FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1993
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________________ to _______________
Commission file number 1-4147
THE UPJOHN COMPANY
(Exact name of registrant as specified in its charter)
Delaware 38-1123360
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7000 Portage Road, Kalamazoo, Michigan 4900l
(Address of principal executive offices)(Zip Code)
Registrant's telephone number, including area code: (6l6) 323-4000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Stock, $1 par value New York Stock Exchange
Rights to Purchase Preferred Stock New York Stock Exchange
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 is unable to determine the amount of shares owned by
non-affiliates (within the meaning of such term under applicable regulations
of the Securities and Exchange Commission) but 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 February 28, 1994 as
reported in The Wall Street Journal and treating all executive officers and
directors of the Company as affiliates) was approximately $4,817,959,341.
The number of shares of Common Stock, $1 par value, outstanding as of
February 28, 1994 is 173,584,181 shares (excluding 17,007,342 treasury
shares).
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the 1993 Annual Report to Shareholders are incorporated by
reference into Parts I and II.
<PAGE>
The following trademarks of The Upjohn Company are included in this report:
ANSAID, ATGAM, CLEOCIN PHOSPHATE, CLEOCIN T, CLEOCIN VAGINAL CREAM,
COLESTID, CORTAID, CYTOSAR-U, DELTA ALBAPLEX, DEPO-MEDROL, DEPO-PROVERA,
DRAMAMINE, GLYNASE, HALCION, KAOPECTATE, LINCOCIN, LINCOMIX,
LINCO-SPECTIN, LUTALYSE, MEDROL, MGA, MICRONASE, MOTRIN, MYCITRACIN,
NAXCEL, OGEN, PREPIDIL, PresTab, PROSTIN E2, PROSTIN VR PEDIATRIC,
PROVERA, ROGAINE, SOLU-CORTEF, SOLU-MEDROL, UNICAP, XANAX, VANTIN and
ZEFAZONE.
ALTACE, DOXIDAN and SURFAK, trademarks of Hoechst-Roussel Pharmaceuticals
Inc., are also included in this report.<PAGE>
PART I
Item 1. Business
The Upjohn Company (the "Company") operates in the human health care and
agricultural business segments.
HUMAN HEALTH CARE SEGMENT
The Company historically has engaged primarily in the research, development,
production and sale of prescription pharmaceuticals, and it continues to be
one of the largest drug manufacturers in the United States. The Company
manufactures a broad line of prescription drugs, primarily central nervous
system agents, nonsteroidal anti-inflammatory and analgesic agents,
antibiotics, steroids, oral antidiabetes agents and a hair growth product.
These are principally products which were developed or invented in its
laboratories or for which licenses to make, use and sell have been obtained
from others. They are sold to pharmacies and other retail stores,
wholesalers, distributors, physicians, hospitals and governmental agencies.
The Company also manufactures for distribution to the general public certain
nonprescription drugs and manufactures pharmaceutical chemicals for use in its
own products and for bulk sales.
The Company's most important pharmaceutical products, many of which it sells
under other trademarks in foreign markets, are discussed below, together with
a summary indication of their principal uses and applications.
During 1993 U.S. patent protection expired on ANSAID, CLEOCIN-T, XANAX and
HALCION. Additionally, no significant patent protection remains on PROVERA.
The U.S. patent on MICRONASE expired in 1992; however, a moratorium on the
approval of Abbreviated New Drug Applications (ANDAs) for products containing
glyburide, the generic name for MICRONASE, continues until May 1994. A
moratorium on the approval of ANDAs also protects exclusivity for GLYNASE, a
new formulation of glyburide, until March 1995. For further information on
the impact of this loss of patent protection, see Item 7, Management's
Discussion and Analysis of Financial Condition and Results of Operations,
incorporated by reference to the 1993 Annual Report to Shareholders (Exhibit
13).
The Company produces two major drugs for central nervous system ("CNS")
disorders. XANAX Tablets, containing alprazolam, are used for symptomatic
relief of anxiety with and without depressive symptoms and for the treatment
of panic disorder. HALCION Tablets, containing triazolam, are a hypnotic
agent for the treatment of insomnia. The use patent for the panic disorder
indication for XANAX expires in 2002. HALCION, which has been subject to
controversy for a number of years, has received increased adverse publicity,
particularly in the United States and the United Kingdom, and worldwide
regulatory action since mid-1991. For a more detailed description of recent
United States and foreign regulatory action taken with respect to HALCION, see
Item 7, Management's Discussion and Analysis of Financial Condition and
Results of Operations, incorporated by reference to the 1993 Annual Report to
Shareholders (Exhibit 13).
The Company's major oral antidiabetes agent is MICRONASE Tablets, containing
glyburide. The Company also markets GLYNASE PresTab Tablets, a new
formulation of glyburide for the treatment of non-insulin-dependent diabetes.
The Company markets ANSAID Tablets, a nonsteroidal anti-inflammatory product
containing flurbiprofen, for treatment of osteoarthritis and rheumatoid
arthritis. The Company also markets MOTRIN Tablets, a nonsteroidal
anti-inflammatory product containing ibuprofen, used in the treatment of
rheumatoid arthritis and osteoarthritis and as a general analgesic for mild to
moderate pain, including dysmenorrhea. MOTRIN is not subject to significant
patent protection.
The Company and its subsidiaries provide a broad line of antibiotic products
including CLEOCIN and LINCOCIN products, neither of which is subject to
significant United States patent protection. CLEOCIN PHOSPHATE is an
injectable form of clindamycin that is used in the treatment of certain
life-threatening anaerobic infections. CLEOCIN T is a topical formulation for
treatment of acne. CLEOCIN VAGINAL CREAM is used to treat bacterial
vaginosis. LINCOCIN is used in the treatment of serious infections caused by
many strains of gram-positive bacteria. Upjohn has exclusive U.S. marketing
rights to VANTIN Tablets and Oral Suspension, an advanced cephalosporin
antibiotic, under patents licensed from Sankyo Company, Ltd., which rights
will become semi-exclusive in 1997. The Company also markets ZEFAZONE Sterile
Powder, another cephalosporin antibiotic, under license from Sankyo.
The Company markets several steroid hormones having a variety of uses,
including the treatment of allergic reactions, inflammation, asthma and
certain hormone deficiencies, none of which are subject to significant patent
protection. The most important synthetic hormone is PROVERA Tablets, which is
a female sex hormone replacement agent. The Company produces various forms of
chemical modifications of hormones, under the trademark MEDROL, which is used
to treat a number of inflammatory and allergic conditions. SOLU-CORTEF
Sterile Powder and SOLU-MEDROL Sterile Powder are injectable corticosteroid
products. The Company recently introduced DEPO-PROVERA Contraceptive
Injection in the U.S. In 1993, the government of India granted the Company
permission to market DEPO-PROVERA Contraceptive Injection in that country.
The Company also markets certain prostaglandin products, including PROSTIN
E2 Vaginal Suppository, which is generally used for pregnancy disorders, and
PROSTIN VR PEDIATRIC Sterile Solution, for cardiovascular use, neither of
which is subject to significant patent protection. The Company has recently
introduced in the U.S. PREPIDIL Gel, used for cervical ripening, which is
protected by U.S. patents until 2003.
In 1993, the Company obtained worldwide marketing rights to OGEN Tablets and
Vaginal Cream, an estrogen replacement product, from Abbott Laboratories.
The Company produces and sells ROGAINE Topical Solution, a 2% solution of
minoxidil applied topically to restore hair growth in men with male pattern
baldness and in women with androgenetic alopecia, or hereditary hair loss.
The product is also sold in numerous foreign countries. The United States
patents covering ROGAINE expire in 1996.
Other prescription drugs include ATGAM Sterile Solution, an
immunosuppressant product, COLESTID Granules and Flavored Granules, a
cholesterol-lowering agent, and CYTOSAR-U Sterile Powder, used for the
treatment of leukemia. These products are no longer subject to significant
patent protection.
Geneva Pharmaceuticals, Inc., a subsidiary of CIBA-GEIGY Corporation, has
certain rights to market generic versions of the Company's XANAX, HALCION,
ANSAID, MICRONASE and CLEOCIN T products under an agreement with the Company.
The Company also markets certain generic products through its subsidiary,
Greenstone, Ltd.
The Company manufactures and distributes other products which do not require
a prescription, including MOTRIN IB Tablets and Caplets, an analgesic; MOTRIN
IB Sinus Tablets and Caplets, a sinus pain formula; KAOPECTATE products, for
diarrhea; CORTAID products, anti-inflammatory topical products; the family of
UNICAP vitamin products; DRAMAMINE, anti-motion sickness medicines, and
MYCITRACIN, an antibiotic ointment for treatment of minor skin infections and
burns. The Company also holds a license from Hoechst-Roussel Pharmaceuticals
Inc. for exclusive United States rights to the nonprescription laxative
products DOXIDAN and SURFAK. The Company also has a U.S. marketing
arrangement with McNeil Consumer Products Company whereby the Company will
receive access to several ibuprofen-based and other products being developed
by McNeil.
The Company has an agreement with Biopure Corporation under which the
Company will acquire sales and marketing rights to any bovine
hemoglobin-derived blood substitute products developed for human or animal use
by Biopure.
The Company has joint marketing agreements with Hoechst-Roussel
Pharmaceuticals Inc. to jointly market ALTACE Capsules, a product for the
treatment of hypertension, and with Solvay S.A. to jointly market Solvay's
fluvoxamine, for the treatment of depression (which is approved in Europe and
Canada but not yet approved in the United States), and Upjohn's XANAX. In
1992, the Company entered into a collaboration with Boehringer Ingelheim
International GmbH to develop and market worldwide four CNS compounds.
International Pharmaceutical Operations
The Company manufactures and sells throughout the world many of the
prescription pharmaceuticals described above. The principal markets are
Europe, Japan, the Pacific Region, Latin America, the Middle East and Canada.
The Company competes with a large number of other companies primarily on the
basis of product differentiation and price. The most significant product
areas for the Company's international sales are antibiotics, central nervous
system agents and corticosteroids.
Delta West Pty. Limited, an Australian subsidiary of the Company,
manufactures and distributes a broad line of generic products for hospital
applications, with particular emphasis on injectable oncolytic products in
plastic containers, primarily in Australia, New Zealand and Southeast Asia.
Delta West is in the process of expanding its export efforts through the Asia-
Pacific region and other markets.
In 1993, Delta West and the Company entered into a collaboration with Gensia
Laboratories Inc. to develop and market Delta West and Gensia generic oncology
and pain products in the United States. Sale of the first product approved by
the Food and Drug Administration from the collaboration with Gensia,
injectable etoposide, commenced in February 1994.
The Company, through its subsidiary, Sanorania GmbH, markets a broad line
of branded generic pharmaceutical products throughout Germany.
Competition
It is estimated there are at least 50 companies that are significant
competitors in the United States in the sale of prescription and
nonprescription pharmaceutical products. A major feature of this competition
is the effort to discover, develop and introduce new or improved products for
the treatment and prevention of disease. Other competitive features include
quality, price, dissemination of technical information, competent product
recall capability and medical support advice.
Significant changes in marketing conditions are occurring in both the U.S.
and foreign pharmaceutical markets, including decreased pricing flexibility,
restrictions on promotional and marketing practices and the impact of managed
care, particularly with respect to product selections and pricing concessions.
See "Governmental Regulation" under "General" below for a description of the
competitive effects of FDA regulation.
Distribution
The Company has a domestic pharmaceutical sales force of technically trained
representatives who call on physicians, pharmacists, hospital personnel, HMOs
and other managed health care organizations and wholesale drug outlets. Most
sales of pharmaceutical products are made directly to pharmacies, hospitals,
chain warehouses, wholesalers and other distributors, although some are made
to physicians and governments. Nonprescription drugs are also sold to other
retail stores. Domestic customers are served from several distribution
centers located throughout the United States. Separate sales forces handle
nonprescription drug sales and foreign pharmaceutical sales.
Puerto Rico Operations
The Company conducts substantial pharmaceutical manufacturing operations in
Puerto Rico through a wholly owned subsidiary. Under current law, the
earnings from this subsidiary will be partially exempt from both United States
and Puerto Rico income taxes. The Omnibus Budget Reconciliation Act of 1993
will reduce, in years subsequent to 1994, the amount of Puerto Rico tax
benefits available under Section 936 of the Internal Revenue Code (ultimately
reducing the benefit under the current law by 60 percent). If earnings from
the Company's Puerto Rican subsidiary are repatriated in the form of a
dividend to the Company, such earnings would be subject to a Puerto Rican
withholding tax of up to 10% of the amount repatriated. Under the Puerto Rico
tax exemption grant, certain credits are available to reduce Puerto Rican
withholding taxes. See Notes E and H of "Notes to Consolidated Financial
Statements" in the 1993 Annual Report to Shareholders (Exhibit 13), which is
hereby incorporated by reference, and Schedule I on page 36 herein, for
further information, including the effect on the Company's net earnings of the
Puerto Rican tax exemption grant and the investment of earnings from Puerto
Rican operations.
AGRICULTURAL SEGMENT
Asgrow Seed Company, a wholly owned subsidiary, is, directly and through its
affiliated companies, one of the leading worldwide breeders, developers,
producers and marketers of vegetable and agronomic seed. Among Asgrow's major
vegetable seed products are peas, beans, sweet corn, cucumbers, tomatoes,
carrots, lettuce, onions and cantaloupe; and its major agronomic seed products
are hybrid corn, hybrid sorghum and soybeans. Asgrow competes with a large
number of other seed producers primarily on the basis of price, quality and
yields. The sale of seeds is seasonal. The Company also participates in a
50-percent-owned joint venture with Tyson Foods, Inc., called Cobb-Vantress,
Inc., for developing, producing and marketing broiler chicken breeders.
In late 1993, the Company sold the assets of Asgrow Florida Company, a
distributor of agricultural chemicals and supplies in Florida, to Terra
Industries, Inc. The vegetable and agronomic seed varieties previously sold
by Asgrow Florida Company will continue to be sold by Asgrow Seed Company.
The Company develops, manufactures and sells animal pharmaceutical products
and animal feed additives, the sales of which fluctuate with changes in the
agricultural economy. These products are sold to veterinarians, feed
manufacturers, distributors and growers who choose the Company's products
primarily because of their efficacy and suitability for particular uses.
Major products include NAXCEL Sterile Powder, an antibiotic for bovine and
swine respiratory disease and early chick mortality; LINCO-SPECTIN Soluble
Powder and Premix, a combination lincomycin/spectinomycin antibiotic; LINCOMIX
20 and LINCOMIX 50 Feed Medication, which are feed-additive antibiotics; MGA
Premix, which is a growth-promoting feed additive for feedlot heifers; various
products for the treatment of mastitis; DELTA ALBAPLEX Tablets and LINCOCIN,
which are small-animal antibiotics; and LUTALYSE Sterile Solution, which is
used to synchronize breeding performance in mares and cattle. In addition,
the Company sells a line of animal health vaccines through Oxford Veterinary
Laboratories, Inc. (Bio-Vac Labs, Inc.).
Separate sales units handle the sales of animal health products and seeds.
GENERAL
Research and Patents
Total research and development expenditures have increased each year for
more than a decade, amounting to $522.9 million in 1991, $581.5 million in
1992, and $642.0 million in 1993. There are continuing research programs
principally in the areas of cardiovascular diseases, central nervous system
diseases, infectious diseases, atherosclerosis and thrombosis,
hypersensitivity diseases, cancer, diabetes, hair growth, virology,
gastrointestinal diseases, AIDS, trauma, biotechnology, agricultural
microbiology and nutrition, agricultural growth physiology, agricultural
parasitology, agronomic and vegetable seed germ plasm development and seed
technology.
The Company and its subsidiaries have a large number of United States and
foreign patents expiring at various times. The Company considers that the
overall protection from its patents and trademarks and from licenses under
patents belonging to others is of material value. However, it is believed
that no single patent or license is of material importance in relation to the
business as a whole. Rights under patents and know-how are both given and
taken. In 1993, the Company recorded income for use of know-how and patents
totaling approximately $10 million and expenses totaling approximately $54
million.
Raw Materials and Energy
From time to time, for a number of reasons, there has been difficulty in
obtaining certain raw materials for the manufacture of some pharmaceutical
products. However, the principal raw materials used by the Company are at
this time readily available. Possible effect on the Company of increased
costs and possible shortages of material or energy in the future cannot be
predicted.
Environment
Significant capital and operating expenses will be incurred to address
environmental remediation and control in connection with the phasing out of
its industrial chemical operations at the North Haven, Connecticut plant,
improving controls on air emissions at the Kalamazoo manufacturing facilities,
addressing other environmental issues at all company facilities and the
Company's involvement in certain Superfund sites. The information under the
caption "Financial Review" and Notes J and K of "Notes to Consolidated
Financial Statements" in the 1993 Annual Report to Shareholders (Exhibit 13)
is hereby incorporated by reference. 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, including all such
multi-purpose capital projects as environmental expenditures, it is estimated
that capital expenditures for environmental protection for 1994 and 1995 may
exceed $60 million and $45 million each year, respectively. Operating
expenses in 1993 for compliance with environmental protection laws and
regulations are estimated to have been approximately $40 million. Such
operating expenses in 1994 are estimated to be approximately $50 million.
Cash payments charged to environmental reserves in 1993 totaled $6 million and
are expected to be approximately $20 million in 1994.
Among the sites on the United States Environmental Protection Agency's
("EPA") National Priorities List, in connection with which the Company has
been identified as a potentially responsible party ("PRP"), is the West KL
Avenue Landfill located in Kalamazoo County, Michigan. In September 1991, the
Company and three local governmental units agreed to a consent decree with the
EPA, which has been approved by the United States Department of Justice and
entered by a Federal Court, to undertake necessary remedial action. The costs
of remediation may exceed $40 million, of which other viable parties are
expected to contribute more than half.
Negotiations continue in connection with remediation of the site of the
Company's discontinued industrial chemical operations in North Haven,
Connecticut. The Town is seeking to force the Company to remove a sludge pile
located on the plant site because it violates local zoning ordinances. As a
result of the detection of PCBs in the pile in concentrations that may require
compliance with additional laws and regulations relative to disposal of PCBs,
coupled with significant changes in applicable regulations relating to
disposal of hazardous waste, the cost of off-site disposal (if, in fact, such
disposal is possible, legal and ultimately required) could be approximately
$200 million. The Company cannot at the present time predict the final
resolution of the sludge pile issue. Because the Company believes in-place
closure of the sludge pile is the most responsible course of action and the
Connecticut Department of Environmental Protection and the U.S. Environmental
Protection Agency had earlier approved the Company's plan for in-place closure
of the sludge pile, which is substantially less expensive than removal, the
Company has not established any reserves for the cost of off-site disposal.
The Company is also in the process of evaluating other existing
environmental conditions at the North Haven, Connecticut facility with the
intention of addressing concerns that may be determined appropriate. The
Company believes that it has established sufficient reserves to cover the cost
of any actions required to be taken after the evaluation process is completed.
Governmental Regulation and Legal Compliance
The Company's products have for many years been subject to regulation by
federal, state and foreign governments. Such regulation has generally been
aimed at product safety and labeling. In the United States, most human and
animal pharmaceutical products manufactured or sold by the Company are subject
to regulation by the U.S. Food and Drug Administration ("FDA") as well as by
other federal and state agencies. The FDA regulates the introduction of new
drugs, advertising of prescription drug products, good manufacturing and good
laboratory practices, labeling, packaging and record keeping with respect to
drug products. In addition, the FDA reviews the safety and effectiveness of
marketed drugs and may require withdrawal of products from the market and
modification of labeling claims where necessary. The FDA regulations require
promotional use of generic names with trademarks for prescription drugs.
Government approval of new drugs under the federal Food, Drug and Cosmetic
Act requires substantial evidence of safety and efficacy. As a result of this
requirement, as interpreted by the FDA, the length of time and the laboratory
and clinical information required for approval of a New Drug Application
("NDA") is considerable.
The FDA has adopted streamlined procedures for the approval of duplicate
drugs (drugs containing the same active ingredient as the originator's
product), including Abbreviated New Drug Applications ("ANDAs"). Approval of
ANDAs may not be made effective prior to expiration of valid patents. The FDA
has established a similar expedited approval process for antibiotics. The
availability of the ANDA and expedited antibiotic approval processes has
reduced the time period and expense required to obtain FDA approval of some
competing products and facilitated generic competition.
At the state level, so-called "generic substitution" legislation permits the
dispensing pharmacist to substitute a different manufacturer's version of a
drug for the one prescribed. In a number of states, such substitution is
mandatory unless precluded by the prescribing physician.
