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                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934

                   For the fiscal year ended December 31, 2002

                                       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 1-2516

                              PHARMACIA CORPORATION
             (Exact name of Registrant as specified in its charter)

              Delaware                              43-0420020
   (State or other jurisdiction of               (I.R.S. Employer
    incorporation or organization)              Identification No.)

     100 Route 206 North, Peapack,
            New Jersey                               07977
(Address of principal executive offices)           (Zip Code)

    Registrant's telephone number,
         including area code:                      888/768-5501

           Securities registered pursuant to Section 12(b) of the Act:

  Common Stock (par value $2.00)             New York Stock Exchange
Rights to Purchase Preferred Stock           New York Stock Exchange
        (Title of class)             (Name of each exchange on which registered)

           Securities registered pursuant to Section 12(g) of the Act:
                                      None.

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [_]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

The registrant estimates the aggregate market value of the voting stock held by
non-affiliates of the registrant (based upon the NYSE -- Composite Transactions
closing price on March 18, 2003 as reported in The Wall Street Journal and
treating all executive officers and directors of the Company and all beneficial
owners of 5% or more of the Registrant's voting stock as affiliates) was
approximately $54 billion.

The number of shares of Common Stock, $2.00 par value, outstanding as of March
18, 2003 is 1,295,751,796 shares.




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                           FORWARD-LOOKING INFORMATION

Certain statements contained in this Report, as well as in other documents
incorporating by reference all or part of this Report, are "forward-looking
statements" provided under the "safe harbor" protection of the Private
Securities Litigation Reform Act of 1995. These statements are made to enable a
better understanding of the Company's business, but because these
forward-looking statements are subject to many risks, uncertainties, future
developments and changes over time, actual results may differ materially from
those expressed or implied by such forward-looking statements. Examples of
forward-looking statements are statements about anticipated financial or
operating results, financial projections, business prospects, future product
performance, future research and development results, anticipated regulatory
filings and approvals and other matters that are not historical facts. Such
statements often include words such as: believes, expects, anticipates, intends,
plans, estimates or similar expressions.

These forward-looking statements are based on the information that was currently
available to the Company, and the expectations and assumptions that were deemed
reasonable by the Company, at the time when the statements were made. The
Company does not undertake any obligation to update any forward-looking
statements in this Report or in any other communications of the Company, whether
as a result of new information, future events, changed assumptions or otherwise
and all such forward-looking statements should be read as of the time when the
statements were made, and with the recognition that these forward-looking
statements may not be complete or accurate at a later date.

Many factors may cause or contribute to actual results or events being
materially different from those expressed or implied by such forward-looking
statements. Although it is not possible to predict or identify all such factors,
they may include the following factors discussed below:

Competition for our products: Competitive effects from current and new products,
including generic products, sold by other companies; competition and loss of
patent protection could lead to significant loss of sales.

Pharmaceutical pricing: Price constraints and other restrictions on the
marketing of products imposed by governmental agencies or by managed care
groups, institutions and other purchasing agencies could result in lower prices
for the Company's products.

Product discovery and approval: The Company's ability to discover and license
new compounds, develop product candidates, obtain regulatory approvals and
market new products is risky and uncertain.

Product recalls or withdrawals: Efficacy or safety concerns raised in the
scientific literature, increase in trends of adverse events in the marketplace,
and/or manufacturing quality issues with respect to our products, could lead to
product recalls, withdrawals or declining sales.

Manufacturing facilities: Failure to comply with Current Good Manufacturing
Practices and other applicable regulations and quality assurance guidelines
could lead to temporary manufacturing shutdowns, product shortages and delays in
product manufacturing.

Restrictions on marketing: Restrictions on promotion in patient populations as a
result of the U.S. Food and Drug Administration ("FDA") warning letters on
promotional materials could effect sales of the Company's products and could
lead to holds on current and future New Drug Applications and supplements filed
with the FDA.

Legal claims: The Company's ability to secure and defend its intellectual
property rights; the Company's involvement in numerous lawsuits including
product liability claims, antitrust litigation, environmental concerns,
commercial disputes, any of which could affect the Company's profits or ability
to sell and market its products. In addition, in connection with the separation
of the agricultural business from the pharmaceutical business on September 1,
2000, Monsanto assumed, and agreed to indemnify Pharmacia Corporation for, any
liabilities primarily related to Pharmacia's former agricultural or chemical
businesses, including any liabilities that Solutia Inc. had assumed from
Pharmacia in connection with the spin-off of Solutia on September 1, 1997, to
the extent that Solutia fails to pay, perform or discharge those liabilities.
This includes among other things, litigation, environmental and retiree
liabilities that were assumed by Solutia.

Employees: The Company's ability to attract and retain management and other key
employees.


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<PAGE>

External pressures: Social, legal, political and governmental developments,
especially those relating to health care reform, pharmaceutical pricing and
reimbursement, patient privacy, and tax laws.

Economic conditions: Changes in foreign currency exchange rates or in general
economic or business conditions including inflation and interest rates.

Business combinations: Acquisitions, divestitures, mergers, restructurings or
strategic initiatives that change the Company's structure, including the
proposed merger with Pfizer Inc. ("Pfizer") which is subject to regulatory
approval; business combinations among the Company's competitors and major
customers could affect our competitive position.

Accounting policies and estimates: Changes to accounting standards or generally
accepted accounting principles, which may require adjustments to financial
statements and may affect future results.

Such other factors that may be described elsewhere in this Report or in other
Company filings with the U.S. Securities and Exchange Commission.


                                     PART I

Item 1. Business

                                CORPORATE HISTORY

     Pharmacia Corporation (the "Company", which may be referred to as
"Pharmacia", "we", "us" or "our"), a Delaware corporation, was created through
the merger (the "Merger") of Monsanto Company ("former Monsanto") and Pharmacia
& Upjohn, Inc. ("P&U") on March 31, 2000. In the Merger, former Monsanto was
renamed Pharmacia Corporation and is the public company, while P&U became a
subsidiary of Pharmacia. However, the corporate structure has no material effect
on the operation of the Company's business. References to the Company or
Pharmacia prior to March 31, 2000 refer to former Monsanto.

     After the Merger, the agricultural operations of former Monsanto were
transferred to a newly created subsidiary of Pharmacia. The subsidiary was named
Monsanto Company ("Monsanto") in order to facilitate recognition of the
continuing business by the Company's agricultural customers. On October 23,
2000, 14.74% of the shares of Monsanto were sold to the public in an initial
public offering and listed on the New York Stock Exchange.

     On November 28, 2001, the Company announced plans to spin-off its remaining
interest in Monsanto by means of a special tax-free dividend. The dividend was
paid on August 13, 2002, to holders of record of shares of Pharmacia common
stock that were issued and outstanding as of the close of business on July 29,
2002, the record date. Each such holder of record received 0.170593 of a share
of Monsanto common stock for each outstanding share of Pharmacia common stock.
As a result, Monsanto has been reclassified as discontinued operations in the
consolidated financial statements and notes of Pharmacia and is referred to in
this report as "Discontinued Operations". See the discussion of Discontinued
Operations in Note 8, to our financial statements.

     On July 13, 2002, the Company entered into a definitive merger agreement
with Pfizer. In accordance with the agreement, each Pharmacia shareholder of
record on the closing date will receive 1.4 shares of Pfizer stock for each
share of Pharmacia stock owned. It is estimated that the shares of Pfizer
common stock to be issued to Pharmacia shareholders in the merger will represent
approximately 23 percent of the outstanding Pfizer common stock after the merger
on a fully diluted basis. Until the closing date, which is anticipated to occur
in April 2003, Pharmacia will continue to operate independently of Pfizer. The
closing of the transaction is contingent upon approval by certain regulatory
authorities including the U.S. Federal Trade Commission.

                               SEGMENT DESCRIPTION

     The Company's core business is the development, manufacturing and sale of
pharmaceutical products. Prescription Pharmaceuticals is the Company's only
reportable segment and includes general therapeutics, ophthalmology and hospital
products, including oncology and diversified therapeutics. The Company also
operates several business units that do not constitute reportable business
segments. These operating units include, among


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others, consumer health care, animal health, diagnostics and contract
manufacturing and bulk pharmaceutical chemicals. Due to the size of these
operating units, they have been grouped into the Other Pharmaceuticals category.

     Comparative segment sales and the percentage change in sales and sales by
business segment for 2002, 2001, and 2000 are given in the table entitled Sales
by Segment in the Management, Discussion and Analysis section on page 14 of
this document. A comparison of the sales and percentage change in sales of our
major products for 2002, 2001 and 2000 are given in the table entitled Sales of
Top Products in the MD&A section on page 15 of this document.

     All product names, indicated in CAPS throughout this document, are
trademarks owned by, or licensed to, the Company, except that AMBIEN and KERLONE
are registered trademarks of Sanofi-Synthelabo, Inc.; CAMPTOSAR is a registered
trademark of Yakult Honsha Co., Ltd.; VIOXX is a registered trademark of Merck &
Co.; and PLETAL is a registered trademark of Otsuka America Pharmaceuticals,
Inc.

Prescription Pharmaceuticals

     The Company's leading prescription products, include CELEBREX, BEXTRA,
XALATAN, GENOTROPIN, CAMPTOSAR, DETROL / DETROL LA and ZYVOX.

     CELEBREX, the first cyclooxygenase-2 (COX-2) specific inhibitor, is a
nonsteroidal anti-inflammatory drug and the world's top selling prescription
arthritis medication. CELEBREX is used for the treatment of osteoarthritis,
adult rheumatoid arthritis, acute pain and primary dysmenorrhea. CELEBREX is now
available in over 70 countries. CELEBREX is co-promoted (or, where required by
law, co-marketed) by Pfizer in the U.S. and Europe, and will be co-promoted by
Yamanouchi when approved in Japan. In December 2002, Yamanouchi and Pharmacia
submitted an NDA in Japan for celecoxib. The principal competitor to CELEBREX is
VIOXX, another COX-2 specific inhibitor, sold by Merck & Co., which competes by
claiming faster onset of relief. In 2001, the FDA issued an approval letter for
revised labeling for CELEBREX in response to a supplemental New Drug Application
(NDA) seeking labeling changes based on a study comparing CELEBREX to other
nonsteroidal anti-inflammatory drugs. In 2001, the FDA issued a "Not Approvable"
letter for parecoxib sodium, the first injectable COX-2 specific inhibitor.
During 2002, parecoxib sodium was launched in the EU and other countries under
the name DYNASTAT.

     BEXTRA is an oral, second-generation COX-2 specific inhibitor, for use in
the treatment of the signs and symptoms of osteoarthritis and adult rheumatoid
arthritis, as well as primary dysmenorrhea. BEXTRA was launched in the United
States in April 2002 and is co-promoted (or, where required by law, co-marketed)
by Pfizer in the U.S. and Europe. Approval of BEXTRA for acute pain is being
sought. In 2001, the Company entered into an agreement with Celltech Group plc
for the development and promotion of Celltech's proprietary compound CDP 870.
CDP 870 belongs to a new therapeutic class of medicines that shows promise in
certain autoimmune and inflammatory diseases. CDP 870 is being developed as a
new treatment for rheumatoid arthritis and Crohn's disease.

     XALATAN is the number one prescribed medication in the U.S. for the
reduction of elevated eye pressure in open-angle glaucoma and ocular
hypertension. During 2001, XALACOM, a fixed combination of XALATAN and the
beta-blocker timolol, was approved in Sweden and the EU. In December 2002,
XALATAN was approved in the U.S. for use as a first-line treatment of elevated
eye pressure associated with open-angle glaucoma or ocular hypertension. In
January 2003, the FDA advised that XALATAN will have three years of exclusivity
in that indication.

     GENOTROPIN is used to treat adults with growth hormone deficiency and to
treat growth failure in children with growth hormone deficiency. In 2000,
GENOTROPIN was also approved for the treatment of growth failure in children
with Prader-Willi Syndrome (PWS), and in 2001 it was approved for use with
children who were born small for gestational age (SGA) who have not caught up in
growth by age two. GENOTROPIN has been granted orphan drug status by the FDA for
both PWS and SGA. Adding to the Company's endocrine treatment business, in early
2001, the Company completed its acquisition of Sensus Drug Development
Corporation, which has filed a NDA with the FDA for pegvisomant, a growth
hormone receptor antagonist. Pegvisomant is being reviewed for the treatment
of acromegaly, a life-threatening disorder caused by overproduction of growth
hormone. In 2001, the FDA issued an approvable letter for pegvisomant as a
second-line therapy. In November 2002, the European Commission granted the
first approval for SOMAVERT, the tradename for pegvisomant.

     CAMPTOSAR, a first-line therapy in metastatic colorectal cancer, is the
leading treatment for colorectal cancer in the U.S. The product was in-licensed
from Yakult Honsha Co., Ltd. for marketing in the U.S. In addition to CAMPTOSAR,
the Company markets several other oncology drugs. PHARMORUBICIN is one of the
most commonly used treatments for breast cancer in Europe, and it is marketed
under the trade name ELLENCE in the U.S. for the adjuvant treatment of patients
with breast cancer. AROMASIN, an oral hormonal drug that blocks the


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production of estrogen, was launched during 2000 in the U.S. and in key markets
in Europe and Latin America as a second-line breast cancer treatment. The
Company's subsidiary, Sugen, Inc., has developed proprietary technology
platforms to identify small molecule drugs that target specific cellular signal
transduction pathways and may have oncological or other therapeutic uses.
Pharmacia announced on February 8, 2002, that it was closing its SU5416 clinical
trial program in colorectal cancer because the study will not achieve the
defined trial endpoint. Sugen continues to explore growth factor receptor
targets and anti-angiogenic therapy for the treatment of cancer.

     DETROL/DETRUSITOL is the world's leading branded therapy for overactive
bladder. DETROL LA, a once-daily therapy for the treatment of overactive
bladder, was launched in the U.S. in January 2001, and has been launched in
Europe under various brand names including DETRUSITOL SR.

     ZYVOX, launched in the U.S. in 2000, in the U.K. in early 2001 and
throughout Europe later in 2001, is indicated for the treatment of patients with
severe gram-positive infections. ZYVOX is the lead compound in the oxazolidinone
class of antibiotics, the first of a completely new class of antibiotics to be
introduced in more than 30 years. ZYVOX augments the Company's existing line of
antibiotics, including the CLEOCIN/DALACIN line. In December 2002, the FDA
approved a supplemental New Drug Application (sNDA) for ZYVOX (linezolid
injection, tablets and for oral suspension) for the treatment of gram-positive
infections in infants and children, which include complicated skin and skin
structure infections and nosocomial (hospital-acquired) pneumonia. These
infections are increasingly caused by resistant bacteria such as
methicillin-resistant Staphylococcus aureus (MRSA) and are becoming a
significant health threat to children and infants both within and outside the
hospital. The FDA approval for ZYVOX also included the treatment of
community-acquired pneumonia, uncomplicated skin and skin structure infections
and vancomycin-resistant Enterococci faecium (VREF) in infants and children.

     AMBIEN, the leading short-term treatment for insomnia in the U.S., was
in-licensed from Sanofi-Synthelabo under terms that allowed Sanofi-Synthelabo to
reacquire all rights to the product in April 2002. Commencing January 1, 2002,
Sanofi-Synthelabo assumed sales and marketing responsibility for AMBIEN. On
April 16, 2002, the Company transferred the rights to AMBIEN to
Sanofi-Synthelabo, pursuant to previously existing agreements. In connection
with the transfer, the Company received a one-time payment of approximately $671
million (pre-tax).

     The FDA recently approved an NDA for INSPRA (eplerenone tablets) for the
treatment of hypertension. INSPRA is being developed as a once-daily therapy
designed to specifically block the effects of the hormone aldosterone.
Aldosterone is a key component within the RAAS (renin angiotensin aldosterone
system) and plays a significant role in the body's regulation of the
cardiovascular system. In addition, a major clinical study evaluating INSPRA
succeeded in meeting both of its primary endpoints according to results of the
Eplerenone Post-AMI Heart Failure Efficacy and Survival Study (EPHESUS). The
primary endpoints of the study were mortality from any cause and mortality or
hospitalization from cardiovascular causes. Based on the results of EPHESUS, the
Company plans to submit a sNDA to the FDA for INSPRA in the treatment of
post-myocardial infarction heart failure during the first half of 2003.

Other Pharmaceuticals

Consumer Health Care

     The consumer health care business consists of self-medication products that
are available to consumers over-the-counter without a prescription, including
the NICOTROL (U.S.) and NICORETTE (ex-U.S.) line of products to treat tobacco
dependency and ROGAINE (REGAINE outside the U.S. and Canada) products for the
treatment of hereditary hair loss.

     During the third quarter of 2001, the Company acquired the LUDEN'S throat
drop product and certain related assets from Hershey Foods Corporation. The
acquisition included manufacturing equipment and other assets.

Animal Health

     The animal health business produces and markets both pharmaceuticals and
feed additives for livestock (food animals) and pets (companion animals),
including NAXCEL/EXCENEL, an antibiotic used to treat a variety of cattle and
swine infections, and LINCOMIX/LINCO-SPECTIN, an antibiotic used to treat swine
and poultry infections. In the United States, 2002 marked the achievement of a
new metritis indication for EXCENEL RTU and a new ileitis indication for
LINCOMIX. In addition, the animal health business launched the EAZI-BREED CIDR
cattle insert, a device used for pregnancy management in beef cows, beef heifers
and dairy heifers. EAZI-BREED and CIDR are trademarks of InterAg, Hamilton, New
Zealand.


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Diagnostics and Contract Manufacturing

     The diagnostics business is the world leader in the sale of in vitro
allergy diagnostic equipment.

Bulk Pharmaceutical Chemicals

     The Pharmacia Center Source business develops, manufactures and markets
certain bulk pharmaceutical chemicals and selected specialty chemicals to third
parties.

Biotechnology Investments

     The Company's biotechnology investments includes a 19% ownership of
Biovitrum AB. Biovitrum develops protein therapeutics and drugs to treat
metabolic diseases. In addition, the Company holds a 41% ownership of Biacore
International AB, which develops, manufactures and markets advanced scientific
instruments employing affinity-based biosensor technology. The Company also
holds a minority equity position in Active Biotech AB which is developing drugs
to treat multiple sclerosis and cancer.

     In March 2002, the Company sold its entire 45% ownership of Amersham
Biosciences Limited to Amersham plc for $1 billion.

Discontinued Operations

     The agriculture business conducted by Monsanto consisted of two principal
business units: agricultural productivity and seeds and genomics. On August 13,
2002, the Company distributed its remaining interest in Monsanto to its
shareholders. See the discussion of Discontinued Operations in Note 8, to our
financial statements.

                            RESEARCH AND DEVELOPMENT

     The Company's pharmaceutical research and development ("R&D") efforts focus
on discovering or licensing and developing new innovative pharmaceuticals
offering high therapeutic benefits in areas where the Company believes it can
establish a leading global position.

     The Company's total expenses for R&D in all pharmaceutical businesses were:
$2.4 billion in 2002; $2.4 billion in 2001; and $2.2 billion in 2000.

                                   COMPETITION

     The pharmaceutical industry is highly competitive. The Company's principal
pharmaceutical competitors consist of major international corporations with
substantial resources. Other competitors include smaller research companies and
generic drug manufacturers. A drug may be subject to competition from
alternative therapies during the period of patent protection and thereafter it
will be subject to further competition from generic products. Generic
competitors do not have to bear the same level of R&D and other expenses
associated with bringing a new branded product to market. As a result, they can
charge much less for a competing version of the Company's product. Managed care
organizations typically favor generics over brand name drugs, and governments
encourage, or under some circumstances mandate, the use of generic products,
thereby reducing the sales of branded products that are no longer patent
protected. The Company is also subject to competition from over-the-counter
products.

     The Company's competitive position depends, in part, upon its continuing
ability to discover, acquire and develop innovative, cost-effective new
products, as well as new indications and product improvements protected by
patents and other intellectual property rights. The Company also competes on the
basis of price and product differentiation and through its pharmaceutical sales
and marketing organization that provides information to medical professionals
and launches new products.

     Other companies manufacture and sell one or more products in competition
with our consumer products. The Company competes through high product quality,
brand identity, advertising and promotion, among other factors.

                              GOVERNMENT REGULATION

     The pharmaceutical industry is subject globally to significant regulation
by state, local and national and international government agencies. In the U.S.,
the FDA regulates the testing, safety, approval, manufacturing, labeling,
marketing and promotion of our products including prescription products,
consumer products and medical


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devices. The FDA also has the authority to recall products and impose
significant penalties for violations of these laws.

     The U.S. Congress is considering several major proposals that could affect
the current pricing structure for our products. Key initiatives in the
legislative arena which could materially affect our business include Medicare
reform to expand prescription drug coverage, reforms to accelerate approval of
generic manufacturers' products, possible reimportation of drugs from other
countries, and possible reforms to the reimbursement system for drugs currently
covered by Medicare.

     Under the current law, the Company must provide rebates to state Medicaid
agencies for prescriptions reimbursed by Medicaid in order to allow the states
the benefit of the lowest price at which the Company sold the product. In the
past few years, several states have adopted programs to reduce the drug
component of the state's health costs by increasing the amount of the rebate
required by federal law, and through various programs including imposing
constraints on a patient's ability to obtain higher cost branded pharmaceutical
products without obtaining prior authorization by the physician. While the
industry is currently challenging certain aspects of these programs, the
programs could decrease or restrict the usage of the Company's products.
Similarly, supplemental rebates could lead to significantly lower reimbursement
for our products or potentially lower drug utilization. Additionally, certain
states have sought, or are likely to seek, rebates for drug benefit programs
that include patient populations that are not covered by, or eligible for,
Medicaid, also creating potential downward pressure on profitability or possible
restrictions on drug utilization.

     Outside the U.S., the pharmaceutical industry is also heavily regulated and
subject to similar regulatory and legislative issues. The EU has a central
approval process for all member states governed by the European Medicines
Evaluation Agency. Because the legislative and regulatory environment continues
to evolve in the U.S. and abroad, it is difficult to predict the impact of those
changes on the Company.

     The Company is also subject to the jurisdiction of several other agencies
including the U.S. Department of Justice and the Office of Inspector General,
which have the ability to impose civil and criminal sanctions. Among other
things, these agencies have jurisdiction over antitrust and anti-kickback laws
that impose additional regulation on the pharmaceutical industry.

                                    EMPLOYEES

     The Company has approximately 43,000 employees worldwide. The number of
employees is continually changing based on realignment of operations and
workforce needs.

     The Company believes that it has good relations with its employees.
Employees at several non-U.S. locations are represented either by freely elected
unions or by legally mandated workers' councils or similar organizations.

                     CUSTOMERS AND DISTRIBUTION OF PRODUCTS

     The Company's products are sold throughout the world to a wide range of
customers including pharmacies, hospitals, chain warehouses, governments,
physicians, wholesalers and other distributors. Although the majority of the
Company's customers contribute individually immaterial amounts of sales volume,
three U.S. wholesalers individually constitute more than 10 percent in aggregate
of the Company's total sales.

                         SEASONALITY AND WORKING CAPITAL

     Seasonality does not materially affect sales of pharmaceutical products or
working capital.

                       RAW MATERIALS AND ENERGY RESOURCES

     The Company is a significant purchaser of a variety of basic and
intermediate raw materials. The Company is not dependent on any one supplier for
raw materials or energy requirements, but certain important raw materials are
obtained from a few major suppliers. However, additional capacity exists for all
major raw materials either from different suppliers or from alternate
manufacturing locations.

                             PATENTS AND TRADEMARKS

     The Company believes that the patents, trademarks and other intellectual
property owned or licensed by the Company, taken as a whole, are material to its
business.


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     The Company's major pharmaceutical products are protected by patents with
substantial remaining life. CELEBREX is protected by a U.S. patent until 2013;
XALATAN until 2011; CAMPTOSAR until 2007; DETROL until 2012; ZYVOX until 2014;
and BEXTRA until 2015. GENOTROPIN is no longer exclusively protected by a
compound patent, but the Company has patented proprietary compositions until
2015 and delivery devices until 2008. In addition, the Company has received
orphan drug exclusively for GENOTROPIN for two indications (PWS and SGA).

     See the discussion in Item 3 "Legal Proceedings" below for a description of
litigation relating to the patents for the Company's products.

                            INTERNATIONAL OPERATIONS

     The Company's operations outside the United States are conducted primarily
through subsidiaries. International sales in 2002 amounted to 45% of the
Company's total worldwide sales.

     For a geographic breakdown of sales and long-lived assets, see the
discussion of Segment Information in Note 22 to our financial statements.

     The Company's international operations are subject to a number of risks and
uncertainties, such as: local economic and business conditions; fluctuations in
currency values and foreign exchange rates; exchange control regulations; import
and trade restrictions, including embargoes; governmental instability;
legislative and regulatory controls on pricing of products; and other
potentially detrimental domestic and foreign governmental practices or policies
affecting U.S. companies doing business abroad.

     For a more detailed discussion of the risks relating to the effects of
changes in foreign-currency exchange rates and interest rates and the way we
monitor and manage these risks as an integral part of our overall risk-
management program, please see Note 10 to our financial statements, Derivative
Instruments and Hedging Activities.

                              ENVIRONMENTAL MATTERS

     The Company is subject to extensive environmental legislation and
regulation, requiring substantial environmental compliance costs, including
capital expenditures related to future production. Projects related to the
prevention, mitigation and elimination of environmental effects are implemented
worldwide.

     Since several capital projects are undertaken for both environmental
control and other business purposes, such as production process improvements, it
is difficult to estimate the specific capital expenditures for environmental
control. However, estimated capital expenditures for environmental protection in
2002 were $15 million and are estimated to be approximately $33 million in 2003.
Operating expenses for compliance with environmental protection laws and
regulations in 2002 are estimated to have been in excess of $51 million.
Management estimates that such operating expenses will be in excess of $52
million in each of years 2003 and 2004. Upon completion of the merger with
Pfizer in 2003, Pharmacia will be a wholly-owned subsidiary of Pfizer.

     With regard to the Company's discontinued industrial chemical facility in
North Haven, Connecticut, the Company will be required to submit a corrective
measures study report to the U.S. Environmental Protection Agency ("EPA"). It is
reasonably possible that a material increase in accrued liabilities will be
required. It is not possible, however, to estimate a range of potential losses
at this time. Accordingly, it is not possible to determine what, if any,
additional exposure exists at this time.

     Under the terms of the Separation Agreement between the Company and
Monsanto, Monsanto is responsible for remediation liabilities at existing and
former manufacturing locations and certain off-site disposal and formulation
facilities primarily related to the agricultural business or the former chemical
businesses. This includes, but is not limited to, environmental liabilities that
Solutia Inc., the former chemical business of Pharmacia, assumed from Pharmacia
in connection with its spinoff on September 1, 1997, to the extent that Solutia
fails to pay, perform or discharge those facilities. See the discussion in Item
3 "Legal Proceedings" below for a description of the agreements with Solutia and
Monsanto.

                     AVAILABILITY OF COMPANY INFORMATION

     Our annual report on Form 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K, and amendments to those reports are available, without
charge, on our website, http://www.pharmacia.com/investor/filings.asp, as soon
as reasonably practicable after they are filed electronically with the SEC.
Copies are also available, without charge, from Pharmacia Investor Relations,
100 Route 206 North, Peapack, NJ 07977.

Item 2. Properties

     The Company's pharmaceutical businesses operate through a number of
offices, research laboratories and production facilities throughout the world
with principal locations in Kalamazoo, Michigan; Skokie, Illinois; St. Louis,
Missouri; South San Francisco, California; Stockholm and Helsingborg, Sweden;
Milan, Italy; Puurs, Belgium; Japan and Puerto Rico.


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<PAGE>

     The Company's pharmaceutical headquarters are located in Bedminster,
Bridgewater and Peapack, New Jersey. In 2002, the Company purchased a new site
for its pharmaceutical headquarters from AT&T Corporation, located in Basking
Ridge, New Jersey. In light of the Pfizer acquisition, future use of the new
facility has yet to be determined. The Company believes its properties to be
adequately maintained and suitable for their intended use. The facilities
generally have sufficient capacity for existing needs and expected near-term
growth and expansion projects are undertaken as necessary to meet future needs.
Please see Note 13 to the Company's financial statements, "Properties, Net",
which discloses amounts invested in land, buildings and equipment.

Item 3. Legal Proceedings

     References to Pharmacia throughout will include "former Monsanto" when
referring to the pre-merger activities of the former Monsanto Company.
References to "Monsanto" or "new Monsanto" refers to Monsanto Company,
Pharmacia's former agricultural subsidiary which was spun-off by Pharmacia to
its shareholders on August 13, 2002.

     Pursuant to the Separation Agreement between Pharmacia and Monsanto, as
amended (the "Separation Agreement"), Monsanto assumed and agreed to indemnify
Pharmacia for liabilities related to the agricultural business. In the
proceedings where the Company is the defendant, Monsanto will indemnify the
Company for costs, expenses and any judgments or settlements; and in the
proceedings where the Company is the plaintiff, Monsanto will pay the fees and
costs of, and receive any benefits from, the litigation. Therefore, Pharmacia
may remain the named party in certain legal proceedings, but Monsanto will
manage the litigation including indemnifying Pharmacia for costs, expenses and
any judgments or settlements.

     On November 12, 2002, Monsanto notified the U.S. Securities and Exchange
Commission's staff of certain books and records and compliance irregularities
involving Monsanto's Indonesian affiliate companies and certain of their foreign
national employees.

     In connection with the spin-off of Solutia Inc. ("Solutia") on September 1,
1997, Solutia assumed from Pharmacia liabilities related to the Company's
chemical businesses pursuant to the Distribution Agreement, as amended (the
"Distribution Agreement"). As a result, Pharmacia remains the named defendant in
certain legal proceedings, but Solutia manages the litigation and pays all
costs, expenses and any judgments or settlements. Pursuant to the terms of the
Separation Agreement, Monsanto has assumed, and agreed to indemnify Pharmacia
for, any liabilities primarily related to former Monsanto's former chemical
businesses, including any liabilities that Solutia has assumed from Pharmacia in
connection with the spin-off of Solutia, to the extent Solutia fails to pay,
perform or discharge these liabilities. This indemnification obligation applies
to litigation, environmental, retiree and all other liabilities assumed by
Solutia pursuant to the spin-off.

     For example, Solutia has assumed responsibility for litigation currently
pending in state and federal court in Alabama brought by several thousand
plaintiffs, alleging property damage, anxiety and emotional distress and
personal injury arising from exposure to polychlorinated biphenyls (PCBs), which
were discharged from an Anniston, Alabama plant site that was owned by former
Monsanto and that was transferred to Solutia as part of the spin-off. This
litigation includes, but is not limited to, the Abernathy litigation referred to
below. Pursuant to the terms of the Distribution Agreement, Solutia is required
to indemnify Pharmacia for liabilities that Pharmacia incurs in connection with
this litigation.

     Solutia is defending itself and Pharmacia in connection with Sabrina
Abernathy, et al. v. Monsanto Company, et al., currently pending in state court
in Alabama. The jury has found Solutia and Pharmacia (former Monsanto) liable
with respect to certain claims in this litigation, and proceedings have
commenced to determine damages. Solutia requested that Pharmacia commit to
posting any appeal bond that may be required to stay execution of any judgment
in this litigation pending appeal. Pursuant to a Protocol Agreement dated as of
July 1, 2002, Pharmacia, Monsanto and Solutia have agreed that, if Solutia does
not post a bond sufficient to stay the execution of any judgment in the
litigation pending an appeal, Pharmacia will post such a bond if it is able to
do so on commercially reasonable terms. Solutia shall pay the expenses incurred
in connection with obtaining any such bond. The agreement also specifies which
party or parties would control any decisions regarding settlement of the
Abernathy litigation, depending upon whether or not collateral must be provided
to secure the bond and, if so, which party provides it. Under the agreement, the
continued defense of the Abernathy litigation and the prosecution of any appeal
will continue to be managed by Solutia, at Solutia's expense.

     On April 19, 2002, NeoPharm filed a Demand for Arbitration with the Company
pursuant to the terms of the February 19, 1999 License Agreement. A contractual
dispute has arisen between NeoPharm and Pharmacia


                                       9




<PAGE>

involving our partnership to develop LEP (Liposomal Encapsulated Paclitaxel) and
LED (Liposomal Encapsulated Doxorubicin). NeoPharm claims that Pharmacia failed
to use "reasonable efforts" to develop, market and sell LEP/LED. NeoPharm is
seeking specific performance and monetary damages. In May 2002, the Company
filed its response and counter-claim. Discovery has been ongoing and a hearing
is scheduled for May 2003.

     The States of New York, Nevada, Montana and Minnesota have sued the
Company, in their respective state courts, alleging that the Company manipulated
the "average wholesale price" ("AWP") of Medicare Part B "Covered Drugs,"
causing the states' respective Medicaid agencies, and their respective Medicare
and Medicaid beneficiaries, among others, to pay artificially inflated prices
for "Covered Drugs." In addition, the Nevada and Montana suits allege that the
Company did not report to the states its "best price" under the Medicaid
Program. Each of the suits alleges various causes of action, including, but not
limited to, deceptive trade practices and Medicaid fraud, purportedly sounding
in state law. The suits seek monetary and other relief, including civil
penalties and treble damages.

     The Montana, Minnesota and Nevada suits have been removed to those states'
respective federal courts and transferred to MDL 1456. The magistrate judge in
the Minnesota suit issued a September 2002 Report and Recommendation (Report)
granting plaintiff's motion to remand the suit to state court. The Company has
filed objections to the Report and those objections have not yet been ruled upon
by the district court judge.

     In addition, the Company has been named as a defendant in the following
self-styled class action lawsuits, brought by private individuals, public
interest groups and employee welfare benefit plans in which similar allegations
of AWP manipulation have been made: Board of Trustees of Carpenters and
Millwrights of Houston and Vicinity Welfare Trust Fund v. Abbott Laboratories,
Inc., et, al., 5:01 CV 339 (E.D. Tex.), filed December 24, 2001; Citizens for
Consumer Justice, et. seq. v. Abbott Laboratories, et. al., C.A. No. 01-12257
(D. Mass.) ,filed December 19, 2001; Congress of California Seniors, et. al. v.
Abbott Laboratories, et. al., BC282102 (Ca. Sup. Ct., Los Angeles Co.), filed
September 24, 2001; Digel v. Abbott Laboratories, et al., CT-007717-02 (Tenn.
Cir. Ct., 13th District), filed December 18, 2002; Geller v. Abbott
Laboratories, et. al., CV 02-00553 (C.D. Cal.), filed October 26, 2001; Rice v.
Abbott Laboratories, et. al., C 02-3925 (N.D. Cal.), filed July 12, 2002;
Robinson and Hudson v. Abbott Laboratories, et. al, CV02-0493-S (W.D. La.),
filed March 13, 2002; Swanston v. TAP Pharmaceutical Products Inc., et. al.,
CV2002-004988 (Az. Sup. Ct., Maricopa Co.), filed March 15, 2002; Thompson v.
Abbott Laboratories, et. al., CGC-02-411813 (Ca. Sup. Ct., San Francisco Co.),
filed August 23, 2002; Teamsters Health & Welfare Fund of Philadelphia and
Vicinity v. Abbott Laboratories, Inc., et. al., 02 CV 2002 (E.D. Pa.), filed
April 10, 2002; Turner v. Abbott Laboratories, et. al., 412357 (Ca. Sup. Ct.,
San Francisco Co.), filed September 9, 2002; United Food and Commercial Workers
Unions, et. seq. v. Pharmacia Corporation, et. al., 3:01 CV 5427 (D.N.J.), filed
November 19, 2001; and Virag v. Allergan, Inc., et. al, BC282690 (Ca. Sup. Ct.,
Los Angeles Co.), filed October 3, 2002. Typical claims asserted in these suits
include fraud, unfair competition and unfair trade practices. Some of the suits
assert claims under the Racketeer Influenced and Corrupt Organizations Act
("RICO"). Some suits assert antitrust claims. The suits seek various measures of
injunctive, monetary and other relief, including civil penalties and treble
damages.

     All of the private plaintiff lawsuits referred to in the preceding
paragraph, with the exception of the Swanston suit in Arizona state court, have
been consolidated for pretrial purposes and transferred to the federal district
court for Massachusetts, in the multidistrict litigation captioned, In re
Pharmaceutical Industry Average Wholesale Price Litigation, MDL 1456, Master
File No. 01-CV-12257-PBS (D. Mass.). On November 4, 2002, the Company joined the
other defendants in the MDL 1456 in moving to dismiss all claims asserted
against defendants in the master consolidated complaint. Oral argument of the
motion was held on January 13, 2003. The judge indicated that her ruling would
come in the next 90 days. During this same period, defendants will be providing
limited discovery to the plaintiffs.

     On July 15, 2002, a suit was filed in the Chancery Court in Delaware on
behalf of a purported class of Pharmacia's shareholders against the Company,
Pharmacia directors and Pfizer, alleging that the price to be paid for
Pharmacia's shares is inadequate as a result of the Pharmacia's directors'
breach of their fiduciary duties to the shareholders of Pharmacia and that
Pfizer is alleged to have aided and abetted the alleged breach. The complaint,
which Pfizer and Pharmacia believe to be without merit, seeks damages and to
enjoin the merger.

     On the same date, a second suit was filed in the Chancery Court in Delaware
against the Company and Pharmacia directors, alleging that the price to be paid
for Pharmacia's shares is inadequate as a result of the


                                       10




<PAGE>

Pharmacia directors' breach of their fiduciary duties to the shareholders of
Pharmacia. The complaint, which Pharmacia believes to be without merit, seeks
damages and to enjoin the merger.

     On June 7, 2001, the Company, along with Pfizer and Merck, was named as
a defendant in a purported class action complaint in United States District
Court in Brooklyn, New York, styled Cain & Watkins v. Pharmacia, et al.,
alleging cardiovascular safety issues associated with VIOXX and CELEBREX.
Plaintiffs filed an amended complaint on August 1, 2001, alleging, among other
things, that the named plaintiffs have suffered "cardiac illness." The suit
claims that the millions of patients in the U.S. who took VIOXX and CELEBREX are
entitled to a refund for all amounts paid for the purchase of these drugs, their
medical expenses and attorneys' fees. The complaint also makes numerous claims
for injunctive and equitable relief, including emergency notice to class
members, revised labeling and a court-ordered and supervised medical monitoring
program funded by defendants. On September 21, 2001, the Company filed an Answer
and a Motion to Dismiss on a number of grounds. In September 2002, the
defendants' Motion to Dismiss plaintiffs' claim for injunction relief was
granted.

