UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 11-K
[X] ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the period from January 1, 2001 to December 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ___________to ______________
Commission file number 001-2516
A. Full title of the plan and the address of the plan, if
different from that of issuer named below:
PHARMACIA & UPJOHN EMPLOYEE SAVINGS PLAN
B. Name of issuer of the securities held pursuant to the plan and
the address of its principal executive office:
PHARMACIA CORPORATION
100 Route 206 North
Peapack, New Jersey 07977
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
trustees (or other persons who administer the employee benefit plan) have duly
caused this annual report to be signed on its behalf by the undersigned hereunto
duly authorized.
PHARMACIA & UPJOHN EMPLOYEE SAVINGS PLAN
By: /s/ Peter J. McCauley
-------------------------------------------
Peter J. McCauley
Director, Global Pension & Savings Plans
Secretary, Administrative Committee - U.S. Plans
Pharmacia Corporation
June 28, 2002
CONSENT OF INDEPENDENT AUDITORS
PHARMACIA CORPORATION:
We consent to the incorporation by reference in Pharmacia Corporation's
Registration Statement on Form S-8 (No. 333-91684) of our report dated June 28,
2001, appearing in this annual report on Form 11-K of the Pharmacia & Upjohn
Employee Savings Plan as of December 31, 2001 and for the period from January 1,
2001 to December 31, 2001.
/s/ PricewaterhouseCoopers
----------------------------------
PricewaterhouseCoopers
Florham Park, New Jersey
June 28, 2002
THE PHARMACIA & UPJOHN
EMPLOYEE SAVINGS PLAN
Financial Statements
December 31, 2001 and 2000
THE PHARMACIA & UPJOHN EMPLOYEE SAVINGS PLAN
Index to Financial Statements
December 31, 2001 and 2000
Page
----
Report of Independent Accountants 1
Financial Statements:
Statements of Net Assets Available for Plan Benefits
as of December 31, 2001 and 2000 2
Statement of Changes in Net Assets Available for Plan Benefits for the
year ended December 31, 2001 3
Notes to Financial Statements 4
Supplemental Schedules:
Schedule H, Line 4i - Schedule of Assets (Held at End of Year) as of
December 31, 2001 17
Schedule H, line 4j--Schedule of Reportable Transactions
for the Year Ended December 31, 2001 23
Note: Supplemental schedules required by the Employee Retirement Income
Security Act of 1974 that have not been included herein are not
applicable to the Pharmacia & Upjohn Employee Savings Plan.
[Letterhead of PricewaterhouseCoopers]
Report of Independent Accountants
To the Participants and Administrator of
The Pharmacia & Upjohn Employee Savings Plan
In our opinion, the accompanying statements of net assets available for plan
benefits and the related statement of changes in net assets available for plan
benefits present fairly, in all material respects, the net assets available for
benefits of The Pharmacia & Upjohn Employee Savings Plan (the "Plan") at
December 31, 2001 and 2000, and the changes in net assets available for benefits
for the year ended December 31, 2001 in conformity with accounting principles
generally accepted in the United States of America. These financial statements
are the responsibility of the Plan's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States of America, which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
Our audits were conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedules of Assets Held
for Investment Purposes at End of Year as of December 31, 2001 and Reportable
Transactions for the year ended December 31, 2001 are presented for the purpose
of additional analysis and are not a required part of the basic financial
statements but are supplementary information required by the Department of
Labor's Rules and Regulations for Reporting and Disclosure under the Employee
Retirement Income Security Act of 1974. These supplemental schedules are the
responsibility of the Plan's management. The supplemental schedules have been
subjected to the auditing procedures applied in the audits of the basic
financial statements and, in our opinion, are fairly stated in all material
respects in relation to the basic financial statements taken as a whole.
/s/ PricewaterhouseCoopers
----------------------------------
PricewaterhouseCoopers
June 21, 2002
THE PHARMACIA & UPJOHN EMPLOYEE SAVINGS PLAN
Statements of Net Assets Available for Plan Benefits
--------------------------------------------------------------------------------
December 31,
2001 2000
-------------- --------------
Assets:
Investments, at fair value $1,326,957,418 $1,683,304,487
Investments, at contract value 251,222,778 214,166,263
-------------- --------------
Total investments 1,578,180,196 1,897,470,750
-------------- --------------
Receivables:
Company contributions, net of forfeitures 41,395,385 33,568,691
Participant contributions 1,435,819 3,296,318
Dividends and interest receivable 4,181,192 4,564,239
Other receivables 439,455 1,043,145
-------------- --------------
Total receivables 47,451,851 42,472,393
-------------- --------------
Total assets 1,625,632,047 1,939,943,143
-------------- --------------
Liabilities:
Notes payable 201,900,000 234,700,000
Interest payable 47,403,058 45,975,096
Other 510,769 622,757
-------------- --------------
Total liabilities 249,813,827 281,297,853
-------------- --------------
Net assets available for plan benefits $1,375,818,220 $1,658,645,290
============== ==============
--------------------------------------------------------------------------------
See accompanying notes to the financial statements.
2
THE PHARMACIA & UPJOHN EMPLOYEE SAVINGS PLAN
Statement of Changes in Net Assets Available for Plan Benefits
--------------------------------------------------------------------------------
For the Year Ended
December 31, 2001
--------------------------------------------------------------------------------
Additions:
Additions to net assets attributed to:
Investment income (loss):
Net depreciation in fair value of investments $ (361,449,203)
Interest 14,768,514
Dividends 25,189,646
Interest on participants' loans 3,067,565
---------------
Total investment loss (318,423,478)
Contributions:
Participant 78,985,477
Rollovers 5,953,129
Company 41,896,121
---------------
Total additions (reductions) (191,588,751)
---------------
Deductions:
Deductions from net assets attributed to:
Benefits paid to participants 70,686,328
Plan expenses 552,399
Interest on notes payable 19,999,592
---------------
Total deductions 91,238,319
---------------
Net decrease (282,827,070)
---------------
Net assets available for plan benefits:
Beginning of year 1,658,645,290
---------------
End of year $ 1,375,818,220
===============
--------------------------------------------------------------------------------
See accompanying notes to the financial statements.
