UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1998
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 1-4147
PHARMACIA & UPJOHN, INC.
(Exact name of registrant as specified in its charter)
Delaware 98-0155411
(State of incorporation) (I. R. S. Employer
Identification No.)
Pharmacia & Upjohn Company, 95 Corporate Drive, Bridgewater, NJ 08807
(Address of principal executive offices) (Zip Code)
Registrant's telephone number 888/768-5501
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 twelve months, and (2) has been subject
to such filing requirements for the past 90 days. YES X NO
The number of shares of Common Stock, $1 Par Value, outstanding as of
May 1, 1998 was 507,996,268.
Page 1 of 21 pages
The exhibit index is set forth on page 17.
<PAGE>
QUARTERLY REPORT ON FORM 10-Q
PHARMACIA & UPJOHN, INC.
QUARTER ENDED MARCH 31, 1998
INDEX OF INFORMATION INCLUDED IN REPORT
Page
----
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Statements of Earnings 3
Condensed Consolidated Statements of Cash Flows 4
Condensed Consolidated Balance Sheets 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Part II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 17
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
PHARMACIA & UPJOHN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
For the Three Months Ended March 31
(in millions of U.S. dollars, except per-share data)
<CAPTION>
Unaudited
------------------------
1998 1997
---------- ----------
<S> <C> <C>
Net sales $ 1,586 $ 1,635
Other revenue 26 27
---------- ----------
Operating revenue 1,612 1,662
Cost of products sold 485 503
Research and development 274 283
Marketing, administrative and other 601 602
Biotech (9) -
---------- ----------
Operating income 261 274
Interest income 24 29
Interest expense (9) (7)
All other, net 1 (2)
---------- ----------
Earnings before income taxes 277 294
Provision for income taxes 88 100
---------- ----------
Net earnings $ 189 $ 194
========== ==========
Net earnings per common share:
Basic $.37 $.38
==== ====
Diluted $.36 $.37
==== ====
</TABLE>
See accompanying notes.
<PAGE>
<TABLE>
PHARMACIA & UPJOHN, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31
(in millions of U.S. dollars)
<CAPTION>
Unaudited
--------------------
1998 1997
-------- --------
<S> <C> <C>
Net cash (required) provided by operations $ (22) $ 206
-------- --------
Cash flows (required) provided by investment activities:
Additions of properties (93) (105)
Purchases of intangibles (36) -
Purchases of investments (161) (242)
Proceeds from sales of investments 256 339
Other 8 (13)
-------- --------
Net cash required by investment activities (26) (21)
-------- --------
Cash flows provided (required) by financing activities:
Repayment of debt (133) (6)
Payments of ESOP debt (16) (12)
Net increase in debt with initial maturity
of 90 days or less 392 273
Dividend payments (141) (142)
Purchases of treasury stock (9) (20)
Proceeds from exercise of stock options 6 7
Other 3 7
-------- --------
Net cash provided by financing activities 102 107
-------- --------
Effect of exchange rate changes on cash (8) (40)
-------- --------
Net change in cash and cash equivalents 46 252
Cash and cash equivalents, beginning of year 775 641
-------- --------
Cash and cash equivalents, end of period $ 821 $ 893
======== ========
</TABLE>
See accompanying notes.
<PAGE>
<TABLE>
PHARMACIA & UPJOHN, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<CAPTION>
(in millions of U.S. dollars)
March 31, December 31,
1998 1997
----------- -----------
(unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 821 $ 775
Short-term investments 447 539
Trade accounts receivable, less allowance
of $90 (1997: $89) 1,321 1,303
Inventories 953 958
Other current assets 857 752
----------- -----------
Total current assets 4,399 4,327
----------- -----------
Long-term investments 575 534
----------- -----------
Goodwill and other intangible assets, net 1,310 1,287
----------- -----------
Properties, net 3,263 3,306
----------- -----------
Other noncurrent assets 773 926
----------- -----------
Total assets $10,320 $10,380
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt, including current
maturities of long-term debt $ 657 $ 401
Other current liabilities 2,125 2,287
----------- -----------
Total current liabilities 2,782 2,688
----------- -----------
Long-term debt and guarantee of ESOP debt 602 634
----------- -----------
Other noncurrent liabilities 1,467 1,520
----------- -----------
Shareholders' equity:
Preferred stock, one cent par value;
authorized 100,000,000 shares; issued
Series A convertible 6,958 shares
(1997: 6,996 shares) at stated value 280 282
Common stock, one cent par value;
authorized 1,500,000,000 shares, issued
508,647,507 shares 5 5
Capital in excess of par value 1,426 1,440
Retained earnings 5,412 5,364
ESOP-related accounts (246) (260)
Treasury stock (39) (48)
Accumulated other comprehensive income (1,369) (1,245)
----------- -----------
Total shareholders' equity 5,469 5,538
----------- -----------
Total liabilities and shareholders' equity $10,320 $10,380
=========== ===========
</TABLE>
See accompanying notes.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
(All U.S. dollar amounts in millions, except per-share data)
A - INTERIM CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial information presented herein is unaudited, other
than the condensed consolidated balance sheet at December 31, 1997, which is
derived from audited financial statements. The interim financial statements
and notes thereto do not include all disclosures required by generally
accepted accounting principles and should be read in conjunction with the
financial statements and notes thereto included in the company's latest annual
report on Form 10-K.
In the opinion of management, the interim financial statements reflect all
adjustments of a normal recurring nature necessary for a fair statement of
theresults for interim periods. The current period's results of operations
are not necessarily indicative of results that ultimately may be achieved for
theyear.
Certain 1997 amounts, as presented herein, differ from amounts presented in
the 1997 annual report. The changes result from the reclassification of $72
from noncurrent assets to goodwill and other intangibles to better reflect the
nature of the related assets
B - INVENTORIES
March 31, December 31,
1998 1997
---------- -----------
Estimated replacement cost (FIFO basis):
Pharmaceutical and other finished products $ 468 $ 500
Raw materials, supplies and work-in-process 639 618
---------- ----------
1,107 1,118
Less reduction to LIFO cost (154) (160)
---------- ----------
$ 953 $ 958
========== ==========
Inventories valued on the LIFO method had an estimated replacement cost (FIFO
basis) of $468 at March 31, 1998, and $416 at December 31, 1997.