     In 2001 and 2002, the Company, G.D. Searle, the pharmaceutical subsidiary
of former Monsanto Company, and Pfizer were named as defendants in a number
of purported class action complaints filed in State and Federal court in New
Jersey (Astin v. Pharmacia, et al., Leonard v. Pharmacia, et al., Plumbers and
Pipefitters Local Health and Welfare Fund v. Pharmacia, et al. and Heindel v.
Pharmacia et al.). Plaintiffs allege, among other claims, that the defendants
misrepresented and over-promoted CELEBREX in violation of the New Jersey
Consumer Fraud Act. The complaints also allege that the defendants have misled
and defrauded the FDA to gain approval of CELEBREX. The complaints seek economic
damages only and claim no specific medical injury. Though two of these cases
were recently dismissed, two cases remain (Plumbers and Pipefitters Local Health
and Welfare Fund v. Pharmacia; and Heindel v. Pharmacia).

     On April 11, 2000, the University of Rochester filed suit in U.S. District
Court for the Western District of New York, asserting patent infringement
against the Company and certain of its subsidiaries as well as Pfizer. The
University asserts that its U.S. patent has claims directed to a method of
treating human patients by administering a selective COX-2 inhibitor. The
University sought injunctive relief, as well as monetary compensation for
infringement of the patent. On March 5, 2003, a trial judge in the U.S. District
Court for the Western District of New York dismissed the claims on summary
judgment, holding the University patent to be invalid for lack of written
description and lack of enablement of the alleged invention. The University is
expected to file an appeal on this decision in 2003.

     The Company is a defendant in a lawsuit brought by CP Kelco in Federal
Court in Delaware seeking compensatory and punitive damages for alleged breach
of contract, fraud and securities law violations arising out of the purchase of
the Company's Kelco biogums business in 2000 by Lehman Brothers Merchant Bank
Partners II, L.P. (Lehman), which combined the Company's Kelco biogums business
with a business purchased from Hercules, Inc. to form CP Kelco. The Company has
asserted counterclaims against the plaintiff for the return of certain payments
and specific performance of plaintiff's contractual obligation to provide
severance benefits to certain employees of the Company who were transferred to
CP Kelco. The Company has also asserted indemnification claims against Lehman
and Hercules in a third-party complaint. Discovery has been completed in the
lawsuit. A September 2002 Report and Recommendation (September Report) issued by
the magistrate judge in the case granted Lehman's and Hercules' motion for
judgment on the pleadings. The Company has filed objections to the September
Report and those objections have not been ruled upon. An October 2002 Report and
Recommendation (October Report) granted in part and denied in part the Company's
motion for summary judgment. The Company has filed objections to that portion of
the October Report that denied its motion. Those objections have not been ruled
upon. Trial is now scheduled for April 28, 2003.

     The Company will be required to submit a corrective measures study report
to the EPA with regard to the Company's discontinued industrial chemical
facility in North Haven, Connecticut. While the Company has existing reserves
designated for remediation, in the light of changing circumstances, it is
reasonably possible that a material increase in accrued liabilities will be
required. However, it is not possible to determine what, if any, additional
exposure exists at this time.

     The Company is involved in other legal proceedings arising out of the
ordinary course of its business. The Company believes it has valid defenses to
these matters and the matters identified above and intends to contest them
vigorously.


                                       11




<PAGE>

Item 4. Submission of Matters to a Vote of Security Holders

     A special meeting of shareholders was held on December 9, 2002 in
Wilmington, Delaware to consider and to vote upon a proposal to adopt the
definitive merger agreement with Pfizer.

     Of the 1,303,216,310 votes represented by the outstanding shares of common
stock and Series B convertible perpetual preferred stock, 925,230,379 voted FOR;
6,485,035 voted AGAINST; and 6,563,982 ABSTAINED from voting.

                                    PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters

     The Common Stock is listed and traded on the New York Stock Exchange under
the symbol PHA. As of March 18, 2003, there were 69,346 holders of record of the
Common Stock.

     Please see information regarding dividends and related shareholder matters
appearing in Note 17 "Shareholders' Equity" to the financial statements. The
following table reflects quarterly market prices for the Company's Common Stock.

<TABLE>
<CAPTION>
    2002        First Quarter   Second Quarter   Third Quarter   Fourth Quarter
-------------------------------------------------------------------------------
<S>                 <C>             <C>              <C>             <C>
Market price*

High                $43.24          $42.94           $46.25          $46.00

Low                 $35.25          $34.82           $29.44          $37.90
</TABLE>

<TABLE>
<CAPTION>
    2001        First Quarter   Second Quarter   Third Quarter   Fourth Quarter
-------------------------------------------------------------------------------
<S>                 <C>             <C>              <C>             <C>
Market price*

High                $56.40          $49.12           $44.13          $43.72

Low                 $41.36          $43.19           $35.34          $36.08
</TABLE>

*    2001 and 2002 through Q2 have been adjusted for the spin-off of Monsanto.

Item 6. Selected Financial Data

All data presented have been restated to reflect Pharmacia operations with
Monsanto treated as a discontinued operation.

<TABLE>
<CAPTION>
Years Ended December 31,                                     2002      2001      2000      1999      1998
----------------------------------------------------------------------------------------------------------
<S>                                                        <C>       <C>       <C>       <C>       <C>
Dollars in millions
Net sales                                                  $13,993   $13,835   $12,651   $11,176   $ 9,289
Earnings from continuing operations(1)                       2,437     1,293       806     1,159       605
Total assets                                                18,517    22,377    22,776    20,706    19,919
Long-term debt                                               2,649     2,731     3,624     1,958     2,384
Diluted earnings per share from continuing operations(1)      1.84       .97       .61       .90       .48
Dividends declared per share(2)                                .54      .525        --        --        --
==========================================================================================================
</TABLE>

(1)  Comparability of earnings for periods prior to 2000 may be affected due to
     the change in accounting principle recorded in 2002 and 2000. Refer to
     Note 2 for additional information.

(2)  Dividends declared have not been presented for periods prior to 2001
     because the information would not be meaningful. For the year ended
     December 31, 2000, shareholders received a combination of dividends
     declared by post-merger Pharmacia Corp., and former Monsanto Company and
     P&U, Inc. For the years prior to 2000, shareholders received amounts
     declared by former Monsanto Company and P&U, Inc. For 2002, shareholders
     received 0.17 shares of Monsanto Company for each Pharmacia share held.


                                       12




<PAGE>

Item 7. Management's Discussion and Analysis of Financial Condition and Results
     of Operations

Overview

The Company's sales and earnings performances over the past three years have
been marked by a number of significant events that have the effect of
complicating growth comparisons and analyses. As can be seen from the table
below, sales grew in 2002 by 1 percent contrasted with growth the preceding year
of 9 percent. Earnings from continuing operations grew by 88 percent in 2002
versus 60 percent in 2001 whereas, at the net earnings level, 2002 saw a decline
from 2001 contrasted with over 100 percent growth from 2000 to 2001.

Throughout the discussions that follow, we will identify the impact of the
various events and transactions that have created much of the variability in
sales and earnings during the past three years.

Please note that per-share amounts are presented on a diluted, after-tax basis,
unless otherwise indicated.

Noteworthy among these events and transactions are:

o    The transfer of U.S. product rights to AMBIEN to Sanofi as of January 1,
     2002, pursuant to prior agreements. AMBIEN was the Company's
     second-largest-selling product in recent years, accounting for sales of
     $902 million and $705 million in 2001 and 2000, respectively. This adverse
     effect on sales also had an impact on earnings as the Company received only
     a share of the profits earned by Sanofi during the first quarter of 2002
     (recorded in "All other, net"). The profit contribution of AMBIEN was
     approximately $.24 per share in 2001, versus $.04 per share in 2002. In
     April 2002, upon completion of the transfer, the Company received a
     one-time payment of $671 million from Sanofi in connection with the
     transfer. The resulting gain of $661 million ($424 million net of tax or
     $.32 per share) was also recorded in "All other, net."

o    Discontinued operations treatment of the Monsanto agricultural business.
     The Company's share of Monsanto earnings for 2001 and 2000 are reported as
     "Income from discontinued operations, net of tax" (and net of minority
     interest). The line "Loss on disposal of discontinued operations, net of
     tax" reflects in 2002 a calculated impairment loss measured as the
     difference between Monsanto's fair value at the spin-off date and the
     Company's carrying value. This is partially offset by the Company's share
     of Monsanto's earnings from the measurement date on November 28, 2001, when
     the Company's Board of Directors approved a formal plan to distribute to
     its shareholders all the remaining outstanding shares of common stock held
     by the Company in Monsanto, to the August 13, 2002 spin-off.

o    The implementation of a new accounting standard on goodwill by Monsanto.
     Although Monsanto is treated as a discontinued operation for the majority
     of the earnings statement presentation, the effect of Monsanto's adoption
     of the new accounting rules related to goodwill is reflected as part of the
     Company's net earnings. This was a charge of $1.5 billion representing
     Pharmacia's portion of Monsanto's charge, net of minority interest.
     Pharmacia also implemented the new standard as of January 1, 2002 but did
     not incur a charge related to its adoption. Year-to-year trends were
     affected, however, since there was no goodwill amortization in 2002,
     compared with $103 million and $115 million in 2001 and 2000, respectively.

o    The divestiture of the Company's minority stake in Amersham Biosciences in
     March 2002. The $653 million net gain was reported as an extraordinary item
     thereby favorably affecting net earnings but not earnings from continuing
     operations.

o    Merger and restructuring charges. Significant activity and related costs
     experienced in 2001 and 2000 related to the Merger between former Monsanto
     and P&U had diminished substantially by 2002. Restructuring and
     merger-related charges in the years 2002, 2001 and 2000 amounted to $68
     million, $673 million and $975 million, respectively.

o    Other. Comparisons of individual earnings statement line captions such as
     "Selling, general and administrative," "Research and development" and "All
     other, net" are affected by certain discreet events or transactions such as
     large corporate donations, costs of acquisitions or gains on disposal of
     intellectual properties and litigation settlements. Where applicable, these
     items are identified in the discussions that follow.


                                       13




<PAGE>

<TABLE>
<CAPTION>
                                                                      %                  %
Consolidated Results                                       2002     Change     2001    Change     2000
-------------------------------------------------------------------------------------------------------
<S>                                                       <C>         <C>    <C>         <C>    <C>
Dollars in millions, except per share data
   Sales                                                  $13,993       1%   $13,835       9%   $12,651
Earnings from continuing operations before income taxes     3,306     108      1,591      52      1,044
Earnings from continuing operations                         2,437      88      1,293      60        806
Net earnings                                                  597     (60)     1,501     109        717
Net earnings per common share (EPS):
   -- Basic                                               $   .45     (61)   $  1.14     107    $   .55
   -- Diluted                                             $   .44     (61)   $  1.12     107    $   .54
=======================================================================================================
</TABLE>

The Company operates in one reportable segment, Prescription Pharmaceuticals,
which includes primary care, hospital care, cancer care, ophthalmology and
endocrine care products. The Company also operates in several businesses that
are discussed collectively below as "Other Pharmaceuticals." These businesses
are consumer health care, animal health, diagnostics and contract manufacturing
and bulk chemical sales. The Company's equity positions in certain biotechnology
firms are also included in Other Pharmaceuticals.

Net Sales

<TABLE>
<CAPTION>
                                            %                  %
Sales by Segment                 2002    Change     2001    Change     2000
----------------------------------------------------------------------------
<S>                            <C>         <C>    <C>         <C>    <C>
Dollars in millions
Prescription pharmaceuticals   $12,037     1%     $11,968     11%    $10,824
Other pharmaceuticals            1,956     5        1,867      2       1,827
----------------------------------------------------------------------------
Net Sales                      $13,993     1%     $13,835      9%    $12,651
============================================================================
</TABLE>

The Company continued to record strong sales results in 2002 with an overall
increase of 1 percent versus 2001, despite the loss of AMBIEN sales in 2002.
Excluding the impact of the return of product rights to AMBIEN to Sanofi, sales
of the remaining products increased 8 percent in the full year. Prescription
Pharmaceuticals grew by 1 percent and Other Pharmaceuticals by 5 percent.
Foreign exchange had no meaningful impact on the results in 2002. In 2001, sales
were up 9 percent and experienced a 3 percent unfavorable impact from foreign
exchange.

The positive growth continues to be driven by the Company's key prescription
pharmaceutical products including the COX-2 franchise (primarily CELEBREX and
BEXTRA), XALATAN, DETROL/DETROL LA and GENOTROPIN. These products had combined
sales representing 41 percent of total company sales in 2002 and experienced a
combined growth of 14 percent.

The Company's patent position for key prescription pharmaceutical products is
strong compared to the overall pharmaceutical industry. BEXTRA, ZYVOX, CELEBREX,
DETROL/DETROL LA, XALATAN and CAMPTOSAR have patent or marketing exclusivity to
2015, 2014, 2013, 2012, 2011 and 2007, respectively.

Sales in the Company's consumer health care business increased by 13 percent in
2002 following 14 percent growth in 2001 resulting from increases in tobacco
dependency products driven by the launch of NICORETTE in Japan and acquisitions
during 2001. Sales in the animal health business increased by 8 percent versus
the prior year led by growth of NAXCEL/EXCENEL.

Sales in the U.S. represent 55 percent of worldwide sales in 2002, a slight
reduction from 56 percent in 2001. The reduction was due for the most part to
the transfer of U.S. product rights to AMBIEN. U.S. sales represented 55 percent
of sales in 2000. Sales in Japan, the Company's second largest market, were $873
million in 2002 representing 6 percent of total company sales. Sales in Japan in
2001 and 2000 were $893 million and $942 million, respectively. The Company's
geographic composition of sales will continue to result in significant exposure
to the fluctuations of exchange rates in both the translation of financial
results and the underlying transactions that comprise the results.

The 1 percent sales growth in 2002 was attributed to fractional increases in
both price and foreign exchange effects. Excluding the impact of AMBIEN, volume
accounted for 7 percent of the 2002 increase in sales. In 2001, volume drove the
overall 9 percent growth. Volume increases accounted for a 10 percent rise over
2000, whereas, price increased 2 percent and foreign exchange had a negative 3
percent impact.


                                       14




<PAGE>

A comparison of the year-to-year consolidated net sales by country is provided
in the table below.

<TABLE>
<CAPTION>
                                            % Change                       % Change
                                 Percent   Excluding             Percent   Excluding
Net Sales by Country    2002      Change   Exchange*    2001     Change    Exchange*    2000
----------------------------------------------------------------------------------------------
<S>                    <C>         <C>         <C>     <C>          <C>        <C>     <C>
Dollars in millions
United States          $ 7,627     (2)%        (2)%    $ 7,815      13%        13%     $ 6,939
Japan                      873     (2)         --          893      (5)         7          942
Italy                      628     12           6          562       7         10          527
Germany                    527     10           4          481       9         13          440
United Kingdom             504     12           8          450       1          6          445
France                     488     (3)         (7)         502      40         45          359
Rest of world            3,346      7           8        3,132       4         10        2,999
----------------------------------------------------------------------------------------------
Net sales              $13,993      1%          1%     $13,835       9%        12%     $12,651
==============================================================================================
</TABLE>

*    Underlying growth reflects the percentage change excluding currency
     exchange effects.

A year-to-year comparison of consolidated net sales of the Company's major
products (including generic equivalents where applicable) is provided in the
table below.

<TABLE>
<CAPTION>
                                         %                   %
Sales of Top Products          2002    Change     2001     Change    2000
--------------------------------------------------------------------------
<S>                           <C>       <C>       <C>       <C>     <C>
Dollars in millions
CELEBREX                      $3,050     (2)%     $3,114     19%    $2,614
BEXTRA                           470    N/A           --    N/A         --
Other                              7    N/A           --    N/A         --
                              --------------------------------------------
COX-2 Line                     3,527     13        3,114     19      2,614
XALATAN                          928     14          818     18        693
DETROL / DETROL LA               757     23          617     43        432
CAMPTOSAR                        574     (6)         613     39        441
GENOTROPIN                       551      8          511      9        467
NICORETTE Line                   393     31          299     37        218
DEPO-PROVERA                     339     20          283      4        272
PHARMORUBICIN/ELLENCE            333     28          261     31        199
MEDROL                           329      2          323     14        284
XANAX                            314     (3)         323     (1)       327
CLEOCIN Line                     273    (13)         316     (7)       340
FRAGMIN                          270     20          226      7        211
ARTHROTEC                        241      3          235     (6)       251
CABASER/ DOSTINEX                230     39          165     33        124
MIRAPEX                          207     40          148     30        113
ZYVOX                            199     85          108    125         48
ALDACTONE/Spiro Line             190      4          183     (2)       187
PLETAL                           136     28          106     99         53
COVERA/CALAN                     134    (17)         161      5        153
--------------------------------------------------------------------------
TOTAL                         $9,925     13%      $8,810     19%    $7,427
==========================================================================
</TABLE>


                                       15




<PAGE>

Costs and Expenses

<TABLE>
<CAPTION>
                                                       % of             % of             % of
Consolidated                                  2002    Sales    2001    Sales    2000    Sales
----------------------------------------------------------------------------------------------
<S>                                          <C>       <C>    <C>       <C>    <C>       <C>
Dollars in millions, except per share data

Cost of products sold                        $3,077    22.0%  $2,978    21.5%  $2,882    22.8%
Research and development                      2,359    16.9    2,361    17.1    2,165    17.1
Selling, general and administrative           6,179    44.2    5,902    42.7    5,486    43.4
Merger and restructuring                         68     0.5      673     4.9      975     7.7
==============================================================================================
</TABLE>

Cost of products sold for 2002 and 2001 was $3.1 billion and $3.0 billion,
respectively, resulting in an increase of 3 percent in both years. Cost of
products sold as a percentage of net sales increased to 22 percent in 2002
versus 21.5 percent in 2001. This slight increase was primarily due to
additional compliance costs. Cost of products sold as a percentage of net sales
decreased to 21.5 percent in 2001 versus 22.8 percent in 2000. The decrease was
the result of a more favorable product mix and a larger portion of higher margin
prescription pharmaceutical sales to total sales.

Research and development (R&D) spending was $2.4 billion in 2002 and 2001. The
ratio of expense to net sales was lowered fractionally to 16.9 percent in 2002.
Increased development costs offset by fewer one-time payments for R&D agreements
resulted in essentially unchanged spending for the year. The increase in R&D
expense in 2001 versus 2000 was due in part to the acquisition of Sensus Drug
Development Corp. (Sensus) and up-front payments for product development and new
compound agreements.

Selling, general and administrative spending of $6.2 billion in 2002 increased
$277 million or 4.7 percent compared to 2001. The increase is attributable to
promotion payments as well as sales force spending for the Company's new key
product BEXTRA, increased promotion payments related to CELEBREX and an increase
in pension costs. Spending for 2002 also includes a charitable contribution of
$75 million to the Pharmacia Foundation. Selling, general and administrative
spending in 2001 includes increased prescription pharmaceuticals promotion
payments related to CELEBREX and consumer health care tobacco dependence launch
costs.

A more detailed discussion of the above comments is available in the
prescription pharmaceuticals and other pharmaceuticals sections.

Prescription Pharmaceuticals Segment

<TABLE>
<CAPTION>
                                       2002      2001      2000
-----------------------------------------------------------------
<S>                                   <C>       <C>       <C>
Dollars in millions

Sales                                 $12,037   $11,968   $10,824
Cost of products sold                   2,235     2,240     2,112
Research and development                2,230     2,183     1,935
Selling, general and administrative     4,965     4,890     4,484
EBIT *                                  2,817     2,469     2,195
=================================================================
</TABLE>

*Earnings before interest and taxes (EBIT) is presented to provide additional
information about the Company's operations and is in keeping with the manner in
which the Company manages its segments. This item should be considered in
addition to, but not as a substitute for or superior to, net earnings, cash
flows or other measures of financial performance prepared in accordance with
U.S. generally accepted accounting principles. Determination of EBIT may vary
from company to company.

In the U.S. pharmaceutical industry, it is common for trade inventories to
fluctuate as wholesalers anticipate or react to price changes. Accordingly,
sales of individual products can fluctuate from quarter to quarter. At the end
of 2002, Pharmacia's aggregate U.S. trade inventories were estimated to be
slightly below those of year-end 2001.

Prescription pharmaceutical sales, which constitute 86 percent of overall sales,
decreased 3 percent in the U.S. and increased 1 percent on a global basis in
2002, including the loss of AMBIEN sales. Excluding AMBIEN from prior-year data,
prescription sales increased 11 percent in the U.S. and 9 percent globally.
CELEBREX, BEXTRA, XALATAN, CAMPTOSAR, DETROL/DETROL LA AND ZYVOX, known as the
growth driver products, now account for 50 percent of total prescription
pharmaceutical sales, increasing 13 percent to $6.0 billion in 2002. As a result
of a successful launch in the U.S., BEXTRA accounted for over half of the
increase in growth driver product sales. On a combined basis, the growth driver
products grow faster than the overall company, have attractive patent
exclusivity profiles and are expected to make up an increasing percent of total
company sales. In 2001, these


                                       16




<PAGE>

products increased by 25 percent and accounted for 44 percent of total
prescription pharmaceutical sales, while in 2000 the growth driver products made
up 39 percent of prescription sales.

Pharmacia's product performance continues to be led by the Company's COX-2
portfolio, primarily CELEBREX and BEXTRA. Sales of COX-2 specific inhibitors
increased 13 percent to $3.5 billion in 2002. Together, CELEBREX and BEXTRA now
account for 62 percent of new prescriptions in the U.S. COX-2 market. With sales
of $470 million, BEXTRA was the most successful new pharmaceutical product
launched in 2002. The successful U.S. launch of BEXTRA in the second quarter of
2002 resulted in increased market share for Pharmacia and contributed to a 2
percent decline in full-year sales of CELEBREX. While sales and trade inventory
levels for the COX-2 products were impacted by a fourth quarter price increase
in both 2002 and 2001, overall U.S. trade inventory levels, as measured in
number of months on hand, at the end of 2002 were estimated to be slightly
below those of 2001.

DYNASTAT is an injectable COX-2 inhibitor that has been launched in Europe,
Latin America and Asia Pacific. Sales of this product totaled $7 million during
2002. Clinical trials of DYNASTAT in the U.S. are ongoing.

Sales of XALATAN, the number-one prescribed agent in the U.S. for lowering
intraocular pressure in the treatment of open-angle glaucoma, increased 14
percent to $928 million in 2002. In the U.S., sales increased 3 percent to $402
million. XALACOM, a fixed combination of XALATAN and timolol, was launched
throughout Europe in late 2001 and 2002. The Company also received approval to
market XALATAN as initial therapy (first-line therapy) for patients with
glaucoma or ocular hypertension in Europe and the U.S. Sales in Europe increased
30 percent due to the successful launch of XALACOM and XALATAN for initial
therapy. The U.S. launch of XALATAN for first-line therapy began in January
2003.

Sales of DETROL/DETROL LA, the world's leading treatment for overactive bladder,
increased 23 percent to $757 million in 2002. Sales in the U.S. increased 19
percent to $580 million for the year. The growth in the U.S. and globally
reflects continued strong demand for the new, once-daily DETROL LA, which
Pharmacia introduced in January 2001. Sales of DETROL/DETROL LA in 2001
increased 43 percent reflecting rapid uptake of DETROL LA during the initial
launch. In the first quarter of 2002, Pharmacia filed a New Drug Application for
DETROL LA in Japan for the treatment of overactive bladder.

CAMPTOSAR, the leading treatment for colorectal cancer in the U.S., recorded
sales of $574 million, a 6 percent decrease compared to 2001. Full-year sales of
CAMPTOSAR were impacted by trade inventory fluctuations associated with a price
increase in the fourth quarter of 2001 and the launch of a competitive product
in the second half of 2002. In 2001, full-year sales of CAMPTOSAR increased by
39 percent as a result of FDA approval of CAMPTOSAR for the initial treatment
of colorectal cancer in 2000 and trade inventory fluctuations in the fourth
quarter of 2001.

GENOTROPIN, a growth hormone, recorded sales of $551 million in 2002, an
increase of 8 percent. The growth of GENOTROPIN continues to be driven by
increasing market penetration in the U.S. where sales totaled $147 million, an
increase of 28 percent. The growth observed in 2002 was similar to the growth
rate observed in 2001 when sales increased 9 percent globally, driven by a 67
percent increase in the U.S.

ZYVOX, the Company's antibiotic for Gram-positive infections, recorded sales of
$199 million in 2002, an increase of 85 percent. ZYVOX sales are growing rapidly
following the U.S. launch in 2000 followed by successful launches in Europe and
Japan. In the fourth quarter of 2002, the FDA approved a new use for ZYVOX in
the treatment of pediatric patients with Gram-positive infections.

Sales of PHARMORUBICIN, a widely used chemotherapeutic agent for breast cancer,
increased 28 percent to $333 million in 2002. Sales of ELLENCE, the trade name
for PHARMORUBICIN in the U.S., increased 83 percent to $111 million, driving the
overall increase in sales of the PHARMORUBICIN brand. A regimen containing
ELLENCE improves survival in the treatment of early breast cancer following
surgery or radiation therapy.

Sales of MIRAPEX and CABASER continued to grow at a rapid pace reflecting
increased adoption of these drugs for the treatment of patients with early
Parkinson's disease. MIRAPEX sales increased 40 percent to $207 million in 2002,
while sales of CABASER/DOSTINEX, for Parkinson's disease and hyperprolactinemia,
grew 39 percent to $230 million. In 2001, MIRAPEX and CABASER sales increased by
30 percent and 33 percent, respectively.

Sales of ARTHROTEC, one of the Company's older arthritis medications, increased
3 percent in 2002, while XANAX, for anxiety, decreased 3 percent. In January
2003, the Company received FDA approval for a once-daily formulation of XANAX
under the brand name, XANAX XR.


                                       17




<PAGE>

Sales of FRAGMIN, for the prevention of blood clots after surgery, increased 20
percent in 2002, driven by a 48 percent increase in the U.S., to $87 million.

PLETAL sales in 2002 increased 28 percent in the U.S. and other markets where
Pharmacia co-promotes the product with Otsuka. PLETAL continues to take market
share from older products used in the treatment of intermittent claudication, a
form of peripheral vascular disease, which is characterized by pain in the legs
during walking.

Key prescription pharmaceutical segment operating expenses, stated as a
percentage of net prescription pharmaceutical sales, are provided in the table
below.

<TABLE>
<CAPTION>
Prescription Pharmaceuticals          2002   2001   2000
---------------------------------------------------------
<S>                                   <C>    <C>    <C>
Dollars in millions

Cost of products sold                 18.6%  18.7%  19.5%
Research and development              18.5   18.2   17.9
Selling, general and administrative   41.3   40.9   41.4
EBIT *                                23.4   20.6   20.3
=========================================================
</TABLE>

*Earnings before interest and taxes (EBIT) is presented to provide additional
information about the Company's operations and is in keeping with the manner in
which the Company manages its segments. This item should be considered in
addition to, but not as a substitute for or superior to, net earnings, cash
flows or other measures of financial performance prepared in accordance with
U.S. generally accepted accounting principles. Determination of EBIT may vary
from company to company.

COST OF PRODUCTS SOLD for the Prescription Pharmaceuticals segment was $2.2
billion in 2002, or 18.6 percent of sales, which is flat relative to 2001. In
2001, cost of products sold as a percent of sales improved by nearly one
percentage point from 2000 primarily from increased sales of higher margin
products such as CELEBREX, AMBIEN, CAMPTOSAR and XALATAN. Improvements in
product mix more than offset increases in production expenses, compliance
initiatives, support functions and royalty payments.

RESEARCH AND DEVELOPMENT EXPENSE increased 2 percent in 2002 versus 2001 to $2.2
billion. As a percent of sales, R&D expenses were 18.5 percent in 2002 which was
slightly above 2001 at 18.2 percent. The increase was mainly the result of
additional development costs for CDP 870 (rheumatoid arthritis), Phase IV
expenses for BEXTRA and R&D technology acquisition costs. Also impacting the
current year was a $30 million payment to Altana AG in connection with the
acquisition of rights for the development of roflumilast, a new compound being
developed for the treatment of respiratory diseases. Partially offsetting the
impact of these increases in the current year were certain one-time expenses in
2001 that were not present in 2002. These 2001 expenses include costs of $67
million relating to the acquisition of Sensus. Also, during 2001, the Company
entered into an agreement with Celltech Group plc for the development and
promotion of CDP 870. As a result of that agreement, the Company recorded an R&D
expense of $50 million. During the third quarter of 2001, the Company recorded
$30 million of R&D expense for a payment to Orion Corporation in connection with
an agreement to collaborate in the development and commercialization of
deramciclane in the U.S. R&D expenses as a percent of sales were approximately
18 percent in 2001 and 2000 although total R&D expense increased 13 percent in
2001 versus 2000. The main contributors to the increase were the collaboration
agreements and the acquisition of Sensus as well as increases in project
spending and R&D administrative costs.

SELLING, GENERAL AND ADMINISTRATIVE (SG&A) expenses related to the Prescription
Pharmaceuticals segment increased 2 percent in 2002 versus 2001. As a percent of
sales, SG&A has been relatively constant at approximately 41 percent in 2002,
2001 and 2000. The primary reason for the 2002 increase in spending was
promotion payments relating to CELEBREX and BEXTRA. Additionally, increased
promotional and sales force expenditures were incurred for BEXTRA, INSPRA
(eplerenone tablets) and XALATAN. BEXTRA was launched in April of 2002. SG&A
expenses increased 9 percent in 2001 versus 2000. The dollar growth in 2001 is
largely attributable to increased promotion payments related to CELEBREX.
Increased sales of CELEBREX and the timing of European launches account for the
larger payments. Sales force expansions and marketing support for key products
also contributed to the increase in spending. Additionally, headcount increases
to support key products including CELEBREX, XALATAN, CAMPTOSAR and ZYVOX
contributed to the increased spending.

Other Pharmaceuticals

Other Pharmaceuticals is currently comprised of consumer health care (OTC
products), animal health, contract manufacturing, bulk pharmaceutical chemicals,
diagnostics and certain biotechnology holdings. The plasma


                                       18




<PAGE>

business was divested in 2001 (see discussion below). Sales of the remaining
businesses increased over the period 2001 to 2002 by $137 million, or 8 percent,
to $1.9 billion. Sales increases in consumer health care, animal health and
diagnostics were offset in part by a decrease in the contract manufacturing and
bulk pharmaceutical chemicals business.

The consumer health care business experienced strong sales growth in 2002
resulting from increases in tobacco dependency products. Sales were $829
million, $732 million and $644 million in 2002, 2001 and 2000, respectively.
This represents an increase of 13 percent in 2002 and 14 percent in 2001. The
business' leading products are for the treatment of tobacco dependency and hair
therapy. Sales of the tobacco dependency products increased significantly during
2002 and 2001 mainly due to the September 2001 launch of NICORETTE in Japan,
market share growth of NICORETTE in Canada following the 2001 acquisition of the
Canadian rights for NICORETTE and NICODERM, and increased demand of tobacco
dependency products in the U.S. Sales of ROGAINE products declined due to
continuing generic competition partially offset by the re-launch of PROGAINE.
Combined sales of these products for 2002 were $509 million as compared to $422
million in 2001 representing a 21 percent increase. In September 2001, the
Company acquired LUDEN'S throat drop product.

Sales in the animal health business increased 8 percent during 2002 to $506
million. This compares to a 6 percent increase in 2001 versus 2000. Sales in
2001 and 2000 were $469 million and $442 million, respectively. Animal health
sales in 2002 and 2001 were driven by NAXCEL/EXCENEL, an antibiotic used to
treat a variety of animals, and the LINCO franchise, antibiotics used to treat
swine and poultry infections.

During 2002, the Company sold its minority stake in Amersham Biosciences
resulting in a gain of $653 million, net of taxes. This gain has been recorded
as an extraordinary item. See Extraordinary Items below.

During 2001, the Company exited the plasma business. This was accomplished
through the contribution of the plasma operations to Biovitrum AB (Biovitrum),
which is 19 percent owned by the Company. Full year sales relating to plasma in
2000 were $78 million whereas 2001 included $53 million for the partial year.

Corporate/General

Corporate items represent general and administrative expenses of corporate
support functions, restructuring charges and other corporate items such as
litigation expense, merger costs and nonoperating income and expense. Items that
are not assigned to a specific business or are of a non-recurring nature are
designated as corporate. Corporate items are reflected in the earnings statement
principally in "SG&A", "All other, net" and "Merger and restructuring".

Corporate items resulted in a net income amount of $95 million in 2002, as
compared with a net expense amount of $1.1 billion for 2001. The favorable
earnings impact is mainly attributable to the decrease in merger and
restructuring costs in 2002 as compared with 2001 and certain one-time gains
recorded in 2002. Merger and restructuring expenses totaled $68 million in 2002
as compared with $673 million during 2001. Corporate income for 2002 includes
the $661 million gain relating to the return of U.S. product rights of AMBIEN to
Sanofi and a $100 million gain resulting from a legal settlement of an
intellectual property suit in the ophthalmology field. Partially offsetting
these gains are a $75 million charitable contribution to the Pharmacia
Foundation and an increase in pension costs.

Corporate and other expenses predominately consisted of merger and restructuring
charges for the years ended December 31, 2001 and 2000. Merger and restructuring
costs recorded were $673 million and $975 million for the years ended 2001 and
2000, respectively. In 2000, a $100 million charitable contribution was made.
Excluding these costs, corporate expenses primarily relate to administrative
costs.

Merger and Restructuring Charges

<TABLE>
<CAPTION>
                                 2002   2001   2000
----------------------------------------------------
<S>                              <C>    <C>    <C>
Dollars in millions
Merger costs:
Merger integration costs         $ 16   $340   $599
Other merger-related costs         --     79     --
Pfizer merger costs                44     --     --
----------------------------------------------------
Total merger costs                 60    419    599
----------------------------------------------------
</TABLE>


                                       19




<PAGE>

<TABLE>
<S>                              <C>    <C>    <C>
Restructuring costs:
Employee termination costs          8    177    278
Asset write-downs                  --     58     88
Other                              18     44     25
Reversals                         (18)   (25)   (15)
----------------------------------------------------
Total restructuring costs           8    254    376
----------------------------------------------------
Total merger and restructuring   $ 68   $673   $975
====================================================
</TABLE>

The Company recorded merger and restructuring charges of $68 million, $673
million and $975 million during 2002, 2001 and 2000, respectively. All of these
charges were recorded on the "Merger and restructuring" line of the consolidated
statements of earnings. In 2002, 2001 and 2000, merger and restructuring charges
comprised $60 million of merger expense and $8 million of net restructuring
expense, $419 million of merger expense and $254 million of net restructuring
expense and $599 million of merger expense and $376 million of net restructuring
expense, respectively.

During 2000, former Monsanto and P&U merged to form Pharmacia Corporation. As
a result of that merger, there were many duplicate functions and locations,
particularly in the prescription pharmaceutical segment and corporate
functions. The Company began a restructuring in order to integrate the two
companies, eliminate duplicate positions and facilities and create a
consolidated headquarters in New Jersey.

The board of directors approved a comprehensive integration and restructuring
plan in the spring of 2000. Due to the comprehensive nature of this
restructuring, the timelines for the various plans were expected to occur over
multiple years and the related restructuring charges also were intended to be
taken over three or four years. As of December 31, 2002, merger charges relating
to this plan are essentially complete.

On July 13, 2002, the Company entered into a definitive merger agreement with
Pfizer. Pharmacia incurred certain costs in 2002 necessary to facilitate the
completion of the merger.

Merger Costs

The $60 million of merger costs recorded in 2002 is comprised of the following:

o    $16 million to integrate the former Monsanto and P&U organizations;
     comprised largely of costs relating to information technology integration
     projects.

o    $44 million to facilitate the completion of the merger with Pfizer;
     comprised of $10 million relating to legal fees; $12 million relating to
     travel, benefits consulting, contract terminations and other merger related
     costs and a non-cash charge of $22 million for the accelerated vesting of
     certain restricted stock awards as a result of the shareholder approval of
     the merger agreement with Pfizer.

The $419 million of merger costs recorded in 2001 is comprised of the following:

o    $340 million to integrate the former Monsanto and P&U organizations;
     comprised of $139 million of consulting fees for system and process
     integration, $52 million relating to information technology integration
     projects, $26 million of contract termination fees and employee relocation
     costs, $123 million relating to other out-of-pocket merger costs such as
     travel, temporary payroll, incentives and other costs necessary to complete
     the merger.

o    $79 million relating to the formation and partial sale of Biovitrum. The
     $79 million is comprised of a noncash charge of $63 million relating to
     asset write-downs and $16 million of other related cash expenses. Biovitrum
     was established during the second quarter of 2001 as the result of the
     Company's plan to exit its Sweden-based metabolic disease research
     activities, its biopharmaceutical development unit and the Company's plasma
     business. The Company has partially divested of its ownership in Biovitrum
     and currently owns less than 20 percent.

The $599 million of merger costs recorded in 2000 is comprised of the following:


                                       20




<PAGE>

o    $100 million relating to investment bankers, $42 million in connection with
     legal and SEC fees, $48 million relating to consultant expense, $11 million
     relating to employee moving and relocation costs, $166 million of other
     merger costs necessary to integrate the two companies and a noncash charge
     of $232 million. This noncash charge related to certain former Monsanto
     employee stock options that contained a contractual reset provision that
     was triggered upon change-of-control so that, upon consummation of the
     merger, the original above-market exercise price was reduced to equal the
     fair market value on the date of grant.

Restructuring Costs

The $8 million of net restructuring charges recorded in 2002 is comprised of the
following:

o    $21 million associated with restructuring Prescription Pharmaceuticals.
     This was necessitated by the combination of G.D. Searle, the pharmaceutical
     business of former Monsanto, and P&U operations worldwide. The merger
     resulted in duplicate facilities, computer systems and positions around the
     world. The charges consist of $5 million relating to the separation of
     approximately 45 employees worldwide in R&D, manufacturing, marketing and
     administrative functions; $9 million relating to contract and lease
     termination fees and $7 million of other exit costs.

o    $5 million relating to the consolidation of corporate and administrative
     functions and other areas of former Monsanto and P&U and eliminating
     duplicative positions. This charge is comprised entirely of costs relating
     to the separation of approximately 35 employees.

o    $18 million of total reversals. This is comprised of a reversal of $5
     million relating to restructuring liabilities established in 1999 and 2000
     under the Monsanto restructuring plan that were reversed as a result of
     lower actual severance costs than originally estimated and $13 million
     relating to a change in a previous restructuring plan for a facility. As
     the result of a subsequent restructuring plan, sale of the building
     resulted in a gain.