3
THE PHARMACIA & UPJOHN EMPLOYEE SAVINGS PLAN
Notes to Financial Statements
December 31, 2001 and 2000
1. Description of Plan
The following brief description of the Pharmacia & Upjohn Employee Savings
Plan (the "Plan") is provided only for general information. Participants
should refer to the Plan Document for a more complete description of the
Plan's provisions.
General
Pharmacia & Upjohn Company (the "Company") is the sponsor of the Plan. The
Plan is a defined contribution plan with two component parts: a section
401(k) plan and an Employee Stock Ownership Plan (the "ESOP"). The Plan
covers substantially all domestic employees of the Company not otherwise
covered by another defined contribution plan of the Company.
Administration
The Global Employee Benefits Oversight Committee and the Administrative
Committee - U.S. Plans are responsible for administering plan operations in
accordance with the Employee Retirement Income Security Act of 1974
("ERISA") plan documents. The Global Benefits Investment Committee is
responsible for monitoring plan investments.
Contributions
Participants can elect to contribute on a before-tax or after-tax basis
from 1% to 18%, in 1% increments, of their Total Pay, as defined in the
Plan document. The Internal Revenue Code ("IRC") contains certain limits on
participant contributions to a qualified plan, such as a $10,500 limit on a
participant's before-tax contributions during the 2001 calendar year. Other
limits also apply to highly compensated employees participating in the
Plan.
Participants may also elect to make rollover contributions to the Plan from
other qualified defined contribution plans.
Since 1990, matching contributions have been made through the ESOP. The
Company matching contributions are the basis for allocating shares of the
Company's Convertible Perpetual Preferred Stock ("Preferred Stock") to
participants' accounts. Dividends paid to the participants' ESOP accounts
are also allocated in Preferred Stock.
The Company will match 100% of participant contributions, from 1% to 5% of
Total Pay, in the form of Preferred Stock within the ESOP. The Plan will
allocate shares of Preferred Stock to participants such that, at the time
of allocation, the total value of the shares allocated is equivalent to the
Company match. The value of a share of Preferred Stock will be the closing
price of one share of Pharmacia common stock multiplied by a 1.7255
conversion factor.
Cash dividends on Preferred Stock shares allocated to participants'
accounts prior to January 1, 2000 are exchanged for additional shares of
Preferred Stock using the $40.30 per-share stated value (the purchase price
paid by the ESOP at its inception). Cash dividends on Preferred Stock
shares allocated to participants' accounts on or after January 1, 2000 are
exchanged for additional shares of Preferred Stock using the Pharmacia
common stock price multiplied by the 1.7255 conversion factor.
4
THE PHARMACIA & UPJOHN EMPLOYEE SAVINGS PLAN
Notes to Financial Statements
December 31, 2001 and 2000
The Company contributes to the ESOP cash amounts that are necessary to
enable the Plan to make its regularly scheduled payments of principal and
interest due on the ESOP's outstanding debt and to release Preferred Stock
to cover allocations to participant accounts. Employer dividends paid to
the ESOP on the unallocated Preferred Stock and certain other funds are
also used to repay the debt incurred by the Plan to purchase the Preferred
Stock from the Company at the inception of the leveraged ESOP (see Note 4).
Investment Options
Participant contributions received by the Plan are invested at the
direction of the participants in accordance with the terms of the Plan
document.
Each participant may direct his or her contributions to the following fund
options:
(a) Income Fund,
(b) American Balanced Fund,
(c) Indexed Stock Fund,
(d) Neuberger Berman Guardian Fund,
(e) American Century Ultra Fund,
(f) Templeton Foreign Fund,
(g) Pharmacia Common Stock Fund, or
(h) Any combination of the above, provided that a minimum of five percent
and a multiple of one percent is directed to each fund selected.
The funds above (not including the Pharmacia Common Stock Fund) are also
offered in six pre-mixed portfolios, which are designed to match
investments to a level of risk and return that the participant is most
comfortable with. Participants may elect to transfer or allocate their
participant contribution balances and earnings thereon to any of the above
funds.
Company matching contributions and earnings thereon are only posted to the
ESOP Fund. Upon completing ten years of employment service and attaining
age 55, participants are allowed to transfer a portion of their Pharmacia
Common Stock Fund balance (i.e., pertaining to Company contributions and
earnings thereon) and their ESOP Fund balance into the other investment
fund options. For participants age 55 - 59 and for participants age 60 and
older, 25% and 50% can be transferred to other investment funds,
respectively. Those age 60 and older that have already diversified their
current Common Stock 25%, may only diversify another 25%.
Participant Accounts
Each participant's account is credited with the participant's
contributions, Company contributions, and plan earnings. Participants'
accounts are valued on a daily basis. The benefit to which a participant is
entitled is the benefit that can be provided from the participant's vested
account balance.
Vesting
Participants are always 100% vested in their contributions to the Plan and
earnings thereon.
5
THE PHARMACIA & UPJOHN EMPLOYEE SAVINGS PLAN
Notes to Financial Statements
December 31, 2001 and 2000
As of January 1, 2000, all Company contributions and earnings thereon are
100% vested for all active participants on or after January 1, 2000.