Interest in the FDA approval mechanism for duplicate or generic drugs and
"generic substitution" by pharmacists has been increased by limits on
government reimbursement of drug costs in health and welfare programs
(Medicare and Medicaid).
Beginning in 1991, all pharmaceutical manufacturers were required to provide
rebates to the state governments for prescriptions covered by Medicaid.
Rebates for single-source and innovator multiple-source drugs are 15 percent
of the average manufacturer price ("AMP") for each drug or the AMP minus the
best price a company offered to any given purchaser (excluding certain federal
customers), whichever was greater. At any time, additional rebates are
required if the cumulative price increases exceed the change in the Consumer
Price Index, for the time period beginning October 1990. Approximately 10% of
the Company's pharmaceutical business involves Medicaid. In November 1992,
ceiling prices were placed on products sold to the Department of Defense, the
Veterans Administration and the Public Health Service. In addition,
manufacturers are required to sell products to PHS grantees at the net
Medicaid price (AMP minus the Medicaid rebate). The issue of further price
controls on sales of prescription drugs continues to be considered in
Congress, and additional federal legislation to limit prices of prescription
drugs is possible.
It is difficult to predict the ultimate effect of streamlined approval of
duplicate or generic drugs, "generic substitution," the Medicaid reimbursement
and rebate programs and possible price limitations. However, the Company
believes that its development of patented and exclusively licensed products
may moderate the impact of programs and legislation focusing mainly on
products available from multiple suppliers.
Similar product regulatory laws are found in most other countries in which
the Company manufactures or sells its products. There, too, the thrust of
governmental inquiry and action has been primarily toward reducing the prices
of prescription drugs.
The Company is subject to administrative action by the various regulatory
agencies. Such actions may include product recalls, seizures of products and
other civil and criminal actions.
In 1993, the Company conducted an internal review of the Company's
compliance with United States export control, trade embargo and antiboycott
laws. This review determined that although the Company was generally in
compliance with these laws, there may have been transactions effected by
certain foreign subsidiaries which may not have been in compliance with these
laws, including failure to report a small percentage of boycott-related
customer requests to the U.S. Department of Commerce, issuance of four
negative certificates of origin in response to customer requests and shipments
of a small amount of United States-origin products by two foreign subsidiaries
to embargoed countries. These matters have been reported voluntarily by the
Company to the U.S. Department of Treasury and the U.S. Department of
Commerce, and the Company has taken other corrective action. Although the
Company cannot predict the outcome, the Company does not believe that any
actions that may be taken by federal agencies against the Company as a result
of these matters will have a material adverse effect on the Company's
business, financial condition or results of operations.
International Operations
The Company's international operations are subject to certain risks which
are inherent in conducting business outside the United States, particularly
fluctuations in currency exchange rates, price controls, differing rates of
economic growth, inflation, political instability and varying controls on the
repatriation of earnings.
Employees
The Company had 18,600 regular employees on December 31, 1993. The Company
believes that it has good relations with its employees. Except for certain
employees at the Company's plant in North Haven, Connecticut, none of the
Company's United States employees are represented by unions or covered by
collective bargaining agreements. Employees at several non-U.S. locations are
represented either by freely elected unions or by legally mandated workers'
councils or similar organizations.
Financial Information
Financial information about industry segments and foreign and domestic
operations appearing under the caption "Consolidated Statements of Segment
Operations" in the 1993 Annual Report to Shareholders (Exhibit 13) is hereby
incorporated by reference. For additional information, see Notes S and T of
"Notes to Consolidated Financial Statements" and the segment discussions
included in the "Human Health Care and Agricultural" sections of the
"Financial Review" in the 1993 Annual Report to Shareholders (Exhibit 13),
which are hereby incorporated by reference.
Employee Stock Ownership Plan
The Company maintains an Employee Stock Ownership Plan ("ESOP") as part of
The Upjohn Employee Savings Plan. Assets of the ESOP are held through a trust
(the "ESOP Trust"). The ESOP Trust has issued debt securities to the public,
and the Company has unconditionally guaranteed payment of the principal and
interest on the debt securities. Holders of the debt securities have no
recourse against the assets of the ESOP Trust except cash contributions made
by the Company to pay such debt securities, and earnings attributable to such
contributions. A summary description of the liabilities of the ESOP Trust
under such debt securities and of the cash contributions made by the Company
to the ESOP Trust during 1993 is set forth in Note N of "Notes to Consolidated
Financial Statements" in the 1993 Annual Report to Shareholders (Exhibit 13),
which is hereby incorporated by reference.
Item 2. Properties
Human Health Care Segment
The Company owns its main pharmaceutical plants and general offices, which
consist of a group of buildings containing approximately 5,000,000 square feet
of floor space, all of which were constructed since 1948 and are considered
adequate for the Company's present needs, on about 500 acres of a 2,200 acre
tract located six miles southeast of Kalamazoo, Michigan. The Company's main
manufacturing building, which is located at the Kalamazoo site, contains about
1,630,000 square feet. Other major buildings at the Kalamazoo site include a
large fermentation plant where antibiotics and steroids are produced, a new
complex used for production of fine chemicals, and buildings devoted to
chemical and fermentation process development. The Henrietta Street complex,
owned by the Company and consisting of approximately 33 acres, includes a
group of buildings aggregating about 2,500,000 square feet that houses the
Company's research laboratories and offices. Pharmaceutical fermentation,
production, warehouse and office facilities, containing approximately 510,000
square feet, are located on a 259 acre site owned by the Company near Arecibo,
Puerto Rico. The Company also owns or leases distribution warehouses in
several major cities in the United States.
Agricultural Segment
The Company owns a 2,140 acre farm complex northeast of Kalamazoo, which
includes the principal offices of the Company's agricultural business,
including Asgrow Seed Company, and agricultural and veterinary research
facilities, with offices, laboratory and farm buildings aggregating about
410,000 square feet. The agricultural segment also has animal health products
production, grain storage, seed conditioning, breeding and research facilities
in several locations in the United States and in foreign countries.
Item 3. Legal Proceedings
Various suits and claims arising in the ordinary course of business,
primarily for personal injury and property damage alleged to have been caused
by the use of the Company's products, are pending against the Company and its
subsidiaries; and the ultimate liability with respect thereto is not presently
determinable.
The Company is a defendant in approximately 100 product liability lawsuits
involving its benzodiazepine product, HALCION, some of which seek punitive
damages based on alleged deficiencies in the product approval process.
The Company has entered into a consent judgment with the Michigan Department
of Natural Resources, and approved by the Michigan Circuit Court, regarding
compliance with air control regulations. Pursuant to this consent judgment,
the Company has paid the State of Michigan $1.5 million to cover the costs of
surveillance, enforcement of applicable laws and natural resource damages; and
the Company is installing significant air pollution control equipment at its
Kalamazoo facility. The installation of these controls is expected to be
nearly completed during 1994 and will require additional capital spending of
approximately $40 to $50 million.
Two shareholder class action complaints are pending in the United States
District Court for the Western District of Michigan against the Company and
certain directors and officers of the Company seeking damages resulting from
the alleged failure of the Company to disclose material adverse information
about HALCION. The plaintiffs claim that the failure to disclose information
on HALCION caused the price of the Company's stock to be artificially
inflated, which caused them to purchase Upjohn stock at an excessive price.
One of the actions contains a derivative complaint alleging a pattern of
misconduct by the Company and named defendants purposely concealing or
minimizing reports of side effects related to HALCION, which allegedly caused
damage and loss to Upjohn as a company, improper election of directors and
payment of excessive incentive compensation and stock option bonuses to the
named defendants. The Company does not believe that there is merit to the
claims and will defend the cases.
In October 1991, a Cook County, Illinois jury returned a verdict against the
Company in the amount of approximately $127.5 million, of which approximately
$124.5 million constituted punitive damages which was subsequently reduced to
$35 million. The Plaintiff lost his left eye after his physician
inadvertently injected the drug DEPO-MEDROL, a corticosteroid manufactured and
marketed by the Company, directly into the eye instead of near the eye, as he
had intended. The Company believes the decision was erroneous and will
vigorously appeal this judgment, but, as with any litigation, the outcome is
uncertain. The Company's insurance carriers have denied liability for
punitive damages, and the Company is in litigation with its insurance carriers
to determine the extent to which the Company's insurance policies cover
punitive damages.
In addition to actions involving the West KL Avenue Landfill discussed above
under Item 1, General, Environment, the Company is involved in several
administrative and judicial proceedings relating to environmental matters,
including actions brought by the EPA and state environmental agencies for
cleanup at approximately 40 "Superfund" or comparable sites. The Company is
not able to determine its ultimate exposure in connection with most of these
environmental situations due to uncertainties related to cleanup procedures to
be employed, if any, the cost of cleanup and the Company's share of a site's
cost.
The Company is a party along with approximately thirty other defendants in
several civil antitrust lawsuits alleging price discrimination and price-
fixing with respect to the level of discounts and rebates provided to certain
customers.
The Company is of the opinion that, although the outcome of the litigation
and proceedings referred to above cannot be predicted with any certainty,
appropriate accruals have been made in the Company's financial statements and
the ultimate liability should not have a material adverse effect on the
Company's consolidated financial position.
See the information under the caption "Other Items" in the "Financial
Review" section and Notes J and K of the "Notes to Consolidated Financial
Statements" in the 1993 Annual Report to Shareholders (Exhibit 13) for other
information concerning environmental matters, which information is hereby
incorporated by reference.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the quarter
ended December 31, 1993.
PART II
Item 5.
Market for the Registrant's Common Equity and Related Stockholder Matters
The Company's Common Stock is traded on the New York Stock Exchange under
the symbol UPJ. As of February 28, 1994, there were 35,489 holders of record
of the Company's Common Stock, $1 par value. In addition, there were 11,459
accounts under the Company's Dividend Reinvestment Plan which are not included
in the number above.
Information regarding the market prices and dividends for the Company's
Common Stock and related stockholder matters appearing under the caption
"Selected Financial and Quarterly Data" in the 1993 Annual Report to
Shareholders (Exhibit 13) is hereby incorporated by reference.
Item 6.
Selected Financial Data
The information under the captions "Financial Review," "Notes to
Consolidated Financial Statements," "Summary of Continuing Operations" and
"Selected and Quarterly Data" in the 1993 Annual Report to Shareholders
(Exhibit 13) is hereby incorporated by reference.
Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
The information under the caption "Financial Review" in the 1993 Annual
Report to Shareholders (Exhibit 13) is hereby incorporated by reference.
Item 8. Financial Statements and Supplementary Data
The information under the caption "Report of Independent Accountants," the
consolidated financial statements, and the information under the caption
"Selected Financial and Quarterly Data" in the 1993 Annual Report to
Shareholders (Exhibit 13) is hereby incorporated by reference.
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
The Directors of the Company, who are elected annually for a three-year
term, are as follows:
RICHARD H. BROWN, age 46, Vice Chairman of Ameritech Corp., a
telecommunications company. Mr. Brown was elected Ameritech Vice Chairman in
January 1993. He joined Illinois Bell as President and Chief Executive
Officer in 1990 and, prior to that, he was Executive Vice President of United
Telecom and U.S. Sprint. He is secretary of the Illinois Business Roundtable,
a member of the Economic Club of Chicago and serves actively in many non-
profit organizations in Illinois. Mr. Brown is a director of Ameritech Corp.
and serves on a number of other boards. He has served as a Director of The
Upjohn Company since September 1993 and is a member of the Compensation and
Incentive; the Nominating; and the Social Responsibility Committees of the
Board of Directors.
FRANK C. CARLUCCI, age 63, Chairman, The Carlyle Group, a merchant bank in
Washington, D.C. Mr. Carlucci was vice chairman of The Carlyle Group from
1989 to 1993. He served as U.S. Secretary of Defense from 1987 to 1989.
Mr. Carlucci is currently on the board of directors of Ashland Oil, Inc.; Bell
Atlantic Corporation; Connecticut Mutual Life Insurance Company; East New York
Savings Bank; Ecotech, Inc.; General Dynamics Corporation; International
Planning and Analysis Center; Kaman Corporation; Neurogen Corporation;
Northern Telecom Limited; The Quaker Oats Company; SunResorts, Ltd., N.V.;
Texas Biotechnological Corporation; Westinghouse Electric Corporation; and
serves on the board of trustees for the nonprofit Rand Corporation.
Mr. Carlucci has served as a Director of The Upjohn Company since 1990 and is
a member of the Audit; the Compensation and Incentive; the Finance; and the
Nominating Committees of the Board of Directors.
M. KATHRYN EICKHOFF, age 54, President, Eickhoff Economics Incorporated,
economic consultants. Ms. Eickhoff is the former associate director for
Economic Policy, United States Office of Management and Budget. She serves as
a director of AT&T, National Westminster Bancorp. Inc. and Tenneco Inc.
Ms. Eickhoff is a member of several business organizations including The
Conference of Business Economists, The Economic Club of New York and the
National Association of Business Economists. She served as a Director of The
Upjohn Company from 1982 to 1985 and returned as a Director in 1987. She is
a member of the Audit; the Executive; the Finance; and the Nominating
Committees of the Board of Directors.
DARYL F. GRISHAM, age 67, President and Chief Executive Officer, Parker
House Sausage Company. Mr. Grisham joined Parker House Sausage Company in
1954. He has been a director of that company since 1961 and was promoted to
his current position in 1969. Mr. Grisham is a former director for G. D.
Searle and Company and Illinois Bell Telephone Co. He serves as a director of
Harris Bankcorp, Inc.; Lincoln Park Zoological Society and the Rehabilitation
Institute of Chicago. He also serves as a trustee for the Chicago Museum of
Science & Industry and Northwestern University. He was named to the Chicago
Business Hall of Fame in 1984. He has served as a Director of The Upjohn
Company since 1989 and is a member of the Compensation and Incentive; the
Executive; the Nominating; and the Social Responsibility Committees of the
Board of Directors.
LAWRENCE C. HOFF, age 65, former President and Chief Operating Officer of
the Company. Mr. Hoff has long been active in major industry and educational
associations including: director, American Diabetes Association, Inc.;
trustee, Borgess Medical Center; director, Council on Family Health; chairman,
Pharmaceutical Manufacturers Association; member, U.S. Chamber of Commerce,
International Policy Committee. He holds an honorary Doctor of Science in
Pharmacy degree from Massachusetts College of Pharmacy and Allied Health
Sciences, and is currently a director of Alpha Beta Technology, Inc.; Curative
Technologies, Inc.; and MedImmune, Inc. He has served as a Director of The
Upjohn Company since 1973 and is a member of the Audit and the Social
Responsibility Committees of the Board of Directors.
GERALDINE A. KENNEY-WALLACE, age 51, President and Vice-Chancellor of
McMaster University, Hamilton, Ontario, Canada. Dr. Kenney-Wallace is a
member of the board of directors of the Bank of Montreal, Dofasco Inc., DMR
Inc., General Motors (Canada), and Northern Telecom Ltd. She serves on the
advisory board of the Canadian Foundation for AIDS Research, the Manning
Foundation, and is currently the Honorary Chairman of the Canadian Donner
Foundation. During her scientific career in lasers, ultra-fast phenomena and
opto-electronics, Dr. Kenney-Wallace has received numerous honors and
scientific awards. She has served as a Director of The Upjohn Company since
September 1993 and is a member of the Audit; the Finance; and the Social
Responsibility Committees of the Board of Directors.
WILLIAM E. LAMOTHE, age 67, former Chairman of the Board and Chief Executive
Officer of Kellogg Company, a food company. Mr. LaMothe is a former director
of the Food and Drug Law Institute, Kimberly Clark Corporation, Unisys
Corporation and the Western Michigan University Foundation. He is currently
a director of Allstate Insurance Companies, Kellogg Company, and Sears Roebuck
and Company; and he is a member of the board and a trustee for the W. K.
Kellogg Foundation Trust. Mr. LaMothe serves on the board of governors of the
Battle Creek Community United Arts Council and The Battle Creek Community
Foundation. He has served as a Director of The Upjohn Company since 1986 and
is a member of the Audit; the Compensation and Incentive; the Executive; and
the Nominating Committees of the Board of Directors.
JERRY R. MITCHELL, M.D., Ph.D., age 52, Vice Chairman of the Board and
President, Upjohn Laboratories. Previously, Dr. Mitchell had been Executive
Vice President and President, Upjohn Laboratories (1991-92); Senior Vice
President and President, Upjohn Laboratories (1990); and Vice President for
Pharmaceutical Research (1989-90). Prior to joining The Upjohn Company,
Dr. Mitchell was a professor of internal medicine and the director of the
Center for Experimental Therapeutics, Baylor College of Medicine and
Affiliated Hospitals. During his distinguished career, Dr. Mitchell has
served on many national advisory boards and committees and has received
numerous honors and scientific awards. He has published two books and has
written hundreds of manuscripts and abstracts. Dr. Mitchell has been a
Director of The Upjohn Company since 1991.
WILLIAM D. MULHOLLAND, age 67, former Chairman of the Board and Chief
Executive Officer of the Bank of Montreal. Mr. Mulholland is currently a
director of the Bank of Montreal; Brooks Fashion Stores, Inc. and Canadian
Pacific Ltd. He is a trustee of Queen's University and a member of the
Advisory Committee on Canadian Studies at the School of Advanced International
Studies, Johns Hopkins University. Mr. Mulholland has received honorary
Doctor of Laws degrees from Memorial University and Queen's University. He
has served as a Director of The Upjohn Company since 1977 and is a member of
the Compensation and Incentive; the Executive; the Finance; and the Nominating
Committees of the Board of Directors.
RAY T. PARFET, JR., age 71, former Chairman of the Board and Chief Executive
Officer of the Company. Mr. Parfet is also a former chairman of the
Pharmaceutical Manufacturers Association. He has served as a director for The
ARO Corporation, Michigan Bell Telephone Company and Union Pump Company and as
a trustee of the National 4-H Council in Washington, D.C. and Bronson
Healthcare Group, Inc. He is currently a director of The W. E. Upjohn
Unemployment Trustee Corporation. He has served as a Director of The Upjohn
Company since 1958 and is a member of the Executive Committee of the Board of
Directors.
WILLIAM U. PARFET, age 47, President and Chief Executive Officer of
Richard-Allan Medical Industries, Inc., a manufacturer of surgical equipment
and medical supplies. Prior to joining Richard-Allan in October 1993, Mr.
Parfet had been Vice Chairman of the Board of the Company, and was President
(1991-93) and Executive Vice President (1989-91) before that. Mr. Parfet
serves on various boards of directors, including CMS Energy Corporation, the
Financial Accounting Foundation, Flint Ink Corporation, Old Kent Financial
Corporation, Stryker Corporation and Universal Foods, Inc. He has served as a
Director of The Upjohn Company since 1985 and is a member of the Finance and
the Social Responsibility Committees of the Board of Directors.
LEY S. SMITH, age 59, President and Chief Operating Officer of the Company.
Mr. Smith was elected President, Chief Operating Officer and Acting Chief
Executive Officer in 1993; he became Vice Chairman of the Board in 1991; and
was elected Executive Vice President in January 1989. Mr. Smith is active in
a wide variety of business, community, and medical- and pharmaceutical-related
activities, including the Pharmaceutical Manufacturers Association; the
Virginia Neurological Institute; the Health, Welfare and Retirement Income
Task Force of the Business Roundtable; and the Greater Kalamazoo United Way.
He has served as a Director of The Upjohn Company since 1989.
JOHN L. ZABRISKIE, Ph.D., age 54, Chairman of the Board and Chief Executive
Officer of the Company. Prior to joining the Company earlier this year, Dr.
Zabriskie had spent his entire career with Merck & Co., Inc. During the last
five years, he has held several officer positions with Merck in sales,
marketing, public affairs and manufacturing, serving most recently as
executive vice president of Merck & Co., Inc., and president, Merck
Manufacturing Division. He is active in the debate over U.S. health care
reform as a member of the Jackson Hole Group for Healthcare Reform and the
Healthcare Leadership Council. He is also active in the Pharmaceutical
Manufacturers Association. Dr. Zabriskie has served on the boards of
Penjerdel Corporation; Pennsylvania Biotechnology Association; the National
Pharmaceutical Council, Inc.; Morristown Memorial Hospital and Wells College;
he is currently a director of First of America Bank Corporation. He began
serving as a Director of The Upjohn Company in January 1994 and is a member of
the Executive and the Finance Committees of the Board of Directors.