C - CONTINGENT LIABILITIES
The consolidated balance sheets include accruals for estimated product,
litigation, and environmental liabilities. The latter includes exposures
related to discontinued operations, including the industrial chemical facility
and several sites which, under the Comprehensive Environmental Response,
Compensation, and Liability Act, are commonly known as Superfund sites (see
Note D). The company's ultimate liability in connection with those sites
depends on many factors, including the number of other responsible parties and
their financial viability and the remediation methods and technology to be
used. Actual costs to be incurred may vary from the estimates given inherent
uncertainties in evaluating environmental exposures.
With regard to the company's discontinued industrial chemical facility in
North Haven, Connecticut, as the corrective action process progresses, it may
become appropriate to reevaluate the existing reserves designated for
remediation in light of changing circumstances. It is reasonably possible
that a material increase in accrued liabilities will be required but it is not
possible to determine what, if any, exposure exists at this time.
D - 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, and administrative and judicial proceedings at
approximately 50 "Superfund" sites.
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 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 a number of other defendants (both
manufacturers and wholesalers) in several federal civil antitrust lawsuits,
some of which have been consolidated and transferred to the Federal District
Court for the Northern District of Illinois. These suits, brought by
independent 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
the following: (1) the Robinson-Patman Act by giving substantial discounts to
hospitals, nursing homes, mail-order pharmacies and health maintenance
organizations ("HMOs") without offering the same discounts to retail
drugstores, and (2) Section I of the Sherman Antitrust Act by entering into
illegal vertical combination with other manufacturers and wholesalers to
restrict certain discounts and rebates so they benefited only favored
customers. The Federal District Court for the Northern District of Illinois
certified a national class of retail pharmacies in November 1994. Similar
actions by proposed retailer classes have been filed in the state courts of
Alabama, California, Minnesota, Mississippi, and Wisconsin. The California
and Wisconsin courts have certified retailer classes. Motions to certify are
pending in Alabama and Minnesota. The suits seek treble damages and an
injunction prohibiting the alleged illegal practices. Fourteen of the twenty-
four pharmaceutical company defendants (not including the company) have
reached settlement agreements with the plaintiffs in the class action pending
in the Northern District of Illinois for amounts ranging from $10 to $60.
These settlements were approved by the court in 1996.
Actions have been filed in 14 states and the District of Columbia on behalf of
proposed consumer classes seeking damages based on the same alleged conduct.
The courts in California and the District of Columbia have certified the
proposed consumer classes. After removal, the Federal District Court denied
certification of a proposed Alabama consumer class, but a similar action was
later remanded to the state court where it is pending. The state courts in
Maine, Michigan, and Minnesota denied certification of a consumer class, and
plaintiffs' appeals are pending. The state courts in Colorado, New York, and
Washington dismissed complaints on behalf of proposed consumer classes.
Plaintiffs appealed the dismissal in Washington and New York, and those
appeals are pending. Similar actions by proposed consumer classes are pending
in the state courts of Arizona, Florida, Kansas, North Carolina, Tennessee,
and Wisconsin. Furthermore, the U.S. Federal Trade Commission has instituted
an inquiry into whether pharmaceutical companies, including the company, may
have violated federal antitrust laws in connection with establishing prices
and rebates.
The company believes that any potential liability above amounts accrued will
not have a material adverse effect on the company's consolidated financial
position or the company's results of operations or liquidity.
E - RESTRUCTURING
In 1997, the company recorded restructuring accruals which included estimated
costs of $316 associated with the global turnaround program. The accruals
reflected employee separation and facility closure costs that will be incurred
as part of the global plan to simplify infrastructure and eliminate
duplication of resources in manufacturing, administration, and research and
development. At March 31, 1998, the remaining accrual amounted to $240.
Additional restructuring charges will be recognized in 1998 when all remaining
elements of the turnaround program are finalized and announced. Expenditures
related to the restructuring charges are expected to be substantially
completed by the end of 2000.
F - BIOTECH
In August 1997, the company merged its biotechnology supply business,
Pharmacia Biotech, with Amersham Life Science, a division of Amersham
International plc, in a noncash transaction that did not result in the
recognition of a gain or loss. The merger created a new company, Amersham
Pharmacia Biotech Ltd. Pharmacia & Upjohn owns 45 percent of the new company
which is accounted for using the equity method. The related caption on the
consolidated statement of earnings represents the company's share of Amersham
Pharmacia Biotech's earnings.
G - CHANGE IN ACCOUNTING PRINCIPLE
Effective January 1, 1998, the company adopted the American Institute of
Certified Public Accountants' (AICPA) Statement of Position (SOP) 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use". The statement requires capitalization of certain costs
incurred in the development of internal-use software, including external
direct material and service costs, employee payroll and payroll-related costs,
and capitalized interest. Prior to adoption of SOP 98-1, the company expensed
these costs as incurred. The effect of this change in accounting principle on
consolidated earnings during the current period is immaterial.
H - COMPREHENSIVE INCOME
Effective January 1, 1998, the company adopted Statement of Financial
Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income". The
statement establishes standards for reporting comprehensive income and its
components. Comprehensive income is defined as all nonowner changes in equity
and equals net earnings plus other comprehensive income. For the company,
other comprehensive income consists of currency translation adjustments and
unrealized gains and losses on available-for-sale securities. Accumulated
other comprehensive income is shown on the consolidated balance sheets and
represents the accumulated balance of currency translation adjustments and
unrealized gains and losses on available-for-sale securities as of March 31,
1998. Total comprehensive income for the three months ended March 31, 1998,
and March 31, 1997, was $65 and $(95), respectively.
I - EARNINGS PER SHARE
Basic earnings per share is computed by dividing net earnings available to
holders of common stock by the weighted average number of shares of common
stock outstanding. Diluted earnings per share is computed assuming the
exercise of all stock options that are beneficial to the recipients,
conversion of all preferred stock, and the issuance of stock as incentive
compensation to certain employees. Under these assumptions, the weighted-
average number of common shares outstanding is increased accordingly, and net
earnings is reduced by an incremental contribution to the Employee Stock
Ownership Plan (ESOP). This contribution is the after-tax difference between
the income the ESOP would have received from the preferred stock and the
assumed dividend yield to be earned on the common shares.