Participants who terminated employment prior to January 1, 2000 with less
than five years of employment service and less than three years of
participation in the Plan are subject to the vesting schedule below:
-------------------------------------------------------------------
Years of Participation Non-forfeitable Percentage
-------------------------------------------------------------------
1 but less than 2 33 1/3%
2 but less than 3 66 2/3%
3 or more 100%
-------------------------------------------------------------------
Participants who cease participation in the Plan may be entitled to
forfeited amounts if they re-participate in the Plan within five years.
Participant Loans
The Plan has a loan provision which allows participants to borrow from
their fund accounts a minimum of $500 up to a maximum equal to the lesser
of 50% of their vested account balance or $50,000 (reduced by the highest
outstanding loan balance within the previous twelve months). Loan terms
range from 1-5 years or up to 10 years for the purchase of a primary
residence. Loans for the purchase of a home have a $3,000 minimum loan
amount. The loans are secured by the balance in the participant's account
and bear a pre-established interest rate. Interest is credited to the
account of the participant. Repayments may not necessarily be made to the
same fund from which amounts were borrowed. Repayments are credited to the
applicable funds based on the participant's investment elections at the
time of repayment.
Payment of Benefits
Participants who leave the Company may elect to receive their vested Plan
balance. However, their Pharmacia Common Stock Fund and ESOP accounts may
be subject to forfeiture based upon years of participation and service (if
the participant terminated employment prior to January 1, 2000).
Benefits are paid either in cash or in cash and Pharmacia common stock.
Pharmacia common stock is issued only with respect to the participant's
accounts in the Pharmacia Common Stock Fund and the ESOP Fund. Upon
retirement or death, the full value of the participant's accounts is paid
in either a lump sum, in installments or by the purchase of an annuity
contract. If a participant elects to receive common stock, each share of
the Preferred Stock (based on participant records) will be converted into
1.7255 shares of Pharmacia common stock.
Participants may also elect to make in-service withdrawals subject to
certain restrictions.
6
THE PHARMACIA & UPJOHN EMPLOYEE SAVINGS PLAN
Notes to Financial Statements
December 31, 2001 and 2000
2. Summary of Accounting Policies
Method of Accounting
The financial statements of the Plan have been prepared on the accrual
basis of accounting.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
changes therein, and disclosure of contingent assets and liabilities.
Actual results could differ from those estimates.
Investment Valuation and Income Recognition
Shares of mutual funds are valued at quoted market prices which represent
the net asset value of shares held by the Plan at year-end.
Common/collective trust funds are stated at redemption value as determined
by the trustees of such funds based upon the underlying securities stated
at fair value. Investments in money market instruments are generally
short-term and are valued at cost, which approximates market. Investments
in guaranteed investment contracts ("GICs") and synthetic investment
contracts ("SICs") are reported at their contract value by the insurance
companies and underlying banks, respectively, because these investments
have fully benefit-responsive features (see Note 5). Pharmacia Common Stock
is valued at quoted market price as of the last business day of the Plan
year. The value of outstanding participant loans is determined based on the
outstanding principal balance as of the last day of the Plan year, which
approximates fair value.
Pharmacia Preferred Stock is valued using the higher of the per-share
stated value of $40.30 or the quoted market price of Pharmacia common stock
multiplied by 1.7255 on the last business day of the plan year. (Note:
Preferred Stock share balances maintained by the plan's trustee and
recordkeeper are on a basis equal to one-thousandth of the share balance
reflected on the Company's financial statements and the $40,300 stated
value.)
Purchases and sales of securities are reflected on a trade-date basis.
Dividend income is recorded on the ex-dividend date. Income from other
investments is recorded as earned on an accrual basis.
The Plan presents in the statement of changes in net assets available for
plan benefits, the net appreciation (depreciation) in the fair value of its
investments which consists of the realized gains and losses and the
unrealized appreciation (depreciation) on those investments.
Payment of Benefits
Benefit payments are recorded when paid.
Plan Expenses
The Plan pays certain outside service provider expenses (e.g.,
recordkeeping and trustee fees) incurred in the operation of the Plan.
Investment manager fees are paid by the Plan and are netted against
investment income. Certain other expenses are paid by the Company.
7
THE PHARMACIA & UPJOHN EMPLOYEE SAVINGS PLAN
Notes to Financial Statements
December 31, 2001 and 2000
Forfeitures
Forfeited amounts are used to pay expenses of the Plan, interest on ESOP
debt incurred by the Plan and to reduce Company contributions. Forfeitures
which have not been utilized amounted to $737 and $21,630 as of December
31, 2001 and 2000, respectively.
Risks and Uncertainties
The Plan provides for various investment options in any combination of
stocks, mutual funds, common/collective trusts, and other investment
securities. Investment securities are exposed to various risks, such as
interest rate, market and credit risk. Due to the level of risk associated
with certain investment securities and the level of uncertainty related to
changes in the value of investment securities, it is possible that changes
in risks in the near term would materially affect participants' account
balances and the amounts reported in the statement of net assets available
for plan benefits and the statement of changes in net assets available for
plan benefits.
3. Investments
The following presents investments that represent 5 percent or more of the
plan's net assets.