In addition to J. L. Zabriskie, Ph.D., L. S. Smith and J. R. Mitchell, M.D.,
Ph.D., the executive officers of the Company, who are elected annually for a
one-year term, are as follows:
<TABLE>
<CAPTION>
First
Year of
Current Offices Held During the
Officers Age Office Past Five Years
<S> <C> <C> <C>
K. M. Cyrus. . . . . . . . . . 55 1994 Executive Vice President, Secretary and
General Counsel. Formerly Senior Vice
President, Secretary and General Counsel; and
prior thereto Vice President, Secretary and
General Counsel.
D. R. Parfet . . . . . . . . . 41 1991 Executive Vice President for Administration.
Formerly Senior Vice President for
Administration.
R. C. Salisbury. . . . . . . . 50 1994 Executive Vice President for Finance and Chief
Financial Officer. Formerly Senior Vice
President for Finance and Chief Financial
Officer, and prior thereto Vice President for
Finance and Chief Financial Officer.
R. G. Tomlinson. . . . . . . . 64 1992 Senior Vice President for Human Resources.
Formerly Vice President for Human Resources,
and prior thereto Divisional Vice President,
Corporate Compensation, Benefits & Employee
Information Resource Management.
</TABLE>
Item 11.
Executive Compensation
Board of Directors Compensation
Compensation for non-employee members of the Board of Directors consists of
an annual retainer fee of $24,000 plus a $1,000 fee for each Board meeting
attended; a $1,000 fee for attending the first committee meeting held on any
day and a $750 fee for attending subsequent committee meetings held on the
same day. In addition, the chairperson for each committee receives a
quarterly retainer fee of $1,000. Employee directors do not receive
compensation for serving on the Board or on the Board's committees. The
Company maintains a retirement plan for outside directors which provides that
a director will receive retirement benefits for a period of time equal to the
length of his non-employee Board service in an amount equal to 50% of his last
annual retainer after 5 years of non-employee service plus 5% for each
additional year of non-employee Board service up to a total of 100% of his
last annual retainer. The Company also maintains a deferred compensation plan
for outside directors, which enables a director to defer payment of his fees
until he leaves the Board.
Report of the Compensation and Incentive Committee
The Compensation and Incentive Committee, consisting of five independent
directors, none of whom has ever served as an officer or employee of the
Company or has any known conflicts, recommends to the Board the salaries of
all corporate officers and administers the Company's incentive compensation
plans. The Committee also reviews with the Board its recommendations relating
to the future direction of corporate compensation and benefit policies and
practices.
Annually, the Compensation and Incentive Committee reviews:
(a) the financial and operational performance of the Company and
its major business segments;
(b) the performance of each corporate officer;
(c) the compensation paid key executives in similar positions
within the pharmaceutical industry and industry generally; and
(d) the design and appropriate use of specific short-term and long-
term reward vehicles that will support the achievement of
business goals and commitment to the Company's shareholders.
In general, the Company seeks to encourage and reward executive efforts which
create shareholder value through achievement of corporate objectives, business
strategies and performance goals, by blending annual and long-term cash and
equity compensation and, in so doing, to align the interests of executives
with those of shareholders.
The Committee's policies through 1993 can be summarized as follows:
(a) to increase the proportion of total compensation comprised of
variable, or incentive-based, compensation, while reducing the
proportion of fixed compensation;
(b) to place increasing reliance upon individual and business unit
performance when awarding individual incentive compensation,
while reducing the proportion based upon total corporate
performance;
(c) to place increasing reliance upon external standards of
competitive performance rather than internally defined
standards when fixing the total amount of incentive
compensation that may be awarded; and
(d) to maintain a competitive level of total executive compensation
for competitive performance; and, similarly, to recognize
superior performance.
For 1993, the proportion of senior executive compensation that was fixed,
base salary ranged from 50% to 60%. Base salary is set at competitive levels
and based on job level, experience and performance. The remaining 40% to 50%
was variable, incentive compensation, 75% of which was dependent upon the
extent to which actual corporate earnings before tax ("EBT") met budgeted EBT
levels and 25% of which was based upon the Company's earnings growth as
compared with the median earnings growth of our peer companies. The
comparator group used to assess competitive practices is the group of
companies included in the peer group index identified on page 23.
In addition to the stock options granted in February 1993, the Committee
granted special stock options in December 1993 to selected employees whose
individual performance and leadership were deemed critical to the Company's
future success. These stock options will become exercisable if the Company's
stock price appreciates by certain thresholds over the market price on the
date of grant.
In reviewing the compensation policies at the end of 1993, the Committee
determined that it had approached an appropriate level of variable
compensation based upon our existing business objectives. In addition, the
Committee decided that a greater proportion of the variable compensation
should be based on the Company's performance relative to that of peer
pharmaceutical companies. Accordingly, the Committee's policies were revised
for 1994 and can be summarized as:
(a) total executive compensation should be maintained at a
competitive level for competitive performance; and, similarly,
superior performance should be recognized;
(b) variable, or incentive-based compensation should range from 30%
to 50% of total compensation with the higher-ranking executives
having a greater proportion of variable or incentive-based
compensation;
(c) with respect to variable, or incentive-based compensation, at
least 50% should be based upon external standards of
competitive performance rather than internally established
financial goals; and
(d) equity-based compensation (stock options, restricted stock,
performance shares and deferred incentive compensation) should
be increasingly used to link employee performance to
shareholder interests; promote and encourage stock ownership in
the Company and provide an incentive to create long-term
shareholder value.
Listed below are several actions that illustrate the Committee's commitment
to these revised policies.
In 1994, 50% of incentive compensation will be dependent upon the extent to
which actual corporate EBT meets budgeted corporate EBT levels, and the
remaining 50% will be determined by Upjohn's Total Market Return performance
relative to the average Total Market Return of peer pharmaceutical companies.
Consistent with our focus on performance-driven compensation, the Company
eliminated the Christmas Bonus for 1994 and subsequent years (which had been
equal to 5% of base salary after eight years of service), and increased
incentive compensation target ranges by 5% of base salary.
As in prior years, 20% of incentive compensation earned each year will be
deferred in shares of Company stock which will not vest until retirement.
The Committee grants annual ten-year stock options, having a value based on
the level of stock price appreciation over the market price on the date of
grant. The Committee considers the level of stock options granted by
competitive companies and the number of Upjohn stock options previously
granted, currently outstanding and proposed to be granted in reaching its
decision to make additional grants of stock options to executive officers.
Restricted stock, which cannot be sold or transferred until earned in future
years, is issued on an infrequent and selective basis based on the Committee's
assessment of appropriate recognition and retention factors.
To further increase executive stock ownership and enhance the focus on the
long-term competitive financial performance of the Company, the Committee made
two initial grants of performance shares in 1994, one measured over a two-year
period and one measured over a three-year period. The utilization of
performance shares was approved by shareholders as part of The Upjohn
Management Incentive Program of 1992. The stock reserved for payment of
performance share awards was reallocated from the stock that would normally
have been reserved for issuance as stock options. The Performance Shares will
be payable in shares of the Company's Common Stock and will be earned based
upon the Company's relative Total Market Return, Return on Net Assets and Net
Earnings Growth, as compared to the group of peer pharmaceutical companies.
Because of the extensive time required to discover, develop, test and obtain
approval to sell new drugs, a process which often takes ten or more years,
performance of executives in the pharmaceutical industry cannot be adequately
measured by short-term changes in stock price. Efforts expended today will
not reap benefits until several years in the future. Management has taken
many difficult but significant steps to position the Company for the future,
including realigning its core businesses, sharpening the focus of its
research, streamlining product development and regulatory activities,
implementing cost containment measures, reducing the number of employees,
globalizing operations, forming new strategic partnerships and establishing a
corporate commitment to total quality.
The Internal Revenue Code was recently amended to limit the Company's ability
to deduct more than $1 million of an executive's nonperformance-based
compensation. The Committee will endeavor in the future to design and
administer the Company's performance-based compensation plans (incentive
compensation, stock options and performance shares) in a manner that will
comply with the IRS exclusion for performance-based compensation, including
shareholder approval, administration by disinterested directors and use of
nondiscretionary, preestablished performance goals. Base salary will be
determined on the basis of job performance and competitive requirements and
may, therefore, exceed the $1 million deduction limit, although currently no
base compensation exceeds $800,000. In recruiting Dr. Zabriskie to serve as
the Company's Chairman and Chief Executive Officer, the Company committed to
pay a minimum performance bonus for 1995 that will not be fully deductible
under the new limitation.
Compensation and Incentive Committee
R. H. Brown F. C. Carlucci D. F. Grisham W. E. LaMothe
W. D. Mulholland<PAGE>
EXECUTIVE COMPENSATION
The following table shows the total compensation received for the last three
calendar years by the Company's Acting Chief Executive Officer at year-end; by
the next four most highly compensated executive officers who were in office at
year-end; and by T. Cooper, M. Novitch and W. U. Parfet who were executive
officers for part of 1993. Footnotes to the table are included on the next
page.
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
Annual Compensation Long-Term Compensation
Other Securities All
Annual Restricted Under- Other
Compen- Stock lying Compen-
Base Bonus sation Awards Options sation
Name and Principal Position Year Salary (1) (2) (3) (#) (4)
<S> <C> <C> <C> <C> <C> <C> <C>
L. S. Smith 1993 $415,417 $373,999 $ 88,409 $ 0 40,000 $5,494
President and Chief 1992 $380,000 $224,609 $ 51,506 $166,250 40,000 $5,726
Operating Officer; formerly 1991 $330,000 $216,759 $ 50,173 $231,000 40,000 $6,331
President, Chief Operating
Officer and Acting Chief
Executive Officer (4/14/93-
12/31/93); and formerly Vice
Chairman of the Board
J. R. Mitchell, 1993 $366,875 $244,421 $ 58,409 $ 0 40,000 $6,368
Vice Chairman of the Board 1992 $335,000 $164,247 $ 39,020 $403,750 30,000 $6,621
and President, Upjohn 1991 $285,000 $134,633 $ 32,266 $ 0 25,000 $5,532
Laboratories
G. A. Welch(5), 1993 $285,000 $183,824 $ 42,394 $ 0 30,000 $6,368
Executive Vice President 1992 $282,500 $154,347 $ 35,118 $212,109 30,000 $6,621
1991 $255,000 $141,524 $ 32,266 $ 0 25,000 $7,297
D. R. Parfet, 1993 $266,000 $175,338 $ 40,509 $ 0 30,000 $6,368
Executive Vice President 1992 $266,000 $137,914 $ 31,216 $ 0 30,000 $6,621
for Administration 1991 $236,000 $119,097 $ 26,889 $ 0 25,000 $7,280
R. C. Salisbury, 1993 $275,000 $168,251 $ 38,625 $ 0 45,000 $6,368
Executive Vice President for 1992 $272,083 $130,373 $ 29,265 $132,250 25,000 $6,621
Finance and Chief Financial 1991 $240,000 $119,272 $ 26,889 $ 0 23,000 $7,297
Officer; formerly Senior Vice
President for Finance and
Chief Financial Officer
T. Cooper, 1993 $267,308 $243,426 $ 0 $ 0 75,000 See (6) below
Chairman of the Board and 1992 $860,000 $529,239 $117,069 $690,375 75,000 $6,621
Chief Executive Officer 1991 $860,000 $472,470 $107,555 $ 0 75,000 $7,297
(until 4/14/93)
M. Novitch, 1993 $368,535 $311,044 $ 0 $ 0 40,000 See (7) below
Vice Chairman of the Board 1992 $380,000 $222,751 $ 51,506 $166,250 40,000 $6,621
(until 12/20/93) 1991 $330,000 $218,605 $ 51,423 $228,750 40,000 $7,269
W. U. Parfet, 1993 $368,535 $329,000 $ 0 $ 0 40,000 See (8) below
Vice Chairman of the Board 1992 $380,000 $224,609 $ 51,506 $166,250 40,000 $4,962
(4/14/93-9/30/93); formerly 1991 $330,000 $198,650 $ 45,173 $226,500 40,000 $7,284
President
<FN>
(1) Bonus represents 80% of Incentive Compensation Plan awards and other
bonuses.
(2) Other Annual Compensation represents 20% of Incentive Compensation Plan
awards that are deferred and subject to forfeiture if employment is
terminated other than for retirement, death or disability.
(3) The restricted stock included in the table represents the fair market
value of the entire restricted stock award on the date of grant, including
the value of any supplemental payment in cash or stock that vests ratably
as the restricted stock vests. Dividends are paid on the restricted stock
at the same time and at the same rate as paid to all shareholders. As of
December 31, 1993, based on the market price of the Company's Common Stock
on that date of $29.25, L. S. Smith held 4,000 shares of restricted stock
valued at $117,000 and the equivalent of 1,000 shares payable in either
cash or stock valued at $29,250, which will be earned equally in 1994 and
1995; J. R. Mitchell held 8,000 shares of restricted stock valued at
$234,000 and the equivalent of 2,000 shares payable in cash valued at
$58,500, which will be earned at the rate of 15% in each of 1994, 1995 and
1996, 20% in 1997 and 35% in 1998; G. A. Welch held 4,000 shares of
restricted stock valued at $117,000, which would have been earned equally
in 1994 and 1995; and R. C. Salisbury held 2,400 shares of restricted
stock valued at $70,200, of which 800 shares will be earned in 1994 and
the remainder in 1995.
(4) Other represents the Company match under The Upjohn Employee Savings Plan.
(5) G. A. Welch will retire from the Company on April 1, 1994.
(6) Under an agreement executed by T. Cooper when he joined the Company in
1980 that credited him with 2.25 years of service for each actual year of
service, Dr. Cooper's beneficiary received retirement death benefits equal
to approximately $7.2 million, $1.1 million of which was paid from the
Company's qualified retirement plan. In addition, his beneficiary
received at his death his remaining shares of restricted stock. Dr.
Cooper also received $1,592 representing the Company match under The
Upjohn Employee Savings Plan.
(7) M. Novitch retired as a corporate officer and member of the Board of
Directors in December 1993. Under an agreement executed by Dr. Novitch
when he joined the Company in 1985, he was credited with 2.5 years of
service for each actual year of service. In connection with his
retirement, Dr. Novitch also received (i) the value of restricted stock,
incentive compensation and stock options granted or earned in 1993 and
(ii) nonqualified, supplemental retirement benefits equal to approximately
$1.3 million beyond the benefits accrued under his agreement, representing
the approximate additional amount he would have received if he had worked
until December 31, 1995. The 4,000 shares of restricted stock that he was
to have earned in 1994 and 1995 were forfeited. Dr. Novitch also received
$6,383 representing the Company match under The Upjohn Employee Savings
Plan.
(8) W. U. Parfet resigned as a corporate officer in September 1993 (although
he remains on the Board of Directors). In connection with his
resignation, Mr. Parfet received (i) the value of restricted stock,
incentive compensation and stock options granted or earned in 1993, (ii)
non-qualified supplemental retirement benefits equal to approximately $1.8
million beyond his accrued benefits, and (iii) a special cash payment of
approximately $1.8 million. The 4,000 shares of restricted stock that he
was to have earned in 1994 and 1995 were forfeited. In addition, Mr.
Parfet received $5,708 representing the Company match under The Upjohn
Employee Savings Plan.
</TABLE>
The following table shows the number and percentage of stock options
granted to the named executive officers during 1993, the exercise price and
expiration date of the options and the potential realizable value of each
grant assuming that the market price of the stock appreciates in value from
the date of grant to the expiration date at assumed annualized 5% and 10%
rates. Options can be exercised in full after one year of employment from the
date of grant with payment in either cash or shares of the Company's Common
Stock. Upon a stock-for-stock exercise, the optionee will receive a new, non-
qualified reloaded stock option at the then current market price for the
number of shares tendered to exercise the option. No reloaded stock options
were issued to executive officers in 1994. The reloaded stock option will
have an exercise term equal to the remaining term of the exercised option.
Options may only be exercised during employment or within three months after
employment ceases, except that following retirement at or after age 65 or
other approved termination of employment (as was the case with M. Novitch and
W. U. Parfet), stock options may be exercised for periods up to five years
(but not beyond the original expiration date of the option). The Company is
unable to predict or estimate the Company's actual future stock price or place
a reasonably accurate present value on the options granted.
<TABLE>
ORIGINAL STOCK OPTION GRANTS IN LAST FISCAL YEAR
<CAPTION>
Potential Realizable Value
at Assumed Annual Rates
of Stock Price Appreciation
Individual Grants for Option Term
Number of
Securities % of Total
Under- Options
lying Granted to Exercise or
Options Employees in Base Price Expiration
Name Granted Fiscal Year ($/Sh) Date 5%($) 10%($)
<S> <C> <C> <C> <C> <C> <C>
L. S. Smith. . . . . . . 40,000 1.88% $28.1875 2/16/03 $709,100 $1,796,900
J. R. Mitchell . . . . . 40,000 1.88% $28.1875 2/16/03 $709,100 $1,796,900
G. A. Welch. . . . . . . 30,000 1.41% $28.1875 2/16/03 $531,800 $1,347,700
D. R. Parfet . . . . . . 30,000 1.41% $28.1875 2/16/03 $531,800 $1,347,700
R. C. Salisbury. . . . . 25,000 2.12% $28.1875 2/16/03 $443,200 $1,123,100
. . . . . . . . . . . . 20,000 * $32.25 11/16/03 $405,600 $1,028,000
T. Cooper. . . . . . . . 75,000 3.53% $28.1875 4/22/93 ** 0 ** 0 **
M. Novitch . . . . . . . 40,000 1.88% $28.1875 12/20/98 $311,500 $ 688,300
W. U. Parfet . . . . . . 40,000 1.88% $28.1875 12/20/98 $311,500 $ 688,300
<FN>
* One-half exercisable when stock price exceeds $37.0875 and one-half
exercisable when stock price exceeds $42.57 but exercisable for all
remaining shares after November 16, 2000 regardless of stock price.
** Grant canceled due to death of optionee prior to grant becoming
exercisable.
</TABLE>
The following table shows the number of stock options exercised and
the value realized by the named executive officers during 1993 and the number
of unexercised stock options remaining at year end and the potential value
thereof based on the year-end market price of the Company's Common Stock of
$29.25:
<TABLE>
AGGREGATED STOCK OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION VALUES
<CAPTION>
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options at Options at
FY-End (#) FY-End ($)
Shares
Acquired on Value Exercisable/ Exercisable/
Name Exercise (#) Realized ($) Unexercisable Unexercisable
<S> <C> <C> <C> <C>
L. S. Smith. . . . . . . . 0 0 145,250/40,000 $ 0/42,500
J. R. Mitchell . . . . . . 0 0 76,000/40,000 $ 0/42,500
G. A. Welch. . . . . . . . 20 $83.75 103,450/30,000 $ 18,810/31,875
D. R. Parfet . . . . . . . 0 0 108,300/30,000 $ 42,438/31,875
R. C. Salisbury. . . . . . 0 0 86,354/45,000 $ 34,971/26,563
T. Cooper. . . . . . . . . 0 0 211,402/0 0/0
M. Novitch . . . . . . . . 0 0 150,387/40,000 $ 0/42,500
W. U. Parfet . . . . . . . 0 0 168,438/40,000 $209,342/42,500
</TABLE>
COMPARISON OF CUMULATIVE TOTAL SHAREHOLDER RETURN
The following graphs compare the yearly change over the last five
years and, for a longer-term perspective, over the last ten years, in the
Company's cumulative total shareholder return (stock price appreciation plus
the cumulative value of reinvested dividends) compared to the Standard &
Poor's 500 Stock Index and a Combined Standard & Poor's Drug Group Index
consisting of Abbott Laboratories, American Cyanamid Co., American Home
Products Corporation, Bristol-Myers Squibb Company, Johnson & Johnson, Eli
Lilly and Company, Merck & Co., Inc., Pfizer Inc., Schering-Plough
Corporation, Syntex Corporation, The Upjohn Company and Warner Lambert
Company. Under this peer group index, the returns of each component company
are weighted according to their respective stock market capitalization as of
the beginning of each period for which a return is indicated. The graphs
assume $100 was invested on December 31, 1988 (for five-year graph) and
December 31, 1983 (for ten-year graph) and that all dividends were reinvested.
