Harvard Business School 9-101-019

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Vyaderm Pharmaceuticals

In 1999 we threw out the old executive compensation system altogether and
introduced EVA. It was meant to be symbolic—a cathartic change.

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Research Associate Indra A. Reinbergs prepared this case under the supervision of Professor Robert Simons as the basis for
class discussion rather than to illustrate either effective or ineffective handling of an administrative situation.
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1
Purchased by: Paulo Oliveira pjorgeoliveira@gmail.com on March 22, 2014
101-019 Vyaderm Pharmaceuticals

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EVA Calculations and Adjustments

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2
Purchased by: Paulo Oliveira pjorgeoliveira@gmail.com on March 22, 2014
Vyaderm Pharmaceuticals 101-019

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EVA is a tool which simply yet effectively combines the income statement and
balance sheet into one number, by subtracting from earnings a charge for the utilization of
assets employed in generating those earnings.

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3
Purchased by: Paulo Oliveira pjorgeoliveira@gmail.com on March 22, 2014
101-019 Vyaderm Pharmaceuticals

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4(7"*#'>%?"*"%);)'>>+%W"37%C2(;7'(7%@*2E%+"'*%72%+"'*$%%Exhibit 2%<"34C7;%5*'364C'>>+%T+'<"*EY;%ZTN
4(C"(74#"%C'>C)>'742($

N(% 4E32*7'(7% @"'7)*"% 2@% ZTN% ?';% 76"% )(>4E47"<% )3;4<"% '(<% <2?(;4<"% 2@% '(% 4(<4#4<)'>
E'('5"*Y;% 92();% 327"(74'>.% C*"'74(5% '% ;7*2(5% 3"*@2*E'(C"% 4(C"(74#"% i;""% Exhibit 3j$% % N% E'('5"*Y;
target bonus% ?';% ;"7% ';% '% @4d"<% 3"*C"(7'5"% 2@% 9';"% 3'+.% *'(54(5% @*2E% H0a% @2*% E4<<>"% E'('5"*;% 72
\0a%@2*%76"%1Z[$%%N%bonus bank%"(;)*"<%76'7%ZTN%4E3*2#"E"(7;%?"*"%;);7'4("<%2#"*%74E"%9"@2*"
'?'*<;%?"*"%@)>>+%3'4<%2)7$

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4E3*2#"E"(7%2#"*%76"%3*"#42);%+"'*.%'<c);7"<%@2*%76"%"d3"C7"<%ZTN%4E3*2#"E"(7%52'>%'(<%4(7"*#'>$

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'C64"#"<.%76"%C2E3'(+%?2)><%C*"<47%76"%@)>>%'E2)(7%2@%76"%92();S3>);%'(+%'<<4742('>%'E2)(7%<)"
72%*";)>7;%4(%"dC";;%2@%76"%ZTN%52'>S72%76"%92();%9'(W$%%=*2E%764;%g9'(W%9'>'(C"h%76"%E'('5"*%?';
3'4<%76"%7'*5"7%92();%3>);%2("F6'>@%2@%'(+%*"E'4(4(5%9'>'(C"%i<)"%"476"*%72%;)3"*42*%3"*@2*E'(C"%4(
76"%C)**"(7%+"'*.%2*%72%76"%C'**+F@2*?'*<%2@%9'>'(C";%@*2E%3*"#42);%+"'*;j$

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3"*@2*E'(C"%@">>%9">2?%76"%ZTN%4(7"*#'>.%'%("5'74#"%"(7*+%?';%E'<"%72%76"%92();%9'(W.%?64C6%?2)><
*"<)C"%76"%9'(W%9'>'(C"%';%?">>%';%@)7)*"%*"?'*<;$%%A2?"#"*.%4@%;)@@4C4"(7%@)(<;%"d4;7"<.%'%E'('5"*
?';%;74>>%">4549>"%72%<*'?%<2?(%76"%9'>'(C"%4(%76"%9'(W%4(%'(%'E2)(7%"D)'>%72%76"%7'*5"7%92();%3>);
2("F6'>@% 2@% '(+% 9'>'(C"% @*2E% 3*"#42);% +"'*;$% iL""% Table A% 2(% 76"% ("d7% 3'5"% @2*% '(% "d'E3>"% 2@% 764;
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<4#4;42(;% ?4764(% T+'<"*E.% 76"% 92();% 9'(W% ?2)><% @2>>2?% 76"% E'('5"*$% % A2?"#"*.% 4@% 76"% E'('5"*

