a gender
difference in efficacy at the top dose tested (6 mg/kg/day). It has been shown
that pre-menopausal women and patients on anticonvulsants, particularly
phenytoin, have a faster rate of metabolism and thus are likely to need more
drug to demonstrate efficacy. Accordingly, two Phase III trials are ongoing
(one in Europe and one in the U.S.) to evaluate efficacy of 15 mg/kg/day in
women. The European trial is fully enrolled. There have been no safety
problems evident. A U.S. safety study using higher doses in males is also
being conducted.
Results of the U.S. and European head injury studies did not justify
continued pursuit of head injury as a possible indication in the U.S. or
Europe.
Multi-year clinical studies for the stroke indication are continuing
utilizing higher doses of Freedox. A study for spinal cord injury sponsored by
the National Institute of Health (NIH) has completed enrollment.
The U.S. patent for Freedox expires in 2009. There is minimal
competition for Freedox other than nimodipine for SAH in U.S. and Europe and
azagiel in Japan. Other single mechanistic approach compounds under evaluation
include AT-877 (an intracellular calcium channel blocker), AVS (an oxygen-free
radical scavenger), DR-3305 (an anti-oxygen agent), and OP 2507 (a PGI2 analog
for SAM).
HEMOPURE(*) and a revised formulation are biologics derived from
bovine blood under development with Biopure Corporation as potential human
blood supplements providing tissue oxygenation. HEMOPURE could become an
alternative to certain human blood transfusions. There are currently no
competitive products, although several companies, including Somatogen, Baxter
Healthcare, Delta Biotechnology, Quest Biotechnology and Northfield Labs, are
working on hemoglobin-based products. A U.S. compound patent was issued in
1992, and a process patent was issued in 1994.
EMPLOYEES
The Company has approximately 35,000 employees worldwide,
although the current number is changing based on realignment of operations and
related reductions in force.
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The Company believes that it has good relations with its
employees. Employees at several non-U.S. locations are represented either by
freely elected unions or by legally mandated workers' councils or similar
organizations.
ENVIRONMENTAL MATTERS
Since several capital projects are undertaken for both
environmental control and other business purposes, such as production process
improvements, it is difficult to estimate the specific capital expenditures for
environmental control. However, including all such multi-purpose capital
projects as environmental expenditures, it is estimated that capital
expenditures for environmental protection will exceed $40 million in both 1996
and 1997. Operating expenses for compliance with environmental protection laws
and regulations in 1995 are estimated to have been in excess of $60 million.
It is estimated that such operating expenses for 1996 will again be in excess
of $60 million. Cash payments charged to environmental reserves in 1995 were
approximately $10 million and are estimated to be approximately $10 million for
1996.
ITEM 2. PROPERTIES
The Company's various businesses operate through a number of
offices, research laboratories and production facilities throughout the world
with principal locations in Kalamazoo, Michigan; Stockholm, Uppsala and
Helsingborg, Sweden; Milan, Italy; and Puurs, Belgium. The Company also has
production and research facilities in Japan and Puerto Rico and leases its
primary business offices in Staines, England. The Company believes its
properties to be adequately maintained and suitable for their intended use and
its production facilities to have a capacity adequate for its current needs.
ITEM 3. LEGAL PROCEEDINGS
Various suits and claims arising in the ordinary course of
business, primarily for personal injury and property damage alleged to have
been caused by the use of the Company's products, are pending against the
Company and its subsidiaries. Product liability is a significant commercial
risk for the Company. Substantial damage awards have been made in certain
jurisdictions against pharmaceutical companies based upon claims for injuries
allegedly caused by the use of their products.
The FDA, with the assistance of the United States Attorney's
Office in Grand Rapids, Michigan, is conducting a review of the FDA's prior
inspection report on HALCION, including an assessment of the conclusions of the
report, the approval of the drug, related FDA processes and procedures and the
violation of any laws. The Company cannot predict the outcome of this review.
A subcommittee of the House of Representatives has recently instituted a review
of some of the conclusions of the report.
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The Company is involved in several administrative and judicial
proceedings relating to environmental concerns, including actions brought by
the U.S. EPA and state environmental agencies for remedial cleanup at
approximately 40 sites. The Company's estimate of the ultimate cost to be
incurred in connection with these environmental situations could change due to
uncertainties at many sites with respect to potential cleanup remedies, the
estimated cost of cleanup and the Company's ultimate share of a site's cost.
Based on information currently available and the Company's
experience with lawsuits of the nature of those currently filed or anticipated
to be filed which have resulted from business activities to date, the amounts
accrued for product and environmental liabilities are considered to be
adequate. Although the Company cannot predict and cannot make assurances with
respect to the outcome of individual lawsuits, the ultimate liability should
not have a material effect on its consolidated financial position; and unless
there is a significant deviation from the historical pattern of resolution of
such issues, the ultimate liability should not have a material adverse effect
on the Company's results of operations or liquidity.
The Company is a party along with a number of other defendants
(both manufacturers and wholesalers) in several federal civil antitrust
lawsuits, some of which have been or are in the process of being consolidated
and transferred to the Federal District Court for the Northern District of
Illinois for purposes of discovery. These suits, brought by state pharmacies
and chains, generally allege unlawful conspiracy, price discrimination and
price fixing and, in some cases, unfair competition, and specifically allege
that the Company and the other named defendants violated: (1) the
Robinson-Patman Act by giving substantial discounts to hospitals, nursing
homes, mail-order pharmacies and HMOs without according the same discounts to
retail drugstores, and (2) Section 1 of the Sherman Antitrust Act by entering
into illegal vertical combination with other manufacturers and wholesalers to
restrict certain discounts and rebates so they benefitted only favored
customers. The Federal District Court for the Northern District of Illinois
has certified a class consisting of retail pharmacies, and the same court has
pending before it a suit with approximately 2,500 named retail pharmacies. The
suits seek treble damages and an injunction prohibiting the alleged illegal
practices. In addition, similar actions have been brought in Alabama,
California, Colorado, Minnesota, New York, Washington and Wisconsin state
courts. The California State court has recently certified a class of consumers
seeking damages resulting from the same alleged conspiracy by the defendant
pharmaceutical companies. The U.S. Federal Trade Commission has recently
instituted an inquiry into whether pharmaceutical companies, including the
Company, may have violated federal antitrust laws in connection with
establishing prices and rebates.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On October 17, 1995, at a special meeting of Upjohn
stockholders, the stockholders were asked to adopt the Combination Agreement
(the "Combination Agreement"), dated as of August 20, 1995 among Upjohn,
Pharmacia, the Company and Pharmacia & Upjohn Subsidiary, Inc., which provided
for, among other things, the merger of Pharmacia & Upjohn Subsidiary, Inc. with
and into Upjohn and the conversion of (i) each share of Common Stock, par value
$1 per share of Upjohn into the right to receive 1.45 shares of the Common
Stock and (ii) each share of Series B Convertible Perpetual Preferred Stock of
Upjohn into the right to receive one share of Series A Convertible Perpetual
Preferred Stock of the Company. A total of 136,649,645 shares were voted at
the special meeting, of which 135,348,251 shares voted in favor of the
Combination, or 99% of the voted shares.
-20-
<PAGE> 22
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company
The Common Stock is listed and traded on the New York Stock
Exchange (the "NYSE") under the symbol PNU. As of January 31, 1996, there were
35,661 holders of record of the Common Stock. Swedish Depositary Shares,
each representing one share of Common Stock, are traded on the Stockholm Stock
Exchange. The Board of Directors of the Company has declared dividends of
$0.27 per share of Common Stock payable on February 1, 1996 to shareholders of
record on January 10, 1996 and payable on May 2, 1996 to shareholders of record
on April 9, 1996. Set forth in the table below is the high and low price of the
Common Stock during the fourth quarter of 1995 (the only full quarter during
which the Common Stock has traded).
<TABLE>
<CAPTION>
COMMON STOCK
---------------
HIGH LOW
---- ---
($ PER SHARE)
<S> <C> <C>
1995
Fourth Quarter (from November 2, 1995) . . . . . . . . . 40.250 32.375
</TABLE>
Upjohn
The Upjohn Common Stock, prior to the Combination, was listed
on the NYSE. It was delisted following the Combination. Its ticker symbol was
UPJ. The table below sets forth, for the calendar quarters indicated, the high
and low sale prices of the Upjohn Common Stock as reported on the New York
Stock Exchange Composite Tape.
<TABLE>
<CAPTION>
COMMON STOCK
---------------
HIGH LOW
---- ---
($ PER SHARE)
<S> <C> <C>
1994
First Quarter . . . . . . . . . . . . . . . . . . . . . . 30.500 26.250
Second Quarter . . . . . . . . . . . . . . . . . . . . . 33.625 25.750
Third Quarter . . . . . . . . . . . . . . . . . . . . . . 37.125 28.625
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . 35.250 29.375
1995
First Quarter . . . . . . . . . . . . . . . . . . . . . . 38.125 30.125
Second Quarter . . . . . . . . . . . . . . . . . . . . . 38.875 34.375
Third Quarter . . . . . . . . . . . . . . . . . . . . . . 45.625 35.875
Fourth Quarter (through November 2, 1995) . . . . . . . . 53.625 43.375
</TABLE>
Pharmacia
Prior to the Combination, Pharmacia's share capital consisted
of the Pharmacia Class A Common Shares, nominal value SEK25 per share (the
"Class A Shares") and the Pharmacia Class B Common Shares, nominal value SEK25
per share (the "Class B Shares," together with the Class A Shares the
"Pharmacia Shares"). The principal market for trading in the Pharmacia Shares
had been the SSE, on which the Pharmacia Shares had been traded since 1987. The
Pharmacia Shares had been
-21-
<PAGE> 23
also quoted on SEAQ International. From June 1994 through November 2, 1995, the
American Depositary Shares (the "ADSs"), each representing one Class A Share,
were quoted on NASDAQ. The ADSs were also quoted on SEAQ International.
The table below sets forth, for the periods indicated, the
high and low closing sale prices for the Class A Shares and the Class B Shares
as stated in the Official List of the SSE for the Class A Shares and the Class
B shares and NASDAQ for the ADSs. The Official List reflects price and volume
information for trades completed by members on the SSE during the day as well
as for inter-dealer trades completed off the SSE and certain inter-dealer
trades completed during trading on the previous business day.
<TABLE>
<CAPTION>
A SHARES B SHARES ADSS
--------------- --------------- -----------------
HIGH LOW HIGH LOW HIGH LOW
---- --- ---- --- ---- ---
(SEK PER SHARE) (SEK PER SHARE) ($ PER ADS)
<S> <C> <C> <C> <C> <C> <C>
1994
First Quarter . . . . . . . . . . . . . . . . 155 108 155 109 ---- ----
Second Quarter . . . . . . . . . . . . . . . 134 109 135 110 15 1/2 14 7/8
Third Quarter . . . . . . . . . . . . . . . . 139 113 138 112 18 3/4 1467
Fourth Quarter . . . . . . . . . . . . . . . 137 1/2 113 135 113 19 1/8 15
1995
First Quarter . . . . . . . . . . . . . . . . 140 1/2 119 140 118 1/2 18 7/8 16 1/4
Second Quarter . . . . . . . . . . . . . . . 165 128 1/2 165 129 22 5/8 17 1/2
Third Quarter . . . . . . . . . . . . . . . . 213 158 212 157 30 1/4 22
Fourth Quarter (through November 2, 1995) . . 235 197 233 195 36 1/2 28 1/2
------------------------------
</TABLE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
U.S. DOLLAR AMOUNTS IN MILLIONS, EXCEPT
PER-SHARE DATA
-------------------------------------------------------------------------------------------------------
SELECTED FINANCIAL DATA
-------------------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31 1995 1994 1993 1992 1991
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating revenue $7,094.6 $6,822.8 $6,560.8 $5,938.4 $5,313.5
Earnings from continuing operations before
cumulative effect of accounting changes 738.7 833.5 560.6 703.8 602.8
Earnings per share from continuing
operations before cumulative effect of
accounting changes 1.43 1.63 1.09 1.36 1.16
Dividends declared per share (a) .27 - - - -
Total assets 11,460.6 10,947.1 9,894.6 10,873.1 11,344.6
Long-term debt 603.1 678.2 675.0 463.5 643.5
- --------------------------------------------------------------------------------------------------------
</TABLE>
(a) Represents dividend declared by the merged company's board of directors in
December 1995. Separate dividend information for Pharmacia and Upjohn
has not been presented because the information would not be meaningful.
-22-
<PAGE> 24
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Incorporated herein by reference and is contained in the Annual Report
section of Exhibit 13.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Incorporated herein by reference and is contained in the Annual Report
section of Exhibit 13.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Background information for the Board of Directors is incorporated herein
by reference from the Company's definitive proxy statement for the annual
meeting of stockholders to be held on May 6, 1996.
In addition to J.L. Zabriskie, the following are the Company's executive
officers:
Goran A. Ando, M.D., age 46, Executive Vice President, Worldwide
Science and Technology. He was formerly Executive Vice President and
Deupty Chief Executive Officer of Pharmacia AB. Dr. Ando joined Pharmacia
in February 1995 from Glaxo Holdings p.l.c. where he was director of
research and development activities.
Kenneth M. Cyrus, age 57, Senior Vice President, General Counsel
and Secretary. He had been Executive Vice President, Secretary and General
Counsel for Upjohn since 1994. Formerly Senior Vice President, Secretary
and General Counsel from 1991 to 1994, and prior thereto Vice President,
Secretary and General Counsel from 1988 to 1991.
Robert C. Salisbury, age 52, Executive Vice President, Finance and
Administration, and Chief Financial Officer. He had been Executive Vice
President and Chief Financial Officer for Upjohn since 1994 and Senior Vice
President for Finance and Chief Financial Officer since 1991.
-23-
<PAGE> 25
ITEM 11. EXECUTIVE COMPENSATION.
Incorporated herein by reference from the Company's definitive
proxy statement for the annual meeting of stockholders to be
held on May 6, 1996.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated herein by reference from the Company's definitive
proxy statement for the annual meeting of stockholders to be
held on May 6, 1996.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Incorporated herein by reference from the Company's definitive
proxy statement for the annual meeting of stockholders to be
held on May 6, 1996.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K
(A)1. FINANCIAL STATEMENTS
The following are included in the 1995 Annual Report to
Shareholders (Exhibit 13) and are incorporated by reference
into this Form 10-K pursuant to Item 8:
Report of Independent Accountants - Coopers & Lybrand, LLP and
KPMG Peat Marwick LLP.
Consolidated Statements of Earnings--Years ended December 31,
1995, 1994 and 1993.
Consolidated Balance Sheets--December 31, 1995 and 1994.
Consolidated Statements of Shareholders' Equity--Years ended
December 31, 1995, 1994 and 1993.
Consolidated Statements of Cash Flows--Years ended December
31, 1995, 1994 and 1993.
Note 22. Segment and Geographic Information--Years ended
December 31, 1995, 1994 and 1993.
Notes to Consolidated Financial Statements.
(A)2. FINANCIAL STATEMENT SCHEDULES
NOTES:
(1) Schedules are omitted because they are either not required,
are not applicable or because equivalent information has been
included in the financial statements, the notes thereto or
elsewhere herein.
-24-
<PAGE> 26
(2) Financial statements of 50 percent-or-less-owned affiliated
persons are omitted because such persons, in the aggregate, do
not constitute a significant subsidiary.
(A)3. EXHIBITS
(3)(i) Certificate of Incorporation of the Registrant
(filed as Exhibit 3(a) to the Registrant's
Registration Statement on Form S-4 (Reg. No.
33-61969), and incorporated herein by reference).
(3)(ii) By-laws of the Registrant (filed as Exhibit 3(b) to
the Registrant's Registration Statement on Form S-4
(Reg. No. 33-61969), and incorporated herein by
reference).
(4)(a) Loan Agreement between Puerto Rico Industrial,
Medical and Environmental Pollution Control
Facilities Financing Authority and The Upjohn
Company, dated as of December 1, 1983, and Trust
Agreement between Puerto Rico Industrial, Medical
and Environmental Pollution Control Facilities
Financing Authority and The Chase Manhattan Bank
(National Association), Trustee, dated as of
December 1, 1983 (not filed pursuant to Regulation
S-K, Item 601 (b)(4)(iii)(A); the Registrant agrees
to furnish a copy of these documents to the
Securities and Exchange Commission upon request).
(4)(b) Indenture dated as of February 1, 1990, with
respect to debt securities issued by the Upjohn
Employee Stock Ownership Trust and 9.79% Amortizing
Notes, Series A, Due February 1, 2004, issued by
the Upjohn Employee Stock Ownership Trust and
guaranteed by the Registrant (not filed pursuant to
Regulation S-K, Item 601 (b)(4)(iii)(A); the
Registrant agrees to furnish a copy of these
documents to the Securities and Exchange Commission
upon request).
(4)(c) Indenture dated as of August 1, 1991 between the
Company and The Bank of New York, as trustee, with
respect to Debt Securities to be issued thereunder
form time to time (not filed pursuant to Regulation
S-K, Item 601(b)(4)(iii)(A); the Registrant agrees
to furnish a copy of these documents to the
Securities and Exchange Commission upon request.
(10)(a) Form of Indemnification Agreement entered into with
each Officer and Director.
(10)(b) Employment Agreement with J.L. Zabriskie dated
March 7, 1996.
(10)(c) Employment Agreement with G.A. Ando dated January
4, 1996.
(10)(d) Employment Agreement with R.C. Salisbury dated
January 4, 1996.
(10)(e) Consulting Agreement with J. Ekberg dated March 11,
1996.
(10)(f) Registration Rights Agreement dated as of August
20, 1995, among Pharmacia & Upjohn, Inc., The
Upjohn Company, Pharmacia Aktiebolag and AB Volvo
(filed as Exhibit 10(b) to the Registrant's
Registration
-25-
<PAGE> 27
Statement on Form S-4 (Reg. No. 33-61969), and
incorporated herein by reference).
(10)(g) Long Term Incentive Plan
(10)(h) Annual Incentive Plan
(11)(a) Computation of Earnings Per Share - Primary.
(11)(b) Computation of Earnings Per Share - Fully Diluted.
(12) Computation of Ratio of Earnings to Fixed Charges.
(13) Annual Report to Shareholders.
(21) Subsidiaries of the Registrant.
(23) Consent of Independent Accountants.
(27) Financial Data Schedule
(B) REPORTS ON FORM 8-K
None.
-26-
<PAGE> 28
SIGNATURES
Pursuant to the requirements of the 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.
PHARMACIA & UPJOHN, INC.
By: /s/ John L. Zabriskie
---------------------------
John L. Zabriskie
President and Chief Executive
Officer and Director
Pursuant to the requirements of the Securities Exchange Act of
1934, this Registration Report has been signed by the following persons on
behalf of the Registrant in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
Chairman of the Board and March 25, 1996
--------------------------------- Director
Jan Ekberg
/s/ John L. Zabriskie President and Chief Executive March 25, 1996
--------------------------------- Officer and Director
John L. Zabriskie
/s/ Goran Ando Executive Vice President (Chief March 25, 1996
--------------------------------- Accounting Officer)
Goran Ando
/s/ Robert C. Salisbury Executive Vice President (Chief March 25, 1996
--------------------------------- Financial Officer)
Robert C. Salisbury
Director March 25, 1996
---------------------------------
Richard H. Brown
/s/ Frank C. Carlucci Director March 25, 1996
---------------------------------
Frank C. Carlucci
/s/ Gustaf Douglas Director March 25, 1996
---------------------------------
Gustaf Douglas
/s/ M. Kathryn Eickhoff Director March 25, 1996
---------------------------------
M. Kathryn Eickhoff
/s/ Daryl F. Grisham Director March 25, 1996
---------------------------------
Daryl F. Grisham
/s/ Soren Gyll Director March 25, 1996
---------------------------------
Soren Gyll
/s/ William E. La Mothe Director March 25, 1996
---------------------------------
William E. La Mothe
</TABLE>
-27-
<PAGE> 29
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Goran Linden Director March 25, 1996
---------------------------------
Goran Linden
/s/ Berthold Lindquist Director March 25, 1996
---------------------------------
Berthold Lindquist
/s/ Olof Lund Director March 25, 1996
---------------------------------
Olof Lund
/s/ William D. Mulholland Director March 25, 1996
---------------------------------
William D. Mulholland
/s/ William U. Parfet Director March 25, 1996
---------------------------------
William U. Parfet
/s/ Ulla Reinius Director March 25, 1996
---------------------------------
Ulla Reinius
/s/ Bengt Samuelsson Director March 25, 1996
---------------------------------
Bengt Samuelsson
</TABLE>
-28-
<PAGE> 30
EXHIBIT INDEX
Exhibit No. Description
- ----------- ------------
(3)(i) Certificate of Incorporation of the Registrant
(filed as Exhibit 3(a) to the Registrant's
Registration Statement on Form S-4 (Reg. No.
33-61969), and incorporated herein by reference).
(3)(ii) By-laws of the Registrant (filed as Exhibit 3(b) to
the Registrant's Registration Statement on Form S-4
(Reg. No. 33-61969), and incorporated herein by
reference).
(4)(a) Loan Agreement between Puerto Rico Industrial,
Medical and Environmental Pollution Control
Facilities Financing Authority and The Upjohn
Company, dated as of December 1, 1983, and Trust
Agreement between Puerto Rico Industrial, Medical
and Environmental Pollution Control Facilities
Financing Authority and The Chase Manhattan Bank
(National Association), Trustee, dated as of
December 1, 1983 (not filed pursuant to Regulation
S-K, Item 601 (b)(4)(iii)(A); the Registrant agrees
to furnish a copy of these documents to the
Securities and Exchange Commission upon request).
(4)(b) Indenture dated as of February 1, 1990, with
respect to debt securities issued by the Upjohn
Employee Stock Ownership Trust and 9.79% Amortizing
Notes, Series A, Due February 1, 2004, issued by
the Upjohn Employee Stock Ownership Trust and
guaranteed by the Registrant (not filed pursuant to
Regulation S-K, Item 601 (b)(4)(iii)(A); the
Registrant agrees to furnish a copy of these
documents to the Securities and Exchange Commission
upon request).
(4)(c) Indenture dated as of August 1, 1991 between the
Company and The Bank of New York, as trustee, with
respect to Debt Securities to be issued thereunder
form time to time (not filed pursuant to Regulation
S-K, Item 601(b)(4)(iii)(A); the Registrant agrees
to furnish a copy of these documents to the
Securities and Exchange Commission upon request.
(10)(a) Form of Indemnification Agreement entered into with
each Officer and Director.
(10)(b) Employment Agreement with J.L. Zabriskie dated
March 7, 1996.
(10)(c) Employment Agreement with G.A. Ando dated January
4, 1996.
(10)(d) Employment Agreement with R.C. Salisbury dated
January 4, 1996.
(10)(e) Consulting Agreement with J. Ekberg dated March 11,
1996.
(10)(f) Registration Rights Agreement dated as of August
20, 1995, among Pharmacia & Upjohn, Inc., The
Upjohn Company, Pharmacia Aktiebolag and AB Volvo
(filed as Exhibit 10(b) to the Registrant's
Registration Statement on Form S-4 (Reg. No. 33-619
69), and incorporated herein by reference).
(10)(g) Long Term Incentive Plan
(10)(h) Annual Incentive Plan
(11)(a) Computation of Earnings Per Share - Primary.
(11)(b) Computation of Earnings Per Share - Fully Diluted.
(12) Computation of Ratio of Earnings to Fixed Charges.
(13) Annual Report to Shareholders.
(21) Subsidiaries of the Registrant.
(23) Consent of Independent Accountants.
(27) Financial Data Schedule
(B) REPORTS ON FORM 8-K
None.
<PAGE> 1
EXHIBIT (10)(a)
March 25, 1996
- -Name-
Pharmacia & Upjohn, Inc.
Dear -Name-:
In order to induce you to continue as a director of Pharmacia & Upjohn, Inc.
(the "Company") or of one or more of its subsidiaries, the Company hereby
agrees with you as follows:
1. Indemnification. The Company hereby agrees to indemnify you and your
successors referred to in Section 4 to the greatest extent permitted by
applicable law against any and all expenses (including expert witness' and
attorneys' fees and expenses), judgments, fines and amounts paid in settlement
actually and reasonably incurred by you (net of any related insurance proceeds
received by you or paid on your behalf) ("Indemnifiable Expenses") in
connection with any present or future threatened, pending or completed claim,
action, suit or proceeding, whether civil, criminal, administrative or
investigative, based upon, arising from, relating to, or by reason of the fact
that you were, are, shall be or shall have been a director or officer of the
Company, or are or were serving, shall serve or shall have served at the
request of the Company as a director or officer of another corporation,
partnership, joint venture, trust or other enterprise (collectively "Actions");
provided that such indemnification shall not apply to any actions, suits or
proceedings in which you shall have been adjudged liable because of your
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties of your office.
2. Method of Indemnification. If you prevail on the merits or otherwise in
the defense of any Action, or in the event you enter into a settlement
agreement with respect to the same, you shall, upon making a written request to
the Company accompanied by supporting documentation as set forth below, be
entitled to receive promptly from the Company, and the Company hereby covenants
and agrees to provide promptly to you directly, reimbursement in cash for the
total amount of your Indemnifiable Expenses with respect thereto which shall
not have been previously reimbursed by the Company to you. In making a written
request for such reimbursement of Indemnifiable Expenses, you shall submit to
the Company a schedule setting forth in reasonable detail your Indemnifiable
Expenses and the dollar amount expended for each such Indemnifiable Expense.
Such schedule shall be accompanied by a copy of the bill, agreement, judgment
or other documentation relating to each Indemnifiable Expense listed therein.
If you are unsuccessful on the merits in the defense of any Action, you shall
be similarly entitled to receive promptly from the Company directly, upon
making a written request with the supporting documentation described above,
reimbursement in cash for the total amount of your Indemnifiable
<PAGE> 2
Expenses with respect thereto which shall not have been previously reimbursed
by the Company to you, but your written request to the Company must also
include, if the Company shall so request, a written opinion, addressed to the
Company, of independent counsel to the effect that you have not been held to be
liable in such Action because of your willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of your
office and, in the case of any criminal Action, had no reasonable cause to
believe your conduct was unlawful. The term "independent counsel" means, for
this purpose, counsel who has not represented you, the Company or any other
party in such Action and who is reasonably acceptable to the Company.
3. Advance of Indemnifiable Expenses. The amount of Indemnifiable Expenses
previously incurred by you or reasonably expected by you to be incurred by you
within the three months next succeeding a request by you as described below,
and not in either case previously reimbursed by the Company to you, in
defending any Action shall be paid directly to you promptly by the Company upon
your written request or requests, from time to time, which shall include a
schedule setting forth in reasonable detail the amount incurred or reasonably
expected to be incurred within the next three months by you for any
Indemnifiable Expense not previously reimbursed by the Company to you. The
amount paid by the Company to you pursuant to such a request is herein referred
to as an "Advanced Amount."
In any proceeding to which both you and the Company are a party and where there
is an apparent conflict between your defense and that of the Company, you may
request that the items of expenses be held in confidence by the Company's
accounting and finance departments and not disclosed to our senior management
or in-house or outside legal counsel advising the Company in that action.
You hereby agree to repay all Advanced Amounts to the Company promptly after
the final resolution of the Action or proceeding to which such Advanced Amounts
relate if you are not entitled to reimbursement pursuant to Section 2 for the
Indemnifiable Expenses to which such Advanced Amounts relate.
You also agree to repay to the Company the amount by which aggregate Advanced
Amounts with respect to any Action exceed Indemnifiable Expenses with respect
thereto for which you are entitled to reimbursement pursuant to Section 2,
promptly after the final resolution of such Action.
4. Successors; Binding Agreement. The Company shall require each successor
(whether direct or indirect, by purchase, merger, consolidation or otherwise),
if any, to all or substantially all of the business or assets of the Company,
by agreement in form and substance satisfactory to you, expressly to assume and
agree to perform the Company's obligations under this Agreement.
This Agreement shall inure to the benefit of and be binding upon your personal
or legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. If you should die while any amounts would
still be payable to you hereunder if you had continued to live, all such
amounts, unless otherwise provided herein, shall be paid in accordance with the
terms of this Agreement to your devisee, legatee, or other designee, or if
there be no such designee, to your estate.
5. Notice. All notices and other communications pursuant to this Agreement
shall be in writing and shall be deemed to have been duly given when delivered
in person or mailed by registered mail, return receipt requested, postage
prepaid, if to you, at the address at which you receive your Board materials,
and if to the Company, to Kenneth M. Cyrus, Esq., Senior Vice President,
General Counsel and Secretary at the Company's principal business address.