The $254 million of restructuring charges recorded in 2001 is comprised of the
following:

o    $225 million associated with restructuring Prescription Pharmaceuticals.
     This was necessitated by the combination of G.D. Searle and P&U operations
     worldwide. The merger resulted in duplicate facilities, computer systems
     and positions around the world. The charges consist of $144 million
     relating to the separation of approximately 1,050 employees worldwide in
     R&D, manufacturing, marketing and administrative functions; $41 million
     relating to asset write-downs resulting from duplicate computer equipment
     and facilities; $33 million relating to contract and lease termination fees
     and $7 million of other exit costs.

o    $29 million, net, relating to the consolidation of corporate and
     administrative functions in the Company's New Jersey headquarters and the
     elimination of duplicate administrative positions and a reversal of $25
     million of prior accruals relating to the previous P&U restructuring plans
     due to lower separation payments than initially anticipated. This charge is
     comprised of $33 million relating to the separation of approximately 240
     employees primarily in corporate and administrative functions, $17 million
     relating to asset write-downs of duplicate computer systems and leasehold
     improvements in duplicate facilities and $4 million of contract and lease
     termination costs.

The $376 million of restructuring charges recorded in 2000 is comprised of the
following:

o    $241 million associated with restructuring Prescription Pharmaceuticals.
     This was necessitated by the combination of G.D. Searle and P&U operations
     worldwide. The merger resulted in duplicate facilities, computer systems
     and positions around the world. The charges consist of $165 million
     relating to the separation of approximately 1,360 employees worldwide in
     R&D, manufacturing, marketing and administrative functions; $51 million
     relating to asset write-downs resulting from duplicate computer systems and
     facilities; $22 million relating to contract and lease terminations and $3
     million of other exit costs.

o    $150 million relating to the consolidation of corporate and administrative
     functions in New Jersey and the elimination of duplicate administrative
     positions. This charge is comprised of $113 million relating to the
     separation of approximately 210 employees in corporate and administrative
     functions and $37 million


                                       21




<PAGE>

     relating to asset write-downs (duplicate computer systems and leasehold
     improvements in duplicate facilities), lease termination fees and other
     exit costs.

o    $15 million relating to the reversals of prior P&U restructuring reserves
     that resulted from higher than anticipated proceeds on asset sales and
     lower than anticipated separation payments.

Restructuring charges and spending associated with the current restructuring
plans relating to the integration of the former Monsanto and P&U companies
follow. The table below does not include activity incurred under previous P&U
restructuring plans, which began in 1995 and 1997. All activities relating to
these plans have been completed.

<TABLE>
<CAPTION>
                            Workforce    Other Exit
                            Reductions      Costs     Total
------------------------------------------------------------
<S>                           <C>           <C>       <C>
Dollars in millions

Balance January 1, 2000       $  --         $ --      $  --
Additions                       278           25        303
Deductions                     (119)         (15)      (134)
------------------------------------------------------------
Balance December 31, 2000       159           10        169
Additions                       177           37        214
Deductions                     (221)         (37)      (258)
------------------------------------------------------------
Balance December 31, 2001     $ 115         $ 10      $ 125
Additions                        10           16         26
Deductions                     (113)          (9)      (122)
Reversals                        (5)          --         (5)
------------------------------------------------------------
Balance December 31, 2002     $   7         $ 17      $  24
============================================================
</TABLE>

As of December 31, 2002, cash payments totaling $453 relating to the separation
of approximately 2,740 employees have been paid and charged against the
liability.

As of December 31, 2002, all activities relating to the restructuring plans
associated with former Monsanto have been substantially completed.

All Other, Net

All other, net consists of income and expense items that are dissimilar to the
other line captions on the consolidated statements of earnings. All other, net
for 2002 was $1,085 million of net gains. "All other, net" for 2001 was $82
million of net expense versus $74 million of net gains in 2000. The change
between 2002, 2001 and 2000 is attributable in large part to transactions with
Sanofi related to AMBIEN. 2002 includes a $661 million gain relating to the
return of U.S. product rights of AMBIEN to Sanofi and $73 million in income
received in the first quarter for the Company's share to AMBIEN earnings. Prior
to January 1, 2002, the Company recorded the sales and expenses of AMBIEN.
Related payments made to Sanofi were included as part of All other, net. 2002
also includes a net $100 million gain resulting from a settlement of an
intellectual property legal suit in the ophthalmology field, $60 million royalty
income, a $28 million gain relating to the sale of clinical study data to
Boehringer Ingelheim, a $45 million gain on the sale and license of
non-strategic product rights and a $71 million gain on the sale of non-strategic
equity investments. The 2001 net expense of $82 million was comprised of
approximately $220 million net costs related to AMBIEN, partly offset by $70
million royalty income and $56 million realized gains on sales of investments.
The 2000 net income of $74 million was comprised of $70 million royalty income,
$48 million gains on sales of assets, $41 million gains on investments and $81
million net gain from other miscellaneous items offset by $166 million AMBIEN
related costs. In addition, the Company periodically makes certain equity
investments and loans in companies with which it has a collaborative agreement.
In 2002 and 2001, certain of these investments were considered impaired on an
other-than-temporary basis. The Company reduced the capitalized value of these
investments and recognized losses of $28 million in 2002 and $40 million in 2001
to bring them to current market value.


                                       22




<PAGE>

Income Taxes

The annual effective tax rate in 2002 was 26.3 percent. This compares with 18.7
percent in 2001 and 22.7 percent in 2000. The increase in the rate in 2002 was
attributable to a rise in the proportion of earnings generated in the U.S.
versus jurisdictions with more favorable tax rates, reversing the trend from
2000 to 2001. Contributing significantly to the increased U.S.-based income in
2002 were the gains reported in "All other, net" related to the return of AMBIEN
to Sanofi and the settlement of an intellectual property legal suit in the
ophthalmology field. Also, merger and restructuring charges were significantly
lower in 2002 as compared with 2001. The lower rate in 2001 compared with 2000
was attributable largely to increased income in 2001 derived from operations in
jurisdictions subject to more favorable tax rates.

The noteworthy items and fluctuations in pretax earnings cited above and the tax
jurisdictions in which they arose had a significant effect on the overall
effective tax rate. Absent such items, the annual effective tax rate would have
been 24 percent, 25 percent and 27 percent for 2002, 2001 and 2000,
respectively.

In certain cases, the Company operates under favorable tax agreements with local
jurisdictions that have limited duration.

Comprehensive Income

Comprehensive income is defined as all nonowner changes in equity. It is
calculated as net earnings plus or minus other comprehensive income (loss). For
Pharmacia, other comprehensive income (OCI) consists of currency translation
adjustments, unrealized gains and losses on available-for-sale securities,
unrealized gains and losses on hedging instruments and minimum pension liability
adjustments. OCI also includes Monsanto activity for 2000, 2001 and 2002 through
the spin-off date of August 13, 2002. Comprehensive income for 2002, 2001 and
2000 was $50 million, $1.1 billion and $288 million, respectively.

The primary factor contributing to the difference between net income and
comprehensive income for 2002 was an increase in the minimum pension liability.
Also affecting the difference for the year were increases in unrealized holding
losses offset by favorable changes in currency translation adjustments as a
result of certain foreign currencies strengthening against the dollar.

Unfavorable currency movements in 2001 reduced comprehensive income to an amount
less than net earnings due to the continuing strength of the dollar against
other currencies, particularly with respect to the Japanese yen. Unfavorable
currency movements in 2000 were due to the continuing strength of the dollar
against other currencies and reduced comprehensive income to an amount less than
net earnings. Unrealized investment gains, particularly in equities, partially
offset the unfavorable translation adjustment.

Financial Condition, Liquidity, Capital Resources and Cash Flow

The Company has no off-balance-sheet special purpose entities used for
financing.

<TABLE>
<CAPTION>
As of December 31,              2002       2001     2000
----------------------------------------------------------
<S>                            <C>       <C>       <C>
Dollars in millions
Working capital                $ 4,300   $2,674    $ 3,181
Current ratio                   1.86:1    1.54:1    1.63:1
Debt to total capitalization      30.5%     20.7%     27.2%
==========================================================
</TABLE>

Financial Condition

The Company had A-1+ and P-1 ratings for its commercial paper and AA-and A1
general bond ratings from Standard & Poor's and Moody's, respectively, as of
December 31, 2002.

Working capital and the current ratio improved in 2002 versus the prior year.
The debt-to-total-capitalization ratio deteriorated in 2002 versus the prior
year, less due to an increase in borrowing than because of a decrease in
equity resulting from the spin-off of Monsanto. Working capital increased $1.6
billion, or 61 percent, in 2002 compared to 2001. The significant improvement in
working capital is primarily the result of an increase in cash and cash
equivalents, short-term investments and inventories offset by a decrease in
short-term notes receivable from Monsanto. Cash received from the return of
rights to AMBIEN and the sale of the Amersham Biosciences


                                       23




<PAGE>

investment contributed to the increased cash and short-term investments at
December 31, 2002. Also, the short-term notes receivable with Monsanto matured
and were paid. The increase in inventory is a result of a shift in the mix of
inventory towards higher cost products coupled with increases in preparation for
product launches and timing of supplies purchases.

Unlike 2002, working capital and the current ratio decreased in 2001 versus the
prior year while the debt-to-total-capitalization ratio improved. The decrease
in working capital of 16 percent was largely due to a reduction in cash balances
and an increase in accounts and income taxes payable. Cash levels were reduced
versus the prior year due to expenditures relating to the stock buy-back program
and the early extinguishment of debt. The timing of purchases coupled with
increased volume relative to sales account for the increase in accounts payable.
The working capital decline was partially offset by increases in inventory
balances due to a shift in the mix of inventory towards higher cost products.
The repurchase and scheduled maturities of several debt issues accounted for the
substantial decrease in debt of $1.3 billion (28 percent) in 2001 over the prior
year.

Cash Flow

Net cash provided by continuing operations is a major source of funds to finance
working capital, shareholder dividends and capital expenditures. Net cash
provided by continuing operations during 2002 totaled $1.3 billion down
from 2001 in which net cash provided by continuing operations totaled $1.8
billion. This decline was due, in part, to a funding of U.S. pension plans in
the amount of $234 million during 2002. As mentioned above, major sources of
cash during the year from investing activities included the transactions
associated with AMBIEN and Amersham Biosciences (reflected as "Proceeds from
sale of subsidiaries").

On a continuing basis, the Company reinvests a portion of profits into the
business through capital spending. During 2002, capital expenditures for
property, plant and equipment of $1.1 billion were largely for the construction
or expansion of manufacturing and research facilities, as well as the purchase
of land and buildings in New Jersey from AT&T Corporation for a centralized
corporate headquarters. The Company expended $711 million in 2002 for dividends,
made investments of $434 million and reacquired outstanding Company stock of
$620 million.

In 2001, net cash provided by continuing operations totaled $1.8 billion and was
driven by net earnings growth of 109 percent versus 2000. Other major sources of
cash for 2001 included the proceeds received from the issuance of stock of $872
million and the proceeds from the sales of investments and properties of $169
million.

Capital expenditures for property, plant and equipment were $1.0 billion in
2001, dividend payments amounted to $651 million and repurchase of Company stock
amounted to $864 million. Other cash outflows included the repurchase of certain
debt issues. In July 2001, the Company retired debt related to the adjustable
conversion-rate equity securities (ACES) in the amount of $700 million. The
equity portion of the ACES became due during the fourth quarter of 2001. On the
settlement date, the Company issued 16,467,500 shares in accordance with the
contract and received $700 million. In June 2001, the Company initiated the
retirement of certain third-party debt pertaining to the Employee Stock
Ownership Plan (ESOP). The cash impact of the transaction was $26 million.

Net cash provided by continuing operations in 2000 totaled $1.1 billion. During
2000, the Company received proceeds from the sale of investments and properties
of $249 million. Throughout 2000, the Company discontinued several non-core
businesses that generated proceeds of $1.7 billion. These divestitures had been
committed to prior to the merger between former Monsanto and P&U. During 2000,
the Company repaid long-term debt totaling $1.8 billion including the early
repurchases of certain debt instruments of $362 million. Dividends payments in
2000 amounted to $622 million and capital expenditures totaled $773 million.

Contractual Obligations

<TABLE>
<CAPTION>
                                                Less than                            After
December 31, 2002                       Total    1 year     1-3 years   4-5 years   5 years
-------------------------------------------------------------------------------------------
<S>                                    <C>         <C>        <C>         <C>        <C>
Dollars in millions
Long-term debt                         $2,599      $ 14       $  699      $257       $1,629
ESOP guaranteed debt                      119        55           64        --           --
Operating leases                          696       148          221       181          146
R&D milestone payments (1)                536        49           36       152          299
Employee compensation agreements (2)      375       375           --        --           --
-------------------------------------------------------------------------------------------
Total                                  $4,325      $641       $1,020      $590       $2,074
===========================================================================================
</TABLE>


                                       24




<PAGE>


Other Commercial Commitments

<TABLE>
<CAPTION>
                                        Less than                            After
December 31, 2002               Total    1 year     1-3 years   4-5 years   5 years
-----------------------------------------------------------------------------------
<S>                            <C>        <C>         <C>          <C>        <C>
Lines of credit(3)             $1,550     $1,050      $500         $--        $ --
Standby letters of credit(4)       86         51        35          --          --
Construction in process           701        701        --          --          --
-----------------------------------------------------------------------------------
Total                          $2,337     $1,802      $535         $--        $ --
===================================================================================
</TABLE>

(1) Because of the need for various milestones to be achieved in order to
trigger a payment obligation, not all of these amounts may ultimately be paid.

(2) The Company has various nonqualified benefit and compensation plans that
provide for deferred payout of amounts to plan participants. Due to the change
in control as a result of the planned merger with Pfizer, the majority of the
benefits will become payable to the participants. The accrued benefits under the
plans are estimated to be $375 million. These funds have been contributed to a
trust that will administer payment of these employee benefits subsequent to the
Pfizer merger. As of December 31, 2002, the trust has been fully consolidated in
the Pharmacia balance sheet.

(3) Maturities represent the period in which the lines of credit expire. At
December 31, 2002, $43 million was drawn against these facilities.

(4) Maturities represent the period in which the letters of credit expire.

The stock buy-back program initiated by the Company in 2001 was suspended in
mid-2002 due to the merger negotiations with Pfizer.

The Company's future cash provided by continuing operations and borrowing
capacity is expected to cover normal operating cash flow needs, planned capital
spending and dividends for the foreseeable future.

Litigation and Contingent Liabilities

Various suits and claims are pending against the Company and its subsidiaries
including suits for personal injury alleged to have been caused by the use of
the Company's products, commercial disputes, patent infringement matters and
purported class actions. 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 (EPA) and state
environmental agencies for remediation.

The Company is a defendant in a lawsuit brought by CP Kelco in Federal Court in
Delaware seeking compensatory and punitive damages for alleged breach of
contract, fraud and securities law violations arising out of the purchase of the
Company's Kelco biogums business in 2000 by Lehman Brothers Merchant Bank
Partners II, L.P. (Lehman), which combined the Company's Kelco biogums business
with a business purchased from Hercules, Inc. to form CP Kelco. The Company has
asserted counterclaims against the plaintiff for the return of certain payments
and specific performance of plaintiff's contractual obligation to provide
severance benefits to certain employees of the Company who were transferred to
CP Kelco. The Company has also asserted indemnification claims against Lehman
and Hercules in a third-party complaint.

Discovery has been completed in the lawsuit. A September 2002 Report and
Recommendation (September Report) issued by the magistrate judge in the case
granted Lehman's and Hercules' motion for judgment on the pleadings. The Company
has filed objections to the September Report and those objections have not been
ruled upon. An October 2002 Report and Recommendation (October Report) granted
in part and denied in part the Company's motion for summary judgment. The
Company has filed objections to that portion of the October Report that denied
its motion. Those objections have not been ruled upon. Trial is now scheduled
for April 28, 2003.

Pursuant to the Separation Agreement between Pharmacia and Monsanto, as amended
(the "Separation Agreement"), Monsanto assumed and agreed to indemnify Pharmacia
for liabilities related to the agricultural business. In the proceedings where
the Company is the defendant, Monsanto will indemnify the Company for costs,
expenses and any judgments or settlements; and in the proceedings where the
Company is the plaintiff, Monsanto will pay the fees and costs of, and receive
any benefits from, the litigation. Therefore, Pharmacia may remain the named
party in certain legal proceedings, but Monsanto will manage the litigation
including indemnifying Pharmacia for costs, expenses and any judgments or
settlements.


                                       25




<PAGE>

In connection with the spin-off of Solutia Inc. (Solutia) on September 1, 1997,
Solutia assumed from Pharmacia liabilities related to the former Monsanto
chemical businesses pursuant to the Distribution Agreement, as amended (the
"Distribution Agreement"). As a result, Pharmacia remains the named defendant in
certain legal proceedings but Solutia manages the litigation and pays all costs,
expenses and any judgments or settlements.

Pursuant to the terms of the Separation Agreement, Monsanto has assumed, and
agreed to indemnify Pharmacia for, any liabilities primarily related to former
Monsanto's former chemical businesses, including any liabilities that Solutia
has assumed from Pharmacia in connection with the spin-off of Solutia, to the
extent Solutia fails to pay, perform or discharge these liabilities. This
indemnification obligation applies to litigation, environmental, retiree and all
other liabilities assumed by Solutia pursuant to the spin-off.

For example, Solutia assumed responsibility for litigation currently pending in
state and federal court in Alabama brought by several thousand plaintiffs,
alleging property damage, anxiety and emotional distress and personal injury
arising from exposure to polychlorinated biphenyls (PCBs), which were discharged
from an Anniston, Alabama plant site that was owned by former Monsanto and that
was transferred to Solutia as part of the spin-off. This litigation includes,
but is not limited to, the Abernathy litigation referred to below. Pursuant to
the terms of the Distribution Agreement, Solutia is required to indemnify
Pharmacia for liabilities that Pharmacia incurs in connection with this
litigation.

Solutia is defending itself and Pharmacia in connection with Sabrina Abernathy,
et al. v. Monsanto Company, et al., currently pending in state court in Alabama.
The jury has found Solutia and Pharmacia (former Monsanto) liable with respect
to certain claims in this litigation, and proceedings have commenced to
determine damages. Solutia requested that Pharmacia commit to posting any appeal
bond that may be required to stay execution of any judgment in this litigation
pending an appeal. Pursuant to a Protocol agreement dated as of July 1, 2002,
Pharmacia, Monsanto and Solutia have agreed that, if Solutia does not post a
bond sufficient to stay the execution of any judgment in the litigation pending
an appeal, Pharmacia will post such a bond if it is able to do so on
commercially reasonable terms. Solutia shall pay the expenses incurred in
connection with obtaining any such bond. The agreement also specifies which
party or parties would control any decisions regarding settlement of the
Abernathy litigation, depending upon whether or not collateral must be provided
to secure the bond and, if so, which party provides it. Under the agreement, the
continued defense of the Abernathy litigation and the prosecution of any appeal
will continue to be managed by Solutia, at Solutia's expense.

Based on information currently available and the Company's experience with
lawsuits of the nature of those currently filed or anticipated to be filed that
have resulted from business activities to date, the amounts accrued for product
and environmental liabilities are considered adequate. While the results of
litigation cannot be predicted with certainty, management's belief is that any
potential remaining liability that might exceed amounts already accrued will not
have a material adverse effect on the Company's consolidated financial position,
its results of operations or liquidity, except where specifically disclosed
herein and in Note 16, Commitments, Contingent Liabilities and Litigation, to
our financial statements.

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 clean-up remedies, the estimated cost of clean-up, and the
Company's share of a site's cost. With regard to the Company's discontinued
industrial chemical facility in North Haven, Connecticut, the Company will be
required to submit a corrective measures study report to the EPA. 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. It is not possible, however, to estimate a range
of potential losses. Accordingly, it is not possible to determine what, if any,
exposure exists at this time or when the expenditures might be made.

Discontinued Operations

Monsanto

On November 28, 2001, Pharmacia's Board of Directors approved a formal plan to
distribute to its shareholders all the remaining outstanding shares of common
stock held by Pharmacia in Monsanto. On July 18, 2002, Pharmacia's Board of
Directors declared the special stock dividend. The spin-off dividend was
distributed on August 13, 2002 to Pharmacia shareholders of record at the close
of business on July 29, 2002. Each Pharmacia shareholder received .170593 shares
of Monsanto common stock for each share of Pharmacia common stock owned on the
record date.


                                       26




<PAGE>

In connection with the spin-off of Monsanto, Pharmacia recorded a loss on
disposal of discontinued operations of $938 million for the year ended 2002,
which was comprised of $47 million of net income from discontinued operations
offset by an impairment loss of $985 million calculated by comparing the
adjusted book value of Monsanto shares on August 13, 2002 the date of the
spin-off, to Monsanto's fair value based upon the closing stock price on
August 13 of $15.81.

On September 1, 2000, the Company entered into a Transition Services Agreement
with Monsanto. Under the agreement, Pharmacia primarily provides information
technology support for Monsanto while Monsanto provides certain administrative
support services for Pharmacia. Pharmacia and Monsanto also lease research and
office space from each other. Since the initiation of the agreement, each party
has charged the other entity rent, where applicable, based on a percentage of
occupancy multiplied by the cost to operate the facilities. These services are
continuing beyond August 13, 2002.

Other

During the fourth quarter of 2002, the Company's senior management approved a
formal plan to sell a majority-owned pharmaceutical subsidiary in Russia. In
connection with the commitment to sell, and in contemplation of an offer
received in December 2002, the Company is accounting for this subsidiary as a
discontinued operation and has reflected its results of operations and financial
position as part of discontinued operations for all periods presented.

The carrying value of the Russian subsidiary being held for sale was adjusted to
reflect the estimated fair value less cost to complete the sale of the
subsidiary as of December 31, 2002, which resulted in an impairment loss of $9
million, net of tax, recorded in 2002.

Extraordinary Items

During 2002, the Company sold its 45 percent minority interest in Amersham
Biosciences to Amersham plc for $1 billion. The investment basis as of March
2002 was $223 million. The sale resulted in a gain of $653 million (net of taxes
of $124 million). The gain on the sale has been classified as an extraordinary
item in the accompanying consolidated statements of earnings in accordance with
Accounting Principles Board (APB) Opinion No. 16 "Business Combinations" because
the sale of this investment took place within the two-year period following the
merger of P&U and former Monsanto, which was accounted for under the pooling of
interests accounting method. The sale of this investment was not contemplated at
the time of the pooling.

During 2001 and 2000, the Company had three retirements of debt. In 2001, the
Company retired debt related to the adjustable conversion-rate equity securities
in the principal amount of $700 million and certain debt obligations relating to
one of the ESOPs in the amount of $24 million. The $12 million of net-of-tax
costs associated with these retirements has been classified to "Extraordinary
items, net of tax" on the Company's consolidated statements of earnings. In
2000, the Company repurchased certain long-term debt issues with a total
principal amount of $362 million. The cost of this action was $32 million, net
of tax. The costs related to the tender were comprised of normal inducement
premiums and professional and administrative fees.

Beginning in 2003, with the adoption of SFAS No. 145 having to do, in part, with
reporting gains and losses from the extinguishment of debt, the Company believes
that the frequency of extraordinary treatment will diminish.

Critical Accounting Policies

The consolidated financial statements are presented on the basis of accounting
principles that are generally accepted in the U.S. All professional accounting
standards that are effective as of December 31, 2002 have been taken into
consideration in preparing the consolidated financial statements. The Company
has chosen to highlight certain policies that it considers critical to the
operations of the business and understanding its consolidated financial
statements. Because estimates and assumptions are involved in the preparation of
consolidated financial statements, actual results could differ from those
estimates.

Revenues are recognized when title to products and risk of loss are transferred
to customers, collection of sales proceeds is reasonably assured and the Company
has no further performance obligations. Where right of return exists, revenues
are reduced at the time of sale to reflect expected returns that are estimated
based on historical experience. In addition to returns, the Company records
costs that represent rebates and sales incentives as a reduction of revenues at
the time of the sale or transaction. Accruals for returns, rebates and
incentives are based on


                                       27




<PAGE>

historical and expected utilization based on assumptions for market dynamics,
pricing strategy, formulary status, and changes in the political and regulatory
environment. Other factors also considered include the contractual terms as well
as the discount rates associated with each particular program or contract. The
accrual rate is reviewed on a regular basis and adjusted as needed to reflect
actual submissions, payments, and additional future events.

Nonrefundable upfront payments from promotion partners are deferred and
recognized over the life of the agreement. Such arrangements are evaluated on an
individual basis.

Research and development expenses are charged to the consolidated statements of
earnings. The Company considers that regulatory and other uncertainties inherent
in the development of new products preclude it from capitalizing development
costs. This treatment includes upfront and milestone payments made to third
parties in connection with R&D collaborations. Acquired projects that have
achieved technical feasibility, signified by the FDA or comparable regulatory
body approval, are capitalized because it is probable that the costs will give
rise to future economic benefits. Laboratory buildings and equipment with
alternative uses are included in tangible fixed assets and depreciated over
their estimated useful lives. The Company has no off-balance-sheet special
purpose entities financing or conducting research or development.

The Company's consolidated balance sheets reflect various financial instruments
including cash and cash equivalents, investments, debt obligations and
derivative instruments. The Company does not engage in trading activities or
off-balance-sheet financial instruments. As a matter of Company policy, excess
cash and deposits are held by major banks throughout the world or in high
quality short-term liquid debt instruments backed by qualified financial
institutions. The Company has investments, mainly in equity securities that are
carried at fair market value. Long-term debt obligations of the Company are
carried at amortized cost. The Company uses certain derivative instruments
including forward contracts, cross-currency swaps, currency options and interest
rate swaps to protect assets and cash flows mainly from fluctuations that may
arise from volatility in currency exchange and interest rates. These instruments
are carried at fair market value. Additional discussion regarding financial
instruments is discussed under Market Risk and in the notes to the consolidated
financial statements.

The Company is self-insured for product liability exposures up to reasonable
risk retention levels where excess coverage has been obtained. For product
liability claims that have been incurred, liability calculations take into
account such factors as specific claim amounts and past experience with such
claims. The Company accrues for incurred but not yet reported claims when they
are probable and reasonably estimable. In estimating this liability the Company
considers historical experience including specific claim amounts for actual
claims incurred, past experience with such claims, and the number of claims
reported. As actual claims are reported, adjustments are made to estimates as
required. In addition to this base level of reserves, individually significant
contingent losses are accrued for in compliance with applicable guidance.
Product liability accruals are not reduced for expected insurance recoveries.

The Company accrues for environmental remediation liabilities when they are
probable and reasonably estimable based on current law and existing
technologies. In determining this liability, the Company considers the extent of
the environmental impact, the appropriate remedial technology, the requirements
of regulators and estimated costs of alternative remedial design and action
plans. The accruals are adjusted as further information develops or
circumstances change. Costs of future expenditures do not reflect any claims for
recoveries and are not discounted to their present value.

The Company currently has various pension plans covering substantially all
employees. The Company's most significant plans are in the U.S., constituting
approximately 65 percent of consolidated plan assets and 60 percent of
consolidated projected benefit obligations at December 31, 2002. The expected
long-term rate of return on plan assets is a significant assumption used to
account for retirement benefit plans. The return-on-asset rate that has been
selected to calculate expected returns on plan assets in the U.S. for 2003 is
9 percent.

For U.S. plans, the Company determines an expected long-term rate of return by
starting with an average return of 10 percent for U.S. and international equity
investments. Accepted spreads for other asset classes, primarily intermediate
bonds, long-term bonds and real estate are used to determine assumed returns. A
premium is added to each asset class to reflect the actual premium returned to
the Pharmacia pension plans over the past ten years as a result of active
management of the portfolio. The asset returns for each class are appropriately
weighted by asset allocation. The portfolio is frequently rebalanced so there is
not a material difference between the actual and assumed asset allocation. Based
on this methodology, the Company determines an expected long-term rate ranging
from 9 percent to 10 percent, and accordingly the Company has selected an
expected long-term rate of return of 9 percent for the year 2003.


                                       28




<PAGE>

The U.S. weighted-average expected long-term rate of return used in 2002 was
9.89 percent. A twenty-five basis point decrease in the Company's expected rate
of return would have increased 2002 pension expense by approximately $3.5
million. This assumption is not used for funding purposes, so there is no direct
effect on funding requirements due to a change in this assumption.

The Company's pension plans outside the U.S. had a weighted-average expected
long-term rate of return on plan assets of 8.43 percent for 2002 and will use a
weighted-average rate of 7.44 percent for 2003 benefit cost determination. A 25
basis point decrease in the Company's expected rate of return on plan assets for
significant pension plans outside the U.S. would have increased 2002 pension
expense by approximately $2 million.

Modifications to accepted spreads between U.S. equities and other asset classes,
changes in the premium Pharmacia realizes due to active management, or changes
to Pharmacia's asset class allocation might result in a future change to this
assumption. In general, unrecognized gains and losses are amortized in future
expense to the extent the cumulative value is in excess of the FAS 87 "corridor"
(10 percent of the greater of the benefit obligation or market-related value of
plan assets).

The Company uses a calculated value to determine the market-related value of the
majority of plan assets. The asset valuation method spreads the difference
between the expected return during the year on the prior year's market-related
value of assets, adjusted to reflect contributions and benefit payments made,
and the actual return experienced by the fund during the year ending with the
measurement date over five years.

The Company applies an asset and liability approach to accounting for income
taxes. Deferred tax liabilities and assets are recognized for the expected
future tax consequences of temporary differences between the financial statement
and tax bases of assets and liabilities using enacted tax rates in effect for
the years in which the differences are expected to reverse. The Company records
deferred income taxes on subsidiaries' earnings that are not considered to be
permanently invested in those subsidiaries. In addition, the Company believes
that the accrued tax liability was adequate for all years.

New Accounting Standards

In January 2003, the Financial Accounting Standards Board (FASB) issued
Interpretation No. 46 (FIN 46), "Consolidation of Variable Interest Entities."
This pronouncement will require companies prospectively to consolidate their
interests in certain other entities where there exists what is referred to as a
`variable interest'. This can be a contractual, ownership or other interest in
an entity that changes with changes in the entities net asset value. The Company
is currently assessing the effect of this Interpretation, but does not believe
the impact of adopting this standard will be significant as the Company does not
anticipate consolidation of any variable interest enterprises.

In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure." This Statement amends SFAS No. 123,
"Accounting for Stock-Based Compensation," to provide alternative methods of
transition for a voluntary change to the fair value-based method of accounting
for stock-based employee compensation. Additionally, SFAS No. 148 amends the
disclosure requirements of SFAS No. 123 to require prominent disclosures in both
annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on reported
results.

The Company has adopted the disclosure provisions of SFAS No. 148, which
requires that additional information be disclosed in the "Summary of Significant
Accounting Policies" (Note 1 to the Company's financial statements). Such
information includes a tabular presentation of net income and basic and diluted
earnings per share as reported. The table also includes the stock-based employee
compensation cost, net of related tax effects, included in the determination of
net income as if the fair value based method had been applied to all awards, as
well as, pro forma net income and basic and diluted earnings per share as if the
fair value based method had been applied to all awards. Other information
disclosed in Note 1 includes the method used to account for stock-based employee
compensation.

In November of 2002, the FASB issued FIN 45, "Guarantor's Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others (an Interpretation of SFAS Nos. 5, 57, and 107 and
rescission of FASB Interpretation No. 34)." FIN 45 requires interim and annual
disclosure about each guarantee or group of similar guarantees. The
interpretation applies to various indemnification agreements and other contracts
that contingently require the guarantor to make payments based on the changes in
an underlying or based on another entity's failure to perform. It also
incorporates several indirect guarantees of the indebtedness of others. The


                                       29




<PAGE>

disclosure requirements became effective for the year ended December 31, 2002
and have been disclosed accordingly. See Note 16 for further discussion.

In addition to disclosure requirements, FIN 45 requires guarantors to recognize
the fair value of a liability at the inception of a guarantee. The initial
recognition and initial measurement provisions are to be applied on a
prospective basis to guarantees issued or modified effective January 1, 2003.
The Company believes that there will not be a material impact on its
consolidated financial statements due to the adoption of these rules.

In June 2002, the FASB issued SFAS No. 146 "Accounting for Costs Associated with
Exit or Disposal Activities". The new rules amend existing accounting for these
costs by requiring that a liability be recorded at fair value when incurred. The
liability would be reviewed regularly for changes in fair value with adjustments
recorded in the consolidated financial statements. Previous rules permitted
certain types of costs to be recognized at time of management commitment. SFAS
No. 146 also provides specific guidance for lease termination costs and one-time
employee termination benefits when incurred as part of an exit or disposal
activity. SFAS No. 146 became effective on January 1, 2003, and the Company
believes that there will not be a material impact on its consolidated financial
statements due to the adoption of these rules.

On May 1, 2002, the FASB issued SFAS No. 145, "Rescission of SFAS Nos. 4, 44 and
64, Amendment of SFAS 13, and Technical Corrections". Under the current rules,
SFAS No. 4, "Reporting Gains and Losses from Extinguishment of Debt," requires
that all gains and losses from the extinguishment of debt be classified as
extraordinary on the Company's consolidated statements of earnings, net of
applicable taxes. SFAS No. 145 rescinds the automatic classification as
extraordinary and requires that the Company evaluate whether the gains or losses
qualify as extraordinary under APB Opinion No. 30, "Reporting the Results of
Operations-Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions". SFAS
No. 145 became effective on January 1, 2003, and the Company believes that there
will not be a material impact on its consolidated financial statements due to
the adoption of these rules.

On January 1, 2002, SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets," became effective. It provides guidance on the accounting for
the impairment or disposal of long-lived assets. For long-lived assets to be
held and used, the new rules are similar to previous guidance that required the
recognition of an impairment when the undiscounted cash flows would not recover
its carrying amount. The impairment to be recognized will continue to be
measured as the difference between the carrying amount and fair value of the
asset. The computation of fair value now removes goodwill from consideration and
incorporates a probability-weighted cash flow estimation approach as an
alternative to the traditional present value method. SFAS No. 144 retains the
guidance in SFAS No. 121 relating to assets that are to be disposed of by sale.
Additionally, assets qualifying for discontinued operations treatment have been
expanded beyond the former major line of business or class of customer approach.
Long-lived assets to be disposed of by other than sale are now considered assets
to be held and used until the disposal date. In connection with the spin-off of
Monsanto, an impairment loss was recorded in the amount of $985 million. This
was the only material impact on the Company's consolidated financial statements
due to the adoption of these rules. See Note 8 to our financial statements for
additional details related to the impairment loss.

In July 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations." SFAS No. 143 addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and the
associated retirement costs. The Company is currently evaluating the effects the
new rules may have on its consolidated financial statements but does not believe
there will be a material effect as a result of its January 1, 2003 adoption.

Forward-Looking Statements

Certain statements contained in this Report, as well as in other documents
incorporating by reference all or part of this Report, are "forward-looking
statements" provided under the "safe harbor" protection of the Private
Securities Litigation Reform Act of 1995. These statements are made to enable a
better understanding of the Company's business, but because these
forward-looking statements are subject to many risks, uncertainties, future
developments and changes over time, actual results may differ materially from
those expressed or implied by such forward-looking statements. See
Forward-Looking Information on page 2 of this annual report on Form 10-K for the
period ended December 31, 2002.


                                       30




<PAGE>

Item 7a. Quantitative and Qualitative Disclosures About Market Risks

Market risk represents the risk of a change in the value of a financial
instrument, derivative or non-derivative, caused by fluctuations in interest
rates, currency exchange rates and equity prices. The Company handles market
risk in accordance with established policies and enters into various derivative
transactions to manage those risks. No such transactions are entered into for
trading purposes. The following sensitivity analysis presents the hypothetical
change in fair value of those financial instruments held by the Company at
December 31, 2002, which are sensitive to market risk. For equity price and
currency exchange risk, the hypothetical change reflects the impact on fair
value of a 10 percent shift in those indices. For interest rate sensitive
instruments, market risk is estimated as the potential change in fair value
resulting from an immediate hypothetical one-percentage point parallel shift in
the yield curve.

Because the Company's short-term and long-term debt exceeds cash and
investments, the exposure to interest-rate risk relates primarily to the debt
portfolio. The Company actively manages all portfolios to reduce its cost and
increase its return on investment. To ensure liquidity, the Company will only
invest in instruments with high credit quality where a secondary market exists.
The Company is in a position to keep all investments until final maturity and
maintains the majority of long-term debt at fixed rates.

The fair values of the Company's investments and debt are primarily based on
quoted market prices or, where necessary, on discounted cash flows. The amount
of debt valued using discounted cash flows had a fair market value of
approximately $200 million. As the carrying amounts on short-term debt,
investments and related-party notes maturing in less than one year approximate
fair value, these are not included in the sensitivity analysis. The fair value
of debt included in the analysis is $2.9 billion and excludes ESOP guaranteed
debt. A one-percentage point change in the interest rates would change the fair
value of debt by $219 million. The fair value of ESOP debt relating to the
guarantee was $120 million.

The Company maintains a foreign-currency risk-management strategy that is
primarily focused on reducing the negative impact of currency fluctuations on
consolidated cash flows and earnings. The Company is exposed to this risk both
on an inter-company and third-party basis. These movements affect cross-border
transactions that involve sales and inventory purchases denominated in foreign
currencies. Additionally, the Company is exposed to foreign currency exchange
risk for recognized assets and liabilities and royalties, all of which are
denominated in nonfunctional currencies of the holder. The Company primarily
uses foreign currency forward-exchange contracts, swaps and options to hedge
these risks. Since the notional amount of the derivatives used to hedge these
risks does not exceed that of the underlying exposures, there was no exchange
risk relating to those instruments. The fair market value of the remaining net
transaction exposures was $124 million and unfavorable currency movements of 10
percent would negatively impact earnings by $12 million.

The Company also has investments in equity securities. All such investments are
classified as long-term investments. The fair market value of these investments
is $282 million. The majority of these investments is listed on a stock exchange
or quoted in an over-the-counter market. If the market price of the traded
securities were to decrease by 10 percent, the fair value of the equities would
decrease by $23 million.