The stock performance as shown on the Performance Graph should not be
interpreted as a prediction of future stock performance.<PAGE>
<TABLE>
5 YEAR TOTAL RETURN
Fiscal Year Basis: December
<CAPTION>
Return Return Return Return Return
Company \ Index Name 1989 1990 1991 1992 1993
<S> <C> <C> <C> <C> <C>
Upjohn Company 37.81 1.35 11.01 -17.27 -6.70
S&P 500 Index 31.69 -3.11 30.47 7.62 10.08
Peer Group 39.43 17.35 55.92 -17.04 -6.66
<CAPTION>
Indexed \ Cumulative Returns
Base
Period Return Return Return Return Return
Company \ Index Name 1988 1989 1990 1991 1992 1993
<S> <C> <C> <C> <C> <C> <C>
Upjohn Company 100 137.81 139.67 155.05 128.28 119.68
S&P 500 Index 100 131.69 127.60 166.47 179.15 197.21
Peer Group 100 139.43 163.63 255.13 211.66 197.56
Peer Group Population
Abbott Laboratories
American Cyanamid Co
American Home Products Corp
Bristol Myers Squibb
Johnson & Johnson
Lilly (Eli) & Co
Merck & Co
Pfizer Inc
Schering-Plough
Syntex Corp
Upjohn Co
Warner-Lambert Co
This total shareholders return model assumes reinvested dividends.<PAGE>
</TABLE>
<TABLE>
10 YEAR TOTAL RETURN
Fiscal Year Basis: December
<CAPTION>
Return Return Return Return Return Return Return Return Return Return
Company \ Index Nam 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Upjohn Company 23.74 95.94 42.25 -2.14 -1.82 37.81 1.35 11.01 -17.27 -6.70
S&P 500 Index 6.22 31.64 18.56 5.10 16.61 31.69 -3.11 30.47 7.62 10.08
Peer Group 9.03 47.26 37.44 8.59 14.84 39.43 17.35 55.92 -17.04 -6.66
<CAPTION>
Indexed \ Cumulative Returns
Base
Period Return Return Return Return Return Return Return Return Return Return
Company \ Index Name 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Upjohn Company 100 123.74 242.45 344.88 337.50 331.34 456.62 462.79 513.74 425.05 396.55
S&P 500 Index 100 106.22 139.83 165.78 174.24 203.18 267.55 259.25 338.24 364.00 400.69
Peer Group 100 109.03 160.55 220.67 239.61 275.16 383.66 450.24 702.01 582.40 543.60
Peer Group Population
Abbott Laboratories
American Cyanamid Co
American Home Products Corp
Bristol Myers Squibb
Johnson & Johnson
Lilly (Eli) & Co
Merck & Co
Pfizer Inc
Schering-Plough
Syntex Corp
Upjohn Co
Warner-Lambert Co
This total shareholders return model assumes reinvested dividends.<PAGE>
</TABLE>
Retirement Benefits
The following table illustrates the estimated annual benefits payable
under the Company's pension plan upon retirement to persons in the specified
remuneration and years-of-service classifications, assuming retirement at the
normal Social Security retirement age and assuming the participant's
remuneration is equivalent to his Final Average Salary under the plan and is
equal to or greater than 150% of his Social Security Covered Compensation.
The amounts shown include additional non-qualified pension benefits, represent
straight-life annuity amounts notwithstanding the availability of joint
survivorship provisions and are not subject to any offset or reduction for
Social Security benefits.
<TABLE>
<CAPTION> PENSION PLAN TABLE
Years of Service*
Remuneration 15 Years 20 Years 25 Years 30 Years 35 Years 40 Years*
<S> <C> <C> <C> <C> <C> <C>
$ 500,000 . . . . . . . . .$147,000 $196,000 $245,000 $ 295,000 $ 307,000 $ 320,000
$ 700,000 . . . . . . . . .$207,000 $276,000 $345,000 $ 415,000 $ 432,000 $ 450,000
$ 900,000 . . . . . . . . .$267,000 $356,000 $445,000 $ 535,000 $ 557,000 $ 580,000
$1,100,000 . . . . . . . . .$327,000 $436,000 $545,000 $ 655,000 $ 682,000 $ 710,000
$1,300,000 . . . . . . . . .$387,000 $517,000 $646,000 $ 775,000 $ 805,000 $ 840,000
$1,500,000 . . . . . . . . .$447,000 $573,000 $716,000 $ 859,000 $ 931,000 $ 969,000
$1,700,000 . . . . . . . . .$507,000 $679,000 $849,125 $1,019,000 $1,057,000 $1,104,000
___________________
<FN>
* Service in excess of 40 years is not counted under the Company's pension
plan.
</TABLE>
The compensation included as remuneration is the amounts listed under
"Annual Compensation" in the Summary Compensation Table on page 20. The
current number of years of service credited for the following individuals at
December 31, 1993, were: L. S. Smith, 35 years; J. R. Mitchell, 8 years; G. A.
Welch, 34 years; D. R. Parfet, 16 years; and R. C. Salisbury, 19 years.
Employment Agreements and Termination of Employment Arrangements
Under an agreement made with J. L. Zabriskie when he joined the
Company, he will receive a base salary of $800,000 and a bonus of at least
$600,000 payable in March 1995 for services rendered in 1994. In addition, he
received 15,000 shares of restricted stock to be earned in equal amounts in
January 1995 and January 1996, which amount will be reduced by the value of
any future performance share awards received from his prior employer. He was
also granted a stock option for 250,000 shares that will become exercisable on
January 3, 1995; a stock option for 50,000 shares that will become exercisable
after January 3, 1996 when the stock price exceeds $34.06; and a stock option
for 50,000 shares that will become exercisable after January 3, 1997 when the
stock price exceeds $39.06. All of the stock options have a ten-year term and
an exercise price of $29.06 per share. When Dr. Zabriskie retires, he will
receive a retirement benefit under the Company's plans as if he had been
employed by Upjohn for 28 years plus his actual years of service with the
Company less the value of his pension from former employment. If Dr.
Zabriskie's employment is terminated within the next four years, he will
receive a severance payment of at least two years' base salary.
Under an agreement made with J. R. Mitchell when he joined the
Company, he will receive a retirement benefit equal to that which he would
receive if he were granted 1.67 years of service for each actual year of
service under the Company's pension plans, reduced by the value of the pension
to be received by him from his former employment.
The Company has a separation payment plan for eligible individual
employee terminations, including executive officers, ranging from one week's
base pay for employees with three months' service to 31 weeks' base pay for 30
or more years of service. The Company also has a plan for employees,
including executive officers, who are terminated as a result of having their
position eliminated, which provides for separation payments ranging from two
weeks' base pay for employees with one year of service to 62 weeks' base pay
for employees with 30 or more years of service. In addition, the Company has
a change-in-control severance plan for eligible employees, excluding executive
officers, which may be terminated by the Board of Directors at any time prior
to a change in control of the Company, which will provide severance benefits
ranging from 4 weeks' base pay for employees with one year of service to 104
weeks' base pay for employees with 30 or more years of service payable in the
event their employment is terminated within two years following a change in
control of the Company. The Company has entered into a severance agreement
with each executive officer providing for the payment of severance pay equal
to 2.5 times the officer's annualized salary in the event his employment is
terminated other than for cause, disability or retirement within 24 months
following a change in control of the Company.<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management
Under regulations of the Securities and Exchange Commission, persons
who have power to vote or dispose of shares of the Company, either alone or
jointly with others, are deemed to be beneficial owners of such shares.
Because the voting or dispositive power of certain shares listed in the
following table is shared, the same securities in such cases are listed
opposite more than one name in the table. The total number of shares of
Common Stock of the Company listed below for directors and executive officers
as a group eliminates such duplication.
Pursuant to a Schedule 13G filed with the Securities and Exchange
Commission by State Street Bank and Trust Company, 225 Franklin Street,
Boston, Massachusetts 02110, as Trustee of The Upjohn Employee Savings Plan,
the Bank indicated beneficial ownership equivalent to 7.4% of the Company's
outstanding Common Stock as of December 31, 1993.
Pursuant to a Schedule 13G filed with the Securities and Exchange
Commission by The Capital Group, Inc., 333 South Hope Street, Los Angeles,
California 90071, Capital Research and Management Company, a registered
investment adviser and an operating subsidiary of The Capital Group, Inc.,
exercised, as of December 31, 1993, investment discretion, but not voting
power, with respect to 11,001,900 shares, or 6.3% of outstanding shares of the
Company's Common Stock, which were owned by various institutional investors.
Set forth in the following table are the beneficial holdings as of
the close of business on March 31, 1994 of individual directors and nominees,
the five most highly compensated executive officers for 1993 and all directors
and executive officers as a group.
<TABLE>
<CAPTION>
Shares of Common Stock Beneficially Owned(1)
Shared
Sole Voting Voting Options
and/or and/or Exercisable
Dispositive Dispositive Within 60 % of
Power Power Days Class
<S> <C> <C> <C> <C>
Richard H. Brown(2) 591 (3) -- -- *
Frank C. Carlucci 5,628 (3) -- -- *
M. Kathryn Eickhoff 1,500 -- -- *
Daryl F. Grisham 6,729 (3) -- *
Lawrence C. Hoff(2) 37,714 -- -- *
Geraldine A. Kenney-Wallace 250 -- *
William E. LaMothe(2) 9,795 (3) -- -- *
Jerry R. Mitchell 8,777 (4) -- 116,000 *
William D. Mulholland 3,007 -- -- *
Donald R. Parfet(2) 556,870 (4) 1,394,690 (5)(6)(7) 138,300 1.1
Ray T. Parfet, Jr.(2) 961,868 (8) 4,099,952 (5)(6) -- 2.7
William U. Parfet 517,422 (4) 284,000 (6) 208,438 *
Robert C. Salisbury 15,470 (4) 5,700 (7) 111,354 *
Ley S. Smith(2) 12,834 (4) -- 185,250 *
Gerald A. Welch 17,224 (4) -- 133,450 *
John L. Zabriskie 36,500 -- -- *
Directors and Executive Officers (3)(4) (5)(6)
as a Group (18 persons)(2) 2,231,424 (8) 5,216,342 (7) 1,079,674 4.5
<FN>
* Less Than 1%<PAGE>
(1) Excludes the following share units which were awarded under the
Company's Incentive Compensation Plans but payment of which is
deferred: L. C. Hoff, 6,264; J. R. Mitchell, 1,955; D. R. Parfet,
1,890; R. T. Parfet, Jr., 24,533; W. U. Parfet, 3,365; R. C.
Salisbury, 6,725; L. S. Smith, 2,769; G. A. Welch, 1,840; and
directors and executive officers as a group, 63,215.
(2) Excludes 350 shares held by the spouse of R. H. Brown; 10,000 shares
held by the spouse of L. C. Hoff; 733 shares held by the spouse of W.
E. LaMothe; 283,194 shares held by the spouse of R. T. Parfet, Jr.;
13,219 shares held by the spouse of D. R. Parfet; 2,200 shares held
by the spouse of L. S. Smith; and 309,696 shares held by the spouses
of directors and executive officers as a group; also excludes 289,656
shares held in trust over which the spouse of R. T. Parfet, Jr., has
sole voting and dispositive power as trustee; beneficial ownership is
disclaimed as to all such shares.
(3) Includes the following number of shares representing deferred
directors' fees payable in stock with respect to which the individual
has sole voting power: R. H. Brown, 291; F. C. Carlucci, 5,128; D.
F. Grisham, 6,629; and W. E. LaMothe, 7,595.
(4) Includes the following number of shares or share equivalents credited
under The Upjohn Employee Savings Plan with respect to which the
individual has sole voting power: J. R. Mitchell, 729; D. R. Parfet,
2,554; W. U. Parfet, 3,907; R. C. Salisbury, 3,928; L. S. Smith,
1,588; G. A. Welch, 7,097; and directors and executive officers as a
group, 32,604.
(5) Includes shares over which D. R. Parfet and R. T. Parfet, Jr., have
sole or shared voting or dispositive power as members of the Board of
Trustees of The W. E. Upjohn Unemployment Trustee Corporation, a
non-profit corporation which supports research on economic and social
problems related to unemployment.
(6) Includes shares held in trust over which voting and/or dispositive
power is shared in his capacity as trustee under various trusts.
(7) Includes shares over which D. R. Parfet and R. C. Salisbury have
shared voting and dispositive power as members of the Subcommittee on
Endowment Management of the Board of Trustees of Kalamazoo College,
serving as trustees under a charitable remainder trust.
(8) Includes shares held in trust over which R. T. Parfet, Jr., has sole
voting and/or dispositive power in his capacity as trustee under
various trusts.
</TABLE>
Item 13. Certain Relationships and Related Transactions
D. R. Parfet, Executive Vice President for Administration, is the
brother of W. U. Parfet and both are sons of R. T. Parfet, Jr.; W. U. Parfet
and R. T. Parfet, Jr., are directors of the Company.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a)1. Financial Statements
The following are included in the 1993 Annual Report to
Shareholders (Exhibit 13) and are incorporated by reference into
this Form 10-K pursuant to Item 8:
Report of Independent Accountants.
Consolidated Statements of Earnings--Years ended December 31,
1993, 1992 and 1991.
Consolidated Balance Sheets--December 31, 1993 and 1992.
Consolidated Statements of Shareholders' Equity--Years ended
December 31, 1993, 1992 and 1991.
Consolidated Statements of Cash Flows--Years ended December 31,
1993, 1992 and 1991.
Consolidated Statements of Segment Operations--Years ended
December 31, 1993, 1992 and 1991.
Notes to Consolidated Financial Statements.
(a)2. Financial Statement Schedules
Report of Independent Accountants. . . . . . . . . . . . . .35
Schedules:
I Marketable Securities--Other Investments,
December 31, 1993 . . . . . . . . . . . . . . . 36
For the years ended December 31, 1993, 1992 and 1991:
V Property, Plant and Equipment . . . . . . . . . 37
VI Accumulated Depreciation, Depletion and
Amortization of Property, Plant and Equipment . 38
IX Short-term Borrowings . . . . . . . . . . . . . 39
Notes:
(1) Schedules other than those listed above 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.
(2) 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 - Management and compensation-related agreements and
plans are included as Exhibits (10)(a) through (10)(q).
(3)(i) Restated Certificate of Incorporation of the Registrant
(incorporated by reference to Exhibit (3)(a) to the
Registrant's Form 10-K for the year ending December 31,
1987).
(3)(ii) By-laws of the Registrant, as amended, June 21, 1988
(incorporated by reference to Exhibit (3)(b) to the
Registrant's Form 10-K for the year ending December 31,
1988).
(4)(a) Loan Agreement between Puerto Rico Industrial, Medical
and Environmental Pollution Control Facilities Financing
Authority and The Upjohn Company, dated as of
December 1, 1983, and Trust Agreement between Puerto
Rico Industrial, Medical and Environmental Pollution
Control Facilities Financing Authority and The Chase
Manhattan Bank (National Association), Trustee, dated
as of December 1, 1983 (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).
(4)(b) Indenture dated as of February 1, 1990, with respect to
debt securities issued by The Upjohn Company Employee
Stock Ownership Trust and 9.79% Amortizing Notes, Series
A, Due February 1, 2004, issued by The Upjohn Company
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).
(4)(c) Rights Agreement dated as of June 17, 1986 (incorporated
by reference to Exhibit 4(d) to the Registrant's Form
8-K dated June 17, 1986), as amended by First Amendment
dated as of March 22, 1989 (incorporated by reference
to Exhibit 4 to the Registrant's Form 8-K dated
March 27, 1989).
(4)(d) Certificate of Designation, Preferences and Rights of
Series A Participating Cumulative Preferred Stock
(incorporated by reference to Exhibit 4(a) to the
Registrant's Form 8-K dated June 17, 1986).
(4)(e) Certificate of Designations, Preferences and Rights of
Series B Convertible Perpetual Preferred Stock
(incorporated by reference to Exhibit (4)(f) to the
Registrant's Form 10-K for the year ending December 31,
1989).
(4)(f) Indenture dated as of August 1, 1991 between the Company
and The Bank of New York, as trustee, with respect to
Debt Securities to be 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)(a) Agreements with J. R. Mitchell relating to additional
pension benefits (incorporated by reference to Exhibit
(10)(e) to the Registrant's Form 10-K for the year
ending December 31, 1988 and Exhibit (10)(f) to the
Registrant's Form 10-K for the year ending December 31,
1989).
(10)(b) Restricted Stock Agreement with L. S. Smith
(incorporated by reference to Exhibit (10)(q) to the
Registrant's Form 10-K for the year ending December 31,
1990).
(10)(c) Restricted Stock Agreement with J. R. Mitchell
(incorporated by reference to Exhibit (10)(i) to the
Registrant's Form 10-K for the year ending December 31,
1991).
(10)(d) The Upjohn Management Incentive Program of 1992,
consisting of Incentive Compensation Plan, Stock Option
Plan and Performance Share Plan (incorporated by
reference to Exhibit (10)(j) to the Registrant's Form
10-K for the year ending December 31, 1991).
(10)(e) Form of Indemnification Agreement entered into with Each
Officer and Director (incorporated by reference to
Exhibit (10)(h) to the Registrant's Form 10-K for the
year ending December 31, 1986).
(10)(f) Grantor Trust Agreement with The Chase Manhattan Bank,
N.A. (incorporated by reference to Exhibit (10)(l) to
the Registrant's Form 10-K for the year ending
December 31, 1988).
(10)(g) Form of Severance Agreement Entered into with Each
Officer of The Upjohn Company (incorporated by reference
to Exhibit (10)(m) to the Registrant's Form 10-K for the
year ending December 31, 1988).
(10)(h) The Upjohn Replacement and Deferred Benefit Plan
(incorporated by reference to Exhibit (10)(p) to the
Registrant's Form 10-K for the year ending December 31,
1988).
(10)(i) The Upjohn Directors' Retirement Benefit Plan
(incorporated by reference to Exhibit (10)(o) to the
Registrant's Form 10-K for the year ending December 31,
1989).
(10)(j) Deferred Compensation Plan for Directors (incorporated
by reference to Exhibit (10)(p) to the Registrant's Form
10-K for the year ending December 31, 1989).
(10)(k) Special Retirement Agreement dated as of September 14,
1992 between the Company and R.G. Tomlinson
(incorporated by reference to Exhibit (10)(q) to the
Registrant's Form 10-K for the year ending December 31,
1992).
(10)(l) Form of Restricted Stock Agreement with L.S. Smith
(incorporated by reference to Exhibit (10)(t) to the
Registrant's Form 10-K for the year ending December 31,
1992).
(10)(m) Restricted Stock Agreement with R.G. Tomlinson
(incorporated by reference to Exhibit (10)(v) to the
Registrant's Form 10-K for the year ending December 31,
1992).
(10)(n) Form of Restricted Stock Agreement with K.M. Cyrus and
R.C. Salisbury (incorporated by reference to Exhibit
(10)(w) to the Registrant's Form 10-K for the year
ending December 31, 1992).
(10)(o) Agreement with W. U. Parfet dated September 17, 1993.
(10)(p) Agreement with M. Novitch dated October 17, 1993.
(10)(q) Employment Agreement with J. L. Zabriskie dated March
14, 1994.
(11)(a) Computation of Earnings Per Share - Primary
(11)(b) Computation of Earnings Per Share - Fully Diluted
(12) Computation of Ratio of Earnings to Fixed Charges
(13) Portions of The Upjohn Company's 1993 Annual Report to
Shareholders
(21) Subsidiaries of the Registrant.
(23) Consent of Independent Accountants.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the fourth quarter of
the year ended December 31, 1993.
<PAGE>
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.
Dated: March 15, 1994 THE UPJOHN COMPANY
(Registrant)
By: J. L. ZABRISKIE
J. L. Zabriskie
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
J. L. ZABRISKIE Chairman of the Board and
J. L. Zabriskie Chief Executive Officer
L. S. SMITH President and Director
L. S. Smith
R. C. SALISBURY Executive Vice President for March 15, 1994
R. C. Salisbury Finance and Chief Financial
Officer; also Principal
Accounting Officer
Director
R. H. Brown
F. C. CARLUCCI Director
F. C. Carlucci<PAGE>
Director
M. K. Eickhoff
D. F. GRISHAM Director
D. F. Grisham
L. C. HOFF Director
L. C. Hoff
G. A. KENNEY-WALLACE Director
G. A. Kenney-Wallace
March 15, 1994
W. E. LaMOTHE Director
W. E. LaMothe
J. R. MITCHELL Director
J. R. Mitchell
W. D. MULHOLLAND Director
W. D. Mulholland
R. T. PARFET, JR. Director
R. T. Parfet, Jr.
W. U. PARFET Director
W. U. Parfet<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors
The Upjohn Company
Our report on the consolidated financial statements of The Upjohn Company and
Subsidiaries has been incorporated by reference in this Form 10-K from page 25
of the 1993 Annual Report to Shareholders of The Upjohn Company. In
connection with our audits of such financial statements, we have also audited
the related financial statement schedules listed under Item 14.(a)2 of this
Form 10-K.
In our opinion, the financial statement schedules referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information required to be
included therein.