The following table reconciles the numerators and denominators of the basic
and diluted earnings per share computations:
For the three months ended March 31, 1998 1998 1997 1997
Basic Diluted Basic Diluted
------- ------- ------- -------
EPS numerator:
Net earnings $ 189 $ 189 $ 194 $ 194
Less: Preferred stock dividends,
net of tax (3) - (3) -
Less: ESOP contribution, net of tax - (1) - (1)
------- ------- ------- -------
Income available to common shareholders $ 186 $ 188 $ 191 $ 193
======= ======= ======= =======
EPS denominator:
Average common shares outstanding 507 507 508 508
Effect of dilutive securities:
Stock options - 3 - 3
Convertible preferred stock and
incentive compensation - 11 - 11
------- ------- ------- -------
Total shares 507 521 508 522
======= ======= ======= =======
Earnings per share $.37 $.36 $.38 $.37
======= ======= ======= =======
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
FINANCIAL REVIEW
OVERVIEW OF CONSOLIDATED RESULTS
The table below provides an overview of consolidated results in millions of
U.S. dollars, except per-share data.
1998 Percent Chg. 1997
-------- ----------- --------
Sales $1,586 (3.0)% $1,635
Operating income 261 (4.5) 274
Earnings before income taxes 277 (5.7) 294
Net earnings 189 (2.8) 194
Net earnings per common share: Basic $ .37 (2.6) $ .38
Diluted $ .36 (2.7) $ .37
When comparing operating performance for the first quarter of 1998 to that of
1997, the partial divestiture of the company's biotechnology supply business
as well as the negative impact of currency exchange rate fluctuations should
be considered. The change in ownership structure of Pharmacia Biotech from a
wholly-owned subsidiary to an equity affiliate in August 1997 affected the
quarter-to-quarter comparison of sales and operating expenses. Excluding
Biotech, consolidated sales increased by 3 percent. On the same basis,
operating costs and expenses increased by 5 percent. In addition, the
continued strengthening of the U.S. dollar against most major Asian and
European currencies in 1998 resulted in significant negative exchange effects
on sales and earnings. Excluding exchange, net earnings increased by 5
percent. Excluding both exchange and Biotech, sales increased by 8 percent.
NET SALES
Excluding Biotech, consolidated sales growth of 3 percent represented a 7
percent volume increase, a 1 percent price increase, and a 5 percent negative
exchange impact. Sales growth was led by the U.S. market with a 20 percent
increase over the prior year period. Consistent with the company's
accelerated U.S. growth strategy, sales in the U.S. represented an
increasingly larger percentage of worldwide sales at 36 percent in the first
quarter compared to 31 percent in the same period in 1997. Outside the U.S.,
most major markets recorded solid growth in local currency as quantified in
the table below. Japan sales fell for several reasons as further discussed
below. Excluding Japan, sales outside the U.S. grew 8 percent in local
currency. Sales performance by country shown below is based on location of
customer and is in millions of U.S. dollars:
Net Percent
Percent Change
Three months ended March 31, 1998 Change Excl.Ex.* 1997
Non-U.S.: -------- -------- -------- --------
Japan $ 126 (21.9)% (18.1)% $ 161
Italy 108 (8.8) 0.2 119
Germany 97 (3.3) 5.9 100
United Kingdom 85 12.4 11.5 76
Sweden 71 4.4 22.3 68
France 67 2.5 11.0 65
Spain 39 (17.4) (9.4) 48
Rest of world 427 0.4 8.7 425
United States 563 19.5 19.5 471
-------- -------- -------- --------
Subtotal 1,583 3.3 8.6 1,533
Biotech 3 (97.1) (97.2) 102
-------- -------- -------- --------
Consolidated sales $1,586 (3.0)% 2.1% $1,635
======== ======== ======== ========
*Underlying growth equals percent change excluding currency exchange effects
PRODUCT SALES
New primary-care products, Detrusitol (Detrol in the U.S.) and Edronax,
achieved key milestone dates in 1998 with U.S. FDA approval of Detrol in March
and the filing of an New Drug Application with the FDA for Edronax in May.
Detrusitol, a treatment for overactive bladder, was launched in Sweden in
October 1997 and in major markets Germany and the U.K. in the first quarter of
1998. Edronax, the first in a new class of anti-depressants, was launched in
the U.K. in July 1997 and is planned for launch in several additional European
countries later in 1998. Although sales levels are still relatively low, both
products have experienced promising early performances in launched markets.
A quarter-to-quarter consolidated net sales comparison of the company's top
twenty human pharmaceutical products (including generic equivalents where
applicable) and five associated businesses is provided in the table below.
Underlying growth is represented by the percent change excluding currency
exchange effects.
U.S. dollars in millions Net Percent
Percent Change
Three months ended March 31, 1998 Change Excl.Ex.* 1997
-------- -------- -------- --------
Genotropin $ 77 (14.4)% (8.3)% $ 90
Xanax 75 15.1 21.3 65
Cleocin/Dalacin 72 9.3 14.9 65
Xalatan 70 137.1 139.8 29
Medrol 65 5.4 12.0 62
Nicorette 52 30.3 40.1 40
Depo-Provera 51 25.7 28.0 41
Pharmorubicin 46 (5.1) 2.4 49
Fragmin 44 12.7 21.1 39
Camptosar 42 1.2 1.4 41
Healon 34 7.2 13.6 32
Rogaine 31 6.6 8.2 29
Micronase/Glynase 31 41.1 41.1 22
Provera 26 5.3 6.6 24
Caverject 22 21.3 29.0 18
Azulfidine/Salazopyrin 22 (4.0) 1.8 23
Vantin 21 (27.7) (27.7) 29
Halcion 19 (10.9) (5.2) 21
Sermion 18 (8.1) (1.0) 20
Adriamycin 18 (7.3) (2.1) 19
Other human pharmaceutical products 424 (5.4) 0.6 451
-------- -------- -------- --------
Total human pharmaceutical products 1,260 4.3 9.8 1,209
Animal health 88 1.9 5.2 86
Chemical & contract manufacturing 78 11.7 12.6 70
Diagnostics 52 (2.6) 4.7 53
Nutrition 89 (13.2) (6.5) 103
Plasma 16 29.2 40.8 12
-------- -------- -------- --------
Total sales excluding Biotech 1,583 3.3 8.6 1,533
Biotech 3 (97.1) (97.2) 102
-------- -------- -------- --------
Consolidated sales $1,586 (3.0)% 2.1% $1,635
======== ======== ======= ========
*Underlying growth equals percent change excluding currency exchange effects.