In addition to market risk, trade receivables, cash deposits and
interest-bearing investments potentially subject the Company to credit risk.
Wholesale distributors and large retail establishments account for a large
portion of the Company's trade receivables especially in the U.S. The Company's
top three customers in the U.S. account for 37 percent of the Company's
consolidated net sales for 2002 and 33 percent of the Company's net trade
accounts receivable as of December 31, 2002. To minimize this risk, the Company
continuously monitors the creditworthiness of its customers and establishes
credit limits in accordance with company policies. The Company typically does
not require collateral or other security to support trade receivables.

The Company invests excess cash in deposits with major banks throughout the
world and in high quality short-term liquid debt instruments. Such investments
are made only in instruments issued or enhanced by high quality institutions.
The Company has not incurred credit risk losses related to these financial
instruments.

Actual gains and losses in the future may differ materially from the sensitivity
analyses based on changes in the timing and amount of interest rate, foreign
currency exchange rate and equity price movements and our actual exposures and
hedges.


                                       31




<PAGE>

Item 8. Financial Statements and Supplementary Data

Reports of Management and Independent Accountants

Report of Management

Management is responsible for the consolidated financial statements and the
other financial information included in this Annual Report. The Board of
Directors, acting through its Audit and Finance Committee which is composed
solely of directors who are not employees of the Company, oversees the financial
reporting process. The financial statements have been prepared in accordance
with U.S. generally accepted accounting principles and include amounts based on
judgments and estimates made by management. Actual results could differ from
amounts estimated.

Management has established systems of internal controls over financial reporting
designed to provide reasonable assurance that the financial records used for
preparing financial statements are reliable and that assets are safeguarded from
unauthorized use or disposition. Internal auditors review accounting and control
systems. The systems also are reviewed by the independent accountants to the
extent deemed necessary to express the opinion set forth in their report.
Management takes corrective actions to improve reporting and control systems in
response to recommendations by the internal auditors and independent
accountants. The appointment of the independent accountants is recommended by
the Audit and Finance Committee to the Board of Directors.

<TABLE>
<S>                           <C>                           <C>
Fred Hassan                   Christopher J. Coughlin       Robert G. Thompson
Chairman                      Executive Vice President      Senior Vice President
and Chief Executive Officer   and Chief Financial Officer   and Corporate Controller
</TABLE>


                                       32




<PAGE>

Report of Independent Accountants

To the Shareholders and Board of Directors of Pharmacia Corporation:

In our opinion, based on our audits and the reports of other auditors, the
accompanying consolidated balance sheets and the related consolidated statements
of earnings, shareholders' equity and comprehensive income and cash flows
present fairly, in all material respects, the financial position of Pharmacia
Corporation and its subsidiaries at December 31, 2002 and 2001, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 2002 in conformity with accounting principles
generally accepted in the United States of America. These financial statements
are the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We did not
audit the financial statements of Monsanto Company which statements reflect
total assets of $11,429,000,000 as of December 31, 2001, and total revenues of
$2,932,000,000 for the period from January 1, 2002 through August 13, 2002, and
$5,462,000,000 and $5,493,000,000 for each of the two years in the period ended
December 31, 2001. Those statements were audited by other auditors whose reports
thereon have been furnished to us, and our opinion expressed herein, insofar as
it relates to the amounts included for Monsanto Company, is based solely on the
reports of the other auditors. 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 and the reports of other auditors provide a reasonable basis for our
opinion.

As discussed in Note 2 to the consolidated financial statements, the Company
changed its method of accounting for goodwill to conform with the provisions of
Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets", effective January 1, 2002. As discussed in Note 2 to the
consolidated financial statements, in 2000 the Company changed its method of
recognizing revenue to conform to the Securities and Exchange Commission's Staff
Accounting Bulletin No. 101, Revenue Recognition in Financial Statements.

PricewaterhouseCoopers LLP
Florham Park, New Jersey
March 3, 2003


                                       33




<PAGE>

Pharmacia Corporation
Consolidated Statements of Earnings

<TABLE>
<CAPTION>
Dollar amounts in millions, except per-share data
For The Years Ended December 31,                       2002      2001      2000
---------------------------------------------------------------------------------
<S>                                                  <C>       <C>       <C>
Net sales                                            $13,993   $13,835   $12,651
Cost of products sold                                  3,077     2,978     2,882
Research and development                               2,359     2,361     2,165
Selling, general and administrative                    6,179     5,902     5,486
Amortization of goodwill                                  --       103       115
Merger and restructuring                                  68       673       975
Interest expense                                         154       255       182
Interest income                                          (65)     (110)     (124)
All other, net                                        (1,085)       82       (74)
---------------------------------------------------------------------------------
Earnings from continuing operations before
   income taxes                                        3,306     1,591     1,044
Provision for income taxes                               869       298       238
---------------------------------------------------------------------------------
Earnings from continuing operations                    2,437     1,293       806
Income from discontinued operations, net of tax           --       227       178
Loss on disposal of discontinued operations, net
   of tax                                               (952)       (8)      (37)
---------------------------------------------------------------------------------
Earnings before extraordinary items
   and cumulative effect of accounting change          1,485     1,512       947
Extraordinary items, net of tax                          653       (12)      (32)
Cumulative effect of accounting change, net of tax    (1,541)        1      (198)
---------------------------------------------------------------------------------
Net earnings                                         $   597   $ 1,501   $   717
=================================================================================

Net earnings per common share:
   Basic
      Earnings from continuing operations            $  1.88   $   .98   $   .62
      Net earnings                                       .45      1.14       .55
   Diluted
      Earnings from continuing operations               1.84       .97       .61
      Net earnings                                       .44      1.12       .54
=================================================================================
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.


                                       34




<PAGE>

Pharmacia Corporation
Consolidated Balance Sheets

<TABLE>
<CAPTION>
Dollar amounts in millions
December 31,                                                       2002      2001
-----------------------------------------------------------------------------------
<S>                                                              <C>       <C>
Current Assets:
Cash and cash equivalents                                        $ 2,241   $ 1,276
Short-term investments                                               469       119
Short-term notes receivable-Monsanto                                  --       254
Trade accounts receivable, less allowance of $136 (2001: $132)     2,457     2,433
Inventories                                                        2,177     1,683
Deferred income taxes                                                717       932
Receivables from Monsanto                                             44        87
Other                                                              1,175       879
-----------------------------------------------------------------------------------
Total Current Assets                                               9,280     7,663
Long-term investments                                                287       288
Properties, net                                                    5,683     4,856
Goodwill, net of accumulated amortization of $682 (2001: $620)     1,150     1,059
Other intangible assets, net of accumulated amortization of
   $641 (2001: $561)                                                 393       416
Deferred income taxes                                              1,331     1,038
Other noncurrent assets                                              393       709
Net assets of discontinued operations                                 --     6,348
-----------------------------------------------------------------------------------
Total Assets                                                     $18,517   $22,377
===================================================================================

Current Liabilities:
Short-term debt                                                  $   854   $   470
Short-term notes payable-Monsanto                                     --        30
Trade accounts payable                                               780     1,048
Payables to Monsanto                                                  --        44
Compensation and compensated absences                                576       501
Dividends payable                                                    179       180
Income taxes payable                                                 740       685
Other accrued liabilities                                          1,851     2,031
-----------------------------------------------------------------------------------
Total Current Liabilities                                          4,980     4,989
Long-term debt                                                     2,585     2,612
Guarantee of ESOP debt                                                64       119
Postretirement benefit obligation                                  1,213       996
Deferred income taxes                                                299       143
Other noncurrent liabilities                                       1,393     1,128
-----------------------------------------------------------------------------------
Total Liabilities                                                 10,534     9,987
-----------------------------------------------------------------------------------
Commitments and Contingent Liabilities - Note 16
Shareholders' Equity:
Preferred stock, one cent par value; at stated value;
   authorized 10 million shares, issued 6,130
   (2001: 6,401 shares)                                              247       258
Common stock, two dollar par value; authorized 3 billion
   shares, issued 1.485 billion shares (2001: 1.485
   billion shares)                                                 2,970     2,970
Capital in excess of par value                                     3,656     3,499
Retained earnings                                                  6,950    11,586
ESOP-related accounts                                               (216)     (294)
Treasury stock, at cost                                           (3,257)   (2,789)
Accumulated other comprehensive income (loss):
   Currency translation adjustments                               (1,897)   (2,892)
   Unrealized investment gains, net                                   33       142
   Minimum pension liability adjustment                             (497)      (96)
   Unrealized hedging instrument (losses) gains                       (6)        6
-----------------------------------------------------------------------------------
Total Shareholders' Equity                                         7,983    12,390
-----------------------------------------------------------------------------------
Total Liabilities And Shareholders' Equity                       $18,517   $22,377
===================================================================================
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.


                                       35




<PAGE>

Pharmacia Corporation
Consolidated Statements of Shareholders' Equity and Comprehensive Income

<TABLE>
<CAPTION>
Dollar amounts in millions
For The Years Ended December 31,                                   2002      2001      2000
---------------------------------------------------------------------------------------------
<S>                                                              <C>       <C>       <C>
Preferred Stock:
Balance at beginning of year                                     $   258   $   263   $   270
Redemptions and conversions                                          (11)       (5)       (7)
---------------------------------------------------------------------------------------------
Balance at end of year                                               247       258       263
---------------------------------------------------------------------------------------------
Common Stock:
Balance at beginning of year                                       2,970     2,937     2,931
Issuance of shares                                                    --        33         6
---------------------------------------------------------------------------------------------
Balance at end of year                                             2,970     2,970     2,937
---------------------------------------------------------------------------------------------
Capital In Excess Of Par Value:
Balance at beginning of year                                       3,499     2,730     1,827
Agricultural subsidiary stock offering                                --        --      (380)
Issuance of shares                                                    --       667        --
Stock option, incentive, dividend reinvestment plans and other       157       102     1,283
---------------------------------------------------------------------------------------------
Balance at end of year                                             3,656     3,499     2,730
---------------------------------------------------------------------------------------------
Retained Earnings:
Balance at beginning of year                                      11,586    10,781    10,696
Spin-off of Monsanto                                              (4,523)       --        --
Net earnings                                                         597     1,501       717
Dividends declared                                                  (697)     (683)     (619)
Dividends on preferred stock (net of tax)                            (13)      (13)      (13)
---------------------------------------------------------------------------------------------
Balance at end of year                                             6,950    11,586    10,781
---------------------------------------------------------------------------------------------
ESOP-Related Accounts:
Balance at beginning of year                                        (294)     (307)     (330)
Third-party debt repayment                                            45        41        39
Spin-off of Monsanto                                                  25        --        --
Other                                                                  8       (28)      (16)
---------------------------------------------------------------------------------------------
Balance at end of year                                              (216)     (294)     (307)
---------------------------------------------------------------------------------------------
Treasury Stock:
Balance at beginning of year                                      (2,789)   (2,003)   (2,432)
Stock options, incentive plans and other                             152        78       429
Purchases of treasury stock                                         (620)     (864)       --
---------------------------------------------------------------------------------------------
Balance at end of year                                            (3,257)   (2,789)   (2,003)
---------------------------------------------------------------------------------------------
Accumulated Other Comprehensive Loss:
Balance at beginning of year                                      (2,840)   (2,480)   (2,051)
Spin-off of Monsanto                                               1,020        --        --
Other comprehensive loss                                            (547)     (360)     (429)
---------------------------------------------------------------------------------------------
Balance at end of year                                            (2,367)   (2,840)   (2,480)
---------------------------------------------------------------------------------------------
Total Shareholders' Equity                                       $ 7,983   $12,390   $11,921
=============================================================================================
Comprehensive Income (Loss) (Net of Tax):
Currency translation adjustments                                 $   123   $  (368)  $  (509)
Unrealized investment (losses) gains                                (105)       41        71
Minimum pension liability adjustments                               (540)      (39)        9
Unrealized hedging instrument (losses) gains                         (25)        6        --
---------------------------------------------------------------------------------------------
Other comprehensive loss                                            (547)     (360)     (429)
Net earnings                                                         597     1,501       717
---------------------------------------------------------------------------------------------
Total Comprehensive Income                                       $    50   $ 1,141   $   288
=============================================================================================
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.


                                       36




<PAGE>

Pharmacia Corporation
Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>
Dollar amounts in millions
For The Years Ended December 31,                                 2002      2001      2000
-------------------------------------------------------------------------------------------
<S>                                                            <C>       <C>       <C>
Cash Flows From Operations:
Net Earnings                                                   $   597   $ 1,501   $   717
Adjustments to net earnings:
   Income from discontinued operations, net                         --      (227)     (178)
   Disposal of discontinued operations, net                        952         8        37
   Extraordinary items                                            (653)       12        32
   Cumulative effect of accounting change                        1,541        (1)      198
   Depreciation and amortization                                   587       610       632
   Deferred income taxes                                           329      (424)     (376)
   Acquired in-process R&D expenses                                 --        67        --
   Stock option revaluations                                        --        --       232
   Gain on return of AMBIEN rights                                (661)       --        --
   Other                                                          (148)      182        53
Changes in:
   Accounts receivable                                              86       (37)     (419)
   Inventories                                                    (364)     (247)      (74)
   Accounts payable                                               (307)      235       106
   Other liabilities                                               (41)      (31)     (211)
   Other operating items                                          (604)      154       370
-------------------------------------------------------------------------------------------
Net cash provided by continuing operations                       1,314     1,802     1,119
Net cash provided (required) by discontinued operations             39        99      (112)
-------------------------------------------------------------------------------------------
Net Cash Provided By Operations                                  1,353     1,901     1,007
-------------------------------------------------------------------------------------------
Cash Flows (Required) Provided By Investment Activities:
Purchases of property, plant and equipment                      (1,142)   (1,020)     (773)
Other acquisitions and investments                                (434)     (262)     (138)
Investment and property disposal proceeds                          121       169       249
Proceeds from sale of subsidiaries                               1,671        46        76
Proceeds from discontinued operations, net                          --        --     1,669
Discontinued operations receivable/payable, net                    224       206      (293)
Investment in employee benefits trust                             (225)       --        --
Other investment activities                                         --        --       (67)
-------------------------------------------------------------------------------------------
Net Cash Provided (Required) By Investment Activities              215      (861)      723
-------------------------------------------------------------------------------------------
Cash Flows (Required) Provided By Financing Activities:
Repayment of long-term debt                                        (47)     (768)   (1,773)
Net increase (decrease) in short-term borrowings                   416      (248)       (6)
Issuance of stock                                                  188       872     1,268
Treasury stock purchases                                          (620)     (864)       --
Dividend payments                                                 (711)     (651)     (622)
Other financing activities                                         (53)      (62)      (29)
-------------------------------------------------------------------------------------------
Net Cash Required By Financing Activities                         (827)   (1,721)   (1,162)
-------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash and cash equivalents       224       (78)     (107)
-------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents                   965      (759)      461
-------------------------------------------------------------------------------------------
Cash and cash equivalents, beginning of year                     1,276     2,035     1,574
-------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year                         $ 2,241   $ 1,276   $ 2,035
===========================================================================================
Cash paid during the year for:
   Interest (net of amounts capitalized)                       $   175   $   247   $   358
   Income taxes                                                $   660   $   428   $   716
===========================================================================================
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.


                                       37




<PAGE>

Notes to Consolidated Financial Statements

On July 13, 2002, Pharmacia Corporation ("Pharmacia" or "the Company") entered
into a definitive merger agreement with Pfizer Inc. (Pfizer). Approval from
Pharmacia and Pfizer shareholders was received in December 2002. The close of
the transaction is subject to governmental and regulatory approvals and other
usual and customary closing conditions.

On November 28, 2001, Pharmacia announced a plan to spinoff its Monsanto
agricultural subsidiary. On August 13, 2002, Pharmacia distributed its entire
ownership of Monsanto stock to its shareholders by means of a tax-free dividend.
As such, the results of operations and net assets of Monsanto were reported as
discontinued operations in one line in the consolidated statements of earnings
and the 2001 balance sheet. Similar adjustments were made to the consolidated
statements of cash flows.

To avoid confusion throughout this document, the term "former Monsanto" is used
to refer to the operations of the former Monsanto Company before the merger with
Pharmacia & Upjohn, and "Monsanto" refers to the agricultural subsidiary, which
was spun-off to Pharmacia shareholders during 2002.

In the notes that follow, all dollar amounts are stated in millions except
per-share data. Per-share amounts are presented on a diluted, after-tax basis,
unless otherwise stated. Trademarks owned by or licensed to the Company are
indicated in all upper case letters.

1    Significant Accounting Policies and Other

Basis of Presentation

The consolidated financial statements are presented on the basis of accounting
principles that are generally accepted in the U.S. All professional accounting
standards that are effective as of December 31, 2002 have been taken into
consideration in preparing the financial statements. The preparation of
consolidated financial statements in conformity with generally accepted
accounting principles requires management to make certain estimates and
assumptions that affect the reported earnings, financial position and various
disclosures. Actual results could differ from those estimates.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and
all majority-owned subsidiaries where control exists. All material intercompany
transactions and balances have been eliminated in consolidation. Investments in
affiliates that are not majority owned, or where Pharmacia does not exercise
control, are reported using the equity method and are recorded in other
noncurrent assets. Gains and losses resulting from the issuance of subsidiaries'
stock are recognized in shareholders' equity.

Currency Translation

With limited exceptions based on specific facts and circumstances, results of
operations other than those located in highly inflationary countries, are
translated into U.S. dollars using the average exchange rates during the year,
while assets and liabilities are translated using period-end rates. Resulting
translation adjustments are recorded as currency translation adjustments in
shareholders' equity. For subsidiaries in highly inflationary countries,
currency gains and losses resulting from translation and transactions are
determined using a combination of current and historical rates and are reported
directly in the consolidated statements of earnings.


                                       38




<PAGE>

Revenue Recognition

Revenues are recognized when title to products and risk of loss are transferred
to customers. Where right of return exists, revenues are reduced at the time of
sale to reflect expected returns that are estimated based on historical
experience. Additional conditions for recognition of revenue are that collection
of sales proceeds is reasonably assured and the Company has no further
performance obligations. The Company records costs that represent estimated
returns, rebates and sales incentives as reductions of revenues at the time of
the sale or transaction, based on historical experience. Nonrefundable upfront
payments from promotion partners are deferred and recognized over the life of
the agreement. Such arrangements are evaluated on a contract-by-contract basis.

Cash Equivalents

The Company considers all highly liquid debt instruments with an original
maturity of 91 days or less to be cash equivalents.


Investments

The Company has investments in debt securities that are classified in the
consolidated balance sheets as short-term (restricted bank deposits and
securities that mature in more than 91 days but not more than one year and
securities with maturities beyond one year which management intends to sell
within one year) or long-term (maturities beyond one year). The Company also has
investments in equity securities, all of which are classified as long-term
investments. Investments are further categorized as being available-for-sale or
held-to-maturity. Investments categorized as available-for-sale are marked to
market based on quoted market values of the securities, with the resulting
adjustments, net of deferred taxes, reported as a component of other
comprehensive income (OCI) in shareholders' equity until realized. Investments
categorized as held-to-maturity are carried at amortized cost, without
recognition of gains or losses that are deemed to be temporary, because the
Company has both the intent and the ability to hold these investments until they
mature. When a decline in market value is deemed to be other than temporary, the
reduction in the carrying value of the investment is charged to expense.

Employee Benefits Trusts Investments

The Company has various nonqualified benefit and compensation plans that provide
for deferred payout of amounts to plan participants. Due to the change in
control as a result of the planned merger with Pfizer, the majority of the
benefits will become payable to the participants. These funds have been
contributed to a trust that will administer payment of these employee benefits
subsequent to the Pfizer merger and are not available for general corporate use
except in the event of bankruptcy. As of December 31, 2002, the trust, which
has been fully consolidated in the Pharmacia balance sheet, held approximately
$225 in short-term investments (reported as other current assets) and $150 in
long-term investments.

Inventories

Inventories are valued at the lower of cost or market. Cost is determined by the
last-in, first-out (LIFO) method for most U.S. inventories and the first-in,
first-out (FIFO) method for substantially all non-U.S. inventories.

Properties

Property, plant and equipment, including renewals and improvements, are recorded
at acquisition cost. Depreciation is principally computed on the straight-line
method for financial reporting purposes using weighted-average asset lives for
each classification, while accelerated methods are used for income tax purposes
where permitted. Purchased and internally developed computer software are
capitalized and amortized over the software's useful life. Maintenance and
repair costs are charged to expense as incurred. Upon retirement or other
disposition of property, any gain or loss is included in earnings.

Impairment tests of long-lived assets are made when conditions indicate a
possible loss. Such impairment tests are based on a comparison of undiscounted
cash flows to the recorded value of the asset. If an impairment is indicated,
the asset value is written down to its fair market value or expected cash flows
at an appropriate discount rate, if fair market value is not readily
determinable.

Goodwill and Other Intangibles

Goodwill represents the excess of the purchase cost over the fair value of net
assets of businesses acquired and is presented net of accumulated amortization.
Amortization of goodwill ceased as of the end of 2001 as required by Statement
of Financial Accounting Standards (SFAS) No. 142 "Goodwill and Other Intangible
Assets." Goodwill and indefinite-lived intangible assets are tested for
impairment on an annual basis and/or when events or circumstances change,
indicating that the carrying amount may exceed fair value. Any excess over fair
value is charged to operations.

Purchased intangible assets are recorded at the cost to obtain the asset and
amortized over its expected useful life. If an indefinite-lived intangible
asset's life becomes finite, it is amortized over the identified time period.
The periods of amortization for intangibles are analyzed periodically to
determine whether later events and circumstances warrant revised estimates of
useful lives. If estimates are changed, the unamortized cost is allocated to the
increased or reduced number of remaining periods in the revised useful life.
Finite-lived intangibles are tested for impairment when events or circumstances
change, indicating that an impairment may exist. An estimate of future cash
flows is developed and compared to the carrying amount of the intangible asset.
If the expected undiscounted cash flows are less than the carrying amount of the
intangible asset, an impairment loss is recognized for the difference between
the carrying amount and discounted cash flows.


                                       39




<PAGE>

Product Liability

The Company is self-insured for product liability exposures up to reasonable
risk retention levels beyond which excess coverages have been obtained. For
product liability claims that have been incurred, liability calculations take
into account such factors as specific claim amounts, past experience with such
claims, number of claims reported and estimates of claims incurred but not yet
reported. In addition to this base level of reserves, individually significant
contingent losses are accrued for in compliance with applicable guidance.
Product liability accruals are not reduced for expected insurance recoveries.

Research and Development

Research and development (R&D) expenses are fully charged to the consolidated
statements of earnings when incurred. The Company considers that regulatory and
other uncertainties inherent in the research and development of new products
preclude it from capitalizing such costs. This treatment includes upfront and
most milestone payments made to third parties in connection with technology
acquisition. Milestone payments for projects that have achieved technological
feasibility, signified by the U.S. Food & Drug Administration (FDA) or
comparable regulatory body approval, are capitalized as assets resulting from
R&D because it is probable that the projects will give rise to future economic
benefits. Laboratory buildings and equipment with alternative uses are included
in tangible fixed assets and depreciated over their estimated useful lives.

Advertising

Costs associated with advertising and certain promotion expenses are expensed in
the year the related advertisement is first used and these costs are included in
selling, general and administrative expenses. Advertising expense totaled
approximately $1,152 in 2002, $1,192 in 2001 and $1,138 in 2000. Included in
advertising expense are activities such as print, television and radio media in
the amounts of $369, $443 and $234 for the years 2002, 2001 and 2000,
respectively.

Income Taxes

The Company applies an asset and liability approach to accounting for income
taxes. Deferred tax liabilities and assets are recognized for the expected
future tax consequences of temporary differences between the financial
statements and tax bases of assets and liabilities using enacted tax rates in
effect for the years in which the differences are expected to reverse. The
Company records deferred income taxes on subsidiaries' earnings that are not
considered to be permanently invested in those subsidiaries. In addition, the
Company believes that the accrued tax liability is adequate for all years.

Environmental Remediation Liabilities

The Company accrues for environmental remediation liabilities when they are
probable and reasonably estimable based on current law and existing
technologies. The accruals are adjusted as further information develops or
circumstances change. Costs of future expenditures do not reflect any claims for
recoveries and are not discounted to their present value. Accruals for
environmental liabilities are classified in the consolidated balance sheets
primarily as other noncurrent liabilities.

Stock-Based Compensation

The Company has six stock option plans all having similar terms. The Company
accounts for these plans under the recognition and measurement principles of
Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued
to Employees," and related Interpretations. No compensation cost is reflected in
net income for employee stock options, as all options granted under those plans
had an exercise price equal to the market value of the underlying common stock
on the date of grant. Restricted stock awards granted to certain employees do
result in an expense charge based upon the market value of the shares at grant
date. The following table is required under SFAS No. 148, "Accounting for
Stock-Based Compensation-Transition and Disclosure," and illustrates the effect
on net income and earnings per share if the Company had applied the fair value
recognition provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation," to stock-based employee compensation. The pro forma earnings
shown below are not indicative of recurring grants of stock options. Merger and
divestiture events of the past three years significantly distort year-to-year
comparisons. The 2000 figures include an acceleration of vesting that was
triggered by the merger with former Monsanto. As a result, 2001 pro forma
expense is favorably affected. In 2002, the December Pharmacia shareholder vote
in favor of the proposed merger with Pfizer resulted in accelerated vesting of
outstanding stock options pursuant to the terms of the awards.


                                       40




<PAGE>

<TABLE>
<CAPTION>
                                                                 Year Ended December 31,
                                                                  2002    2001     2000
----------------------------------------------------------------------------------------
<S>                                                              <C>     <C>      <C>
Net income, as reported                                          $ 597   $1,501   $ 717
Add: Stock-based employee compensation expense
   included in reported net income, net of related tax effects      22        8     235
Deduct: Total stock-based employee compensation expense
   determined under fair value based method for all awards,
   net of related tax effects                                     (486)     (90)   (403)
----------------------------------------------------------------------------------------
Pro forma net income                                             $ 133   $1,419   $ 549
========================================================================================
Earnings per share:
   Basic-as reported                                             $ .45   $ 1.14   $ .55
   Basic-pro forma                                               $ .09   $ 1.08   $ .42
----------------------------------------------------------------------------------------
   Diluted-as reported                                           $ .44   $ 1.12   $ .54
   Diluted-pro forma                                             $ .09   $ 1.07   $ .41
========================================================================================
</TABLE>

Pro forma information regarding net income and earnings per share, presented
above, has been determined as if the Company had accounted for its employee
stock options under the fair value method as defined in SFAS No. 123. The fair
value of each stock option granted is estimated on the date of grant using the
Black-Scholes option valuation model with the following weighted-average
assumptions:

<TABLE>
<CAPTION>
                                                                  2002    2001    2000
---------------------------------------------------------------------------------------
<S>                                                               <C>    <C>     <C>
Expected dividend yield                                           1.38%   1.13%   1.00%
Expected volatility                                               30.8%  28.60%  26.00%
Risk-free interest rate                                           4.35%   4.68%   6.75%
Expected option lives (years)                                      5.0     5.0     5.0
=======================================================================================
</TABLE>

Derivatives and Hedging

The Company recognizes all derivative instruments on the balance sheet at their
fair value. Changes in the fair value of a derivative that is highly effective
as, and that is designated and qualifies as, a fair-value hedge (including
foreign currency fair-value hedges), along with changes in the fair value of the
hedged asset or liability that are attributable to the hedged risk, are recorded
in current-period earnings. Changes in the fair value of a derivative that is
highly effective and that is designated and qualifies as a cash flow hedge
(including foreign currency cash flow hedges), are recorded in OCI until
earnings are affected by the variability of cash flows of the hedged
transaction. Any hedge ineffectiveness is included in current-period earnings.
If derivatives are used as a hedge of a net investment in a foreign operation,
the changes in the derivative's fair value, to the extent that the derivatives
are effective as a hedge, are recorded in the cumulative translation adjustment
account within OCI. In certain circumstances, the Company enters into derivative
contracts and does not designate them as fair value or cash flow hedges. This
would be the case where the instrument serves as a natural hedge of an existing
asset or liability. The Company does not hold any instruments for trading
purposes.

Other - See also Note 2 - New Accounting Standards and Changes in Accounting
Principles

Reclassifications

Certain reclassifications have been made to conform prior periods' data to the
current presentation.

2    New Accounting Standards and Changes In Accounting Principle

Stock-Based Compensation

In December 2002, the Financial Accounting Standards Board (FASB) issued SFAS
No. 148, "Accounting for Stock-Based Compensation-Transition and Disclosure."
This Statement amends SFAS No. 123, "Accounting for Stock-Based Compensation,"
to provide alternative methods of transition for a voluntary change to the fair
value-based method of accounting for stock-based employee compensation.
Additionally, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to
require prominent


                                       41




<PAGE>

disclosures in both annual and interim financial statements about the method of
accounting for stock-based employee compensation and the effect of the method
used on reported results.

The Company has adopted the disclosure provisions of SFAS No. 148, which
requires that additional information be disclosed in Note 1, "Summary of
Significant Accounting Policies." Such information includes a tabular
presentation of net income and basic and diluted earnings per share as reported.
The table also includes the stock-based employee compensation cost, net of
related tax effects, included in the determination of net income if the fair
value based method had been applied to all awards, and pro forma net income and
basic and diluted earnings per share as if the fair value based method had been
applied to all awards. Other information disclosed in Note 1 is the method used
to account for stock-based employee compensation.

Guarantor's Accounting

In November of 2002, the FASB issued Interpretation No. 45 (FIN 45),
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others (an Interpretation of SFAS Nos. 5,
57, and 107 and rescission of FASB Interpretation No. 34)." FIN 45 requires
interim and annual disclosure about each guarantee or group of similar
guarantees. The Interpretation applies to various indemnification agreements and
other contracts that contingently require the guarantor to make payments based
on the changes in an underlying or based on another entity's failure to perform.
It also incorporates several indirect guarantees of the indebtedness of others.
The disclosure requirements became effective for the year ended December 31,
2002 and have been disclosed accordingly within the contingent liabilities
discussion in Note 16 (Commitments, Contingent Liabilities and Litigation).

In addition to disclosure requirements, FIN 45 requires guarantors to recognize
the fair value of a liability at the inception of a guarantee. The initial
recognition and initial measurement provisions are to be applied on a
prospective basis to guarantees issued or modified effective January 1, 2003.
The Company believes that there will not be a material impact on its
consolidated financial statements due to the adoption of these rules.

Exit or Disposal Activities

In June 2002, the FASB issued SFAS No. 146 "Accounting for Costs Associated with
Exit or Disposal Activities". The new rules amend existing accounting for these
costs by requiring that a liability be recorded at fair value when incurred. The
liability would be reviewed regularly for changes in fair value with adjustments
recorded in the consolidated financial statements. Previous rules permitted
certain types of costs to be recognized at time of management commitment. SFAS
No. 146 also provides specific guidance for lease termination costs and one-time
employee termination benefits when incurred as part of an exit or disposal
activity. SFAS No. 146 became effective on January 1, 2003, and the Company
believes that there will not be a material impact on its consolidated financial
statements due to the adoption of these rules.

Classification of the Extinguishment of Debt

On May 1, 2002, the FASB issued SFAS No. 145, "Rescission of SFAS Nos. 4, 44 and
64, Amendment of SFAS 13, and Technical Corrections". Under the previous rules,
SFAS No. 4, "Reporting Gains and Losses from Extinguishment of Debt," required
that all gains and losses from the extinguishment of debt be classified as
extraordinary on the Company's consolidated statements of earnings, net of
applicable taxes. SFAS No. 145 rescinds the automatic classification as
extraordinary and requires that the Company evaluate whether the gains or losses
qualify as extraordinary under APB Opinion No. 30, "Reporting the Results of
Operations-Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions". SFAS
No. 145 became effective on January 1, 2003, and the Company believes that there
will not be a material impact on its consolidated financial statements due to
the adoption of these rules.

Asset Impairments

On January 1, 2002, SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets," became effective. It provides guidance on the accounting for
the impairment or disposal of long-lived assets. For long-lived assets to be
held and used, the new rules are similar to previous guidance that required the
recognition of an impairment when the undiscounted cash flows would not recover
its carrying amount. The impairment to be recognized will continue to be
measured as the difference between the carrying amount and fair value of the
asset. The computation of fair value now removes goodwill from consideration and
incorporates a probability-weighted cash flow estimation approach as an
alternative to the traditional present value method. The previous guidance
provided in SFAS No. 121 "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed of," is to be applied to assets that are to
be disposed of by sale. Additionally, assets qualifying for discontinued
operations treatment have been expanded beyond the former major line of business
or class of customer approach. Long-lived assets to be disposed of by other than
sale are now considered assets to be held and used until the disposal date. In
connection with the


                                       42




<PAGE>

spin-off of Monsanto, an impairment loss resulted in the amount of $985. This
was the only material impact on the Company's consolidated financial statements
due to the adoption of these rules. See Note 8 "Discontinued Operations" for
additional details related to the impairment loss.

Asset Retirements

In July 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations." SFAS No. 143 addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and the
associated retirement costs. The Company is currently evaluating the effects the
new rules may have on its consolidated financial statements but does not believe
there will be a material effect as a result of its January 1, 2003 adoption.

Goodwill and Intangibles

In June 2001, the FASB issued SFAS No. 141, "Business Combinations," and SFAS
No. 142, "Goodwill and Other Intangible Assets." The provisions of SFAS No. 141
require that the purchase method of accounting be used for all business
combinations initiated after June 30, 2001, and set out specific criteria for
the initial recognition and measurement of intangible assets apart from
goodwill. The provisions of SFAS No. 142 prohibit the amortization of goodwill
and indefinite-lived intangible assets and require that they be tested annually
for impairment or on an interim basis if indications of a possible impairment
arise. If the book value of goodwill or an indefinite-lived intangible asset is
greater than its fair value, an impairment loss is recognized for the
difference. In addition, SFAS No. 142 requires that reporting units be
identified for purposes of assessing potential future impairments of goodwill
and removes the 40-year limitation on the amortization period of intangible
assets that have finite lives.

The Company adopted the provisions of SFAS No. 141 on January 1, 2002
(requirement to use the purchase method of accounting for all business
combinations initiated after June 30, 2001 became effective with the issuance of
the standard). The provisions of SFAS No. 142 were adopted effective as of
January 1, 2002 with no impairment losses recognized related to its continuing
operations.

Monsanto also adopted SFAS No. 142 as of January 1, 2002 and an impairment
analysis resulted in the recognition of a $1,822 net-of-tax loss related to the
corn and wheat reporting units. As required by the accounting pronouncement, the
loss was recorded as a cumulative effect of accounting change, net of tax,
effective as of January 1, 2002. Pharmacia recognized a loss of $1,541,
representing Pharmacia's portion of Monsanto's charge, net of minority interest.
The impairment charge had no effect on Pharmacia's liquidity or cash flow.

Intangibles

The following tables reflect information pertaining to other intangible assets
relating to the continuing operations of the Company as of December 31, 2002 and
2001.

<TABLE>
<CAPTION>
                                       2002                                      2001
                         ----------------------------------------------------------------------------------
                                     Amortized                                 Amortized
                         ----------------------------------------------------------------------------------
                         Not Subject to      Accumulated        Not Subject to       Accumulated
                          Amortization    Gross Amortization   Net Amortization   Gross Amortization    Net
-----------------------------------------------------------------------------------------------------------
<S>                            <C>          <C>      <C>         <C>       <C>      <C>     <C>        <C>
Patents and trademarks         $57          $425     $(301)      $181      $57      $414    $(263)     $208
Rights and licenses             --           514      (312)       202       --       433     (256)      177
Other                           --            38       (28)        10       --        73      (42)       31
-----------------------------------------------------------------------------------------------------------
Total                          $57          $977     $(641)      $393      $57      $920    $(561)     $416
===========================================================================================================
</TABLE>

Intangible assets acquired during 2002 totaled $23, including $19 for rights and
licenses.

Intangible Assets Amortization Expense

<TABLE>
<S>                            <C>
Year ended December 31, 2002   $69
Year ended December 31, 2001   $64
</TABLE>

Annual amortization expense for the years ending 2003 through 2007 is estimated
to be $71, $60, $56, $37 and $31, respectively.


                                       43




<PAGE>

Goodwill

The changes in the carrying amount of goodwill relating to continuing operations
for 2002 are as follows:

<TABLE>
<CAPTION>
                                                      Prescription
                                             Total   Pharmaceuticals   All Other
--------------------------------------------------------------------------------
<S>                                         <C>           <C>             <C>
Balance December 31, 2001                   $1,059        $  954          $105
Net intangible reclassifications                (6)           (6)           --
Purchase acquisitions                           14            --            14
Foreign exchange                                83            81             2
--------------------------------------------------------------------------------
Balance December 31, 2002                   $1,150        $1,029          $121
================================================================================
</TABLE>

Earnings Excluding Goodwill Amortization

<TABLE>
<CAPTION>
                                         2002                  2001                  2000
                                  ---------------------------------------------------------------
                                  Earnings              Earnings              Earnings
                                   Before      Net       Before      Net       Before      Net
                                   Items*    Earnings    Items*    Earnings    Items*    Earnings
-------------------------------------------------------------------------------------------------
<S>                                <C>        <C>        <C>        <C>        <C>        <C>
Earnings as reported               $1,485     $ 597      $1,512     $1,501     $  947     $ 717
Adjust for goodwill, net of tax        --        --          99         99        107       107
-------------------------------------------------------------------------------------------------
Adjusted earnings                  $1,485     $ 597      $1,611     $1,600     $1,054     $ 824
=================================================================================================

Basic earnings per share:
   Earnings as reported            $ 1.14     $0.45      $ 1.15     $ 1.14     $ 0.73     $0.55
   Adjust for goodwill                 --        --        0.08       0.08       0.08      0.08
-------------------------------------------------------------------------------------------------
   Adjusted earnings               $ 1.14     $0.45      $ 1.23     $ 1.22     $ 0.81     $0.63
=================================================================================================

Diluted earnings per share:
   Earnings as reported            $ 1.12     $0.44      $ 1.13     $ 1.12     $ 0.72     $0.54
   Adjust for goodwill                 --        --        0.08       0.08       0.08      0.08
-------------------------------------------------------------------------------------------------
   Adjusted earnings               $ 1.12     $0.44      $ 1.21     $ 1.20     $ 0.80     $0.62
=================================================================================================
</TABLE>

* Excludes extraordinary items and cumulative effect of accounting change as
  applicable.