<PAGE> 3
6. Miscellaneous. The provisions of this Agreement shall not be deemed
exclusive of, and shall not diminish, any other right that you may have to be
indemnified or insured by the Company, any subsidiary of the Company or any
other person or entity under any statute, by-law, agreement, policy of
insurance or surety or otherwise, whether or not now in effect. No provision
of this Agreement may be modified, waived or discharged unless such waiver,
modification or discharge is agreed to in writing signed by you and, on behalf
of the Company, by its Chairman of the Board or such other officer as may be
specifically designated for such purpose by the Board of Directors. No waiver
of any right in any respect hereunder by either party hereto shall constitute a
waiver of such right in any other respect or of any other right hereunder and
no such waiver of, or delay in exercising, any right hereunder shall constitute
a waiver of such right, or any other right, at any other time. This Agreement
constitutes the entire agreement, and supersedes all prior agreements, of the
parties with respect to the subject matter hereof. This Agreement shall be
governed by, and construed in accordance with, the laws of the State of
Delaware, without giving effect to the principles of conflicts of laws thereof.
This Agreement shall be effective as of November 21, 1995.
7. Severability. The invalidity or unenforceability in any respect of any
provision of this Agreement shall not affect the validity or enforceability of
such provision in any other respect or of any other provision of this
Agreement, all of which shall remain in full force and effect.
8. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
shall together constitute one and the same instrument.
If this letter correctly sets forth our agreement with respect to the subject
matter hereof, please sign and return to the Company the enclosed copy of this
letter, which shall thereupon constitute a binding agreement between us.
Very truly yours,
Pharmacia & Upjohn, Inc.
By: _____________________________________________________
Kenneth M. Cyrus, Senior Vice President,
General Counsel and Secretary
AGREED TO THIS __________ DAY
OF MARCH, 1996
________________________________________________________
- -Name-
<PAGE> 1
PHARMACIA & UPJOHN, INC. EXHIBIT (10)(b)
March 7, 1996
J. L. Zabriskie
London, England
Dear John:
I am pleased that you will join me as a senior executive of
Pharmacia & Upjohn, although your direct employer will be Pharmacia & Upjohn
Management Company Ltd. (referred to herein as the "Employer"), a subsidiary of
Pharmacia & Upjohn, Inc. (the "Parent"). This letter agreement sets forth the
principal terms of your employment. Capitalized terms not otherwise defined
herein are defined in the last section of this agreement.
1. Term and Duties. The term of this agreement will be in effect
from December 1, 1995, (the "Effective Date") until November 29, 1998 (the
"Initial Term"), and will be automatically renewed for an indefinite period
thereafter (the "Extended Term" and, together with the Initial Term, the
"Term"), unless and until at least sixty (60) days' prior written notice of
termination is given by either party stating the date of termination.
During the Term, you will be employed as President and Chief
Executive Officer of the Employer and will be appointed to a similar position
with the Parent. As part of your duties for the Employer, you shall advise the
Board of Directors of the Parent with respect to the management of the Parent
and, as an employee of the Employer, shall perform services for the Parent that
would customarily be performed by a person holding the same office of the
Parent as you hold. As an officer of the Parent, you agree to fulfill the
duties and obligations of such position as set forth in the By-laws of the
Parent, but will not fulfill any management duties that have been dedicated and
specifically reserved to the Employer under any management services agreement
entered into between the Employer and the Parent.
2. Compensation and Related Matters.
(a) Salary and Annual Incentive. During the Term, your annual
base salary will be at least L.601,300\US$950,000 (subject to annual review)
and will be paid at least monthly. You shall be eligible to participate in the
Parent's annual incentive plan in which senior executives of the Employer may
participate.
*Translated to pounds at 12/1/94-11/30/95 average rate of 0.6329
<PAGE> 2
(b) Long-Term Incentive. You will be eligible to receive stock
option and other awards under the Parent's long-term incentive plan in which
senior executives of the Employer may participate.
(c) Benefits and Perquisites. You will be eligible to receive
employee benefits and perquisites, including vacation, at least as favorable as
those provided to any other similarly situated senior executive of the Employer
or the Parent. Such benefits may be provided under benefit plans maintained by
the Parent in which employees of the Employer may participate.
(d) Regular Retirement Benefits. You will be eligible to
receive retirement benefits under the Employer's retirement plan to be
established for senior executives (or the retirement plan maintained by the
Parent in which senior executives of the Employer may participate) as if you
had been employed by the Employer (or the Parent) for the sum of 28 years plus
your actual years of service with the Employer, the Parent and The Upjohn
Company less the amount of any other retirement benefits you are entitled to
receive by virtue of your employment service with the Employer, the Parent, The
Upjohn Company or any other employer, except for the Retirement Bonus referred
to in paragraph 2(e) below.
(e) Supplemental Retirement Bonus. Provided your employment
with the Employer has not been terminated by you or by the Employer for any
reason prior to November 29, 1997, you shall be entitled to receive upon
termination of your employment a supplemental, non-qualified retirement bonus
(the "Retirement Bonus") as would be equal to 87,629 shares of Common Stock of
the Parent (adjusted as appropriate to reflect any recapitalization or other
changes in the capital stock of the Parent) received on the Effective Date
assuming reinvested, accrued dividends thereon until your employment
termination date.
3. Payments Upon Death or Disability. In the event you should die
or become Disabled prior to November 29, 1997, you or your beneficiary or
estate shall receive the Retirement Bonus described in paragraph 2(e) above but
you or your beneficiary or estate shall not be entitled to any special
severance payment or special continuation of benefits. In the event you should
die or become Disabled on or after November 29, 1997, you or your beneficiary
or estate shall not be entitled to any special severance payment or special
continuation of benefits but may have received the Retirement Bonus if earned
under paragraph 2(e) above.
4. Payments Upon Termination of Employment Prior to November 29,
1997.
(a) If, prior to November 29, 1997, your employment is
terminated (i) by the Employer without Cause, or (ii) by you for Good Reason
(within ninety (90) days following your knowledge of the event constituting
Good Reason), then you will receive:
(1) within sixty (60) days following the date of your
termination, a lump-sum cash amount equal to the sum of your unpaid base salary
through the date of termination (without taking into consideration any
reduction constituting Good Reason), plus any unpaid bonus payments which have
been earned or become payable;
(2) within sixty (60) days following the date of your
termination, a lump-sum cash amount equal to 2.5 times the sum of (without
taking into account any reductions constituting Good Reason): (A) your annual
rate of base salary as of the date of your termination, plus (B) your target
annual incentive bonus for the year of termination; provided, that any such
amount shall be offset by the present value (based upon the Applicable Federal
Rate as defined in the United States Internal Revenue Code of 1986, as amended)
as of the date of your termination of any other amount of severance relating to
salary or bonus continuation to which you might be entitled upon termination of
your employment under any other plan, policy, employment agreement or
arrangement of the Employer or the Parent or as otherwise required by
applicable law, except to the extent, if any, provided in any change-of-control
severance plan or agreement adopted by the Parent or the Employer hereafter
under which you are entitled to benefits (the "Offset");
<PAGE> 3
(3) for a period terminating on the earlier of (A) thirty
(30) months following the date of your termination of employment, or (B) the
commencement date of equivalent benefits from a new employer, the Employer
shall continue to keep in full force and effect (or otherwise provide) all
policies of medical, accident, disability and life insurance with respect to
you and your dependents with the same level of coverage, upon the same terms
and otherwise to the same extent, as such policies shall have been in effect
immediately prior to the date of your termination, and the Employer and you
shall share the costs of such continuation of coverage in the same proportion
as such costs were shared immediately prior to the date of your termination.
If, at the end of thirty (30) months following the date of your termination,
you have not reached your normal retirement date under the retirement plan
maintained by the Employer for senior executives, and you did not previously
receive and are not then receiving equivalent benefits from a new employer, the
Employer shall use its best efforts to arrange to enable you to convert your
coverage to individual policies or programs upon the same terms as other
employees of the Employer may apply for such conversions; and
(4) your period of employment service used to calculate
retirement benefits and other employee benefits shall be extended as if you had
worked until November 29, 1997 and the compensation used to calculate your
retirement benefits will be determined as if you had continued to receive your
then current salary and target bonus award until November 29, 1997.
(b) If, prior to November 29, 1997, your employment shall be
terminated (i) by the Employer for Cause, or (ii) by you without Good Reason
(each a "Nonqualifying Termination"), then the Employer shall pay you within
sixty (60) days following the date of your employment termination, a lump sum
cash amount equal to the sum of your unpaid base salary through the date of
termination plus any unpaid bonus payments which have been earned or become
payable. In the event your employment is so terminated, you shall not be
entitled to any special severance payment or continuation of benefits.
5. Payments Upon Termination of Employment On or After November 29, 1997.
(a) If, on or after November 29, 1997 and prior to the end of
the Extended Term, your employment is terminated (i) by the Employer without
Cause, or (ii) by you for Good Reason (within ninety (90) days following your
knowledge of the event constituting Good Reason), then the Employer shall pay
or provide to you:
(1) within sixty (60) days following the date of your
termination, a lump-sum cash amount equal to the sum of your unpaid base salary
from the Employer through the date of termination (without taking into account
any reduction of base salary constituting Good Reason), plus any unpaid bonus
payments which have been earned or become payable.
(2) within sixty (60) days following the date of your
termination, a lump-sum cash amount equal to two (2) times the sum of (without
taking into account any reductions constituting Good Reason): (A) your annual
rate of base salary as of the date of your termination, plus (B) your target
annual incentive bonus for the year of termination, provided, that any such
amount shall be subject to the Offset described above;
(3) for a period terminating on the earlier of (A)
twenty-four (24) months following the date of your termination, or (B) the
commencement date of equivalent benefits from a new employer, the Employer
shall continue to keep in full force and effect (or otherwise provide) all
policies of medical, accident, disability and life insurance with respect to
you and your dependents with the same level of coverage, upon the same terms
and otherwise to the same extent, as such policies shall have been in effect
immediately prior to the date of your termination, and the Employer and you
shall share the costs of such continuation of coverage in the same proportion
as such costs were shared immediately prior to the date of termination.
(b) If, on or after November 29, 1997, your employment shall
terminate by reason of a Nonqualifying Termination, then the Employer shall pay
you within thirty (30) days following the date of termination a lump sum cash
amount equal to the sum of your unpaid base salary from the Employer
<PAGE> 4
through the date of termination plus any unpaid bonus payments which have been
earned or become payable. In the event your employment is so terminated, you
shall not be entitled to any special severance payment or special continuation
of benefits.
6. Repatriation. You will be entitled, at your option, to be repatriated
to your home country and be employed by the primary operating subsidiary of the
Parent in your home country at least thirty days prior to the end of the final
Term of this agreement. You must notify the Parent's primary officer
responsible for Human Resources of your desire to repatriate within thirty days
after the written notice of intention not to renew the Term is given under
paragraph 1 of this Agreement. In the event you elect to be repatriated, you
shall be entitled to all benefits customarily available to extended - term
expatriates under the Parent's repatriation policy then in effect, including
the right to be enrolled, with recognition of past service credit, in all
benefit plans generally maintained for employees of the home country subsidiary
of the Parent employing you upon your repatriation.
7. Home Repurchase. If you are terminated by the Employer other than for
Cause, or you resign for Good Reason prior to the expiration of the Term, or
you are required to relocate outside the greater London area to continue your
employment, the Employer shall pay you the difference, if any, (net of taxes)
between the arm's length sales price of your primary family residence in London
and the net purchase price paid by you to acquire such residence plus the cost
of any capital improvements added to such residence since your purchase,
together with reimbursement of realtor fees, closing costs and other customary
selling expenses incurred by you.
8. Guaranty of the Parent. Notwithstanding anything contained herein to
the contrary, the Parent shall be liable for, and agrees to pay, any amounts
owed to you hereunder in the event of the non-performance of the Employer.
9. Withholding Taxes. The Employer may withhold from all payments due to
you (or your beneficiary or estate) hereunder all taxes which the Employer is
required to withhold therefrom by applicable law.
10. Reimbursement of Expenses. Expenses incurred by you in connection with
your employment duties shall be reimbursed by the Employer upon presentation of
appropriate documentation for such expenses. If, in addition, any contest or
dispute shall arise under this agreement involving termination of your
employment with the Employer or involving the failure or refusal of the
Employer or the Parent to perform fully in accordance with the terms hereof,
the Employer shall reimburse you, on a current basis, for your reasonable legal
fees and expenses, if any, incurred by you in connection with such contest or
dispute regardless of the result thereof. Any dispute over the reasonableness
of legal fees shall be submitted to an arbitrator for resolution.
11. Successors; Binding Agreement.
(a) This agreement shall not be terminated by any merger or
consolidation of the Employer or the Parent or any transfer of all or
substantially all of the assets of the Employer or the Parent. In the event of
any such merger, consolidation or transfer of assets, the provisions of this
agreement shall be binding upon the surviving or resulting corporation or the
person or entity to which such assets are transferred.
(b) The Employer agrees that concurrently with any merger,
consolidation or transfer of assets referred to above, it will cause any
successor or transferee unconditionally to assume all of the obligations of the
Employer hereunder. Failure of the Employer to obtain such assumption prior to
the effectiveness of any such merger, consolidation or transfer of assets shall
constitute Good Reason hereunder and shall entitle you, upon termination of
employment, to compensation and other benefits from the Employer in the same
amount and on the same terms that you would be entitled hereunder if your
employment were terminated following any such transaction other than by reason
of a Nonqualifying Termination. For purposes of implementing the foregoing,
the date on which any such merger, consolidation or transfer becomes effective
shall be deemed the date Good Reason occurs.
<PAGE> 5
(c) This agreement shall inure to the benefit of and be
enforceable by or against you or your personal or legal representatives,
executors, administrators, successors, heirs, distributees, devisees and
legatees. If you should die while any amounts would be payable to you
hereunder had you continued to live, all such amounts, unless otherwise
provided herein, shall be paid in accordance with the terms of this agreement
to such person or persons appointed in writing by you to receive such amounts
or, if no person is so appointed, to your estate.
12. Full Settlement. The obligation of the Employer and the Parent to
make any payments provided for hereunder and otherwise to perform their
obligations hereunder shall not be affected by any set-off, counterclaim,
recoupment, defense or other claim, right or action which the Employer or the
Parent may have against you or others. In no event shall you be obligated to
seek other employment or take other action by way of mitigation of the amounts
payable to you under any of the provisions of this agreement, and such amounts
shall not be reduced (except as otherwise specifically provided herein) whether
or not you obtain other employment.
13. Noncompetition. Without the written consent of the Chairman of the
Board of the Parent, you agree that for a period of two years following the
termination of your employment with the Employer (regardless of the reason for
the termination) you will not commence employment with, or provide substantial
consulting services to, any pharmaceutical company (except companies where
sales from pharmaceutical products constitute less than 20% of total sales).
In the event that you engage in the conduct proscribed by this paragraph, you
agree to repay any lump-sum severance amount received by you hereunder and all
outstanding stock options held by you shall expire three months following your
commencement of such employment or provision of such services. In the event of
a breach or threatened breach of this provision, you agree that the Employer
shall be entitled to injunctive relief in a court of appropriate jurisdiction
to remedy such breach or threatened breach.
14. Notice. For the purposes of this letter agreement, notices, demands
and all other communications provided for herein shall be in writing and shall
be deemed to have been duly given when delivered or (unless otherwise
specified) mailed by United States certified or registered mail, return receipt
requested, postage prepaid, addressed to you at your last known business
address or to the Employer or the Parent at the business address of the
Employer or the Parent, as the case may be, or to such other address as any
party may have furnished to the others in writing in accordance herewith,
except that notices of change of address shall be effective only upon receipt.
15. Amendment, Waiver. No provisions of this agreement may be waived,
modified or discharged unless such waiver, modification or discharge is agreed
to in writing signed by both you and an authorized officer of the Employer
(and, where affecting the rights or duties of the Parent, by the Parent). No
waiver by any party hereto at any time of any breach by any other party hereto
of, or compliance with, any condition or provision of this agreement to be
performed by such other party shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same or at any prior or subsequent time. No
agreements or representations, oral or otherwise, express or implied, with
respect to the subject matter hereof have been made by any party which are not
set forth expressly in this agreement.
16. Employment with Subsidiaries. Employment with the Employer for
purposes of this agreement shall include employment with any corporation or
other entity in which the Employer or the Parent has a direct or indirect
ownership of 50% or more of the total combined voting power of the then
outstanding securities of such corporation or other entity entitled to vote
generally in the election of directors.
17. Entire Agreement. This agreement sets forth the entire agreement of
the parties hereto in respect of the subject matter contained herein and
supersedes all prior agreements, promises, covenants, arrangements,
communications, representations or warranties, whether oral or written, by any
officer, employee or representative of any party hereto in respect of the
subject matter contained herein.
<PAGE> 6
18. Governing Law; Validity. The interpretation, construction and
performance of this agreement shall be governed by and construed and enforced
in accordance with the laws of the jurisdiction in which the Employer is
incorporated without regard to the principle of conflicts of laws. The
invalidity or unenforceability of any provision of this agreement shall not
affect the validity or enforceability of any other provision of this agreement,
which other provisions shall remain in full force and effect.
19. Definitions. For purposes of this agreement:
(i) "Cause" means (1) a material breach by you of your duties and
responsibilities (other than as a result of incapacity due to physical or
mental illness) which is demonstrably willful and deliberate on your part,
which is committed in bad faith or without reasonable belief that such breach
is in the best interests of the Employer (and its affiliates, including the
Parent) and which is not remedied in a reasonable period of time after receipt
of written notice from the Employer specifying such breach or
(ii) the willful commission by you of illegal conduct which is
materially and demonstrably injurious to the Employer (or its affiliates,
including the Parent). The determination of Cause shall be made in the sole
discretion of the Board of Directors of the Parent or such individual or
individuals to whom such authority shall have been delegated by such Board.
(ii) "Disability" means disability as defined in the disability
plan applicable to executive officers of the Employer;
(iii) "Good Reason" means, without your express written consent,
the occurrence of one of the following events:
(A) a reduction by the Employer in your rate of
annual base salary or in the target amount of your
annual cash incentive bonus as the same may be
increased from time to time hereafter, except to
the extent such reduction is applied
proportionately to all other officers of the
Employer and the Parent, (B) the failure of the
Employer to continue in effect any employee
benefit plan or compensation plan in which you are
participating following the Effective Date, unless
you are permitted to participate in other plans
providing you with substantially comparable
benefits, or the taking of any action by the
Employer which would adversely affect your
participation in or materially reduce your
benefits under any such plan, provided, however,
that changes affecting the participation or
benefits of all similarly situated executives
shall not be treated as Good Reason hereunder, (C)
employment responsibilities, provided, however,
that changes in title or changes in the affiliate
of the Parent which employs you shall not be
treated as Good Reason hereunder, or (D) the
failure of the Employer to comply with the
assumption provisions of this agreement; and
(iv) "Retirement" means termination of employment (other than
termination for Cause) on or after your normal retirement date under the
retirement plan maintained by the Employer or by the Parent under which you are
covered.
Very truly yours,
Jan Ekberg Richard H. Brown
Chairman of the Board Chairman, Compensation Committee
<PAGE> 7
Agreed and accepted this _____________ day of March, 1996
By:_________________________________
<PAGE> 1
EXHIBIT (10)(c)
January 4, 1996
G. Ando
London, England
Dear Goran:
I am pleased that you will join me as a senior executive of
Pharmacia & Upjohn, although your direct employer will be Pharmacia & Upjohn
Management Company Ltd. (referred to herein as the "Employer"), a subsidiary of
Pharmacia & Upjohn, Inc. (the "Parent"). This letter agreement sets forth the
principal terms of your employment. Capitalized terms not otherwise defined
herein are defined in the last section of this agreement.
1. Term and Duties. The term of this agreement will be in effect
from December 1, 1995, (the "Effective Date") until November 29, 1998 (the
"Initial Term"), and will be automatically renewed for an indefinite period
thereafter (the "Extended Term" and, together with the Initial Term, the
"Term"), unless and until at least sixty (60) days' prior written notice of
termination is given by either party stating the date of termination.
During the Term, you will be employed as Executive Vice President,
Worldwide Science & Technology, of the Employer and will be appointed to a
similar position with the Parent. As part of your duties for the Employer, you
shall advise the Chief Executive Officer and the Board of Directors of the
Parent with respect to the management of the Parent and, as an employee of the
Employer, shall perform services for the Parent that would customarily be
performed by a person holding the same office of the Parent as you hold. As an
officer of the Parent, you agree to fulfill the duties and obligations of such
position as set forth in the By-laws of the Parent, but will not fulfill any
management duties that have been dedicated and specifically reserved to the
Employer under any management services agreement entered into between the
Employer and the Parent.
2. Compensation and Related Matters.
(a) Salary and Annual Incentive. During the Term, your annual
base salary will be at least (Pounds Sterling) 338,600\US$535,000* (subject to
annual review) and will be paid at least monthly. You shall be eligible to
participate in the Parent's annual incentive plan in which senior executives
of the Employer may participate.
*Translated to pounds at 12/1/94-11/30/95 average rate of 0.6329
<PAGE> 2
(b) Long-Term Incentive. You will be eligible to receive stock
option and other awards under the Parent's long-term incentive plan in which
senior executives of the Employer may participate.
(c) Benefits and Perquisites. You will be eligible to receive
employee benefits and perquisites, including vacation, at least as favorable as
those provided to any other similarly situated senior executive of the Employer
or the Parent. Such benefits may be provided under benefit plans maintained by
the Parent in which employees of the Employer may participate.
(d) Regular Retirement Benefits. You will be eligible to
receive retirement benefits under the Employer's retirement plan to be
established for senior executives (or the retirement plan maintained by the
Parent in which senior executives of the Employer may participate).
3. Payments Upon Termination of Employment Prior to November 29,
1997.
(a) If, prior to November 29, 1997, your employment is
terminated (i) by the Employer without Cause, or (ii) by you for Good Reason
(within ninety (90) days following your knowledge of the event constituting
Good Reason), then you will receive:
(1) within sixty (60) days following the date of your
termination, a lump-sum cash amount equal to the sum of your unpaid base salary
through the date of termination (without taking into consideration any
reduction constituting Good Reason), plus any unpaid bonus payments which have
been earned or become payable;
(2) within sixty (60) days following the date of your
termination, a lump-sum cash amount equal to 2.5 times the sum of (without
taking into account any reductions constituting Good Reason): (A) your annual
rate of base salary as of the date of your termination, plus (B) your target
annual incentive bonus for the year of termination; provided, that any such
amount shall be offset by the present value (based upon the Applicable Federal
Rate as defined in the United States Internal Revenue Code of 1986, as amended)
as of the date of your termination of any other amount of severance relating to
salary or bonus continuation to which you might be entitled upon termination of
your employment under any other plan, policy, employment agreement or
arrangement of the Employer or the Parent or as otherwise required by
applicable law, except to the extent, if any, provided in any change-of-control
severance plan or agreement adopted by the Parent or the Employer hereafter
under which you are entitled to benefits (the "Offset");
(3) for a period terminating on the earlier of (A) thirty
(30) months following the date of your termination of employment, or (B) the
commencement date of equivalent benefits from a new employer, the Employer
shall continue to keep in full force and effect (or otherwise provide) all
policies of medical, accident, disability and life insurance with respect to
you and your dependents with the same level of coverage, upon the same terms
and otherwise to the same extent, as such policies shall have been in effect
immediately prior to the date of your termination, and the Employer and you
shall share the costs of such continuation of coverage in the same proportion
as such costs were shared immediately prior to the date of your termination.
If, at the end of thirty (30) months following the date of your termination,
you have not reached your normal retirement date under the retirement plan
maintained by the Employer for senior executives, and you did not previously
receive and are not then receiving equivalent benefits from a new employer, the
Employer shall use its best efforts to arrange to enable you to convert your
coverage to individual policies or programs upon the same terms as other
employees of the Employer may apply for such conversions; and
(4) your period of employment service used to calculate
retirement benefits and other employee benefits shall be extended as if you had
worked until November 29, 1997 and the compensation used to calculate your
retirement benefits will be determined as if you had continued to receive your
then current salary and target bonus award until November 29, 1997.
(b) If, prior to November 29, 1997, your employment shall be
terminated (i) by the Employer for Cause, or (ii) by you without Good Reason
(each a "Nonqualifying Termination"), then
<PAGE> 3
the Employer shall pay you within sixty (60) days following the date of your
employment termination, a lump sum cash amount equal to the sum of your unpaid
base salary through the date of termination plus any unpaid bonus payments
which have been earned or become payable. In the event your employment is so
terminated, you shall not be entitled to any special severance payment or
continuation of benefits.
4. Payments Upon Termination of Employment On or After November 29, 1997.
(a) If, on or after November 29, 1997 and prior to the end of
the Extended Term, your employment is terminated (i) by the Employer without
Cause, or (ii) by you for Good Reason (within ninety (90) days following your
knowledge of the event constituting Good Reason), then the Employer shall pay
or provide to you:
(1) within sixty (60) days following the date of your
termination, a lump-sum cash amount equal to the sum of your unpaid base salary
from the Employer through the date of termination (without taking into account
any reduction of base salary constituting Good Reason), plus any unpaid bonus
payments which have been earned or become payable.
(2) within sixty (60) days following the date of your
termination, a lump-sum cash amount equal to two (2) times the sum of (without
taking into account any reductions constituting Good Reason): (A) your annual
rate of base salary as of the date of your termination, plus (B) your target
annual incentive bonus for the year of termination, provided, that any such
amount shall be subject to the Offset described above;
(3) for a period terminating on the earlier of (A)
twenty-four (24) months following the date of your termination, or (B) the
commencement date of equivalent benefits from a new employer, the Employer
shall continue to keep in full force and effect (or otherwise provide) all
policies of medical, accident, disability and life insurance with respect to
you and your dependents with the same level of coverage, upon the same terms
and otherwise to the same extent, as such policies shall have been in effect
immediately prior to the date of your termination, and the Employer and you
shall share the costs of such continuation of coverage in the same proportion
as such costs were shared immediately prior to the date of termination.
(b) If, on or after November 29, 1997, your employment shall
terminate by reason of a Nonqualifying Termination, then the Employer shall pay
you within thirty (30) days following the date of termination a lump sum cash
amount equal to the sum of your unpaid base salary from the Employer through
the date of termination plus any unpaid bonus payments which have been earned
or become payable. In the event your employment is so terminated, you shall
not be entitled to any special severance payment or continuation of benefits.
5. Repatriation. You will be entitled, at your option, to be repatriated
to your home country and be employed by the primary operating subsidiary of the
Parent in your home country at least thirty days prior to the end of the final
Term of this agreement. You must notify the Parent's primary officer
responsible for Human Resources of your desire to repatriate within thirty days
after the written notice of intention not to renew the Term is given under
paragraph 1 of this Agreement. In the event you elect to be repatriated, you
shall be entitled to all benefits customarily available to extended - term
expatriates under the Parent's repatriation policy then in effect, including
the right to be enrolled, with recognition of past service credit, in all
benefit plans generally maintained for employees of the home country subsidiary
of the Parent employing you upon your repatriation.
6. Guaranty of the Parent. Notwithstanding anything contained herein to
the contrary, the Parent shall be liable for, and agrees to pay, any amounts
owed to you hereunder in the event of the non-performance of the Employer.
7. Withholding Taxes. The Employer may withhold from all payments due to
you (or your beneficiary or estate) hereunder all taxes which the Employer is
required to withhold therefrom by applicable law.
<PAGE> 4
8. Reimbursement of Expenses. Expenses incurred by you in connection with
your employment duties shall be reimbursed by the Employer upon presentation of
appropriate documentation for such expenses. If, in addition, any contest or
dispute shall arise under this agreement involving termination of your
employment with the Employer or involving the failure or refusal of the
Employer or the Parent to perform fully in accordance with the terms hereof,
the Employer shall reimburse you, on a current basis, for all legal fees and
expenses, if any, incurred by you in connection with such contest or dispute
regardless of the result thereof.
9. Successors; Binding Agreement.
(a) This agreement shall not be terminated by any merger or
consolidation of the Employer or the Parent or any transfer of all or
substantially all of the assets of the Employer or the Parent. In the event of
any such merger, consolidation or transfer of assets, the provisions of this
agreement shall be binding upon the surviving or resulting corporation or the
person or entity to which such assets are transferred.