Xalatan, a novel glaucoma treatment, led new product sales growth in the first
quarter both in the U.S. and Europe. Since its launch in 1996, Xalatan has
attained a market leadership position in the U.S. with sales increasing $28
million over the first quarter of 1997. Xalatan sales increased $9 million
across Europe where the product was launched during 1997; market shares range
from 3 percent in France where the product was not reimbursed until April 1998
to 20 percent in Sweden.
Other new prescription products registering strong sales performances in the
quarter included Mirapex, Fragmin, and Caverject. Mirapex, a new treatment
for Parkinson's disease, was launched in the U.S. in July 1997 and achieved
sales of $10 million in the first quarter of 1998. The product was approved
in Europe in March and is expected to be launched in the U.K., Italy, and
Spain in the second half of the year. Fragmin, an antithrombotic agent,
attained worldwide volume growth of 25 percent in 1998. Increasing demand for
Fragmin led to higher U.S. sales, while a new indication for unstable coronary
artery disease drove growth in the U.K. Fragmin sales were flat in Japan due
to more restrictive government health care policies as further discussed
below. Caverject also recorded substantial growth in the first quarter with a
32 percent increase in worldwide volume. Sales declined in the U.S. but
increased in all major European markets. In the short-term, intense
competition is expected to negatively impact sales of Caverject. However, the
success of competitors in expanding the market is ultimately anticipated to
benefit Caverject, a treatment for erectile dysfunction with a particularly
high efficacy rate.
Recent launches fueled the growth of Nicorette and Rogaine (Regaine outside
the U.S.) in the first quarter. The Nicorette line of nicotine replacement
therapy products grew 41 percent in worldwide volume driven by increasing U.S.
demand for Nicorette Gum and the launch of the Nicorette Inhaler in the U.K.
The launch of Rogaine Extra Strength for Men in the U.S. late in 1997
contributed to the 13 percent volume increase in Rogaine, the hereditary hair
loss treatment. Rogaine sales also increased significantly in France and
Sweden.
Genotropin and Vantin sales fell considerably in the quarter-to-quarter
comparison. At the end of 1997, the company reacquired sales and marketing
rights in Japan to Genotropin, a human growth hormone. Related to this
agreement, the company repurchased a one-month supply of inventory from the
Japan distributor in the first quarter which accounted for the majority of the
comparative sales decrease. Performance in major European markets was mixed
with double-digit growth in local currency in Germany and Sweden but declines
in the U.K. and Spain. Genotropin achieved good growth in the U.S. where it
has captured approximately one-third of new patient prescriptions. Sales of
Vantin, a broad spectrum oral antibiotic, deteriorated in the first quarter
due to both intense competition and a relatively mild flu season.
Furthermore, sales in the first quarter of 1997 were higher due to special
incentives offered during that quarter and a more potent flu season.
A mandatory price decrease in Japan effective April 1 of this year dampened
demand in the first quarter as purchases were delayed to take advantage of
lower prices. In addition, economic pressures in Japan have led to government
restrictions in health care reimbursements which have depressed the
pharmaceutical market in general. These factors in combination with the weak
yen negatively affected sales of several products for which Japan is a major
market. Products particularly affected in the quarter-to-quarter comparison
included Sermion, Pharmorubicin, and Azulfidine/Salazopyrin. Sermion is a
treatment for senile dementia. Azulfidine is a treatment for inflammatory
bowel disease and rheumatoid arthritis. Pharmorubicin, a cytostatic agent for
the treatment of solid tumors and leukemias, also reported lower sales in
Germany largely attributable to price competition.
Several products which have faced vigorous generic competition during prior
years reported increases in the first quarter. The increase was principally
due to weak performances in the first quarter of 1997 caused by year-end 1996
trade inventory accumulations in the U.S. These products included Xanax, an
anxiolytic; Glynase and Micronase, oral anti-diabetes agents; Provera, a
progestational product; Healon, a viscoelastic used for cataract surgery; and
Medrol steroid products. Sales of Depo-Provera, the injectable contraceptive,
also increased substantially in the U.S., partially due to the effect of the
weaker 1997 first quarter, but also due to strong promotional efforts. A new
direct-to-consumer television advertising campaign was launched in the middle
of March.
Combined sales of the associated businesses exclusive of Biotech totaled $323
million, slightly down from $324 million in the first quarter of 1997.
Excluding the negative impact of exchange, these sales increased by 4 percent.
Good growth in Europe and the U.S. for Diagnostics was more than offset by
government reimbursement restrictions and negative exchange effects in Japan,
its largest market. Sales growth recorded by Chemical and Contract
Manufacturing resulted primarily from increases in contracted Motrin business
as well as inhalation steroids for use in the asthma/allergy market. ReFacto,
a treatment for hemophilia A, drove Plasma sales higher in the first quarter.
As previously mentioned, sales of Biotech subsequent to August 1997 are not
reported in consolidated sales leading to a comparative sales decrease of
approximately $100 million in the first quarter. Biotech is further discussed
in Note F to the consolidated financial statements.
COSTS AND EXPENSES
Consolidated operating expenses, stated as a percentage of net sales, are
provided in the table below. The 1997 percentages are also shown as if
Biotech, formerly a consolidated subsidiary, were accounted for under the
equity method in 1997 consistent with its accounting treatment in 1998. The
following discussions are based on the comparison of 1998 percentages with the
adjusted 1997 percentages.
First quarter ended March 31, 1998 1997 1997
as adjusted as
reported for Biotech reported
-------- ----------- --------
Cost of products sold 30.6% 30.3% 30.8%
Research and development 17.2 17.8 17.3
Marketing, administrative and other 37.9 36.3 36.9
Operating income 16.5 17.8 16.7
Cost of products sold increased as a percentage of sales due to an unfavorable
quarter-to-quarter comparison in product mix and selling price. In addition,
inflationary pressures on product costs outweighed improvements in production
efficiencies. Offsetting these unfavorable factors was the net effect of
currency exchange as the positive exchange impact on costs more than offset
the negative impact on sales.