Derivative Instruments and Hedging

On January 1, 2001, the Company adopted SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" and its amendments. This Statement requires
companies to record derivatives on the balance sheet as assets and liabilities
measured at fair value. The accounting treatment of gains and losses resulting
from changes in the value of derivatives depends on the use of the derivative
and whether it qualifies for hedge accounting. Gains and losses on nonhedging
instruments attributable to changes in the fair value are recorded in earnings.
If elected and qualified, special hedge accounting is available whereby gains
and losses on derivatives and certain other instruments can be offset or
recorded in shareholders' equity.

In accordance with the transition provisions of SFAS No. 133, the Company
recorded a net-of-tax cumulative effect adjustment in earnings as of January 1,
2001 for approximately a $1 gain. This amount is comprised of the excluded
component of instruments previously designated in cash flow hedges and other
changes in recorded basis to bring derivatives to fair value, both of which were
less than $1 on an individual basis. Also included in the $1 gain were
offsetting adjustments to the carrying value of a hedged item and the hedging
derivative for a fair value hedge each in the amount of $19. A similar
cumulative effect adjustment in the amount of $3 (net of tax) was made on the
balance sheet to OCI. This amount reflects the deferred amount of derivative
instruments previously designated in cash flow hedges.

Upon adopting SFAS No. 133, the Company elected to reclassify $52 of
held-to-maturity securities as available-for-sale securities. The unrealized
gain associated with the reclassification was not material and is recorded in
OCI. Under the provisions of SFAS No. 133, such a reclassification does not call
into question the Company's intent to hold current or future debt securities
until their maturity.


                                       44




<PAGE>

Revenue Recognition

In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin 101, "Revenue Recognition in Financial Statements" (SAB
101). SAB 101 provides guidance related to revenue recognition. SAB 101 allows
companies to report any changes in revenue recognition related to adopting its
provisions as an accounting change at the time of implementation in accordance
with APB Opinion No. 20, "Accounting Changes."

In connection with SAB 101, the Company recorded a cumulative effect of a change
in accounting principle, effective January 1, 2000, in the after-tax amount of
$198 (net of taxes of $108). This amount primarily relates to certain
nonrefundable payments received from promotion partners that were recognized in
earnings in prior years as well as certain agricultural revenues from
biotechnology traits sold by third-party seed companies. Payments received in
1996 and 1998 from promotion partners comprised the majority of the adjustment.
These payments are now deferred and are being amortized over the terms of the
underlying agreements. Amortization of these deferred amounts related to
continuing businesses was $22 in 2002, 2001 and 2000.

The $198 cumulative catch-up adjustment also included $26 (net of taxes of $16)
recognized by Monsanto related to its biotechnology traits sales.

Pro forma net earnings for 2000 would have been $915 assuming the accounting
change relating to revenue recognition was made retroactively ($.71 per share
basic; $.69 per share diluted).

Other

The Emerging Issues Task Force Issue No. 01-09 "Accounting for Consideration
Given by a Vendor to a Customer" codified several individual issues regarding
the recognition and classification of payments between a vendor and a customer.
Of the codified issues, only two topics were applicable to the Company: sales
incentives and payments to resellers. The Company adopted the guidance for sales
incentives (coupons) prospectively, as allowed under the rules, on January 1,
2001 and for payments to resellers on January 1, 2002. In both cases, the impact
of adoption to the Company was insignificant and, accordingly, prior period
financial statements were not reclassified.

3    Merger and Restructuring Charges

The Company recorded merger and restructuring charges of $68, $673 and $975
during 2002, 2001 and 2000, respectively. All of these charges were recorded on
the "Merger and restructuring" line of the consolidated statements of earnings.
In 2002, 2001 and 2000, merger and restructuring charges were comprised of $60
of merger expense and $8 of net restructuring expense, $419 of merger expense
and $254 of restructuring expense and $599 of merger expense and $376 of
restructuring expense, respectively.

During 2000, former Monsanto and Pharmacia & Upjohn (P&U) merged to form
Pharmacia Corporation. As a result of that merger, there were many duplicate
functions and locations, particularly in the prescription pharmaceutical segment
and corporate functions. The Company began a restructuring in order to integrate
the two companies, eliminate duplicate positions and facilities and create a
consolidated headquarters in New Jersey.

The board of directors approved a comprehensive integration and restructuring
plan in the spring of 2000. Due to the comprehensive nature of this
restructuring, the timelines for the various plans were expected to occur over
multiple years and the related restructuring charges also were intended to be
taken over three or four years. As of December 31, 2002, merger charges relating
to this plan are essentially complete.

On July 13, 2002, the Company entered into a definitive merger agreement with
Pfizer. Pharmacia has incurred certain costs necessary to facilitate the
completion of the merger.

Merger Costs

     The $60 of merger costs recorded in 2002 is comprised of the following:

o    $16 to integrate the former Monsanto and P&U organizations is comprised
     largely of costs relating to information technology integration projects.


                                       45




<PAGE>

o    $44 to facilitate the completion of the merger with Pfizer is comprised of
     $10 relating to legal fees and $12 relating to travel, benefits consulting,
     contract terminations and other merger related costs. Merger costs also
     include a non-cash charge of $22 for the accelerated vesting of certain
     restricted stock awards as a result of the shareholder approval of the
     merger agreement with Pfizer.

The $419 of merger costs recorded in 2001 is comprised of the following:

o    $340 to integrate the former Monsanto and P&U organizations is comprised of
     $139 of consulting fees for system and process integration, $52 relating to
     information technology integration projects, $26 of contract termination
     fees and employee relocation costs, $123 relating to other out-of-pocket
     merger costs such as travel, temporary payroll, incentives and other costs
     necessary to complete the merger.

o    $79 relating to the formation and partial sale of Biovitrum AB (Biovitrum).
     The $79 is comprised of a noncash charge of $63 relating to asset
     write-downs and $16 of other related cash expenses. Biovitrum was
     established during the second quarter of 2001 as the result of the
     Company's plan to exit its Sweden-based metabolic disease research
     activities, its biopharmaceutical development unit and the Company's plasma
     business. The Company has partially divested of its ownership in Biovitrum
     and currently owns less than 20 percent.

     The $599 of merger costs recorded in 2000 is comprised of the following:

o    $100 relating to investment bankers, $42 in connection with legal and SEC
     fees, $48 relating to consultant expense, $11 relating to employee moving
     and relocation costs, $166 of other merger costs necessary to integrate the
     two companies and a noncash charge of $232. This noncash charge related to
     certain former Monsanto employee stock options that contained a contractual
     reset provision that was triggered upon change-of-control. Pursuant to the
     terms of these "premium options," at consummation of the merger, the
     original above-market exercise price was reduced to equal the fair market
     value on the date of grant.

Restructuring Costs

The $8 of net restructuring charges recorded in 2002 is comprised of the
following:

o    $21 associated with restructuring the prescription pharmaceuticals segment
     necessitated by combining G.D. Searle, the pharmaceutical business of
     former Monsanto, and P&U operations worldwide. The merger resulted in
     duplicate facilities, computer systems and positions around the world. The
     charges consist of $5 relating to the separation of approximately 45
     employees worldwide in R&D, manufacturing, marketing and administrative
     functions; $9 relating to contract and lease termination fees and $7 of
     other exit costs.

o    $5 relating to consolidating corporate and administrative and other areas
     and eliminating duplicative positions. This charge is comprised entirely
     of costs relating to the separation of approximately 35 employees.

o    $18 of total reversals is comprised of a reversal of $5 relating to
     restructuring liabilities established in 1999 and 2000 under the Monsanto
     restructuring plan that were reversed as a result of lower actual severance
     costs than originally estimated and $13 relating to a change in a previous
     restructuring plan for a facility. As the result of a subsequent
     restructuring plan, sale of the building resulted in a gain.

     The $254 of restructuring charges recorded in 2001 is comprised of the
     following:

o    $225 associated with restructuring the prescription pharmaceuticals segment
     necessitated by combining G.D. Searle, and P&U operations worldwide. The
     merger resulted in duplicate facilities, computer systems and positions
     around the world. The charges consist of $144 relating to the separation of
     approximately 1,050 employees worldwide in R&D, manufacturing, marketing
     and administrative functions; $41 relating to asset write-downs resulting
     from duplicate computer equipment and facilities; $33 relating to contract
     and lease termination fees and $7 of other exit costs.

o    $29, net, relating to consolidating corporate and administrative functions
     in the Company's New Jersey headquarters and eliminating duplicate
     administrative positions and a reversal of $25 of prior accruals relating
     to the previous P&U restructuring plans due to lower separation payments
     than initially anticipated. This charge is comprised of $33 relating to the
     separation of approximately 240 employees primarily in corporate and
     administrative functions, $17 relating to asset write-downs of duplicate
     computer systems and leasehold improvements in duplicate facilities and $4
     of contract and lease termination costs.

The $376 of restructuring charges recorded in 2000 is comprised of the
following:


                                       46




<PAGE>

o    $241 associated with restructuring the prescription pharmaceutical segment
     necessitated by combining G.D. Searle, and P&U operations worldwide. The
     merger resulted in duplicate facilities, computer systems and positions
     around the world. The charges consist of $165 relating to the separation of
     approximately 1,360 employees worldwide in R&D, manufacturing, marketing
     and administrative functions; $51 relating to asset write-downs resulting
     from duplicate computer systems and facilities; $22 relating to contract
     and lease terminations and $3 of other exit costs.

o    $150 relating to consolidating corporate and administrative functions in
     New Jersey and eliminating duplicate administrative positions. This charge
     is comprised of $113 relating to the separation of approximately 210
     employees in corporate and administrative functions and $37 relating to
     asset write-downs (duplicate computer systems and leasehold improvements in
     duplicate facilities) and lease termination fees and other exit costs.

o    $15 relating to the reversals of prior P&U restructuring reserves that
     resulted from higher than anticipated proceeds on asset sales and lower
     than anticipated separation payments.

Restructuring charges and spending associated with the current restructuring
plans relating to the integration of the former Monsanto and P&U companies
follow. The table below does not include activity incurred under previous P&U
restructuring plans, which began in 1995 and 1997. All activities relating to
these plans have been completed.

<TABLE>
<CAPTION>
                                                Workforce   Other Exit
                                               Reductions      Costs     Total
-------------------------------------------------------------------------------
<S>                                             <C>           <C>        <C>
Balance January 1, 2000                         $  --         $ --       $  --
Additions                                         278           25         303
Deductions                                       (119)         (15)       (134)
-------------------------------------------------------------------------------
Balance December 31, 2000                         159           10         169
Additions                                         177           37         214
Deductions                                       (221)         (37)       (258)
-------------------------------------------------------------------------------
Balance December 31, 2001                       $ 115         $ 10       $ 125
Additions                                          10           16          26
Deductions                                       (113)          (9)       (122)
Reversals                                          (5)          --          (5)
-------------------------------------------------------------------------------
Balance December 31, 2002                       $   7         $ 17       $  24
===============================================================================
</TABLE>

As of December 31, 2002, cash payments totaling $453 relating to the separation
of approximately 2,740 employees have been paid and charged against the
liability.

As of December 31, 2002, all activities relating to the restructuring plans
associated with the former Monsanto Company have been substantially completed.

4    All Other, Net

All other, net for 2002 totaled a net income balance of $1,085 and was comprised
of $734 income related to AMBIEN, including a $661 gain on the return of U.S.
product rights to Sanofi-Synthelabo, Inc. (Sanofi) and $73 in income received in
the first quarter for the Company's share of AMBIEN earning a net $100 favorable
patent infringement settlement; $71 realized gains on sales of investments; $60
royalty income; $45 gain on the sale or outlicense of product rights; $28 gain
relating to sale of certain clinical study data and $47 net gain from other
miscellaneous items. The 2001 net expense of $82 was comprised of approximately
$220 net costs related to AMBIEN, partly offset by $70 royalty income, $56
realized gains on sales of investments and $12 net income from other
miscellaneous items. The 2000 net income of $74 was comprised of $70 royalty
income, $48 gains on sales of assets, $41 gains on investments and $81 net gain
from other miscellaneous items, partially offset by $166 AMBIEN related costs.

5    Extraordinary Items

During 2002, the Company sold its 45 percent minority interest in Amersham
Biosciences to Amersham plc for $1,000. The investment basis as of March 2002
was $223. The sale resulted in a gain of $653 (net of taxes of $124). The gain
on the sale has been classified as an extraordinary item in the accompanying
consolidated statements of earnings in accordance with APB Opinion No. 16
"Business Combinations" because the sale of this investment took place within
the two-year period following the merger of


                                       47




<PAGE>

Pharmacia & Upjohn and former Monsanto, which was accounted for under the
pooling of interests accounting method. The sale of this investment was not
contemplated at the time of the pooling.

During 2001 and 2000, the Company had three retirements of debt. In 2001, the
Company retired debt related to the adjustable conversion-rate equity securities
in the principal amount of $700 and certain debt obligations relating to one of
the ESOPs in the amount of $24. The $12 of net-of-tax costs associated with
these retirements has been classified to "Extraordinary items, net of tax" on
the Company's consolidated statements of earnings. In 2000, the Company
repurchased certain long-term debt issues with a total principal amount of $362.
The cost of this action was $32, net-of-tax. The costs related to the tender
were comprised of normal inducement premiums and professional and administrative
fees.

6    Other Comprehensive Income (Loss)

Other comprehensive income (loss) includes four components: changes in currency
translation adjustments, unrealized gains and losses on available-for-sale
securities, changes in fair value of derivative instruments and minimum pension
liability adjustments. The following table shows the changes in each other
comprehensive income (OCI) component. Reclassification adjustments represent
items that are included in net earnings in the current period but previously
were reported in OCI. To avoid double counting these items in comprehensive
income, gains are subtracted from OCI, while losses are added. OCI changes for
2000, 2001 and January 1 through August 13, 2002 include Monsanto. Effective
with the August 2002 spin-off of Monsanto, its OCI balances in shareholders'
equity were written off as part of the dividend of Monsanto shares to Pharmacia
shareholders on disposal of discontinued operations.

<TABLE>
<CAPTION>
                                                              Tax
For The Year Ended                               Before     Expense      Net Of
December 31, 2002                                  Tax    Or (Benefit)    Tax
--------------------------------------------------------------------------------
<S>                                               <C>         <C>         <C>
Currency translation adjustments                  $ 123       $  --       $ 123
--------------------------------------------------------------------------------
Unrealized investment (losses)                      (45)        (11)        (34)
Less: reclassification adjustments for gains
   realized in net earnings                          79           8          71
--------------------------------------------------------------------------------
Net unrealized investment (loss)                   (124)        (19)       (105)
--------------------------------------------------------------------------------
Minimum pension liability adjustments              (842)       (302)       (540)
--------------------------------------------------------------------------------
Unrealized hedging instrument (losses)              (42)        (11)        (31)
Less: reclassification adjustments for
   derivative losses included in income              (9)         (3)         (6)
--------------------------------------------------------------------------------
Net unrealized hedging instrument (loss)            (33)         (8)        (25)
--------------------------------------------------------------------------------
Other comprehensive (loss) income                 $(876)      $(329)      $(547)
================================================================================
For The Year Ended
December 31, 2001
--------------------------------------------------------------------------------
Currency translation adjustments                  $(368)      $  --       $(368)
--------------------------------------------------------------------------------
Unrealized investment gains                          51         (30)         81
Less: reclassification adjustments for gains
   realized in net earnings                          62          22          40
--------------------------------------------------------------------------------
Net unrealized investment (losses) gains            (11)        (52)         41
--------------------------------------------------------------------------------
Minimum pension liability adjustments               (63)        (24)        (39)
--------------------------------------------------------------------------------
Net unrealized hedging instrument gains               4          (2)          6


                                       48




<PAGE>

--------------------------------------------------------------------------------
Other comprehensive (loss) income                 $(438)      $ (78)      $(360)
================================================================================
For The Year Ended
December 31, 2000
--------------------------------------------------------------------------------
Currency translation adjustments                  $(509)      $  --       $(509)
--------------------------------------------------------------------------------
Unrealized investment gains                         154          61          93
Less: reclassification adjustments for gains
   realized in net earnings                          33          11          22
--------------------------------------------------------------------------------
Net unrealized investment gains                     121          50          71
--------------------------------------------------------------------------------
Minimum pension liability adjustments                21          12           9
--------------------------------------------------------------------------------
Other comprehensive (loss) income                 $(367)      $  62       $(429)
================================================================================
</TABLE>

7    Earnings Per 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 computation, 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 following table reconciles the numerators and denominators of the basic and
diluted earnings per share computations:

<TABLE>
<CAPTION>
Share amounts in millions                                2002      2002     2001      2001     2000     2000
Years Ended December 31                                  Basic   Diluted    Basic   Diluted    Basic   Diluted
--------------------------------------------------------------------------------------------------------------
<S>                                                     <C>      <C>       <C>       <C>      <C>      <C>
EPS numerator:
Earnings from continuing operations                     $2,437   $ 2,437   $1,293   $1,293    $  806   $  806
Less: Preferred stock dividends, net of tax                (13)       --      (13)      --       (13)      --
Less: ESOP contribution, net of tax                         --        (8)      --       (8)       --       (8)
--------------------------------------------------------------------------------------------------------------
Earnings from continuing operations available to
   common shareholders                                  $2,424   $ 2,429   $1,280   $1,285    $  793   $  798
--------------------------------------------------------------------------------------------------------------
EPS denominator:
Average common shares outstanding                        1,293     1,293    1,298    1,298     1,274    1,274
Effect of dilutive securities:
   Stock options and stock warrants                         --         9       --       12        --       21
   Convertible instruments and incentive compensation       --        13       --       12        --       12
--------------------------------------------------------------------------------------------------------------
Total shares                                             1,293     1,315    1,298    1,322     1,274    1,307
--------------------------------------------------------------------------------------------------------------
Earnings (loss) per share:
   Continuing operations                                $ 1.88   $  1.84   $  .98   $  .97    $  .62   $  .61
   Discontinued operations                                (.74)     (.72)     .17      .16       .11      .11
   Extraordinary item                                      .50       .49     (.01)    (.01)     (.03)    (.03)
   Cumulative effect of accounting change                (1.19)    (1.17)      --       --      (.15)    (.15)
--------------------------------------------------------------------------------------------------------------
Net earnings                                            $  .45   $   .44   $ 1.14   $ 1.12    $  .55   $  .54
==============================================================================================================
</TABLE>

The assumed conversion of stock options having an exercise price higher than the
weighted average market price of the underlying shares is not taken into account
in the diluted EPS computation as the effect would be antidilutive. For the
years 2002, 2001 and 2000, the number of stock options so excluded were 59
million, 34 million and 3 million, respectively. Note that, if some or all of


                                       49




<PAGE>

these stock options enter into future EPS computations due to rising share
prices, the assumed use of option exercise proceeds to repurchase shares would
mitigate the dilutive effect to some degree.

8    Discontinued Operations

<TABLE>
<CAPTION>
For  the Years Ended December 31,(1)          2002                2001                  2000
                                      ---------------------------------------------------------------
                                      Monsanto    Other     Monsanto   Other      Monsanto   Other
-----------------------------------------------------------------------------------------------------
<S>                                    <C>         <C>       <C>        <C>        <C>       <C>
Net sales                              $2,932      $ 2       $5,462     $  2       $5,493    $350
Income (loss) from discontinued
   operations, before tax                  66       (7)         364      (17)         341     (92)
Income tax expense (benefit)               19       (2)         135       (7)         161     (53)
-----------------------------------------------------------------------------------------------------
Net income (loss) from discontinued
   operations                          $   47(2)   $(5)(2)   $ 229      $(10)(2)   $  180    $(39)(2)
=====================================================================================================
</TABLE>

(1)  Partial year 2002 re Monsanto - see below.

(2)  All 2002 balances, $(8) of 2001 and $(37) of 2000 are reported as part of
     "Loss on disposal of discontinued operations, net of tax." The remainders
     of 2001 and 2000 are reported in the caption "Income from discontinued
     operations, net of tax."

Monsanto

On November 28, 2001, the board of directors approved a formal plan to
distribute to Pharmacia shareholders the remaining outstanding shares held of
Monsanto, in a tax-free spin-off transaction. On July 18, 2002, the Pharmacia
board of directors approved the completion of the spin-off of Monsanto through
the distribution of shares of Monsanto common stock to Pharmacia common
shareholders of record on July 29, 2002. In order to effect the distribution,
the Pharmacia board of directors declared a special dividend on the Company's
common stock comprised of 220 million shares of Monsanto common stock currently
held which, at July 29, 2002, represented approximately 84% of Monsanto's
outstanding stock. Each Pharmacia shareholder received .170593 shares of
Monsanto common stock for each share of Pharmacia stock owned on the record
date. The shares were distributed at the close of business on August 13, 2002.

In connection with the spin-off of Monsanto, Pharmacia recorded a loss on
disposal of discontinued operations of $938 for the year ended 2002, which was
comprised of $47 net income from discontinued operations offset by an impairment
loss of $985 calculated by comparing the adjusted book value of Monsanto shares
on August 13, the date of the spin-off, to Monsanto's fair value based upon the
closing stock price on August 13, 2002 of $15.81.

On September 1, 2000, the Company entered into a Transition Services Agreement
with Monsanto. Under the agreement, Pharmacia primarily provides information
technology support for Monsanto while Monsanto provides certain administrative
support services for Pharmacia. Pharmacia and Monsanto also lease research and
office space from each other. Since the initiation of the agreement, each party
has charged the other entity rent based on a percentage of occupancy multiplied
by the cost to operate the facilities. These services are continuing beyond
August 13, 2002. During 2002, Pharmacia provided services to Monsanto in the
amount of $33. During this same period, Monsanto provided Pharmacia $38 in
services relating to these agreements.

<TABLE>
<CAPTION>
Net Assets of Monsanto as of December 31:                                  2001
--------------------------------------------------------------------------------
<S>                                                                      <C>
Current assets                                                           $ 4,797
Noncurrent assets                                                          6,676
--------------------------------------------------------------------------------
Total assets                                                              11,473
--------------------------------------------------------------------------------
Current liabilities                                                        2,367
Noncurrent liabilities                                                     1,695
--------------------------------------------------------------------------------
Total liabilities                                                          4,062
--------------------------------------------------------------------------------
Net assets of Monsanto before minority interest                            7,411
Minority interest                                                          1,095
--------------------------------------------------------------------------------
Net assets of discontinued operations                                    $ 6,316
================================================================================
</TABLE>


                                       50




<PAGE>

Other

During the fourth quarter of 2002, the Company's senior management approved a
formal plan to sell a majority-owned pharmaceutical subsidiary in Russia. In
connection with the commitment to sell, and in contemplation of an offer
received in December 2002, the Company is accounting for this subsidiary as a
discontinued operation and has reflected its results of operations and financial
position as part of discontinued operations for all periods presented. The
Company has concluded that the Russian subsidiary that is held for sale is a
component of an entity with operations and cash flows that can be clearly
distinguished operationally and financially from the rest of the Company, as
required by SFAS No. 144. The component meets the requirements for held-for-sale
classification under SFAS No. 144 in a transaction that will eliminate the
component's operations and cash flows from the Company's ongoing operations and
the Company will not have any significant continuing involvement in the
operations of the component following disposal.

The carrying value of the Russian subsidiary being held for sale was adjusted to
reflect the estimated fair value less cost to complete the sale of the
subsidiary as of December 31, 2002, which resulted in a $9 net-of-tax impairment
loss recorded in 2002. Also during 2002, the Company recorded an additional $5
net-of-tax loss on disposal of discontinued operations in connection with the
sale of the artificial sweetener ingredient business that occurred in 2000.

Of the $10 net-of-tax loss from other discontinued operations recorded in 2001,
$8 consisted of legal and related costs in connection with the sale of the
artificial sweeteners business and is recorded as a loss on the disposal of
discontinued operations. The remaining $2 of loss reflects the results of
operations of the Russian subsidiary and is recorded as loss from discontinued
operations.

The $39 net-of-tax loss associated with other discontinued operations in 2000
includes a loss of $2 from the Russian subsidiary. The net sales and remaining
loss from discontinued operations in 2000, which are reported as loss on
disposal of discontinued operations, include nine months of biogums, five months
of bulk aspartame and two months of the tabletop sweeteners business and a
settlement of litigation related to the lawn and garden products business.

Following is a summary of the disposals that occurred in 2000: On September 29,
2000, Pharmacia completed the sale of the biogums business to a joint venture
formed between Hercules, Inc. and Lehman Brothers Merchant Banking Partners II,
L.P. for cash proceeds of $592. On March 17, 2000, Pharmacia completed the sale
of the tabletop sweeteners business to Merisant Company for $570 in cash. On May
24, 2000, Pharmacia completed the sale of its sweetener ingredient business to
J.W. Childs Equity Partners II, L.P. for $440 in cash proceeds. Also on May 24,
2000, Pharmacia completed the sale of equity interests in two European joint
venture companies, NutraSweet A.G., and Euro-Aspartame S.A., to Ajinomoto Co.,
Inc. for $67 in cash proceeds. As a result of Pharmacia completing the sale of
the remaining former Monsanto Nutrition and Consumer Products businesses in
2000, there were no net assets from discontinued operation relating to these
businesses as of December 31, 2002 or 2001.

9    Income Taxes

The components of income (loss) from continuing operations before income taxes
were:

<TABLE>
<CAPTION>
Years Ended December 31                                 2002     2001     2000
--------------------------------------------------------------------------------
<S>                                                    <C>      <C>      <C>
U.S.                                                   $  786   $ (136)  $ (223)
Non-U.S.                                                2,520    1,727    1,267
--------------------------------------------------------------------------------
Earnings before income taxes                           $3,306   $1,591   $1,044
================================================================================
</TABLE>

The provision for income taxes from continuing operations included in the
consolidated statements of earnings consisted of:

<TABLE>
<CAPTION>
Years Ended December 31                                    2002   2001    2000
--------------------------------------------------------------------------------
<S>                                                        <C>    <C>     <C>
Current provision
U.S.                                                       $146   $ 346   $ 281
Non-U.S.                                                    394     376     333
--------------------------------------------------------------------------------
Total current provision                                     540     722     614
--------------------------------------------------------------------------------
Deferred provision
U.S.                                                        287    (325)   (398)
</TABLE>

                                       51




<PAGE>

<TABLE>
<S>                                                        <C>    <C>     <C>
Non-U.S.                                                     42     (99)     22
--------------------------------------------------------------------------------
Total deferred provision                                    329    (424)   (376)
--------------------------------------------------------------------------------
Provision for income taxes                                 $869   $ 298   $ 238
================================================================================
</TABLE>

Differences between the Company's effective tax rate and the U.S. statutory tax
rate on earnings from continuing operations were as follows:

<TABLE>
<CAPTION>
Percent of Pretax Income                                    2002    2001   2000
--------------------------------------------------------------------------------
<S>                                                         <C>    <C>     <C>
Statutory tax rate                                          35.0%   35.0%  35.0%
Lower rates in other jurisdictions, net                     (7.9)  (11.2)  (8.9)
U.S. R&D tax credit                                         (1.1)   (2.7)  (4.1)
Nondeductible goodwill                                        --     0.5    0.1
Merger-related costs                                          --      --    4.5
All other, net                                               0.3    (2.9)  (3.9)
--------------------------------------------------------------------------------
Effective tax rate                                          26.3%   18.7%  22.7%
================================================================================
</TABLE>

Deferred income taxes are in the consolidated balance sheets as follows:

<TABLE>
<CAPTION>
                                         2002       2002        2001       2001
December 31                             Assets   Liabilities   Assets   Liabilities
-----------------------------------------------------------------------------------
<S>                                     <C>          <C>       <C>         <C>
Components of deferred taxes were:
Property, plant and equipment           $            $287      $   --      $208
Inventory                                  493         --         393        --
Compensation and retirement plans          689         --         410        --
Swedish tax deferrals                       --         67          --        46
Tax loss and tax credit carryforwards      692         --         767        --
Environmental and product liabilities       52         --          43        --
Tax on unremitted earnings                  --         23          --        40
All other                                  703        484         876       351
-----------------------------------------------------------------------------------
Subtotal                                 2,629        861       2,489       645
Valuation allowances                       (26)                   (23)
-----------------------------------------------------------------------------------
Total deferred taxes                     2,603        861       2,466       645
-----------------------------------------------------------------------------------
Net deferred tax assets                 $1,742                 $1,821
===================================================================================
</TABLE>

Deferred income tax asset and liability balances are classified as current or
noncurrent based on the classification of the related asset or liability or the
expected reversal date of the related temporary difference. Within each tax
jurisdiction, asset and liability balances within current and noncurrent
classifications are netted. With the exception of $7 included in "Other accrued
liabilities" in both 2002 and 2001, all deferred income tax balances are
identified as such in the Company's consolidated balance sheets.

As of December 31, 2002, Pharmacia had net operating loss carryforwards of
approximately $102 that have various expiration dates through 2018, and tax
credit carryforwards of $656, of which $473 have various expiration dates
through 2022 and $183 have an unlimited life. As of December 31, 2002, Pharmacia
has recorded valuation allowances of $26 against these carryforwards in
jurisdictions where recovery of these carryforwards is uncertain. At December
31, 2002, undistributed earnings of subsidiaries considered permanently invested
were approximately $8,600. No provision is made for income taxes that would be
payable upon the distribution of such earnings and it is not practicable to
determine the amount of the related unrecognized deferred income tax liability.

Monsanto's operating results were included in the Pharmacia consolidated federal
and state income tax returns for tax years 2001 and 2000 as well as for the
period January 1, 2002 through August 13, 2002. Effective September 1, 2000,
Monsanto and Pharmacia entered into a tax sharing agreement. To the extent
Monsanto's results are included in any Pharmacia income tax return, Monsanto, in
general, is obligated to pay Pharmacia (or Pharmacia is obligated to pay
Monsanto) the amount of taxes that would be due as if


                                       52




<PAGE>

Monsanto had filed its own tax returns. As of December 31, 2002, 2001 and 2000,
Monsanto had an amount due to (receivable from) Pharmacia of $44, ($9) and $12,
respectively, related to income taxes payable.

The Internal Revenue Service has substantially completed its examination of the
Company's tax returns through the tax year ended December 31, 1997, which
resulted in no significant financial impact to the Company.

10   Derivative Instruments and Hedging Activities

The Company's activities expose it to a variety of market risks, including risks
related to the effects of changes in foreign-currency exchange rates and
interest rates. These financial exposures are monitored and managed by the
Company as an integral part of its overall risk-management program. The
Company's risk-management program focuses on the unpredictability of financial
markets and seeks to reduce the potentially adverse effects that the volatility
of these markets may have on operating results and cash flows.

The Company maintains a foreign-currency risk-management strategy that uses
derivative instruments to protect cash flows from fluctuations that may arise
from volatility in currency exchange rates. The Company is exposed to this risk
both on an intercompany and third-party basis. These movements affect
cross-border transactions that involve sales and inventory purchases denominated
in foreign currencies. Additionally, the Company is exposed to foreign currency
exchange risk for recognized assets and liabilities, royalties and net
investments in subsidiaries, all of which are denominated in nonfunctional
currencies of the holder. The Company primarily uses foreign-currency
forward-exchange contracts, swaps and options to hedge these risks. The
aggregate net transaction losses recorded in the consolidated statements of
earnings due to the remeasurement of nonfunctional currency denominated assets
and liabilities, net of related hedging gains or losses, were a $5, $9 and $21
for the years ending December 31, 2002, 2001 and 2000, respectively.

The Company maintains an interest rate risk-management strategy that uses
derivative instruments to minimize significant, unanticipated earnings and cash
flow fluctuations that may arise from volatility in interest rates. The
Company's goals are to manage interest rate sensitivity of debt and lower, where
possible, the cost of its borrowed funds. Fluctuations in interest rates create
an unrealized appreciation or depreciation in the fair market value of the
Company's fixed-rate debt when the current interest rate is compared with the
original cost of the borrowed funds.

By using derivative financial instruments to hedge exposures to changes in
exchange rates and interest rates, the Company exposes itself to credit risk.
Credit risk is the risk that the counter-party might fail to fulfill its
performance obligations under the terms of the derivative contract. The Company
minimizes its credit (or repayment) risk in derivative instruments by entering
into transactions with high-quality counterparties and limiting the amount of
exposure to each.

Fair-Value Hedges

The Company uses interest rate swaps to convert a portion of its fixed-rate debt
into variable-rate debt. Under the interest rate swap contracts, the Company
agrees with other parties to exchange, at specified intervals, the difference
between fixed-rate and floating-rate interest amounts, which is calculated based
on an agreed-upon notional amount.

For the year ended December 31, 2002, there was no ineffectiveness or excluded
ineffectiveness related to the Company's fair-value hedges.

Cash Flow Hedges

The Company is exposed to currency exchange rate fluctuations related to certain
intercompany and third-party transactions. The Company purchases
foreign-exchange options and forward-exchange contracts as hedges of anticipated
sales and purchases denominated in foreign currencies. The Company enters into
these contracts to protect itself against the risk that the eventual cash flows
will be adversely affected by changes in exchange rates.

The Company uses foreign-currency exchange contracts to hedge the adverse
effects that fluctuations in exchange rates may have on
foreign-currency-denominated third-party and intercompany receivables and
payables.

For the year ended December 31, 2002, the Company did not recognize any gains or
losses relating to the excluded ineffectiveness of all cash flow hedges and
there was no ineffectiveness on the Company's cash flow hedges.

As of December 31, 2002, $6 of pretax deferred losses (net of gains) on
derivative instruments accumulated in OCI is expected to be reclassified as
earnings during the next 12 months. Transactions and events that (1) are
expected to occur over the next 12 months


                                       53




<PAGE>

and (2) will necessitate reclassifying the derivative gains as earnings include
actual sales and purchases of inventory. At December 31, 2002, the maximum term
over which the Company has hedged its exposures to the variability of cash flow
(for all forecasted transactions, excluding interest payments on variable-rate
debt) is 12 months.

Hedges of Net Investments in Foreign Operations

The Company has numerous investments in foreign subsidiaries. The net assets of
these subsidiaries are exposed to volatility in currency exchange rates. The
Company uses both derivative and nonderivative financial instruments to hedge a
part of this exposure and measures ineffectiveness of such hedges based upon the
change in spot foreign exchange rates.

For the year ended December 31, 2002, $32 of losses was included in the
Company's cumulative translation adjustment. For the same period, the net loss
recorded in earnings representing the amount of the hedge's excluded
ineffectiveness was not material.

11   Financial Instruments

Financial Instrument Fair Values

The carrying amounts and estimated fair values of the Company's financial
instruments were as follows:

<TABLE>
<CAPTION>
                                                  2002      2002      2001      2001
                                                Carrying    Fair    Carrying    Fair
December 31,                                     Amount     Value    Amount     Value
-------------------------------------------------------------------------------------
<S>                                              <C>       <C>       <C>       <C>
Financial assets:
   Short-term investments                        $  469    $  469    $  119    $  119
   Related party notes receivable                    --        --       254       254
   Long-term investments                            287       287       288       288
   Forward/option currency exchange contracts       (14)      (14)       13        13
   Currency/interest swaps                            1         1        17        17
   Interest rate swaps                               66        66        12        12
Financial liabilities:
   Short-term debt                                  854       854       470       470
   Short-term notes payable Monsanto                 --        --        30        30
   Long-term debt                                 2,585     2,847     2,612     2,703
   Guaranteed ESOP debt                          $   64    $   67    $  119    $  129
=====================================================================================
</TABLE>

Because their maturities are less than one year, fair value approximates
carrying amount for cash and cash equivalents, short-term investments, amounts
due to or from Monsanto, accounts receivable, short-term debt and accounts
payable. Long-term and guaranteed ESOP debt is net of current maturities that
are included in short-term debt. Fair values of derivative contracts, long-term
investments, long-term debt and guaranteed ESOP debt were estimated based on
quoted market prices for the same or similar instruments or, where necessary, on
discounted cash flows. The amount of debt valued using discounted cash flows had
a fair market value of approximately $200 at December 31, 2002.

Because the contract amounts on derivative instruments are stated as notional
amounts, the amounts disclosed above are not a direct measure of the exposure of
the Company through its use of derivatives. These contracts generally have
maturities that do not exceed 12 months and require the Company to exchange
currencies at agreed-upon rates at maturity. The counterparties to the contracts
consist of a limited number of major international financial institutions. The
Company does not expect any losses from credit exposure related to these
instruments.

Credit Risk Management

In addition to market risk, trade receivables, cash deposits and
interest-bearing investments potentially subject the Company to credit risk.
Wholesale distributors and large retail establishments account for a large
portion of the Company's trade receivables especially in the U.S. The Company's
top three customers in the U.S. account for 37 percent of the Company's
consolidated net sales for 2002 and 33 percent of the Company's net trade
accounts receivable as of December 31, 2002. To minimize this risk, the Company
continuously monitors the creditworthiness of its customers and establishes
credit limits in accordance with company policies. The Company typically does
not require collateral or other security to support trade receivables.


                                       54




<PAGE>

The Company invests excess cash in deposits with major banks throughout the
world and in high quality short-term liquid debt instruments. Such investments
are made only in instruments issued or enhanced by high quality institutions.
The Company has not incurred credit risk losses related to these financial
instruments.

12   Accounts Receivable and Inventories

The following table displays a roll-forward of allowances for doubtful trade
accounts receivable for the three years ended December 31, 2002:

<TABLE>
================================================================================
<S>                                                                        <C>
Balance January 1, 2000                                                    $112
Additions - charged to expense                                               28
Deductions                                                                  (18)
--------------------------------------------------------------------------------
Balance December 31, 2000                                                   122
Additions--charged to expense                                                33
Deductions                                                                  (23)
--------------------------------------------------------------------------------
Balance December 31, 2001                                                   132
Additions--charged to expense                                                29
Deductions                                                                  (25)
--------------------------------------------------------------------------------
Balance December 31, 2002                                                  $136
================================================================================
</TABLE>

Inventories valued on the LIFO method had an estimated replacement cost (FIFO
basis) of $1,421 at December 31, 2002, and $1,060 at December 31, 2001.