4
Purchased by: Paulo Oliveira pjorgeoliveira@gmail.com on March 22, 2014
Vyaderm Pharmaceuticals 101-019

#2>)(7'*4>+% >"@7% 76"% C2E3'(+.% 76"% 9'>'(C"% 4(% 76"% 92();% 9'(W% ?';% @2*@"47"<$% % N;% T+'<"*EY;% 3*2d+
;7'7"E"(7% ;7'7"<.% g764;% 92();% 9'(W% C*"'7";% ;62*7F% '(<% >2(5F7"*E% 4(C"(74#"% @"'7)*";.% *"?'*<4(5
;);7'4("<%3"*@2*E'(C"%'(<%C2(74()"<%"E3>2+E"(7$h

Table A L'E3>"%K2();%1'>C)>'742(

B6"% @2>>2?4(5% "d'E3>"% 4>>);7*'7";% 76"% "@@"C7% 2(% 92();";% 2@% ZTN% 3"*@2*E'(C"% '92#"% '(<
9">2?%76"%ZTN%7'*5"7P

Assumptions:
• M'('5"*Y;%K';"%:'+P% ^,00.000
• B'*5"7%K2();P H0a%2@%9';"%3'+%l%^H0.000
• ZTN%XE3*2#"E"(7%`2'> ^%G%E4>>42(
• ZTN%X(7"*#'> ^%,G%E4>>42(
• 1'>C)>'7"<%K2();%l%B'*5"7%K2();%d%ZTN%:"*@2*E'(C"
• ZTN%:"*@2*E'(C"%l%,%q%miNC7)'>%XE3*2#"E"(7%F%XE3*2#"E"(7%`2'>jQ%X(7"*#'>n

Year One: Actual EVA Improvement = $10 million Year Two: Actual EVA Improvement = - $11 million
(Performance Above EVA Target) (Performance Below EVA Target)
Beginning Bank Balance = $0 Beginning Bank Balance = $6,667
1. Calculated Bonus = Target Bonus x EVA Performance 1. Calculated Bonus = Target Bonus x EVA Performance
= $40,000 x [1 + [10 million - 5 million]/15 million] = $40,000 x [1+ [-11 million - 5 million]/15 million]
= $40,000 x 1.33 = $40,000 x [ -.067]
= $53,333 = - $2,667
New Bank Balance = $0 + 53,333 = $53,333 New Bank Balance = $6,667 - 2,667 = $4,000

2. Payout = Target Bonus + 50% Remaining Balance 2. Payout = Target Bonus + 50% Remaining Balance
(but not to exceed balance in bank) = $40,000 + 0.5 [4,000]
= $40,000 + 0.5 [53,333 - 40,000] (but not to exceed $4,000 balance in bank)
= $46,667 = $4,000
Ending Bank Balance = $6,667 Ending Bank Balance = $0

N;% 76"% "d'E3>"% 4>>);7*'7";.% 4(% 76"% @4*;7% +"'*% 2@% '(% ZTN% 4(C"(74#"% 3*25*'E% E'('5"*;% 6'<% (2
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Redesigning the Organization

X(%,\\J.%T+'<"*E%?';%2*5'(4_"<%3*4E'*4>+%9+%5"25*'36+P%;)9;4<4'*4";%?"*"%4(C2*32*'7"<%4(
,0% C2)(7*4";% 2)7;4<"% 76"% e(47"<% L7'7";$% ]4764(% 76"% e(47"<% L7'7";.% T+'<"*E% 23"*'7"<% G% <4@@"*"(7
9);4(";;%)(47;$