Coopers & Lybrand
Chicago, Illinois
January 31, 1994<PAGE>
<PAGE>
<TABLE>
THE UPJOHN COMPANY AND SUBSIDIARIES
SCHEDULE I--MARKETABLE SECURITIES---OTHER INVESTMENTS
<CAPTION>
December 31, 1993
All Dollar Amounts in Thousands
_________________________
Column A Column B Column C Column D Column E
Amount at Which Each
Number of Shares Market Value Portfolio of Equity
or Units--Principal of Each Issue Security Issues and Each
Name of Issuer and Amounts of Bond Cost of At Balance Other Security Issue Car-
Title of Issue and Notes Each Issue Sheet Date red in the Balance Sheet
<S> <C> <C> <C> <C>
Obligations Guaranteed by
the United States
Government:
Government National Mortgage
Association securities, Federal
National Mortgage Association
securities and Federal Home
Loan Mortgage Corporation
securities, 5.5% to 16.0%,
due to June 2020. . . . . . . . . $230,112 $233,194 $239,625 $233,194
Other, 5.7% to 13.0%,
due to August 2020. . . . . . . . 75,556 75,556 81,071 75,556
Obligations of Agencies and
Instrumentalities of the
Commonwealth of Puerto Rico:
Various bonds and securities,
variable and 4.41% to 7.5%,
due to July 2002. . . . . . . . . 80,394 80,394 83,587 80,394
Obligations Guaranteed by
Various Banks:
Notes and other
securities(1), variable
and 5.54% to 7.22%, due
to April 2001 . . . . . . . . . . 35,000 35,000 35,657 35,000
Certificates of deposit,
5.15% to 8.28%, due to
July 1998 . . . . . . . . . . . . 210,287 210,287 220,412 210,287
Obligations guaranteed by
Corporations:
Promissory note, 7.75%,
due September 1995. . . . . . . . 10,000 10,000 10,673 10,000
-------- -------- --------
$644,431 $671,025 $644,431
======== ======== ========
<FN>
Notes:
(1) Category includes bank reverse repurchase agreement collateralized by obligations of the Government
National Mortgage Association.
</TABLE>
<TABLE>
THE UPJOHN COMPANY AND SUBSIDIARIES
SCHEDULE V--PROPERTY, PLANT AND EQUIPMENT
for the years ended December 31, 1993, 1992 and 1991
All Dollar Amounts in Thousands
__________________________
<CAPTION>
Column A Column B Column C Column D Column E Column F
Other
Changes
Balance at Additions Add Balance at
Beginning at Retire- (Deduct) Close
Classification (1) of Period Cost(2) ments Describe(3) of Period
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1993:
Land. . . . . . . . . . . . . . $ 48,996 $ 3,410 $ 252 $ 160 $ 52,314
Buildings and utilities . . . . 1,090,199 53,651 5,383 569 1,139,036
Equipment . . . . . . . . . . . 1,342,656 187,357 66,506 (14,498) 1,449,009
Leasehold improvements. . . . . 10,447 1,284 432 (29) 11,270
Construction in progress. . . . 255,352 77,808 (4) 11 (1,502) 331,647
---------- -------- ------- --------- ----------
$2,747,650 $323,510 $72,584 $ (15,300) $2,983,276
========== ======== ======= ========= ==========
Year Ended December 31, 1992:
Land. . . . . . . . . . . . . . $ 47,663 $ 1,417 $ 264 $ 180 $ 48,996
Buildings and utilities . . . . 939,257 156,491 1,876 (3,673) 1,090,199
Equipment . . . . . . . . . . . 1,224,333 156,028 29,717 (7,988) 1,342,656
Leasehold improvements. . . . . 12,104 745 705 (1,697) 10,447
Construction in progress. . . . 273,488 (17,791)(4) 186 (159) 255,352
---------- -------- ------- --------- ----------
$2,496,845 $296,890 $32,748 $ (13,337) $2,747,650
========== ======== ======= ========= ==========
Year Ended December 31, 1991:
Land. . . . . . . . . . . . . . $ 44,186 $ 3,543 $ 175 $ 109 $ 47,663
Buildings and utilities . . . . 856,625 89,819 330 (6,857) 939,257
Equipment . . . . . . . . . . . 1,141,572 123,456 28,648 (12,047) 1,224,333
Leasehold improvements. . . . . 10,003 2,751 670 20 12,104
Construction in progress. . . . 221,228 55,250 (4) 73 (2,917) 273,488
---------- -------- ------- --------- ----------
$2,273,614 $274,819 $29,896 $ (21,692) $2,496,845
========== ======== ======= ========= ==========
<FN>
Notes:
(1) The 1991 and 1992 amounts have been restated to reflect continuing operations.
(2) Includes property, plant and equipment of companies purchased during the year.
(3) Principally currency translation adjustments.
(4) Additions to construction in process are net of transfers to other plant and equipment classification for
those projects completed during the year.
</TABLE>
<PAGE>
<TABLE>
THE UPJOHN COMPANY AND SUBSIDIARIES
SCHEDULE VI--ACCUMULATED DEPRECIATION, DEPLETION
AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT
for the years ended December 31, 1993, 1992 and 1991
All Dollar Amounts in Thousands
____________________________
<CAPTION>
Column A Column B Column C Column D Column E Column F
Other
Additions Changes
Balance at Charged to Add Balance at
Beginning Costs and Retire- (Deduct) Close
Classification (1) of Period Expenses(2) ments Describe(3) of Period
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1993:
Buildings and utilities . . . . $ 386,602 $ 45,685 $ 3,352 $ 8,814 $ 437,749
Equipment . . . . . . . . . . . 689,905 115,776 54,086 15,666 767,261
Leasehold improvements. . . . . 6,387 1,098 292 (197) 6,996
---------- -------- ------- ------- ----------
$1,082,894 $162,559 $57,730 $24,283 $1,212,006
========== ======== ======= ======= ==========
Year Ended December 31, 1992:
Buildings and utilities . . . . $ 344,201 $ 44,181 $ 1,068 $ (712) $ 386,602
Equipment . . . . . . . . . . . 611,329 107,358 23,333 (5,449) 689,905
Leasehold improvements. . . . . 5,895 1,057 402 (163) 6,387
---------- -------- ------- ------- ----------
$ 961,425 $152,596 $24,803 $(6,324) $1,082,894
========== ======== ======= ======= ==========
Year Ended December 31, 1991:
Buildings and utilities . . . . $ 310,661 $ 36,669 $ 289 $(2,840) $ 344,201
Equipment . . . . . . . . . . . 541,076 96,371 23,326 (2,792) 611,329
Leasehold improvements. . . . . 5,189 1,154 506 58 5,895
---------- -------- ------- ------- ----------
$ 856,926 $134,194 $24,121 $(5,574) $ 961,425
========== ======== ======= ======= ==========
<FN>
Notes:
(1) The 1991 and 1992 amounts have been restated to reflect continuing operations.
(2) Depreciation was provided on the basis of useful lives as follows:
Land improvements and utilities 5 to 33 years
Buildings 10 to 50 years
Machinery and equipment 4 to 25 years
Office furniture and equipment 5 to 20 years
Transportation equipment 5 to 7 years
Leasehold improvements Term of lease
(3) Principally currency translation adjustments.
</TABLE>
<PAGE>
<TABLE>
THE UPJOHN COMPANY AND SUBSIDIARIES
SCHEDULE IX--SHORT-TERM BORROWINGS
for the years ended December 31, 1993, 1992 and 1991
All Dollar Amounts in Thousands
____________________________
<CAPTION>
Column A Column B Column C Column D Column E Column F
Maximum Average Weighted
Weighted Amount Amount Average
Balance at Average Outstanding Outstanding Interest Rate
Category of Aggregate End Interest During the During the During the
Short-Term Borrowings of Period Rate Period Period (1) Period (2)
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1993:
Domestic (3) . . . . . . . . . $ 0 0.0% $126,000 $ 55,746 3.2%
Foreign (4). . . . . . . . . . 40,876 8.4 39,974 29,509 9.8
-------- -------- --------
$ 40,876 $165,974 $ 85,255
======== ========
Current maturities of
long-term debt . . . . . . . 3,246
--------
$ 44,122
========
Year Ended December 31, 1992:
Domestic (3) . . . . . . . . . $192,970 3.6% $378,000 $240,359 3.6%
Foreign (4). . . . . . . . . . 27,424 11.2 29,553 27,064 11.3
-------- -------- --------
220,394 $407,553 $267,423
======== ========
Current maturities of
long-term debt . . . . . . . 8,197
--------
$228,591
========
Year Ended December 31, 1991:
Domestic (3) . . . . . . . . . $ 50,955 4.8% $147,000 $ 87,594 5.9%
Foreign (4). . . . . . . . . . 28,938 11.0 28,088 24,154 12.2
-------- -------- --------
79,893 $175,088 $111,748
======== ========
Current maturities of
long-term debt . . . . . . . 6,648
--------
$ 86,541
========
<FN>
Notes:
(1) Computed by dividing the total of month-end outstanding principal balance by 12.
(2) Computed by dividing the actual interest expense by the average short-term debt outstanding.
(3) Domestic short-term borrowings represent commercial paper issued in the United States.
(4) Foreign short-term borrowings represent the use of bank overdraft facilities and foreign bank loans due
within one year.
</TABLE>
EXHIBIT 10(o)
AGREEMENT
AGREEMENT dated as of September 17, 1993 by and between William
U. Parfet ("WUP") and The Upjohn Company ("TUC").
WITNESSETH:
WHEREAS, WUP desires to resign from employment with TUC, and TUC
and WUP desire to establish the terms and conditions under which WUP
will resign from TUC;
NOW, THEREFORE, TUC and WUP agree as follows:
1. On or before September 30, 1993, WUP shall voluntarily
resign from his position as Vice Chairman of the Board and shall be
placed on terminal leave of absence status. He shall remain in that
status until December 20, 1993, when he will terminate his employment
with TUC. WUP shall continue as a member of the Board of Directors
of TUC until further action by such Board or until he resigns from
such Board. WUP shall continue to receive monthly compensation at
his current base salary until December 20, 1993. WUP shall not be
eligible to participate in the TUC Employment Transition Assistance
program.
2. Subject to the approval of the Compensation and
Incentive Committee of the TUC Board of Directors on or before
September 21, 1993, in consideration of the waiver and covenants set
forth in Section 10 hereof, WUP shall receive, within ten (10) days
after he resigns as Vice Chairman of the Board, a special cash bonus
in an amount equal to $1,772,500. This payment will not be used to
determine final average salary for the purposes of calculating WUP's
retirement benefits.
3. During the period of his terminal leave of absence,
WUP shall continue to accrue Point Service and Benefit Service under
The Upjohn Retirement Plan. After he terminates employment with TUC,
WUP shall have the status of a terminated vested employee under The
Upjohn Retirement Plan and shall be eligible to receive retirement
benefits thereunder consistent with the terms of that Plan.
Subject to the approval of the Compensation and
Incentive Committee of the TUC Board of Directors on or before
September 21, 1993, in consideration of WUP waiving his rights to any
payments under The Upjohn Supplemental Retirement Plan and The Upjohn
Replacement and Deferred Benefit Plan, notwithstanding any provisions
in said Plans to the contrary, WUP shall receive a non-qualified
supplemental payment of $2,400,000 within ten (10) days after he
resigns as Vice Chairman of the Board. Thereafter, WUP shall have no
further rights under The Upjohn Supplemental Retirement Plan or The
Upjohn Replacement and Deferred Benefit Plan.
4. After commencement of his terminal leave of absence,
WUP shall be paid for any unused 1993 vacation days. There will be
no further vacation or preference holiday accrual or payment during
the terminal leave of absence. He shall also be entitled to receive
a full 1993 Christmas Bonus at the time paid to regular TUC
employees.
5. During his terminal leave of absence, WUP may continue
to participate in The Upjohn Group Medical/Dental Plan and The Upjohn
Group Life Insurance Plan at active employee rates, although payment
of benefits will be coordinated with any other applicable coverages.
After he terminates employment, WUP shall have the right to continue
group medical/dental coverage to the same extent as a TUC retiree
retiring at the same time and with like years of service although
payment of benefits will be coordinated with any other medical/dental
benefits to which WUP, his spouse or his eligible dependents may be
entitled. Even though WUP is not actually a retiree of TUC, he shall
have the same rights with respect to group medical/dental coverage as
if he had actually been a retiree.
6. Subject to the approval of the Compensation and
Incentive Committee of the TUC Board of Directors on or before
September 21, 1993, WUP shall be entitled to exercise any stock
options that he is entitled to exercise when he terminates employment
during the applicable 3 or 5 year period following approved
termination of employment authorized by the applicable stock option
grant, provided WUP has not breached any provisions of this
Agreement, including in particular, but without limiting the
generality of the foregoing, the agreements contained in Section 10
hereof. If such a breach should occur, any stock options and the
special compensation described below in this section that WUP is then
still entitled to exercise shall be forthwith canceled. The stock
options issued to WUP in February 1993 will not become exercisable,
but, in lieu thereof, WUP shall be entitled to receive as special
compensation an amount of cash equal to the amount by which the Fair
Market Value (as defined in the Stock Option Plan) of one share of
TUC Common Stock on the effective date of such election shall exceed
$28.1875 multiplied by 40,000 (subject to appropriate adjustment in
the event of any recapitalization of TUC stock). WUP may elect to
receive the foregoing compensation by delivery of a written notice of
such election to the TUC Stock Option Office, which will be effective
upon receipt. The election must be made in full and may be made at
any time during the period from February 16, 1994 until September 30,
1998, or, if earlier, by WUP's legal representative within one year
from his death.
7. During the period of his terminal leave of absence,
for as long as WUP continues to receive monthly compensation under
Paragraph 1 above, provided WUP does not breach any provisions of
this Agreement, including in particular, but without limiting the
generality of the foregoing, the agreements contained in Section 10
hereof, WUP may continue to make employee contributions to The Upjohn
Employee Savings Plan, and receive employer matching contributions
with respect to such contributions. After he terminates employment,
WUP shall not be eligible to make any further contributions to The
Upjohn Employee Savings Plan, but he can settle his account at that
time or defer settlement until any time up to age 70-1/2. WUP shall be
eligible to receive an additional employer matching contribution with
respect to his 1993 contributions to the Plan if such a contribution
is approved by the TUC Board of Directors.
8. On December 18, 1993, WUP shall earn the 2,400 shares
of Upjohn Common Stock that he received pursuant to his Restricted
Stock Agreement dated January 31, 1991, together with the
supplemental payments described in such agreement. WUP will not earn
the 4,000 shares of Common Stock he received pursuant to his
Restricted Stock Agreement dated September 29, 1992, and WUP shall
deliver to the Secretary of TUC his stock certificates representing
such shares prior to December 1, 1993.
9. WUP shall receive, within ten (10) days after he
resigns as Vice Chairman of the Board, a payment of $310,000 in lieu
of any 1993 incentive compensation award that he otherwise would have
been entitled to under the Incentive Compensation Plan. WUP will
receive his deferred incentive compensation awards (both voluntary
and mandatory deferred amounts) beginning in March 1994.
10. Provided the Compensation and Incentive Committee of
the TUC Board of Directors has approved the payments to WUP of the
amounts described in Sections 2 and 3 above, and in consideration of
such payments, WUP will and hereby does (i) release and discharge
TUC, all TUC subsidiaries and all of their respective officers,
directors, agents and employees from any and all claims, known or
unknown, which he may have, including any claims arising from or
relating to his employment or its termination pursuant to this
Agreement and more particularly, but without limiting the generality
of the foregoing, any claims arising under state or federal law
relating to violations of statute or public policy, wrongful
discharge, breach of express or implied employment contract, or age,
race, religious, ethnic or other discrimination (including, but not
limited to, the federal Age Discrimination in Employment Act [ADEA]);
(ii) represent that he has not commenced, and agree not to commence
in the future, any litigation or administrative proceedings based
upon any claim which is the subject of the foregoing release; (iii)
agree to consult with TUC, upon request, regarding activities with
which he is familiar, including cooperating fully with TUC and its
attorneys and testifying (if and when requested) in defending
litigation against or involving TUC or its officers, directors,
agents or employees; (iv) agree to maintain the confidentiality of
all business plans, trade secrets, operating procedures and other
confidential or proprietary information of TUC to which he has had
access; (v) agree to return all TUC materials in his possession upon
request from TUC; (vi) agree not to communicate the specific terms of
this Agreement to any person, except that disclosure may be made to
his attorney, his financial and tax advisors and members of his
immediate family, provided each such person agrees to similarly
maintain the confidentiality of the terms of this Agreement; (vii)
neither seek nor accept employment with a major competitor of TUC
(another company of similar size and product line) nor consult with
or in any way advise or assist any such competitors of TUC for a
period of two years after his resignation, unless approved in advance
in writing by the Chief Executive Officer of TUC, which approval
shall not be unreasonably withheld; and (viii) agree not to disparage
or make any derogatory comments concerning the business or products
of TUC, or any of its current or former directors, officers or
employees.
11. Nothing contained herein shall preclude WUP from
seeking, accepting or commencing other employment, except as provided
in Section 10 (vii) hereof, during the period of the terminal leave
of absence and the acceptance or commencement of such employment
during such period shall not affect WUP's right to receive the
payments described herein.
12. In the event WUP breaches the terms of this Agreement,
WUP agrees to forthwith repay to TUC the amount previously paid to
him by TUC under Section 2 hereof.
13. This Agreement affects important legal rights. WUP
acknowledges that he has consulted an attorney of his choice about it
and has knowingly, voluntarily and willfully entered into this
Agreement.
14. The provisions of this Agreement are severable, and
if any provision is found to be unenforceable, the remaining
provisions shall remain fully enforceable.
15. This Agreement shall not in any way be construed as
an admission by TUC or any of the other released parties referred to
in Section 10 that it or they have acted wrongfully with respect to
WUP or that WUP has any rights whatsoever against TUC or any of the
other released parties referred to in Section 10.
16. WUP acknowledges that in executing this Agreement, he
has not relied upon any representation by TUC or any of its current
or former directors, officers, employees or agents not set forth in
this Agreement. This Agreement constitutes the entire agreement
between the parties and supersedes all prior or contemporaneous oral
or written statements, promises or agreements. It may be amended
only by a writing signed by both parties.
17. The provisions of this Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective
heirs, successors and assigns.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
THE UPJOHN COMPANY
By__________LEY S. SMITH___________
Ley S. Smith
__________WILLIAM U. PARFET_________
William U. Parfet
EXHIBIT (10)(p)
INTEROFFICE MEMO
The Upjohn Company
Subject: Retirement
Date: September 29, 1993
From: L.S. Smith
To: M. Novitch
Copies: KMCyrus, RGTomlinson
I want to thank you for your many contributions to the success of the
Company and in preparing it to meet the challenges of the future. I
know the Board and all the officers join me in wishing you much
happiness in your retirement. I have confirmed with the Compensation
and Incentive Committee the terms of your retirement package, and we
agree with you as follows:
1. You will voluntarily retire from the Company and resign as a
member of the Board of Directors on December 20, 1993. You will
not be eligible to participate in the Company's Employment
Transition Assistance program or the Pre-Retirement Terminal
Leave of Absence program.
2. When you retire, you will receive the customary one-month's
salary retirement bonus. In addition, the Company will waive
the early retirement penalties under your Supplementary
Retirement Plan Agreement with the Company dated January 18,
1985, and provide you a retirement benefit equal to the amount
you would have received had you continued to work until December
31, 1995, which will result in your receiving a total retirement
benefit from the Company equal to $3,650,000 less the value of
any retirement benefits that you are entitled to receive by
virtue of your service with prior employers. Such retirement
benefit will consist of (i) your accrued benefits under The
Upjohn Retirement Plan, The Upjohn Supplemental Retirement Plan
and The Upjohn Replacement and Deferred Benefit Plan, which
benefits will be paid in accordance with the terms of those
plans, and (ii) a non-qualified benefit equal to your remaining
total retirement benefit, which will be paid in cash prior to
December 31, 1993.
3. After commencement of your retirement, you will be paid for any
unused 1993 vacation days and for your accrued 1994 vacation.
4. After retirement you will not be eligible to make any further
contributions to The Upjohn Employee Savings Plan, but you can
settle your account at that time or defer settlement until any
time up to age 70-1/2, when the law requires you to start receiving
distributions. You will receive an additional employer matching
contribution based on your 1993 contributions to the Plan to the
extent the Board approves an additional employer matching
contribution for 1993.
5. On December 18, 1993, you will earn the 2,400 shares of Upjohn
Common Stock that you received pursuant to your Restricted Stock
Agreement dated January 31, 1991. If you deliver the restricted
stock certificate for the 2,400 shares to Ken Cyrus, he will
have a new, unlegended certificate for these shares issued to
you after December 18, 1993. You will not earn the 4,000 shares
you received pursuant to your Restricted Stock Agreement dated
September 29, 1992, and you should return your stock
certificates for those 4,000 restricted shares to Ken Cyrus
before you leave.
