SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): April 16, 2002
PHARMACIA CORPORATION
(Exact Name of Registrant as Specified in its Charter)
Delaware 1-2516 43-0420020
(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
100 Route 206 North, Peapack, New Jersey 07977
(Address of Principal Executive Office) (Zip Code)
908-901-8000
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(Registrant's telephone number, including area code)
N/A
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(Former Name or Former Address, if Changed Since Last Report)
Item 2.
Pursuant to existing agreements, the company had rights from Sanofi-Synthelabo,
Inc. (Sanofi) to manufacture, sell and market two products in North America:
AMBIEN and KERLONE. AMBIEN is a prescription medicine used in the treatment of
sleep disorders including insomnia. KERLONE, also a prescription medicine, is
used in the treatment of hypertension and cardiovascular disease. Sales of
AMBIEN and KERLONE, included in the company's results, were $902 million and
$5 million for the year ended December 31, 2001, respectively.
From inception of the agreements until December 31, 2001, Pharmacia recorded the
sales and expenses of the products and similarly recorded any related assets and
liabilities. At December 31, 2001, the company relinquished control over the
products to Sanofi and accordingly Pharmacia deconsolidated the related
operating assets and liabilities. Additionally, the company ceased recording
sales and expenses of AMBIEN and KERLONE as of January 1, 2002.
On April 16, 2002, Sanofi exercised its right to acquire all rights to the
products in North America in accordance with the agreements. In connection
with such acquisition, the company received a payment of $671 million for its
interest. The cash is reflected on the following pro forma consolidated balance
sheet, but the portion representing the gain on sale is not included in the pro
forma consolidated statement of earnings due to its nonrecurring nature. In the
second quarter of 2002, the company plans to record the gain resulting from this
payment under the caption of "All other, net" on the company's consolidated
statement of earnings.
The following pro forma consolidated balance sheet and pro forma consolidated
statement of earnings and the related explanatory notes reflect the impact of
this transaction on the company's reported results as of and for the year ended
December 31, 2001. The pro forma consolidated balance sheet reflects the
transaction as if it were consummated at December 31, 2001. Accordingly, the
adjustments to those balances give effect to all events that are directly
attributable to the transaction regardless of whether they have a continuing
impact or are nonrecurring. The pro forma consolidated statement of earnings
reflects the transaction as if it were consummated at January 1, 2001, the
beginning of the company's last fiscal year. All amounts of income and expense
that are expected to have a continuing impact on the company are reflected as
adjustments. Amounts that are not expected to have a continuing impact on the
company's results will not be adjusted. The notes that follow the pro forma
consolidated balance sheet and pro forma consolidated statement of earnings
provide further explanation of the adjustment amounts as appropriate.
The unaudited pro forma consolidated balance sheet and unaudited pro forma
consolidated statement of earnings and the related explanatory notes should be
read in conjunction with the historical consolidated financial statements and
notes thereto and other information included in Pharmacia's 2001 Annual Report
to Shareholders, which is incorporated by reference into Pharmacia's Annual
Report on Form 10-K for 2001. The unaudited pro forma information presented
below is for illustrative purposes only and is not necessarily indicative of the
results of operations or financial position that would have actually occurred if
the transaction had been consummated on the dates indicated or that may be
obtained in the future.
PHARMACIA CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 2001
(DOLLARS IN MILLIONS)
Pharmacia Pro Forma
Actual Adjustments Pro Forma
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Cash and cash equivalents $ 1,276 A $ 536 $ 1,812
Short-term investments 119 -- 119
Short-term notes receivable-Monsanto 254 -- 254
Trade accounts receivables, net 2,434 -- 2,434
Inventories 1,684 -- 1,684
Deferred income taxes 932 -- 932
Receivables-Monsanto 87 -- 87
Other 880 -- 880
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Total Current Assets 7,666 536 8,202
Long-term investments 288 -- 288
Properties, net 4,875 -- 4,875
Goodwill, net of accumulated amortization 1,059 -- 1,059
Other intangible assets, net of accumulated amortization 444 -- 444
Other noncurrent assets 1,729 -- 1,729
Net assets of discontinued operations 6,316 -- 6,316
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Total Assets $22,377 $ 536 $22,913
Short-term debt $ 484 $ -- $ 484
Short-term notes payable-Monsanto 30 -- 30
Accounts payable 1,048 -- 1,048
Payables-Monsanto 44 -- 44
Compensation and compensated absences 501 -- 501
Dividends payable 180 -- 180
Income taxes payable 685 B 238 923
Other accrued liabilities 2,031 C (128) 1,903
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Total Current Liabilities 5,003 110 5,113
Long-term debt 2,612 -- 2,612
Guarantee of ESOP debt 119 -- 119
Postretirement benefit obligation 996 -- 996
Deferred income taxes 143 -- 143
Other noncurrent liabilities 1,114 -- 1,114
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Total Liabilities 9,987 110 10,097
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Preferred stock 258 -- 258
Common stock 2,970 -- 2,970
Capital in excess of par value 3,499 -- 3,499
Retained earnings 11,586 D 426 12,012
ESOP-related accounts (294) -- (294)
Treasury stock (2,789) -- (2,789)
Accumulated other comprehensive loss:
Cumulative translation adjustments (2,892) -- (2,892)
Unrealized investment gains, net 142 -- 142
Minimum pension liability adjustment (96) -- (96)
Unrealized hedging instrument gains 6 -- 6
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Total Shareholders' Equity 12,390 426 12,816
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Total Liabilities And Shareholders' Equity $22,377 $ 536 $22,913
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NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEETS
A - To adjust for the receipt of $671 for Pharamacia's interest on April 16,
2002 and the payment of $135 for the settlement of balances payable to
Sanofi.