(b) The Employer agrees that concurrently with any merger,
consolidation or transfer of assets referred to above, it will cause any
successor or transferee unconditionally to assume all of the obligations of the
Employer hereunder. Failure of the Employer to obtain such assumption prior to
the effectiveness of any such merger, consolidation or transfer of assets shall
constitute Good Reason hereunder and shall entitle you, upon termination of
employment, to compensation and other benefits from the Employer in the same
amount and on the same terms that you would be entitled hereunder if your
employment were terminated following any such transaction other than by reason
of a Nonqualifying Termination. For purposes of implementing the foregoing,
the date on which any such merger, consolidation or transfer becomes effective
shall be deemed the date Good Reason occurs.
(c) This agreement shall inure to the benefit of and be
enforceable by or against you or your personal or legal representatives,
executors, administrators, successors, heirs, distributees, devisees and
legatees. If you should die while any amounts would be payable to you
hereunder had you continued to live, all such amounts, unless otherwise
provided herein, shall be paid in accordance with the terms of this agreement
to such person or persons appointed in writing by you to receive such amounts
or, if no person is so appointed, to your estate.
11. Full Settlement. The obligation of the Employer and the Parent to
make any payments provided for hereunder and otherwise to perform their
obligations hereunder shall not be affected by any set-off, counterclaim,
recoupment, defense or other claim, right or action which the Employer or the
Parent may have against you or others. In no event shall you be obligated to
seek other employment or take other action by way of mitigation of the amounts
payable to you under any of the provisions of this agreement, and such amounts
shall not be reduced (except as otherwise specifically provided herein) whether
or not you obtain other employment.
12. Noncompetition. Without the written consent of the President and
Chief Executive Officer of the Parent, you agree that for a period of two years
following the termination of your employment with the Employer (regardless of
the reason for the termination) you will not commence employment with, or
provide substantial consulting services to, any pharmaceutical company (except
companies where sales from pharmaceutical products constitute less than 20% of
total sales). In the event that you engage in the conduct proscribed by this
paragraph, you agree to repay any lump-sum severance amount received by you
hereunder and all outstanding stock options held by you shall expire three
months following your commencement of such employment or provision of such
services. In the event of a breach or threatened breach of this provision, you
agree that the Employer shall be entitled to injunctive relief in a court of
appropriate jurisdiction to remedy such breach or threatened breach.
13. Notice. For the purposes of this letter agreement, notices, demands
and all other communications provided for herein shall be in writing and shall
be deemed to have been duly given when delivered or (unless otherwise
specified) mailed by United States certified or registered mail, return receipt
requested, postage prepaid, addressed to you at your last known business
address or to the Employer or the Parent at the business address of the
Employer or the Parent, as the case may
<PAGE> 5
be, or to such other address as any party may have furnished to the others in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
14. Amendment, Waiver. No provisions of this agreement may be waived,
modified or discharged unless such waiver, modification or discharge is agreed
to in writing signed by both you and an authorized officer of the Employer
(and, where affecting the rights or duties of the Parent, by the Parent). No
waiver by any party hereto at any time of any breach by any other party hereto
of, or compliance with, any condition or provision of this agreement to be
performed by such other party shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same or at any prior or subsequent time. No
agreements or representations, oral or otherwise, express or implied, with
respect to the subject matter hereof have been made by any party which are not
set forth expressly in this agreement.
15. Employment with Subsidiaries. Employment with the Employer for
purposes of this agreement shall include employment with any corporation or
other entity in which the Employer or the Parent has a direct or indirect
ownership of 50% or more of the total combined voting power of the then
outstanding securities of such corporation or other entity entitled to vote
generally in the election of directors.
16. Entire Agreement. This agreement sets forth the entire agreement of
the parties hereto in respect of the subject matter contained herein and
supersedes all prior agreements, promises, covenants, arrangements,
communications, representations or warranties, whether oral or written, by any
officer, employee or representative of any party hereto in respect of the
subject matter contained herein.
17. Governing Law; Validity. The interpretation, construction and
performance of this agreement shall be governed by and construed and enforced
in accordance with the laws of the jurisdiction in which the Employer is
incorporated without regard to the principle of conflicts of laws. The
invalidity or unenforceability of any provision of this agreement shall not
affect the validity or enforceability of any other provision of this agreement,
which other provisions shall remain in full force and effect.
18. Definitions. For purposes of this agreement:
(i) "Cause" means (1) a material breach by you of your duties
and responsibilities (other than as a result of incapacity due to physical or
mental illness) which is demonstrably willful and deliberate on your part,
which is committed in bad faith or without reasonable belief that such breach
is in the best interests of the Employer (and its affiliates, including the
Parent) and which is not remedied in a reasonable period of time after receipt
of written notice from the Employer specifying such breach or (2) the willful
commission by you of illegal conduct which is materially and demonstrably
injurious to the Employer (or its affiliates, including the Parent). The
determination of Cause shall be made in the sole discretion of the Board of
Directors of the Parent or such individual or individuals to whom such
authority shall have been delegated by such Board.
(ii) "Disability" means disability as defined in the disability
plan applicable to executive officers of the Employer;
(iii) "Good Reason" means, without your express written
consent, the occurrence of one of the following events:
(A) a reduction by the Employer in your rate of
annual base salary or in the target amount of your
annual cash incentive bonus as the same may be
increased from time to time hereafter, except to
the extent such reduction is applied
proportionately to all other officers of the
Employer and the Parent, (B) the failure of the
Employer to continue in effect any employee
benefit plan or compensation plan in which you are
participating following the Effective Date, unless
you are permitted to participate in other plans
providing you with substantially comparable
benefits, or the taking of any
<PAGE> 6
action by the Employer which would adversely
affect your participation in or materially reduce
your benefits under any such plan, provided,
however, that changes affecting the participation
or benefits of all similarly situated executives
shall not be treated as Good Reason hereunder, (C)
a materially adverse change in the level of your
employment responsibilities, provided, however,
that changes in title or changes in the affiliate
of the Parent which employs you shall not be
treated as Good Reason hereunder, or (D) the
failure of the Employer to comply with the
assumption provisions of this agreement; and
(iv) "Retirement" means termination of employment (other
than termination for Cause) on or after your normal retirement date under the
retirement plan maintained by the Employer or by the Parent under which you are
covered.
Very truly yours,
John L. Zabriskie
President and Chief Executive Officer
Agreed and accepted this ___ day of January, 1996
By:_________________________________
<PAGE> 1
EXHIBIT (10)(d)
January 4, 1996
R. C. Salisbury
London, England
Dear Bob:
I am pleased that you will join me as a senior executive of
Pharmacia & Upjohn, although your direct employer will be Pharmacia & Upjohn
Management Company Ltd. (referred to herein as the "Employer"), a subsidiary of
Pharmacia & Upjohn, Inc. (the "Parent"). This letter agreement sets forth the
principal terms of your employment. Capitalized terms not otherwise defined
herein are defined in the last section of this agreement.
1. Term and Duties. The term of this agreement will be in effect
from December 1, 1995, (the "Effective Date") until November 29, 1998 (the
"Initial Term"), and will be automatically renewed for an indefinite period
thereafter (the "Extended Term" and, together with the Initial Term, the
"Term"), unless and until at least sixty (60) days' prior written notice of
termination is given by either party stating the date of termination.
During the Term, you will be employed as Executive Vice President,
Finance and Administration, and Chief Financial Officer of the Employer and
will be appointed to a similar position with the Parent. As part of your
duties for the Employer, you shall advise the Chief Executive Officer and the
Board of Directors of the Parent with respect to the management of the Parent
and, as an employee of the Employer, shall perform services for the Parent that
would customarily be performed by a person holding the same office of the
Parent as you hold. As an officer of the Parent, you agree to fulfill the
duties and obligations of such position as set forth in the By-laws of the
Parent, but will not fulfill any management duties that have been dedicated and
specifically reserved to the Employer under any management services agreement
entered into between the Employer and the Parent.
2. Compensation and Related Matters.
(a) Salary and Annual Incentive. During the Term, your annual
base salary will be at least pounds sterling 269,000\US$425,000* (subject to
annual review) and will be paid at least monthly. You shall be eligible to
participate in the Parent's annual incentive plan in which senior executives of
the Employer may participate.
*Translated to pounds at 12/1/94-11/30/95 average rate of 0.6329
<PAGE> 2
(b) Long-Term Incentive. You will be eligible to receive stock
option and other awards under the Parent's long-term incentive plan in which
senior executives of the Employer may participate.
(c) Benefits and Perquisites. You will be eligible to receive
employee benefits and perquisites, including vacation, at least as favorable as
those provided to any other similarly situated senior executive of the Employer
or the Parent. Such benefits may be provided under benefit plans maintained by
the Parent in which employees of the Employer may participate.
(d) Regular Retirement Benefits. You will be eligible to
receive retirement benefits under the Employer's retirement plan to be
established for senior executives (or the retirement plan maintained by the
Parent in which senior executives of the Employer may participate).
(e) Supplemental Retirement Bonus. Provided your employment
with the Employer has not been terminated by you or by the Employer for any
reason prior to November 29, 1997, you shall be entitled to receive upon
termination of your employment a supplemental, non- qualified retirement bonus
(the "Retirement Bonus") as would be equal to 30,876 shares of Common Stock of
the Parent (adjusted as appropriate to reflect any recapitalization or other
changes in the capital stock of the Parent) received on the Effective Date
assuming reinvested, accrued dividends thereon until your employment
termination date.
3. Payments Upon Death or Disability. In the event you should die
or become Disabled prior to November 29, 1997, you or your beneficiary or
estate shall receive the Retirement Bonus described in paragraph 2(e) above but
you or your beneficiary or estate shall not be entitled to any special
severance payment or special continuation of benefits. In the event you should
die or become Disabled on or after November 29, 1997, you or your beneficiary
or estate shall not be entitled to any special severance payment or special
continuation of benefits but may have received the Retirement Bonus if earned
under paragraph 2(e) above.
4. Payments Upon Termination of Employment Prior to November 29,
1997.
(a) If, prior to November 29, 1997, your employment is
terminated (i) by the Employer without Cause, or (ii) by you for Good Reason
(within ninety (90) days following your knowledge of the event constituting
Good Reason), then you will receive:
(1) within sixty (60) days following the date of your
termination, a lump-sum cash amount equal to the sum of your unpaid base salary
through the date of termination (without taking into consideration any
reduction constituting Good Reason), plus any unpaid bonus payments which have
been earned or become payable;
(2) within sixty (60) days following the date of your
termination, a lump-sum cash amount equal to 2.5 times the sum of (without
taking into account any reductions constituting Good Reason): (A) your annual
rate of base salary as of the date of your termination, plus (B) your target
annual incentive bonus for the year of termination; provided, that any such
amount shall be offset by the present value (based upon the Applicable Federal
Rate as defined in the United States Internal Revenue Code of 1986, as amended)
as of the date of your termination of any other amount of severance relating to
salary or bonus continuation to which you might be entitled upon termination of
your employment under any other plan, policy, employment agreement or
arrangement of the Employer or the Parent or as otherwise required by
applicable law, except to the extent, if any, provided in any change-of-control
severance plan or agreement adopted by the Parent or the Employer hereafter
under which you are entitled to benefits (the "Offset");
(3) for a period terminating on the earlier of (A) thirty
(30) months following the date of your termination of employment, or (B) the
commencement date of equivalent benefits from a new employer, the Employer
shall continue to keep in full force and effect (or otherwise provide) all
policies of medical, accident, disability and life insurance with respect to
you and your dependents with the same level of coverage, upon the same terms
and otherwise to the same extent, as such policies shall have been in effect
immediately prior to the date of your termination, and the Employer and you
<PAGE> 3
shall share the costs of such continuation of coverage in the same proportion
as such costs were shared immediately prior to the date of your termination.
If, at the end of thirty (30) months following the date of your termination,
you have not reached your normal retirement date under the retirement plan
maintained by the Employer for senior executives, and you did not previously
receive and are not then receiving equivalent benefits from a new employer, the
Employer shall use its best efforts to arrange to enable you to convert your
coverage to individual policies or programs upon the same terms as other
employees of the Employer may apply for such conversions; and
(4) your period of employment service used to calculate
retirement benefits and other employee benefits shall be extended as if you had
worked until November 29, 1997 and the compensation used to calculate your
retirement benefits will be determined as if you had continued to receive your
then current salary and target bonus award until November 29, 1997.
(b) If, prior to November 29, 1997, your employment shall be
terminated (i) by the Employer for Cause, or (ii) by you without Good Reason
(each a "Nonqualifying Termination"), then the Employer shall pay you within
sixty (60) days following the date of your employment termination, a lump sum
cash amount equal to the sum of your unpaid base salary through the date of
termination plus any unpaid bonus payments which have been earned or become
payable. In the event your employment is so terminated, you shall not be
entitled to any special severance payment or continuation of benefits.
5. Payments Upon Termination of Employment On or After November 29, 1997.
(a) If, on or after November 29, 1997 and prior to the end of
the Extended Term, your employment is terminated (i) by the Employer without
Cause, or (ii) by you for Good Reason (within ninety (90) days following your
knowledge of the event constituting Good Reason), then the Employer shall pay
or provide to you:
(1) within sixty (60) days following the date of your
termination, a lump-sum cash amount equal to the sum of your unpaid base salary
from the Employer through the date of termination (without taking into account
any reduction of base salary constituting Good Reason), plus any unpaid bonus
payments which have been earned or become payable.
(2) within sixty (60) days following the date of your
termination, a lump-sum cash amount equal to two (2) times the sum of (without
taking into account any reductions constituting Good Reason): (A) your annual
rate of base salary as of the date of your termination, plus (B) your target
annual incentive bonus for the year of termination, provided, that any such
amount shall be subject to the Offset described above;
(3) for a period terminating on the earlier of (A)
twenty-four (24) months following the date of your termination, or (B) the
commencement date of equivalent benefits from a new employer, the Employer
shall continue to keep in full force and effect (or otherwise provide) all
policies of medical, accident, disability and life insurance with respect to
you and your dependents with the same level of coverage, upon the same terms
and otherwise to the same extent, as such policies shall have been in effect
immediately prior to the date of your termination, and the Employer and you
shall share the costs of such continuation of coverage in the same proportion
as such costs were shared immediately prior to the date of termination.
(b) If, on or after November 29, 1997, your employment shall
terminate by reason of a Nonqualifying Termination, then the Employer shall pay
you within thirty (30) days following the date of termination a lump sum cash
amount equal to the sum of your unpaid base salary from the Employer through
the date of termination plus any unpaid bonus payments which have been earned
or become payable. In the event your employment is so terminated, you shall
not be entitled to any special severance payment or continuation of benefits.
6. Repatriation. You will be entitled, at your option, to be repatriated
to your home country and
<PAGE> 4
be employed by the primary operating subsidiary of the Parent in your home
country at least thirty days prior to the end of the final Term of this
agreement. You must notify the Parent's primary officer responsible for Human
Resources of your desire to repatriate within thirty days after the written
notice of intention not to renew the Term is given under paragraph 1 of this
Agreement. In the event you elect to be repatriated, you shall be entitled to
all benefits customarily available to extended - term expatriates under the
Parent's repatriation policy then in effect, including the right to be
enrolled, with recognition of past service credit, in all benefit plans
generally maintained for employees of the home country subsidiary of the Parent
employing you upon your repatriation.
7. Guaranty of the Parent. Notwithstanding anything contained herein to
the contrary, the Parent shall be liable for, and agrees to pay, any amounts
owed to you hereunder in the event of the non-performance of the Employer.
8. Withholding Taxes. The Employer may withhold from all payments due to
you (or your beneficiary or estate) hereunder all taxes which the Employer is
required to withhold therefrom by applicable law.
9. Reimbursement of Expenses. Expenses incurred by you in connection with
your employment duties shall be reimbursed by the Employer upon presentation of
appropriate documentation for such expenses. If, in addition, any contest or
dispute shall arise under this agreement involving termination of your
employment with the Employer or involving the failure or refusal of the
Employer or the Parent to perform fully in accordance with the terms hereof,
the Employer shall reimburse you, on a current basis, for all legal fees and
expenses, if any, incurred by you in connection with such contest or dispute
regardless of the result thereof.
10. Successors; Binding Agreement.
(a) This agreement shall not be terminated by any merger or
consolidation of the Employer or the Parent or any transfer of all or
substantially all of the assets of the Employer or the Parent. In the event of
any such merger, consolidation or transfer of assets, the provisions of this
agreement shall be binding upon the surviving or resulting corporation or the
person or entity to which such assets are transferred.
(b) The Employer agrees that concurrently with any merger,
consolidation or transfer of assets referred to above, it will cause any
successor or transferee unconditionally to assume all of the obligations of the
Employer hereunder. Failure of the Employer to obtain such assumption prior to
the effectiveness of any such merger, consolidation or transfer of assets shall
constitute Good Reason hereunder and shall entitle you, upon termination of
employment, to compensation and other benefits from the Employer in the same
amount and on the same terms that you would be entitled hereunder if your
employment were terminated following any such transaction other than by reason
of a Nonqualifying Termination. For purposes of implementing the foregoing,
the date on which any such merger, consolidation or transfer becomes effective
shall be deemed the date Good Reason occurs.
(c) This agreement shall inure to the benefit of and be
enforceable by or against you or your personal or legal representatives,
executors, administrators, successors, heirs, distributees, devisees and
legatees. If you should die while any amounts would be payable to you
hereunder had you continued to live, all such amounts, unless otherwise
provided herein, shall be paid in accordance with the terms of this agreement
to such person or persons appointed in writing by you to receive such amounts
or, if no person is so appointed, to your estate.
11. Full Settlement. The obligation of the Employer and the Parent to
make any payments provided for hereunder and otherwise to perform their
obligations hereunder shall not be affected by any set-off, counterclaim,
recoupment, defense or other claim, right or action which the Employer or the
Parent may have against you or others. In no event shall you be obligated to
seek other employment or take other action by way of mitigation of the amounts
payable to you under any of the provisions of this agreement, and such amounts
shall not be reduced (except as otherwise specifically provided herein) whether
or not you obtain other employment.
<PAGE> 5
12. Noncompetition. Without the written consent of the President and
Chief Executive Officer of the Parent, you agree that for a period of two years
following the termination of your employment with the Employer (regardless of
the reason for the termination) you will not commence employment with, or
provide substantial consulting services to, any pharmaceutical company (except
companies where sales from pharmaceutical products constitute less than 20% of
total sales). In the event that you engage in the conduct proscribed by this
paragraph, you agree to repay any lump-sum severance amount received by you
hereunder and all outstanding stock options held by you shall expire three
months following your commencement of such employment or provision of such
services. In the event of a breach or threatened breach of this provision, you
agree that the Employer shall be entitled to injunctive relief in a court of
appropriate jurisdiction to remedy such breach or threatened breach.
13. Notice. For the purposes of this letter agreement, notices, demands
and all other communications provided for herein shall be in writing and shall
be deemed to have been duly given when delivered or (unless otherwise
specified) mailed by United States certified or registered mail, return receipt
requested, postage prepaid, addressed to you at your last known business
address or to the Employer or the Parent at the business address of the
Employer or the Parent, as the case may be, or to such other address as any
party may have furnished to the others in writing in accordance herewith,
except that notices of change of address shall be effective only upon receipt.
14. Amendment, Waiver. No provisions of this agreement may be waived,
modified or discharged unless such waiver, modification or discharge is agreed
to in writing signed by both you and an authorized officer of the Employer
(and, where affecting the rights or duties of the Parent, by the Parent). No
waiver by any party hereto at any time of any breach by any other party hereto
of, or compliance with, any condition or provision of this agreement to be
performed by such other party shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same or at any prior or subsequent time. No
agreements or representations, oral or otherwise, express or implied, with
respect to the subject matter hereof have been made by any party which are not
set forth expressly in this agreement.
15. Employment with Subsidiaries. Employment with the Employer for
purposes of this agreement shall include employment with any corporation or
other entity in which the Employer or the Parent has a direct or indirect
ownership of 50% or more of the total combined voting power of the then
outstanding securities of such corporation or other entity entitled to vote
generally in the election of directors.
16. Entire Agreement. This agreement sets forth the entire agreement of
the parties hereto in respect of the subject matter contained herein and
supersedes all prior agreements, promises, covenants, arrangements,
communications, representations or warranties, whether oral or written, by any
officer, employee or representative of any party hereto in respect of the
subject matter contained herein.
17. Governing Law; Validity. The interpretation, construction and
performance of this agreement shall be governed by and construed and enforced
in accordance with the laws of the jurisdiction in which the Employer is
incorporated without regard to the principle of conflicts of laws. The
invalidity or unenforceability of any provision of this agreement shall not
affect the validity or enforceability of any other provision of this agreement,
which other provisions shall remain in full force and effect.
18. Definitions. For purposes of this agreement:
(i) "Cause" means (1) a material breach by you of your duties
and responsibilities (other than as a result of incapacity due to physical or
mental illness) which is demonstrably willful and deliberate on your part,
which is committed in bad faith or without reasonable belief that such breach
is in the best interests of the Employer (and its affiliates, including the
Parent) and which is not remedied in a reasonable period of time after receipt
of written notice from the Employer specifying such breach or (2) the willful
commission by you of illegal conduct which is materially and demonstrably
injurious to the Employer (or its affiliates, including the Parent). The
determination of
<PAGE> 6
Cause shall be made in the sole discretion of the Board of Directors of the
Parent or such individual or individuals to whom such authority shall have been
delegated by such Board.
(ii) "Disability" means disability as defined in the disability
plan applicable to executive officers of the Employer;
(iii) "Good Reason" means, without your express written
consent, the occurrence of one of the following events:
(A) a reduction by the Employer in your rate of
annual base salary or in the target amount of your
annual cash incentive bonus as the same may be
increased from time to time hereafter, except to
the extent such reduction is applied
proportionately to all other officers of the
Employer and the Parent, (B) the failure of the
Employer to continue in effect any employee
benefit plan or compensation plan in which you are
participating following the Effective Date, unless
you are permitted to participate in other plans
providing you with substantially comparable
benefits, or the taking of any action by the
Employer which would adversely affect your
participation in or materially reduce your
benefits under any such plan, provided, however,
that changes affecting the participation or
benefits of all similarly situated executives
shall not be treated as Good Reason hereunder, (C)
a materially adverse change in the level of your
employment responsibilities, provided, however,
that changes in title or changes in the affiliate
of the Parent which employs you shall not be
treated as Good Reason hereunder, or (D) the
failure of the Employer to comply with the
assumption provisions of this agreement; and
(iv) "Retirement" means termination of employment (other
than termination for Cause) on or after your normal retirement date under the
retirement plan maintained by the Employer or by the Parent under which you are
covered.
Very truly yours,
John L. Zabriskie
President and Chief Executive Officer
Agreed and accepted this ___ day of January, 1996
By:_________________________________
<PAGE> 1
EXHIBIT (10)(e)
March 11, 1996
Mr. Jan Ekberg
Chairman of the Board
Pharmacia & Upjohn, Inc.
Stockholm, Sweden
Dear Jan:
This letter sets forth the conditions under which Pharmacia & Upjohn Management
Company Limited (the "Company") will engage your services as an independent
consultant.
1. Term - This agreement shall be in effect from November 21, 1995
until February 1, 1997.
2. Scope - As an independent consultant, you will advise the Company
with respect to the process of combining the businesses of The
Upjohn Company and Pharmacia AB and will undertake such specific
tasks as we shall mutually agree upon from time to time.
3. Non-Employee - This agreement does not constitute a contract of
employment with the Company, and the services you render as an
independent consultant pursuant to this agreement shall not entitle
you to any benefits provided by the Company for its employees.
4. Duties - As an independent consultant, you will neither be subject
to the supervision of, nor will you exercise supervision over, any
employee of the Company or any of its subsidiaries.
5. Location - You shall perform your services hereunder at such times
and at such places as we shall jointly determine. You will be free
to visit all Company locations and to confer with appropriate
Company employees as necessary to complete the projects you
undertake.
<PAGE> 2
6. Apartment and Company Car - The Company will compensate you for your
current apartment rental cost in Stockholm and lease payments on
your automobile until November 1, 1997.
7. Fee - Your fee for the services rendered pursuant to this agreement
shall be payable in the following manner:
- 1996 $169,000 (payable quarterly)
- 1997 $56,000 (payable on the first business day of 1997)
Expenses - The Company will compensate you for all reasonable and
customary expenses incurred in the performance of your consulting
duties. An appropriate advance of funds will be given you prior to
any major travel.
8. Assignability - This agreement constitutes a contract for personal
services and may not be assigned by you.
9. Taxes - You agree that you will pay social security taxes and file
any disclosure documents that may be required by you as a self-
employed person.
10. Notices - All notices required or permitted to be given hereunder
may be sent by certified mail, addressed, as appropriate, to either
Kenneth M. Cyrus or myself at the Company's address.
I believe that this letter reflects our understanding. If you are in
agreement, please sign the copy of the letter enclosed and return it to me.
Very truly yours,
John L. Zabriskie
President and Chief Executive Officer
Agreed to as of this ____ day of March, 1996
__________________________________
Jan Ekberg
<PAGE> 1
Act"), of beneficial ownership within the meaning of Rule 13d-3
promulgated under the Exchange Act, of 33% or more of either (i) the
then outstanding shares of Common Stock of the Company (the
"Outstanding Company Common Stock") or (ii) the combined voting power
of the then outstanding securities of the Company entitled to vote
generally in the election of directors (the "Outstanding Company
Voting Securities"); provided, however, that the following
acquisitions of Outstanding Company Common Stock or Outstanding
Company Voting Securities shall not constitute a Change in Control:
(A) any acquisition by the Company, (B) any acquisition by an employee
benefit plan (or related trust) sponsored or maintained by the Company
or any corporation controlled by the Company, or (C) any acquisition
by any corporation pursuant to a reorganization, merger or
consolidation involving the Company, if, immediately after such
reorganization, merger or consolidation, each of the conditions
described in clauses (i), (ii) and (iii) of subsection (3) of this
Section shall be satisfied; and provided further that, for purposes of
clause (A), if any Person (other than the Company or any employee
benefit plan (or related trust) sponsored or maintained by the Company
or any corporation controlled by the Company) shall become the
beneficial owner of 33% or more of the
-2-
<PAGE> 2
Outstanding Company Common Stock or 33% or more of the Outstanding
Company Voting Securities by reason of an acquisition of Outstanding
Company Common Stock or Outstanding Company Voting Securities by the
Company and such Person shall, after such acquisition by the Company,
become the beneficial owner of any additional shares of the
Outstanding Company Common Stock or any additional Outstanding Voting
Securities and such beneficial ownership is publicly announced, such
additional beneficial ownership shall constitute a Change in Control;
(2) individuals who, as of the date hereof, constitute the
Board (the "Incumbent Board") cease for any reason to constitute at
least a majority of such Board; provided, however, that any individual
who becomes a director of the Company subsequent to the date hereof
whose election, or nomination for election by the Company's
stockholders, was approved by the vote of at least three-quarters of
the directors then comprising the Incumbent Board (either by a
specific vote or by approval of the proxy statement of the Company in
which such person is named as a nominee for director, without
objection to such nomination) shall be deemed to have been a member of
the Incumbent Board; and provided further, that no individual who was
initially elected as a director of the Company as a result of an
-3-
<PAGE> 3
actual or threatened election contest, as such terms are used in Rule
14a-11 of Regulation 14A promulgated under the Exchange Act, or any
other actual or threatened solicitation of proxies or consents by or
on behalf of any Person other than the Board shall be deemed to have
been a member of the Incumbent Board;
(3) approval by the stockholders of the Company of a
reorganization, merger or consolidation involving the Company unless,
in any such case, immediately after such reorganization, merger or
consolidation, (i) more than 50% of the then outstanding shares of
common stock of the corporation resulting from such reorganization,
merger or consolidation and more than 50% of the combined voting power
of the then outstanding securities of such corporation entitled to
vote generally in the election of directors is then beneficially
owned, directly or indirectly, by all or substantially all of the
individuals or entities who were the beneficial owners, respectively,
of the Outstanding Company Common Stock and the Outstanding Company
Voting Securities immediately prior to such reorganization, merger or
consolidation and in substantially the same proportions relative to
each other as their ownership, immediately prior to such
reorganization, merger or consolidation, of the Outstanding Company
Common Stock and the Outstanding Company Voting Securities, as the
case may be,
-4-
<PAGE> 4
(ii) no Person (other than the Company, any employee benefit plan (or
related trust) sponsored or maintained by the Company or the
corporation resulting from such reorganization, merger or
consolidation (or any corporation controlled by the Company), or any
Person which beneficially owned, immediately prior to such
reorganization, merger or consolidation, directly or indirectly, 33%
or more of the Outstanding Company Common Stock or the Outstanding
Company Voting Securities, as the case may be) beneficially owns,
directly or indirectly, 33% or more of the then outstanding shares of
common stock of such corporation or 33% or more of the combined voting
power of the then outstanding securities of such corporation entitled
to vote generally in the election of directors and (iii) at least a
majority of the members of the board of directors of the corporation
resulting from such reorganization, merger or consolidation were
members of the Incumbent Board at the time of the execution of the
initial agreement or action of the Board providing for such
reorganization, merger or consolidation; or
(4) (i) approval by the stockholders of the Company of a plan
of complete liquidation or dissolution of the Company or (ii) the sale
or other disposition of all or substantially all of the assets of the
Company other than to a corporation with respect to which,
-5-
<PAGE> 5
immediately after such sale or other disposition, (A) more than 50% of
the then outstanding shares of common stock thereof and more than 50%
of the combined voting power of the then outstanding securities
thereof entitled to vote generally in the election of directors is
then beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the
beneficial owners, respectively, of the Outstanding Company Common
Stock and the Outstanding Company Voting Securities immediately prior
to such sale or other disposition and in substantially the same
proportions relative to each other as their ownership, immediately
prior to such sale or other disposition, of the Outstanding Company
Common Stock and the Outstanding Company Voting Securities, as the
case may be, (B) no Person (other than the Company, any employee
benefit plan (or related trust) sponsored or maintained by the Company
or such corporation (or any corporation controlled by the Company), or
any Person which beneficially owned, immediately prior to such sale or
other disposition, directly or indirectly, 33% or more of the
Outstanding Company Common Stock or the Outstanding Company Voting
Securities, as the case may be) beneficially owns, directly or
indirectly, 33% or more of the then outstanding shares of common stock
thereof or 33% or more of the combined voting power of
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the then outstanding securities thereof entitled to vote generally in
the election of directors and (C) at least a majority of the members
of the board of directors thereof were members of the Incumbent Board
at the time of the execution of the initial agreement or action of the
Board providing for such sale or other disposition (or were approved
directly or indirectly by the Incumbent Board).