--------------------------------------------------------------------------------------------------
December 31,
2001 2000
--------------------------------------------------------------------------------------------------
Neuberger Berman Guardian Fund (5,006,943 and 4,836,623 units,
respectively) $ 72,300,261 $ 71,775,488
American Balanced Fund (4,976,248 and 4,068,225 units,
respectively) 78,873,531 62,935,443
Indexed Stock Fund (6,562,885 and 6,596,621 units,
respectively) 213,687,551 243,745,143
American Century Ultra Fund (5,361,812 and 5,292,897 units,
respectively) 148,200,486 171,331,060
Pharmacia Common Stock (5,370,542 and 5,052,303 shares,
respectively)* 229,053,616 308,190,483
Pharmacia Preferred Stock (6,399,670 and 6,517,533 shares,
respectively)* 470,968,194 686,006,172
--------------------------------------------------------------------------------------------------
*Nonparticipant-directed
8
THE PHARMACIA & UPJOHN EMPLOYEE SAVINGS PLAN
Notes to Financial Statements
December 31, 2001 and 2000
During 2001, the plan's investments (including gains and losses on
investments bought and sold, as well as held during the year) depreciated
in value by $361,449,203 as follows:
----------------------------------------------------------------------
2001
----------------------------------------------------------------------
Mutual funds $ (32,148,634)
Common Stock (95,027,431)
Preferred Stock (205,450,896)
Common/collective trust funds (28,822,242)
-------------
$(361,449,203)
=============
----------------------------------------------------------------------
4. Nonparticipant-directed Investments
Pharmacia Common Stock Fund
Effective April 1, 1999, the Pharmacia Common Stock Fund was added as an
investment option into which participants can direct their contributions
and/or transfer existing balances. However, certain Company contribution
balances (and earnings thereon) within the Pharmacia Common Stock Fund can
only be transferred out of the fund into other investment options after
participants satisfy certain age and service requirements. All assets and
activity within this fund have been disclosed as nonparticipant-directed
for purposes of this report.
Below are the net assets and significant components of the changes in net
assets relating to the Pharmacia Common Stock Fund:
-----------------------------------------------------------------------
2001 2000
Investments:
Short-term investment funds $ 2,193,935 $ 1,747,268
Pharmacia Common Stock 229,053,616 308,190,483
------------ ------------
Total investments 231,247,551 309,937,751
Receivables:
Dividends and interest receivable 4,776 14,993
Receivable from other investment funds 790,011 --
Participant contributions 118,054 221,197
Investments sold 52,874 1,036,379
------------ ------------
Total receivables 965,715 1,272,569
------------ ------------
Liabilities:
Payable to other investment funds -- 278,076
Other liabilities 16,419 1,885
------------ ------------
Total liabilities 16,419 279,961
------------ ------------
Net assets available for plan benefits $232,196,847 $310,930,359
============ ============
9
THE PHARMACIA & UPJOHN EMPLOYEE SAVINGS PLAN
Notes to Financial Statements
December 31, 2001 and 2000
-----------------------------------------------------------------------
Year ended December
31, 2001
-----------------------------------------------------------------------
Additions:
Additions to net assets attributed to:
Investment income (loss):
Net depreciation $ (95,027,431)
Interest 127,854
Dividends 2,713,345
-------------
Total investment loss (92,186,232)
Transfers from other investment funds, net 21,996,376
Participant contributions (including rollovers) 6,939,607
-------------
Total additions (reductions) (63,250,249)
-------------
Deductions:
Deductions from net assets attributed to:
Benefits paid to participants 15,483,128
Plan expenses 135
-------------
Total deductions 15,483,263
-------------
Net decrease (78,733,512)
Net assets available for plan benefits:
Beginning of year 310,930,359
-------------
End of year $ 232,196,847
=============
-----------------------------------------------------------------------
ESOP and Notes Payable
On March 1, 1990, the ESOP borrowed $275 million from the Bank of New York
through the issuance of amortizing notes. These notes, which are guaranteed
by the Company, mature in 2004 and pay interest at an annual rate of 9.79%.
The proceeds of this debt were paid to the Company to liquidate $275
million of an original $300 million loan from the Company to the ESOP. The
remaining principal balance on these notes was $154,900,000 with unpaid
interest of $15,164,710 and $189,700,000 with unpaid interest of
$18,571,630 as of December 31, 2001 and 2000, respectively.
As of March 1, 1990, the ESOP also issued a new note to the Company in
settlement of the remaining balance on the original ESOP loan. This note,
in the amount of $25 million, carries an interest rate of 6.25% per annum.
Interest accrues and is payable, along with principal, no later than the
maturity date of February 1, 2005. The balance of this note, including
unpaid interest, was $51,239,923 and $48,225,811 at December 31, 2001 and
2000, respectively.
10
THE PHARMACIA & UPJOHN EMPLOYEE SAVINGS PLAN
Notes to Financial Statements
December 31, 2001 and 2000
Effective January 31, 1997, the ESOP and State Street Bank entered into an
agreement, whereby the ESOP can borrow amounts that in the aggregate cannot
exceed $95,000,000 (collectively the "New Loans"). Any such borrowings bear
interest at 7.00% per annum and will be due no later than December 31,
2010. No interest shall be due until the maturity date of any New Loans.
The proceeds of each New Loan are to be used to pay principal and interest
then due on any existing ESOP loans. In relation to New Loans, the ESOP had
drawings of $22,000,000 with unpaid interest of $5,998,425 and $20,000,000
with unpaid interest of $4,177,655 as of December 31, 2001 and 2000,
respectively.