6. After retirement, you may participate in The Upjohn Group
Medical/Dental Plan to the same extent as any other retiree of
like age and with like years of service, including appropriate
benefit coordination. For the purpose of determining coverage
and the rate of payment under The Upjohn Group Medical/Dental
Plan, your years of service used to determine your benefits
under your Supplementary Retirement Plan Agreement described in
Section 2 above will be used to determine your period of
service.
7. Prior to December 31, 1993, you will receive a cash payment
equal to $279,000 in lieu of your regular 1993 Incentive
Compensation Award. When the Compensation and Incentive
Committee of the Board determines Incentive Compensation Awards
for 1993, the Committee will determine the amount of Incentive
Compensation you would have received for 1993 under the
Incentive Compensation Plan if you had been employed for the
full year. If that amount is more than $279,000, you will be
paid the difference at the same time other Incentive
Compensation Awards for 1993 are paid.
8. You will be permitted to exercise any stock options that you are
entitled to exercise upon your retirement for the extended
exercise periods shown in Exhibit I. The stock options issued
to you in February 1993 will not become exercisable, but, in
lieu thereof, you shall be entitled to receive as special
compensation an amount of cash equal to the amount by which the
Fair Market Value (as defined in the Stock Option Plan) of one
share of the Company's Common Stock on the effective date of
such election shall exceed $28.1875 multiplied by 40,000
(subject to appropriate adjustment in the event of any
recapitalization). Your election to receive the foregoing
compensation will be effective upon delivery of a written notice
of election to the Stock Option Office. The election must be
made in full and may be made at any time during the period from
February 16, 1994 until December 20, 1998, or, if earlier, by
your legal representative within one year from your death.
9. In consideration of the additional payment by the Company to you
described in Section 2 hereof, you will (i) release and
discharge the Company, all its subsidiaries and all of their
respective officers, directors, agents and employees from any
and all claims, known or unknown, which you may have, including
any claims arising from or relating to your employment or its
termination pursuant to this agreement and more particularly,
but without limiting the generality of the foregoing, any claims
arising under state or federal law relating to violations of
statute or public policy, wrongful discharge, breach of express
or implied employment contract, or age, race, religious, ethnic
or other discrimination (including, but not limited to, the
federal Age Discrimination in Employment Act [ADEA]); (ii)
represent that you have not commenced, and agree not to commence
in the future, any litigation or administrative proceedings
based upon any claim which is the subject of the foregoing
release; (iii) agree to consult with the Company, upon request,
regarding activities with which you are familiar, including
cooperating fully with the Company and its attorneys and
testifying (if and when requested) in defending litigation
against or involving the Company or its officers, directors,
agents or employees; (iv) agree to maintain the confidentiality
of all business plans, trade secrets, operating procedures and
other confidential or proprietary information of the Company to
which you have had access; (v) agree to return all Company
materials in your possession upon request from the Company; (vi)
agree not to communicate the specific terms of this agreement to
any person, except that disclosure may be made to your attorney,
your financial and tax advisors and members of your immediate
family, provided each such person agrees to similarly maintain
the confidentiality of the terms of this agreement; (vii)
neither seek nor accept employment with a major competitor of
the Company (another company of similar size and product line)
nor consult with or in any way advise or assist any such
competitors of the Company for a period of two years after your
retirement, unless approved in advance in writing by the Chief
Executive Officer of the Company; and (viii) agree not to
disparage or make any derogatory comments concerning the
business or products of the Company, or any of its current or
former directors, officers or employees.
10. You acknowledge that you have been advised to consult an
attorney of your choice about the terms of this agreement,
including the waiver and release provided in Section 9 hereof,
and that you have knowingly, voluntarily and willfully entered
into this agreement. You further acknowledge that you have been
given a period of at least 21 days prior to signing to consider
the terms of this agreement and that you will be given a period
of seven days following execution of this agreement to revoke
the same by giving me written notice of revocation within that
time. This agreement shall not be effective or enforceable
until this revocation period has expired. Finally, you
acknowledge that in executing this agreement, you have not
relied upon any representation by the Company or any of its
current or former directors, officers, employees or agents not
set forth in this agreement, and that this agreement constitutes
the entire agreement between us and supersedes all prior or
contemporaneous oral or written statements, promises or
agreements.
If this memo accurately reflects our agreement, please sign and date
the duplicate original and return it to me.
THE UPJOHN COMPANY AGREED TO AND ACCEPTED:
By___LEY S. SMITH______________ A. MARK NOVITCH__________
Ley S. Smith A. Mark Novitch
Dated: October 17, 1993
LSS/jmb
Attachment
Doc. I.D.: MN-Retir.jmb
EXHIBIT (10)(q)
March 14, 1994
Dr. John L. Zabriskie
7000 Portage Road
Kalamazoo, MI 49001
Dear Dr. Zabriskie:
This letter supersedes our letter of December 3, 1993 and confirms
that the terms of your employment as Chairman and Chief Executive
Officer of The Upjohn Company ("Upjohn" or the "Company") will be:
1. You will be Chairman of the Board of Directors and Chief
Executive Officer of the Company serving at the will of the
Board with the traditional responsibilities, duties and
authority of such officers in public companies of the size of
the Company. You will also serve as a member of the Executive
Committee of the Board of Directors.
2. Your beginning annual base salary will be $800,000 and will be
subject to annual review.
3. You will be included in the Company's Incentive Compensation
Plan at a level determined by the Compensation and Incentive
Committee of the Board to be appropriate based on your position,
job performance and Company policy. Current Company policy is
to set target awards for the CEO at 80-100% of base salary. You
will be guaranteed a minimum payment of $600,000 for 1994, which
will be payable in March 1995 in accordance with the terms of
the Incentive Compensation Plan and will be payable even if you
die, become disabled, are terminated without cause or terminate
your employment for good reason during or after the end of 1994,
or are terminated for cause or terminate voluntarily without
good reason after December 31, 1994 but prior to March 15, 1995.
Incentive compensation shall be deemed fully earned at the end
of the measuring period even if actual payment thereof is
delayed.
4. The Company expects to adopt a new long-term incentive plan,
and, if adopted, you will participate in such plan at a level
determined by the Compensation and Incentive Committee of the
Board to be appropriate based on your position, job performance
and Company policy.
5. (a) The Company agrees to act in good faith with respect to
your employment, and should the Board ever consider terminating
your employment or taking any actions that would constitute good
reason for you to terminate your employment, you shall be
promptly notified of such consideration. In all instances you
shall receive any earned but unpaid compensation as and when due
under the terms of the applicable plans.
(b) In the event prior to December 31, 1997 your employment is
involuntarily terminated other than for gross misconduct
("cause") or you voluntarily terminate your employment as a
result of (x) a material diminishment of your executive officer
responsibilities, (y) non-reelection of you as Chairman of the
Board of Directors or (z) a material uncured breach of this
Agreement by the Company (any of the foregoing constituting
"good reason"), then (subject to the other provisions of this
Section 5 and without any offset for income earned from other
employment), (i) you shall be entitled to receive a lump sum
severance payment, payable within 30 days after termination,
equal to the total amount of base salary you would have received
had you continued employment until December 31, 1997 but in no
event less than an amount equal to two years' base salary at
your then current base salary; (ii) you shall have your period
of employment service used to calculate retirement and other
employee benefits extended as if you had worked until December
31, 1997 and the compensation used to calculate your retirement
benefit from Upjohn will be determined as if you had continued
to receive your then current compensation until December 31,
1997; (iii) you will be entitled to exercise during the five
years following your termination from Upjohn, in accordance with
their terms, any remaining stock options from your original
grant (all of which will become vested under such circumstances
if you have completed one year of Upjohn employment) and any
other stock options for which you have met the one year of
employment requirement; and (iv) you shall earn any of your
original restricted shares that have not yet vested.
(c) In the event, after December 31, 1997, the Board
contemplates terminating your employment or taking any action
that would constitute good reason for you to terminate your
employment, the Board shall negotiate an appropriate severance
package with you commensurate with your position.
(d) In the event you should die before December 31, 1997 while
still employed by Upjohn, your spouse or such other beneficiary
as you may designate shall receive a lump sum payment equal to
two years' base salary offset by any death benefits payable
under the Company's life insurance plan.
(e) In the event you become totally and permanently disabled
while employed by the Company, the Company may either place you
on long-term disability with the benefits payable under the
Company's disability plan as if you had been employed by Upjohn
for 28 years plus your actual years of service with the Company
or may immediately terminate your employment and pay you as if
you were terminated without cause, but with a credit for any
disability benefits you may receive from the Company.
(f) In the event you commence employment with, or provide
substantial and continuous consulting services to, another
pharmaceutical company (except companies where sales from
pharmaceutical products constitute less than 20% of total sales)
within two years after your employment is terminated (provided
that the providing of investment banking services shall not be
deemed to be the providing of consulting services unless such
investment banking services relate to or may affect the
Company), you shall forfeit the amount payable under
subparagraphs (b) (i) and (b) (ii) above, and if you have
received severance payments under subparagraph (b) (i) or above
or additional retirement or other employee benefits under
subparagraph (b) (ii) above, you agree to promptly repay the
amount of such severance payments and such additional retirement
and other employee benefits to the Company, and any remaining
stock options will be canceled as of the date of the providing
of such activities.
(g) The Company will also provide you upon any termination of
your employment with outplacement services commensurate with
your position.
6. In the event you are discharged for cause or you voluntarily
terminate your employment other than for good reason (which
right you shall have at any time), you will forfeit your right
to receive any further salary, incentive compensation, long-term
compensation, severance pay or restricted stock that has not
been fully earned at the time your Upjohn employment terminates,
and you will be able to exercise any remaining vested stock
options in accordance with their terms but only during the three
months following termination of your employment with the
Company.
7. The Company shall enter into its standard change-in-control
severance agreement with you, provided, however, that any
payments due to you under such change-in-control severance
agreement will be offset by any severance payments that you are
entitled to receive under paragraph 5 (b) (i) above.
8. You have indicated that you received your full 1993 bonus from
Merck and that no further compensating payment is due you from
the Company. In lieu of your performance share awards from
Merck, the Company issued you on January 12, 1994, 15,000
restricted shares of Upjohn Common Stock. If you later receive
any performance share awards from Merck, the number of
restricted shares (based on the January 12, 1994 average market
price for Upjohn Common Stock) will be reduced by the value of
such performance share awards. These restricted shares will
vest in equal amounts on January 12, 1995 and January 12, 1996,
or upon your death or disability, a change in control of the
Company (as defined in the Company's Stock Option Plan), or your
employment being involuntarily terminated other than for cause
or your employment being voluntarily terminated by you for good
reason.
9. (a) The Company granted you on January 3, 1994 ten-year stock
options for 350,000 shares of Upjohn Common Stock at an exercise
price of $29.0625 (the average market price on that day), which
will vest and become exercisable according to the following
schedule:
Minimum Share Price Number
Vesting Date to Become Vested of Shares
January 3, 1995 None 250,000
January 3, 1996 $34.0625 50,000
January 3, 1997 $39.0625 50,000
(b) If you have satisfied the one-year-of-employment
requirement, options not vesting until 1996 and 1997 will
nevertheless vest immediately upon your death or disability, a
change in control of the Company (as defined in the Company's
Stock Option Plan), or your employment being involuntarily
terminated other than for cause or your employment being
voluntarily terminated by you for good reason.
(c) In order for the stock options vesting in 1996 and 1997 to
be vested (other than as provided in (b) above), the price of
the stock must have been above the specified minimum share price
for at least 90 consecutive days after January 3, 1994. The
stock options vesting on January 3, 1995 shall vest on that date
notwithstanding the stock price.
(d) In view of the foregoing grant, you will not receive any
other stock options in 1994. However, beginning in 1995, you
will receive stock options, restricted stock and similar
compensation incentives consistent with the incentives provided
to other senior executive officers but in an amount determined
by the Compensation and Incentive Committee of the Board to be
appropriate based on your position, job performance and Company
policy. In addition, if the Compensation and Incentive
Committee approves the issuance of performance shares to
executive officers, you will receive performance shares in 1994
and subsequent years consistent with the performance shares
issued to other senior executive officers but in an amount
determined by the Compensation and Incentive Committee of the
Board to be appropriate based on your position, job performance
and Company policy.
10. You will receive the customary Upjohn relocation benefits,
including, unless you sell your home yourself, an amount equal
to the average appraised value of your home as determined by at
least two independent real estate appraisers selected by Upjohn
(you would then deed your home to Upjohn). Upjohn will also
reimburse you, grossed-up for any resulting taxes, for
reasonable house-hunting, personal transportation, moving
expenses and closing costs on the purchase of your new home
associated with your move to Kalamazoo, and, if you sell your
current home yourself, any closing costs on that sale. Upjohn
will also pay your temporary living expenses and costs for
storage of your household goods for a reasonable period until
you can get settled in Kalamazoo.
11. When your employment with Upjohn terminates (for any reason
whatsoever), the Company will pay you the difference, if any,
between (i) the amount of retirement benefits you would be
entitled to receive under the greater of the benefit formula
then in effect or now in effect under The Upjohn Retirement Plan
if you had been employed by Upjohn for 28 years plus your actual
years of service with Upjohn, and (ii) the amount of retirement
benefits to which you are entitled by virtue of service with
other employers. If your compensation for 1994 is used to
determine the foregoing retirement benefits, your compensation
for 1994 will only include your 1994 base salary and the higher
of your actual 1994 Incentive Compensation Award or the
guaranteed minimum bonus payment for 1994. For the purpose of
the foregoing calculation, alternative forms of benefits will be
made actuarially equivalent. Any such amount not actually
payable under The Upjohn Retirement Plan will be paid as a non-
qualified, supplemental payment.
12. You will be entitled to receive all fringe benefits, including
medical/dental coverage, life insurance, disability coverage and
vacation, that Upjohn executive officers with 28 or more years
of service are entitled to receive. There are currently no
special perquisites for executive officers, but if any are
added, you will be entitled to receive them. You shall, during
and after employment, have the full benefit of the indemnity
provisions in the Company's Certificate of Incorporation
(including the right to have legal fees advanced) and be covered
under the Company's directors and officers liability insurance
coverage with respect to claims arising out of your employment
as an officer or service as a director of the Company, to the
extent allowed by law and to the extent such indemnity and
insurance coverage is provided to other officers and directors.
13. No provision of this Agreement may be modified, waived or
discharged unless such waiver, modification or discharge is
agreed to in writing and signed by you and a duly authorized
member of the Board of Directors of the Company. No waiver by
either party hereto at any time of any breach of the other party
hereto of, or compliance with, any condition or provision of
this Agreement to be performed by such other party shall be
deemed a waiver of similar or dissimilar provisions or
conditions at the time or at any prior or subsequent time. This
Agreement shall not be assignable by you. This Agreement shall
not be assignable by the Company except in connection with the
sale of all or substantially all of the business of the Company.
This Agreement shall be binding on the successors and permitted
assigns of the Company. The validity, interpretation,
construction and performance of this Agreement shall be governed
by the laws of the State of Michigan without regard to its
conflicts of law principles. In the event the Company breaches
this Agreement by non-payment of any amounts due to you, you
shall be entitled to recover your costs of collection, including
reasonable attorney's fees.
14. Any controversy or claim arising out of or relating to this
Agreement, whether arising before or after the expiration or
other termination of this Agreement, shall be settled by
arbitration in accordance with the commercial rules of the
American Arbitration Association. Any decision by the
arbitrators shall be final and binding on the parties and may be
entered into in any court of competent jurisdiction.
15. This Agreement sets forth the entire agreement of the parties
hereto in respect of the subject matter contained herein and
supersedes all prior agreements, promises, covenants,
arrangements, communications, representations or warranties,
whether oral or written, except for such other written
agreements and plans as may be specifically contemplated herein.
Very truly yours,
The Upjohn Company
By WILLIAM D. MULHOLLAND
William D. Mulholland
Chairman, Executive Committee
Agreed to and accepted by:
JOHN L. ZABRISKIE
John L. Zabriskie
b:\newceo.2
<TABLE> EXHIBIT 11(a)
THE UPJOHN COMPANY AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE - PRIMARY
(In millions, except per-share data)
<CAPTION>
Years Ended December 31,
1993 1992 1991
<S> <C> <C> <C>
Earnings from continuing operations before
accounting changes $402.5 $544.4 $534.1
Earnings (loss) from discontinued operations, net 8.8 2.8 3.3
Cumulative effect of accounting changes, net of tax (18.9) (222.9)
------ ------ ------
Net earnings 392.4 324.3 537.4
Dividends on preferred stock, net of tax 12.1 12.1 12.3
------ ------ ------
Net earnings on common stock - primary $380.3 $312.2 $525.1
====== ====== ======
Average number of common shares outstanding 174.0 175.1 176.2
Number of common shares issuable assuming
exercise of stock options .1 .5 1.0
Contingently issuable incentive shares .3 .3 .3
----- ----- -----
174.4 175.9 177.5
===== ===== =====
Earnings per share - primary
Continuing operations before accounting changes $2.24 $3.03 $2.94
Discontinued operations before accounting changes .05 .01 .02
Cumulative effect of accounting changes (.11) (1.26)
----- ----- -----
Net earnings $2.18 $1.78 $2.96
===== ===== =====<PAGE>
</TABLE>
<TABLE> EXHIBIT 11(b)
THE UPJOHN COMPANY AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE - FULLY DILUTED
(In millions, except per-share data)
<CAPTION>
Years Ended December 31,
1993 1992 1991
<S> <C> <C> <C>
Net earnings $392.4 $324.3 $537.4
Less ESOP contribution assumed to be
required if preferred shares are
converted into common shares 4.7 5.2 6.2
Less adjustment of tax benefit on
allocated shares .3 .2
------ ------ ------
Net earnings on common shares - fully
diluted $387.4 $318.9 $531.2
====== ====== ======
Average number of common shares
outstanding 174.0 175.1 176.2
Number of common shares issuable assuming
exercise of stock options .1 .5 1.0
Contingently issuable incentive shares .3 .3 .3
Number of common shares issuable assuming
conversion of preferred shares 7.4 7.4 7.4
Rounding .1
----- ----- -----
181.8 183.3 185.0
===== ===== =====
Earnings per share - fully diluted
Continuing operations before accounting changes $2.19 $2.94 $2.85
Discontinued operations .04 .01 .02
Cumulative effect of accounting changes (.10) (1.21)
----- ----- -----
Net earnings $2.13 $1.74 $2.87
===== ===== =====
</TABLE>
<TABLE>
THE UPJOHN COMPANY AND CONSOLIDATED SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollar amounts in thousands)
<CAPTION>
Year Ended December 31,
1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C>
Earnings from continuing operations before accounting
changes, income taxes and minority equity $490,422 $696,707 $715,553 $651,800 $477,100
Less: Equity in undistributed net income (loss) of
companies owned less than 50% 3,119 2,212 1,455 1,742 (1)
-------- -------- -------- -------- --------
487,303 694,495 714,098 650,058 477,101
Add: Amortization of previously capitalized interest 4,009 3,799 3,109 2,922 2,669
Fixed charges included in the above:
Interest and amortization of debt expense 58,381 58,155 46,851 53,502 31,693
Rental expense representative of an interest factor 13,914 13,095 10,800 10,940 9,462
-------- -------- -------- -------- --------
Earnings from continuing operations before accounting changes,
income taxes, minority equity and fixed charges $563,607 $769,544 $774,858 $717,422 $520,925
======== ======== ======== ======== ========
Interest incurred and amortization of debt expense 74,080 69,163 59,920 61,146 37,919
Rental expense representative of an interest factor 13,914 13,095 10,800 10,940 9,462
-------- -------- -------- -------- --------
Total fixed charges $87,944 $82,258 $70,720 $72,086 $47,381
======== ======== ======== ======== ========
Ratio of earnings to fixed charges 6.41 9.36 10.96 9.95 10.99
======== ======== ======== ======== ========
</TABLE>
EXHIBIT 13
THE UPJOHN COMPANY AND SUBSIDIARIES
Financial Section of the 1993 Annual Reports to Shareholders
This exhibit contains the following:
Financial Review (Management's Discussion and Analysis of Financial
Condition and Results of Operations)
Report of Management
Report of Independent Accountants
Consolidated Statements of Earnings - Years Ended December 31, 1993
and 1992
Consolidated Statements of Shareholders' Equity - Years Ended December
31, 1993, 1992 and 1991
Consolidated Statements of Cash Flows - Years Ended December 31, 1993,
1992 and 1991
Consolidated Statements of Segment Operations - Years Ended December 31,
1993, 1992 and 1991
Notes to the Consolidated Financial Statements
Summary of Continuing Operations
Selected Financial and Quarterly Data
<PAGE>
<PAGE>
FINANCIAL REVIEW
OVERVIEW OF CONSOLIDATED RESULTS
Dollars in millions 1993 % Change 1992 % Change 1991
---- -------- ---- -------- ----
Net sales $3,611.2 2% $3,548.6 7% $3,320.2
Operating income 466.5 (31) 678.5 (5) 710.5
Earnings from continuing
operations before income
taxes and minority equity(a) 490.4 (30) 696.7 (3) 715.6
Earnings from continuing
operations(a) 402.5 (26) 544.4 2 534.2
(a) before accounting changes
The company made an accounting change and adopted three new accounting
pronouncements that should be considered when comparing year-to-year earnings
results. In the first quarter of 1993, the pharmaceutical and agricultural
subsidiaries that formerly reported on a November 30 fiscal year adopted
calendar-year reporting. The cumulative effect of this accounting change
reduced 1993 net earnings by $7.8 million ($.04 per share). As of the first
quarter of 1993, the company adopted Statement of Financial Accounting
Standards (SFAS) No. 112 relating to postemployment benefits. Adoption of
this statement reduced 1993 net earnings by $11.1 million ($.07 per share).