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)(47;% <4<% (27% 6'#"% C2E3>"7"% 9'>'(C"% ;6""7;$% % N;% M+"*;% *"C'>>"<.% gB64;% >'CW% 2@% 9'>'(C"% ;6""7

5
Purchased by: Paulo Oliveira pjorgeoliveira@gmail.com on March 22, 2014
101-019 Vyaderm Pharmaceuticals

'CC2)(7'94>47+%?';%#4;49>"%4(%C'3'C47+%3>'((4(5$%%Z#"*+764(5%?';%@*""$%%B6"*"%?';%722%E)C6%C';6%74"<
)3% 4(% 76"% 9);4(";;$% % N;% 9);4(";;";% E'7)*"<% '(<% 3*2<)C7;% 9"C'E"% C2EE2<474";.% E'*54(;% 9"5'(% 72
<"C>4("$h

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E'('5"*;% 2@% "'C6% C2)(7*+% E"7% 76"4*% ()E9"*;.% 76"+% ?"*"% 54#"(% '% 5*"'7% <"'>% 2@% 4(<"3"(<"(C"% 4(
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5*2?76.%*'76"*%76'(%C2*32*'7"%ZTN$%%iL""%Exhibit 4 @2*%'%>4;7%2@%ZTN%<*4#"*;$j

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*"542('>% C"(7"*;% i@*2E% 76"% e(47"<% L7'7";% 72% L2)76% N;4'j.% '(<% 76"% C2*32*'7"% ZTN% C"(7"*% 4(% L"'77>"$
=)*76"*E2*".% 72% "';"% 76"% 7*'(;4742(% @*2E% 76"% 2><% 92();% ;+;7"E.% E2;7% 3'*74C43'(7;.% ;)C6% ';% 5>29'>
9);4(";;% ;7'@@% '(<% *"542('>% ;7'@@.% ?2)><% 6'#"% 2(>+% IGa% 2@% 76"4*% ,\\\% 92();% 9';"<% 2(% 76"4*% ZTN
C"(7"*Y;%*";)>7;$%%B6"%*"E'4(4(5%/Ga%*"3*";"(74(5%4(<4#4<)'>%2*%7"'E%52'>;%?2)><%9"%9';"<%2(%ZTN
<*4#"*;.%?64C6%'>>2?"<%@2*%;2E"%;)9c"C74#47+$%%B6"%6"'<%2@%76"%E'('5"*Y;%5>29'>%9);4(";;%)(47%;"7%76"
4(<4#4<)'>% <*4#"*;$% % iL""% Exhibit 6 @2*% ,\\\% 52'>% ?"4567;j$% % =2*% E4<<>"% E'('5"*;% "'*(4(5% 9"7?""(
'92)7%^J0.000%'(<%^-0.000.%76"%ZTN%92();%?';%76"%>'*5";7%3'*7%2@%76"4*%727'>%C2E3"(;'742(%3'CW'5"$

The Diagnostic Adjustment

X(%,\\\.%76"%@4*;7%+"'*%2@%76"%ZTN%3*25*'E.%76"%V4'5(2;74C%9);4(";;%6'<%'(%)("d3"C7"<>+%9'<
+"'*$%%e(<"*%76"%("?%ZTN%3*25*'E.%76"%;62*7@'>>%?2)><%9"%32;7"<%';%'%<"@4C47%72%76"%92();%9'(WS
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*">)C7'(7%72%';W%T+'<"*EY;%92'*<%E"E9"*;%72%'<c);7%76"%4(474'>%ZTN%C'>C)>'742(.%;4(C"%6"%6'<%';;)*"<
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4(7"*#'>;%@2*%,G%ZTN%C"(7"*;$

6
Purchased by: Paulo Oliveira pjorgeoliveira@gmail.com on March 22, 2014
Vyaderm Pharmaceuticals 101-019

Streamlining EVA

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'%E4d%2@%C2*32*'7"%ZTN.%9);4(";;%)(47%ZTN.%'(<%4(<4#4<)'>%2*%7"'E%ZTN%52'>;$