Projected principal loan payments on the ESOP debt (net of future New
Loans) are as follows:
------------------------------------------------
Year Amount
------------------------------------------------
2002 $ 43,700,000
2003 52,600,000
2004 58,600,000
2005 22,216,492
2006 to 2010 24,783,508
------------
Total $201,900,000
============
------------------------------------------------
Following are the net assets and significant components of the changes in net
assets relating to the ESOP:
11
THE PHARMACIA & UPJOHN EMPLOYEE SAVINGS PLAN
Notes to Financial Statements
December 31, 2001 and 2000
------------------------------------------------------------------------------------------------------------------------------------
December 31, December 31,
2001 2000
------------------------------------------------------------------------------------------------------------------------------------
Allocated Unallocated Total Allocated Unallocated Total
------------ ------------ ------------ ------------ ------------ ------------
Investments:
Short-term investment funds $ -- $ 12,965,029 $ 12,965,029 $ -- $ 13,368,267 $ 13,368,267
Pharmacia Preferred Stock, convertible 255,437,529 215,530,665 470,968,194 306,352,473 379,653,699 686,006,172
------------ ------------ ------------ ------------ ------------ ------------
Total investments 255,437,529 228,495,694 483,933,223 306,352,473 393,021,966 699,374,439
------------ ------------ ------------ ------------ ------------ ------------
Receivables:
Dividends and interest receivable -- 4,154,909 4,154,909 -- 4,372,180 4,372,180
Company contributions, net of forfeitures -- 41,395,385 41,395,385 -- 33,568,691 33,568,691
Other receivables -- 737 737 -- 5,348 5,348
------------ ------------ ------------ ------------ ------------ ------------
Total receivables 45,551,031 45,551,031 -- 37,946,219 37,946,219
------------ ------------ ------------ ------------ ------------ ------------
Liabilities: --
Notes payable -- 201,900,000 201,900,000 -- 234,700,000 234,700,000
Interest payable -- 47,403,058 47,403,058 -- 45,975,096 45,975,096
------------ ------------ ------------ ------------ ------------ ------------
Total liabilities 249,303,058 249,303,058 -- 280,675,096 280,675,096
------------ ------------ ------------ ------------ ------------ ------------
Net assets available for plan benefits $255,437,529 $ 24,743,667 $280,181,196 $306,352,473 $150,293,089 $456,645,562
============ ============ ============ ============ ============ ============
------------------------------------------------------------------------------------------------------------------------------------
12
THE PHARMACIA & UPJOHN EMPLOYEE SAVINGS PLAN
Notes to Financial Statements
December 31, 2001 and 2000
----------------------------------------------------------------------------------------------
Year ended December 31, 2001
----------------------------------------------------------------------------------------------
Allocated Unallocated Total
------------- ------------- -------------
Additions:
Additions to net assets attributed to:
Investment income (loss):
Net depreciation $ (89,298,487) $(116,152,409) $(205,450,896)
Interest -- 218,179 218,179
Dividends 7,867,240 8,366,383 16,233,623
------------- ------------- -------------
Total investment loss (81,431,247) (107,567,847) (188,999,094)
Company contributions -- 41,896,121 41,896,121
Allocation of 501,149 shares of Preferred
Stock for Company matching contributions 39,878,104 39,878,104
------------- ------------- -------------
Total additions (reductions) (41,553,143) (65,671,726) (107,224,869)
------------- ------------- -------------
Deductions:
Deductions from net assets attributed to:
Benefits paid to participants (9,374,622) -- (9,374,622)
Interest on notes payable -- (19,999,592) (19,999,592)
Transfers to other investment funds 12,821 -- 12,821
Allocation of 501,149 shares of Preferred
Stock for Company matching contributions (39,878,104) (39,878,104)
------------- ------------- -------------
Total deductions (9,361,801) (59,877,696) (69,239,497)
------------- ------------- -------------
Net decrease (50,914,944) (125,549,422) (176,464,366)
Net assets available for plan benefits:
Beginning of year 306,352,473 150,293,089 456,645,562
------------- ------------- -------------
End of year $ 255,437,529 24,743,667 $ 280,181,196
============= ============= =============
----------------------------------------------------------------------------------------------
5. Investment Contracts
The Income Fund consists primarily of benefit responsive GICs and SICs. The
contract value of the GICs and SICs represents the cost or face-value of
the contract plus accrued interest. At December 31, 2001 and 2000, the Plan
held GICs with a contract value of $25,303,802 and $30,147,174,
respectively. The contract value of the SICs represents fair value of the
underlying asset plus the contract-value of the wrapper contract associated
with the underlying asset. At December 31, 2001 and 2000, fair values of
assets underlying the SIC's were $231,584,946 and $185,229,622,
respectively. Participants may ordinarily direct the withdrawal or transfer
of all or a portion of their investment at contract value.
There are no reserves against contract value for credit risk of the
contract issuers or otherwise. The average portfolio yield and crediting
interest rates were approximately 6% for 2001 and 2000. For GICs, the
crediting interest rate, specified in the contract, is agreed upon with the
issuers and is maintained for the life of the contract. For SICs, the rate
is based on a formula which consists of the yield to maturity, duration,
and the book and market values. The rate for SICs is periodically reset,
usually quarterly, and cannot be reset below 0%.
13
THE PHARMACIA & UPJOHN EMPLOYEE SAVINGS PLAN
Notes to Financial Statements
December 31, 2001 and 2000
6. Reconciliation of Financial Statements to Form 5500
The following is a reconciliation of net assets available for plan benefits
according to the financial statements to Form 5500.