In 1992, the company adopted SFAS No. 106 which relates to postretirement
benefit costs other than pensions and SFAS No. 109 relating to accounting for
income taxes. The cumulative effect of these accounting changes reduced net
earnings by $222.9 million ($1.26 per share).
In the third quarter of 1993, the company recorded restructuring charges of
$216 million ($159 million, or $.91 per share after tax) associated with a
worldwide work-force reduction of approximately eight percent, the elimination
or reduction of excess manufacturing capacity in 14 plants and the write-down
of certain intangible and fixed assets. In 1992, restructuring charges of $24
million ($14.5 million, or $.08 per share after tax) were made to reflect the
cost of a special voluntary early retirement program elected by approximately
500 employees in the U.S. and Puerto Rico and other staff reductions in non-
U.S. locations. Restructuring costs of $5 million in 1991 represent the
write-down of certain facilities and equipment.
Certain prior-period data have been restated to reflect the sale of Asgrow
Florida Company, which was completed in the fourth quarter of 1993 and is
reported as a discontinued operation. More information concerning this and
the items above is included in Notes B through D to the Consolidated Financial
Statements beginning on page 31.
Growth in consolidated net sales for the year resulted from increases of two
percent in U.S. and non-U.S. sales to $2.2 billion and $1.4 billion,
respectively. The percentage of U.S. to consolidated sales was unchanged in
1993 from the preceding two years at 61 percent. Human health care sales
represented 83 percent of the consolidated total in each of the years 1991
through 1993. Consolidated sales growth for the year resulted from a three
percent increase in volume, partially offset by a one percent adverse effect
from foreign exchange. There was no net change in price.
The following summarizes consolidated costs and operating income as a percent
of sales:
1993 1992 1991
---- ---- ----
Cost of products sold 25% 25% 24%
Research and development 18 16 16
Marketing and administrative 39 39 39
Restructuring 6 1
Operating income 13 19 21
Cost of products sold in 1993 was unchanged as a percent of sales from the
prior year because non-U.S. and agricultural product mix improved, offsetting
the adverse effects of pharmaceutical generic competition in the U.S. in the
fourth quarter of 1993. This measure in 1993 and 1992 was up from 1991 due to
a shift in the overall product mix to products with lower gross margins. The
significant increase in research and development costs in 1993 resulted
primarily from accelerated development efforts associated with Freedox IV
Solution (tirilazad mesylate) for several indications and other accelerated
development efforts. Reductions realized during 1993 in marketing and
administrative expense were largely offset by an unusual third-quarter charge
to increase provisions for certain liabilities.
HUMAN HEALTH CARE
SALES - Sales of human health care products by major product group and related
growth rates for the period 1993 through 1991 are provided in the table below.
Dollars in Millions 1993 % Change 1992 % Change 1991
---- -------- ---- -------- ----
Central nervous system agents $ 750 (4%) $ 783 (6%) $ 833
Steroids, anti-inflammatory and
analgesic agents 941 5 895 8 828
Antibiotics 423 14 370 15 320
Other products and materials 893 1 887 17 759
------ ------ ------
$3,007 2% $2,935 7% $2,740
====== ====== ======
In 1993, the worldwide increase in sales of human health care products
resulted from a three percent increase in volume, partially offset by a one
percent adverse effect from foreign exchange. There was no net change in
price. U.S. sales grew one percent while non-U.S. sales grew four percent.
The patents on several of the company's most important human health care
products expired during 1993, while marketing exclusivity on Micronase, the
oral antidiabetes agent, will be lost in May 1994. The implications of this
situation are addressed further below and in a separate section of this
review.
U.S. patents on Xanax and Halcion expired in October 1993. The company began
selling generic versions of branded Xanax and Halcion Tablets late in the
third quarter of 1993. Combined sales of Xanax and generic alprazolam, the
anti-anxiety agents, were down due to generic competition arising in the U.S.
during the fourth quarter. In non-U.S. locations, Xanax continued to record
good sales growth. Combined worldwide sales of Halcion and the company's
generic triazolam, the sleep inducing agents, were down from 1992 due
primarily to a decline in non-U.S. sales. In 1992, sales of central nervous
system (CNS) agents were down due to a $106 million or 45 percent
decrease in sales of Halcion. Other issues related to Halcion are discussed
in a later section of this review.
Sales growth for all products was led by Depo-Provera, the injectable
contraceptive introduced in the U.S. for this indication in the first quarter
of 1993. Solu-Medrol, the injectable steroid, and other Medrol products sold
primarily in non-U.S. markets contributed to growth in the steroid, anti-
inflammatory and analgesic product group. Combined sales of Provera and
generic medroxyprogesterone, the progestational agents, recorded growth in
both the U.S. and non-U.S. markets. Motrin IB, the over-the-counter
nonsteroidal analgesic agent, experienced good U.S. sales growth, while sales
of Ansaid, the nonsteroidal anti-inflammatory agent, continued to decline in
1993 due to competition from other companies' branded products. The U.S.
patent on Ansaid expired in February 1993; no third-party generic competition
has appeared.
Sales growth of antibiotics was led by Vantin, the broad-spectrum oral
antibiotic introduced to the U.S. market late in the third quarter of 1992.
The family of Dalacin products (clindamycin) sold in non-U.S. markets also
provided growth in this product class.
Glynase, the oral antidiabetes agent sold primarily in the U.S., led growth in
the other products category, while sales of Micronase declined somewhat for
the year. Atgam, the immunosuppressant, continued to record excellent growth
on a worldwide basis, while sales of Rogaine, the treatment for hair loss,
were down significantly for the year.
OPERATING PROFIT - Operating profit in the human health care segment of $493
million declined 25 percent from $657 million in 1992 as a result of the
restructuring and the unusual charge recorded in the third quarter of 1993.
These costs reduced operating profit in this segment by $213 million for the
year. Restructuring charges in 1992 reduced segment operating profit by $20
million. When compared to 1991, operating profit in 1992 was reduced by the
charges resulting from the adoption of SFAS No. 106.
Geographic area operating profits in Europe declined significantly from 1992
but were partially offset by increases in Japan and the Pacific. Both had
declined significantly in 1992 from 1991 levels. The declines in the European
region were directly related to decreased sales of Halcion and increases in
the provision for uncollectible accounts in both years. In 1993, price
erosion in Japan tempered the increase in that geographic area. The net
effect of unfavorable exchange rates in these markets also reduced 1993
segment operating profits.
Cost of products sold rose at a rate in excess of sales due to a change in
product mix. Compared to the products that lost patent protection in 1993,
the company's generic equivalents and other remaining products have lower
gross margins. Declining sales of Halcion in non-U.S. markets were replaced
by sales of lower-margin products. Segment research and development
expenditures continued to increase at a rate well in excess of sales. The
accelerated testing of Freedox IV Solution; alprostadil, the treatment for
erectile dysfunction; CNS products and anti-AIDS compounds have driven the
increase in this expense. Segment marketing and administrative costs also
increased for the year. Expense savings were more than offset by the
recognition of the unusual charge recorded in this expense category increasing
these costs slightly as a percent of sales.
Various marketing agreements entered in recent years are continuing to
contribute to total revenue including the agreement with Hoechst-Roussel
Pharmaceuticals, Inc., under which Upjohn is jointly marketing Altace, a
treatment for hypertension.
OTHER - In December 1993, Upjohn entered an agreement with Abbott Laboratories
to market the estropipate product, Ogen, beginning in January 1994. This
product will contribute to the company's efforts in the women's health care
market. In late 1993, the company completed an agreement with Yakult Honsha
Co., Ltd. for the rights to develop their anti-cancer compound in the U.S. and
Canada. Under a marketing agreement announced in January 1993, McNeil
Consumer Products Company has granted Upjohn access to certain technologies
and future McNeil over-the-counter products, including several that are
ibuprofen-based. In November 1992, the company entered an agreement with
Boehringer Ingleheim International GmbH to develop and market four compounds
to treat CNS disorders.
AGRICULTURAL
SALES - Agricultural segment sales declined two percent in 1993 compared to
increases of six percent and seven percent in 1992 and 1991, respectively.
The sales decline resulted from a one percent increase in volume offset by a
three percent decline due to foreign exchange. There was no significant
change in price. Non-U.S. sales declined seven percent while domestic sales
increased three percent. Segment sales represented 17 percent of consolidated
sales, unchanged from 1992 and 1991.
Worldwide animal health sales grew four percent in 1993. Good growth in the
U.S. was offset by declines in non-U.S. markets, resulting primarily from
foreign exchange. U.S. animal health sales growth was led by Naxcel/Excenel,
the antibiotic, which also realized growth in non-U.S. markets. Sales of
lincomycin-based products declined both in the U.S. and non-U.S. markets.
Lutalyse, the fertility control agent, achieved good worldwide sales growth
while MGA, the feed additive, provided good growth in the U.S.
Worldwide sales of vegetable and agronomic seeds declined seven percent from
1992. Vegetable seed sales were down somewhat in the U.S. and off
significantly in non-U.S. markets. Early vegetable seed shipments to certain
U.S. customers in 1992 reduced sales recorded in 1993 while lower sales were
recorded in certain European markets due to exchange comparisons and volume
reductions. Sales of agronomic (field crop) seed were also down for the year
in both U.S. and non-U.S. markets. Sales in December 1993 benefited from
accelerated shipments to dealers that were intended to increase the
availability of seed to farmers early in the sales season. The U.S. agronomic
sales decline resulted partially from sales price declines related to the
change from an agent to a dealer basis and from unusually high product returns
associated with the 1993 flooding in the mid-western U.S. Non-U.S. agronomic
sales declined, in spite of strong contributions from corn sales in Mexico,
due to the loss of soybean subsidies in Europe.
In December 1993, the company sold Asgrow Florida Company (AFC) to Terra
Industries, Inc. The sale includes the agricultural chemical business and
certain assets of AFC. The vegetable and agronomic seed sales activities of
AFC will be continued by the company's Asgrow Seed subsidiary. The sale has
been accounted for as a discontinued operation; this review reflects the
results of continuing operations only.
Animal health sales increased to 55 percent of segment sales in 1993, up from
52 percent and 51 percent in 1992 and 1991, respectively. Non-U.S. sales
decreased to 42 percent of the segment total, down from 44 percent in 1992 and
1991.
OPERATING PROFIT - Agricultural segment operating profit decreased 12 percent
for the year to $56 million, down from $64 million in 1992 and $60 million in
1991. Operating profit benefited in both 1993 and 1992 from marketing and
administrative expense controls. In 1993, the decline in this expense
category was also due to the change from an agent to dealer basis for
agronomic products. Gross margins improved for the segment primarily due to
an improvement in product mix. Research and development expense grew as a
percent of sales over 1992. Restructuring costs reduced operating profit in
1993, while costs associated with restructuring and operating charges related
to SFAS No. 106 had a negative effect on 1992 segment operating profit.
CORPORATE AND INTEREST
In 1993, corporate and interest increased to $59 million as compared to $24
million in 1992 primarily as the result of charges associated with the current
year restructuring. The 1991 measure of $60 million included a significant
charge related to the funding of a vehicle to administer the company's
charitable contributions and accruals to increase environmental reserves. No
such charges were required in either 1992 or 1993, while recovery of amounts
related to a joint venture benefited 1992.
The favorable comparison of interest income over interest expense continued in
1993; however, the net interest earned in 1993 was down slightly from the
prior year primarily due to lower interest rates on investments.
INCOME TAXES
The annual effective tax rate for 1993 was 18.1 percent, compared to 22
percent in 1992 and 25 percent in 1991. Excluding the tax benefits related to
the restructuring charges and other unusual items (including adjustments of
deferred tax amounts due to the new tax law), the effective tax rate for 1993
would have been 22 percent, unchanged from the prior year. The lower 1992
rate, when compared to 1991, resulted primarily from a lesser proportion of
non-U.S. earnings taxed at relatively higher rates.
SFAS No. 109 was adopted effective January 1, 1992. The cumulative effect of
this accounting change was a favorable adjustment to 1992 net earnings of $13
million, resulting primarily from adjusting deferred tax balances to reflect
current tax rates.
The Omnibus Budget Reconciliation Act of 1993 will have a significant impact
on the company's net earnings in years subsequent to 1994 due to the
provisions resulting in a decline in the amount of Puerto Rico tax benefits
under Section 936 of the Internal Revenue Code (ultimately reducing the
benefit under the current law by 60 percent).
FINANCIAL CONDITION
1993 1992 1991
---- ---- ----
Working capital (millions) $887 $756 $665
Current ratio 1.8 1.7 1.6
Debt to total capitalization 28.3% 30.4% 24.2%
Return on average equity - continuing
operations before accounting changes 19.6% 27.1% 28.2%
Working capital increased at the end of 1993, with a corresponding improvement
in the current ratio, because medium-term notes were used to reduce
outstanding commercial paper borrowing. Overall, the company increased total
borrowing under two shelf registrations from $138 million at the end of 1992
to $466 million at the end of 1993, using medium-term notes and one discrete
issue. Proceeds of the April 1993 discrete issue of $200 million 5.875% notes
were used to redeem the $200 million 8% notes that were called at par on July
1, 1993. At the end of 1993, the company had $134 million available for
future borrowing under the 1993 and 1991 shelf registrations (see Note I).
In 1993, the ratio of debt to total capitalization decreased from the prior
year-end to 28.3% due to a reduction in total combined short- and long-term
debt. The 1993 and 1992 measures are higher than that of 1991 due to the
costs of restructurings and the cumulative effect of accounting changes that
reduced shareholders' equity. The restructurings and accounting changes also
had the effect of reducing the return on average equity below prior levels.
Net cash provided by operations of $780 million in 1993 compared to $597
million and $687 million in 1992 and 1991, respectively. The current year
increase was primarily due to increased net earnings and reduced accounts
receivable when compared to the prior year. Significant adjustments were made
to cash provided by net earnings to reflect the non-cash effects of the 1993
restructuring charges and the 1992 cumulative effect of accounting changes.
Funds generated by 1993 operations were supplemented by increased issuance of
long-term debt. Cash was used primarily for the purchase of fixed assets,
reduction of commercial paper and refinancing an issue of long-term debt that
had required the payment of higher rates of interest. Investments in 1992
included the acquisition of Sanorania OHG and Delta West Limited. Other
significant uses of cash included payment of dividends and the purchase of
treasury stock.
The Employee Stock Ownership Plan (ESOP) operates as the funding vehicle for
the company's matching contributions under the employee savings plan.
Accordingly, the company's cash flow requirements under the plan will
gradually rise, beginning in 1996, as a function of plan growth and dividend
reinvestment (see Note N). In 1991, the company established a Voluntary
Employee Benefit Association (VEBA) trust for the purpose of partially
prefunding postretirement obligations. Although the company made
contributions to the trust exceeding annual benefit payments by $18 million in
each of the years 1991 through 1993, future contributions are discretionary.
As indicated in Note J, the company has committed to make a series of
investments over a period of years, when and if certain milestones are met, in
a firm that intends to manufacture a blood substitute product.
While the effect of the patent expirations (discussed below) will be adverse
for 1994 and for a period of time thereafter, the company's future cash
provided by operations and borrowing capacity are expected to cover the normal
cash flow needs and planned capital additions through 1994 and for the
foreseeable future.
PATENT EXPIRATIONS
U.S. patent protection expired on several major products during 1993,
including Ansaid (February), Cleocin T (July), Xanax (October) and Halcion
(October). The patent on Micronase expired in 1992; however, an FDA
moratorium on the approval of Abbreviated New Drug Applications (ANDAs) for
products containing glyburide, the generic name for Micronase, continues until
May 1994. No significant patent protection remains on Provera.
The combined U.S. sales for these six products were approximately $1.1 billion
in each of the years 1991 through 1993. Most of these products carry a higher
profit margin than other products sold by the company and contribute a higher
proportion of net earnings than their respective contributions to consolidated
sales.
An FDA moratorium on the approval of ANDAs protects exclusivity for Glynase
until March 1995. The U.S. patent protection for Rogaine will expire in
February 1996.
The company has a supply and distribution agreement with Geneva
Pharmaceuticals, Inc. to market generic versions of Xanax Tablets
(alprazolam); Halcion Tablets (triazolam); Ansaid Tablets (flurbiprofen);
Cleocin T Topical Lotion, Topical Gel, and Topical Solution (clindamycin
topical); and Micronase Tablets (glyburide) as part of an overall strategy to
address generic competition. Company sales of the generic versions of
alprazolam were significant in the third and fourth quarters of 1993. This
generic strategy is intended to supplement the company's ongoing efforts to
market the current branded products.
At this date it is difficult to predict the full effect of these patent
expirations and the related generic competition on the consolidated sales,
earnings and liquidity of the company. The combined sales revenue from these
products is expected to decrease rapidly from current levels once the full
effects of generic competition are encountered. Gross profit contributed by
these products and their generic versions is also expected to decline in 1994
and future years. The generic business strategy, sales growth by existing
products, the acquisition of products, the ongoing restructuring of business
operations, and other efforts to contain costs and enhance revenues are not
expected to fully offset the effects of the patent expirations in the near-
term. It is the company's intent to continue the current level of investment
in research and development for the foreseeable future. As a result, the
company expects earnings in 1994 to be below 1993 levels before restructuring
charges. Earnings in years subsequent to 1994 depend on the success of new
products and the strategies identified above.
HALCION
Halcion, the sleep-inducing agent, has been the subject of adverse publicity
and regulatory review; and since October 1991, several countries have
suspended registration or marketing privileges for Halcion. In June 1993, the
United Kingdom Licensing Authority revoked the license for Halcion despite the
recommendations of two government-appointed panels. The company believes
there is no scientific basis for the Licensing Authority's action and is
challenging the decision in court.
Worldwide sales of Halcion and the company's generic triazolam were $121
million in 1993, $131 million in 1992, and $237 million in 1991. Loss of U.S.
patent protection on Halcion in October 1993 did not have a significant effect
on product sales in 1993, but there can be no assurance that sales will
continue at the same level in the future. Worldwide, the company is a
defendant in approximately 100 product liability lawsuits involving Halcion,
some of which seek significant punitive damages from the company, as well as
two purported shareholder class action suits involving the adequacy of
disclosures and clinical testing concerning Halcion. The outcome of this
litigation cannot be predicted (see Note K). In addition, the company
continues to incur costs associated with post-marketing and dose-response
studies as well as other expenses. At this time, the company is unable to
predict the ultimate effect of the issues surrounding Halcion on future
profitability.
OTHER ITEMS
The Financial Accounting Standards Board (FASB) has issued SFAS No. 115 which
provides new rules pertaining to accounting for certain investments in debt
and equity securities that must be adopted no later than 1994. While the
company has invested in securities subject to these rules, adoption of this
accounting standard is not expected to have a material effect on the earnings
or financial position of the company.
The company is subject to increasing environmental legislation and regulation.
Environmental compliance costs, including capital expenditures related to
future production, have been increasing each year. The company is committed
to approximately $25 million in additional capital spending over the next year
to control air emissions at the company's Kalamazoo, Mich. production site.
Additional spending at this site is expected in the near future related to
groundwater remediation and improved control of surface water discharges.
Other projects related to the prevention, mitigation and elimination of
environmental effects are being planned and implemented worldwide (see Note
J).