The Dermatology Opportunity

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'>>%2@%76"%3*2<)C7;%'7%:&r%@2*%#42>'742(;%2@%D)'>47+%;7'(<'*<;$%%iX7%?';%>'7"*%*"#"'>"<%76'7%76"%=VN%6'<
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';%E)C6%';%(""<"<%72%*"E'4(%=VNFC2E3>4'(7%'(<%;74>>%C2E3"7"$h%%N;%'%*";)>7%2@%76"%=VN%'C742(.%:&rY;
3*2<)C742(% @'C4>47+% ?';% ;6)7% <2?(.% '(<% 2#"*% '% E4>>42(% 7)9";% 2@% 47;% 7234C'>% '(74@)(5'>% ;2>)742(% ?"*"
*"C'>>"<$%%e(74>%76"%=VN%'>>2?"<%:&r%72%*";)E"%3*2<)C742(.%764;%;47)'742(%;)<<"(>+%>"@7%T+'<"*E%';
76"%<2E4('(7%;)33>4"*%2@%'(74@)(5'>%C*"'E%@2*%76"%"(74*"%e$L$%E'*W"7$

B6"% C6'(5"% 4(% 76"% C2E3"7474#"% ;47)'742(% ?2)><% "('9>"% 76"% e$L$% <"*E'72>25+% 9);4(";;% 72
7"E32*'*4>+% *'4;"% 3*4C";% 72% (2*E'>% >"#">;% '(<% 76"*"9+% 922;7% 47;% 3*2@47% E'*54(% ;)9;7'(74'>>+$

7
Purchased by: Paulo Oliveira pjorgeoliveira@gmail.com on March 22, 2014
101-019 Vyaderm Pharmaceuticals

T+'<"*EY;% "E3>2+"";% 9"5'(% 5"'*4(5% )3% 3*2<)C742(% 72% 7'W"% '<#'(7'5"% 2@% 76"% 2332*7)(47+.% ?64C6
E'('5"*;%W("?%C2)><%9"%;62*7F>4#"<$%%]64>"%47%?';%(27%C"*7'4(%76'7%:&r%?2)><%*"5'4(%=VN%'33*2#'>.
276"*% 5"("*4C% E'()@'C7)*"*;% ?"*"% C"*7'4(% 72% "(7"*% 76"% E'*W"7% 72% C'37)*"% 76"% 3*2@47% 327"(74'>$% X(% 76"
E"'(74E".%'>>%'#'4>'9>"%*";2)*C";%?"*"%72%9"%<"<4C'7"<%72%*'E34(5%)3%3*2<)C742(S'(<%3*2@47;$

January 2001

V'(4">>"%L'(<"*;% '(<% K>'W"% M+"*;% ?"*"% 3*"3'*4(5% 72% E""7% ?476% M')*4C"% TU<*4("$% % N;% 76"+
6'<%'(74C43'7"<.%/000%3*2@47;%@2*%76"%V"*E'72>25+%9);4(";;%6'<%5*"'7>+%"dC""<"<%76"%ZTN%7'*5"7$%%K)7.
';%"d3"C7"<.%'%("?%C2E3"7472*%6'<%"(7"*"<%76"%5"("*4C%'(74@)(5'>%9);4(";;%>'7"%4(% 76"% +"'*.% C');4(5
3*2@47;% 72% @'>>% 9'CW% 72% 64;72*4C'>% >"#">;$% % B6"% 7?2% 2@@4C"*;% ?2)><% 6'#"% 72% E'W"% '% *"C2EE"(<'742(
*"5'*<4(5%76"%/000%ZTN%92();%@2*%76"%R2*76%NE"*4C'(%V"*E'72>25+%9);4(";;$%%L62)><%76"%7'*5"7%9"
'<c);7"<% 72% *"@>"C7% 76"% g?4(<@'>>h% C*"'7"<% 9+% 76"% "d47% 2@% :&r% @*2E% 76"% 5"("*4C% E'*W"7% 3>'C"f
N*5)E"(7;%C2)><%9"%E'<"%9276%?'+;$