---------------------------------------------------------------------------------------------
December 31,
2001 2000
---------------------------------------------------------------------------------------------
Net assets available for plan benefits per the financial
statements $ 1,375,818,220 $ 1,658,645,290
Amounts allocated to withdrawing participants (1,144,000) (1,075,946)
Defaulted loans deemed to be distributions (95,385) --
--------------- ---------------
Net assets available for plan benefits per Form 5500 $ 1,374,578,835 $ 1,657,569,344
=============== ===============
---------------------------------------------------------------------------------------------
The following is a reconciliation of benefits paid to participants
according to the financial statements to Form 5500:
-----------------------------------------------------------------------------------------
Year ended
December 31, 2001
-----------------------------------------------------------------------------------------
Benefits paid to participants per the financial statements $ 70,686,328
Add: Amounts allocated to withdrawing participants at December 31, 2001 1,144,000
Less: Amounts allocated to withdrawing participants at December 31, 2000 (1,075,946)
------------
Benefits paid to participants per Form 5500 $ 70,754,382
============
-----------------------------------------------------------------------------------------
Amounts allocated to withdrawing participants are recorded on Form 5500 for
benefit claims that have been processed and approved for payment prior to
December 31 but not yet paid as of that date.
14
THE PHARMACIA & UPJOHN EMPLOYEE SAVINGS PLAN
Notes to Financial Statements
December 31, 2001 and 2000
The following is a reconciliation of net gain (loss) per the financial
statements to the Form 5500:
------------------------------------------------------------------------------------------
Year ended
December 31, 2001
-----------------
Net decrease per financial statements $(282,827,070)
Add: Amounts allocated to withdrawing participants at December 31, 2000 1,075,946
Less: Amounts allocated to withdrawing participants at December 31, 2001 (1,144,000)
Certain deemed distributions of participant loans at
December 31, 2001 (95,385)
-------------
Net gain (loss) per the Form 5500 $(282,990,509)
=============
------------------------------------------------------------------------------------------
7. Related-Party Transactions
The Plan holds shares of Pharmacia common stock and preferred stock. At
December 31, 2001 and 2000, the Plan owned 5,370,542 and 5,052,303 shares
of Pharmacia Corporation common stock at a cost of $117,753,110 and
$87,782,347, respectively. At December 31, 2001 and 2000, the Plan owned
6,399,670 and 6,517,533 shares of Pharmacia Corporation preferred stock at
a cost of $257,920,598 and $262,656,580, respectively. In addition, Plan
funds are invested in a short-term investment fund as well as SICs issued
by State Street Bank & Trust Company, a trustee of the Plan. At December
31, 2001 and 2000, the fair value of the State Street Bank & Trust Company
short-term investment account was $21,542,503 and $43,355,639, respectively
and the contract value of the SICs was $0 for 2001 and $15,232,902 for
2000.
8. Plan Termination
Although it has not expressed any intent to do so, the Company has the
right under the Plan to discontinue its contributions at any time and to
terminate the Plan subject to the provisions of ERISA. In the event of Plan
termination, participants would become 100 percent vested in their entire
plan balance (including match and discretionary contributions and earnings
thereon).
9. Tax Status of the Plan
The Plan obtained its latest determination letter on April 18, 1996, in
which the Internal Revenue Service indicated that the Plan, as then
designed, was in compliance with the applicable requirements of the IRC.
The Plan has been amended since receiving the determination letter.
However, the Company believes that the Plan is currently designed and being
operated in compliance with the applicable requirements of the IRC.
Therefore, no provision for income taxes has been included in the Plan's
financial statements. The Company applied for a new determination letter in
February 2002.
15
THE PHARMACIA & UPJOHN EMPLOYEE SAVINGS PLAN
Notes to Financial Statements
December 31, 2001 and 2000
10. Subsequent Event
Effective March 1, 2002, the Plan's net assets were transferred to a new
trustee, The Northern Trust Company.
On June 28, 2001, the Global Employee Benefits Oversight Committee approved
the amendment and restatement of the Plan, to be effective July 1, 2002.
The New Plan, to be named the Pharmacia Savings Plan, will include the
Retirement Choice Program and New Investment Options. Under the Retirement
Choice program, participants will have a choice of two retirement benefit
options. Option 1 offers additional Pension Plan benefits and Option 2
offers additional Savings Plan benefits. Participants will receive a
pension and savings benefit under either option and can choose between
Options 1 and 2 on an annual basis. In addition, the New Plan will offer
New Investment Options in the form of eight core investment funds and four
pre-mixed investment funds. The eight core investment funds are the Income
Fund, the Core Bond Fund, the Value Stock Fund, the Large Company Stock
Fund, the Growth Stock Fund, the Mid-Small Company Stock Fund, the
International Stock Fund, and Pharmacia Common Stock Fund. The pre-mixed
funds are the Conservative Pre-Mixed Fund, the Moderate Pre-Mixed Fund, the
Moderately Aggressive Pre-Mixed Fund and the Aggressive Pre-mixed Fund.
These funds offer varying degrees of risk and return. They are invested in
the Core Bond Fund, the Large Company Stock Fund, the Mid-Small Company
Stock Fund, and the International Stock Fund in predetermined percentages
to form the funds. Participant account balances in the Pharmacia Savings
and Investment Plan ("Pharmacia SIP") are to be transferred into the New
Plan on July 1, 2002. All Plan assets are to be invested in the New
Investment Options as of July 1, 2002.