B - To reflect estimated taxes due on the gain for the sale of Pharmacia's
interest at December 31, 2001.
C - To adjust for the amounts payable to Sanofi net of the equity in the
product rights.
D - To adjust for the retained earnings effect of the aforementioned balance
sheet items as follows:
Pre-tax gain $ 664
Estimated income tax payable at December 31, 2001 (238)
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Total $ 426
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PHARMACIA CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 2001
(DOLLARS IN MILLIONS, EXCEPT PER-SHARE DATA)
Pharmacia Pro Forma
Actual Adjustments Pro Forma
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Net Sales $13,837 A $(907) $12,930
Cost of products sold 2,949 B (218) 2,731
Research and development 2,263 -- 2,263
Selling, general and administrative 6,034 C (36) 5,998
Amortization of goodwill 103 -- 103
Merger and restructuring 673 -- 673
Interest expense 255 -- 255
Interest income (110) -- (110)
All other, net 83 D (220) (137)
Provision for income taxes 296 E (164) F 132
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Earnings from continuing operations $ 1,291 $(269) $ 1,022
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Earnings from continuing operations per common share:
Basic earnings from continuing operations $ 0.98 G $ 0.78
Diluted earnings from continuing operations 0.97 G 0.77
Total shares (in millions):
Basic 1,298 1,298
Diluted 1,322 1,322
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NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS
A - To adjust for net sales of AMBIEN of $902 and KERLONE of $5 for the year
ended December 31, 2001.
B - To adjust for cost of products sold of AMBIEN of $217 and $1 of KERLONE
for the year ended December 31, 2001.
C - To adjust for promotional expenses of $29 and distribution costs of $7
for the year ended December 31, 2001.
D - To adjust for net payments made to Sanofi for the year ended December 31,
2001.
E - Taxes have been estimated at 38 percent based on U.S. federal and state
statutory rates for earnings from continuing operations associated with
AMBIEN and KERLONE.
F - As a result of adjusting the tax provision as described in Note E, the
pro forma consolidated statement of earnings reflects an effective tax rate
of approximately 11 percent. However, the company believes that
this rate is not indicative of current operations and expects an effective
rate of approximately 25 percent to be realized during the fiscal year
ending 2002.
G - Earnings from continuing operations per common share:
Basic earnings per share (EPS) is computed by dividing the earnings measure by
the weighted average number of shares of common stock outstanding. Diluted EPS
is computed assuming the exercise of stock options, conversion of preferred
stock and the issuance of stock as incentive compensation to certain employees.
Also in the diluted computations, earnings from continuing operations and net
earnings are 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 in preferred stock dividends and the
dividend on the common shares assumed to have been outstanding. The assumed
conversion of stock options having an exercise price higher than the weighted
average market price of the underlying share is not taken into account in the
diluted EPS computation as the effect would be antidilutive. The following table
reconciles the numerators and denominators of the basic and diluted earnings per
share computations.
2001 Basic 2001 Diluted
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(Share amounts in millions) Actual Pro forma Actual Pro forma
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EPS numerator:
Earnings from continuing operations $1,291 $1,022 $1,291 $1,022
Less: Preferred stock dividends, net of tax (13) (13) -- --
Less: ESOP contribution, net of tax -- -- (8) (8)
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Earnings from continuing operations
available to common shareholders $1,278 $1,009 $1,283 $1,014
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EPS denominator:
Average common shares outstanding 1,298 1,298 1,298 1,298
Effect of dilutive securities:
Stock options and stock warrants -- -- 12 12
Convertible instruments and incentive compensation -- -- 12 12
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Total shares 1,298 1,298 1,322 1,322
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Earnings from continuing operations per share $ 0.98 $ 0.78 $ 0.97 $ 0.77
SIGNATURES
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 hereunto duly authorized.
PHARMACIA CORPORATION
(Registrant)
Date: April 30, 2002 /s/ R.G. THOMPSON
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R.G. Thompson
Senior Vice President
and Corporate Controller