"Committee" shall mean the Compensation Committee of the Board
of Directors.
"Common Stock" shall mean the common stock, par value $.01 per
share, of the Company.
"Effective Date" shall mean November 1, 1995.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.
"Fair Market Value" shall mean, per share of Common Stock, the
average of the highest and lowest price of the Common Stock on the New
York Stock Exchange (the "NYSE"), or such other national securities
exchange as may be designated by the Board, on the applicable date,
or, if there are no sales of Common Stock on the NYSE on such date,
then the average of the highest and lowest price of the Common Stock
on the last previous day on which a sale on the NYSE is reported;
provided, that the Committee may determine that the Fair Market Value
price may be based upon the
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<PAGE> 7
average of the highest and lowest price of the Common Stock (or
depositary receipts evidencing ownership of such Common Stock) on
stock exchanges outside the United States with respect to Awards
granted to Participants who are foreign nationals.
"Participant" shall mean an employee of the Company or its
subsidiaries who is selected by the Committee to participate in the
Plan.
3. SHARES SUBJECT TO THE PLAN. Subject to adjustment as provided
in Section 17, the number of shares of Common Stock which shall be available
for the grant of Awards under the Plan shall not exceed in any calendar year
commencing after the Effective Date, one and one-quarter percent (1.25%) of
the number of shares of Common Stock outstanding as of January 1 of such year
(including treasury shares); provided, that with respect to 1995 the number of
shares of Common Stock available for grant of Awards shall not exceed 2,000,000
shares. The maximum number of shares set forth in the preceding sentence shall
be increased with respect to any year by the number of shares available for
grant in any prior years since the effective date of the Plan which were not
subject to Awards granted under the Plan in such prior years plus any shares of
Common Stock subject to any Award that expires unexercised or that is
forfeited, terminated or cancelled, in whole or in part. The shares of Common
Stock issued under the Plan may be authorized and unissued shares
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or treasury shares, as the Company may from time to time determine.
Subject to adjustment as provided in Section 17, notwithstanding
anything contained herein to the contrary, in no event shall more than 500,000
shares of Common Stock be granted pursuant to stock options or stock
appreciation rights under the Plan to any Participant in any calendar year and
in no event shall the number of shares of Common Stock available for issuance
pursuant to incentive stock options (within the meaning of Section 422 of the
Code) during the term of the Plan exceed the lesser of (a) the number of shares
generally available for issuance under the Plan and (b) 50,000,000 shares.
4. ADMINISTRATION. (a) The Plan shall be administered by the
Committee. A majority of the Committee shall constitute a quorum, and the acts
of a majority of a quorum shall be the acts of the Committee. To the extent
permitted by law, the Committee may appoint employees of the Company or other
individuals to act as its agents with respect to its duties and obligations
hereunder.
(b) Subject to the provisions of the Plan, the Committee shall (i)
approve the selection of Participants (after such consultation with and
consideration of the recommendations of management as the Committee considers
desirable), (ii) determine the type of Awards to be made to Participants, (iii)
determine the number of shares of Common
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<PAGE> 9
Stock or share units subject to Awards, (iv) determine the terms and
conditions, not inconsistent with the terms of the Plan, of any Award granted
hereunder (including, but not limited to, any restriction and forfeiture
conditions on such Award), (v) determine whether, to what extent and under what
circumstances, Awards may be settled in cash, (vi) to the extent appropriate,
establish and certify attainment of performance goals as required by Section
162(m) of the Internal Revenue Code of 1986, as amended (the "Code"), and (vii)
have the authority to interpret the Plan, to establish, amend, and rescind any
rules and regulations relating to the Plan (which shall not be inconsistent
with the terms of the Plan), to determine the terms and provisions of any
agreements entered into hereunder, and to make all other determinations
necessary or advisable for the administration of the Plan. The Committee may
correct any defect, supply any omission or reconcile any inconsistency in the
Plan or in any Award in the manner and to the extent it shall deem desirable to
carry it into effect. The determinations of the Committee in the
administration of the Plan, as described herein, shall be final, conclusive and
binding on all persons, including the Company, its stockholders, employees and
Participants granted Awards under the Plan.
(c) No members of the Committee shall be personally liable for any
action, determination, or interpretation made
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<PAGE> 10
in good faith with respect to the Plan or any Award and all members of the
Committee shall be fully indemnified by the Company with respect to any such
action, determination, or interpretation to the fullest extent provided by the
certificate of incorporation and by-laws of the Company and applicable state
law. The Company shall pay all expenses incurred in the administration of the
Plan.
(d) Notwithstanding anything in this Section 4 or in any other
provision of the Plan to the contrary, the Committee may grant authority to the
chief executive officer of the Company to assume the responsibilities and
duties of the Committee described in clauses (i) through (iv) of Section 4(b)
with respect to Awards to employees of the Company who are not officers, and to
assume the authority of the Committee with respect to such Awards in each of
the sections of the Plan which set forth the authority of the Committee in
determining eligibility for Awards and the terms of Awards.
5. ELIGIBILITY. Officers and other key employees of the Company
and its subsidiaries who meet such standards as the Committee may from time to
time determine are eligible to be granted Awards under the Plan.
For purposes of the Plan, a subsidiary of the Company shall be any
corporation which at the time qualifies as a subsidiary of the Company under
the definition of "subsidiary corporation" in Section 424(f) of the Code.
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<PAGE> 11
6. AWARDS. Awards under the Plan may consist of stock options
(either incentive stock options within the meaning of Section 422 of the Code
or nonstatutory stock options), stock appreciation rights, performance shares,
restricted stock grants, deferred Common Stock grants and other stock-based
Awards. Awards of performance shares, restricted stock units and other
stock-based Awards may provide the Participant with dividend equivalents prior
to vesting of such Awards. Awards shall be subject to the terms and conditions
of the Plan and shall be evidenced by an agreement containing such additional
terms and conditions, not inconsistent with the provisions of the Plan, as the
Committee shall deem desirable.
7. STOCK OPTIONS. Stock options may be granted under the Plan in
such form as the Committee may from time to time approve pursuant to terms set
forth in a stock option agreement.
(a) Types of Stock Options. Each stock option agreement shall
state whether or not the stock option will be treated as an incentive stock
option or a non-qualified stock option.
(b) Option Price. The purchase price per share of the Common
Stock purchasable under a stock option shall be determined by the Committee,
but, except as determined by the Committee, will be not less than 100% of the
Fair Market
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<PAGE> 12
Value of the Common Stock on the date of the grant of the stock option.
(c) Option Period. The term of each stock option shall be fixed
by the Committee, but no stock option shall be exercisable after the expiration
of ten (10) years from the date the option is granted.
(d) Exercisability. Stock options shall be exercisable at such
time or times as determined by the Committee at or subsequent to grant. Unless
otherwise determined by the Committee at or subsequent to grant, no stock
option shall be exercisable during the twelve-month period ending on the day
before the first anniversary date of the grant of the option, except upon a
Change in Control.
(e) Method of Exercise. Stock options may be exercised, in whole
or in part, by giving written notice of exercise to the Company specifying the
number of shares to be purchased. Such notice shall be accompanied by the
payment in full of the option purchase price. Such payment shall be made
through the following methods or procedures: in cash or by certified or bank
check, by tender of shares of Common Stock owned by the Participant (valued at
Fair Market Value determined as of the day immediately prior to exercise) or,
at the discretion of the Committee and upon such terms and conditions as the
Committee may approve, through cashless exercise procedures, with other
consideration or through other procedures, or by a
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combination of any such procedures. The Committee may determine that
previously owned shares of Common Stock be held for a specified period of time
prior to being used to exercise stock options.
(f) Termination of Employment. Except as otherwise determined by
the Committee at or subsequent to grant, any stock options held by a
Participant upon termination of employment shall remain exercisable as follows:
(i) If the Participant's termination of employment is due
to death or permanent disability (as determined by the Committee), the
stock option (to the extent exercisable as of the date of termination)
shall be exercisable for one (1) year following such termination of
employment (but in no event beyond the term of the option), and shall
thereafter terminate; and
(ii) If the Participant's termination of employment is for
any other reason, the stock option (to the extent exercisable as of
the date of termination) shall be exercisable for a period of ninety
(90) days following such termination of employment (but in no event
beyond the term of the option), and shall thereafter terminate.
In the event the Committee determines that a stock option may be exercised
after the periods provided for in this paragraph (f), such longer exercise
period may not extend beyond the term of the option.
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<PAGE> 14
(g) Replacement Stock Option Grants. Unless otherwise determined
by the Committee, in the event an optionee who is an employee of the Company or
any of its subsidiaries exercises a stock option by using previously owned
shares of Common Stock, such optionee shall automatically be granted a
replacement stock option grant for the number of shares of Common Stock used to
exercise the stock option. The replacement stock option shall have terms and
conditions to be determined by the Committee consistent with this Section 7.
(h) Effect of Exercise Upon Tandem Stock Appreciation Right. Upon
exercise of a stock option with respect to which a tandem stock appreciation
right (as described in Section 8) has been granted, the number of shares of
Common Stock with respect to which the tandem stock appreciation right shall be
exercisable shall be reduced by the number of shares with respect to which the
stock option has been exercised.
8. STOCK APPRECIATION RIGHTS. Stock appreciation rights may be
granted under the Plan in such form as the Committee may from time to time
approve pursuant to terms set forth in a stock appreciation rights agreement.
(a) Types of Stock Appreciation Rights. Stock appreciation rights
may be granted in tandem with a related stock option (a "tandem stock
appreciation right") or may be granted unrelated to any stock option (a
"freestanding stock
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<PAGE> 15
appreciation right"). A tandem stock appreciation right may be granted at the
time of the related stock option grant or at any time during the term of such
stock option; provided, however, that tandem stock appreciation rights
related to an incentive stock option may only be granted at the time of the
grant of such stock option and may be exercised only when the Fair Market Value
of Common Stock subject to such incentive stock option exceeds the exercise
price of such stock option.
(b) Purchase Price. The purchase price of a stock appreciation right
shall be determined by the Committee at or subsequent to the time of grant of
the stock appreciation right.
(c) Payment. A stock appreciation right shall entitle the holder
thereof, upon exercise of the stock appreciation right or any portion thereof,
to receive payment of an amount determined by multiplying (i) the excess of the
Fair Market Value per share of Common Stock on the date of exercise over the
per share purchase price of the stock appreciation right, by (ii) the number of
shares of Common Stock as to which such stock appreciation right is being
exercised. Notwithstanding the foregoing, the Committee may limit in any
manner the amount payable with respect to a stock appreciation right by
including such a limit at the time of grant.
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<PAGE> 16
(d) Exercise. Freestanding stock appreciation rights shall be
exercisable at such time or times, and under such conditions, as shall be
determined by the Committee in its discretion at or subsequent to the time of
grant and, except as otherwise determined by the Committee at or subsequent to
grant, freestanding stock appreciation rights held by a Participant upon
termination of employment shall be exercisable on the same terms as set forth
for stock options in Section 7(f); provided, however, that no freestanding
stock appreciation right shall be exercisable after the expiration of ten (10)
years from the date the stock appreciation right is granted. A tandem stock
appreciation right shall be exercisable at such time or times and only to the
extent that the related stock option is exercisable.
(e) Method of Exercise. Stock appreciation rights may be exercised, in
whole or in part, by giving written notice to the Company specifying the number
of shares with respect to which the stock appreciation right is being
exercised. If requested by the Committee, the holder of a stock appreciation
right shall deliver the agreement evidencing the stock appreciation right being
exercised and, with respect to a tandem stock appreciation right, the agreement
evidencing the related stock option to the Secretary of the Company who shall
endorse thereon a notation of such exercise and return the agreement to the
holder.
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<PAGE> 17
(f) Form of Payment. Payment of the amount determined under this
Section 8 shall be made solely in shares of Common Stock or, at the sole
discretion of the Committee, solely in cash, or in a combination of cash and
shares of Common Stock (based upon the Fair Market Value of the Common Stock as
of the date of exercise of the stock appreciation right).
(g) Effect of Exercise of Tandem Stock Appreciation Right on Related
Stock Option. Upon exercise of a tandem stock appreciation right, the number
of shares of Common Stock covered by the related stock option shall be reduced
by the number of shares with respect to which the stock appreciation right has
been exercised.
9. PERFORMANCE SHARES. Performance shares may be granted under the
Plan in such form as the Committee may from time to time approve pursuant to
the terms set forth in a performance share agreement.
(a) Types of Performance Shares. Performance shares may be granted in
the form of actual shares of Common Stock or share units having a value equal
to an identical number of shares of Common Stock.
(b) Performance Conditions and Duration. The performance conditions and
the length of the performance period shall be determined by the Committee, but
in no event may a performance period be less than twelve (12) months, except
upon a Change in Control.
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(c) Form of Payment. The Committee shall determine in its sole
discretion whether performance shares granted in the form of share units shall
be paid in cash, Common Stock, or a combination of cash and Common Stock (based
upon Fair Market Value of the Common Stock as of the date of exercise or the
end of the performance period, as the case may be).
(d) Termination of Employment. Except as otherwise determined by the
Committee at or subsequent to grant, a Participant must be employed as of the
end of the relevant performance period to be entitled to receive payment with
respect to a performance share award.
10. RESTRICTED STOCK. Shares of restricted stock may be issued either
alone or in addition to stock options, deferred stock or other stock-based
Awards granted under the Plan, as determined by the Committee pursuant to terms
set forth in a restricted stock agreement.
(a) Awards of Restricted Stock. Unless such requirement is waived by
the Committee, the prospective recipient of an Award of shares of restricted
stock shall not be deemed to have any rights with respect to such Award, until
and unless such recipient shall have executed an agreement or other instrument
evidencing the Award and delivered a fully executed copy thereof to the
Company, and otherwise complied with the then applicable terms and conditions.
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(b) Stock Certificates. Each Participant granted restricted stock under
the Plan shall be issued a stock certificate in respect of shares of restricted
stock awarded under the Plan. Such certificate shall be registered in the name
of the holder, and shall bear an appropriate legend referring to the terms,
conditions, and restrictions applicable to such Award. The Committee shall
require that the stock certificates evidencing such shares be held in custody
by the Company until the restrictions thereon shall have lapsed, and shall
require, as a condition of any restricted stock Award, that the holder shall
have delivered a stock power, endorsed in blank, relating to the stock covered
by such Award.
(c) Restrictions and Conditions. Subject to the provisions of this
Plan, during a period set by the Committee commencing with the date of such
Award (the "restriction period"), the holder of shares of restricted stock
shall not be permitted to sell, transfer, pledge, or assign such shares of
restricted stock awarded under the Plan. Within these limits, the Committee
may provide for the lapse of such restrictions in installments where deemed
appropriate. Unless otherwise determined by the Committee at or subsequent to
grant, the restriction period shall remain in effect during the twelve-month
period ending on the day before the first anniversary date of the grant of the
shares of restricted stock, except upon a Change in Control.
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Subject to the provisions of the immediately following sentence, upon
termination of employment for any reason during the restriction period, all
shares still subject to restriction shall be forfeited by the Participant and
reacquired by the Company. In the event of a Participant's retirement,
permanent disability, or death, or in cases of special circumstances, the
Committee may, in its sole discretion, when it finds that a waiver would be in
the best interests of the Company, waive in whole or in part any or all
remaining restrictions with respect to such Participant's shares of restricted
stock.
(d) Rights of Holder of Restricted Stock. Except as provided in
paragraph (c) of this Section 10, a Participant shall have, with respect to the
shares of restricted stock, all the rights of a shareholder of the Company,
including the right to vote the restricted stock, and the right to receive any
dividends. The Committee, in its sole discretion, may permit or require the
payment of dividends to be deferred and, if the Committee so determines,
reinvested in additional restricted stock or to be otherwise reinvested or
subject to restrictions.
(e) Restricted Stock Units. Restricted stock may also be granted in the
form of restricted stock units having a value equal to an identical number of
shares of Common Stock. The Committee shall determine in its sole discretion
whether restricted stock granted in the form of units shall
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be paid in cash, Common Stock or a combination of cash and Common Stock.
11. DEFERRED AWARDS. The Committee shall have the discretion to grant
Awards of the right to receive Common Stock that are not to be distributed
until after a specified deferral period. Such Awards may be made either alone
or in addition to other Awards granted under the Plan. If the attainment of
performance goals are specified, the Committee shall certify attainment of such
performance goals prior to any delivery of deferred Common Stock. Prior to
completion of the deferral period, a participant may elect to further defer
receipt of an Award for a specified period or until a specified event, subject
in each case to the approval of the Committee and under such terms as are
determined by the Committee in its sole discretion. The Committee shall
determine in its sole discretion whether such deferred Awards shall be paid in
cash, Common Stock or a combination of cash and Common Stock.
12. OTHER STOCK-BASED AWARDS. Other Awards of Common Stock and other
Awards that are valued in whole or in part by reference to, or are otherwise
based on Common Stock, including (without limitation) dividend equivalents and
convertible debentures, may be granted either alone or in addition to other
Awards granted under the Plan. Any Awards under this Section 12 and any Common
Stock covered by any
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such Award may be forfeited to the extent so provided in the Award agreement,
as determined by the Committee.
13. CHANGE IN CONTROL. Upon the occurrence of a Change in Control,
(i) all stock options shall become vested and exercisable in full, (ii) all
stock appreciation rights which have not been granted in tandem with stock
options shall become vested and exercisable in full, (iii) the restrictions
applicable to all shares of restricted stock shall lapse, (iv) all restricted
stock granted in the form of share units shall be paid in shares of Common
Stock, (v) all performance shares shall be deemed to be earned in full and
shall be paid in shares of Common Stock, and all performance shares granted in
the form of share units shall be deemed to be earned in full and shall be paid
in shares of Common Stock, and (vi) all deferred Awards shall be paid in shares
of Common Stock. The Committee may, in its discretion, include such further
provisions and limitations in any agreement documenting such Awards as it may
deem equitable and in the best interests of the Company, and may make payments
with respect to restricted stock units, performance share units and deferred
Awards in cash in an amount equal to the Fair Market Value of the Award as of
the Change in Control.
14. WITHHOLDING. The Company shall have the right to deduct from any
payment to be made pursuant to the Plan the amount of any taxes required by law
to be withheld there-
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from, or to require a Participant to pay to the Company in cash such amount
required to be withheld prior to the issuance or delivery of any shares of
Common Stock or the payment of cash under the Plan. The Committee may, in its
discretion, permit a Participant to elect to satisfy such withholding
obligation by (i) delivering previously owned shares of Common Stock or (ii)
having the Company retain shares of Common Stock which would otherwise be
delivered upon exercise or payment of Awards or (iii) any combination of a cash
payment or the methods set forth in (i) and (ii) above. For purposes of (i)
and (ii) above, shares of Common Stock shall be valued at Fair Market Value
determined as of the day immediately prior to exercise or payment.
15. NONTRANSFERABILITY. No Award shall be assignable or transferable by
the Participant, otherwise than by will or the laws of descent and
distribution, and stock options and stock appreciation rights shall be
exercisable, during the Participant's lifetime, only by the Participant.
16. NO RIGHT TO EMPLOYMENT. No person shall have any claim or right to
be granted an Award, and the grant of an Award shall not be construed as giving
a Participant the right to be retained in the employ of the Company or its
subsidiaries. Further, the Company and its subsidiaries expressly reserve the
right at any time to terminate the employment of a Participant free from any
liability, or any
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<PAGE> 24
claim under the Plan, except as provided herein or in any Award agreement
entered into hereunder.
17. ADJUSTMENT OF AND CHANGES IN COMMON STOCK. In the event of any
change in the outstanding shares of Common Stock (including any increase or
decrease in such shares) by reason of any stock dividend or split,
recapitalization, merger, consolidation, spinoff, combination or exchange of
shares or other similar corporate change, or any distributions to common
stockholders other than regular cash dividends, the Committee may make such
substitution or adjustment, if any, as it deems to be equitable, as to the
number or kind of shares of Common Stock or other securities reserved for
issuance pursuant to the Plan, or subject to outstanding Awards, and to any
other terms and conditions of outstanding Awards including the stock option or
stock appreciation right purchase price or performance criteria.
18. EMPLOYMENT BY SUBSIDIARY. For purposes of the Plan, a transfer of
an employee to the employ of a subsidiary of the Company shall not be deemed to
be a termination of employment and the employment by a subsidiary shall be
deemed to be employment by the Company.
19. FOREIGN EMPLOYEES. Without amending the Plan, the Committee may
grant Awards to employees of the Company or its subsidiaries who are foreign
nationals on such terms and conditions different from those specified in this
Plan as may in the judgment of the Committee be necessary or
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<PAGE> 25
desirable to foster and promote achievement of the purposes of the Plan, and,
in furtherance of such purposes, the Committee may make such modifications,
amendments, procedures, subplans and the like as may be necessary or advisable
to comply with provisions of laws in other countries in which the Company or
its subsidiaries operate or have employees; provided, however, that any such
modification, amendment, procedure, subplan or like arrangement shall not be
inconsistent with the terms of the Plan.
20. AMENDMENT. The Board of Directors may amend, suspend or terminate
the Plan or any portion thereof at any time, provided that (i) no amendment
shall be made without stockholder approval if such approval is necessary in
order for the Plan to continue to comply with Rule 16b-3 under the Exchange Act
and (ii) no amendment shall be made that would adversely affect the rights of a
Participant under an Award theretofore granted, without such Participant's
written consent.
21. GENERAL PROVISIONS.
(a) The Committee may require each Participant purchasing or acquiring
shares pursuant to an Award under the Plan to represent to and agree with the
Company in writing that such Participant is acquiring the shares for investment
and without a view to distribution thereof.
(b) All certificates for shares of Common Stock delivered under the Plan
pursuant to any Award shall be subject
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to such stock-transfer orders and other restrictions as the Committee may deem
advisable under the rules, regulations, and other requirements of the
Securities and Exchange Commission, any stock exchange upon which the Common
Stock is then listed, and any applicable Federal, state or foreign securities
law, and the Committee may cause a legend or legends to be put on any such
certificates to make appropriate reference to such restrictions. If the
Committee determines that the issuance of shares of Common Stock hereunder is
not in compliance with, or subject to an exemption from, any applicable
Federal, state or foreign securities laws, such shares shall not be issued
until such time as the Committee determines that the issuance is permissible.
(c) The Plan is intended to constitute an "unfunded" plan for incentive
and deferred compensation. Nothing contained herein shall give any Participant
any rights that are greater than those of a general creditor of the Company.
In its sole discretion, the Committee may authorize the creation of trusts or
other arrangements to meet the obligations created under the Plan to deliver
Common Stock or payments in lieu of or with respect to Awards hereunder,
provided, however, that the existence of such trusts or other arrangements is
consistent with the unfunded status of the Plan.
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(d) Except as otherwise provided by the Committee in the applicable
Award agreement, a Participant shall have no rights as a shareholder with
respect to any shares of Common Stock subject to stock options, stock
appreciation rights, performance share awards, restricted stock units, or
deferred awards until a certificate or certificates evidencing shares of Common
Stock shall have been issued to the Participant and, subject to Section 17, no
adjustment shall be made for dividends or distributions or other rights in
respect of any share for which the record date is prior to the date on which
the Participant shall become the holder of record thereof.
(e) United States law shall apply to all grants under the Plan except,
in the case of an Award to a foreign national, to the extent local laws preempt
United States law.
22. EFFECTIVE DATE; TERM OF PLAN. The Plan shall be effective as of
November 1, 1995. Subject to earlier termination pursuant to Section 20, the
Plan shall have a term of ten (10) years from its Effective Date.
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Exhibit 10(h)
THE PHARMACIA & UPJOHN, INC. ANNUAL INCENTIVE PLAN
1. Purpose of the Plan.
The purpose of the Pharmacia & Upjohn, Inc. Annual Incentive
Plan (the "Plan") is to provide additional incentives and rewards to officers,
executives and key employees who contribute to the success of the Company and
its subsidiaries by their invention, ability, industry, loyalty or exceptional
service, through making them participants in that success; and to attract and
retain employees of outstanding skill and competence.
2. Definitions.
Unless otherwise required by the context, the terms used in
the Plan shall have the meanings set forth in this Section 2.
2.01 "Beneficiary", as applied to a Participant, means a
person or entity (including a trust or the estate of the Participant)
designated to receive any earned but unpaid Incentive Compensation Award in the
event of the death of the Participant pursuant to rules of general application
adopted by the Incentive Committee, in a written document executed by the
Participant in such form as shall be approved by the Incentive Committee. If
there shall not be any living person or any entity in existence so designated,
<PAGE> 2
the term "Beneficiary" shall mean the Participant's personal representative or
estate.
2.02 "Board" means the Board of Directors of the Company.
2.03 "Cause" means (1) a material breach by the Employee of
the duties and responsibilities of the Employee (other than as a result of
incapacity due to physical or mental illness) which is demonstrably willful and
deliberate on the Employee's part, which is committed in bad faith or without
reasonable belief that such breach is in the best interests of the Company and
which is not remedied in a reasonable period of time after receipt of written
notice from the Company specifying such breach or (2) the willful commission by
the Employee of illegal conduct which is materially and demonstrably injurious
to the Company. The determination of Cause shall be made by the Board. Cause
shall not exist unless and until the Company has delivered to the Employee a
copy of a resolution duly adopted by three-quarters (3/4) of the Board at a
meeting of the Board called and held for such purpose (after reasonable notice
to the Employee and an opportunity for the Employee, together with his counsel,
to be heard before the Board), finding that in the good faith opinion of the
Board the Employee was guilty of the conduct set forth in this Section and
specifying the particulars thereof in detail. For the
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purposes of clause (1) above, any act, or failure to act, by the Employee based
upon authority given pursuant to a resolution duly adopted by the Board or
based upon the advice of counsel for the Company shall be conclusively presumed
to be done, or omitted to be done, by the Employee in good faith and in the
best interest of the Company.