16
Supplemental Schedules
THE PHARMACIA & UPJOHN EMPLOYEE SAVINGS PLAN
Schedule H, line 4i--Schedule of Assets (Held at End of Year)
December 31, 2001
EIN# 38-1123360
Plan# 002
(c)
Description of Investment
(b) including Maturity Date, Rate of
Identity of Issue, Borrower, Interest, Collateral, Par, or (d) (e)
(a) Lessor, or Similar Party Maturity Cost Current Value
-------------------------------- -------------------------------- -------------- -------------
Common Stock:
* Pharmacia Corporation Common stock, $2.00 par value;
5,370,542 shares $ 117,753,110 $229,053,616
-------------- ------------
Total common stock $ 117,753,110 $229,053,616
-------------- ------------
Preferred stock:
* Pharmacia Corporation Preferred stock, $.01 par value;
convertible - unallocated 2,928,701 shares $ 118,015,360 $215,530,665
* Pharmacia Corporation
convertible - allocated Preferred stock, $.01 par value;
3,470,969 shares 139,905,238 255,437,529
-------------- ------------
Total preferred stock $ 257,920,598 $470,968,194
-------------- ------------
Mutual Funds:
American Century Ultra Mutual fund: 5,361,812 units $ 171,057,482 $148,200,486
American Balanced Mutual fund: 4,976,248 units 74,755,873 78,873,531
Neuberger Berman Guardian Mutual fund: 5,006,943 units 96,399,183 72,300,261
Templeton Foreign Mutual fund: 6,721,194 units 65,726,893 62,171,044
-------------- ------------
Total mutual funds $ 407,939,431 $361,545,322
-------------- ------------
Common/Collective Trust Funds:
Barclays Global Investors Common/Collective Trust Fund:
Equity Index Fund 6,562,885 units $ 148,356,498 $213,687,551
-------------- ------------
Total Common/Collective
Trust Fund $ 148,356,498 $213,687,551
-------------- ------------
Short-Term Investment Funds:
* State Street Bank & Trust Co.
Short-Term Investment Fund Money market fund $ 21,542,503 $ 21,542,503
-------------- ------------
Total Short-Term Investment
Funds $ 21,542,503 $21,542,503
-------------- ------------
----------
* Represents a party-in-interest to the Plan.
17
THE PHARMACIA & UPJOHN EMPLOYEE SAVINGS PLAN
Schedule H, line 4i--Schedule of Assets (Held at End of Year)
December 31, 2001
EIN# 38-1123360
Plan# 002
(c)
Description of Investment
(b) including Maturity Date, Rate of
Identity of Issue, Borrower, Interest, Collateral, Par, or (d) (e)
(a) Lessor, or Similar Party Maturity Cost Current Value
-------------------------------- -------------------------------- -------------- -------------
Guaranteed investment contracts -
insurance companies:
American Int'l Life ICON
Contract No. GIC-18305 Interest rate: 5.73%
Maturity date: 11/06/2003 $ 8,343,324 $ 8,343,324
John Hancock Mutual Life Ins. Co.
Contract No. GAC-14500 Interest rate: 5.90% 8,252,398 8,252,398
Maturity date: 02/10/2004
Principal Mutual Life Ins. Co.
Contract No. 4238722 Interest rate: 7.03% 5,440,890 5,440,890
Maturity date: 09/29/2003
Travelers Insurance Co.
Contract No. GR17755 Interest rate: 7.10% 3,267,190 3,267,190
Maturity date: 07/31/2003 ----------- -----------
Total Guaranteed Investment Contracts - Contract Value $25,303,802 $25,303,802
----------- -----------
18
THE PHARMACIA & UPJOHN EMPLOYEE SAVINGS PLAN
Schedule H, line 4i--Schedule of Assets (Held at End of Year)
December 31, 2001
EIN# 38-1123360
Plan# 002
(c)
Description of Investment
(b) including Maturity Date, Rate of
Identity of Issue, Borrower, Interest, Collateral, Par, or (d) (e)
(a) Lessor, or Similar Party Maturity Cost Current Value
-------------------------------- -------------------------------- -------------- -------------
Synthetic Investment Contracts**:
AIG Financial Products
(3 contracts)
Contract No. 302427 Wrapper Contract $ (135,061)
SCAMT 96-3(A) 4,748,810
--------------------
Total Contract Value $ 4,613,749 4,613,749
Interest rate: 5.59%
Maturity date: 07/15/2004
Contract No. 180162 Wrapper Contract (122,135)
American Express 97-1 (A) 5,153,641
--------------------
Total Contract Value 5,031,506 5,031,506
Interest rate: 5.95%
Maturity date: 09/16/2002
Contract No. 212753 Wrapper Contract (119,255)
First USA 1997-6 (A) FUSAM 7,178,657
--------------------
Total Contract Value 7,059,402 7,059,402
Interest rate: 5.40%
Maturity date: 07/17/2002
Chase Manhattan Bank Wrapper Contract (416,882)
(1 contract) FEDHMLN: 6.875% 1/15/05 5,544,457
--------------------
Contract No. 434193 Total Contract Value 5,127,575 5,127,575
Interest rate: 7.13%
Maturity date: 01/18/2005
Monumental Life Ins. Co ABS Wrapper Contract (737,895)
Insurance Co. (4 contracts) Global Wrap 37,600,387
--------------------
Contract No. MDA00349TR Total Contract Value 36,862,492 36,862,492
Interest rate: 5.59%
Maturity date: N/A
----------
** A synthetic investment contract is comprised of two components, an
underlying asset and a wrapper contract. The underlying asset is valued at
representative quoted market prices. The wrapper contract is valued as the
difference between the fair value of the underlying asset and the contract
value. Contract value represents contributions made under the contract,
plus earnings, less Plan withdrawals and administrative expenses. The
wrapper contract guarantees the Plan contract value.