Research and development (R&D) spending declined as a percentage of sales, a
direct result of the company's ongoing efforts to consolidate R&D resources to
focus on selected projects. The company expects to continue to supplement its
internal research base by entering into licensing agreements and other R&D
collaborations. Spending during the first quarter supported the product
filing of exemestane with the European Union for advanced breast cancer and
the development activities related to filing a New Drug Application for
Edronax with the U.S. FDA.
Marketing, administrative, and other (MA&O) expense increased as a percentage
of sales primarily due to sales force expansions and increased product
promotion in the U.S. and Europe, particularly for new products Detrusitol,
Rogaine Extra Strength for Men, and Edronax. The comparative spending
increase was partially offset by the favorable effects of exchange.
The company recorded $9 million in the first quarter of 1998 representing its
share of Amersham Pharmacia Biotech's earnings. In August 1997, the company
merged Pharmacia Biotech with Amersham Life Science. The merger created a new
company, Amersham Pharmacia Biotech Ltd. Pharmacia & Upjohn owns 45 percent
of the new company which is accounted for using the equity method.
In 1997, the company recognized charges of $316 million for the restructuring
portion of its global turnaround program. In the latter half of 1998, the
company expects to record less than $100 million in additional charges for
this program and anticipates cash spending to approximate $100 million. In
addition, the company expects to incur restructuring-related charges in 1998.
These charges, while not included in restructuring, relate to similar
activities such as the establishment of a new global headquarters in New
Jersey and asset relocations associated with the company's manufacturing
rationalization program.
The estimated annual effective tax rate for 1998 is 32 percent. The effective
tax rate for 1997 was 34 percent excluding the tax benefits related to
nonrecurring items (31 percent inclusive of nonrecurring items). The lower
1998 estimated rate is the result of increased earnings in jurisdictions with
lower tax rates.
COMPREHENSIVE INCOME
Effective January 1, 1998, the company adopted Statement of Financial
Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income". The
statement establishes standards for reporting comprehensive income and its
components. Comprehensive income is defined as all nonowner changes in equity
and equals net earnings plus other comprehensive income. For the company,
other comprehensive income consists of currency translation adjustments and
unrealized gains and losses on available-for-sale securities. Total
comprehensive income for the three months ended March 31, 1998, and March 31,
1997, was $65 and $(95), respectively. The difference between net earnings
and other comprehensive income was largely related to unfavorable currency
translation adjustments recorded in equity.
FINANCIAL CONDITION
March 31, December 31,
1998 1997
------------ ------------
Working capital (U.S. dollars in millions) $1,617 $1,639
Current ratio 1.58 1.61
Debt to total capitalization 18.7% 15.7%
The company's working capital and current ratio decreased slightly as of the
end of the first quarter as compared to the prior year-end due primarily to an
increase in short-term debt. The increase in the percentage of debt to total
capitalization reflected the higher short-term debt levels as well as a
decline in shareholders' equity. The increase in negative currency
translation adjustments recorded in equity caused much of this decline. As
indicated below, net financial assets have decreased since year-end mainly due
to the increase in short-term debt.
March 31, December 31,
1998 1997
------------ ------------
Cash, equivalents and investments $1,843 $1,848
Short-term and long-term debt 1,259 1,035
------- -------
Net financial assets $ 584 $ 813
======= =======
Net cash provided by first quarter 1998 operations decreased to $(22) million
from $206 million. The decrease was attributable to the fact that changes in
current assets and liabilities were predominantly uses of cash in the first
quarter of 1998 as compared to a mix of uses and sources in the same period in
1997. Income taxes payable, in particular, decreased in 1998 due to large tax
payments in Sweden while this liability materially increased in the prior
year. Other significant uses of cash were expenditures for property, plant,
and equipment (capital) and the company's quarterly dividend. Capital
expenditures of $93 million largely represented spending on manufacturing
facilities in the U.S., Belgium, Puerto Rico, and Sweden. Major sources of
cash in the quarter included short-term debt and the net proceeds from the
sale of investments. The company's future cash provided by operations and
borrowing capacity are expected to cover normal operating cash flow needs,
planned capital acquisitions, and dividend payments that may be approved by
the board of directors for the foreseeable future.
LITIGATION
Various suits and claims arising in the ordinary course of business, primarily
for personal injury alleged to have been caused by the use of the company's
products, are pending against the company and its subsidiaries. The company
also is involved in several administrative and judicial proceedings relating
to environmental concerns, including actions brought by the U.S. Environmental
Protection Agency and state environmental agencies for remedial cleanup at
approximately 50 sites including site cleanup at the company's discontinued
industrial chemical operations.
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 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 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 federal cases have been consolidated in federal court in
Chicago, Illinois. 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 agreed to $10
million to $60 million settlement of claims per defendant in this action. The
company believes that any potential liability above amounts accrued will not
have a material adverse effect on the company's consolidated financial
position or the company's results of operations or liquidity. Further
discussion of current litigation matters is provided in Note D to the
consolidated financial statements.
CONTINGENT LIABILITIES
The company's estimate of the ultimate cost to be incurred in connection with
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 share of a site's cost. With regard to the company's discontinued
industrial chemical facility in North Haven, Connecticut, as the corrective
action process progresses, it may become appropriate to reevaluate the
existing reserves designated for remediation in light of changing
circumstances. It is reasonably possible that a material increase in accrued
liabilities will be required but it is not possible to determine what, if any,
exposure exists at this time.
OTHER ITEMS
The company's global program to address the year 2000 date recognition problem
continued to make progress toward its ultimate goal to ensure the millennium
event does not have a material adverse effect on its business operations.
Repair and replacement projects are currently underway and are anticipated to
be completed by the end of 1998 for most business-critical systems and by mid-
1999 for remaining business-critical systems. The company believes that by
meeting the objectives of its Year 2000 Program, the date recognition problem
will not have a material adverse effect on the company's consolidated
financial position or its results of operations or liquidity.