2.04 "Change in Control" means (1) the acquisition by any
individual, entity or group (a "Person"), including any "person" within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), of beneficial ownership within the meaning of
Rule 13d-3 promulgated under the Exchange Act, of 33% or more of either (i) the
then outstanding shares of Common Stock of the Company (the "Outstanding
Company Common Stock") or (ii) the combined voting power of the then
outstanding securities of the Company entitled to vote generally in the
election of directors (the "Outstanding Company Voting Securities"); provided,
however, that the following acquisitions of Outstanding Company Common Stock or
Outstanding Company Voting Securities shall not constitute a Change in Control:
(A) any acquisition by the Company, (B) any acquisition by an employee benefit
plan (or related trust) sponsored or maintained by the Company or any
corporation controlled by the Company, or (C) any acquisition by any
corporation pursuant to a reorganization,
-3-
<PAGE> 4
merger or consolidation involving the Company, if, immediately after such
reorganization, merger or consolidation, each of the conditions described in
clauses (i), (ii) and (iii) of subsection (3) of this Section shall be
satisfied; and provided further that, for purposes of clause (A), if any Person
(other than the Company or any employee benefit plan (or related trust)
sponsored or maintained by the Company or any corporation controlled by the
Company) shall become the beneficial owner of 33% or more of the Outstanding
Company Common Stock or 33% or more of the Outstanding Company Voting
Securities by reason of an acquisition of Outstanding Company Common Stock or
Outstanding Company Voting Securities by the Company and such Person shall,
after such acquisition by the Company, become the beneficial owner of any
additional shares of the Outstanding Company Common Stock or any additional
Outstanding Voting Securities and such beneficial ownership is publicly
announced, such additional beneficial ownership shall constitute a Change in
Control;
(2) individuals who, as of the date hereof, constitute the
Board (the "Incumbent Board") cease for any reason to constitute at least a
majority of such Board; provided, however, that any individual who becomes a
director of the Company subsequent to the date hereof whose election, or
nomination for election by the Company's
-4-
<PAGE> 5
stockholders, was approved by the vote of at least three-quarters of the
directors then comprising the Incumbent Board (either by a specific vote or by
approval of the proxy statement of the Company in which such person is named as
a nominee for director, without objection to such nomination) shall be deemed
to have been a member of the Incumbent Board; and provided further, that no
individual who was initially elected as a director of the Company as a result
of an actual or threatened election contest, as such terms are used in Rule
14a-11 of Regulation 14A promulgated under the Exchange Act, or any other
actual or threatened solicitation of proxies or consents by or on behalf of any
Person other than the Board shall be deemed to have been a member of the
Incumbent Board;
(3) approval by the stockholders of the Company of a
reorganization, merger or consolidation involving the Company unless, in any
such case, immediately after such reorganization, merger or consolidation, (i)
more than 50% of the then outstanding shares of common stock of the corporation
resulting from such reorganization, merger or consolidation and more than 50%
of the combined voting power of the then outstanding securities of such
corporation entitled to vote generally in the election of directors is then
beneficially owned, directly or indirectly, by all or substantially all of the
individuals or entities who were
-5-
<PAGE> 6
the beneficial owners, respectively, of the Outstanding Company Common Stock
and the Outstanding Company Voting Securities immediately prior to such
reorganization, merger or consolidation and in substantially the same
proportions relative to each other as their ownership, immediately prior to
such reorganization, merger or consolidation, of the Outstanding Company Common
Stock and the Outstanding Company Voting Securities, as the case may be, (ii)
no Person (other than the Company, any employee benefit plan (or related trust)
sponsored or maintained by the Company or the corporation resulting from such
reorganization, merger or consolidation (or any corporation controlled by the
Company), or any Person which beneficially owned, immediately prior to such
reorganization, merger or consolidation, directly or indirectly, 33% or more of
the Outstanding Company Common Stock or the Outstanding Company Voting
Securities, as the case may be) beneficially owns, directly or indirectly, 33%
or more of the then outstanding shares of common stock of such corporation or
33% or more of the combined voting power of the then outstanding securities of
such corporation entitled to vote generally in the election of directors and
(iii) at least a majority of the members of the board of directors of the
corporation resulting from such reorganization, merger or consolidation were
members of the Incumbent Board at the time of the
-6-
<PAGE> 7
execution of the initial agreement or action of the Board providing for such
reorganization, merger or consolidation; or
(4) (i) approval by the stockholders of the Company of a plan
of complete liquidation or dissolution of the Company or (ii) the sale or other
disposition of all or substantially all of the assets of the Company other than
to a corporation with respect to which, immediately after such sale or other
disposition, (A) more than 50% of the then outstanding shares of common stock
thereof and more than 50% of the combined voting power of the then outstanding
securities thereof entitled to vote generally in the election of directors is
then beneficially owned, directly or indirectly, by all or substantially all of
the individuals and entities who were the beneficial owners, respectively, of
the Outstanding Company Common Stock and the Outstanding Company Voting
Securities immediately prior to such sale or other disposition and in
substantially the same proportions relative to each other as their ownership,
immediately prior to such sale or other disposition, of the Outstanding Company
Common Stock and the Outstanding Company Voting Securities, as the case may be,
(B) no Person (other than the Company, any employee benefit plan (or related
trust) sponsored or maintained by the Company or such corporation (or any
corporation controlled by the Company),
-7-
<PAGE> 8
or any Person which beneficially owned, immediately prior to such sale or other
disposition, directly or indirectly, 33% or more of the Outstanding Company
Common Stock or the Outstanding Company Voting Securities, as the case may be)
beneficially owns, directly or indirectly, 33% or more of the then outstanding
shares of common stock thereof or 33% or more of the combined voting power of
the then outstanding securities thereof entitled to vote generally in the
election of directors and (C) at least a majority of the members of the board
of directors thereof were members of the Incumbent Board at the time of the
execution of the initial agreement or action of the Board providing for such
sale or other disposition (or were approved directly or indirectly by the
Incumbent Board).
2.05 "Company" means Pharmacia & Upjohn, Inc., a Delaware
corporation.
2.06 "Compensation Year" means a fiscal year of the
Company for which the Plan is in effect.
2.07 "Disability" means, with respect to a Participant, a
determination by the Incentive Committee that such Participant has become
"disabled" within the meaning of the Company's long-term disability plan then
in effect.
2.10 "Eligible Employee" means an officer of the Company
or other salaried key Employee.
-8-
<PAGE> 9
2.11 "Employee" means an individual employed by the
Company or a subsidiary of the Company.
2.12 "Incentive Committee" means the Compensation
Committee of the Board.
2.13 "Incentive Compensation Award" means an award of
incentive compensation granted from time to time under the Plan.
2.14 "Participant" means, as applied to a Compensation
Year, each Employee selected by the Incentive Committee for such Compensation
Year pursuant to the provisions of Section 4 of the Plan.
2.15 "Plan" means the Pharmacia & Upjohn, Inc. Annual
Incentive Plan, as it may be amended from time to time.
2.16 "Retirement" means the retirement of a Participant at
or following the attainment of age sixty five (65).
2.17 "Supplemental Award" means the amount established by
the Incentive Committee, in its sole discretion, pursuant to Section 4.01(b) of
the Plan, that may be paid in addition to any Target Awards that become payable
to a Participant.
2.18 "Target Award" means the amount established by the
Incentive Committee annually as a bonus that may be paid based upon the
achievement of business, divisional or
-9-
<PAGE> 10
individual performance awards or other criteria approved by the Incentive
Committee for each Participant.
3. Administration.
3.01 The Plan shall be administered by the Incentive Committee.
3.02 At all meetings of the Incentive Committee, a majority of all
the members of the Incentive Committee shall be necessary and sufficient to
constitute a quorum. Any action taken or recommendation made by the Incentive
Committee shall require the affirmative vote of a majority of all the members
of the Incentive Committee. The Incentive Committee may act or recommend by
written determination instead of by affirmative vote at a meeting, provided
that any written determination shall be signed by a majority of all the members
of the Incentive Committee, and any such written determination shall be as
fully effective as a majority vote at a meeting.
3.03 The Incentive Committee may establish and from time to time
amend rules and regulations of general application for the administration of
the Plan, subject to the provisions thereof. The Company shall pay such
compensation, if any, for the services of the members of the Incentive
Committee and such of their expenses, if any, and any other expenses of the
Plan as the Board may from time to time approve. The Incentive Committee may
employ counsel
-10-
<PAGE> 11
whose reasonable compensation and expenses shall be paid by the Company.
3.04 The Incentive Committee shall keep an accurate and complete
record of its proceedings. Subject to the provisions of the Plan, it shall
conduct its business and hold its meetings as determined by it from time to
time, and shall adopt, and may from time to time amend, its own rules of
procedure. The Incentive Committee may elect a secretary and such assistant
secretaries as it shall deem necessary who may, but need not, be members of the
Incentive Committee.
3.05 The Incentive Committee shall have full power and discretion
to administer, construe and interpret the Plan. Any action taken or decision
made under the respective provisions of the Plan by the Company, the Board and
the Incentive Committee, arising out of or in connection with the
administration, construction, interpretation or effect of the Plan, or
recommendations in accordance therewith, or of any rules and regulations
adopted thereunder, shall in each case lie within its discretion and shall be
conclusive and binding on the Company and its stockholders, all members of the
Incentive Compensation, all Participants and Beneficiaries and all other
persons.
3.06 In the administration of the Plan, the Incentive Committee
may, with respect to any earned but
-11-
<PAGE> 12
unpaid Incentive Compensation Award under the Plan, accelerate payment of such
award in the case of the death or Disability of a Participant or of unforeseen
circumstances deemed by the Incentive Committee in the reasonable exercise of
its discretion to constitute hardship.
3.07 Notwithstanding anything in this Section 3 or in any other
provision of the Plan to the contrary, the Incentive Committee may grant
authority to the chief executive officer of the Company to assume the
responsibilities and duties of the Committee described in this Section 3 and in
Section 4 with respect to Incentive Awards to employees of the Company who are
not officers, and to assume the authority of the Committee with respect to such
Incentive Awards in each of the sections of the Plan which set forth the
authority of the Committee in determining eligibility for Incentive Awards and
the terms of Incentive Awards.
4. Incentive Compensation Awards.
4.01 Determinations by Incentive Committee and Auditors.
(a) Prior to each Compensation Year, the Incentive Committee
shall select the Participants in accordance with Section 4.02 below and shall
establish the Target Award for each Participant. The Incentive Committee in
its discretion may adopt corporate, divisional or
-12-
<PAGE> 13
individual performance objectives or other criteria that may be used as the
basis for the payment of a Participant's Target Award, or a percentage thereof.
(b) As soon as practicable after the end of each Compensation
Year, the independent accounting firm employed by the Company as its auditors
shall determine and report the results of operations and financial condition of
the Company and any of its relevant subsidiaries, divisions or businesses for
such Compensation Year. The Incentive Committee shall determine the percentage
of each Participant's Target Award that has been earned by each such
Participant on the basis of the auditor's report, relative to objectives that
may have been adopted by the Incentive Committee prior to such Compensation
Year, and on the basis of the achievement of personal performance objectives or
other criteria established by the Incentive Committee.
(c) At any time after the end of the Compensation Year, the
Incentive Committee may select one or more Participants who have received all
or a portion of their Target Awards whom it determines to have made an
extraordinary contribution to the Company during the Compensation Year, and may
grant to each such Participant a Supplemental Award. Payment of each
Supplemental Award shall be made at the same time and in the same manner as the
Participant's Target Award for the Compensation Year, and
-13-
<PAGE> 14
shall be subject to any election made by such Participant under Section 4.04
with respect to the Incentive Compensation Award of such Participant for such
Compensation Year. A Participant's Incentive Compensation Award under the Plan
for any Compensation Year shall consist of such Participant's Target Award, or
a percentage thereof, plus such Participant's Supplemental Award.
4.02 Participation.
(a) The Participants for any Compensation Year shall consist of
such Employees of the Company and its subsidiaries, including officers,
division heads and other executives and key employees as the Incentive
Committee may select for such Compensation Year in the manner hereinafter
provided.
(b) An Employee shall be eligible for selection as a Participant
for a Compensation Year only if employed by the Company or a subsidiary at the
beginning of such Compensation Year and only if he shall meet such standards
(which may differ with respect to Employees in different countries or
locations) as the Incentive Committee may from time to time determine. A
change in the standards qualifying an Employee for participation in the Plan,
made by the Board during a Compensation Year, shall not be made applicable to
the Participants for such Compensation Year
-14-
<PAGE> 15
but shall be applicable only with respect to a succeeding Compensation Year.
(c) The selection of Participants, and the establishment of their
Target Awards, shall be made by the Incentive Committee (after such
consultation with and consideration of the recommendations of management as the
Incentive Committee considers desirable). The Incentive Committee shall advise
the Board of its selections and shall notify each Employee of his selection,
his Target Award and of any corporate, divisional or individual performance
objectives or other criteria that will determine whether the Target Award or a
percentage thereof will be paid to him. The Incentive Committee shall also
furnish each such Employee with a copy of the Plan or a summary thereof.
4.03 Payment of Incentive Compensation Awards.
(a) As promptly as practicable after receiving notice, pursuant
to Section 4.01(b) above, of the results of the operations and financial
condition of the Company and any of its relevant subsidiaries, divisions or
businesses for a Compensation Year, the Incentive Committee shall determine
whether (or to what extent) the Target Award for each Participant shall be
payable and shall make Incentive Compensation Awards for such Compensation Year
pursuant to Sections 4.01 and 4.02.
-15-
<PAGE> 16
(b) If the employment of a Participant shall have terminated
during a Compensation Year for any reason, other than (i) termination by the
Company or a subsidiary for Cause; (ii) termination by the Participant for the
purpose of assuming employment with a competitor of the Company or a
subsidiary; or (iii) termination following a Change in Control during the
Compensation Year in which a Change in Control occurs, the Incentive Committee
may in its discretion grant an Incentive Compensation Award to such member, not
exceeding the total amount such member would have received if employed
throughout the entire Compensation Year. Such determination shall be made and
reported to the Board prior to the end of such Compensation Year (or as soon as
practicable thereafter).
Any Participant who is terminated by the Company or a subsidiary
for Cause or who terminates for the purpose of assuming employment with a
competitor of the Company or a subsidiary shall receive no payment or award
with respect to the Compensation Year in which he terminates.
In the event the employment of a Participant shall be terminated
(other than by (i) the Company or a subsidiary for Cause or (ii) on account of
death, Disability or Retirement) following a Change in Control during the
Compensation Year in which a Change in Control occurs, notwithstanding any
other provisions of the Plan, an award
-16-
<PAGE> 17
to or for such Participant shall be made in an amount equal to at least that
portion of his Target Award determined by multiplying his Target Award by the
fraction determined by dividing the number of days elapsed since the beginning
of the Compensation Year until his date of termination by 365. The Committee
may, in its discretion, grant an award of up to 100% of Target Award to any
such Participant.
4.04 Time and Form of Payment of Incentive Compensation Award.
(a) Subject to Section 4.04(b), each Incentive Compensation Award
shall be paid in cash in full as soon as practicable after the award shall have
been made; provided, however, that the Incentive Committee may determine, in
its sole discretion, to permit the payment of Incentive Compensation Awards to
be made in installments, as deemed appropriate by the Incentive Committee.
(b) A Participant may elect in respect of a Compensation Year,
pursuant to procedures established by the Incentive Committee, that an
Incentive Compensation Award payable for a Compensation Year be deferred and be
paid in one (1) lump sum cash payment as soon as practicable following the end
of the calendar year of the Participant's Retirement; provided, however, that
no Incentive Compensation Award for the Compensation Year in which Retirement
occurs shall be paid earlier than when such award
-17-
<PAGE> 18
would otherwise be paid pursuant to the Plan. Each such election so made shall
be in all respects irrevocable and binding upon the Participant and his
Beneficiary unless, in its sole discretion, the Incentive Committee permits
such election to be revoked due to the Participant's demonstration of hardship.
(c) The dollar amount of an Incentive Compensation Award which is
paid pursuant to installments under Section 4.04(a) or pursuant to deferral
election under Section 4.04(b) shall be credited with interest equivalents to
the extent that such amount has not been distributed. Such interest
equivalents shall be credited at such rate or rates as the Incentive Committee
shall determine from time to time.
(d) In case of the death of a Participant, any Incentive
Compensation Award payable to the Participant shall be paid to his Beneficiary
in a single payment as soon as practicable after the Participant's death.
4.05 Amendment; Termination.
The Board may amend, suspend or terminate the Plan at any time,
provided that no amendment or termination shall be effective that would
adversely affect the rights of a Participant with respect to an Incentive
Compensation Award (including any established Target Award) granted prior to
-18-
<PAGE> 19
such amendment or termination, without such Participant's written consent.
4.06 Miscellaneous.
(a) No Employee, Participant, Beneficiary, or person claiming
under or through any of them, nor any other person shall have any right or
interest, whether vested or otherwise, in the Plan or its continuance, or in or
to the payment of any Incentive Compensation Award under the Plan unless and
until all of the terms, conditions and provisions of the Plan that affect such
award and its payment shall have been fully complied with as specifically
provided in the Plan and the rules and regulations of the Incentive Committee
thereunder. No rights under the Plan, contingent or otherwise, shall be
assignable or subject to any encumbrance, pledge or charge of any nature.
(b) The interpretation and construction of the Plan shall be
governed by and enforced in accordance with the internal laws of the State of
Delaware without regard to the principle of conflicts of laws.
(c) Appropriate provision shall be made for all taxes required to
be withheld from Incentive Compensation Awards under applicable laws, whether
Federal, state or local and whether domestic or foreign, including without
limitation, the withholding of payment of all or a portion of Incentive
Compensation Awards.
-19-
<PAGE> 20
(d) The Plan shall be effective as of November 1, 1995.
-20-
<PAGE> 1
EXHIBIT 11(A)
PHARMACIA & UPJOHN, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE - PRIMARY
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------
1995 1994 1993
-------- -------- ------
<S> <C> <C> <C>
Earnings from continuing operations
before accounting changes $738.7 $833.4 $560.6
Earnings from discontinued operations, net 1.7 46.1
Cumulative effect of accounting changes,
net of tax (18.9)
------ ------ ------
Net earnings 738.7 835.1 587.8
Dividends on preferred stock, net of tax 12.5 12.3 12.1
------ ------ ------
Net earnings on common stock - primary $726.2 $822.8 $575.7
====== ====== ======
Average number of common shares
outstanding 504.7 504.4 505.6
Number of common shares issuable
assuming exercise of stock options 1.9 .3 .2
Contingently issuable incentive shares .5 .5 .4
----- ----- ------
Earnings per share - primary 507.1 505.2 506.2
===== ===== ======
Continuing operations before accounting changes $1.43 $1.63 $ 1.09
Discontinued operations .09
Cumulative effect of accounting changes (.04)
----- ----- ------
Net earnings $1.43 $1.63 $ 1.14
===== ===== ======
</TABLE>
<PAGE> 1
EXHIBIT 11(B)
PHARMACIA & UPJOHN, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE - FULLY DILUTED
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Years Ended December 31,
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Earnings from continuing operations before
accounting changes $738.7 $833.4 $560.6
Earnings from discountinued operations, net 1.7 46.1
Cumulative effect of accounting changes,
net of tax (18.9)
------ ------ ------
Net earnings 738.7 835.1 587.8
Less ESOP contribution assumed to be
required if preferred shares are
converted into common shares 4.5 4.7 4.7
Plus interest on convertible debentures 1.3 1.8
Less adjustment of tax benefit on
allocated shares .5 .3 .3
------ ------ ------
Net earnings on common shares - fully
diluted $733.7 $831.4 $584.6
====== ====== ======
Average number of common shares
outstanding 504.7 504.4 505.6
Number of common shares issuable
assuming exercise of stock options 4.9 .4 .2
Contingently issuable incentive shares 1.0 2.6 2.0
Number of common shares issuable assuming
conversion of preferred shares 10.5 10.7 10.7
----- ----- -----
Earnings per share - fully diluted 521.1 518.1 518.5
===== ===== =====
Continuing operations before accounting
changes $1.41 $1.60 $1.08
Discontinued operations .09
Cumulative effect of accounting changes (.04)
----- ----- -----
Net earnings $1.41 $1.60 $1.13
===== ===== =====
</TABLE>
<PAGE> 1
EXHIBIT 12
PHARMACIA & UPJOHN, INC. AND CONSOLIDATED SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
Years Ended December 31,
-----------------------------------------------------
1995 1994 1993 1992 1991
------ ------ ----- ---- -----
<S> <C> <C> <C> <C> <C>
Earnings from continuing operations before
accounting changes, income taxes and
minority equity $1,136,393 $1,271,276 $ 777,736 $ 947,395 $ 909,659
Less: Equity in undistributed net income
(loss) of companies owned less than 50% 7,389 8,156 8,037 6,464 5,062
---------- ---------- ---------- ---------- ----------
1,129,004 1,263,120 769,699 940,931 904,597
Add: Amortization of previously capitalized
interest 10,079 7,695 5,419 4,486 3,109
Fixed charges included in the above:
Interest and amortization of debt expense 121,018 139,013 209,399 162,425 145,655
Rental expense representative of an
interest factor 35,330 35,290 32,348 34,743 36,834
---------- ---------- ---------- ---------- ----------
Earnings from continuing operations before
accounting changes, income taxes, minority
equity and fixed charges $1,295,431 $1,445,118 $1,016,865 $1,142,585 $1,090,195
========== ========== ========== ========== ==========
Interest incurred and amortization of debt
expense 148,542 164,341 233,683 178,677 158,724
Rental expense representative of an
interest factor 35,330 35,290 32,348 34,743 36,834
---------- ---------- ---------- ---------- ----------
Total fixed charges $ 183,872 $ 199,631 $ 266,031 $ 213,420 $ 195,558
========== ========== ========== ========== ==========
Ratio of earnings to fixed charges 7.05 7.24 3.82 5.35 5.57
========== ========== ========== ========== ==========
</TABLE>
<PAGE> 1
EXHIBIT 13
FINANCIAL REVIEW
Pharmacia & Upjohn, Inc. (the company) was formed in November 1995 by the
merger of Pharmacia AB (Pharmacia) with The Upjohn Company (Upjohn). Both
Pharmacia and Upjohn were research-based pharmaceutical companies operating on
a worldwide basis. The merger combined two operations that were complementary
in both therapeutic expertise and geographic presence to create a company with
total revenue of $7.1 billion and $11.5 billion in total assets.
The merger has been accounted for as a pooling of interests.
Accordingly, all prior-year data have been combined as if the companies had
been merged during all periods reported. The company reports its operations as
a single industry segment - pharmaceutical products. In addition to
prescription pharmaceutical products, this industry designation includes
activities in the affiliated businesses of consumer and animal health
pharmaceuticals, pharmaceutical chemicals and contract manufacturing,
diagnostic systems and biotechnological products.
Overview of consolidated results
<TABLE>
<CAPTION>
U.S. dollars in millions, except per-share data 1995 % change 1994 % change 1993
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total revenue $7,094.6 4% $6,822.8 4% $6,560.8
Operating income 1,002.9 (14) 1,163.7 60 729.5
Earnings from continuing
operations before income
taxes 1,136.4 (11) 1,271.3 63 777.7
Earnings from continuing
operations 738.7 (11) 833.5 49 560.6
Net earnings 738.7 (12) 835.1 42 587.8
Net earnings per common share:
-Primary $ 1.43 (12) $1.63 43 $ 1.14
-Fully diluted $ 1.41 (12) $1.60 42 $ 1.13
================================================
</TABLE>
Pharmacia & Upjohn Annual Report 1995
36
<PAGE> 2
When comparing year-to-year earnings, restructurings, merger charges and
discontinued operations recorded over the past three years should be
considered. Major restructuring charges were recorded in both 1995 and 1993.
Restructuring charges recorded in 1995 were almost entirely related to the
merger and reduced earnings by $103.4 million ($67.7 million or $.14 per share
after tax). Further restructuring costs, associated with the merger, will be
recognized in future reporting periods. The 1993 restructuring that reduced
earnings by $268.7 million ($212.5 million or $.42 per share after tax) was
associated with a workforce reduction, the write-down of certain assets and the
reduction of excess manufacturing capacity. These restructurings are discussed
further in separate sections of this review.
In 1995, costs incurred to effect the merger totaled $138.2 million
($117.8 million or $.23 per share after tax). These costs consisted primarily of
professional and registration fees and the cost of terminating two third-party
distribution agreements that conflicted with the merged operations. Other merger
costs were associated with planning and executing the merger. Additional costs
associated with the execution of the merger are expected to be incurred in 1996.
In addition, several actions were taken over the past three years to
increase the company's focus on its core pharmaceutical business, including the
1994 sale of the Asgrow Seed Company and the 1993 sale of Asgrow Florida
Company. Also in 1994, the company sold Deltec, Inc. The gain on this sale
increased 1994 net earnings by $30 million ($.06 per share). In 1993, the shares
of BCP Branded Consumer Products AB (BCP) were distributed to the shareholders
of the former Procordia AB, the predecessor to Pharmacia. Except for the sale of
Deltec, these divestitures have been reported as discontinued operations.
PRODUCT SALES
The table below provides a year-to-year comparison of consolidated net sales
by major therapeutic product groups:
<TABLE>
<CAPTION>
U.S. dollars in millions 1995 % change 1994
- ------------------------------------------------------
<S> <C> <C> <C>
Infectious Disease $ 687.1 10.3% $ 622.9
Metabolic Disease 635.9 (2.1) 649.4
Critical Care and
Thrombosis 579.7 12.8 514.1
Central Nervous System 571.8 .3 570.3
Oncology 566.2 6.7 530.6
Women's Health 541.2 6.1 509.9
Nutrition 399.0 8.1 369.0
Ophthalmology 296.0 5.3 281.0
Other Prescription
Pharmaceuticals 957.7 (12.8) 1,098.1
Consumer Health Care 441.5 (2.1) 451.2
Animal Health 383.1 14.0 336.2
Chemical & Contract
Manufacturing 199.9 17.1 170.7
Total Pharmaceuticals 6,259.1 2.6 6,103.4
Biotech/Biosensor 437.0 13.5 385.0
Diagnostics 253.0 17.1 216.0
Consolidated
net sales $6,949.1 3.6% $6,704.4
============================
</TABLE>
Note: Sales data for 1993 by therapeutic group are not available for
comparison.
Pharmacia & Upjohn Annual Report 1995
37
<PAGE> 3
Sales outside the United States in 1995 were $4.8 billion, up 10 percent
from $4.4 billion in 1994. Consolidated 1995 sales in the United States
decreased nine percent from $2.3 billion in 1994 to $2.1 billion and
represented 30 percent of 1995 consolidated sales, down from 35 percent.
Worldwide consolidated sales for 1995 were up as the result of a five percent
benefit from favorable changes in currency exchange rates and a one percent
increase from volume, offset by a two percent decline from the 1994 divestment
of the Deltec operation. Overall, declines in sales prices had a minimal effect
on sales for the year.
Sales growth of Infectious Disease products was led by the Cleocin
(Dalacin outside the U.S.) family of antibiotic products, with strong sales
growth in non-U.S. markets and solid growth in the U.S. Vantin, the
broad-spectrum oral antibiotic sold primarily in the U.S., also continued good
sales growth.
Sales of Metabolic Disease products were led by Genotropin, the growth
hormone, with increases in Japan, Germany and Sweden. Genotropin has been
marketed under an agreement with Genentech, Inc., which provided the company
with exclusive sales rights to the product outside of the U.S. and Canada. As a
result of the November 1995 expiration of this agreement, the company is able to
market Genotropin in the U.S. and Canada while Genentech may now market its
growth hormone products worldwide. Continuing generic competition for Micronase,
the oral antidiabetes agent that lost U.S. market exclusivity in 1994, led to a
decline in sales. Sales of Glynase, the oral antidiabetes agent, declined as a
result of the loss of U.S. market exclusivity in March 1995.
Sales growth recorded by Critical Care and Thrombosis products was led
by Solu-Medrol, the injectable steroid, and other Medrol products in non-U.S.
markets. Fragmin, for prevention of blood clots in connection with surgery,
demonstrated good growth in Germany, Sweden and other non-U.S. markets. Fragmin
was approved for sale in the U.S. late in 1995. The first sales of Freedox
(tirilazad mesylate), for subarachnoid hemorrhage in males, were recorded in
non-U.S. markets in mid-1995. In March 1996, the company announced that it was
discontinuing research for tirilazad mesylate in head injury. Clinical trials
and evaluation for the U.S. approval of Freedox for the treatment of
subarachnoid hemorrhage in females at higher dose levels and for both stroke and
spinal cord injury are continuing.
Sales of Central Nervous System agents were flat for the year. Sales
growth outside the U.S. was offset by a decline in the U.S. The decline is the
continuing result of intense U.S. generic competition for Xanax, the
anti-anxiety agent, and Halcion, the sleep-inducing agent, both of which lost
U.S. patent protection in October 1993. In non-U.S. markets, Xanax continued to
record good growth while Halcion grew moderately. Sermion, for senile dementia,
recorded good growth in non-U.S. markets, especially Japan, Germany and Italy.