<TABLE>
<CAPTION>
December 31,                                                     2002     2001
--------------------------------------------------------------------------------
<S>                                                             <C>      <C>
Estimated replacement cost (FIFO basis):
Finished products                                               $  182   $  201
Raw materials, supplies and work in process                      2,224    1,662
--------------------------------------------------------------------------------
Inventories (FIFO basis)                                         2,406    1,863
Less: reduction to LIFO cost                                      (229)    (180)
--------------------------------------------------------------------------------
Inventories                                                     $2,177   $1,683
================================================================================
</TABLE>

13   Properties, Net

<TABLE>
<CAPTION>
December 31,                                                    2002      2001
--------------------------------------------------------------------------------
<S>                                                           <C>       <C>
Land                                                          $   161   $   119
Buildings and improvements                                      3,032     2,558
Equipment                                                       4,977     4,278
Construction in process                                         1,518     1,293
Less: Allowance for depreciation                               (4,005)   (3,392)
--------------------------------------------------------------------------------
Properties, net                                               $ 5,683   $ 4,856
================================================================================
</TABLE>


                                       55




<PAGE>

14   Investments

<TABLE>
<CAPTION>
December 31,                                                         2002   2001
--------------------------------------------------------------------------------
<S>                                                                  <C>    <C>
Short-term investments:
Available-for-sale:
Certificates of deposit                                              $467   $101
Corporate notes                                                        --     10
U.S. Government obligations                                            --      4
Other                                                                  --      1
--------------------------------------------------------------------------------
Total available-for-sale                                              467    116
Held-to-maturity                                                        2      3
--------------------------------------------------------------------------------
Total short-term investments                                         $469   $119
================================================================================
</TABLE>

Amortized cost of short-term investments classified as available-for-sale
approximates fair market value. Short-term investments classified as
held-to-maturity consist primarily of Swedish treasury securities with amortized
cost approximating fair market value.

<TABLE>
<CAPTION>
                                                        Unrealized
                                                     ----------------   Carrying
Long-Term Investments                         Cost   Gains   (Losses)    Value
--------------------------------------------------------------------------------
<S>                                           <C>     <C>      <C>        <C>
December 31, 2002
Available-for-sale:
Equity securities                             $257    $ 55     $(30)      $282
Other                                            5      --       --          5
--------------------------------------------------------------------------------
Total available-for-sale                      $262    $ 55     $(30)       287
                                              ----------------------------------
Total long-term investments                                               $287
================================================================================
December 31, 2001
Available-for-sale:
Equity securities                             $155    $139     $ (7)      $287
Other                                            1      --       --          1
--------------------------------------------------------------------------------
Total available-for-sale                      $156    $139     $ (7)       288
                                              ----------------------------------
Total long-term investments                                               $288
================================================================================
</TABLE>

There were no long-term investments held-to-maturity for the years ended
December 31, 2002 and 2001. The total of net unrealized gains included in
shareholders' equity amounted to $33 at December 31, 2002, compared to $142 at
December 31, 2001. For the year ended 2001, prior to the Company's spin-off of
the agricultural subsidiary, Monsanto's net unrealized gains (net of deferred
taxes) was included as a part of shareholders' equity. There were no sales of
available-for-sale debt securities in 2002.

The proceeds realized from the sale of available-for-sale debt securities were
$43 and $227 for 2001 and 2000, respectively. Profits realized on these sales
are recorded as interest income. During 2002, 2001 and 2000, the proceeds
realized from the sale of available-for-sale equity securities amounted to $102,
$81 and $50, respectively. Profits realized on these sales are recorded in "All
other, net" in the consolidated statements of earnings. Based on original cost,
gains of $71, $56 and $41 were realized on all sales of available-for-sale
securities in 2002, 2001 and 2000, respectively.

During 2002 and 2001, the Company recognized losses on certain equity security
investments. The losses for 2002 and 2001 amounted to $28 and $40, respectively
and were due to the decline in the fair value of those equity securities that,
in the opinion of management, were considered to be other than temporary. The
loss is included in "All other, net" in the consolidated statements of earnings.

15   Lines of Credit and Debt

The Company has committed borrowing facilities amounting to $1,000 that were
unused as of December 31, 2002. Expiration periods occur as follows: $500-2003
and $500-2004. The facilities exist largely to support commercial paper
borrowings, which fluctuate based on working capital requirements. While there
are no related compensating balances, the facilities are subject to various
fees. The Company also has uncommitted lines of credit amounting to
approximately $550 available with various U.S. and


                                       56




<PAGE>

international banks, of which $43 was used at December 31, 2002. Guarantees,
mainly in the form of letters of credit, totaling $86 were outstanding as of
December 31, 2002. Of these guarantees, $35 is to support purchases from
suppliers and $51 relates to financing and insurance activities.

<TABLE>
<CAPTION>
December 31,                                                         2002   2001
--------------------------------------------------------------------------------
<S>                                                                  <C>    <C>
Notes payable to banks                                               $138   $152
Commercial paper                                                      604    160
Current maturities of long-term debt                                   69    118
Bank overdrafts                                                        43     40
--------------------------------------------------------------------------------
Total short-term debt                                                $854   $470
================================================================================
</TABLE>

The weighted-average interest rate on short-term debt (excluding current
maturities of long-term debt) for 2002, 2001 and 2000 was 2.6 percent, 6.4
percent and 13.0 percent, respectively. The fluctuation in rates over the
three-year period was primarily attributable to the varied level of commercial
paper borrowings, which carries traditionally lower rates as compared to the
overall debt mix. Interest expense was $154, $255 and $182 for the years ended
December 31, 2002, 2001 and 2000, respectively.

<TABLE>
<CAPTION>
December 31,                                                      2002     2001
--------------------------------------------------------------------------------
<S>                                                              <C>      <C>
6.6% debentures due 2028                                         $  660   $  667
5 3/4% notes due 2005                                               600      600
6 1/2% debentures due 2018                                          462      498
5 7/8% notes due 2008                                               200      200
6 3/4% debentures due 2027                                          200      200
Industrial revenue bond obligations, 7.2% average rate at
   December 31, 2002, due 2004 to 2028                              148      155
Medium-term notes, 6.6% average rate at
   December 31, 2002, due 2003 to 2018                              106      114
5.6% yen note due 2016                                               84       76
Other                                                               125      102
--------------------------------------------------------------------------------
Total long-term debt                                             $2,585   $2,612
================================================================================
</TABLE>

Annual aggregate maturities of long-term debt during the next five years are:
2004-$40; 2005-$658; 2006-$1; 2007-$22 and 2008 and beyond-$1,864. The Company
has guaranteed two ESOP-related notes for original principal amounts of $275
(9.79 percent) and $80 (8.13 percent) with maturities ranging between 2003 and
2006. At December 31, 2002, the balance of the guarantees was $119 of which $55
was classified as current. Principal payments cause the recognition of
compensation expense. Annual aggregate maturities of guaranteed debt through
expiration are: 2004-$60; 2005-$2 and 2006-$2.

During 2001 and 2000, the Company had several retirements of debt. The costs
associated with the retirements have been classified as extraordinary items on
the Company's consolidated statements of earnings. Through a private transaction
completed in July 2001, the Company retired debt related to the adjustable
conversion-rate equity securities (ACES) in the principal amount of $700.
Premium on the debt and other direct costs of $8 (net of taxes of $5) were
incurred. During June 2001, the Company retired certain debt obligations
relating to one of the ESOPs. The principal amount of the debt was $24. Costs
related to the transaction, including a premium to retire the debt and other
direct costs were $4 (net of taxes of $2). In December 2000, the Company
repurchased certain long-term debt issues with a total principal amount of $362.
The cost of this action was $32 (net of taxes of $20). The costs related to the
tender are comprised of normal inducement premiums and professional and
administrative fees.

16   Commitments, Contingent Liabilities and Litigation

Future minimum payments under noncancellable operating leases, and unconditional
purchase obligations at December 31, 2002 (approximately 86 percent real estate
and 14 percent equipment and inventory purchases) are as follows: 2003-$148;
2004-$119; 2005-$102; 2006-$95; 2007-$86 and later years-$146. Capital asset
spending committed for construction and equipment but unexpended at December 31,
2002 was approximately $701.

The consolidated balance sheets include accruals for estimated product,
intellectual property and other litigation and environmental liabilities. The
latter includes exposures related to discontinued operations, including the
industrial chemical facility referred to


                                       57




<PAGE>

below and several sites that, under the Comprehensive Environmental Response,
Compensation and Liability Act, are commonly known as Superfund sites. The
Company's ultimate liability in connection with Superfund 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 the inherent uncertainties in
evaluating environmental exposures.

Environmental Matters

With regard to the Company's discontinued industrial chemical facility in North
Haven, Connecticut, the Company will be required to submit a corrective measures
study report to the U.S. Environmental Protection Agency. It is reasonably
possible that a material increase in accrued liabilities will be required. It is
not possible, however, to estimate a range of potential losses. Accordingly, it
is not possible to determine what, if any, additional exposure exists at this
time.

Litigation Matters

The Company has been a defendant, along with a number of other manufacturers and
wholesalers, in several civil antitrust lawsuits, including a federal class
action, brought by retail pharmacies alleging that the defendants violated the
law by providing discounts to hospitals, nursing homes, mail-order pharmacies
and health maintenance organizations that were not offered on equal terms to
retail pharmacies. Pharmacia & Upjohn, a subsidiary of the Company, settled the
federal class action for $103, and G.D. Searle & Co. (Searle), another
subsidiary of the Company, received a favorable verdict in the federal class
action in 1999. State class action lawsuits seeking damages based on the same
alleged conduct were filed in 14 states and the District of Columbia, all but
one of which have been settled or dismissed. A number of the federal cases
brought by plaintiffs who opted out of the federal class action are still
pending.

The Company is a defendant in a lawsuit brought by CP Kelco in Federal Court in
Delaware seeking compensatory and punitive damages for alleged breach of
contract, fraud and securities law violations arising out of the purchase of the
Company's Kelco biogums business in 2000 by Lehman Brothers Merchant Bank
Partners II, L.P. (Lehman), which combined the Company's Kelco biogums business
with a business purchased from Hercules, Inc. to form CP Kelco. The Company has
asserted counterclaims against the plaintiff for the return of certain payments
and specific performance of plaintiff's contractual obligation to provide
severance benefits to certain employees of the Company who were transferred to
CP Kelco. The Company has also asserted indemnification claims against Lehman
and Hercules in a third-party complaint.

Discovery has been completed in the lawsuit. A September 2002 Report and
Recommendation (September Report) issued by the magistrate judge in the case
granted Lehman's and Hercules' motion for judgment on the pleadings. The Company
has filed objections to the September Report and those objections have not been
ruled upon. An October 2002 Report and Recommendation (October Report) granted
in part and denied in part the Company's motion for summary judgment. The
Company has filed objections to that portion of the October Report that denied
its motion. Those objections have not been ruled upon. Trial is now scheduled
for April 28, 2003.

The Company, Searle and Pfizer are defendants in four purported class action
complaints filed in Federal and State Court in New Jersey seeking damages based
on the claim that the defendants misrepresented and over-promoted CELEBREX in
violation of state law and misled and defrauded the U.S. Food and Drug
Administration during the CELEBREX approval process. These complaints seek
economic damages only and claim no specific medical injury. Two cases were
recently dismissed and two remain.

The Company, Pfizer and Merck & Co., Inc. are defendants in a purported class
action complaint filed in Federal Court in New York alleging medical concerns
related to VIOXX and CELEBREX and seeking reimbursement of the purchase price,
for the VIOXX and CELEBREX used by the plaintiffs, medical expenses and
attorneys' fees. The complaint also seeks revised labeling for the products,
emergency notice to the class and a medical monitoring program funded by
defendants. In September 2002, defendants' motion to dismiss plaintiffs' claim
for injunctive relief was granted.

The States of New York, Nevada, Montana and Minnesota have sued the Company, in
their respective state courts, alleging that the Company manipulated the
"average wholesale price" ("AWP") of Medicare Part B "Covered Drugs," causing
the states' respective Medicaid agencies, and their respective Medicare and
Medicaid beneficiaries, among others, to pay artificially inflated prices for
"Covered Drugs." In addition, the Nevada and Montana suits allege that the
Company did not report to the states its "best price" under the Medicaid
Program. Each of the suits alleges various causes of action, including, but not
limited to, deceptive trade practices and Medicaid fraud, purportedly sounding
in state law. The suits seek monetary and other relief, including civil
penalties and treble damages.

The Montana, Minnesota and Nevada suits have been removed to those states'
respective federal courts and transferred to MDL 1456. The magistrate judge in
the Minnesota suit issued a September 2002 Report and Recommendation (Report)
granting plaintiff's


                                       58




<PAGE>

motion to remand the suit to state court. The Company has filed objections to
the Report and those objections have not yet been ruled upon by the district
court judge.

In addition, the Company has been named as a defendant in the following
self-styled class action lawsuits, brought by private individuals, public
interest groups and employee welfare benefit plans in which similar allegations
of AWP manipulation have been made: Board of Trustees of Carpenters and
Millwrights of Houston and Vicinity Welfare Trust Fund v. Abbott Laboratories,
Inc., et, al., 5:01 CV 339 (E.D.Tex.); Citizens for Consumer Justice, et. seq.
v. Abbott Laboratories, et. al., C.A. No. 01-12257 (D. Mass.); Congress of
California Seniors, et. al. v. Abbott Laboratories, et. al., BC282102 (Ca. Sup.
Ct., Los Angeles Co.); Geller v. Abbott Laboratories, et. al., CV 02-00553 (C.D.
Cal.); Rice v. Abbott Laboratories, et. al., C 02-3925 (N.D. Cal.); Robinson and
Hudson v. Abbott Laboratories, et. al, CV02-0493-S (W.D.La.); Swanston v. TAP
Pharmaceutical Products Inc., et. al., CV2002-004988 (Az. Sup. Ct., Maricopa
Co.); Thompson v. Abbott Laboratories, et. al., CGC-02-411813 (Ca. Sup. Ct., San
Francisco Co.); Teamsters Health & Welfare Fund of Philadelphia and Vicinity v.
Abbott Laboratories, Inc., et. al., 02 CV 2002 (E.D.Pa.); Turner v. Abbott
Laboratories, et. al., 412357 (Ca. Sup. Ct., San Francisco Co.); United Food and
Commercial Workers Unions, et. seq. v. Pharmacia Corporation, et. al., 3:01 CV
5427 (D.N.J.); and Virag v. Allergan, Inc., et. al, BC282690 (Ca. Sup. Ct., Los
Angeles Co.). Typical claims asserted in these suits include fraud, unfair
competition and unfair trade practices. Some of the suits assert claims under
the Racketeer Influenced and Corrupt Organizations Act ("RICO"). Some suits
assert antitrust claims. The suits seek various measures of injunctive, monetary
and other relief, including civil penalties and treble damages.

All of the private plaintiff lawsuits referred to in the preceding paragraph,
with the exception of the Swanston suit in Arizona state court, have been
consolidated for pretrial purposes and transferred to the federal district court
for Massachusetts, in the multidistrict litigation captioned, In re
Pharmaceutical Industry Average Wholesale Price Litigation, MDL 1456, Master
File No. 01-CV-12257-PBS (D. Mass.). On November 4, 2002, the Company joined the
other defendants in the MDL 1456 in moving to dismiss all claims asserted
against defendants in the master consolidated complaint. Oral argument of the
motion was held on January 13, 2003. The judge indicated that her ruling would
come in the next 90 days. During this same period, defendants will be providing
limited discovery to the plaintiffs.

On April 19, 2002, NeoPharm filed a Demand for Arbitration with the Company
pursuant to the terms of the February 19, 1999 License Agreement. A contractual
dispute has arisen between NeoPharm and Pharmacia involving our partnership to
develop LEP (Liposomal Encapsulated Paclitaxel) and LED (Liposomal Encapsulated
Doxorubicin). NeoPharm claims that Pharmacia failed to use "reasonable efforts"
to develop, market and sell LEP/LED. NeoPharm is seeking specific performance
and monetary damages. In May 2002, the Company filed its response and
counter-claim. Discovery has been ongoing and a hearing is scheduled for
May 2003.

On April 11, 2000, the University of Rochester filed suit in U.S. District
Court for the Western District of New York, asserting patent infringement
against the Company and certain of its subsidiaries as well as Pfizer. The
University asserts that its U.S. patent has claims directed to a method of
treating human patients by administering a selective COX-2 inhibitor. The
University sought injunctive relief, as well as monetary compensation for
infringement of the patent. On March 5, 2003, a trial judge in the U.S. District
Court for the Western District of New York dismissed the claims on summary
judgment, holding the University patent to be invalid for lack of written
description and lack of enablement of the alleged invention. The University is
expected to file an appeal on this decision in 2003.

Pursuant to the Separation Agreement between Pharmacia and Monsanto, as amended
(the "Separation Agreement"), Monsanto assumed and agreed to indemnify Pharmacia
for liabilities related to the agricultural business. In the proceedings where
the Company is the defendant, Monsanto will indemnify the Company for costs,
expenses and any judgments or settlements; and in the proceedings where the
Company is the plaintiff, Monsanto will pay the fees and costs of, and receive
any benefits from, the litigation. Therefore, Pharmacia may remain the named
party in certain legal proceedings, but Monsanto will manage the litigation
including indemnifying Pharmacia for costs, expenses and any judgments or
settlements.

In connection with the spin-off of Solutia Inc. (Solutia) on September 1, 1997,
Solutia assumed from Pharmacia liabilities related to the former Monsanto
chemical businesses pursuant to the Distribution Agreement, as amended (the
"Distribution Agreement"). As a result, Pharmacia remains the named defendant in
certain legal proceedings but Solutia manages the litigation and pays all costs,
expenses and any judgments or settlements.

Pursuant to the terms of the Separation Agreement, Monsanto has assumed, and
agreed to indemnify Pharmacia for, any liabilities primarily related to former
Monsanto's former chemical businesses, including any liabilities that Solutia
has assumed from Pharmacia in connection with the spin-off of Solutia, to the
extent Solutia fails to pay, perform or discharge these liabilities. This
indemnification obligation applies to litigation, environmental, retiree and all
other liabilities assumed by Solutia pursuant to the spin-off.

For example, Solutia assumed responsibility for litigation currently pending in
state and federal court in Alabama brought by several thousand plaintiffs,
alleging property damage, anxiety and emotional distress and personal injury
arising from exposure to polychlorinated biphenyls (PCBs), which were discharged
from an Anniston, Alabama plant site that was owned by former Monsanto and that
was transferred to Solutia as part of the spin-off. This litigation includes,
but is not limited to, the Abernathy litigation referred to below. Pursuant to
the terms of the Distribution Agreement, Solutia is required to indemnify
Pharmacia for liabilities that Pharmacia incurs in connection with this
litigation.

Solutia is defending itself and Pharmacia in connection with Sabrina Abernathy,
et al. v. Monsanto Company, et al., currently pending in state court in Alabama.
The jury has found Solutia and Pharmacia (former Monsanto) liable with respect
to certain claims in this litigation, and proceedings have commenced to
determine damages. Solutia requested that Pharmacia commit to posting any appeal
bond that may be required to stay execution of any judgment in this litigation
pending an appeal. Pursuant to a Protocol agreement dated as of July 1, 2002,
Pharmacia, Monsanto and Solutia have agreed that, if Solutia does not post a
bond sufficient to stay the execution of any judgment in the litigation pending
an appeal, Pharmacia will post such a bond if it is able to do so on
commercially reasonable terms. Solutia shall pay the expenses incurred in
connection with obtaining any such bond. The agreement also specifies which
party or parties would control any decisions regarding settlement of the
Abernathy litigation, depending upon


                                       59




<PAGE>

whether or not collateral must be provided to secure the bond and, if so, which
party provides it. Under the agreement, the continued defense of the Abernathy
litigation and the prosecution of any appeal will continue to be managed by
Solutia, at Solutia's expense.

With respect to the matters described above, the Company cannot estimate a range
of potential losses or what, if any, additional exposure exists at this time.
The Company believes it has valid defenses to these matters and intends to
vigorously contest them.

The Company is involved in other legal proceedings arising in the ordinary
course of its business. While the results of litigation cannot be predicted with
certainty, management's belief is that any potential remaining liability from
such proceedings that might exceed amounts already accrued will not have a
material adverse effect on the Company's consolidated financial position,
profitability or liquidity.

Guarantees

In connection with the spin-off of Monsanto, Pharmacia has agreed to continue to
guarantee certain transactions in which Monsanto is involved. As of December 31,
2002, these guarantees include $330 of bank notes with maturities not later than
2004 and $6 of environmental guarantees, which are required until Monsanto can
obtain certain approvals.

In addition to these known amounts, Pharmacia has also committed to posting an
appeal bond, if necessary, in connection with the Abernathy litigation in
Anniston, Alabama, as discussed in detail above. In this regard, Monsanto has
assumed, and agreed to indemnify Pharmacia for, any exposure that may result.

17   Shareholders' Equity

Preferred Stock

The Series C Convertible Perpetual Preferred Stock is held by one of the
Employee Stock Ownership Trusts. The per-share stated value is $40,300.00 and
the preferred stock ranks senior to the Company's common stock as to dividends
and liquidation rights. Each share is convertible, at the holder's option, into
1,839.19 shares of the Company's common stock and has voting rights equal to
1,839.19 shares of common stock. The Company may redeem the preferred stock at
any time or upon termination of the ESOP at a minimum price of $40,300.00 per
share. Dividends, if declared and at the rate of 6.25 percent, are cumulative,
paid quarterly and charged against retained earnings.

Common Stock

The number of common shares outstanding at December 31, 2002, 2001 and 2000 was
1,293,293,000; 1,298,450,000 and 1,296,300,000, respectively. For the years
ended December 31, 2002 and 2001, Pharmacia declared dividends of $0.54 and
$0.525 per share, respectively. For the year 2000, Pharmacia declared dividends
of $0.36 and, individually, former Monsanto and P&U declared dividends of $0.015
and $0.25, respectively. Common stock dividends payable were $175 and $176 at
December 31, 2002 and 2001, respectively.

Capital in Excess of Par Value

Amounts of paid-in capital that exceed the par value ($2.00 per share) of the
Company's common stock are recorded in this account. The tax benefit related to
the exercise of certain stock options reduces income taxes payable and is
reflected as capital in excess of par. Offsetting this is the difference between
the cost of treasury shares and cash received for them, if any, when used to
satisfy stock option exercises and other employee stock awards. Gains and losses
related to the sale of stock by subsidiaries are also included in paid-in
capital.

In 2001, the Company issued 16,467,500 shares of common stock in connection with
the ACES, resulting in an increase to capital in excess of par value $667.

Retained Earnings

Retained earnings were reduced by $4,523 related to the spin-off of Monsanto to
Pharmacia shareholders. Included in this reduction was $1,020 related to
Pharmacia's portion of Monsanto's accumulated currency translation and other
comprehensive income balances and a special dividend of 220 million shares of
Monsanto common stock to Pharmacia shareholders of record on July 29, 2002.
These shares were distributed at the close of business on August 13, 2002 and
were valued at $3,478.


                                       60




<PAGE>

ESOP-Related Accounts

Upon recognition of the Company's guarantee of the debt of the ESOP trusts,
offsetting amounts were recorded in shareholders' equity. As guaranteed debt is
repaid, this amount diminishes correspondingly. In addition, the Company has
extended various loans to the ESOP trusts. The guarantees and the Company loans
constitute charges to shareholders' equity. Finally, to the extent the Company
recognizes expense more rapidly than the corresponding cash contributions are
made to the preferred stock ESOP, this shareholders' equity balance is reduced.
The distribution of Monsanto common stock held by the Company to Pharmacia
shareholders resulted in a $25 reduction to the ESOP balance.

Treasury Stock

The balances at December 31, 2002 and 2001 were $3,257 and $2,789, respectively,
carried at cost. The corresponding shares associated with these balances were
191,510,000 in 2002 and 186,354,000 in 2001. The 5,156,000 increase in shares in
2002 reflects purchases under the share repurchase program announced in 2001 and
is net of the conversion of Sugen debt to common stock. The share repurchase
program was suspended in mid-2002 due to the merger negotiations with Pfizer.

Accumulated Other Comprehensive Income (Loss)

Accumulated other comprehensive income (loss) reflects the cumulative balance of
currency translation adjustments, the adjustments of translating the financial
statements of non-U.S. subsidiaries from local currencies into U.S. dollars;
unrealized gains and losses on investments categorized as available-for-sale,
net of deferred taxes; reclassifications of unrealized hedging instrument gains,
net of deferred losses and taxes; and minimum pension liability adjustments, net
of deferred tax.

Other comprehensive income (loss) elements relating to Monsanto were included in
reported "Accumulated other comprehensive income (loss)" through the date of the
spin-off. At that time, Monsanto balances of $1,020 were distributed as part of
the spin-off of Monsanto and charged to retained earnings.

Shareholder Rights Plan

Pursuant to the Company's Shareholder Rights Plan dated December 19, 1999, as
amended and restated as of February 20, 2001, if a person or group acquires
beneficial ownership of 20 percent or more, or announces a tender offer that
would result in beneficial ownership of 20 percent or more of the Company's
outstanding common stock, the rights become exercisable. And, for every right
held, the owner will be entitled to purchase one one-thousandth of a share of a
Series A preferred stock for $250.00. If Pharmacia is acquired in a business
combination transaction while the rights are outstanding, for every right held,
the holder will be entitled to purchase, for $250.00, common shares of the
acquiring company having a market value of $500.00. In addition, if a person or
group acquires beneficial ownership of 20 percent or more of the Company's
outstanding common stock, for every right held, the holder (other than such
person or members of such group) will be entitled to purchase, for $250.00, a
number of shares of the Company's common stock having a market value of $500.00.
At any time prior to the acquisition of such a 20 percent position, the Company
can redeem each right for $0.001. The board of directors also is authorized to
reduce the aforementioned 20 percent thresholds to not less than 10 percent. The
rights expire in the year 2010.

The Shareholder Rights Plan was amended on July 12, 2002 to provide that Pfizer
would not be deemed an acquirer for purposes of the Shareholder Rights Plan as a
result of the execution of the merger agreement or the completion of the merger.

18   Equity Compensation

The Company has six stock option plans under which shares remain available for
future grants and all have similar terms. Options are granted for an exercise
price equal to the market price of the Company's stock on the dates of grant and
generally have a maximum term of 10 years. Options granted prior to the Merger
became fully vested at the time of the Merger with former Monsanto as a result
of change-of-control provisions, which were included in the original terms of
the plans. Options granted since that Merger primarily vested pro rata over
three years, however, nearly all options became fully vested in 2002 as a
result of the approval of the Merger Agreement between the Company and Pfizer
by Pharmacia shareholders on December 9, 2002. As of December 31, 2002, the
number of shares available for grant under the six plans is approximately
60 million.

Information concerning stock option activity and balances follows:


                                       61




<PAGE>

<TABLE>
<CAPTION>
================================================================================
                                                    Weighted Average    Number
                                                     Exercise Price    of Shares
                                                        Per Share        (000)
--------------------------------------------------------------------------------
<S>                                                      <C>            <C>
Balance outstanding, January 1, 2000                      34.86         137,091
Granted                                                   36.88          15,286
Exercised                                                 29.20         (45,989)
Expired/forfeited                                         48.62          (3,070)
--------------------------------------------------------------------------------
Balance outstanding, December 31, 2000                    37.27         103,318
Granted                                                   45.34          26,842
Exercised                                                 27.16          (7,546)
Expired/forfeited                                         47.77          (4,643)
--------------------------------------------------------------------------------
Balance outstanding, December 31, 2001                    39.34         117,971
Granted                                                   39.03          33,297
Exercised                                                 21.80          (8,926)
Expired/forfeited                                         48.40          (7,361)
--------------------------------------------------------------------------------
Balance outstanding, December 31, 2002                   $39.93         134,981
================================================================================
</TABLE>

<TABLE>
<CAPTION>
================================================================================
Composition of the                        Weighted       Weighted
December 31, 2002 balance:                 Average        Average       Number
Options having a                          Remaining   Exercise Price   Of Shares
per-share exercise price of:                Life         Per Share       (000)
--------------------------------------------------------------------------------
<S>                                      <C>              <C>            <C>
$ 0.01--19.99                            1.49 years       $12.13          5,758
$20.00--29.99                            3.36 years        25.83          9,051
$30.00--39.99                            7.07 years        36.83         58,815
$40.00--49.99                            6.22 years        46.45         55,780
$50.00--59.99                            5.86 years        53.91          5,023
$60.00--75.00                            4.30 years        71.06            554
================================================================================
</TABLE>

As of December 31, 2002, 2001 and 2000, Pharmacia had exercisable options of
134,516,695; 89,669,150 and 99,392,370 respectively, with weighted-average
exercise prices of $39.87, $37.11 and $36.57 respectively.

19   Employee Stock Ownership Plans (ESOP)

The Company operates two ESOPs that serve as the funding vehicles for certain
employee savings plans. Pursuant to these plans, the Company matches, in part,
employee contributions. One plan utilizes common stock and the other, preferred
stock of the Company.

The common stock plan held approximately 7,300,000 shares of stock as of
December 31, 2002. At its inception, the ESOP acquired shares by using proceeds
from the issuance of long-term notes and debentures guaranteed by the Company
and borrowing $50 from the Company. In 2001, this plan was split between the
Company and its agricultural subsidiary based on employee census information.
The Company's retroactive portion of the original borrowing would have been
approximately $23. In 2002, approximately 500,000 shares were allocated to
participants' savings accounts under the plan, leaving approximately 1,810,000
unallocated shares as of December 31, 2002. Shares held by the ESOP are
considered outstanding for EPS calculations. Compensation expense is equal to
the cost of the shares allocated to participants, less cash dividends paid on
the shares held by the ESOP. Dividends on the common stock owned by the ESOP are
used to repay the ESOP borrowings, which were $26 as of December 31, 2002.
Common shares released during 2002, 2001 and 2000 were approximately 500,000 and
536,000 and 571,000, respectively.

The preferred stock ESOP was created in 1989. As the ESOP Trust makes debt
principal and interest payments, a proportionate amount of preferred stock is
released for allocation to plan participants. The preferred shares are allocated
to participants' accounts based upon their respective savings plan contributions
and the dividends earned on their previously allocated preferred shares. As of
December 31, 2002, 3,203 preferred shares had been released and allocated; 381
shares were released but unallocated; and 2,546 shares remained unreleased, of
which 459 shares are committed to be released. Preferred shares released during
2002, 2001 and 2000 were 622, 542 and 502 respectively. Eventual conversion of
all preferred shares is assumed in the EPS computations.


                                       62




<PAGE>

Under the agreement whereby the Company guaranteed third-party debt of the ESOP
Trust, the Company is obligated to provide sufficient cash annually to the Trust
to enable it to make required principal and interest payments. The Company
satisfies this annual cash flow requirement through payment of dividends on all
preferred shares outstanding, loans and cash contributions. The Company has
fully and unconditionally guaranteed the ESOP Trust's payment obligations
whether at maturity, upon redemption, upon declaration of acceleration or
otherwise. The holders of the debt securities have no recourse against the
assets of the ESOP Trust except in the event that the Trust defaults on payments
due and the Company also fails to make such payments. In that event, the holders
may have recourse against unallocated funds held by the Trust. At December 31,
2002, assets of the ESOP Trust consisted primarily of $247 of Pharmacia
Corporation Convertible Perpetual Preferred Stock.

Expense of the preferred stock ESOP is determined by a formula that apportions
debt service to each year of the plan based on shares allocated to participants
and deducts dividends paid on all preferred stock held by the Trust.

ESOP expense represents a fringe benefit and, as such, it forms a part of
payroll costs that comprise a portion of all functional expense captions in the
consolidated statements of earnings.

Combined measures of the ESOP plans are presented in the table that follows. All
years have been restated to exclude the Company's agricultural subsidiary's
portion of the ending balances. Amounts have been approximated based on the
employee census data used to split the plan.

<TABLE>
<CAPTION>
Years Ended December 31,                                      2002   2001   2000
--------------------------------------------------------------------------------
<S>                                                            <C>    <C>    <C>
Interest expense of ESOP Trust                                 $18    $23    $27
Dividend income of ESOP Trusts:
   Preferred                                                    16     16     17
   Common                                                        3      3      2
Company contributions to ESOP Trusts                            47     41     40
Company ESOP expense                                            42     40     30
================================================================================
</TABLE>

20   Retirement Benefits

The Company has various pension plans covering substantially all employees.
Benefits provided under the defined benefit pension plans are primarily based on
years of service and the employee's compensation. The Company also provides
nonpension benefits to eligible retirees and their dependents, primarily in the
form of medical and dental benefits. The following tables summarize the changes
in benefit obligations and plan assets during 2002 and 2001.

<TABLE>
<CAPTION>
                                                                              Other Retirement
                                                          Pension Benefits         Benefits
                                                          ------------------------------------
Change in Benefit Obligation                                2002      2001     2002     2001
----------------------------------------------------------------------------------------------
<S>                                                       <C>       <C>        <C>     <C>
Benefit obligation at beginning of year                   $ 3,950   $ 4,139    $ 690   $ 920
Service cost                                                  125       113       21      19
Interest cost                                                 194       267       57      47
Benefits paid                                                (237)     (363)     (61)    (52)
Actuarial loss (gain)                                         278        55      187      (5)
Plan amendments and other adjustments                         159        (9)      (8)      0
Plan participant contributions                                  5        10        4       2
Currency exchange effects                                     148       (70)      --      --
Benefit obligation transferred to Monsanto (net)           (1,190)     (192)      --    (241)
----------------------------------------------------------------------------------------------
Benefit obligation at end of year                         $ 3,432   $ 3,950    $ 890   $ 690
==============================================================================================
Change In Plan Assets                                       2002      2001     2002     2001
----------------------------------------------------------------------------------------------
Fair value of plan assets at beginning of year            $ 2,887   $ 3,571    $ 208   $ 227
Actual return on plan assets                                 (221)     (246)     (28)    (18)
Employer contribution                                         343        76       57      49
Plan participant contributions                                  5        10        4       2
Benefits paid                                                (237)     (363)     (61)    (52)
Other adjustments                                              40        (5)       1
Currency exchange effects                                      68       (27)      --      --
Fair value of plan assets transferred to Monsanto (net)    (1,006)     (129)      --      --
</TABLE>


                                       63




<PAGE>

<TABLE>
----------------------------------------------------------------------------------------------
<S>                                                       <C>       <C>        <C>     <C>
Fair value of plan assets at end of year                  $ 1,879   $ 2,887    $ 181   $ 208
==============================================================================================
At December 31,                                             2002      2001     2002     2001
----------------------------------------------------------------------------------------------
Funded status                                             $(1,553)  $(1,063)   $(709)  $(482)
Unrecognized net losses                                     1,313       600      273      44
Unamortized net transition asset                               (4)      (14)      --      --
Unrecognized prior service cost                               104        93      (16)    (22)
----------------------------------------------------------------------------------------------
Net amount recognized                                     $  (140)  $  (384)   $(452)  $(460)
==============================================================================================
</TABLE>

Under an agreement between Pharmacia Corporation and Monsanto Company, the
Monsanto Company Pension Plan, which formerly provided benefits to both Monsanto
and Pharmacia employees, was split into two plans effective as of January 1,
2002. The new Monsanto Company Pension Plan covers employees of Monsanto Company
and is no longer included in the consolidated financial statements of Pharmacia
while the new Pharmacia Cash Balance Pension Plan covers those Pharmacia
Corporation employees and former employees who were covered under the Monsanto
Plan prior to January 1, 2002. In the preceding table, benefit obligations and
the fair value of plan assets transferred to Monsanto in the beginning of 2002
represent the new Monsanto Company Pension Plan. Transfers of assets and benefit
obligations that occurred at the beginning of 2001 represent the transferred
portion of the Monsanto-sponsored plans outside the U.S. that benefit Monsanto
employees (shown net of transfers from Monsanto, for pension benefits and other
retirement benefits of $6 and $5, respectively, that benefit Pharmacia
employees).

The projected benefit obligation, accumulated benefit obligation and fair value
of plan assets for the pension plans with accumulated benefit obligations in
excess of plan assets were $3,283, $2,797 and $1,740 as of December 31, 2002,
and $1,878, $927 and $511 as of December 31, 2001, respectively.

The U.S. retirement plans represent approximately 60 percent, 65 percent and 54
percent of the projected benefit obligation, fair value of plan assets and
funded status, respectively, at December 31, 2002. Other retirement benefits in
the U.S. represent approximately 99 percent of the projected benefit obligation
and funded status and the entire balance of the fair value of plan assets at
December 31, 2002. The U.S. retirement plans represent approximately 74 percent,
78 percent and 65 percent of the projected benefit obligation, fair value of
plan assets and funded status, respectively, at December 31, 2001. Other
retirement benefits in the U.S. represent approximately 100 percent of the
projected benefit obligation, fair value of plan assets and funded status at
December 31, 2001.

The Company has recorded an additional minimum liability of $891 for Pharmacia's
underfunded plans at December 31, 2002. This liability represents the amount
by which the accumulated benefit obligation exceeds the sum of the fair market
value of plan assets and accrued amounts previously recorded. The additional
liability is offset by an intangible asset of $109 to the extent of previously
unrecognized prior service cost. The net amount of $782, when tax-effected,
reflects accumulated other comprehensive income of $498. The charge related to
Pharmacia's additional liability for 2002, net of related tax, is $411.

<TABLE>
<CAPTION>
                                                                Other Retirement
                                             Pension Benefits       Benefits
                                             -----------------------------------
At December 31,                               2002      2001     2002     2001
--------------------------------------------------------------------------------
<S>                                          <C>        <C>      <C>      <C>
Postretirement liabilities                   $(1,065)   $(760)   $(452)   $(460)
Prepaid balances                                  34      215                --
Minimum pension liability offsets:
Intangible assets                                109       21                --
Shareholders' equity (pretax)                    782      140                --
--------------------------------------------------------------------------------
Net amount recognized                        $  (140)   $(384)   $(452)   $(460)
================================================================================
</TABLE>

<TABLE>
<CAPTION>
                                              Pension Benefits     Other Retirement Benefits
                                           -------------------------------------------------
Components of Net Periodic Benefit Cost:    2002    2001    2000      2002   2001   2000
--------------------------------------------------------------------------------------------
<S>                                        <C>     <C>     <C>        <C>    <C>    <C>
Service cost                               $ 125   $ 113   $ 121      $ 21   $ 19   $ 26
Interest cost                                194     267     279        57     47     62
Expected return on plan assets              (202)   (304)   (304)      (21)   (21)   (24)
Amortization of transition amount             (8)     (9)    (17)       --     --     --
Amortization of prior service cost            11      15      16        (3)    (3)    (5)
Recognized actuarial (gain) loss              13      (9)      1         4     (1)   (10)
--------------------------------------------------------------------------------------------
</TABLE>


                                       64




<PAGE>

<TABLE>
<S>                                        <C>     <C>     <C>        <C>    <C>    <C>
Net periodic benefit cost                    133      73      96        58     41     49
Settlement/curtailment loss                   --      --       9        --     --     --
--------------------------------------------------------------------------------------------
Net benefit cost                           $ 133   $  73   $ 105      $ 58   $ 41   $ 49
============================================================================================
</TABLE>

For the Company's principal retirement and postretirement pns, the
weighted-average assumptions are shown below. The weighted-erage discount rate,
salary growth rate and health care cost rate reflect those used for measurement
at December 31, while the expected return on plan asset rate reflects those used
for the years ended December 31, 2000 through 2002. The expected return rate on
plan assets to be used for 2003 is 9 percent and 7.44 percent for the U.S. and
international plans, respectively.