In 1998, the company adopted the American Institute of Certified Public
Accountants' (AICPA) Statement of Position (SOP) 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use". The
statement requires capitalization of certain costs incurred in the development
of internal-use software, including external direct material and service
costs, employee payroll and payroll-related costs, and capitalized interest.
Prior to adoption of SOP 98-1, the company expensed these costs as incurred.
The effect of initially applying the provisions of SOP 98-1 was not material
to the consolidated financial statements.
The AICPA issued SOP 98-5, "Reporting on the Costs of Start-Up Activities" in
1998. The SOP requires start-up costs and organization costs to be expensed
as incurred. The SOP is effective beginning in 1999 and will be adopted by
the company at that time. Currently, the company is evaluating adoption of
the statement but does not anticipate its impact to be material to the
consolidated financial statements.
The company currently reports its operations as a single industry segment:
pharmaceutical products. This industry designation includes human
pharmaceutical (prescription and over-the-counter) products and five
associated businesses. In 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards (SFAS) No. 131,
"Disclosures about Segments of an Enterprise and Related Information". SFAS
No. 131 establishes standards for reporting information about operating
segments and will be adopted by the company in the fourth quarter of 1998.
Assessment of the new standard is not yet concluded.
FORWARD-LOOKING INFORMATION
Certain statements contained in this report, such as statements concerning the
company's anticipated financial or product performance, its ability to pay
dividends, and other non-historical facts, are "forward-looking statements"
(as such term is defined in the Private Securities Litigation Reform Act of
1995). Since these statements are based on factors that involve risks and
uncertainties, actual results may differ materially from those expressed or
implied by such forward-looking statements. Such factors include, among
others: sales and earnings projections; the effectiveness of and expense
estimates related to future projects including restructuring plans and the
Year 2000 date recognition problem; management's ability to make further
progress under the company's global turnaround program; the company's ability
to successfully market new and existing products in new and existing domestic
and international markets; the success of the company's research and
development activities and the speed with which regulatory authorizations and
product rollouts may be achieved; fluctuations in currency exchange rates; the
effects of the company's accounting policies and general changes in generally
accepted accounting practices; the company's exposure to product liability
lawsuits and contingencies related to actual or alleged environmental
contamination; the company's exposure to antitrust lawsuits; social, legal and
political developments, especially those relating to health care reform and
product liabilities; general economic and business conditions; the company's
ability to attract and retain current management and other employees of the
company; and other risks and factors detailed in the company's other
Securities and Exchange Commission filings, including its Proxy Statement and
Annual Report on Form 10-K for the year ended December 31, 1997.
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a)(i) Exhibit A - Report of Independent Accountants (page 19).
(a)(ii) Exhibit 12 - Ratio of Earnings to Fixed Charges (page 20).
(a)(iii) Exhibit 15 - Awareness of Coopers & Lybrand L.L.P.
(page 21).
(a)(iv) Exhibit 27 - Financial Data Schedule (EDGAR filing only).
(b) Form 8-K - No reports on Form 8-K were filed during
the quarter ended March 31, 1998.
<PAGE>
SIGNATURE:
Pursuant to the requirements 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.
(Registrant)
DATE: May 13, 1998 /S/C. G. Coughlin
C. G. Coughlin
Executive Vice President
and Chief Financial Officer
DATE: May 13, 1998 /S/R.T. Collier
R. T. Collier
Senior Vice President
and General Counsel
<TABLE>
EXHIBIT 12
PHARMACIA & UPJOHN, INC. AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(U.S. dollar amounts in millions)
<CAPTION>
Three Months Year Ended December 31,
Ended
March 31, 1998 1997 1996 1995 1994 1993
-------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Earnings from continuing
operations before income taxes $ 277 $ 468 $ 838 $1,136 $1,271 $ 778
Less: Equity in undistributed
net income (loss) of companies
owned less than 50% 10 (32) 5 7 8 8
-------- ----- ------ ------ ------ ------
267 500 833 1,129 1,263 770
Add:
Amortization of previously
capitalized interest 3 12 11 10 8 6
Fixed charges included in the above:
Interest and amortization of debt
expense 12 58* 82 121 139 209
Rental expense representative
of an interest factor 8 38 37 35 35 32
-------- ----- ------ ------ ------ ------
Earnings from continuing operations
before income taxes and fixed
charges $ 290 $ 608* $ 963 $1,295 $1,445 $1,017
======== ===== ====== ====== ====== ======
Interest incurred and amortization
of debt expense $ 20 $ 90 $ 115 $ 149 $ 164 $ 234
Rental expense representative of an
interest factor 8 38 37 35 35 32
-------- ----- ------ ------ ------ ------
Total fixed charges $ 28 $ 128 $ 152 $ 184 $ 199 $ 266
======== ===== ====== ====== ======= ======
Ratio of earnings to fixed charges 10.53 4.75* 6.33 7.05 7.24 3.82
===== ==== ==== ==== ==== ====
*Revised from Form 10-K.
</TABLE>
EXHIBIT 15
Securities & Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
RE: Pharmacia & Upjohn, Inc. and Subsidiaries
Quarterly Report on Form 10-Q
We are aware that our report dated April 27, 1997, in our review of interim
financial information of Pharmacia & Upjohn, Inc. and Subsidiaries for the
three month periods ended March 31, 1998 and 1997, and included in the
Company's quarterly report on Form 10-Q for the quarter then ended, is
incorporated by reference in the Company's prospectus on Form S-8
Registration Statement (No. 033-63903) and the prospectus in Form S-8
Registration Statement (No. 333-03109). Pursuant to Rule 436(c) under the
Securities Act of 1933, this report should not be considered a part of the
registration statements prepared or certified by us within the meaning of
Sections 7 and 11 of the Act.
Coopers & Lybrand L.L.P.