In December 1995, a New Drug Application (NDA) was filed with the U.S. Food and
Drug Administration (FDA) for pramipexole, a treatment for Parkinson's disease.
Also in January 1996, cabergoline, for Parkinson's disease, was approved for
marketing in Denmark and Switzerland.
Sales of Oncology products grew through good performance in non-U.S.
markets. This increase was led by non-U.S. sales of Farmorubicin, for solid
tumors and leukemias. Sales of Adriamycin, also for cancer, were down somewhat
in the U.S. due to generic competition. Sales of other branded and generic
oncology products also contributed to growth worldwide. In 1994, the company
completed a series of agreements with Yakult Honsha Co. Ltd. for the rights to
develop and market the anticancer compound irinotecan for several indications in
the U.S., Canada, and Latin America. An NDA has been filed with the FDA for
irinotecan, trade name Camptosar, for the treatment of refractory colorectal
cancer.
Sales in the Women's Health product group were again led by
Depo-Provera, the injectable contraceptive, which continued to record strong
increases, especially in the U.S.
Pharmacia & Upjohn Annual Report 1995
38
<PAGE> 4
Partially offsetting this increase were declines in U.S. sales of Ogen, for
estrogen replacement, largely due to generic substitution. Sales of Provera
products, the progestational agents, were down in the U.S. due to increasing
generic competition but were up moderately in non-U.S. markets. FDA moratoriums
on the approval of Abbreviated New Drug Applications protecting exclusivity for
Depo-Provera expired in November 1995.
Sales growth of Nutrition products was led by the non-U.S. sales of
Intralipid (including related mixing products), a fat emulsion for intravenous
nutrient delivery. This growth was due largely to the July 1995 purchase of the
majority interest in a joint venture in China, resulting in its consolidation.
Previously, these sales were not included in consolidated sales because the
company accounted for its investment under the cost method. China now represents
this business area's largest market. All other nutritional products as a group
also demonstrated growth in non-U.S. markets.
Growth in the Ophthalmology products group was led by sales of Healon,
for cataract surgery, in Japan and other non-U.S. markets. Sales of Healon
declined in the U.S due to fewer cataract operations and greater competition.
Solid growth by the majority of Other Prescription Pharmaceutical
products was led by the worldwide sales of Caverject, the treatment for erectile
dysfunction. Caverject first recorded sales in the U.S. in the third quarter of
1995 and is now approved in 44 markets worldwide. Sales of Rogaine (Regaine in
non-U.S. markets), for hair loss, were slightly above 1994 levels. In February
1996, Rogaine two percent minoxidil formulation was approved in the U.S. for
over-the-counter (non-prescription) sale, and will be sold by the company's
Consumer Health Care business beginning in the first half of 1996. In December
1995, an NDA was submitted to the U.S. FDA for a Rogaine five percent minoxidil
formulation for the treatment of common hair loss. Salazopyrin, the preparation
used to treat inflammatory bowel disorder and rheumatoid arthritis, recorded
good sales increases, primarily in Europe. Sales growth in this product group
was offset by declines in U.S. sales of Ansaid, the nonsteroidal
anti-inflammatory agent, which first encountered significant generic competition
late in 1994. Ansaid lost U.S. patent protection in February 1993.
Consumer Health Care product sales were down as non-U.S. sales increases
in Nicorette, for smoking cessation, were offset by a decline in U.S. sales of
Motrin IB, the non-steroidal analgesic agent. Motrin IB experienced intense
competition resulting from an effort by wholesalers to reduce inventories early
in 1995 and increased promotional activity within this market segment.
Strong sales growth in the Animal Health business was led by the
performance of Spectinomycin products in non-U.S. markets. Sales of the
antibiotic Naxcel (Excenel in non-U.S. markets) were up worldwide.
Chemical and Contract Manufacturing sales were up significantly in 1995
due to strong volume increases in Europe and Asia pharmaceutical fine chemical
sales and U.S. sales of specialty steroid products.
Strong sales growth was recorded by the Biotech/Biosensor group. This
business develops, manufactures and markets systems, reagents and chemicals for
pharmaceutical and biotechnology companies and academic research labs.
Sales from the Diagnostics business continued to grow in 1995, driven by
increased sales of allergy diagnostics, especially in Japan and certain European
countries.
Pharmacia & Upjohn Annual Report 1995
39
<PAGE> 5
OTHER OPERATING REVENUE
The sale of the company's rights under a product co-marketing agreement
increased other operating revenue and added $42 million ($26 million or $.05
per share after tax) to 1995 operating earnings. An agreement with
Burroughs-Wellcome Co. to provide promotional services for their product
Zovirax, also contributed to the increase in this revenue classification. The
Zovirax agreement was terminated at the end of 1995.
COSTS AND EXPENSES
Consolidated operating expenses, stated as a percent of net sales, were as
follows:
<TABLE>
<CAPTION>
1995 1994 1993
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Cost of products sold 28.5% 28.2% 28.0%
Research and development 18.0 17.3 17.6
Marketing, administrative
and other 37.7 38.6 39.9
Merger-related restructuring 1.3
Merger costs 2.0
Other restructuring charges .2 .3 4.1
Operating income 14.4 17.4 11.2
========================================
</TABLE>
The increases in 1995 and 1994 cost of products sold, when compared to
1993, are the result of a change in product mix. The change is largely due to
U.S. generic competition encountered by several major products identified
earlier, most of which carried relatively high gross margins. The change in the
U.S. was offset somewhat by an improved product mix in certain European
markets, where sales of certain lower margin bulk products were replaced by
higher margin branded pharmaceuticals. The decline in gross margins is also due
to a higher percentage of total worldwide pharmaceutical product sales in
non-U.S. markets where the company's products generally carry lower gross
margins.
Expenditures for research and development (R&D) in 1995 increased as a
percent of sales from 1994. In 1995 the company had a greater number of product
candidates in the final stages of clinical development, which required higher
patient populations for testing. R&D expenses in 1994 were down slightly as a
percent of sales from the prior year primarily due to the timing of expenses
related to large clinical programs and from the write-down of certain R&D assets
upon the 1993 acquisition of the pharmaceutical business of Erbamont N.V.
(referred to as FICE) from Montedison S.p.A.
Marketing, administrative and other expenses as a percent of sales in
1995 were down from both 1994 and 1993. When comparing the expenses measured in
U.S. dollars, this category has been essentially flat since 1993. This measure
in 1995 included a $59-million write-down of an investment to fair market value
in the fourth quarter. Excluding the effect of this write-down, these expenses
declined from 1994 due to unusually high costs in 1994 associated with various
marketing programs and other expenses. The 1995 measure included reductions in
insurance and claims accruals and capital gains on certain sales of fixed
assets. Savings from the 1993 restructuring associated with the rationalization
of marketing activities following the FICE acquisition in mid-1993 were realized
in this expense category. In 1994 the restructuring savings were partially
offset by increases in other costs related to various marketing programs and by
additional marketing investments in certain emerging international markets.
Pharmacia & Upjohn Annual Report 1995
40
<PAGE> 6
MERGER COST AND MERGER-RELATED RESTRUCTURING CHARGES
Merger costs recorded in 1995 consisted of transaction costs and expenses
to combine the operations of the two companies. Transaction costs ($68.8
million) consisted primarily of professional fees. Expenses to combine the two
companies included costs associated with terminating two marketing agreements
($53.0 million) that were in conflict with other aspects of the merged company.
Expenses associated with combining operations also were related to planning and
implementing the organizational structure of the new company. It is anticipated
that some additional merger expenses will be incurred during 1996.
In December 1995, a major restructuring plan was announced that is
designed to eliminate duplicate facilities and functions and focus resources on
the objectives of the newly formed company. This merger-related restructuring
will ultimately lead to the reduction of approximately 4,100 positions worldwide
and the closing or combining of numerous subsidiary locations. In addition, in
March 1996, the company announced that it will reduce the number of worldwide
pharmaceutical production facilities by approximately 40 percent. The company
also announced that research and development efforts will be focused on the
company's most promising product candidates, terminating further activity on
approximately 20 percent of current development projects. The estimated annual
savings from all merger-related restructuring activities are expected to be in
excess of $500 million annually.
Merger-related restructuring charges, totalling $91.6 million, were
recorded in the fourth quarter of 1995. These charges covered costs associated
with the reduction of approximately 850 positions, elimination of duplicate
office facilities and other exit costs. Cash expenditures related to the 1995
merger-related restructuring were minimal, and essentially all of the accrual
for these charges is included in current liabilities. Further restructuring
charges associated with the merger will be recorded in 1996.
OTHER RESTRUCTURING CHARGES
Restructuring charges in 1995 that were not related to the merger,
totalling $11.8 million, were incurred in conjunction with the closure of a
manufacturing facility in Sweden. Restructuring charges recorded in 1994
reflect costs associated with a plant closing in the U.S. that was part of the
consolidation of manufacturing facilities in the ophthalmology operations.
Charges resulting from the write-down of intangibles related to a terminated
oncology venture were included in this expense category.
The restructuring plan announced in 1993 continued to be implemented in
1995. During 1995, the anticipated workforce reduction was completed. Certain
plant closings recognized in the original 1993 accruals have not yet been
completed; accordingly, approximately $29 million, primarily related to
manufacturing rationalization, remains as other current and noncurrent
liabilities. No adjustments to the original accruals have been made or are
anticipated to be required.
Pharmacia & Upjohn Annual Report 1995
41
<PAGE> 7
NONOPERATING INCOME AND EXPENSE
Favorable relationships of interest income to interest expense have
increased in each of the years 1993 through 1995. The decrease in net interest
income from 1993 to 1994 was due to the use of funds to purchase FICE, and the
increase in this measure from 1994 to 1995 is largely due to investment of
proceeds from the sale of Deltec and certain other assets acquired with FICE
and the sale of the Asgrow Seed Company. Nonoperating income in 1994 included
the gains on the sale of Deltec and a joint venture. There were no such gains
in 1993 or 1995.
INCOME TAXES
The effective tax rate for 1995 was 35 percent, compared to 34.4 percent
and 27.9 percent in 1994 and 1993, respectively. The increase in the rate for
1995 from that of 1994 was the result of a lower proportion of total earnings
from operations in Puerto Rico and greater goodwill amortization and other
nondeductible expense. The increase in the rate for 1994, when compared to
1993, is the net result of changes in Swedish tax laws, a decrease in goodwill
and other nondeductible expense and a lower proportion of total earnings from
operations in Puerto Rico.
The company's earnings from manufacturing operations in Puerto Rico are
partially exempt from U.S. and Puerto Rico income taxes. The U.S. tax exemption
has been and will be steadily diminished due to changes in U.S. tax laws.
<TABLE>
FINANCIAL CONDITION
U.S dollars in millions 1995 1994 1993
- ---------------------------------------------------------
<S> <C> <C> <C>
Working capital $2,333.7 $1,928.6 $878.1
Current ratio 1.88:1 1.67:1 1.32:1
Debt to total capitalization 17.9% 23.4% 26.3%
===========================
</TABLE>
Significant increases in working capital and the corresponding
improvements in the current ratio were realized in 1994 and 1995. This was
partially due to the year-end 1994 receipt of the proceeds from the sale of the
Asgrow Seed Company and the proceeds from the sale of Deltec which had been
invested in cash equivalents at the end of 1994. Also contributing to the
improvements in these measures were the strong cash flows from operations.
Both the 1994 and 1995 percentages of debt compared to total
capitalization benefited from the increase in total shareholders' equity
attributable to earnings retained in the business as compared to declining
levels of debt.
The company's net financial asset position has improved substantially
during the last three years:
<TABLE>
<CAPTION>
U.S. dollars in millions 1995 1994 1993
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash, equivalents
and investments $2,529.5 $2,553.9 $1,602.5
Short-term and long-term debt 1,394.7 1,719.0 1,719.1
Net financial assets $1,134.8 $834.9 $ (116.6)
================================================
</TABLE>
Net cash provided by 1995 operations declined to $1,145.4 million as
compared to $1,286.3 million and $1,355.7 million in 1994 and 1993,
respectively. Payments for merger costs, totaling $138.2 million, were largely
responsible for this decline and reduced only the 1995 measure. Also in 1995, a
change in tax law required acceleration of U.S. estimated tax payments and led
to the large 1995 use of cash to reduce income taxes payable. Cash from
operations in 1994 was reduced by significant payments related to the 1993
restructurings. Spending on restructurings
Pharmacia & Upjohn Annual Report 1995
42
<PAGE> 8
This page contains three vertical bar graphs, titled "Selected expense
categories as a percent of net sales," for the years 1993, 1994 and 1995. The
following table lists the data points used in the graphs for the three
categories: Cost of Products Sold; Research and Development; and Marketing,
Administrative and Other.
<TABLE>
1993 1994 1995
<S> <C> <C> <C>
Cost of products sold 28.0% 28.2% 28.5%
Research and Development 17.6 17.3 18.0
Marketing, Administrative and Other 39.9 38.6 37.7
</TABLE>
A table of all consolidated operating expenses as a percent of net sales,
is in the Financial Review, following the caption "Costs and Expenses."
Pharmacia & Upjohn Annual Report 1995
43
<PAGE> 9
unrelated to the merger were not as large in either of the two comparative
periods. Cash required to fund the merger-related restructurings and the
remaining merger costs will be paid in 1996 and thereafter from cash generated
from operations
In 1995, the largest use of cash for investing purposes was in the
acquisition of properties (plant and equipment) for use in operations.
Significant cash was also used to reduce the total debt of the company. In
addition to cash provided by 1995 operations, cash was made available through
the reduction of certain financial investments. In 1994, cash received from the
sale of the Deltec operations led to the increase in investments. In 1993, the
company's acquisitions of FICE was in exchange for cash. In addition to cash
provided by operations, other funding was provided for the FICE acquisition from
reduction of certain financial investments and from proceeds from the
divestiture of BCP. In all years, cash used to pay dividends was generated from
operating activities.
The company utilizes derivative financial instruments in conjunction
with its foreign currency risk management programs. These programs employ
over-the-counter forward currency exchange contracts and purchased currency
options to hedge existing net transaction exposures and certain existing
obligations in several subsidiary locations. These exposures arise both from
intercompany and third-party transactions. The company also utilizes forward
currency exchange contracts to hedge anticipated currency exchange transaction
exposures of certain significant international operations. These contracts are
marked to market monthly. Additionally, currency put or call options are
occasionally used to hedge specific anticipated transactions.
Transaction hedging activities seek to protect operating results and
cash flows from the potentially adverse effects of currency exchange
fluctuations. This is done by offsetting the gains or losses on the underlying
exposures with losses and gains on the instruments used to create the hedge. The
hedging of anticipated transaction exposures is intended to limit the
fluctuation of certain elements of income and expense by offsetting the gains or
losses on the instruments with other elements of operating income.
The company also utilized forward currency exchange contracts to hedge
the net investment in certain subsidiary operations. This practice was suspended
in the fourth quarter of 1995, and all related contracts have been closed.
In consideration of the financial objectives of the newly merged
operations, the company is presently reviewing its policies and practices
related to all hedging activities and the use of related derivative financial
instruments.
The company's future cash provided by operations and borrowing capacity
are expected to cover normal operating cash flow needs and planned capital
acquisitions for the foreseeable future.
Pharmacia & Upjohn Annual Report 1995
44
<PAGE> 10
OTHER INFORMATION
The company is subject to environmental legislation and regulation.
Environmental compliance costs, including capital expenditures related to future
production, have been increasing each year. Spending at the Kalamazoo production
site is expected in the near future related to groundwater remediation and
improved control of surface water discharges. Other projects related to the
prevention, mitigation and elimination of environmental effects are being
planned and implemented worldwide.
The company is involved in several administrative and judicial
proceedings relating to environmental matters, including actions brought by U.S.
and state environmental agencies for cleanup at approximately 40 "Superfund" or
comparable sites, including site remediation of the company's discontinued
industrial chemical operations. The company's estimate of the ultimate cost to
be incurred in connection with these environmental situations could change due
to the potential existence of joint and several liability, possible recovery
from other potentially responsible parties, the levels of cleanup to be required
and the technologies to be employed. An accrual has been recorded, but added
costs could be incurred in connection with the various remedial actions.
While it is not possible to predict or determine the outcome of legal
actions brought against the company, or the ultimate cost of environmental
matters, the company continues to believe that the unaccrued costs and
liabilities associated with such matters will not have a material adverse effect
on the company's consolidated financial position; and, unless there is a
significant deviation from the historical pattern of resolution of such issues,
the ultimate liability should not have a material adverse effect on the
company's results of operations or liquidity.
The company is a party, along with many other U.S. drug manufacturers
and wholesalers, in numerous related federal and state civil antitrust lawsuits
brought by U.S. independent and chain retail pharmacies and consumers. These
suits claim violations of antitrust and pricing laws as a result of the
defendants providing discounts and rebates to allegedly favored managed care
customers that were not offered to the plaintiffs. Several of the suits are
class actions. The first trial, a class action pending in Federal court in
Chicago, Illinois, is scheduled to begin in May 1996. The company believes it
has meritorious defenses, and although potential liability cannot presently be
estimated, a majority of the defendants in this class action (not including the
company) have recently agreed to $10 million to $60 million settlements of
claims against them in this action, and are awaiting court approval of the
settlements.
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
U.S. dollar amounts in millions, except per share data 1995 1994 1993 1992 1991
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating revenue $ 7,094.6 $ 6,822.8 $ 6,560.8 $ 5,938.4 $ 5,313.5
Earnings from continuing
operations 738.7 833.5 560.6 703.8 602.8
Earnings per share from
continuing operations 1.43 1.63 1.09 1.36 1.16
Dividends declared per share (*) .27
Total assets 11,460.6 10,947.1 9,894.6 10,873.1 11,344.6
Long-term debt 603.1 678.2 675.0 463.5 643.5
================================================
</TABLE>
(*) Represents dividend declared by the merged company's board of
directors in December 1995. Separate dividend information for
Pharmacia and Upjohn has not been presented because the information
would not be meaningful.
Pharmacia & Upjohn Annual Report 1995
45
<PAGE> 11
Reports of management and independent accountants
REPORT OF MANAGEMENT
Management is responsible for the consolidated financial statements and the
other financial information included in this Annual Report. The Board of
Directors, acting through its Audit Committee which is composed solely of
directors who are not employees of the company, oversees the financial
reporting process. The financial statements have been prepared in accordance
with U.S. generally accepted accounting principles and include amounts based on
judgments and estimates made by management. Actual results could differ from
amounts estimated.
Management has established systems of internal controls over financial
reporting designed to provide reasonable assurance that the financial records
used for preparing financial statements are reliable and that assets are
safeguarded from unauthorized use or disposition. Internal auditors review
accounting and control systems. The systems are also reviewed by the
independent accountants to the extent deemed necessary to express the opinion
set forth in their report.
Management takes corrective actions to improve reporting and control
systems in response to recommendations by the internal auditors and independent
accountants. The appointment of the independent accountants is recommended by
the Audit Committee to the Board of Directors.
John L. Zabriskie, Ph.D.
President and Chief Executive Officer
Robert C. Salisbury
Executive Vice President,
Finance and Administration,
and Chief Financial Officer
REPORT OF INDEPENDENT ACCOUNTANTS TO THE SHAREHOLDERS AND BOARD OF DIRECTORS
We have audited the consolidated balance sheets of Pharmacia & Upjohn, Inc.,
and subsidiaries as of December 31, 1995 and 1994, and the related consolidated
statements of earnings, shareholders' equity, and cash flows for the years
1995, 1994 and 1993. These financial statements are the responsibility of the
management of Pharmacia & Upjohn, Inc. 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, the consolidated financial statements referred to above
(pages 48 to 65) present fairly, in all material respects, the consolidated
financial position of Pharmacia & Upjohn, Inc., and subsidiaries as of December
31, 1995 and 1994, and the consolidated results of their operations and their
cash flows for the years 1995, 1994 and 1993, in conformity with accounting
principles that are generally accepted in the U.S.
As discussed in Note 2 to the consolidated financial statements, during
1993 the company changed its practice of reporting certain majority-owned
subsidiaries from fiscal years ending November 30 to years ending December 31
and its method of accounting for postemployment benefits.
Coopers & Lybrand L.L.P.
KPMG Peat Marwick LLP
Chicago, Illinois
February 21, 1996
Pharmacia & Upjohn Annual Report 1995
46
<PAGE> 12
Consolidated statements of earnings
Pharmacia & Upjohn, Inc. and subsidiaries
<TABLE>
<CAPTION>
U.S. dollar amounts in thousands, except per-share data
For the years ended December 31 1995 1994 1993
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating revenue:
Net sales $6,949,069 $6,704,360 $6,507,487
Other revenue 145,550 118,422 53,271
- -------------------------------------------------------------------------------------------------
TOTAL OPERATING REVENUE 7,094,619 6,822,782 6,560,758
Operating Costs And Expenses:
Cost of products sold 1,980,038 1,889,854 1,822,255
Research and development 1,253,566 1,162,752 1,144,043
Marketing, administrative and other 2,616,557 2,586,635 2,596,287
Restructuring charges 103,404 19,837 268,658
Merger costs 138,193 - -
- -------------------------------------------------------------------------------------------------
OPERATING INCOME 1,002,861 1,163,704 729,515
Interest income 216,651 157,254 227,318
Interest expense (94,139) (112,117) (182,514)
Currency exchange gains (losses) 13,071 22,121 (2,248)
All other, net (2,051) 40,314 5,665
- -------------------------------------------------------------------------------------------------
EARNINGS FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 1,136,393 1,271,276 777,736
Provision for income taxes 397,700 437,825 217,143
- -------------------------------------------------------------------------------------------------
EARNINGS FROM CONTINUING OPERATIONS 738,693 833,451 560,593
Earnings from discontinued operations - 2,672 41,158
(Loss) gain on disposal of discontinued operations - (997) 4,926
Cumulative effect of accounting changes - - (18,906)
- -------------------------------------------------------------------------------------------------
NET EARNINGS 738,693 835,126 587,771
Dividends on preferred stock (net of tax) 12,541 12,291 12,125
- -------------------------------------------------------------------------------------------------
NET EARNINGS ON COMMON STOCK $ 726,152 $ 822,835 $ 575,646
==================================
Earnings per common share:
- -------------------------------------------------------------------------------------------------
Primary Earnings from continuing operations $1.43 $1.63 $1.09
Net earnings $1.43 $1.63 $1.14
- -------------------------------------------------------------------------------------------------
Fully diluted Earnings from continuing operations $1.41 $1.60 $1.08
Net earnings $1.41 $1.60 $1.13
=============================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
Pharmacia & Upjohn Annual Report 1995
48
<PAGE> 13
Consolidated balance sheets
Pharmacia & Upjohn, Inc. and subsidiaries
<TABLE>
<CAPTION>
U.S. dollar amounts in thousands
December 31 1995 1994
- -----------------------------------------------------------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 840,525 $ 651,660
Short-term investments 973,656 1,134,130
Trade accounts receivable, less allowance
of $100,299 (1994: $96,349) 1,535,409 1,480,251
Inventories 975,554 887,467
Deferred income taxes 265,275 257,307
Other 383,191 393,878
- -----------------------------------------------------------------------------
TOTAL CURRENT ASSETS 4,973,610 4,804,693
Long-term investments 715,348 768,150
Goodwill and other intangible assets, net 1,722,157 1,795,430
Properties, net 3,393,225 3,074,466
Other noncurrent assets 656,261 504,389
- -----------------------------------------------------------------------------
TOTAL ASSETS $11,460,601 $10,947,128
========================
Current liabilities:
Short-term debt $524,429 $766,027
Accounts payable 746,498 692,959
Compensation and compensated absences 331,346 288,268
Dividends payable 141,341 64,060
Income taxes payable 268,314 381,449
Other 628,000 683,353
- -----------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 2,639,928 2,876,116
Long-term debt 603,108 678,193
Guarantee of ESOP debt 267,200 274,800
Postretirement benefit cost 372,985 385,164
Other noncurrent liabilities 743,487 751,798
Deferred income taxes 446,686 370,681
- -----------------------------------------------------------------------------
TOTAL LIABILITIES 5,073,394 5,336,752
- -----------------------------------------------------------------------------
Shareholders' equity:
Preferred stock, one cent par value; authorized
100,000,000 shares, issued Series A
convertible 7,220 shares at stated value
(1994: 7,322 shares) 290,778 295,079
Common stock, one cent par value; authorized
1,500,000,000 shares, issued 506,625,800 shares
(1994: 504,707,825 shares) 5,066 5,047
Capital in excess of par value 1,457,240 1,394,345
Retained earnings 5,861,197 5,602,270
Note receivable from ESOP Trust (35,615) (33,520)
ESOP deferred compensation (236,058) (243,962)
Currency translation adjustments (986,278) (1,394,286)
Other shareholders' equity 30,877 (14,597)
- -----------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 6,387,207 5,610,376
- -----------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $11,460,601 $10,947,128
========================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
Pharmacia & Upjohn Annual Report 1995
49
<PAGE> 14
Consolidated statements of shareholders' equity
Pharmacia & Upjohn, Inc. and subsidiaries
<TABLE>
<CAPTION>
U.S. dollar amounts in thousands
For the years ended December 31 1995 1994 1993
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
PREFERRED STOCK:
Balance at beginning of year $295,079 $297,387 $298,224
Redemptions and conversions (4,301) (2,308) (837)
---------------------------------------
Balance at end of year 290,778 295,079 297,387
=======================================
COMMON STOCK:
Balance at beginning of year 5,047 5,051 5,067
Stock option, incentive and dividend
reinvestment plans 15 - -
Retirements, conversions and other 4 (4) (16)
---------------------------------------
Balance at end of year 5,066 5,047 5,051
=======================================
CAPITAL IN EXCESS OF PAR VALUE:
Balance at beginning of year 1,394,345 1,394,363 1,394,019
Stock option, incentive and dividend
reinvestment plans 32,072 (1,770) (262)
Retirements, conversions and other 30,823 1,752 606
---------------------------------------
Balance at end of year 1,457,240 1,394,345 1,394,363
=======================================
RETAINED EARNINGS:
Balance at beginning of year 5,602,270 5,117,058 6,147,873
Net earnings 738,693 835,126 587,771
Dividends declared (421,680) (328,431) (380,578)
Dividends on preferred stock (net of tax) (12,541) (12,291) (12,125)
Retirement of common stock (45,545) (9,192) (30,938)
Distribution of BCP - - (1,194,945)
---------------------------------------
Balance at end of year 5,861,197 5,602,270 5,117,058
=======================================
NOTE RECEIVABLE FROM ESOP TRUST:
Balance at beginning of year (33,520) (31,548) (29,697)
Rollover of accumulated interest (2,095) (1,972) (1,851)
---------------------------------------
Balance at end of year (35,615) (33,520) (31,548)
=======================================
ESOP DEFERRED COMPENSATION:
Balance at beginning of year (243,962) (251,301) (258,254)
ESOP expense recognized in excess of cash
contributions 7,904 7,339 6,953
---------------------------------------
Balance at end of year (236,058) (243,962) (251,301)
=======================================
CURRENCY TRANSLATION ADJUSTMENTS:
Balance at beginning of year (1,394,286) (1,766,711) (1,157,766)
Translation adjustments 408,008 372,425 (608,945)
---------------------------------------
Balance at end of year (986,278) (1,394,286) (1,766,711)
=======================================
OTHER SHAREHOLDERS' EQUITY:
Balance at beginning of year (14,597) - -
Stock option, incentive and dividend
reinvestment plans 57,673 24,133 22,264
Purchases of treasury stock (101,394) (31,845) (54,089)
Retirement of common stock 43,703 7,712 31,825
Net unrealized investment gains (losses) 45,492 (14,597) -
---------------------------------------
Balance at end of year 30,877 (14,597) -
=======================================
TOTAL SHAREHOLDERS' EQUITY $6,387,207 $ 5,610,376 $ 4,764,299
=======================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
Pharmacia & Upjohn Annual Report 1995
50
<PAGE> 15
Consolidated statements of cash flows
Pharmacia & Upjohn, Inc. and subsidiaries
<TABLE>
U.S. dollar amounts in thousands
For the years ended December 31 1995 1994 1993
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operations:
Net earnings $ 738,693 $ 835,126 $ 587,771
Adjustments to reconcile net earnings to net
cash provided (required) by operations:
Depreciation 326,939 329,328 318,833
Amortization of intangibles 153,009 145,728 127,473
Restructuring charges 103,404 19,837 268,658
Cash expended on restructurings (48,322) (117,512) (60,755)
Net (gains) losses on sales of
noncurrent assets (12,368) (97,269) 165
Write downs of properties and intangibles 40,624 32,506 90,769
Deferred income taxes 74,093 86,450 (100,996)
Other (26,833) (9,277) 34,756
Changes in:
Accounts receivable, net 12,264 3,022 (8,703)
Inventory (18,159) (4,083) (44,370)
Accounts payable (70,779) 84,180 (64,442)
Income taxes payable (121,418) 17,251 63,455
Other current and noncurrent assets
and liabilities (5,728) (38,957) 143,060
----------------------------------
NET CASH PROVIDED BY OPERATIONS 1,145,419 1,286,330 1,355,674
----------------------------------
Cash flows (required) provided
by investment activities:
Acquisitions of subsidiaries (57,589) (90,244) (855,597)
Additions of properties (591,630) (491,307) (739,258)
Proceeds from sales of properties 53,498 142,414 82,088
Proceeds from sales of investments 2,634,340 1,719,569 1,153,848
Purchases of investments (2,407,323) (2,371,024) (769,765)
Proceeds from BCP divestiture - - 357,312
Proceeds from sales of discontinued
operations and subsidiaries 12,127 452,882 31,000
Other 144,765 41,701 (43,866)
----------------------------------
NET CASH REQUIRED BY INVESTMENT ACTIVITIES (211,812) (596,009) (784,238)
----------------------------------
Cash flows provided (required)
by financing activities:
Proceeds from issuance of debt 14,434 14,946 340,166
Repayment of debt (106,875) (53,444) (317,381)
Net (decrease) in debt with initial
maturity of 90 days or less (317,254) (87,450) (112,909)
Dividends and rights payments (353,562) (335,870) (388,625)
Purchases of common stock (101,394) (31,845) (54,089)
Other 74,953 27,183 8,440
----------------------------------
NET CASH REQUIRED BY FINANCING ACTIVITIES (789,698) (466,480) (524,398)
----------------------------------
Effect of exchange rate changes on cash 44,956 34,543 (26,967)
Net change in cash and cash equivalents 188,865 258,384 20,071
Cash and cash equivalents, beginning
of year 651,660 393,276 373,205
----------------------------------
Cash and cash equivalents, end of year $ 840,525 $ 651,660 $ 393,276
==================================
CASH PAID DURING THE YEAR FOR:
Interest (net of amounts capitalized) $ 77,697 $ 106,411 $ 194,166
Income taxes $ 405,323 $ 338,057 $ 266,004
----------------------------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
Pharmacia & Upjohn Annual Report 1995
51
<PAGE> 16
Notes to consolidated financial statements
U.S. dollar amounts in thousands, except per-share data
1. MERGER
In November 1995, Pharmacia AB (Pharmacia) and The Upjohn Company (Upjohn)
completed a combination (the merger) that resulted in the formation of
Pharmacia & Upjohn, Inc. (the company).