<TABLE>
<CAPTION>
                                          Pension             Postretirement
                                     ------------------------------------------
                                     2002   2001   2000    2002    2001    2000
-------------------------------------------------------------------------------
<S>                                  <C>    <C>    <C>    <C>     <C>     <C>
Discount rate:
   U.S. plans                        6.75%  7.25%  7.50%   6.75%   7.25%   7.50%
   International plans               5.22   5.44   5.55     N/A     N/A     N/A
Salary growth rate:
   U.S. plans                        4.04   4.02   4.36     N/A    4.50     N/A
   International plans               3.67   3.74   3.20     N/A     N/A     N/A
Expected return on plan assets:
   U.S. plans                        9.89   9.71   9.67   10.00   10.00   10.00
   International plans               8.43   7.41   6.75     N/A     N/A     N/A
Health care cost trend rate,
   initially:
   U.S. plans                                             11.93   11.93    5.52
Trending down to:
   U.S. plans                                              5.00    5.00    5.00
===============================================================================
</TABLE>

The assumption concerning the health care cost trend rate has a significant
effect on the amounts reported. Increasing the rate by one percentage point in
each year would increase the postretirement benefit obligation as of December
31, 2002 by $115 and the total of service and interest cost components of net
postretirement benefit cost for the year by $12. Conversely, decreasing the rate
by one percentage point in each year would decrease the postretirement benefit
obligation as of December 31, 2002 by $94 and the total of service and interest
cost components of net postretirement benefit cost for the year by $10.

21   Acquisitions and Divestitures

Acquisitions

In March 2001, the Company completed the acquisition of Sensus Drug Development
Corporation by purchasing the remaining 80.1 percent of its stock. The assets
purchased were valued at $117, which includes $67 allocated to in-process
research and development. Cash paid in connection with this purchase was $65 and
included certain direct closing costs and is net of contractual holdback
amounts.

Divestitures

On August 13, 2002, the Company distributed to its shareholders, as a special
dividend, the 220 million shares of Monsanto common stock that it owned. Refer
to Note 8 - Discontinued Operations.

Pursuant to existing agreements, the Company had rights from Sanofi to
manufacture, sell and market two products in North America: AMBIEN and KERLONE.
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 ($661 net pretax gain)
for its interest that was recorded in the second fiscal quarter of 2002 and has
been recorded in all other, net on the consolidated statements of earnings.

In March 2002, the Company sold its 45 percent minority interest in Amersham
Biosciences to Amersham plc. Refer to Note 5 - Extraordinary Items.

In June 2001, a definitive agreement was signed to establish Biovitrum.
Biovitrum consists of the Company's Sweden-based metabolic disease research
group, its related biopharmaceutical development unit and its blood
fractionation business. The Company initially retained ownership of
approximately 35 percent of the new Company. In early November 2001, the Company
further


                                       65




<PAGE>

reduced its holdings in Biovitrum to 19 percent through additional sales of
shares to outside investors. Details related to merger charges are discussed in
Note 3 - Merger and Restructuring Charges.

22   Segment Information

The Company's core business is the research, development, manufacture and sale
of pharmaceutical products. Prescription pharmaceuticals is the Company's only
reportable segment and includes primary care, hospital care, cancer care,
ophthalmology and endocrine care products.

The Company also operates several business units that do not constitute
reportable business segments. These operating units include consumer health
care, animal health, diagnostics and contract manufacturing and bulk
pharmaceutical chemicals. Due to the size of these operating segments, they have
been grouped into the other pharmaceuticals category.

The accounting policies of all of the Company's businesses are the same as those
outlined in the summary of significant accounting policies. Corporate amounts
represent general and administrative expenses of corporate support functions,
restructuring charges and other corporate items such as litigation accruals,
merger costs and nonoperating income and expense. Certain goodwill and
intangible assets and associated amortization are not allocated to segments.

The following tables show revenues and earnings by category and reconciling
items necessary to total to the amounts reported in the consolidated financial
statements. Information about segment interest income and expense, and income
taxes is not provided on a segment level as the segments are reviewed based on
earnings before interest and income taxes (EBIT). There are no inter-category
revenues. Long-lived assets are not allocated to categories and accordingly,
depreciation is not available.

Segments for year ended December 31, 2002:

<TABLE>
<CAPTION>
                                  Prescription    Other   Corporate    Total
-----------------------------------------------------------------------------
<S>                                  <C>         <C>         <C>      <C>
Sales                                $12,037     $1,956      $--      $13,993
Earnings from equity affiliates           --          4       --            4
Amortization                              61          6        2           69
EBIT*                                  2,817        483       95        3,395
Interest expense, net                                                      89
Earnings before taxes                                                 $ 3,306
=============================================================================
</TABLE>

Segments for year ended December 31, 2001:

<TABLE>
<CAPTION>
                                  Prescription    Other   Corporate    Total
-----------------------------------------------------------------------------
<S>                                  <C>         <C>       <C>        <C>
Sales                                $11,968     $1,867    $    --    $13,835
Earnings from equity affiliates           --          1          3          4
Amortization                              76         10         76        162
EBIT*                                  2,469        384     (1,117)     1,736
Interest expense, net                                                     145
Earnings before taxes                                                 $ 1,591
=============================================================================
</TABLE>

Segments for year ended December 31, 2000:

<TABLE>
<CAPTION>
                                  Prescription    Other   Corporate    Total
-----------------------------------------------------------------------------
<S>                                  <C>         <C>       <C>        <C>
Sales                                $10,824     $1,827    $    --    $12,651
Earnings from equity affiliates           --         12         24         36
Amortization                              62          8         82        152
EBIT*                                  2,195        348     (1,441)     1,102
Interest expense, net                                                      58
Earnings before taxes                                                 $ 1,044
=============================================================================
</TABLE>

*EBIT is presented here to provide additional information about the Company's
operations. This item should be considered in addition to, but not as a
substitute for or superior to, net earnings, cash flow or other measures of
financial performance prepared in accordance with generally accepted accounting
principles. Determination of EBIT may vary from company to company.

The Company's products are sold throughout the world to a wide range of
customers including pharmacies, hospitals, chain warehouses, governments,
physicians, wholesalers and other distributors. Although the majority of the
Company's customers contribute individually immaterial amounts of sales volume,
three U.S. wholesalers individually constitute more than 10 percent of the
Company's total sales for 2002 (combined 37 percent).


                                       66




<PAGE>

The 20 top selling products in 2002 represent approximately 71 percent of total
sales with CELEBREX accounting for 22 percent of total sales. No other product
constitutes 10 percent or more of total sales. The following table shows the
Company's sales geographically:

<TABLE>
<CAPTION>
Geographic sales for years ended December 31,         2002       2001      2000
--------------------------------------------------------------------------------
<S>                                                  <C>       <C>       <C>
Sales to customers in:
North America                                        $ 8,112   $ 8,251   $ 7,315
Europe/Africa                                          3,739     3,439     3,144
Asia Pacific                                           1,583     1,530     1,574
Latin America                                            559       615       618
Total Sales                                          $13,993   $13,835   $12,651
================================================================================
</TABLE>

Long-lived assets include property, plant and equipment, goodwill and other
intangibles, all net of depreciation or amortization.

<TABLE>
<CAPTION>
Long-lived assets as of December 31,                              2002     2001
--------------------------------------------------------------------------------
<S>                                                              <C>      <C>
North America                                                    $4,606   $4,102
Europe/Africa                                                     2,298    1,881
Asia Pacific                                                        220      194
Latin America                                                       103      154
Total long-lived assets                                          $7,227   $6,331
================================================================================
</TABLE>

Quarterly Data

<TABLE>
<CAPTION>
Dollar amounts in millions, except per-share data
2002 (Unaudited)                                    First Quarter   Second Quarter   Third Quarter   Fourth Quarter
===================================================================================================================
<S>                                                    <C>              <C>              <C>             <C>
Net sales                                              $3,126           $3,553           $3,579          $3,735
Gross profit                                            2,431            2,774            2,840           2,871
Earnings before extraordinary item and cumulative
   effect of accounting change                            457              907             (429)            550
Net earnings                                             (435)             907             (429)            554
Basic earnings per share-earnings before
   extraordinary  item and cumulative effect
   of accounting change                                $  .35           $  .70           $ (.33)         $  .42
Diluted earnings per share-earnings before
   extraordinary item and cumulative
   of accounting change effect                            .35              .69             (.33)            .41
Basic earnings per share-net earnings                    (.34)             .70             (.33)            .42
Diluted earnings per share-net earnings                  (.33)             .69             (.33)            .41
</TABLE>

<TABLE>
<CAPTION>
2001 (Unaudited)                                    First Quarter   Second Quarter   Third Quarter   Fourth Quarter
===================================================================================================================
<S>                                                    <C>              <C>              <C>             <C>
Net sales                                              $3,210           $3,413           $3,529          $3,683
Gross profit                                            2,460            2,670            2,820           2,907
Earnings before extraordinary item and cumulative
   effect of accounting change                            249              749              428              86
Net earnings                                              250              737              428              86
Basic earnings per share-earnings before
   extraordinary  item and cumulative effect
   of accounting change                                $  .19           $  .58           $  .32          $  .06
Diluted earnings per share-earnings before
   extraordinary item and cumulative effect
   of accounting change                                   .19              .56              .32             .06
Basic earnings per share-net earnings                     .19              .57              .32             .06
Diluted earnings per share-net earnings                   .19              .55              .32             .06
===================================================================================================================
</TABLE>


                                       67




<PAGE>

Item 9.  Changes in and Disagreements With Accountants on Accounting and
         Financial Disclosure

     None.

                                    PART III

Item 10. Directors and Executive Officers of the Registrant

Board of Directors

Frank C. Carlucci
Principal Occupation: Chairman Emeritas, The Carlyle Group
First Became Director of P&U in 1995
Age: 72

Chairman Emeritas, The Carlyle Group, a merchant bank, since 2003, and Chairman
from 1993-2003; U.S. Secretary of Defense from 1987 to 1989. Chairman of the
Board of Neurogen Corporation and Chairman Emeritas of Nortel Networks
Corporation. Director: KAMAN Corporation; SunResorts, Ltd, N.V.; Texas
Biotechnology Corporation; and United Defense Ltd. Member: Board of Trustees for
RAND Corporation, a nonprofit entity.

M. Kathryn Eickhoff
Principal Occupation: President, Eickhoff Economics Incorporated
First Became Director of P&U in 1995
Age: 64

President, Eickhoff Economics Incorporated, an economic consulting firm, since
1987; formerly Associate Director for Economic Policy, United States Office of
Management and Budget. Director: AT&T Corp. and Tenneco Automotive Inc. Member:
the Conference of Business Economists; the Economic Club of New York; the
National Association of Business Economists; and the Forum Club of Southwest
Florida.

Fred Hassan
Principal Occupation: Chairman of the Board and Chief Executive Officer of
Pharmacia
First Became Director of P&U in 1997
Age: 57

Chairman of the Board and Chief Executive Officer since February 21, 2001;
President and Chief Executive Officer, Pharmacia since the Merger; President and
Chief Executive Officer of P&U from May 1997 until the Merger; and Executive
Vice President and a member of the Board of Directors of American Home Products
Corporation, from 1995 to 1997. Director: Avon Products, Inc., CIGNA
Corporation, and EDS.

Michael Kantor
Principal Occupation: Partner, Mayer, Brown, Rowe & Maw
First Became Director of former Monsanto in 1997
Age: 63

Partner, Mayer, Brown, Rowe & Maw, a law firm, since 1997; U.S. Secretary of
Commerce, 1996 to 1997; U.S. Trade Representative, 1993 to 1996; and National
Chairman for the Clinton/Gore Campaign, 1992. Director: Monsanto Company and
Korea First Bank.

Gwendolyn S. King
Principal Occupation: President, Podium Prose
First Became Director of former Monsanto in 1993
Age: 62

President, Podium Prose, a speaker's bureau founded in 2000; Senior Vice
President, Corporate and Public Affairs, PECO Energy Company (formerly
Philadelphia Electric Company), a diversified utility company, 1992 to 1998; and
Commissioner, Social Security Administration, 1989 to 1992. Director: Lockheed
Martin Corp.; Marsh & McLennan Companies, Inc.; Monsanto Company; and
Countrywide Financial Corporation, Inc.


                                       68




<PAGE>

Philip Leder
Principal Occupation: Chairman, Department of Genetics, Harvard Medical School,
and Senior Investigator, Howard Hughes Medical Institute
First Became Director of former Monsanto in 1990
Age: 68

Chairman, Department of Genetics, Harvard Medical School since 1980; John Emory
Andrus Professor of Genetics since 1980; Senior Investigator, Howard Hughes
Medical Institute since 1986. Director: Genome Therapeutics Corporation.
Trustee: The Hadassah Medical Organization and The Charles A. Revson Foundation.
Honorary Trustee: Massachusetts General Hospital.

Berthold Lindqvist
Principal Occupation: Retired President and Chief Executive Officer, Gambro AB
First Became Director of P&U in 1995
Age: 64

President and Chief Executive Officer, Gambro AB, a global medical technology
company, from 1984 to 1998. Director: Probi AB; Novotek AB; Trelleborg AB;
Munters AB; Securitas AB; Cardo AB; and JM AB.

Olof Lund
Principal Occupation: Chairman, TietoEnator Corporation
First Became Director of P&U in 1995
Age: 72

Chairman, TietoEnator Corporation, an information technology company, since
1999; President and Chief Executive Officer, Celsius Industrier AB, a defense
manufacturing company, 1984 to 1997. Chairman of the Board: Swedish Financial
Accounting Standards Council. Member: Royal Academy of War Sciences.

C. Steven McMillan
Principal Occupation: Chairman, President and Chief Executive Officer,
Sara Lee Corporation
First Became Director of P&U in 1998
Age: 57

Chairman of the Board of Sara Lee Corporation, a consumer goods company, since
October 2001, and President and Chief Executive Officer, Sara Lee Corporation
since July 2000; President and Chief Operating Officer of Sara Lee Corporation,
1997 to July 2000; and Executive Vice President, Sara Lee Corporation, 1993 to
1997. Director: Sara Lee Corporation; Monsanto Company; and Bank of America.

William U. Parfet
Principal Occupation: Chairman and Chief Executive Officer, MPI Research Inc.
First Became Director of P&U in 1995
Age: 56

Chairman and Chief Executive Officer, MPI Research Inc., a preclinical
toxicology and clinical pharmaceutical testing laboratory, since 1999, and
Co-Chairman of MPI Research Inc. from 1995 to 1999. Director: Monsanto Company;
CMS Energy Corporation; Stryker Corporation; and Parexel International
Corporation.

Jacobus F.M. Peters
Principal Occupation: Retired Chairman of the Executive Board and
Chief Executive Officer, AEGON N.V.
First Became Director of former Monsanto in 1993
Age: 72

Chairman of the Executive Board and Chief Executive Officer, AEGON N.V., an
insurance company, 1984-1993. Chairman of Dresdner Endowment Policy Trust Plc.;
Chairman of Supervisory Board, Bank Dutch Municipalities; Supervisory Board
Member: Amsterdam Company for Town Restoration Ltd.; Gilde Investment Funds;
Randstad Holding N.V.; and KEMA.


                                       69




<PAGE>

Ulla Reinius
Principal Occupation: President, Finansfakta R. AB
First Became Director of P&U in 1995
Age: 64

President, Finansfakta R. AB, a publisher and consultant on corporate
governance, since 1989. Director: The Swedish State Pension Fund No. 4; Quality
Screening Sweden AB; and the Royal Swedish Opera. Member: Ethical Advisory Board
of Swedish County Pension Funds; and Program Advisory Board at the School of
Economics, University of Lund.

William D. Ruckelshaus
Principal Occupation: Principal, Madrona Investment Group L.L.C.
First Became Director of former Monsanto in 1985
Age: 69

Principal, Madrona Investment Group L.L.C., a venture capital group, since 1996;
Chairman, Browning-Ferris Industries, Inc., a waste management and recycling
company, 1995 to 1999; Chairman and Chief Executive Officer, Browning-Ferris
Industries, Inc., 1988 to 1995; and Administrator, U.S. Environmental Protection
Agency, 1983 to 1985. Director: Cummins Engine Co., Inc.; Nordstrom, Inc.;
Solutia Inc.; and Weyerhaeuser Company.

Bengt Samuelsson
Principal Occupation: Professor of Medical and Physiological Chemistry,
Karolinska Institute First Became Director of P&U in 1995
Age: 67

Professor of Medical and Physiological Chemistry, Karolinska Institute, a
university and medical research facility, since 1972; former President,
Karolinska Institute, from 1983 to 1995. Nobel Laureate in Physiology or
Medicine in 1982 and current Chairman of the Nobel Foundation. Director: Svenska
Handelsbanken; Pyrosequencing AB; and Nicox, S.A. Member: Royal Swedish Academy
of Sciences; the American Academy of Arts and Sciences; the Association of
American Physicians; Academie des Sciences, Paris; the U.S. National Academy of
Sciences; and the Royal Society, London.

Executive Officers

Goran A. Ando, M.D.
Executive Vice President and President, Research and Development since March
2000
Age 53

Executive Vice President and President, Research & Development of P&U from
November 1997 to March 2000; Executive Vice President, Science & Technology from
1995 to 1997; and Executive Vice President and Deputy CEO in 1995

Hakan Astrom
Senior Vice President, Corporate Strategy and Site Operations since April 2002
Age 55

Senior Vice President, Corporate Strategy and Investor Relations of P&U from
November 1995 to March 2000, Senior Vice President, Corporate Strategy and
Corporate Affairs from March 2000 to April 2002.

Richard T. Collier
Senior Vice President and General Counsel since March 2000
Age 49

Senior Vice President and General Counsel of P&U from December 1997 to March
2000; and Senior Vice President and General Counsel of Rhone-Poulenc Rorer from
December 1994 to December 1997.


                                       70




<PAGE>

Timothy P. Cost
Senior Vice President, Corporate Affairs, joined Pharmacia in April 2002
Age 43

Senior Vice President, Corporate Affairs, joined Pharmacia in April 2002 from
Bristol-Myers Squibb, where he was Vice President, Investor Relations and
Competitive Intelligence, and served as the company's primary contact for the
institutional investment community.

Previously, he led investor relations, communications, and other functions at
the biotech company Centocor prior to its acquisition by Johnson & Johnson. He
began his career with Eastman Kodak Company.

Christopher J. Coughlin
Executive Vice President and Chief Financial Officer since March 2000
Age 50

Executive Vice President and Chief Financial Officer of P&U from March 1998 to
March 2000; President, Nabisco International from 1997 to March 1998; and
Executive Vice President and Chief Financial Officer of Nabisco from 1996 to
1997.

Carrie Smith Cox
Executive Vice President and President, Global Prescription Business since
February 2001
Age 45

Executive Vice President and President, Global Business Management from March
2000 to February 2001; Senior Vice President and Head, Global Business
Management of P&U from 1997 to March 2000; and prior to 1997 she was Vice
President, Women's Health Care at Wyeth-Ayerst Laboratories, a division of Wyeth
(formerly American Home Products).

Stephen P. MacMillan
Sector Vice President, Global Specialty Operations since March 2000
Age 39

Sector Vice President, Global Specialty Operations of P&U from December 1999 to
March 2000; President of Johnson & Johnson-Merck Consumer Pharmaceuticals from
December 1998 to December 1999; Vice President of Marketing and Professional
Sales at McNeil Consumer Products, a division of Johnson & Johnson, from March
1997 to December 1998; and other positions at Johnson & Johnson before that.

Philip Needleman
Chief Scientific Officer, Senior Executive Vice President since March 2000
Age 64

Senior Vice President, Research and Development and Chief Scientist of former
Monsanto and Co-President of G. D. Searle & Co. from 1996 to March 2000.

Timothy G. Rothwell
Executive Vice President, and President, Global Prescription Business since
February 2001
Age 52

Executive Vice President, and President, Global Pharmaceutical Operations from
March 2000 to February 2001; Executive Vice President and President, Global
Pharmaceutical Operations of P&U from 1998 to March 2000; President of
Rhone-Poulenc Rorer; and Executive Vice President and President, Pharmaceutical
Operations of Rhone-Poulenc Rorer from 1995 to 1997.

Item 11. Executive Compensation

Comparison of Cumulative Total Shareholder Return

     The merger of former Monsanto and P&U closed on March 31, 2000. Since
shares of the new company, Pharmacia, did not begin trading until April 3, 2000,
the cumulative total shareholder return on the stock of the merged entity over a
five-year period cannot be provided.


                                       71




<PAGE>

     However, the graph set forth below shows the cumulative total return
(assuming reinvestment of dividends) on former Monsanto's Common Stock from
December 31, 1997 until March 31, 2000, and on Pharmacia's Common Stock from
April 3, 2000 through December 31, 2002, as well as the cumulative total return
of the Standard & Poor's 500 Index and of the peer group of companies used by
former Monsanto for this purpose ("Peer Group"), consisting of AstraZeneca plc,
Aventis, Bayer AG, Dow Chemical Company, E.I. DuPont de Nemours and Company, and
Novartis AG. The information included in the graph reflects the impact of the
Company's ownership of a significant agricultural business until August 13,
2002. The information on the S&P 500 Index and the Peer Group is included for
comparative purposes only and management and the Board express no opinion
whether this information is relevant to the performance of the Company's Common
Stock. None of the information provided in this section is intended to forecast
or be indicative of possible future performance of the Company's Common Stock,
particularly in light of the August 13, 2002 spin-off of the Company's former
agricultural subsidiary, Monsanto Company, and the proposed acquisition of the
Company by Pfizer.

                             CUMULATIVE TOTAL RETURN

  Based upon an initial investment of $100 on December 31, 1997 with dividends
                                   reinvested

 [THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]

<TABLE>
<CAPTION>
                             Dec-97   Dec-98   Dec-99   Dec-00   Dec-01   Dec-02
--------------------------------------------------------------------------------
<S>                            <C>      <C>      <C>      <C>       <C>     <C>
Pharmacia                      100      113       84      146       103     109
--------------------------------------------------------------------------------
S&P 500 Index                  100      128      155      141       124      97
--------------------------------------------------------------------------------
Peer Group                     100      111      111      126       107      95
--------------------------------------------------------------------------------
</TABLE>

                                       72




<PAGE>

         Report of the Compensation Committee on Executive Compensation

Compensation Policies

     The overall goal of the Compensation Committee is to develop compensation
policies and practices that encourage and reward executive efforts to create
shareholder value through achievement of corporate objectives, business
strategies and performance goals. This is accomplished by blending cash and
equity compensation and by aligning the interests of executives with those of
shareholders generally.

     There are certain principles to which the Committee adheres in structuring
the compensation package for each of the executive officers. They are as
follows:

     Long-Term and At-Risk Focus: The major portion of compensation for senior
executive officers is composed of long-term, at-risk pay to align management
with the long-term interests of shareholders. Over time, the Committee expects
that less emphasis will be placed on base salary, annual cash incentives and
employee benefits.

     Equity-Based: Equity-based plans comprise the major part of the at-risk
portion of total compensation, which is intended to instill ownership and
long-term strategic thinking and link compensation to corporate performance and
the interests of shareholders generally. Consistent with this philosophy, the
Compensation Committee established Stock Ownership Guidelines for officers and
other key employees of the Company. The Committee annually reviews each
executive officer's ownership interest as it relates to the guidelines.

     Market Competitiveness: Total compensation is targeted at the upper end of
the second highest quartile of total compensation of a group (the "Comparator
Group") of similar global, research-based pharmaceutical companies with
headquarters in the United States, including Bristol-Myers Squibb Company, Eli
Lilly and Company, Johnson & Johnson, Merck & Company, Inc., Pfizer Inc.,
Schering-Plough Corporation and Wyeth (formerly American Home Products
Corporation). In addition, the Committee considered, without particular
weighting, other large, high-performing, general industry companies that the
Committee believes are relevant to assure competitiveness of the overall
compensation package. These comparator groups were selected as the groups of
companies competing for employment of the same key executives. The Comparator
Group is different from the group of combined pharmaceutical, chemical and
agricultural companies previously used by former Monsanto and continued by
Pharmacia to measure stock performance over a five year period as shown in the
graph set forth above under the heading "Comparison of Cumulative Total
Shareholder Return."

Components of Executive Compensation

     The four primary components of executive compensation are:

          o    Base salary

          o    Annual incentives

          o    Long-term incentives

          o    Employee benefits

     Each category is offered to key executives in various combinations,
structured in each case to meet varying business objectives. The philosophy
underlying each element of executive compensation is discussed below.

     Base Salaries: All executive base salaries, including that of the Chief
Executive Officer, are based on several factors:

          o    Level of job responsibility

          o    Individual and team performance

          o    Competitive labor market position determined from market surveys

     These factors are not weighted, and the Compensation Committee bases salary
increases on an assessment of the above factors. The Committee's objective is to
ensure base salaries are competitive at or near the median of the Comparator
Group of companies. Base salaries above the median may be necessary, in some
cases, to attract and retain key talent. Officer performance and base salaries
are reviewed by the Committee annually.


                                       73




<PAGE>

     Annual Incentives: Target annual cash incentives and specific performance
criteria are established each year for executive officers with the actual payout
based on the extent to which the performance criteria are met. Annual incentives
are targeted at the median of the Comparator Group, with above-average and
superior performance resulting in actual payouts above the median of the
Comparator Group. Below a threshold level of performance, no awards may be
granted under the plan. Clearly superior performance may result in payments
above the target. The weightings may be adjusted to take into account unusual
circumstances. For 2002, the actual award was based on growth in revenue, growth
in earnings per share, and individual performance. These performance measures
were exceeded, and, accordingly, the actual payouts were above the median.

     Long-Term Incentives: Long-term incentive compensation, in the form of
stock options, performance stock units, cash long-term incentives and restricted
stock, comprises the largest portion of the total compensation package for
executive officers. In any given year, an executive officer may be offered stock
options, long-term cash incentives, performance stock units and/or restricted
stock. Long-term incentives are targeted within the second highest quartile of
the Comparator Group, with above-average and superior performance resulting in
long-term compensation within the top quartile of the Comparator Group.

          Stock Options: Stock options provide executives with the opportunity
     to buy Company Common Stock, increase their equity in the Company and share
     in the appreciation in the value of the stock. The Committee grants stock
     options annually with ten-year terms at an exercise price equal to the fair
     market value on the date of grant. The stock options have value based on
     the level of stock price appreciation over the market price on the date of
     grant. This provides an incentive for executives to create wealth for the
     shareholders and rewards them in proportion to the gain received by other
     shareholders. Stock option awards generally vest ratably over a three-year
     period for retention purposes.

          Restricted Stock: Restricted stock is used to focus executives on the
     long-term performance of the Company and to serve as a retention device for
     high potential and key employees. Restricted stock awards generally vest
     over a three-year period and are normally not granted on an annual basis.

          Performance Stock Units: Performance stock units are used to focus
     executives on specific long-term goals that directly impact the long-term
     performance of the Company, and to serve as a retention device for key
     employees. Performance stock units generally vest at the end of a four or
     five year performance period based on the Company's performance over that
     period. These units are normally not granted on an annual basis.

          Cash Long-Term Incentives: Cash Long-Term Incentives are used to focus
     executives on specific long-term goals that directly impact the long-term
     performance of the Company, and to serve as a retention device for high
     potential and key employees. Cash Long-Term Incentives are earned based on
     Company performance over a three-year performance period based on the
     Company's performance over that period. This incentive will be fully vested
     two years subsequent to the performance period.

     Employee Benefits: Employee benefits offered to key executives are designed
to be competitive and to provide a "safety-net" of protection against the
financial catastrophes that can result from illness, disability or death, and to
provide a reasonable level of retirement income based on years of service with
the Company.

Chairman and Chief Executive Officer Compensation

     The Committee evaluates the performance of the Company's Chief Executive
Officer at least annually based upon both the Company's financial performance
and the extent to which the strategic and business goals established for the
Company are met. While the Committee assigns relative weight or ranking to
particular factors for incentive compensation purposes, it makes its performance
evaluation based upon a consideration of all such factors.

     The 2002 compensation for Mr. Hassan was established by the Board based on
an analysis of his past performance as Chief Executive Officer, a review of the
compensation for chief executive officers of the comparator groups and
application of the compensation policies described above. Mr. Hassan did not
receive separate compensation for serving on the Board or for his additional
responsibility as Chairman of the Board.

     As a result of Mr. Hassan's efforts in overseeing strong financial results
in 2001, the Board adjusted Mr. Hassan's 2002 base salary from $1,400,000 to
$1,470,000, and his target incentive compensation award for 2002 to $1,837,500.
All performance objectives established for Mr. Hassan's 2002 incentive
compensation -- growth in revenue, growth in earnings per share and individual
performance -- were exceeded. As a result of this superior performance, the
effective spin off of Monsanto, the successful


                                       74




<PAGE>

negotiation of the pending acquisition with Pfizer on behalf of the shareholders
and his important contributions in representing the Company and the industry
to external audiences, Mr. Hassan's actual incentive payout for 2002 was
$3,005,600.

Policy on Deductibility of Compensation

     The U.S. Internal Revenue Code limits to $1 million the corporate tax
deduction for compensation paid to certain executive officers, unless the
compensation meets the Internal Revenue Code requirements for qualified
performance-based compensation. The Committee believes that the stock options
granted to the Company's executive officers in 2002, and payments under the
annual incentive plan for the year 2002, will be fully deductible under the
Internal Revenue Code. The Committee intends to continue to structure the
Company's annual and long-term incentive plans to maximize the deductibility of
compensation. The Committee, however, reserves the authority to award
non-deductible compensation in such circumstances as it deems appropriate and in
the best interests of the Company.

Subcommittee

     To comply with certain legal provisions, a Restricted Stock Subcommittee of
the Compensation Committee, consisting of Mr. Carlucci, was formed to review and
determine restricted stock awards to employees based upon management
recommendations and took action four times in 2002.

Concluding Statement

     This Committee believes the executive compensation policies and programs
described in this report serve the best interest of the shareholders.
Compensation delivered to executives is intended to be linked to and
commensurate with Company performance and shareholder expectations. The
Committee believes that the results of the compensation philosophy described in
this report should be measured over a period of time sufficient to determine
whether compensation strategy and philosophy development is aligned with and
responsive to shareholder expectations.

      Submitted on behalf of the Compensation Committee, February 19, 2003:

F. C. Carlucci, Chair      G. S. King      C. S. McMillan      W. D. Ruckelshaus

                           SUMMARY COMPENSATION TABLE

     Under the rules of the SEC, the Company is required to report the
compensation earned in 2002 and the two preceding years for Mr. Hassan, who
served as Chief Executive Officer of the Company, and for the next four most
highly compensated executive officers of the Company during 2002.

<TABLE>
<CAPTION>
                Annual Compensation                                          Long-Term Compensation Awards
----------------------------------------------------------------------------------------------------------------------------
                                                                               Awards                  Payouts
(a)                             (b)      (c)          (d)         (e)           (f)           (g)        (h)        (i)
                                                                             Restricted
                                                              Other Annual     Stock      Securities    LTIP      All Other
    Name and Principal                Salary ($)              Compensation     Awards      Underlying  Payouts   Compensation
   Position During 2002        Year      (1)       Bonus ($)     ($) (2)      ($) (3)     Options (#)    ($)       ($) (4)
----------------------------------------------------------------------------------------------------------------------------
<S>                             <C>    <C>         <C>           <C>          <C>          <C>              <C>    <C>
F. Hassan  Chairman and Chief   2002   1,458,423   3,005,600     88,196               0    1,055,412         0      89,509
   Executive Officer            2001   1,380,387   2,160,500         --               0      633,247         0     100,154
                                2000   1,266,671   2,005,600     51,499               0    1,155,676         0     183,654
----------------------------------------------------------------------------------------------------------------------------
T.G. Rothwell Executive Vice    2002     937,557   1,158,600         --               0      316,624         0     101,714
   President and President,     2001     885,634     988,600         --               0      158,312         0     129,241
   Global Prescription          2000     793,584     901,300         --               0      257,520         0      79,201
   Business
</TABLE>


                                       75




<PAGE>

<TABLE>
<S>                             <C>     <C>       <C>              <C>       <C>            <C>            <C>      <C>
----------------------------------------------------------------------------------------------------------------------------
C.S. Cox Executive Vice         2002     872,693   1,098,800         --       1,261,500      316,624         0       67,859
   President and President,     2001     747,692     868,100         --       1,261,250      158,312         0       81,873
   Global Prescription          2000     572,447     691,100(5)      --               0      257,520         0       65,301
   Business
----------------------------------------------------------------------------------------------------------------------------
P. Needleman Senior Executive   2002     976,339     917,500         --               0      237,468         0      115,646
   Vice President and Chief     2001     787,562     779,600         --               0      131,927   150,000(6)   129,485
   Scientific Officer           2000     689,423     761,000         --               0      131,926   380,000(6)   774,313
----------------------------------------------------------------------------------------------------------------------------
G.A. Ando Executive Vice        2002     807,511     847,100         --               0      211,083         0       22,565
   President and President,     2001     769,849     711,500         --               0      116,096         0       95,057
   Research and Development     2000     730,289     691,700         --               0      257,520         0      114,734
----------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1)  The salary amounts reported in prior years were reported on a cash basis
     rather than an accrual basis. We are now reporting salary on an accrual
     basis. As a result, there are nominal differences in the 2000 and 2001
     amounts from what was previously reported.

(2)  SEC regulations require us to report in this column the dollar value of
     certain other annual compensation not properly characterized as salary or
     bonus. This column therefore includes dollar amounts representing Mr.
     Hassan's personal use of Company aircraft in 2002 of $62,502 and in 2000
     of $37,499. No disclosure of personal benefits is required unless the
     aggregate amount of such benefits exceeds $50,000. Due to the importance
     and visibility of his position, the Company provides security to Mr.
     Hassan.

(3)  In 2001 and 2002, Ms. Cox received 25,000 and 30,000 restricted shares of
     Company Common Stock, respectively, which are included in the table at the
     closing market value on date of grant and which were scheduled to vest on
     the fifth anniversary of the grant date. These restricted shares vested
     upon shareholder approval of the acquisition with Pfizer. The value of Ms.
     Cox's 2001 grant as previously reported in the 2002 Proxy Statement has
     been corrected in this table to reflect the closing market value on the
     date of grant.

(4)  Amounts shown for 2002 include the following: (1) contributions to savings
     plans for Mr. Hassan $73,135, Mr. Rothwell $96,074, Ms. Cox $64,222, Dr.
     Needleman $101,018, and Dr. Ando $17,559; (2) imputed income for company
     paid life insurance premiums for Mr. Hassan $14,195, Mr. Rothwell $4,833,
     Ms. Cox $2,702, Dr. Needleman $12,221 and Dr. Ando $4,159; (3) payments in
     lieu of company-paid life insurance for Mr. Hassan $2,179, Mr. Rothwell
     $807, Ms. Cox $382, Dr. Needleman $2,255 and Dr. Ando $847; (4) payments
     for special recognition awards for Dr. Needleman $152 and for Ms. Cox $553.

(5)  The amount of Ms. Cox's 2000 bonus as reported in the 2002 Proxy Statement
     has been corrected in this table.

(6)  Prior to February 1997, Dr. Needleman participated in the Searle Phantom
     Stock Option Plan of 1986, which gave participants the opportunity to
     receive the appreciation in the value of a hypothetical share of common
     stock of G.D. Searle, now a wholly-owned subsidiary of the Company. When
     the Searle plan was terminated in 1997, Dr. Needleman was credited with a
     combination of cash and options on Company Common Stock representing the
     current and future anticipated appreciation of the units. The amounts shown
     in 2000 and 2001 represent payouts, in connection with the terminated
     Searle plan. The amount of Dr. Needleman's 2001 LTIP payment was
     inadvertently ommitted from the 2002 Proxy Statement.


                                       76




<PAGE>

The following table shows option grants in 2002 for the named executive
officers.

                           STOCK OPTION GRANTS IN 2002

<TABLE>
<CAPTION>
                                                                       Grant Date
                      Individual Grants                                   Value
----------------------------------------------------------------------------------
   (a)              (b)            (c)           (d)          (e)           (f)
                 Number of
                 Securities   % of Total
                 Underlying     Options       Exercise
                  Options      Granted to     or Base                  Grant Date
                  Granted     Employees in     Price     Expiration     Present
Name              (#) (1)      Fiscal Year   ($/Share)       Date     Value($) (2)
----------------------------------------------------------------------------------
<S>              <C>              <C>          <C>         <C>         <C>
F. Hassan        1,055,412        3.20         39.27       1/4/12      12,590,000
T. G. Rothwell    316,624         0.96         39.27       1/4/12       3,780,000
C. S. Cox         316,624         0.96         39.27       1/4/12       3,780,000
P. Needleman      237,468         0.72         39.27       1/4/12       2,830,000
G. A. Ando        211,083         0.64         39.27       1/4/12       2,520,000
</TABLE>

(1)  These options were granted at 100% of the market price on the date of grant
     and become exercisable in installments of 33 1/3 % per year on each of the
     first through third anniversaries of the grant date. The options have a
     term of ten years and vested in full upon shareholder approval of the
     proposed acquisition by Pfizer on December 9, 2002. The 2002 grants reflect
     the adjustment resulting from the spin-off of the Company's agricultural
     business on August 13, 2002.

(2)  The Black-Scholes option pricing model was chosen to estimate the grant
     date present value of the options set forth in this table. The Company's
     use of this model should not be construed as an endorsement of its accuracy
     at valuing options. Accordingly, there is no assurance that the value
     realized by an executive, if any, will be at or near the value estimated by
     the Black-Scholes model. Future compensation resulting from option grants
     is based solely on the performance of the Company's stock price. The
     following weighted-average assumptions were made for purposes of
     calculating the original Grant Date Present Value for options granted by
     the Company: an option term of ten years, average volatility of 30.8%,
     dividend yield of 1.38%, a risk-free interest rate of 4.35%, and a
     projected exercise period of 5.0 years.