Chicago, Illinois
May 13, 1997
<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> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 821
<SECURITIES> 0
<RECEIVABLES> 1,411
<ALLOWANCES> 90
<INVENTORY> 953
<CURRENT-ASSETS> 4,399
<PP&E> 5,800
<DEPRECIATION> 2,537
<TOTAL-ASSETS> 10,320
<CURRENT-LIABILITIES> 2,782
<BONDS> 384<F1>
0
280
<COMMON> 5
<OTHER-SE> 5,184
<TOTAL-LIABILITY-AND-EQUITY> 10,320
<SALES> 1,586
<TOTAL-REVENUES> 1,612
<CGS> 485
<TOTAL-COSTS> 485
<OTHER-EXPENSES> 274<F2>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9
<INCOME-PRETAX> 277
<INCOME-TAX> 88
<INCOME-CONTINUING> 189
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 189
<EPS-PRIMARY> .37
<EPS-DILUTED> .36
<FN>
<F1>EXCLUDES COMPANY'S GUARANTEE OF ESOP DEBT OF 218.
<F2>ONLY INCLUDES R&D EXPENSE.
</FN>
</TABLE>
<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. THIS FINANCIAL
DATA SCHEDULE IS RESTATED DUE TO THE CHANGE IN ACCOUNTING STANDARD FOR
EARNINGS PER SHARE (SFAS 128).
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 893
<SECURITIES> 0
<RECEIVABLES> 1,673
<ALLOWANCES> 96
<INVENTORY> 1,005
<CURRENT-ASSETS> 4,882
<PP&E> 6,045
<DEPRECIATION> 2,582
<TOTAL-ASSETS> 10,880
<CURRENT-LIABILITIES> 2,535
<BONDS> 568<F1>
0
286
<COMMON> 5
<OTHER-SE> 5,687
<TOTAL-LIABILITY-AND-EQUITY> 10,880
<SALES> 1,635
<TOTAL-REVENUES> 1,662
<CGS> 503
<TOTAL-COSTS> 503
<OTHER-EXPENSES> 283<F2>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7
<INCOME-PRETAX> 294
<INCOME-TAX> 100
<INCOME-CONTINUING> 194
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 194
<EPS-PRIMARY> .38
<EPS-DILUTED> .37
<FN>
<F1>EXCLUDES COMPANY'S GUARANTEE OF ESOP DEBT: 240
<F2>ONLY INCLUDES R&D EXPENSE.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE EARNINGS STATEMENT AND THE CONDENSED BALANCE SHEET AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS. THIS FINANCIAL DATA SCHEDULE IS RESTATED DUE TO THE
CHANGE IN ACCOUNTING STANDARD FOR EARNINGS PER SHARE (SFAS 128)
AND TO INCLUDE ADDITIONAL BALANCES NOT PREVIOUSLY INCLUDED.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 890,691
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 974,125
<CURRENT-ASSETS> 4,901,362
<PP&E> 5,926,062
<DEPRECIATION> 2,524,990
<TOTAL-ASSETS> 11,344,588
<CURRENT-LIABILITIES> 2,504,458
<BONDS> 548,619<F1>
0
289,968
<COMMON> 5,087
<OTHER-SE> 6,026,817
<TOTAL-LIABILITY-AND-EQUITY> 11,344,588
<SALES> 1,740,138
<TOTAL-REVENUES> 1,757,480
<CGS> 503,115
<TOTAL-COSTS> 503,115
<OTHER-EXPENSES> 299,756<F2>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 19,162
<INCOME-PRETAX> 74,368
<INCOME-TAX> 24,500
<INCOME-CONTINUING> 49,868
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 49,868
<EPS-PRIMARY> .09
<EPS-DILUTED> .09
<FN>
<F1>EXCLUDES COMPANY'S GUARANTEE OF ESOP DEBT: 255,700
<F2>ONLY INCLUDES R&D EXPENSE.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE EARNINGS STATEMENT AND THE CONDENSED BALANCE SHEET AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS. THIS FINANCIAL DATA SCHEDULE IS RESTATED DUE TO THE
CHANGE IN ACCOUNTING STANDARD FOR EARNINGS PER SHARE (SFAS 128)
AND TO INCLUDE ADDITIONAL BALANCES NOT PREVIOUSLY INCLUDED.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 604,722
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 993,615
<CURRENT-ASSETS> 5,012,337
<PP&E> 6,058,506
<DEPRECIATION> 2,631,507
<TOTAL-ASSETS> 11,260,393
<CURRENT-LIABILITIES> 2,675,373
<BONDS> 560,891<F1>
0
288,602
<COMMON> 5,088
<OTHER-SE> 5,891,895
<TOTAL-LIABILITY-AND-EQUITY> 11,260,393
<SALES> 3,515,426
<TOTAL-REVENUES> 3,561,431
<CGS> 1,003,212
<TOTAL-COSTS> 1,003,212
<OTHER-EXPENSES> 602,528<F2>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 41,833
<INCOME-PRETAX> 197,415
<INCOME-TAX> 65,100
<INCOME-CONTINUING> 132,315
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 132,315
<EPS-PRIMARY> .25
<EPS-DILUTED> .25
<FN>
<F1>EXCLUDES COMPANY'S GUARANTEE OF ESOP DEBT: 255,700
<F2>INCLUDES R&D ONLY
</FN>
</TABLE>
<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. THIS FINANCIAL DATA SCHEDULE
IS RESTATED DUE TO THE CHANGE IN ACCOUNTING STANDARD FOR EARNINGS
PER SHARE (SFAS 128).
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 981
<SECURITIES> 0
<RECEIVABLES> 1,566
<ALLOWANCES> 95
<INVENTORY> 1,016
<CURRENT-ASSETS> 4,679
<PP&E> 6,056
<DEPRECIATION> 2,601
<TOTAL-ASSETS> 10,697
<CURRENT-LIABILITIES> 2,414
<BONDS> 567<F1>
0
284
<COMMON> 5
<OTHER-SE> 5,648
<TOTAL-LIABILITY-AND-EQUITY> 10,697
<SALES> 3,338
<TOTAL-REVENUES> 3,400
<CGS> 1,053
<TOTAL-COSTS> 1,053
<OTHER-EXPENSES> 564<F2>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18
<INCOME-PRETAX> 564
<INCOME-TAX> 192
<INCOME-CONTINUING> 372
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 372
<EPS-PRIMARY> .72
<EPS-DILUTED> .71
<FN>
<F1>EXCLUDES COMPANY'S GUARANTEE OF ESOP DEBT: 240
<F2>ONLY INCLUDES R&D EXPENSE.