Effective upon the consummation of the merger, each share of the
outstanding common stock of Upjohn was converted into 1.45 shares of common
stock of the company. Outstanding Upjohn employee stock options were similarly
converted into options to purchase company common stock. In addition, each share
of Upjohn Series B Convertible Perpetual Preferred Stock has been converted into
one share of Series A Convertible Perpetual Preferred Stock of the company.
Shareholders of Pharmacia were extended an offer to exchange each
outstanding common share (or an American Depository Share representing a Class A
common share) and each outstanding Pharmacia Class B common share for one share
of company common stock (or a Swedish Depository Share representing one share of
company common stock). As of December 31, 1995, over 99 percent of the
outstanding Class A and Class B common shares had been exchanged for shares of
company common stock. The company has recorded a liability for the estimated
cost of acquiring the remaining Pharmacia common shares.
The merger constituted a tax-free reorganization and has been treated as
a pooling of interests. The assets and liabilities of Upjohn and Pharmacia were
carried forward to the company at historical values after restatement of the
Pharmacia statements to conform to accounting principles that are generally
accepted in the U.S. The accompanying financial statements contain information
for periods prior to the merger. All such information was derived from the
separate financial statements of Pharmacia and Upjohn, which were reclassified
and combined to conform to the presentation adopted by the company. Operating
revenue and net earnings for the individual Pharmacia and Upjohn entities for
the periods preceding the merger were as follows:
<TABLE>
<CAPTION>
Combining
Upjohn Pharmacia adjustments Combined
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Six months ended
June 30, 1995 (Unaudited)
Operating revenue $1,717,569 $1,829,242 $ - $3,546,811
Net earnings 267,477 192,230 9,840 469,547
---------- ---------- ------ ----------
Year ended December 31, 1994
Operating revenue $3,344,538 $3,478,244 $ - $6,822,782
Net earnings 490,763 344,363 - 835,126
---------- ---------- ------ ----------
Year ended December 31, 1993
Operating revenue $3,380,536 $3,180,222 $ - $6,560,758
Net earnings 392,397 195,374 - 587,771
---------- ---------- ------ ----------
</TABLE>
Combining adjustments also were recorded to classify various earnings statement
and balance sheet items consistently upon combination. Intercompany
transactions prior to the merger were not material, therefore, no elimination
entries were required to develop the accompanying combined financial
statements.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation The consolidated financial statements are presented on
the basis of accounting principles that are generally accepted in the U.S. All
professional accounting standards that are effective as of December 31, 1995,
have been taken into consideration in preparing the financial statements.
Pharmacia & Upjohn Annual Report 1995
52
<PAGE> 17
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make certain estimates and
assumptions which affect the reported earnings, financial position and various
disclosures. Actual results could differ from those estimates.
Principles of consolidation The consolidated financial statements include the
accounts of the company and all majority-owned subsidiaries. All material
intercompany transactions and balances have been eliminated in consolidation.
Currency translation The results of operations for non-U.S. subsidiaries,
other than those located in highly inflationary countries, are translated into
U.S. dollars using the average exchange rates during the period, while assets
and liabilities are translated using period-end rates. Resulting translation
adjustments are recorded as currency translation adjustments in shareholders'
equity. For subsidiaries in highly inflationary countries, currency gains and
losses resulting from translation and transactions are determined using a
combination of current and historical rates and are reported directly in the
consolidated statements of earnings.
Cash equivalents With the exception of restricted bank deposits that are
classified as short-term investments, the company considers all highly liquid
debt instruments with an original maturity of 91 days or less to be cash
equivalents.
Investments In addition to cash equivalents, the company has investments in
debt securities that are classified in the consolidated balance sheet as
short-term (restricted bank deposits and securities that mature in more than 91
days but no more than one year) or long-term (maturities beyond one year). The
company also has investments in equity securities, all of which are classified
as long-term investments. All such investments are further categorized as being
available-for-sale or are expected to be held-to-maturity. Investments
categorized as available-for-sale are marked to market based on fluctuations in
the market values of the securities, with the resulting adjustments, net of
deferred taxes, reported as a component of other shareholders' equity until
realized (see Note 17). Investments categorized as held-to-maturity are carried
at amortized cost, without recognition of gains or losses that are deemed to be
temporary, because the company has both the intent and the ability to hold
these investments until they mature.
Inventories Inventories are valued at the lower of cost or market. Cost is
determined by the last-in, first-out (LIFO) method for substantially all U.S.
inventories and the first-in, first-out (FIFO) method for substantially all
non-U.S. inventories.
Properties Property, plant and equipment are recorded at acquisition cost.
Depreciation is computed principally on the straight-line method for financial
reporting, while accelerated methods are used for income tax purposes where
permitted. Maintenance and repair costs are charged to earnings as incurred.
Costs of renewals and improvements are capitalized. Upon retirement or other
disposition of property, any gain or loss is included in earnings.
Goodwill and other intangibles Goodwill represents the excess of the purchase
cost over the fair value of net assets acquired in a business or product
acquisition and is presented net of accumulated amortization. Amortization of
goodwill is recorded on a straight-line basis over periods ranging primarily
from 5 to 20 years. Rights acquired under patent are reported at acquisition
cost. Amortization is calculated on a straight-line basis over the remaining
legal lives of the patents. Other intangible assets are amortized over the
useful lives of those assets.
Income taxes The company applies an asset and liability approach to accounting
for income taxes. Deferred tax liabilities and assets are recognized for the
expected future tax consequences of temporary differences between the financial
statement and tax
Pharmacia & Upjohn Annual Report 1995
53
<PAGE> 18
bases of assets and liabilities using enacted tax rates in effect for the year
in which the differences are expected to reverse.
The company provides deferred income taxes on subsidiaries' earnings
that are not considered to be permanently invested in those subsidiaries.
Forward currency exchange contracts Forward currency exchange contracts are
used for trading and hedging purposes. Contracts are marked to market each
month with resulting trading gains and losses recognized in earnings. The
carrying values of these derivative financial instruments are generally
reported with other current assets or other current liabilities.
Accounting changes in 1993 Effective January 1, 1993, a new accounting
standard was adopted on accounting for postemployment benefits. The cumulative
effect of this change was $11,115 after tax ($.02 per share). Also, at the same
time, the fiscal year of certain subsidiaries was changed from November 30 to
December 31. This change reduced 1993 after-tax earnings by $7,791 ($.02 per
share).
Other Employee stock options are accounted for pursuant to Accounting
Principles Board Opinion No. 25. Statement of Financial Accounting Standards
No. 121 relating to the impairment of long-lived assets becomes effective in
1996. The effect on the company of adoption of this statement cannot be
determined at this time.
3. RESTRUCTURING CHARGES
In association with the merger, the company recorded restructuring charges of
$91,600 in the fourth quarter of 1995. The majority of these pertained to
elimination of approximately 850 positions ($82,700). Expenditures related to
these restructuring charges are expected to be substantially completed by the
end of 1996. Additional restructuring charges will be recognized in subsequent
reporting periods as additional actions are taken to restructure the company
following the merger and decisions are made with respect to rationalization of
facilities. Restructuring charges of $11,804 were recorded in the second
quarter of 1995 related to a plant closure in Sweden.
In 1994, restructuring charges were recorded to write down certain
intangible assets ($6,900) and for the closure of an ophthalmology operation
($12,937).
In 1993, restructuring charges of $268,658 were recorded to reflect the
costs associated with a worldwide workforce reduction of approximately 1,500
employees ($136,109); elimination or reduction of excess manufacturing capacity
($31,631); write-downs of certain intangibles ($72,460) and facilities and
equipment ($23,504); and other ($4,954). During 1995, the anticipated workforce
reduction was completed. Certain plant closures recognized in the original 1993
accruals have not yet been completed and approximately $29,000 remains accrued.
4. MERGER COSTS
The company recorded merger costs of $138,193 in the fourth quarter of 1995.
Included in the charges are transaction costs of $68,751 and costs to combine
operations of $69,442. Transaction costs include professional and registration
fees. Costs to combine operations include expenses incurred for termination of
two marketing agreements that conflicted with the merged operations and other
nonrecurring costs associated with planning and executing the merger of
operations. Additional charges are expected to be recognized in subsequent
reporting periods as the merger is implemented.
5. INCOME TAXES
Income taxes on continuing operations
consisted of:
<TABLE>
<CAPTION>
Years ended December 31 1995 1994 1993
- -----------------------------------------------------------------------
<S> <C> <C> <C>
Currently payable:
U.S. $82,241 $106,298 $123,711
Non-U.S. 224,266 230,000 162,086
--------------------------------------
306,507 336,298 285,797
--------------------------------------
Deferred:
U.S. 19,538 2,500 (58,779)
Non-U.S. 71,655 99,027 (9,875)
--------------------------------------
91,193 101,527 (68,654)
--------------------------------------
$397,700 $437,825 $217,143
======================================
</TABLE>
Pharmacia & Upjohn Annual Report 1995
54
<PAGE> 19
Components of net deferred taxes were as follows:
<TABLE>
<CAPTION>
December 31 1995 1994
- --------------------------------------------------------------
<S> <C> <C>
Deferred tax assets
attributable to:
Taxed profit on
intercompany
transfers $ 116,729 $ 107,754
Postretirement and
postemployment
benefits 140,889 148,685
Environmental and
product liabilities 100,950 105,034
Employee benefit plans 60,159 59,947
Restructuring accruals 82,380 102,663
Alternative minimum
tax carryforwards 41,072 41,645
Tax loss carryforwards 51,507 41,245
All other 181,201 156,643
- --------------------------------------------------------------
Total deferred tax
assets 774,887 763,616
Valuation allowances (154,483) (150,792)
- --------------------------------------------------------------
Net deferred tax
assets 620,404 612,824
- --------------------------------------------------------------
Deferred tax liabilities
attributable to:
Property, plant and
equipment (321,366) (292,314)
Swedish tax equalization
and allocation reserves (159,927) (123,201)
Taxes to be withheld
when earnings
are remitted (73,889) (73,189)
Pension plans (78,128) (64,613)
All other (83,261) (52,218)
- --------------------------------------------------------------
Total deferred tax
liabilities (716,571) (605,535)
- --------------------------------------------------------------
Net deferred taxes $ (96,167) $ 7,289
=============================
</TABLE>
Deferred income taxes are included in the Consolidated Balance Sheets as
follows:
<TABLE>
<CAPTION>
December 31 1995 1994
- --------------------------------------------------------------
<S> <C> <C>
Current assets $ 265,275 $ 257,307
Other noncurrent assets 120,080 153,204
Current liabilities (34,836) (32,541)
Other noncurrent liabilities (446,686) (370,681)
- --------------------------------------------------------------
Net deferred taxes $ (96,167) $ 7,289
============================
</TABLE>
Valuation allowances have been provided for deferred tax assets that are not
likely to be realized, primarily those attributable to net operating loss
carryforwards and restructuring accruals.
Tax laws in Sweden permit limited amounts of earnings to be retained in
businesses without being subject to immediate taxation. Deferred income tax
liabilities have been recorded with respect to the accumulated amounts of the
untaxed earnings.
Earnings that have accumulated in Puerto Rico are subject to withholding
taxes ranging from 3.5 percent to 10 percent that will be paid when the earnings
are remitted. The amounts to be withheld have been recorded as deferred income
tax liabilities.
At December 31, 1995, undistributed earnings of foreign subsidiaries
considered permanently invested, for which deferred income taxes have not been
provided, were $2,476,300. Of the subsidiary net operating loss carryforwards of
$138,400, $35,100 have various expiration dates through 2000, while the
remaining $103,300 have 15-year to indefinite expiration dates.
Differences between the effective income tax rate and the U.S. statutory
tax rate were as follows:
<TABLE>
<CAPTION>
Percent of Pretax Income 1995 1994 1993
- --------------------------------------------------------
<S> <C> <C> <C>
Statutory tax rate 35.0% 35.0% 35.0%
Benefit of tax
exemptions in
Puerto Rico (5.5) (6.6) (13.9)
Goodwill amortization
and other non-
deductible expenses 6.9 5.0 14.8
Utilization of net operating
loss carryforwards (1.2) (2.3) (2.8)
Changes in Swedish
tax laws - 3.4 (8.5)
All other, net (0.2) (0.1) 3.3
- --------------------------------------------------------
35.0% 34.4% 27.9%
====================
</TABLE>
A manufacturing subsidiary operates in Puerto Rico under a tax exemption grant,
expiring in 2009, which provides for partial exemption from Puerto Rico income
and property taxes. The grant, together with a tax exemption available for U.S.
federal income tax purposes, reduced income taxes by approximately $62,500
($.12 per share) in 1995; $83,900 ($.17 per share) in 1994; and $108,100 ($.21
per share) in 1993.
Pharmacia & Upjohn Annual Report 1995
55
<PAGE> 20
6. DISCONTINUED OPERATIONS
In December 1994, the company sold Asgrow Seed Company. The sale represented
the complete divestiture of all operations in the agronomic and vegetable seed
businesses. A loss of $997, after provisions for tax, was realized on the sale,
including accruals for certain retained liabilities.
In December 1993, the company sold the assets of Asgrow Florida Company.
The sale represented the complete divestiture of the company's operations in the
agricultural chemical business. The gain on the sale, amounting to $4,926 after
provisions for tax, included accruals for certain retained liabilities.
In November 1993, the company divested its entire interest in BCP
Branded Consumer Products AB (BCP) by distributing a share of BCP stock for each
share of the stock held by former Pharmacia shareholders.
Operating revenue and earnings of the discontinued businesses were:
<TABLE>
<CAPTION>
Period ended December 31 1994 1993
- ----------------------------------------------------------------
<S> <C> <C>
Operating revenue:
Agronomic and
vegetable seeds $221,393 $ 274,215
Agricultural chemical - 84,517
BCP - 1,396,467
- ----------------------------------------------------------------
Total $221,393 $1,755,199
==========================
</TABLE>
Earnings of discontinued operations:
<TABLE>
<S> <C> <C>
Agronomic and
vegetable seeds $ 2,672 $ 6,112
Agricultural chemicals - 3,894
BCP - 31,152
- ----------------------------------------------------------------
Total $ 2,672 $ 41,158
==========================
Earnings per common
share - primary $ .01 $ .08
==========================
</TABLE>
7. EARNINGS PER COMMON SHARE
Primary earnings per share are computed by dividing net earnings available to
holders of common stock by the sum of the weighted average number of shares of
common stock outstanding plus common share equivalents, principally in the form
of employee stock option awards. Fully diluted earnings per share have been
computed assuming that all of the convertible preferred stock is converted into
common shares. Under this assumption, the weighted average number of common
shares outstanding is increased and net earnings is reduced by the amount of an
incremental Employee Stock Ownership Plan (ESOP) contribution. This incremental
contribution is the net-of-tax difference between the income the ESOP would
have received on the preferred stock and the assumed dividend yield to be
earned on the common shares.
The number of shares used for computing primary and fully diluted
earnings per share for years prior to the merger was based on weighted averages
of the common shares deemed to be outstanding (see Note 17) plus the
above-mentioned adjustments. The amounts were as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
- ---------------------------------------------
<S> <C> <C> <C>
Primary 507,124 505,164 506,150
Fully diluted 521,091 518,106 518,463
=========================
</TABLE>
8. INVENTORIES
<TABLE>
<CAPTION>
December 31 1995 1994
- -------------------------------------------------------
<S> <C> <C>
Estimated replacement
cost (FIFO basis):
Pharmaceutical and
other finished products $ 487,955 $ 404,983
Raw materials, supplies
and work in process 634,250 622,474
- -------------------------------------------------------
1,122,205 1,027,457
Less reduction to
LIFO cost (146,651) (139,990)
- -------------------------------------------------------
Inventories $ 975,554 $ 887,467
=======================
</TABLE>
Inventories valued on the LIFO method had an estimated replacement cost (FIFO
basis) of $358,216 at December 31, 1995, and $360,124 at December 31, 1994.
Pharmacia & Upjohn Annual Report 1995
56
<PAGE> 21
9. INVESTMENTS
<TABLE>
<CAPTION>
December 31 1995 1994
- --------------------------------------------------------------------------
<S> <C> <C>
Short-term investments:
Obligations of the Kingdom of Sweden $426,471 $ 286,173
Restricted bank deposits 309,041 529,361
Bank certificates of deposit 82,687 122,500
Obligations of the Commonwealth of Puerto Rico 53,466 56,475
Obligations of the Government of Italy - 62,939
Other 101,991 76,682
- --------------------------------------------------------------------------
$973,656 $1,134,130
====================
</TABLE>
Restricted bank deposits are held by banks that require such deposits be
maintained in support of loans made to certain of the company's subsidiaries.
<TABLE>
UNREALIZED UNREALIZED CARRYING
LONG-TERM INVESTMENTS COST GAINS LOSSES VALUE
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
December 31, 1995:
Available-for-sale
(marked-to-market):
Equity securities $102,525 $37,297 $18 $139,804
Mortgage-backed securities
guaranteed by the
U.S. Government 239,756 8,092 - 247,848
- ------------------------------------------------------------------------------------
$342,281 $45,389 $18 387,652
- ------------------------------------------------------------------------------------
Held-to-maturity (amortized cost) 327,696
- ------------------------------------------------------------------------------------
$715,348
=========================================
December 31, 1994:
Available-for-sale (marked-to-market)
Equity securities $141,546 $ 803 $21,291 $121,058
Held-to-maturity (amortized cost) 647,092
- ------------------------------------------------------------------------------------
$768,150
=========================================
</TABLE>
Long-term investments held-to-maturity are summarized as follows:
<TABLE>
1995 1994
-------------------------- ----------------------------
December 31 Fair Value Amortized Cost Fair Value Amortized Cost
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Guaranteed by the
U.S. Government $ 91,578 $ 91,484 $308,992 $328,777
Obligations of the
Commonwealth of Puerto Rico 90,383 88,612 90,961 93,028
Bank oligations:
Certificates of deposit 89,489 87,600 157,256 160,287
Other 61,557 60,000 62,514 65,000
------------------------------------------------------------------------------------------------
$333,007 $327,696 $619,723 $647,092
=========================================================
</TABLE>
At December 31, 1995, scheduled maturities of long-term securities to be held
to maturity were as follows:
<TABLE>
FAIR VALUE COST
- ---------------------------------------------------------------------------------------
<S> <C> <C>
One to five years $196,863 $192,200
Six to ten years 100,031 99,727
After ten years 36,113 35,769
- ---------------------------------------------------------------------------------------
$333,007 $327,696
======================
</TABLE>
Pharmacia & Upjohn Annual Report 1995
57
<PAGE> 22
Unrealized net gains (net of deferred taxes) included in other shareholders'
equity amounted to $30,859 at December 31, 1995, compared to unrecognized
losses (net of deferred taxes) of $14,597 at December 31, 1994.
At December 31, 1995, the company wrote down to fair market value
certain equity security investments. The write-down amounted to $58,570 and was
due to a decline in fair value considered to be other than temporary. The write
down is included in marketing, administrative and other expense.
The proceeds realized from the sale of available-for-sale equity
securities amounted to $9,108 and $5,445 during 1995 and 1994, respectively.
Based on cost, gains of $4,204 and $2,982 were realized on these sales.
At December 31, 1995, mortgage-backed securities previously categorized
as being held-to-maturity were recategorized as available-for-sale. Accordingly,
this group of securities has been marked to market with the resulting adjustment
reported with other shareholders' equity (see Note 17). Election of this option
does not affect the classfication of the balance of the securities in the
portfolio as the company retains the intent and ability to hold those securities
until they mature.
10. PROPERTIES, NET
<TABLE>
<CAPTION>
December 31 1995 1994
- -------------------------------------------------------------------------
<S> <C> <C>
Land $ 133,036 $ 123,223
Buildings and leasehold
improvements 1,940,398 1,816,530
Equipment 3,147,319 2,887,584
Construction in
process 657,877 449,856
Less allowance for
depreciation (2,485,405) (2,202,727)
- -------------------------------------------------------------------------
$ 3,393,225 $ 3,074,466
========================
</TABLE>
11. LINES OF CREDIT AND LONG-TERM DEBT
The company has lines of credit amounting to $650,000 that are available to
support commercial paper borrowings and for other corporate purposes, with
$150,000 available through 1997 and $500,000 available through 1999. These
lines of credit do not require compensating balances but are subject to various
fees.
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
December 31 1995 1994
- -------------------------------------------------
<S> <C> <C>
4.6-5.06% Industrial Revenue
Bonds due 2007-2009 $ 16,420 $ 13,500
7.5% Industrial Revenue
Bonds due 2023 40,000 40,000
5.35-7.95% Medium-Term
Notes due 1997-1999 266,000 266,000
5.875% Notes due 2000 200,000 200,000
2.052-11.85% Italian
Government Loans due
1996-2004 82,330 89,866
3.34% Export finance
due 1996 32,642 52,720
Convertible debenture loan - 29,059
Other 22,684 28,211
Current maturities (56,968) (41,163)
- -------------------------------------------------
Total long-term debt $ 603,108 $ 678,193
====================
</TABLE>
Current maturities of long-term debt are included with short-term debt in the
consolidated balance sheets. Annual aggregate maturities of long-term debt
during the four years subsequent to 1996 are: 1997 - $50,156; 1998 - $173,800;
1999 - $91,250; and 2000 - $209, 575.
The Company has guaranteed $275,000 original principal amount of ESOP
9.79% notes due in 2004. Principal payments that began in 1995 constitute
compensation expense (see Note 18). Annual aggregate maturities of guaranteed
debt during the five years subsequent to 1995 are 1996 - $7,600; 1997 - $11,500;
1998 - $16,000; 1999 - $22,000; and 2000 - $28,000.
Information regarding interest expense and weighted average interest
rates follows:
<TABLE>
<CAPTION>
Years ended December 31 1995 1994 1993
- -----------------------------------------------------------------------
<S> <C> <C> <C>
Interest cost
incurred $121,663 $137,445 $206,798
Less capitalized
on construction (27,524) (25,328) (24,284)
- -----------------------------------------------------------------------
Interest expense $94,139 $112,117 $182,514
- -----------------------------------------------------------------------
Weighted average
interest rate on
short-term
borrowings at
end of period 9.63% 10.49% 8.68%
============================
</TABLE>
Pharmacia & Upjohn Annual Report 1995
58
<PAGE> 23
12. COMMITMENTS AND OTHER CONTINGENT LIABILITIES
Future minimum payments under noncancellable operating leases at December 31,
1995, approximately 57 percent real estate and 43 percent equipment, are: 1996
- - $99,040; 1997 - $65,540; 1998 - $40,970; 1999 - $23,573; 2000 - $20,973; and
later years - $39,716.
Capital asset spending approved for construction and equipment but
unexpended at December 31, 1995, was approximately $390,000.
The company has committed to make a series of investments, as certain
progress goals are met, in a company that intends to manufacture a
hemoglobin-based oxygen carrier. These investments could aggregate $179,000 over
a period of years. As of December 31, 1995, the company has invested
approximately $101,000. Also, pursuant to the agreement, the company has
committed to conduct clinical development.
The consolidated balance sheets also include accruals for estimated
product and environmental liabilities. The latter includes exposures related to
discontinued operations, including the industrial chemical facility and several
"Superfund" sites (see Note 13).
13. LITIGATION
The company is involved in a number of legal and environmental proceedings.
These include: a substantial number of product liability suits claiming damages
as a result of the use of the company's products, including a number of cases
involving Halcion; administrative and judicial proceedings at approximately 40
"Superfund" sites; and site clean-up at the company's discontinued industrial
chemical operations.
While it is not possible to predict or determine the outcome of legal
actions brought against the company, or the ultimate cost of environmental
matters, the company believes that the unaccrued costs and liabilities
associated with such matters will not have a material adverse effect on the
company's consolidated financial position; and unless there is a significant
deviation from the historical pattern of resolution of these issues, there
should not be a material adverse effect on the company's results of operations
or liquidity.
The company is a party, along with many other U.S. drug manufacturers
and wholesalers, in numerous related federal and state civil antitrust lawsuits
brought by U.S. independent and chain retail pharmacies and consumers. These
suits claim violations of antitrust and pricing laws as a result of the
defendants providing discounts and rebates to allegedly favored managed care
customers that were not offered to the plaintiffs. Several of the suits are
class actions. The first trial, a class action pending in federal court in
Chicago, Illinois, is scheduled to begin in May 1996. The company believes it
has meritorious defenses, and although potential liability cannot presently be
estimated, a majority of the defendants in this class action (not including the
company) have recently agreed to $10,000 to $60,000 settlements of claims
against them in this action, and are awaiting court approval of the
settlements.
14. CURRENCY RISK MANAGEMENT
The company utilizes forward currency exchange contracts in conjunction with
its currency risk management programs. These programs include the creation of
designated hedges of net recorded currency transaction exposures and the
trading of contracts based on anticipated currency transaction exposures of
certain significant U.S. and non-U.S. subsidiary operations.
The company's program to hedge net currency transaction exposures is
designed to protect operating results and cash flows from potentially adverse
effects of currency exchange rate fluctuations related to intercompany and
selected third-party transactions. The hedging activities seek to limit this
risk by offsetting gains and losses on underlying exposures with losses and
gains on the instruments utilized to create the hedges.
At December 31, 1995, the notional amount of the company's outstanding
forward currency exchange contracts held for the balance sheet financial
exposure hedge program was $ 1,304,678. Of these contracts, 53 percent were
denominated in European currencies, 31 percent denominated in U.S. dollars and 6
percent in Japanese yen,
Pharmacia & Upjohn Annual Report 1995
59
<PAGE> 24
all against Swedish kronor; 6 percent denominated in European currencies against
U.S. dollars; and 4 percent denominated in European currencies against Japanese
yen.
At December 31, 1995, the notional amount of the company's outstanding
forward currency exchange contracts held for the trading program was $463,275.