X(%76"2*+.%76"%("?%ZTN%3>'(%?';%;)332;"<%72%6'#"%)(>4E47"<%)3;4<"%327"(74'>$%%e(<"*%764;
#4"?.% 76"% <4#4;42('>% E'('5"*;% ;62)><% *"C"4#"% '% @)>>% 92();% @2*% 76"% )("d3"C7"<>+% 6456% 3*2@47;$% =2*
"d'E3>".%4@%76"%"d47%2@%:&r%@*2E%76"%E'*W"7%"('9>"<%T+'<"*E%72%"dC""<%47;%ZTN%7'*5"7%9+%O00a.%76"(
4(%/000%76"%E'('5"*;%?2)><%*"C"4#"%,00a%2@%76"4*%7'*5"7%92();%3>);% 6'>@%2@%76"%"dC";;%i,G0aj.%?476
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76"%92();%9'(W$%%N;%'%*";)>7.%76"%E'('5"*;%?2)><%*"C"4#"%(2%92();%@2*%/00,.%'(<%6'#"%(2%C);642(%@2*
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]476%76";"%C'>C)>'742(;%4(%6'(<.%'(<%'?'*"%2@%76"%*"C"(7%3*";;)*"%2(%;72CW%3*4C";%iExhibit 7j.
L'(<"*;%'(<%M+"*;%?2)><%E'W"%76"4*%*"C2EE"(<'742(%72%M')*4C"%TU<*4("$

8
Purchased by: Paulo Oliveira pjorgeoliveira@gmail.com on March 22, 2014
Vyaderm Pharmaceuticals 101-019

Exhibit 1(a) 12E32("(7;%2@%T+'<"*EY;%ZTN%@2*E)>'

NET OPERATING PROFIT AFTER TAXES CAPITAL

Operating Earnings Net Operating Assets (NOA)

+ R&D expense reported on P&L ① + Capitalized research & development ➂
- R&D amortization for EVA adjustment ➁ (less accumulated amortization)
+ Advertising expense reported on P&L + Advertising expense
- Advertising amortization for EVA adjustment (less accumulated amortization)
+ Goodwill amortization add-back + Accumulated amortization of goodwill
+ Restructuring add-back + Restructuring add-back
= Net Operating Profit Before Taxes (NOPBT) = Capital
- Taxes (based on actual payments)
= Net Operating Profit After Taxes (NOPAT)

Exhibit 1(b) L'E3>"%LC6"<)>"%2@%!kV%NE2*74_'742(%@2*%,\\\%ZTN%N<c);7E"(7

i@4*;7%+"'*%2@%3*25*'Ej
1995 1996 1997 1998 1999
R&D Expense as Reported on P&L $ 1,500 $ 2,200 $ 2,600 $ 3,100 $ 3,700 ①

Amortization for 1995 $ 300 $ 300 $ 300 $ 300 $ 300

EVA Adjustment 1996 $ 440 $ 440 $ 440 $ 440
1997 $ 520 $ 520 $ 520
1998 $ 620 $ 620
1999 $ 740
1999 R&D Amortization under EVA $ 2,620 ➁

Cumulative R&D Expense (P&L) $ 1,500 $ 3,700 $ 6,300 $ 9,400 $ 13,100

Less: Cumulative Amortization (EVA) $ 300 $ 1,040 $ 2,300 $ 4,180 $ 6,800
Capitalized R&D for 1999 EVA $ 6,300 ➂
Calculation of Capital

Notes:
① = Amount added back to P&L
➁ = Amount subtracted from P&L
➂ = Amount added to Capital (Balance Sheet)

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Purchased by: Paulo Oliveira pjorgeoliveira@gmail.com on March 22, 2014
 101-019 -10-