                                       77




<PAGE>

                     AGGREGATED OPTION EXERCISES IN 2002 AND
                       OPTION VALUES ON DECEMBER 31, 2002

     The following table shows the number of stock options exercised and the
value realized by the executive officers in 2002 and the number of unexercised
stock options remaining at year-end and the potential value thereof based on the
year-end closing market price of the Company's Common Stock of $41.80.

<TABLE>
<CAPTION>
    (a)              (b)          (c)               (d)                     (e)
                                           Number of Securities
                                                Underlying
                                            Unexercised Options     Value of Unexercised
                                              at December 31,     In-the-Money Options at
                                                  2002(#)            December 31, 2002
                                           ----------------------------------------------
                    Shares       Value
                 Acquired on    Realized
                   Exercise     ($) (1)        Exercisable             Exercisable
Name                 (#)                    (Unexercisable) (2)   (Unexercisable) (2) (3)
-----------------------------------------------------------------------------------------

<S>                 <C>        <C>             <C>                     <C>
F. Hassan                0             0       4,351,463(0)            19,071,800(0)
T. G. Rothwell           0             0         985,099(0)             2,370,365(0)
C. S. Cox           88,880     1,466,974         939,635(0)             1,921,603(0)
P. Needleman        70,000     2,287,600       1,297,978(0)            10,938,984(0)
G. A. Ando               0             0         760,425(0)             1,374,460(0)
</TABLE>

(1)  The amount in column (c) reflects the value of shares received on the
     exercises of options less the exercise price.

(2)  Unexercised options shown in columns (d) and (e) include grants received by
     the named executive officer over an extended period of time by P&U and
     former Monsanto, as applicable, and Pharmacia. All unvested stock options
     granted to the named executive officers became exercisable upon shareholder
     approval of the merger with Pfizer.

(3)  Information presented for Mr. Hassan, Mr. Rothwell, Ms. Cox and Dr. Ando
     includes options granted by P&U prior to the Merger, which were converted
     into options to purchase Company Common Stock effective as of the Merger.

Pension Plan

     The Company established the Key Executive Pension Plan ("KEPP") in 2000
which harmonized the pension benefits provided to certain key executives. All of
the named executive officers are eligible for retirement benefits under the KEPP
upon retirement. The benefit payable under the KEPP at normal retirement age is
offset by the following other retirement income: benefits payable from other
home country Company qualified and nonqualified defined benefit plans, including
cash balance and PPS1 plans; national or governmental schemes, including social
security; prior employer qualified and nonqualified defined benefit plans; and
certain benefits payable from prior employer qualified and nonqualified defined
contribution plans.

     The benefit amount payable under the KEPP at age 65 is computed on a
straight annuity basis and is equal to 65% of an individual's final average
annual compensation (before deduction for social security benefits and benefits
payable from other retirement plans). Average annual compensation under the KEPP
is calculated based on the highest paid 36 consecutive months of an employee's
last 120 months of employment. The amounts in the salary and bonus columns of
the Summary Compensation Table would be included in computing remuneration for
KEPP purposes.

     The estimated annual benefits payable under the KEPP as a single life
annuity beginning at age 65 before deduction for social security benefits and
benefits payable from other retirement plans (assuming that each executive
officer remains employed by the Company until age 65) are as follows: Mr.
Hassan, $2,938,000; Mr. Rothwell, $1,677,000; Ms. Cox, $2,087,000; Dr.
Needleman, $1,092,000; and Dr. Ando, $1,300,000. These amounts represent the
total pension benefit the named executive officers will receive upon retirement
from all retirement income sources.


                                       78




<PAGE>

Certain Agreements

     The Company amended and restated effective July 13, 2002 Mr. Hassan's
employment agreement which provides that in the event his employment is
terminated by the Company without cause or by him with good reason (as such
terms are defined in the agreement) prior to the expiration of the agreement, he
will receive (i) severance pay equal to three times his annualized base pay and
annual target incentive compensation, (ii) a prorated portion of his target
annual incentive compensation award, (iii) retirement and other employee
benefits as if he had continued to be employed until expiration of the
agreement, (iv) medical and other welfare benefits for three years offset by any
alternative coverage available, and (v) immediate vesting of all outstanding
restricted stock and stock options. The severance benefits are conditional on
Mr. Hassan's agreement not to compete with the Company for a two-year period
after termination of employment, unless the termination occurs during the two
years following the consummation of a change in control (as such term is defined
in the Company's 2001 Long Term Incentive Plan). The Company will also provide a
tax gross-up to Mr. Hassan under the Company's Excess Parachute Indemnity Plan
should any payment be determined to be a parachute payment under the U.S.
Internal Revenue Code. Mr. Hassan's employment agreement also provides that,
upon the expiration of the agreement or a termination due to disability, he will
receive a retirement benefit equal to the greater of the benefit he would have
received had he remained in the pension plan of his former employer or a benefit
under the Pharmacia KEPP at age 60 equal to 60% of his highest annual base
salary and highest annual target incentive compensation within the three prior
years.

     The Company also entered into employment agreements effective June 1, 2000
and amended and restated effective July 13, 2002 with Mr. Rothwell, Ms. Cox, and
Dr. Ando. These agreements provide for the payment of annual base salary as of
June 2000 of $797,000 for Mr. Rothwell; $600,000 for Ms. Cox; and $733,430 for
Dr. Ando, subject to annual review. In addition, Dr. Needleman entered into an
employment agreement effective June 1, 2000, which was amended by an addendum
dated February 6, 2002 and subsequently amended and restated effective July 13,
2002. Dr. Needleman's employment agreement, as amended and restated, provides
for an annual base salary of $832,000 at least until February 28, 2003. After
December 31, 2003, Dr. Needleman's salary will be determined in the sole
discretion of the Chief Executive Officer. The employment agreements also
provide for initial annual incentive compensation targets equal to 75% of base
salary for Mr. Rothwell; 75% of base salary for Ms. Cox; 75% of base salary for
Dr. Needleman; and 70% of base salary for Dr. Ando. Under these agreements, each
executive was also granted a stock option for 125,000 shares which vests at a
rate of 331/3 % per year and 100,000 performance shares that will vest based on
the Company's attainment of certain performance goals.

     Under the terms of these employment agreements, in the event the Company
terminates the executive's employment other than for cause or the executive
terminates employment with good reason (as such terms are defined in the
employment agreements), Mr. Rothwell, Ms. Cox and Dr. Ando will be entitled to
the following: (i) severance pay equal to three times the executive's highest
base pay and highest annual target incentive compensation within the three years
prior to termination; (ii) a prorated portion of his or her target annual
incentive compensation award; (iii) immediate vesting of all outstanding stock
options; (iv) retirement benefits calculated as if he or she continued
employment for an additional three years; and (v) continuation of certain other
benefits for three years. Dr. Needleman, upon his termination other than for
cause, will be entitled to severance pay equal to $4,764,006 as well as the
other benefits described above under (ii) through (v) for Mr. Rothwell, Ms. Cox
and Dr. Ando. If the amount of Dr. Needleman's supplemental retirement benefit
under the KEPP is reduced by the terms of his employment agreement, it will be
calculated without regard to the terms of this agreement. Also, if Dr. Needleman
retires after February 28, 2003, his supplemental benefit under the KEPP will be
no less than as if his employment terminated on February 28, 2003.

The executives' severance benefits are conditional on the executive's agreement
not to compete with the Company for a two-year period after termination of
employment, unless the termination occurs during the two years following the
consummation of a change in control (as such term is defined in the Company's
2001 Long Term Incentive Plan). Any restrictions on competition, including any
forfeiture provisions, imposed on the executives cease to apply upon the
executive's termination during the two years following the consummation of a
change in control. The Company will provide a tax gross-up to the executives
under the Company's Excess Parachute Indemnity Plan should any payments be
considered parachute payments under the U.S. Internal Revenue Code.

Item 12. Security Ownership of Certain Beneficial Owners and Management and
         Related Stockholder Matters

Securities Authorized for Issuance Under Equity Compensation Plans

See the discussion of Equity Compensation in Note 17, to our financial
statements.

Security Ownership of Management

     The following table sets forth the beneficial ownership of Common Stock of
the Company by (i) each person who is a director or nominee; (ii) each executive
officer named in the Summary Compensation Table on pages 75-76; and (iii) all
directors and

                                       79




<PAGE>

<TABLE>
<CAPTION>

executive officers as a group. Except as otherwise noted, each person has sole
voting and investment power as to his or her shares. All information is as of
February 28, 2003.

                                               Pharmacia
                             ------------------------------------------
                                                Shares
                                              Underlying
                                Shares of       Options
                              Common Stock    Exercisable
                             Owned Directly    within 60
Name                          or Indirectly     Days(g)     [Total (1)]
-----------------------------------------------------------------------
<S>                             <C>            <C>           <C>
Goran Ando(a)(b)                   19,932         760,425       780,357
Frank C. Carlucci(c)               43,253          10,734        53,987
Carrie S. Cox(b)                   49,981         939,635       989,616
M. Kathryn Eickhoff(c)             17,752           3,768        21,520
Fred Hassan(b)(d)(h)              673,959       4,351,463     5,025,422
Michael Kantor                      9,000          23,026        32,026
Gwendolyn S. King(c)               12,797          12,473        25,270
Philip Leder (c)                   17,695          27,784        45,476
Berthold Lindqvist                  8,281          10,734        19,015
Olof Lund                           4,927          10,734        15,661
C. Steven McMillan                 12,000               0        12,000

Philip Needleman(b)(e)            212,041       1,297,978     1,510,019
William U. Parfet(b)(c)(f)      1,578,074          17,700     1,595,774
Jacobus F. M. Peters(h)            10,705          24,580        35,285
Ulla Reinius                        8,281          10,734        19,015
Timothy G. Rothwell(b)             23,776         985,099     1,008,875
William D. Ruckelshaus(c)          29,892          19,123        49,015
Bengt Samuelsson                    5,000           3,768         8,768
23 directors and executive
   officers as a group (a)
   (b)(c)(d)(f)(g)              2,881,827      11,079,132    13,960,959

----------
</TABLE>


                                       80




<PAGE>

(a)  Includes 6,980 shares representing deferred compensation payable in stock
     held in trust with respect to which Dr. Ando has sole voting power.

(b)  Includes the following number of shares or share equivalents credited under
     the P&U Employee Savings Plan and Pharmacia Savings Plus Plan with respect
     to which the individual has sole voting power, or in the case of a share
     equivalent, may be converted to shares with sole voting power. Dr. Ando,
     5,697; Ms. Cox, 6,919; Mr. Hassan, 11,234; Dr. Needleman, 16,036;
     Mr. Parfet, 9,049; and Mr. Rothwell, 6,719

(c)  Includes the following number of shares representing deferred directors'
     fees payable in stock which are held in trust with respect to which the
     individual has shared voting power: Mr. Carlucci, 43,253; Ms. Eickhoff,
     6,032; Ms. King, 8,822; Dr. Leder, 2,395; Mr. Parfet, 339; and Mr.
     Ruckelshaus,13,606.

(d)  Includes 4,400 shares held by Mr. Hassan's wife.

(e)  Includes 75,418 options granted to Dr. Needleman under former Monsanto's
     1999 Premium Option Purchase Program having an exercise price of $75 per
     share. The shares of Pharmacia Common Stock underlying these options cannot
     be voted.

(f)  Includes 793,898 shares held in trust over which Mr. Parfet shares voting
     and/or dispositive power.

(g)  The SEC deems a person to have  beneficial  ownership  of all shares  which
     that person has the right to acquire within 60 days,  including through the
     exercise of stock options.  All outstanding  Pharmacia stock options became
     vested and fully  exercisable  upon the  adoption of the Pfizer / Pharmacia
     merger by a vote of  Pharmacia  shareholders  at a special  meeting held on
     December 9, 2002.

(h)  Includes 238,000 restricted shares.

(1)  The percentage of shares of outstanding Common Stock of the Company,
     including shares underlying options exercisable within 60 days,
     beneficially owned by all directors and executive officers as a group does
     not exceed 1.2%. The percentage of such shares beneficially owned by any
     director, nominee or executive officer does not exceed 1%.


                                       81




<PAGE>

Equity Compensation Plan Information As Of December 31, 2002.

The amounts in the tables below have been adjusted to reflect the changes that
resulted from the distribution of the Company's interest in Monsanto to
Pharmacia's shareholders on August 13, 2002. Information concerning option
activity and balances follows:

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
Plan category         Number of              Weighted-average       Number of
                      securities to be       exercise price of      securities remaining
                      issued upon            outstanding options,   available for future
                      exercise of            warrants and rights    issuance under
                      outstanding options,                          equity
                      warrants and rights                           compensation plans
----------------------------------------------------------------------------------------
<S>                       <C>                        <C>                 <C>
Equity compensation
plans approved by
security holders           80,119,335               $41.49               43,738,413
----------------------------------------------------------------------------------------
Equity compensation
plans not approved
by security holders        49,198,146                40.81               16,841,063
----------------------------------------------------------------------------------------
Total                     129,317,481               $41.24               60,579,476
----------------------------------------------------------------------------------------
</TABLE>

This table does not include the seven equity compensation plans which the
Company assumed in connection with the Merger with former Monsanto under which
no securities are available for future grants. For these plans, the aggregate
number of securities to be issued upon exercise of outstanding options is
7,198,133 and the weighted average exercise price of such outstanding options
is $16.10.

Item 13. Certain Relationships and Related Transactions

     Mr. Kantor, a Director of the Company, is a partner at the law firm of
     Mayer, Brown, Rowe & Maw, which provided services to the Company in 2002.
     The Company paid Mayer, Brown, Rowe & Maw approximately $774,000 for
     services rendered in 2002. The Company will continue to use the services of
     Mayer, Brown, Rowe & Maw in 2003.

     Mr. Parfet, a Director of the Company, is Chairman and Chief Executive
     Officer of MPI Research Inc., which provided toxicological and
     pharmaceutical testing services to the Company in 2002 for approximately
     $164,500. The Company did not initiate any new contracts or services with
     MPI Research in 2002. The payments made to MPI Research in 2002 were for
     services initiated in prior years. All services initiated under preexisting
     contracts are now complete and the Company does not expect to make any
     payments to MPI in 2003.

     Dr. Samuelsson, Director of the Company, is Professor of Medical and
     Physiological Chemistry at Karolinska Institute. The Company provides
     research grants to Karolinska Institute for genomics research and
     pharmacogenomics research. Dr. Leder is Chairman of the Department of
     Genetics at Harvard Medical School. The Company will donate $1 million over
     five years to help fund the Harvard Medical School Scholars in Clinical
     Science Program. Neither Dr. Samuelsson nor Dr. Leder requested this
     funding, are directly involved in the programs supported by this funding,
     or receive any personal financial benefit from this funding.

Item 14. Controls and Procedures

     Within the 90-day period prior to the filing of this report, an evaluation
     was carried out under the supervision and with the participation of
     Pharmacia's management, including the Chief Executive Officer and Chief
     Financial Officer, of the effectiveness of the design and operation of the
     Company's disclosure controls and procedures (as defined in Rule 13a-14 (c)
     under the Securities Exchange Act of 1934). Based upon that evaluation, the
     Chief Executive Officer and Chief Financial


                                       82




<PAGE>

     Officer concluded that the design and operation of these disclosure
     controls and procedures were effective. No significant changes were made in
     the Company's internal controls or in other factors that could
     significantly affect these controls subsequent to the date of their
     evaluation.

                                     PART IV

Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K

(a)  Documents filed as part of this Report

(a)(1) Financial Statements

          Report of Independent Accountants -- PricewaterhouseCoopers LLP.

          Consolidated Statements of Earnings, Years ended December 31, 2002,
          2001 and 2000.

          Consolidated Balance Sheets, December 31, 2002 and 2001.

          Consolidated Statements of Shareholders' Equity and Comprehensive
          Income, Years ended December 31, 2002, 2001 and 2000.

          Consolidated Statements of Cash Flows, Years ended December 31, 2002,
          2001 and 2000.

          Notes to Consolidated Financial Statements.

          The Reports of Independent Auditors, Deloitte & Touche LLP, regarding
          the audit of Monsanto Company for the period from January 1, 2002 to
          August 13, 2002, and for each of the two years in the period ended
          December 31, 2001. Refer to Exhibit 99.

(a)(2) Financial Statement Schedules

     Schedules are omitted because they are either not required, are not
     applicable or because equivalent information has been included in the
     financial statements, the notes thereto or elsewhere herein. Financial
     statements of 50 percent-or-less-owned affiliated persons are omitted
     because such persons, in the aggregate, do not constitute a significant
     subsidiary.

(a)(3) Exhibits -- See the Exhibit Index beginning on page 84 of this Report.

     For a listing of all management contracts and compensatory plans or
     arrangements to be filed as exhibits to this Form 10-K, see the Exhibits
     listed under Exhibit No. 10, items 1 through 43 on pages 84 through 86 of
     the Exhibit Index. The following Exhibits listed in the Exhibit Index are
     filed with this Report:

(10)(1) 1996 Long-Term Incentive Plan, amended and restated as of September 24,
        2001.

     (2)  Pharmacia Corporation Equity Compensation Plan, amended and restated
          as of September 24, 2001.

     (3)  Pharmacia Corporation Shared Success Stock Option Plan, as amended on
          April 24, 1997; June 26, 1997; and September 24, 2001.

(11) Omitted -- Inapplicable; see the discussion of Earnings Per Share in Note
     7, to our financial statements.

(21) Subsidiaries of the Registrant

(23) (1) Consent of Independent Accountants -- PricewaterhouseCoopers LLP

     (2)  Independent Auditor's Consent -- Deloitte & Touche LLP

(99) (1) Independent Auditor's Report for fiscal year ending December 31, 2001
         and 2000.-- Deloitte & Touche LLP

     (2) Independent Auditor's Report for period of January 1, 2002 to August
         13, 2002.--Deloitte & Touche LLP

(b)  Reports on Form 8-K during the quarter ended December 31, 2002:

     The Company filed a report on Form 8-K on October 22, 2002 pursuant to Item
     5 (Other Events) and Item 7 (Financial Statements and Exhibits); November
     14, 2002 pursuant to Item 9 (Regulation FD Disclosure) and Item 7
     (Financial Statements and Exhibits); and on December 20, 2002 pursuant to
     Item 5 (Other Events) and Item 7 (Financial Statements and Exhibits).


                                       83




<PAGE>

                                  EXHIBIT INDEX

These Exhibits are numbered in accordance with the Exhibit Table of Item 601 of
Regulation S-K.

<TABLE>
<CAPTION>
Exhibit
Number    Description
-------   -----------
<S>       <C>
(2)       (1)     Agreement and Plan of Merger, dated as of December 19,
                  1999, as amended by Amendment No. 1 dated as of February
                  18, 2000, among Monsanto Company, MP Sub, Incorporated and
                  Pharmacia & Upjohn, Inc. (incorporated herein by reference
                  to Exhibit 2.1 of the Registrant's Form S-4 filed on
                  February 22, 2000, File No. 333-30824)

          (2)     Stock Option Agreement, dated as of December 19, 1999, by
                  and between Monsanto Company, as Issuer, and Pharmacia &
                  Upjohn, Inc., as Grantee (incorporated herein by reference
                  to Exhibit 2.2 of the Registrant's Form S-4 filed on
                  February 22, 2000, File No. 333-30824)

          (3)     Stock Option Agreement, dated as of December 19, 1999, by
                  and between Pharmacia & Upjohn, Inc. and Monsanto Company,
                  as Grantee (incorporated herein by reference to Exhibit 2.3
                  of the Registrant's Form S-4 filed on February 22, 2000,
                  File No. 333-30824)

          (4)     Separation Agreement by and between Pharmacia Corporation
                  and Monsanto Company dated as of September 1, 2000
                  (incorporated herein by reference to Exhibit 2.1 of
                  Monsanto Company's Form S-1 filed on September 22, 2000,
                  File No. 333-36956)

          (5)     First Amended Separation Agreement, dated July 1, 2002
                  (incorporated herein by reference to Exhibit 2.1 of the
                  Registrant's Form 10-Q, filed on August 13, 2002)

          (6)     Protocol Agreement, dated as of July 1, 2002, among
                  Pharmacia Corporation, Solutia Inc. and Monsanto Company.
                  (incorporated herein by reference to Exhibit 10 (3) of the
                  Registrant's Form 10-Q, filed on August 13, 2002.)

          (7)     Tax Sharing Agreement, dated July 19, 2002, among Pharmacia
                  Corporation, Solutia Inc. and Monsanto Company.
                  (incorporated herein by reference to Exhibit 10 (4) of the
                  Registrant's Form 10-Q, filed on August 13, 2002.)

          (8)     Amendment No. 1 to the Rights Agreement, dated July 12,
                  2002 (incorporated herein by reference to Exhibit 4.1 of
                  the Registrant's Form 8-K, filed on July 16, 2002.)

          (9)     Agreement and Plan of Merger, dated July 13, 2002
                  (incorporated herein by reference to Exhibit 2.1, the
                  Registrant's Form 8-K, filed on July 16, 2002.)

(3)       (1)     Restated Certificate of Incorporation of the Company as of
                  October 28, 1997 (incorporated herein by reference to
                  Exhibit 3(i) of the Registrant's Form 10-Q for the quarter
                  ended September 30, 1997)

          (2)     Certificate of Amendment to Restated Certificate of
                  Incorporation of the Registrant, effective March 31, 2000
                  (incorporated herein by reference to Exhibit 4.2 of the
                  Registrant's Form S-8 filed on April 5, 2000)

          (3)     By-Laws of the Registrant, as amended and restated
                  effective March 31, 2000 (incorporated herein by reference
                  to Exhibit 3.2 of the Registrant's Form 10-Q for the
                  quarter ended March 31, 2000)

(4)       (1)     Form of Rights Agreement, amended and restated as of
                  February 20, 2001, between the Company and Mellon Investor
                  Services LLC (incorporated herein by reference to Exhibit 4
                  of the Registrant's Form 8-A/A filed on March 21, 2001)

          (2)     Indenture dated as of February 1, 1990, with respect to
                  debt securities issued by the Upjohn Employee Stock
                  Ownership Trust and 9.79% Amortizing Notes, Series A, Due
                  February 1, 2004, issued by the Upjohn Employee Stock
                  Ownership Trust and guaranteed by the Registrant (not filed
                  pursuant to Regulation S-K, Item 601(b)(4)(iii)(A); the
                  Registrant agrees to furnish a copy of these documents to
                  the Securities and Exchange Commission upon request)

          (3)     Indenture dated as of August 1, 1991 between Pharmacia &
                  Upjohn, Inc. and The Bank of New York, as trustee, with
                  respect to Debt Securities issued thereunder from time to
                  time (not filed pursuant to Regulation S-K, Item
                  601(b)(4)(iii)(A); the Registrant agrees to furnish a copy
                  of these documents to the Securities and Exchange
                  Commission upon request)

(10)      (1)     The Pharmacia & Upjohn, Inc. Long-Term Incentive Plan (as
                  Amended and Restated as of June 1, 2000) (incorporated
                  herein by reference to Exhibit (10)(1) to the Registrant's
                  Form 10-Q for the quarter ended September 30, 2000)

          (2)     Pharmacia Corporation Management Incentive Plan (as Amended
                  and Restated as of June 1, 2000) (incorporated herein by
                  reference to Exhibit (10)(2) to the Registrant's Form 10-Q
                  for the quarter ended September 30, 2000)

          (3)     2000 Operations Committee Incentive Plan (as amended
                  November 2000) (incorporated herein by reference to Exhibit
                  (10)(3) to the Registrant's Form 10-Q for the quarter ended
                  September 30, 2000)

          (4)     Employment Agreement with Fred Hassan dated November 15,
                  1999 (incorporated herein by reference to Exhibit (10)(e)
                  to Pharmacia & Upjohn's Form 10-K for the year ended
                  December 31, 1999)

          (5)     Employment Agreement with Timothy G. Rothwell dated July
                  31, 2000 (incorporated herein by reference to Exhibit
                  (10)(6) to the Registrant's Form 10-Q for the quarter ended
                  September 30, 2000)

          (6)     Employment Agreement with Philip Needleman, Ph.D. dated
                  October 29, 2000 (incorporated herein by reference to
                  Exhibit (10)(7) to the Registrant's Form 10-Q for the
                  quarter ended September 30, 2000)

          (7)     Phantom Share Agreement with Hendrik Verfaillie dated
                  September 1, 2000 (incorporated herein by reference to
                  Exhibit (10)(8) to the Registrant's Form 10-Q for the
                  quarter ended September 30, 2000)
</TABLE>


                                       84




<PAGE>

<TABLE>
<S>       <C>
          (8)     Tax Sharing Agreement by and between Pharmacia Corporation
                  and Monsanto Companydated as of September 1, 2000
                  (incorporated herein by reference to Exhibit 10.5 of
                  Monsanto Company's Form S-1 filed on September 22, 2000,
                  File No. 333-36956)

          (9)     Employee Benefits and Compensation Allocation Agreement by
                  and between Pharmacia Corporation and Monsanto Company
                  dated as of September 1, 2000 (incorporated herein by
                  reference to Exhibit 10.6 of Monsanto Company's Form S-1
                  filed on September 22, 2000, File No. 333-36956)

          (10)    Intellectual Property Transfer Agreement by and between
                  Pharmacia Corporation and Monsanto Company dated as of
                  September 1, 2000 (incorporated herein by reference to
                  Exhibit 10.7 of Monsanto Company's Form S-1 filed on
                  September 22, 2000, File No. 333-36956)

          (11)    Services Agreement by and between Pharmacia Corporation and
                  Monsanto Company dated as of September 1, 2000
                  (incorporated herein by reference to Exhibit 10.8 of
                  Monsanto Company's Form S-1 filed on September 22, 2000,
                  File No. 333-36956)

          (12)    Corporate Agreement by and between Pharmacia Corporation
                  and Monsanto Company dated as of September 1, 2000
                  (incorporated herein by reference to Exhibit 10.9 of
                  Monsanto Company's Form S-1 filed on September 22, 2000,
                  File No. 333-36956)

          (13)    Agreement with Robert B. Shapiro dated December 19, 1999
                  (incorporated herein by reference to Exhibit 10(1) to the
                  Registrant's Form S-4 filed on February 22, 2000, File No.
                  333-30824)

          (14)    Annual Incentive Program for certain executive officers
                  (incorporated herein by reference to the description
                  appearing under "Annual Incentive Program" on pages 10
                  through 11 of the Monsanto Company Notice of Annual Meeting
                  and Proxy Statement dated March 16, 2001)

          (15)    Employment Agreement with Goran Ando dated September 7,
                  2000 (incorporated herein by reference to Exhibit 10 (15)
                  of the Registrant's Form 10-K filed on March 26, 2001)

          (16)    Executive Life Insurance Plan of the Registrant
                  (incorporated herein by reference to Exhibit 10 of the
                  Registrant's Form 10-K filed on March 26, 2001)

          (17)    Amendment No. 1 dated January 25, 2001 to Agreement with
                  Robert B. Shapiro dated December 19, 1999 (incorporated
                  herein by reference to Exhibit 10 (17) of the Registrant's
                  Form 10-K filed on March 26, 2001)

          (18)    2001 Annual Incentive Plan Summary, as approved by the
                  Monsanto Company Board of Directors on December 7, 2000
                  (incorporated herein by reference to Exhibit 10 (16) of the
                  Registrant's Form 10-K filed on March 26, 2001)

          (19)    2001 Long Term Incentive Plan (incorporated herein by
                  reference to Exhibit 10 (19) of the Registrant's Form 10-Q
                  for the quarter ended March 31, 2001)

          (20)    The Operations Committee Incentive Plan 2001 Long Term
                  Incentive Plan (incorporated herein by reference to Exhibit
                  10 (20) of the Registrant's Form 10-Q for the quarter ended
                  March 31, 2001)

          (21)    Employee Stock Purchase Plan 2001 Long Term Incentive Plan
                  (incorporated herein by reference to Exhibit 10 (19) of the
                  Registrant's Form 10-Q for the quarter ended March 31,
                  2001)

          (22)    Amendment No. 2001-1 to 2001 Long Term Incentive Plan 2001
                  Long Term Incentive Plan herein by reference to Exhibit 10
                  (19) of the Registrant's Form 10-Q for the quarter ended
                  March 31, 2001)

          (23)    Form of Change-of-Control Employment Security Agreement
                  with Hendrik Verfaillie (incorporated by reference herein
                  to Exhibit 10.3 of Monsanto's Registration Statement on
                  Form S-1, filed August 30, 2000 (File No. 333-36956)

          (23.1)  Distribution Agreement by and between Monsanto Company and
                  Solutia Inc., as of September 1, 1997, plus identification
                  of contents of omitted schedules and exhibits and agreement
                  to furnish supplementally a copy of any omitted schedule or
                  exhibit to the Securities and Exchange Commission upon
                  request (incorporated herein by reference to Exhibit 2.1 of
                  former Monsanto's Form 8-K filed September 16, 1997)

          (24)    Amended Employment Agreement with Philip Needleman, Ph.D.
                  dated February 6, 2002. Certain portions of this exhibit,
                  which are identified by the symbol "[* *}", have been
                  omitted and filed separately with the Commission pursuant
                  to an application for confidential treatment pursuant to
                  24b-2 under the Securities Exchange Act of 1934.
                  (incorporated herein by reference to Exhibit 10 (24) of the
                  Registrant, Form 10-K, filed on March 5, 2002).

          (25)    Employment Agreement with Carrie Cox dated October 29,
                  2000. (incorporated herein by reference to Exhibit 10 (25)
                  of the Registrant's Form 10-K, filed on March 5, 2002.

          (26)    Pharmacia Corporation Long-Term Performance Share Unit
                  Incentive Plan, effective January 1, 2002.
</TABLE>


                                       85




<PAGE>

<TABLE>
<S>       <C>
                  (incorporated herein by reference to Exhibit 10 (26) of the
                  Registrant's Form 10-K, filed on March 5, 2002.)

          (27)    Standard Executive Employment Agreement. (incorporated
                  herein by reference to Exhibit 10(27) of the Registrant's
                  Form 10-K filed on March 5, 2002.)

          (28)    Long-Term Performance Share Unit Incentive Plan.
                  (incorporated herein by reference to Exhibit 10 (1) of the
                  Registrant's Form 10-Q, filed on May 15, 2002.)

          (29)    Amendment to Distribution Agreement, dated as of July 1,
                  2002, among Pharmacia Corporation, Solutia Inc. and
                  Monsanto Company. (incorporated herein by reference to
                  Exhibit 10 (1) of the Registrant's Form 10-Q, filed on
                  August 13, 2002.)

          (30)    Amendment to Employee Benefits and Compensation Allocation
                  Agreement, dated as of July 1, 2002, between Pharmacia
                  Corporation and Monsanto Company. (incorporated herein by
                  reference to Exhibit 10 (2) of the Registrant's Form 10-Q,
                  filed on August 13, 2002.)

          (31)    Amended Employment Agreement with Tim G. Rothwell, dated
                  July 12, 2002. (incorporated herein by reference to Exhibit
                  10 (1) of the Registrant's Form 10-Q, filed on November 11,
                  2002.)

          (32)    Amended Employment Agreement with Dr. Philip Needleman,
                  dated July 12, 2002. (incorporated herein by reference to
                  Exhibit 10 (2) of the Registrant's Form 10-Q, filed on
                  November 11, 2002.)

          (33)    Amended Employment Agreement with Carrie S. Cox, dated July
                  18, 2002. (incorporated herein by reference to Exhibit 10
                  (3) of the Registrant's Form 10-Q, filed on November 11,
                  2002.)

          (34)    Amended Employment Agreement with Dr. Goran Ando, dated
                  July 12, 2002. (incorporated herein by reference to Exhibit
                  10 (4) of the Registrant's Form 10-Q, filed on November 11,
                  2002.)

          (35)    Amended and Restated Founders Performance Contingent Shares
                  Program, effective September 17, 2002. (incorporated herein
                  by reference to Exhibit 10 (5) of the Registrant's Form
                  10-Q, filed on November 11, 2002.)

          (36)    Amended and Restated Long-Term Performance Share Unit
                  Incentive Plan, effective July 9, 2002. (incorporated
                  herein by reference to Exhibit 10 (6) of the Registrant's
                  Form 10-Q, filed on November 11, 2002.)

          (37)    Amended and Restated Pharmacia Corporation Operations
                  Committee Incentive Plan, effective July 9, 2002.
                  (incorporated herein by reference to Exhibit 10 (7) of the
                  Registrant's Form 10-Q, filed on November 11, 2002.)

          (38)    Amended and Restated Pharmacia Corporation Cash Long-Term
                  Incentive Plan, effective July 9, 2002. (incorporated
                  herein by reference to Exhibit 10 (8) of the Registrant's
                  Form 10-Q, filed on November 11, 2002.)

          (39)    Amended and Restated Employment Agreement with Fred Hassan,
                  dated December 17, 2002. (incorporated herein by reference
                  to Exhibit 10.1 of the Registrant's Form 8-K filed on
                  December 20, 2002.)

          (40)    Amended and Restated Employment Agreement with Tim G.
                  Rothwell, dated December 17, 2002. (incorporated herein by
                  reference to Exhibit 10.3 of the Registrant's Form 8-K
                  filed on December 20, 2002.)

          (41)    Amended and Restated Employment Agreement with Carrie S.
                  Cox, dated December 17, 2002. (incorporated herein by
                  reference to Exhibit 10.2 of the Registrant's Form 8-K
                  filed on December 20, 2002.)

          (42)    Amended and Restated Employment Agreement with Goran Ando,
                  dated December 17, 2002. (incorporated herein by reference
                  to Exhibit 10.4 of the Registrant's Form 8-K filed on
                  December 20, 2002.)

          (43)    Amended and Restated Employment Agreement with Philip
                  Needleman, dated December 17, 2002. (incorporated herein by
                  reference to Exhibit 10.5 of the Registrant's Form 8-K
                  filed on December 20, 2002.)
</TABLE>


                                       86




<PAGE>

<TABLE>
<S>               <C>
(11)              Omitted -- Inapplicable; see the discussion of Earnings Per
                  Share in Note 7, to our financial statements.

(21)              Subsidiaries of the Registrant

(23)              (1) Consent of Independent Accountants --
                      PricewaterhouseCoopers LLP

                  (2) Independent Auditor's Consent -- Deloitte & Touche LLP

(24)              Certified copy of Board resolution authorizing Form 10-K
                  filing

(99)              Reports of Independent Auditors -- Deloitte & Touche LLP
</TABLE>

                                   SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.

     PHARMACIA CORPORATION

<TABLE>
<S>                                <C>                                <C>


By: /s/ Fred Hassan                By: /s/ Christopher J. Coughlin    By: /s/ Robert G. Thompson
    ----------------------------       ----------------------------       --------------------------
    Fred Hassan                        Christopher J. Coughlin            Robert G. Thompson
    Chairman and Chief Executive       Executive Vice President and       Senior Vice President
    Officer                            Chief Financial Officer            (Chief Accounting Officer)

    Date:  March 24, 2003
</TABLE>

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed by the following persons on behalf of the Registrant in
the capacities and on the dates indicated.

                                Power of Attorney

We, the undersigned, hereby appoint Christopher J. Coughlin and Robert G.
Thompson, and each of them singly, as our true and lawful attorneys to sign for
us, in our names and in the capacities indicated below, and file with the
Securities and Exchange Commission any and all amendments and supplements to
this Annual Report on Form 10-K.

<TABLE>
<CAPTION>
          Signature                             Title                            Date
          ---------                             -----                            ----
<S>                                <C>                                        <C>


/s/ Fred Hassan                    Chairman and Chief Executive Officer and   March 24, 2003
--------------------------------   Director
Fred Hassan


/s/ Frank C. Carlucci              Director                                   March 20, 2003
--------------------------------
Frank C. Carlucci


/s/ M. Kathryn Eickhoff            Director                                   March 17, 2003
--------------------------------
M. Kathryn Eickhoff


/s/ Michael Kantor                 Director                                   March 24, 2003
--------------------------------
Michael Kantor


/s/ Gwendolyn S. King              Director                                   March 24, 2003
--------------------------------
Gwendolyn S. King


/s/Philip Leder                    Director                                   March 18, 2003
--------------------------------
Philip Leder


/s/ Berthold Lindqvist             Director                                   March 18, 2003
--------------------------------
Berthold Lindqvist
</TABLE>


                                       87




<PAGE>

<TABLE>
<CAPTION>
          Signature                             Title                            Date
          ---------                             -----                            ----
<S>                                <C>                                        <C>


/s/ Olof Lund                      Director                                   March 24, 2003
--------------------------------
Olof Lund


/s/ C. Steven McMillan             Director                                   March 24, 2003
--------------------------------
C. Steven McMillan


/s/ William U. Parfet              Director                                   March 17, 2003
--------------------------------
William U. Parfet


/s/ Jacobus F.M. Peters            Director                                   March 20, 2003
--------------------------------
Jacobus F.M. Peters


/s/ Ulla B. Reinius                Director                                   March 18, 2003
--------------------------------
Ulla B. Reinius


/s/ William D. Ruckelshaus         Director                                   March 19, 2003
--------------------------------
William D. Ruckelshaus


/s/ Bengt Samuelsson               Director                                   March 17, 2003
--------------------------------
Bengt Samuelsson


/s/ Robert G. Thompson            Senior Vice President                       March 24, 2003
--------------------------------  (Chief Accounting Officer)
Robert G. Thompson


/s/ Christopher J. Coughlin       Executive Vice President and                March 24, 2003
--------------------------------  Chief Financial Officer
Christopher J. Coughlin



</TABLE>




<PAGE>

                           CERTIFICATION PURSUANT TO
                 SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Fred Hassan, certify that:

1. I have reviewed this annual report on Form 10-K of Pharmacia Corporation;

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a) Designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this annual report is being prepared;

b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and

c) Presented in this annual report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):

a) All significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and

b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and

6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly




<PAGE>

affect internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies and
material weaknesses.

Date: March 24, 2003

/s/ Fred Hassan
---------------------------------------
Fred Hassan
Chairman & Chief Executive Officer, Pharmacia Corporation



<PAGE>

                          CERTIFICATION PURSUANT TO
               SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Christopher J. Coughlin, certify that:

1. I have reviewed this annual report on Form 10-K of Pharmacia Corporation;

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a) Designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this annual report is being prepared;

b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and

c) Presented in this annual report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):

a) All significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and

b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and

6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.




<PAGE>

Date: March 20, 2003

/s/ Christopher J. Coughlin
---------------------------------------
Christopher J. Coughlin
Executive Vice President and
   Chief Financial Officer, Pharmacia Corporation