Of these contracts, 48 percent were denominated in Japanese yen, 12 percent were
denominated in U.S. dollars, 37 percent were denominated in European currencies,
and 3 percent were denominated in Australian dollars, all against Swedish kronor
and Italian lira. The average fair value of contracts held during 1995 was a net
of $9,729. The fair value at December 31, 1995, was a net asset of $27,451 and
the net gain realized from the trading program in 1995 was $57,866.
These contracts generally have maturities that do not exceed 12 months
and require the company to exchange currencies at agreed-upon rates at maturity.
The counterparties to the contracts consist of a limited number of major
international financial institutions. The company does not expect any losses
from credit exposure.
15. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts and estimated fair values of the company's financial
instruments were as follows:
<TABLE>
<CAPTION>
1995 1994
----------------------- -------------------------
CARRYING FAIR Carrying Fair
December 31 AMOUNT VALUE Amount Value
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial assets:
Short-term investments $973,656 $973,656 $1,134,130 $1,134,130
Long-term investments 715,348 720,659 768,150 740,781
Forward currency exchange
contracts
Designated hedges 27,929 27,929 15,888 15,888
Trading 27,451 27,451 11,518 11,518
Financial liabilities:
Short-term debt 524,429 524,429 766,027 766,027
Long-term debt 603,108 618,499 678,193 647,216
Guaranteed ESOP debt 267,200 319,138 274,800 293,000
==========================================================
</TABLE>
Because maturities are short-term, fair values approximate carrying amounts for
cash and cash equivalents, short-term investments, accounts receivable,
short-term debt, and accounts payable. Fair values of forward currency exchange
contracts, long-term investments, long-term debt, and guaranteed ESOP debt were
estimated based on quoted market prices for the same or similar instruments or
discounted cash flows.
16. CONCENTRATIONS OF CREDIT RISK
The company invests excess cash in deposits with major banks throughout the
world and in high-quality short-term liquid instruments. Such investments are
made only in instruments issued or enhanced by high-quality financial
institutions (investment grade or better). Amounts invested in a single
institution are limited to minimize risk. The company has not incurred losses
related to these investments.
The company sells a broad range of pharmaceutical products to a diverse
group of customers operating throughout the world. In the U.S. and Japan, the
company makes substantial sales to relatively few large wholesale customers.
Credit limits, ongoing credit evaluation and account monitoring procedures are
utilized to minimize the risk of loss. Collateral is generally not required.
17. SHAREHOLDERS' EQUITY
Preferred Stock - The Series A Convertible Perpetual Preferred Stock is held by
the
Pharmacia & Upjohn Annual Report
60
<PAGE> 25
Employee Stock Ownership Trust (ESOP Trust). The terms of the Series A
Preferred Stock are equivalent to the terms of the Series B Convertible
Perpetual Preferred Stock that had been issued by Upjohn, which was exchanged
for the new preferred stock on a one-for-one basis in connection with the
merger. The per-share stated value is $40,300, and the preferred stock ranks
senior to the company's common stock as to dividends and liquidation rights.
Each share is convertible, at the holder's option, into 1,450 shares of the
company's common stock and has voting rights equal to 1,450 shares of common
stock. The company may redeem the preferred stock at any time after July 20,
1999, or upon termination of the ESOP at a minimum price of $40,300 per share.
Dividends, at the rate of 6.25 percent, are cumulative, paid quarterly and
charged against retained earnings.
Common Stock - The number of common shares outstanding at December 31,
1995, was 506,625,800. The number of common shares deemed to be outstanding, for
purposes of these financial statements at December 31, 1994 and 1993, was
504,707,825 and 505,114,503, respectively. A dividend of $.27 per share was
declared on common stock in December 1995, payable in February 1996.
Capital in Excess of Par Value - Amounts of paid-in capital that exceed
the par value ($.01 per share) of the company's common stock are recorded in
this account, including all such amounts that were attributed to previously
outstanding Pharmacia common shares and Upjohn common stock. This method was
followed for all periods covered by the financial statements, because the new
common stock is assumed to have been outstanding for all periods preceding the
merger.
Note Receivable from ESOP Trust- The note matures on February 1, 2005;
bears interest at 6.25 percent; and may be repaid, in whole or in part, at any
time. Accrued interest at the end of any calendar year shall be added to the
note principal.
ESOP Deferred Compensation - Upon recognition of the company's guarantee
of the debt of the ESOP Trust, an offsetting charge was made to shareholders'
equity. To the extent the company recognizes expense more rapidly than the
corresponding cash contributions are made, this account is reduced. The account
has diminished because the company's ESOP Trust debt guarantee commitment
declined beginning in 1995 (see Notes 11 and 18).
Currency Translation Adjustments - This account includes all adjustments
that arise from translating the financial statements of non-U.S. subsidiaries
from local currencies into U.S. dollars (see Note 2).
Other Shareholders' Equity - At December 31, 1995, other shareholders'
equity is comprised of net unrealized gains (net of deferred taxes) relating to
investments categorized as available-for-sale and marked-to-market of $30,859
and treasury stock of $18.
Shareholder Rights Plan - Each share of the former Upjohn common stock
included one-third of a right, which entitled the holder to purchase additional
shares of Upjohn stock under specified limited circumstances. In connection with
the merger, the rights were redeemed for $.05 per right, pursuant to the rights
plan. A total of $2,869 was paid to former Upjohn shareholders and has been
included in dividends declared and charged against retained earnings.
18. EMPLOYEE STOCK OWNERSHIP PLAN (ESOP)
The ESOP is a funding vehicle for the Employee Savings Plan covering certain
U.S. employees. As the ESOP Trust makes debt principal and interest payments, a
proportionate amount of preferred stock is released for allocation to plan
participants. The preferred shares are allocated to participants' accounts
based upon their respective savings plan contributions and the dividends earned
on their previously allocated preferred shares. As of December 31, 1995,
1,204.8 preferred shares had been released and allocated; 255.0 shares were
released but unallocated; and 5,760.1 shares remained unreleased, of which 76.4
shares are committed to be released.
Under the agreement whereby the company guaranteed third-party debt of
the ESOP Trust, the company is obligated to contribute sufficient cash annually
to the Trust to enable it to make required principal and interest
Pharmacia & Upjohn Annual Report 1995
61
<PAGE> 26
payments. The company satisfies this annual cash flow requirement through
payment of dividends on all preferred shares outstanding plus cash
contributions. The company has fully and unconditionally guaranteed the ESOP
Trust's payment obligations whether at
maturity, upon redemption, upon declaration of acceleration, or otherwise. The
holders of the debt securities have no recourse against the assets of the ESOP
Trust except in the event that the Trust defaults on payments due and the
company also fails to make such payments. In that event, the holders may have
recourse against unallocated funds held by the Trust. At December 31, 1995,
assets of the ESOP Trust consisted primarily of $290,778 of Pharmacia & Upjohn,
Inc., Series A Convertible Perpetual Preferred Stock.
ESOP expense is determined as follows: A portion of future debt
principal payments is attributed to each year of the plan based on the number
of shares allocated during the period. This accelerated principal amount is
combined with debt interest and factored by 80 percent. From this
formula-driven amount, the company deducts interest earned on the note
receivable from the ESOP Trust and dividends paid on all preferred stock held
by the Trust to arrive at net ESOP expense.
Key measures of the ESOP were:
<TABLE>
<CAPTION>
Years ended December 31 1995 1994 1993
- ----------------------------------------------------
<S> <C> <C> <C>
Interest expense
of ESOP Trust $29,018 $28,895 $28,779
Dividend income
of ESOP Trust 18,268 18,489 18,606
Company contribution
to ESOP Trust 8,114 8,001 7,870
Company ESOP
expense (net) 13,705 13,368 12,344
=========================
</TABLE>
19 EMPLOYEE STOCK OPTIONS
Employee stock options have a 10-year duration and are exercisable after one
year of employment, following the grant date. At December 31, 1995, 789 current
and former employees held options for 12,570,699 shares, of which 11,844,223
were exercisable. Options for 2,730,225 shares, 5,078,167 shares and 7,747,801
shares were available for future grants at December 31, 1995, 1994 and 1993,
respectively. A new provision, effective in 1996, changes the number of shares
authorized and available for granting each year to equal 1.25% of the
outstanding common shares.
Under the plan, upon the stock-for-stock exercise of any nonqualified
or incentive stock options, an active employee will receive a new, nonqualified
"reloaded" stock option at the then-current market price for the number of
shares surrendered to exercise an option. The "reloaded" stock option will have
an exercise term equal to the time remaining of the original exercised option.
Officers subject to certain requirements under U.S. securities law, have a
four-year period before their shares become exercisable, while other
participants have a six-month waiting period.
Changes in outstanding options were as follows:
<TABLE>
<CAPTION>
Option price Number
per share of shares
- ---------------------------------------------------------------
<S> <C> <C>
Balance outstanding,
January 1, 1993 $ 6.15-31.81 10,379,334
Granted 19.44-22.24 3,084,792
Exercised 6.15-21.90 (69,920)
Canceled 6.51-31.81 (706,085)
- ---------------------------------------------------------------
Balance outstanding,
December 31, 1993 $ 6.51-31.81 12,688,121
Granted 19.74-24.78 2,795,195
Exercised 6.51-24.23 (399,755)
Canceled 6.51-31.81 (785,120)
- ---------------------------------------------------------------
Balance outstanding,
December 31, 1994 $ 8.50-31.81 14,298,441
Granted 20.60-39.69 2,558,295
Exercised 8.50-39.69 (4,075,684)
Canceled 17.07-39.69 (210,353)
- ---------------------------------------------------------------
BALANCE OUTSTANDING,
DECEMBER 31, 1995 $ 8.50-39.69 12,570,699
=========================
</TABLE>
In accordance with the terms of the merger, the numbers of shares and option
prices for options outstanding prior to the merger were adjusted to give effect
to the exchange ratio of one Upjohn share for 1.45 shares of the company's
common stock.
Pharmacia & Upjohn Annual Report 1995
62
<PAGE> 27
20. RETIREMENT BENEFITS
The company has various pension plans covering substantially all employees.
Benefits provided under the defined benefit pension plans are primarily based
on years of service and the employee's compensation. The following table
summarizes the funded status of the material defined benefit plans:
<TABLE>
<CAPTION>
1995 1994
------------------- -------------------
ASSETS ACCUMULATED Assets Accumulated
EXCEED BENEFITS Exceed Benefits
ACCUMULATED EXCEED Accumulated Exceed
December 31 BENEFITS ASSETS Benefits Assets
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Accumulated benefit obligation $ 736,302 $ 170,828 $594,258 $ 146,572
- ----------------------------------------------------------------------------------
Projected benefit obligation $ 957,898 $ 241,127 $823,433 $ 185,356
Plan assets at fair value 1,178,026 13,987 986,909 14,013
- ----------------------------------------------------------------------------------
Plan assets in excess of
(less than) projected
benefit obligation 220,128 (227,140) 163,476 (171,343)
Unrecognized net losses 20,124 14,744 58,539 1,016
Unamortized net transition
amount (85,113) 5,279 (96,638) 5,355
Unrecognized prior service
cost 37,256 174 40,084 3,284
- ----------------------------------------------------------------------------------
Prepaid (accrued) pension
cost $ 192,395 $ (206,943) $165,461 $ (161,688)
- ----------------------------------------------------------------------------------
Actuarial assumptions:
U.S.
Discount rate 7.5% 8.5 - 9.0%
Salary growth rate 4.0 - 6.5% 4.25 - 6.5%
Return on plan assets 8.5 - 9.5% 8.0 - 9.5%
Non-U.S.
Discount rate 5.5 - 9.5% 6.0 - 9.5%
Salary growth rate 3.5 - 7.5% 3.3 - 7.5%
Return on plan assets 4.75-10.0% 4.75-10.0%
=================================================
</TABLE>
The assets of the U.S. plans, which comprise the majority of the combined plan
assets, are invested approximately two-thirds in equity securities. Fair value
is determined principally by reference to publicly quoted year-end prices. The
lowering of the discount rate in 1995 for U.S. plans to 7.5 percent will not
have a material effect on future years' expense.
The principal pension obligations outside the U.S. are the defined
benefit plans which cover essentially all employees in the company's Swedish
operations. These plans (Swedish FPG/PRI pensions) form part of a Swedish
secured multi-employer pension plan which is centrally administered. The level
of benefits and actuarial assumptions are established jointly for all plans, and
cannot unilaterally be changed by the company.
The consolidated net pension expense amounts reflected below are
exclusive of the added costs associated with early retirement inducements
offered in 1993. These incremental charges of $15,000 before tax in 1993 were
included in restructuring costs.
<TABLE>
<CAPTION>
Years ended December 31 1995 1994 1993
- -------------------------------------------------------------
<S> <C> <C> <C>
Service cost - benefits
earned during the year $ 42,640 $ 53,234 $ 46,543
Interest cost on projected
benefit obligation 79,967 77,349 75,595
Actual return on plan assets (231,194) 5,932 (137,825)
Net amortization and deferral 133,590 (93,461) 56,092
- -------------------------------------------------------------
Net pension expense $ 25,003 $ 43,054 $ 40,405
===============================
</TABLE>
Pharmacia & Upjohn Annual Report 1995
63
<PAGE> 28
21. OTHER POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS
The company provides nonpension benefits to eligible retirees and their
dependents, primarily in the form of medical and dental benefits.
The following table summarizes the funded status of these plans
operating principally in the U.S.:
<TABLE>
<CAPTION>
December 31 1995 1994
- ------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of benefit obligation:
Retirees $190,637 $147,566
Fully eligible active participants 9,629 11,045
Other active participants 178,510 161,487
- ------------------------------------------------------------------
Accumulated postretirement benefit obligation 378,776 320,098
Plan assets at fair value 111,116 73,312
- ------------------------------------------------------------------
Accumulated postretirement benefit
obligation in excess of plan assets 267,660 246,786
Unrecognized net gains 54,393 86,162
Unrecognized prior service cost 50,932 52,216
- ------------------------------------------------------------------
Accrued postretirement benefit cost $372,985 $385,164
- ------------------------------------------------------------------
Actuarial assumptions:
Discount rate 7.5% 8.5%
Return on plan assets 9.5% 9.5%
Weighted average health care cost
trend rates:
Initially 7.0% 7.5%
Trending down to 5.25% 5.5%
==================
</TABLE>
The plan assets are presently invested in long-term securities. The fair value
was established by the trustee of the fund.
The composition of expense for the postretirement benefit plan is as
follows:
<TABLE>
<CAPTION>
Years ended December 31 1995 1994 1993
- -----------------------------------------------------------------
<S> <C> <C> <C>
Service cost $ 9,105 $ 11,969 $14,764
Interest cost 26,908 25,438 31,933
Actual return on plan assets (18,439) 766 (2,914)
Net amortization and deferral 5,786 (10,137) (324)
- ------------------------------------------------------------------
23,360 28,036 43,459
Portion attributable to discontinued
operations - (1,435) (2,294)
- ------------------------------------------------------------------
Net postretirement benefit cost,
continuing operations $ 23,360 $ 26,601 $41,165
===========================
</TABLE>
The assumption concerning health care cost trend rate has a significant effect
on the amounts reported. For example, increasing the rate by one percentage
point in each year would increase the accumulated postretirement benefit
obligation as of December 31, 1995, by approximately $45,000 and the total of
service and interest cost components of net postretirement benefit cost for the
year then ended by appproximately $5,200. The lowering of the discount rate in
1995 will not have a material effect on future years' expense.
Pharmacia & Upjohn Annual Report 1995
64
<PAGE> 29
22. SEGMENT AND GEOGRAPHIC INFORMATION
The company operates in one industry, pharmaceutical products, which includes
prescription and nonprescription products for both humans and animals. The
company's products are sold throughout the world to a wide range of customers
including pharmacies, hospitals, chain warehouses, governments, physicians, and
wholesalers and other distributors. No single customer accounts for 10 percent
or more of the company's consolidated sales.
The table below shows the company's operations by geographic area. All
the sales are presented by originating area. U.S. exports to third-party
customers are less than 10 percent of U.S. sales. Sales between geographic areas
are priced to reflect consideration of economic circumstances and the
regulations of countries in which the transferring entities are located. These
transfers are eliminated in consolidation.
<TABLE>
<CAPTION>
Geographic areas for years ended December 31 1995 1994 1993
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales to customers (includes exports):
United States $ 2,205,208 $ 2,428,585 $ 2,576,782
Sweden 643,706 603,283 655,351
Other Europe 2,655,852 2,378,568 2,150,390
Japan and Pacific 1,047,689 903,567 758,953
Other 396,614 390,357 366,011
- -----------------------------------------------------------------------------------
Interarea transfers from:
United States 569,170 494,501 452,600
Sweden 1,011,938 856,239 755,474
Other Europe 635,106 565,784 498,404
Japan and Pacific 21,161 11,062 6,790
Other 20,721 22,180 23,319
Eliminations (2,258,096) (1,949,766) (1,736,587)
- -----------------------------------------------------------------------------------
$ 6,949,069 $ 6,704,360 $ 6,507,487
=====================================
Earnings from continuing operations
before income taxes:
United States $ 398,623 $ 563,435 $ 508,487
Sweden 300,763 290,335 310,477
Other Europe 308,091 296,493 (107,280)
Japan and Pacific 89,265 49,116 56,627
Other 39,651 71,897 9,425
- -----------------------------------------------------------------------------------
$ 1,136,393 $ 1,271,276 $ 777,736
=====================================
Identifiable assets, December 31:
United States $ 4,291,947 $ 4,227,195 $ 3,801,893
Sweden 3,315,370 2,875,230 2,513,289
Other Europe 2,808,482 2,901,311 2,378,874
Japan and Pacific 800,559 736,405 714,411
Other 244,243 206,987 207,809
Discontinued operations (net) - - 278,344
- -----------------------------------------------------------------------------------
$11,460,601 $10,947,128 $ 9,894,620
=====================================
</TABLE>
Pharmacia & Upjohn Annual Report 1995
65
<PAGE> 30
FIVE-YEAR SUMMARY OF OPERATIONS
<TABLE>
<CAPTION>
U.S. Dollar amounts in thousands, except per-share data
Years ended December 31 1995 1994 1993 1992 1991
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating results:
- -------------------------------------------------------------------------------------------------------------------------
Net sales $6,949,069 $6,704,360 $6,507,487 $5,909,845 $5,291,734
Other revenue 145,550 118,422 53,271 28,560 21,809
- -------------------------------------------------------------------------------------------------------------------------
OPERATING REVENUE 7,094,619 6,822,782 6,560,758 5,938,405 5,313,543
- -------------------------------------------------------------------------------------------------------------------------
Cost of products sold 1,980,038 1,889,854 1,822,255 1,623,346 1,414,510
Research and development 1,253,566 1,162,752 1,144,043 940,123 785,009
Marketing, administrative and other 2,616,557 2,586,635 2,596,287 2,392,305 2,183,857
Restructuring charges 103,404 19,837 268,658 46,276 57,706
Merger costs 138,193 - - - -
- -------------------------------------------------------------------------------------------------------------------------
Operating costs and expenses 6,091,758 5,659,078 5,831,243 5,002,050 4,441,082
- -------------------------------------------------------------------------------------------------------------------------
OPERATING INCOME 1,002,861 1,163,704 729,515 936,355 872,461
Interest income 216,651 157,254 227,318 247,601 165,959
Interest expense (94,139) (112,117) (182,514) (135,523) (118,760)
Currency exchange gains (losses) 13,071 22,121 (2,248) (98,563) 11,471
All other, net (2,051) 40,314 5,665 (2,475) (21,472)
- -------------------------------------------------------------------------------------------------------------------------
EARNINGS FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES 1,136,393 1,271,276 777,736 947,395 909,659
Provision for income taxes 397,700 437,825 217,143 243,643 306,840
- -------------------------------------------------------------------------------------------------------------------------
EARNINGS FROM CONTINUING OPERATIONS 738,693 833,451 560,593 703,752 602,819
Discontinued operations, net - 1,675 46,084 (129,393) 164,767
Cumulative effect of accounting
changes (net of tax) - - (18,906) (222,895) -
- -------------------------------------------------------------------------------------------------------------------------
NET EARNINGS 738,693 835,126 587,771 351,464 767,586
- -------------------------------------------------------------------------------------------------------------------------
Dividends on preferred stock
(net of tax) 12,541 12,291 12,125 12,084 12,356
- -------------------------------------------------------------------------------------------------------------------------
NET EARNINGS ON COMMON STOCK $ 726,152 $ 822,835 $ 575,646 $ 339,380 $ 755,230
Net earnings per common share:
Primary $1.43 $1.63 $1.14 $.67 $1.48
=============================================================
Financial position:
- -------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents $ 840,525 $ 651,660 $ 393,276 $ 373,205 $ 543,542
Short-term investments 973,656 1,134,130 446,790 1,176,067 669,612
Trade accounts receivable, net 1,535,409 1,480,251 1,415,642 1,272,492 1,109,012
Inventories 975,554 887,467 833,256 727,995 735,249
Other current assets 648,466 651,185 559,024 435,460 480,293
- -------------------------------------------------------------------------------------------------------------------------
Current assets 4,973,610 4,804,693 3,647,988 3,985,219 3,537,708
Net assets of discontinued
operations - - 278,344 1,988,867 2,644,009
Properties 3,393,225 3,074,466 2,906,273 2,517,035 2,495,373
Goodwill and other
intangible assets, net 1,722,157 1,795,430 1,843,065 1,556,291 1,812,656
Other noncurrent assets 1,371,609 1,272,539 1,218,950 825,715 854,896
- -------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS 11,460,601 10,947,128 9,894,620 10,873,127 11,344,642
- -------------------------------------------------------------------------------------------------------------------------
Short-term debt, including current
maturities of long-term debt 524,429 766,027 769,181 500,170 215,511
Other current liabilities 2,115,499 2,110,089 2,000,705 2,076,486 1,572,630
Long-term debt and ESOP debt 870,308 952,993 949,963 738,549 918,528
Other noncurrent liabilities 1,563,158 1,507,643 1,410,472 1,158,456 949,269
Shareholders' equity 6,387,207 5,610,376 4,764,299 6,399,466 7,688,704
- -------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $11,460,601 $10,947,128 $9,894,620 $10,873,127 $11,344,642
==============================================================
</TABLE>
Pharmacia & Upjohn Annual Report 1995
67
<PAGE> 31
QUARTERLY DATA
<TABLE>
<CAPTION>
U.S. Dollar amounts in thousands, except per-share data First Second Third Fourth
1995 (unaudited) quarter quarter quarter quarter
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $1,681,265 $1,770,306 $1,692,726 $1,804,772
Other revenue 58,019 37,221 28,799 21,511
- -------------------------------------------------------------------------------------------------------------------------
OPERATING REVENUE 1,739,284 1,807,527 1,721,525 1,826,283
Cost of products sold 480,163 492,400 494,336 513,139
Research and development 294,577 323,666 303,503 331,820
Marketing, administrative & other 600,469 670,659 648,087 697,342
Restructuring charges - 11,804 - 91,600
Merger costs - 49 1,870 136,274
- -------------------------------------------------------------------------------------------------------------------------
OPERATING INCOME 364,075 308,949 273,729 56,108
Interest income 44,886 53,704 57,631 60,430
Interest expense (22,077) (22,926) (24,929) (24,207)
Currency exchange (losses) gains (31,703) 7,396 39,038 (1,660)
All other, net (262) (1,295) (771) 277
- -------------------------------------------------------------------------------------------------------------------------
EARNINGS BEFORE INCOME TAXES 354,919 345,828 344,698 90,948
Provision for income taxes 117,100 114,100 113,800 52,700
- -------------------------------------------------------------------------------------------------------------------------
NET EARNINGS 237,819 231,728 230,898 38,248
Dividends on preferred stock (net of tax) 3,068 3,118 3,109 3,246
- -------------------------------------------------------------------------------------------------------------------------
NET EARNINGS ON COMMON STOCK $ 234,751 $ 228,610 $ 227,789 $ 35,002
================================================
Net earnings per common share:
Primary $.46 $.45 $.45 $.07
Fully diluted $.46 $.44 $.44 $.07
================================================
1994 (unaudited)
Net sales $1,648,732 $1,700,976 $1,618,083 $1,736,569
Other revenue 33,137 14,646 37,028 33,611
- -------------------------------------------------------------------------------------------------------------------------
OPERATING REVENUE 1,681,869 1,715,622 1,655,111 1,770,180
Cost of products sold 448,420 479,140 483,758 478,536
Research and development 285,391 280,114 280,633 316,614
Marketing, administrative & other 639,156 642,879 588,616 715,984
Restructuring charges - - 6,900 12,937
- -------------------------------------------------------------------------------------------------------------------------
OPERATING INCOME 308,902 313,489 295,204 246,109
Interest income 33,750 38,892 39,183 45,429
Interest expense (28,534) (30,182) (28,937) (24,464)
Currency exchange gains (losses) 9,891 (7,037) 10,364 8,903
All other, net 2,188 (2,688) 38,016 2,798
- -------------------------------------------------------------------------------------------------------------------------
EARNINGS FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES 326,197 312,474 353,830 278,775
- -------------------------------------------------------------------------------------------------------------------------
Provision for income taxes 112,342 107,616 121,859 96,008
EARNINGS FROM CONTINUING OPERATIONS 213,855 204,858 231,971 182,767
- -------------------------------------------------------------------------------------------------------------------------
Discontinued operation, net 10,864 2,016 (5,694) (5,511)
- -------------------------------------------------------------------------------------------------------------------------
Net earnings 224,719 206,874 226,277 177,256
Dividends on preferred stock (net of tax) 3,037 3,089 3,005 3,160
- -------------------------------------------------------------------------------------------------------------------------
NET EARNINGS ON COMMON STOCK $ 221,682 $ 203,785 $ 223,272 $ 174,096
================================================
Net earnings per common share:
Primary continuing $.42 $.40 $.45 $.36
net $.44 $.40 $.44 $.35
Fully diluted continuing $.41 $.40 $.44 $.35
net $.43 $.40 $.43 $.34
================================================
</TABLE>
Pharmacia & Upjohn Annual Report 1995
68
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
Jurisdiction
in which
Corporate Name Incorporated
---------------------------
PHARMACIA & UPJOHN, INC. Delaware (Parent)
Subsidiaries (excluding those which when
considered in the aggregate as a single
subsidiary did not constitute a significant
subsidiary as of December 31, 1995):
Pharmacia AB Sweden
Pharmacia International NV Netherlands
Pharmacia SpA Italy
The Upjohn Company Delaware
The Upjohn Manufacturing Company Delaware
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to incorporation by reference in the prospectus included in
Form S-8 Registration Statement (No. 33-63903) of our report, which includes an
explanatory paragraph on the change in practice of reporting certain
majority-owned subsidiaries from a fiscal year ending November 30 to a calendar
year ending December 31 and the change in method of accounting for other
postemployment benefits, dated February 21, 1996, on our audits of the
consolidated financial statements and financial statement schedules of Pharmacia
& Upjohn, Inc. and its subsidiaries as of December 31, 1995 and 1994 and for the
years ended December 31, 1995, 1994 and 1993 included and incorporated by
reference into this Form 10-K for the fiscal year ended December 31, 1995 of
Pharmacia & Upjohn, Inc.
COOPERS & LYBRAND L.L.P. KPMG PEAT MARWICK LLP
Chicago, Illinois
March 29, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE EARNINGS
STATEMENT AND THE BALANCE SHEET AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 840,525
<SECURITIES> 0
<RECEIVABLES> 1,635,708
<ALLOWANCES> 100,299
<INVENTORY> 975,554
<CURRENT-ASSETS> 4,973,610
<PP&E> 5,878,630
<DEPRECIATION> 2,485,405
<TOTAL-ASSETS> 11,460,601
<CURRENT-LIABILITIES> 2,639,928
<BONDS> 603,108<F1>
0
290,778
<COMMON> 5,066
<OTHER-SE> 6,091,363
<TOTAL-LIABILITY-AND-EQUITY> 11,460,601
<SALES> 6,949,069
<TOTAL-REVENUES> 7,094,619
<CGS> 1,980,038
<TOTAL-COSTS> 1,980,038
<OTHER-EXPENSES> 1,253,566<F2>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 94,139
<INCOME-PRETAX> 1,136,393
<INCOME-TAX> 397,700
<INCOME-CONTINUING> 738,693
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 738,693
<EPS-PRIMARY> 1.43
<EPS-DILUTED> 1.41
<FN>
<F1>EXCLUDES COMPANY'S GUARANTEE OF ESOP DEBT: 267,200
<F2>ONLY INCLUDES R&D EXPENSE
</FN>
</TABLE>