Exhibit 2 ZTN%X(C"(74#"%:>'(

BONUS
TOTAL BONUS
INCENTIVE
Slope = Target Incentive/ EARNED
EVA Interval

Bank

Payout
Target Incentive

Year 0 Year 1 EVA

Actual EVA Target IMPROVEMENT

Improvement
Goal

EVA Interval

Note: The EVA interval is the shortfall from target that eliminates the bonus. An EVA center’s performance (%) = 1 + [(actual improvement - improvement goal)/EVA interval]

Purchased by: Paulo Oliveira pjorgeoliveira@gmail.com on March 22, 2014

Vyaderm Pharmaceuticals 101-019

Exhibit 3 ZdC"*37%@*2E%T+'<"*E%Zd"C)74#"%:*";"(7'742(%Zd3>'4(4(5%76"%M"*47;%2@%ZTN

Most
Most“Incentives”
“Incentives”Don’t
Don’tWork
Work. .. .. .

• Caps limit incentive for exceptional performance

• Thresholds encourage short-term decision making
• Negotiated targets promote “sandbagging”
Bonus

Threshold Performance
Typical Payoff Profile

EVA
EVAIncentives:
Incentives:
Pay
Pay Bonuses for MeetingEVA
Bonuses for Meeting EVAExpectations
Expectations

• “Equity-like” - share fully in gains and losses

Bonus
• Unlimited upside and downside incentive
• Objective targets, not linked to budget negotiations

Unlimited bonus potential

Target
Bonus

Target EVA EVA

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Purchased by: Paulo Oliveira pjorgeoliveira@gmail.com on March 22, 2014
101-019 Vyaderm Pharmaceuticals

Exhibit 4 ZTN%V*4#"*;

Improvement
Improvementin
inEVA
EVA

Sales Operating Expenses Capital Charge

Customer Acquisitions/ Working Capital

Overhead
Satisfaction New Divestitures Management
Products
Accounts
Account Compensation Alliances
Volume Receivable
Management
Marketing
R&D Inventory
Training/
Product Manufacturing Decisions Management
Development
Pricing Costs
Growth

Manufacturing EVA Drivers Research & Development EVA Drivers

! Reduce Inventory ! Improve “To-Market” process

! Reduce Cycle Time ! Reduce R&D expenses as % of New Product
! Improve Yields Sales
! Reduce Scrap/Waste ! Strategic partners for R&D
! Maximize Labor Efficiencies ! Stronger Links to Product Marketing
! Improve Vendor Efficiencies ! New Products via:
! Process Improvements – Research
– Formulation
– Development
– Acquisition

Staff EVA Drivers Marketing EVA Drivers

! Work Group/Process Simplification ! Increase Market Share/ Revenue

! Consistency “Monitors”—Audit
! Centralizing Resources/Synergies
! Best Practices Benchmarking
! Insourcing/Outsourcing Decisions
! Simplify EVA Measurements/Reporting
! Ensure Compliance with Legislation
! New Markets
! More Focused Channel Programs
! Voice of Customer/Consumer
! Leverage Advertising/Promotion
! Build Brand Awareness

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Purchased by: Paulo Oliveira pjorgeoliveira@gmail.com on March 22, 2014
Vyaderm Pharmaceuticals 101-019

Exhibit 5 T+'<"*E%16'(54(5%[*5'(4_'742('>%L7*)C7)*"

,\\J%[*5'(4_'742('>%L7*)C7)*"%%i,G%:*2@47%k%r2;;%L)9;4<4'*4";j

Corporate HQ (Seattle, WA)

North American Europe, Middle East

Asia-Pacific Division
Division & Africa Division
(5 subsidiaries)
(5 business units) (5 subsidiaries)

,\\\%[*5'(4_'742('>%L7*)C7)*"%%i,G%ZTN%1"(7"*;j

Corporate Consolidated (1 EVA Center)