</FN>
</TABLE>
<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. THIS FINANCIAL
DATA SCHEDULE IS RESTATED DUE TO THE CHANGE IN ACCOUNTING STANDARD FOR
EARNINGS PER SHARE (SFAS 128) AND TO INCLUDE ADDITIONAL BLANCES NOT
PREVIOUSLY INCLUDED.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 1,092,077
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 1,019,624
<CURRENT-ASSETS> 5,242,572
<PP&E> 6,147,626
<DEPRECIATION> 2,624,318
<TOTAL-ASSETS> 11,527,712
<CURRENT-LIABILITIES> 2,752,570
<BONDS> 574,031<F1>
0
287,117
<COMMON> 5,087
<OTHER-SE> 6,121,584
<TOTAL-LIABILITY-AND-EQUITY> 11,527,712
<SALES> 5,236,116
<TOTAL-REVENUES> 5,302,654
<CGS> 1,536,480
<TOTAL-COSTS> 1,536,480
<OTHER-EXPENSES> 932,695<F2>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 51,315
<INCOME-PRETAX> 501,612
<INCOME-TAX> 165,500
<INCOME-CONTINUING> 336,112
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 336,112
<EPS-PRIMARY> .64
<EPS-DILUTED> .64
<FN>
<F1>EXCLUDES COMPANY'S GUARANTEE OF ESOP DEBT: 255,700
<F2>ONLY INCLUDES R&D EXPENSE.
</FN>
</TABLE>
<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. THIS FINANCIAL DATA SCHEDULE IS RESTATED DUE TO THE
CHANGE IN ACCOUNTING STANDARD FOR EARNINGS PER SHARE (SFAS 128).
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 926
<SECURITIES> 0
<RECEIVABLES> 1,440
<ALLOWANCES> 94
<INVENTORY> 962
<CURRENT-ASSETS> 4,491
<PP&E> 5,881
<DEPRECIATION> 2,586
<TOTAL-ASSETS> 10,487
<CURRENT-LIABILITIES> 2,245
<BONDS> 554<F1>
0
283
<COMMON> 5
<OTHER-SE> 5,655
<TOTAL-LIABILITY-AND-EQUITY> 10,487
<SALES> 4,889
<TOTAL-REVENUES> 4,987
<CGS> 1,529
<TOTAL-COSTS> 1,529
<OTHER-EXPENSES> 832<F2>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 24
<INCOME-PRETAX> 684
<INCOME-TAX> 233
<INCOME-CONTINUING> 451
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 451
<EPS-PRIMARY> .87
<EPS-DILUTED> .86
<FN>
<F1>DOES NOT INCLUDE GUARANTEE OF ESOP DEBT OF 240.
<F2>ONLY INCLUDES R&D EXPENSE.
</FN>
</TABLE>
<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 STATEMENT.
THIS FINANCIAL DATA SCHEDULE IS RESTATED DUE TO THE CHANGE IN
ACCOUNTING STANDARD FOR EARNINGS PER SHARE (SFAS 128).
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 840,525
<SECURITIES> 0
<RECEIVABLES> 1,628,515
<ALLOWANCES> 93,106
<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> 1,967,402
<TOTAL-COSTS> 1,967,402
<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> 1.44
<EPS-DILUTED> 1.41
<FN>
<F1>EXCLUDES COMPANY'S GUARANTEE OF ESOP DEBT: 267,200
<F2>INCLUDES ONLY R&D EXPENSE.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE EARNINGS STATEMENT AND BALANCE SHEET AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. THIS FINANCIAL
DATA SCHEDULE IS RESTATED DUE TO THE CHANGE IN ACCOUNTING STANDARD
FOR EARNINGS PER SHARE (SFAS 128).
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 641
<SECURITIES> 0
<RECEIVABLES> 1,800
<ALLOWANCES> 95
<INVENTORY> 1,012
<CURRENT-ASSETS> 4,895
<PP&E> 6,261
<DEPRECIATION> 2,659
<TOTAL-ASSETS> 11,173
<CURRENT-LIABILITIES> 2,503
<BONDS> 567<F1>
0
287
<COMMON> 5
<OTHER-SE> 5,949
<TOTAL-LIABILITY-AND-EQUITY> 11,173
<SALES> 7,176
<TOTAL-REVENUES> 7,286
<CGS> 2,116
<TOTAL-COSTS> 2,116
<OTHER-EXPENSES> 1,266<F2>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 56
<INCOME-PRETAX> 838
<INCOME-TAX> 276
<INCOME-CONTINUING> 562
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 562
<EPS-PRIMARY> 1.08
<EPS-DILUTED> 1.07
<FN>
<F1>EXCLUDES COMPANY'S GUARANTEE OF ESOP DEBT: 256
<F2>ONLY INCLUDES R&D EXPENSE.
</FN>
</TABLE>
EXHIBIT A
Report of Independent Accounts
To the Shareholders and
Board of Directors
Pharmacia & Upjohn, Inc.
We have reviewed the condensed consolidated balance sheet of Pharmacia &
Upjohn, Inc. and subsidiaries as of March 31, 1998, and the related
condensed consolidated statements of earnings and cash flows for the
three month period ended March 31, 1998 and 1997. These financial
statements are the responsibility of the company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical
procedures to financial data and making inquiries of persons responsible
for financial and accounting matters. It is substantially less in scope
that an audit conducted in accordance with generally accepted auditing
standards, the objective of which is the expression of an opinion
regarding the financial statements taken as a whole. Accordingly, we do
not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the condensed consolidated financial statements
referred to above, for them to be in conformity with generally accepted
accounting principles.
We have previously audited, in accordance with generally accepted
auditing standards, the consolidated balance sheet as of December 31,
1997, and the related consolidated statements of earnings, shareholders'
equity, and cash flows for the year then ended (not presented herein);
and in our report, dated February 17, 1998, we expressed an unqualified
opinion on those consolidated financial statements. In our opinion, the
information set forth in the accompanying condensed consolidated balance
sheet as of December 31, 1997, is fairly stated, in all material
respects, in relation to the consolidated balance sheet from which it
has been derived.
Coopers & Lybrand L.L.P.
Chicago, Illinois
April 27, 1997