19
THE PHARMACIA & UPJOHN EMPLOYEE SAVINGS PLAN
Schedule H, line 4i--Schedule of Assets (Held at End of Year)
December 31, 2001
EIN# 38-1123360
Plan# 002
(c)
Description of Investment
(b) including Maturity Date, Rate of
Identity of Issue, Borrower, Interest, Collateral, Par, or (d) (e)
(a) Lessor, or Similar Party Maturity Cost Current Value
-------------------------------- -------------------------------- -------------- -------------
Contract No. BDA00379TR-14 Wrapper Contract (155,303)
DCAT00-D A3 6.66% 1 05 4,163,893
--------------------
Total Contract Value 4,008,590 4,008,590
Interest rate: 6.97%
Maturity date: 11/10/2003
Contract No. BDA00379TR-13 Wrapper Contract (260,721)
FNR 98-36 PM 6.25% 5,174,441
--------------------
Total Contract Value 4,913,720 4,913,720
Interest rate: 7.29%
Maturity date: 06/19/2006
Contract No. BDA00379TR-11 Wrapper Contract (498,086)
FHLMC 7% 2/15/2003 10,769,144
--------------------
Total Contract Value 10,271,058 10,271,058
Interest rate: 6.91%
Maturity date: 02/18/2003
Morgan Guaranty (2 contracts) Wrapper Contract (86,059)
Contract No. Upjohn06 FNR 98-63 PD 5.5 6/21 5,088,517
--------------------
Total Contract Value 5,002,458 5,002,458
Interest rate: 5.58%
Maturity date: 12/27/2005
Contract No. Upjohn05A Wrapper Contract (193,220)
CSFB 00-C1 A1 7.325% 4,915,887
--------------------
Total Contract Value 4,722,667 4,722,667
Interest rate: 7.05%
Maturity date: 07/15/2008
Rabobank Nederland (3 contracts) Wrapper Contract (68,856)
Contract No. UPJ030101 FH R 2082 VA 6.5 1/06 5,069,823
--------------------
Total Contract Value 5,000,967 5,000,967
Interest rate: 5.37%
Maturity date: 01/17/2006
Contract No. UPJ110001 Wrapper Contract (145,510)
CARAT 00-2 (A4) 6.46 7/06 4,156,143
--------------------
Total Contract Value 4,010,633 4,010,633
Interest rate: 6.60%
Maturity date: 12/16/2002
20
THE PHARMACIA & UPJOHN EMPLOYEE SAVINGS PLAN
Schedule H, line 4i--Schedule of Assets (Held at End of Year)
December 31, 2001
EIN# 38-1123360
Plan# 002
(c)
Description of Investment
(b) including Maturity Date, Rate of
Identity of Issue, Borrower, Interest, Collateral, Par, or (d) (e)
(a) Lessor, or Similar Party Maturity Cost Current Value
-------------------------------- -------------------------------- -------------- -------------
Contract No. UPJ060101 Wrapper Contract (737,895)
Global Wrap 37,600,387
--------------
Total Contract Value 36,862,492 36,862,492
Interest rate: 5.58%
Maturity date: N/A
UBS AG
(3 contracts)
Contract No. 3080 Wrapper Contract (738,149)
Global Wrap 37,600,387
--------------
Total Contract Value 36,862,238 36,862,238
Interest rate: 5.58%
Maturity date: N/A
Contract No. 2778 Wrapper Contract (126,758)
FHR 2076 PC 6 3/22 5,816,819
--------------
Total Contract Value 5,690,061 5,690,061
Interest rate: 5.84%
Maturity date: 08/15/2005
Contract No. 2789 Wrapper Contract (87,760)
COMT 00-2 A 7.2 8/08 4,332,800
--------------
Total Contract Value 4,245,040 4,245,040
Interest rate: 5.42%
Maturity date: 06/15/2005
West Deutsche Landesbank Wrapper Contract (737,895)
(3 contracts) Global Wrap 37,600,386
--------------
Contract No. WLB6218 Total Contract Value 36,862,491 36,862,491
Interest rate: 5.59%
Maturity date: N/A
Contract No. WLB6202 Wrapper Contract (206,213)
FHR 1243 P 7.2 4/07 4,917,053
--------------
Total Contract Value 4,710,840 4,710,840
Interest rate: 7.49%
Maturity date: 04/17/2006
Contract No. WLB6210 Wrapper Contract (92,316)
FHR 1610 PM 6.25 4/22 4,153,313
--------------
Total Contract Value 4,060,997 4,060,997
Interest rate: 5.84%
Maturity date: 09/17/2007
21
THE PHARMACIA & UPJOHN EMPLOYEE SAVINGS PLAN
Schedule H, line 4i--Schedule of Assets (Held at End of Year)
December 31, 2001
EIN# 38-1123360
Plan# 002
(c)
Description of Investment
(b) including Maturity Date, Rate of
Identity of Issue, Borrower, Interest, Collateral, Par, or (d) (e)
(a) Lessor, or Similar Party Maturity Cost Current Value
-------------------------------- -------------------------------- -------------- -------------
Total Synthetic Investment Contracts - Contract Value $ 225,918,976 $ 225,918,976
-------------- ---------------
Total Investment Contracts $ 251,222,778 $ 251,222,778
-------------- ---------------
Participant loans:
Participant loans Interest rate: 5.75% - 12% $ - $ 30,160,232
-------------- ---------------
Total Investments $1,204,734,918 $ 1,578,180,196
============== ===============
22
THE PHARMACIA & UPJOHN EMPLOYEE SAVINGS PLAN
Schedule H, line 4j--Schedule of Reportable Transactions
For the Year Ended December 31, 2001
EIN# 38-1123360
Plan# 002
(a)
Identify of (b) (c) (d)
Party Involved Description of Number of Purchase Price Selling Price
Asset Transactions
State Street
Bank & Trust Short-term 216 93,256,656 --
*Company Investment Fund 314 93,213,228
(f) (h)
(e) Expense (g) Current Value of (i)
Lease Rental Incurred with Cost of Asset Asset on Net Gain or
Transaction Transaction Date (Loss)
-- -- 93,256,656 93,256,656 --
-- -- 93,213,228 93,213,228 --
----------
* Represents a party-in-interest to the Plan.
23