Global Businesses Geographic Regions

(7 EVA Centers) (7 EVA Centers)
•Antifungals •United States
•Anti-infectives •Europe
•Analgesics •Japan
•Nutraceuticals •Latin America
•Diagnostics •North Asia
•Gastrointestinals •South Asia
•Antibiotics •Canada

/000%[*5'(4_'742('>%L7*)C7)*"%iH%ZTN%1"(7"*;j

Corporate Consolidated (1 EVA Center)

Dermatology Internal Medicine Veterinary Medicine

(1 EVA Center) (1 EVA Center) (1 EVA Center)

North America

Eur., ME & Africa

Asia

Latin America

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Purchased by: Paulo Oliveira pjorgeoliveira@gmail.com on March 22, 2014
101-019 Vyaderm Pharmaceuticals

Exhibit 6 %`2'>%]"4567;%F%B*'(;4742(%o"'*%i,\\\j

Corporate Business Global Region EVA

EVA Unit EVA Business EVA Drivers
EVA
Corporate
9 Management Committee Officers 100%
(includes 3 global product heads)
Staff Officers 100%
Corporate Staff 75% 25%
Global Business
Global Business Staff 75% 25%
Regions
Regional Division President 50% 50%
Regional Marketing Heads 50% 50%
Regional Staff 75% 25%
Country Managers & Controllers 50% 50%
Commercial Directors 50% 50%
Free Standing Businesses
Presidents 25% 75%
Staff 75% 25%

Exhibit 7 T+'<"*E%L72CW%:"*@2*E'(C"

Vyaderm Stock Price, September 1993 to December 2000

Closing Weekly Stock Price ($/share)

45
40
35
30
25
20
15
10
5
0
Ap 97
Ju 94
O 94

Ju 99
O 99
Au -98
Au -95

Ju 7

Ju 0
N 7

D 0
M 94

M 99
Ja 3

D 95
M -95

Fe 96

Ja 8

0
Se 96

-0
l-9

l-0
9

-0
-
n-
n-

n-
n-
b-
-

-
p-

g-

p-

g-
-

ov

r
ar

ar
ct

ct
ec

ec
ay
Se

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Purchased by: Paulo Oliveira pjorgeoliveira@gmail.com on March 22, 2014
Vyaderm Pharmaceuticals 101-019

Exhibit 8 R2*76%NE"*4C'(%V"*E'72>25+%=4('(C4'>%V'7'%@2*%ZTN%1'>C)>'742(

($ 000s except bonus) 1996 1997 1998 1999 2000

Divisional EVA Calculation:
Actual EVA $ 2,920 (a)
EVA Improvement Goal $ 2,150
EVA Target . $ 5,070
EVA Interval $ 12,000

Profit & Loss:

Income before following items: $ 24,694 $ 31,512 $ 36,584 $ 42,545 $ 92,550
Research & Development Expense 12,487 14,610 17,094 20,000 39,000
Consumer Advertising Expense 34 38 41 45 50
Goodwill Amortization 0 2,500 2,500 2,500 2,500
Net Income Before Tax $ 12,173 $ 14,364 $ 16,949 $ 20,000 $ 51,000
Current Year’s Income Tax Payments (4,260) (5,902) (6,807) (7,875) (18,725)

Balance Sheet:
Net Operating Assets $ 66,949 $ 79,000 $ 93,220 $ 110,000 $ 135,000

From Footnotes:
Accumulated Goodwill Amortization $0 $ 2,500 $ 5,000 $ 7,500 $ 10,000
Capital Charge for EVA Purposes 11%

Divisional Manager’s Bonus:

Base Salary $ 200,000 $ 200,000
Bonus Target n.a. 60%
Bonus Payout $ 60,000

Note:
(a) EVA was introduced in the Dermatology division for the first time in 2000. The 1999 EVA figure was calculated
retroactively solely to set 2000 EVA targets. The 1999 EVA calculation includes the amortization of a 1995 R&D
expense of $10,673.

15
Purchased by: Paulo Oliveira pjorgeoliveira@gmail.com on March 22, 2014