The company is involved in several administrative and judicial proceedings
relating to environmental matters, including actions brought by the U.S.
Environmental Protection Agency (EPA) and state environmental agencies for
cleanup at approximately 40 "Superfund" or comparable sites including West KL
Avenue Landfill in Kalamazoo County, Mich. The company is not able to
estimate its ultimate financial exposure in connection with these
environmental situations due to the potential existence of joint and several
liability, possible recovery from other potentially responsible parties, the
levels of cleanup to be required, the technologies to be employed and the
resulting cost thereof. An appropriate accrual has been recorded, but added
costs could be incurred in connection with the various remedial actions.
These costs should not have a material effect on the company's consolidated
financial position (see Notes J and K).
Negotiations continue in connection with remediation of the site of the
company's discontinued industrial chemical operations in North Haven, Conn.
The town is seeking to force the company to remove a sludge pile located on
the plant site. As a result of the detection of PCBs in the pile in
concentrations that may require compliance with additional laws and
regulations relative to their disposal, coupled with significant changes in
regulations relating to disposal of hazardous waste, the cost of off-site
disposal (if, in fact, such disposal is possible, legal and ultimately
required) could be in the range of $200 million. The company cannot predict
the resolution of the sludge pile issue at the present time. Because the
company believes in-place closure of the sludge pile is the most responsible
course of action, and the Connecticut Department of Environmental Protection
and the U.S. EPA had earlier approved the company's plan for in-place closure
of the sludge pile, which is substantially less expensive than removal, the
company has not established any reserves for the cost of off-site disposal.
The company is continuing to evaluate environmental conditions, other than the
sludge pile, at the North Haven site and believes that it has established
sufficient reserves to cover the costs of any actions required.
Significant changes are occurring in both the U.S. and non-U.S. pharmaceutical
markets which include decreased pricing flexibility and a move towards managed
care. Future changes are likely in the pricing of products including
establishing prices for new products, changing prices for existing products
and pricing between geographic markets. To a lesser extent, concern has been
expressed regarding marketing and promotional practices followed by the
industry. In the U.S. Congress, various health care reform plans are being
debated and considered for legislative action. It is not possible to predict
the actual content of legislation that may be adopted.
<PAGE>
<PAGE>
REPORTS OF MANAGEMENT AND INDEPENDENT ACCOUNTANTS
REPORT OF MANAGEMENT
The consolidated financial statements presented in this annual report have
been prepared by the company in conformity with generally accepted accounting
principles. The management of The Upjohn Company is responsible for all
information and representations made in this report and for the integrity and
objectivity of the financial statements. The statements include informed
judgments and estimates necessary for their preparation.
The company maintains systems of internal accounting controls that provide
reasonable assurance that assets are safeguarded from unauthorized use or
disposition, that transactions are properly recorded and that financial
statements conform in all material respects with generally accepted accounting
principles. Internal accounting control systems and related financial
policies and procedures are documented and communicated to employees
responsible for accounting and reporting activities. The systems are
continually reviewed and modified, where appropriate.
Internal auditors, using audit programs designed to determine compliance with
financial policies and procedures and the systems of internal accounting
controls, independently monitor the effectiveness of the company's application
of these control systems. Their findings are reported to operating management
for resolution as needed.
The selection of the company's independent public accountants, Coopers &
Lybrand, has been approved by the Board of Directors. The examination of the
company's consolidated financial statements by the independent accountants is
made in accordance with generally accepted auditing standards and is
coordinated with the company's internal audit program.
An audit committee of the Board of Directors, composed solely of directors who
are not employees of the company, oversees the company's financial reporting
process. The committee meets with and reviews the activities of corporate
financial management, internal auditors and public accountants to ascertain
that each is properly discharging its responsibilities. The public
accountants and internal auditors have access to the audit committee to
discuss the results of their work, the adequacy of internal accounting
controls and the quality of financial reporting.
John L. Zabriskie, Ph.D.
Chairman of the Board
and Chief Executive Officer
Robert C. Salisbury
Executive Vice President for Finance
and Chief Financial Officer
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To The Shareholders and Board of Directors
The Upjohn Company
We have audited the consolidated balance sheets of The Upjohn Company and
Subsidiaries as of December 31, 1993 and 1992 and the related consolidated
statements of earnings, shareholders' equity, cash flows and segment
operations for the years 1993, 1992 and 1991. These financial statements are
the responsibility of The Upjohn Company's management. Our responsibility is
to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards 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. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above (pages
26 to 41) present fairly, in all material respects, the consolidated financial
position of The Upjohn Company and Subsidiaries as of December 31, 1993 and
1992, and the consolidated results of their operations and their cash flows
for the years 1993, 1992 and 1991, in conformity with generally accepted
accounting principles.
As discussed in Notes D and R to the consolidated financial statements, the
company changed its practice of reporting certain majority-owned subsidiaries
from a fiscal year ending November 30 to a calendar year ending December 31
and its method of accounting for postemployment benefits during 1993. As
discussed in Notes D, E and R, in 1992 the company changed its method of
accounting for income taxes and other postretirement benefits.
Coopers & Lybrand
Chicago, Illinois
January 31, 1994
<PAGE>
<PAGE>
CONSOLIDATED STATEMENTS OF EARNINGS
The Upjohn Company and Subsidiaries
Dollar amounts in thousands, except per-share data
For the years ended December 31 1993 1992 1991
---- ---- ----
Operating revenue:
Net sales $3,611,180 $3,548,570 $3,320,249
Other revenue 42,184 29,941 24,514
---------- ---------- ----------
Total 3,653,364 3,578,511 3,344,763
---------- ---------- -------
Operating costs and expenses:
Cost of products sold 919,667 904,756 804,955
Research and development 642,033 581,534 522,875
Marketing and administrative 1,409,149 1,389,734 1,301,400
Restructuring 216,000 23,956 5,000
---------- ---------- ----------
Total 3,186,849 2,899,980 2,634,230
---------- ---------- ----------
Operating income 466,515 678,531 710,533
Interest income 54,155 55,295 51,511
Interest expense (31,496) (31,253) (19,956)
Foreign exchange (losses) gains (4,926) (4,212) 4,165
All other, net 6,174 (1,654) (30,700)
---------- ---------- ----------
Earnings from continuing operations before
income taxes and minority equity 490,422 696,707 715,553
Provision for income taxes 89,001 153,300 178,700
Minority equity in (losses) earnings (1,062) (1,034) 2,685
---------- ---------- ----------
Earnings from continuing operations 402,483 544,441 534,168
Discontinued operation:
Earnings from operations (net of tax) 3,894 2,776 3,251
Gain on disposal of discontinued
operation (net of tax) 4,926
---------- ---------- ----------
Earnings before cumulative effect of
accounting changes 411,303 547,217 537,419
Cumulative effect of accounting changes
(net of tax) (18,906) (222,895)
---------- ---------- ----------
Net earnings 392,397 324,322 537,419
Dividends on preferred stock (net of tax) 12,125 12,084 12,356
---------- ---------- ----------
Net earnings on common stock $ 380,272 $ 312,238 $ 525,063
========== ========== ==========
Earnings per common share:
Primary
- Earnings from continuing operations
before accounting changes $2.24 $3.03 $2.94
- Discontinued operation .05 .01 .02
- Cumulative effect of accounting changes (.11) (1.26)
----- ----- -----
- Net earnings $2.18 $1.78 $2.96
===== ===== =====
Fully diluted
- Earnings from continuing operations
before accounting changes $2.19 $2.94 $2.85
- Discontinued operation .04 .01 .02
- Cumulative effect of accounting changes (.10) (1.21)
----- ----- -----
- Net earnings $2.13 $1.74 $2.87
===== ===== =====
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
<PAGE>
CONSOLIDATED BALANCE SHEETS
The Upjohn Company and Subsidiaries
Dollar amounts in thousands
December 31 1993 1992
---- ----
Current assets:
Cash and cash equivalents $ 291,750 $ 239,513
Trade accounts receivable, less allowance of $52,451
(1992:$36,425) 723,858 764,259
Inventories 570,923 540,668
Deferred income taxes 192,055 126,299
Other 166,487 214,205
---------- ----------
Total current assets 1,945,073 1,884,944
---------- ----------
Net assets of discontinued operation 26,010
---------- ----------
Investments at cost 644,431 569,911
---------- ----------
Property, plant and equipment at cost:
Land 52,314 48,996
Buildings and leasehold improvements 1,150,306 1,100,646
Equipment 1,449,009 1,342,656
Construction in process 331,647 255,352
---------- ----------
2,983,276 2,747,650
Less allowance for depreciation 1,212,006 1,082,894
---------- ----------
Net property, plant and equipment 1,771,270 1,664,756
---------- ----------
Other noncurrent assets 455,634 449,206
---------- ----------
Total assets $4,816,408 $4,594,827
========== ==========
Current liabilities:
Commercial paper $ $ 187,163
Short-term debt, including current maturities of
long-term debt 44,122 41,428
Accounts payable 160,609 224,759
Compensation and vacation 80,204 83,150
Dividends payable 64,170 64,595
Income taxes payable 181,395 181,613
Other 527,465 346,035
---------- ----------
Total current liabilities 1,057,965 1,128,743
---------- ----------
Long-term debt 526,837 402,883
---------- ----------
Guarantee of ESOP debt 275,000 275,000
---------- ----------
Postretirement benefit cost 382,123 373,880
---------- ----------
Other liabilities 407,071 319,969
---------- ----------
Commitments and contingent liabilities (Notes J and K)
Deferred income taxes 24,318 23,605
---------- ----------
Minority equity in subsidiaries 57,444 55,204
---------- ----------
Shareholders' equity:
Preferred stock, one dollar par value; authorized
12,000,000 shares, issued Series B convertible 7,379
shares at stated value (1992:7,400 shares) 297,387 298,224
Common stock, one dollar par value; authorized
600,000,000 shares, issued 190,589,607 shares 190,590 190,590
Capital in excess of par value 66,406 66,668
Retained earnings 2,535,010 2,412,028
Note receivable from ESOP Trust (ESOT) (31,548) (29,697)
ESOP deferred compensation (251,301) (258,254)
Currency translation adjustments (114,198) (89,145)
Treasury stock at cost, 17,157,689 shares
(1992:16,008,679 shares) (606,696) (574,871)
---------- ----------
Total shareholders' equity 2,085,650 2,015,543
---------- ----------
Total liabilities and shareholders' equity $4,816,408 $4,594,827
========== ==========
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
The Upjohn Company and Subsidiaries
Dollar amounts in thousands
For the years ended December 31 1993 1992 1991
---- ---- ----
Preferred stock:
Balance at beginning of year $ 298,224 $ 299,523 $ 299,851
Redemptions and conversions (837) (1,299) (328)
---------- ---------- ----------
Balance at end of year 297,387 298,224 299,523
---------- ---------- ----------
Common stock:
Balance at beginning of year 190,590 190,592 189,648
Stock option, incentive and dividend
reinvestment plans (2) 944
---------- ---------- ----------
Balance at end of year 190,590 190,590 190,592
---------- ---------- ----------
Capital in excess of par value:
Balance at beginning of year 66,668 68,400 37,695
Stock option, incentive and dividend
reinvestment plans (262) (1,732) 30,705
---------- ---------- ----------
Balance at end of year 66,406 66,668 68,400
---------- ---------- ----------
Retained Earnings:
Balance at beginning of year 2,412,028 2,348,318 2,045,143
Net earnings 392,397 324,322 537,419
Cash dividends declared (257,290) (248,528) (221,888)
Dividends on preferred stock (net of tax) (12,125) (12,084) (12,356)
---------- ---------- ----------
Balance at end of year 2,535,010 2,412,028 2,348,318
---------- ---------- ----------
Note receivable from ESOP Trust (ESOT):
Balance at beginning of year (29,697) (27,946) (26,300)
Rollover of accumulated interest (1,851) (1,751) (1,646)
---------- ---------- ----------
Balance at end of year (31,548) (29,697) (27,946)
---------- ---------- ----------
ESOP deferred compensation:
Balance at beginning of year (258,254) (263,230) (270,012)
ESOP expense recognized in excess of cash
contributions 6,953 4,976 6,782
---------- ---------- ----------
Balance at end of year (251,301) (258,254) (263,230)
---------- ---------- ----------
Currency translation adjustments:
Balance at beginning of year (89,145) (57,323) (29,482)
Translation adjustments, net of hedges (25,053) (31,823) (27,847)
Income taxes 1 6
---------- ---------- ----------
Balance at end of year (114,198) (89,145) (57,323)
---------- ---------- ----------
Treasury stock:
Balance at beginning of year (574,871) (553,182) (466,918)
Stock option, incentive and dividend
reinvestment plans 22,264 27,498 11,037
Purchases of treasury stock (54,089) (49,187) (97,301)
---------- ---------- ----------
Balance at end of year (606,696) (574,871) (553,182)
---------- ---------- ----------
Total shareholders' equity $2,085,650 $2,015,543 $2,005,152
========== ========== ==========
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
The Upjohn Company and Subsidiaries
Dollar amounts in thousands
For the years ended December 31 1993 1992 1991
---- ---- ----
Cash flows from operations:
Net earnings $392,397 $324,322 $537,419
Adjustments to reconcile net earnings to net
cash provided (required) by operations:
Depreciation and amortization 173,500 165,581 141,988
Deferred income taxes (82,407) 23,001 (52,223)
Restructuring 216,000 23,956 5,000
Cumulative effect of accounting changes
(net of tax) 18,906 222,895
Other 4,609 (15,312) (12,072)
Changes in:
Accounts receivable 31,167 (100,035) (94,075)
Inventory (53,344) (28,382) (63,895)
Payables and accruals (52,007) 9,779 100,128
Income taxes payable 1,279 (69,032) 45,779
Other current and noncurrent assets 36,613 (13,884) 9,611
Other current and noncurrent liabilities 93,717 54,180 68,969
-------- -------- --------
Net cash provided by operations 780,430 597,069 686,629
-------- -------- --------
Cash flows provided (required) by investment
activities:
Property, plant and equipment additions (323,510) (295,399) (258,138)
Proceeds from sale of property, plant and
equipment 17,732 5,956 3,225
Proceeds from sale of investments 184,154 226,824 183,958
Purchase of investments (249,664) (436,910) (422,786)
Proceeds from the sale of discontinued
operation 31,000
Other (1,079) 3,187 (2,495)
-------- -------- --------
Net cash required by investment activities (341,367) (496,342) (496,236)
-------- -------- --------
Cash flows provided (required) by financing
activities:
Proceeds from issuance of debt 340,166 121,867 48,277
Repayment of debt (215,720) (16,247) (26,572)
Debt maturing in three months or less (191,238) 133,333 48,736
Dividends paid to shareholders (265,337) (252,028) (223,067)
Purchase of treasury stock (54,089) (49,187) (97,301)
Other 8,984 15,394 28,695
-------- -------- --------
Net cash required by financing activities (377,234) (46,868) (221,232)
-------- -------- --------
Effect of exchange rate changes on cash (9,592) (2,464) 3,260
-------- -------- --------
Net change in cash and cash equivalents 52,237 51,395 (27,579)
Cash and cash equivalents, beginning of year 239,513 188,118 215,697
-------- -------- --------
Cash and cash equivalents, end of year $291,750 $239,513 $188,118
======== ======== ========
Cash paid during the year for:
Interest (net of capitalized) $ 34,599 $ 44,219 $ 34,129
Income taxes $154,984 $124,249 $126,859
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
<PAGE>
CONSOLIDATED STATEMENTS OF SEGMENT OPERATIONS
The Upjohn Company and Subsidiaries
Dollar amounts in thousands
Industry Segments 1993 1992 1991
---- ---- ----
Net sales:
Human health care $3,007,361 $2,935,444 $2,739,863
Agricultural 603,819 613,126 580,386
---------- ---------- ----------
$3,611,180 $3,548,570 $3,320,249
========== ========== ==========
Operating profit:
Human health care $ 493,436 $ 656,821 $ 715,343
Agricultural 55,769 63,615 60,329
---------- ---------- ----------
549,205 720,436 775,672
Corporate and interest (58,783) (23,729) (60,119)
---------- ---------- ----------
Earnings from continuing operations
before income taxes, minority equity
and accounting changes $ 490,422 $ 696,707 $ 715,553
========== ========== ==========
Identifiable assets, December 31:
Human health care $3,003,994 $2,855,110 $2,576,569
Agricultural 952,623 919,587 816,141
Corporate 859,791 794,120 720,077
Discontinued operation (net) 26,010 22,933
---------- ---------- ----------
$4,816,408 $4,594,827 $4,135,720
========== ========== ==========
Depreciation and amortization:
Human health care $ 134,974 $ 124,988 $ 112,472
Agricultural 32,234 29,662 26,169
Corporate 6,292 10,594 3,188
---------- ---------- ----------
$ 173,500 $ 165,244 $ 141,829
========== ========== ==========
Capital expenditures:
Human health care $ 283,000 $ 264,000 $ 235,000
Agricultural 36,000 27,000 22,000
Corporate 5,000 6,000 18,000
---------- ---------- ----------
$ 324,000 $ 297,000 $ 275,000
========== ========== ==========
Geographic Areas
Net sales (includes exports):
United States $2,702,303 $2,653,835 $2,527,524
Europe 751,885 787,476 730,525
Japan and Pacific 395,914 355,859 327,474
Other foreign 267,676 247,883 231,616
Eliminations (Note S) (506,598) (496,483) (496,890)
---------- ---------- ----------
$3,611,180 $3,548,570 $3,320,249
========== ========== ==========
Operating profit:
United States $ 558,245 $ 662,857 $ 648,106
Europe (40,666) 19,474 69,732
Japan and Pacific 25,221 7,590 16,918
Other foreign 6,975 38,399 42,973
Eliminations (570) (7,884) (2,057)
---------- ---------- ----------
549,205 720,436 775,672
Corporate and interest (58,783) (23,729) (60,119)
---------- ---------- ----------
Earnings from continuing operations
before income taxes, minority equity
and accounting changes $ 490,422 $ 696,707 $ 715,553
========== ========== ==========
Identifiable assets, December 31:
United States $2,790,294 $2,618,675 $2,303,687
Europe 656,988 696,962 615,954
Japan and Pacific 428,850 383,574 378,174
Other foreign 174,553 166,779 178,304
Corporate 859,791 794,120 720,077
Discontinued operation (net) 26,010 22,933
Eliminations (94,068) (91,293) (83,409)
---------- ---------- ----------
$4,816,408 $4,594,827 $4,135,720
========== ========== ==========
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Dollar amounts in thousands, except per-share data
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation - The consolidated financial statements include
the accounts of the company and all majority-owned subsidiaries. Effective
January 1, 1993, the subsidiaries with fiscal years ended November 30 changed
to a calendar year basis (see Note D).
Foreign Exchange - Results of operations for foreign subsidiaries, other than
those located in highly inflationary countries, are translated using the
average exchange rates during the period, while assets and liabilities are
translated into U.S. dollars using current 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
earnings statement.
Inventories - Inventories are valued at the lower of cost or market. Cost is
determined by the last-in, first-out (LIFO) method for substantially all
domestic inventories and the first-in, first-out (FIFO) method for foreign
inventories.
Futures Contracts - The company uses futures contracts and other instruments
to hedge a portion of its corn and soybean seed inventories. These contracts
are accounted for as hedges and, accordingly, the gain or loss is included as
part of the inventory cost.
Property, Plant and Equipment - Property, plant and equipment are carried at
cost. Depreciation is computed principally on the straight-line method for
financial reporting, while accelerated methods are used for income tax
purposes. Maintenance and repair costs are charged to earnings as incurred.
Costs of renewals and improvements are capitalized. Upon retirement or other
disposition of property, any gain or loss is included in earnings.
Fair Value of Financial Instruments - In accordance with Statement of
Financial Accounting Standards (SFAS) No. 107, fair value disclosures are
provided in the financial statements for all material financial instruments to
which the company is a party. For certain classes of short-term financial
instruments, the carrying amount on the balance sheet approximates the fair
value of those instruments.
Income Taxes - In accordance with SFAS No. 109, 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 year in which
the differences are expected to reverse. The company provides for deferred
income taxes on subsidiaries' earnings that are not considered to be
permanently invested in those subsidiaries.
Cash Equivalents - The company considers all highly liquid debt instruments
with an original maturity of three months or less to be cash equivalents.
Foreign Exchange Forward and Option Contracts - The company uses foreign
exchange forward and option contracts to manage exposure to currency rate
fluctuations. These exchange agreements generally qualify for accounting as
designated hedges. The realized and unrealized gains and losses on these
contracts are deferred and included as a component of the related transaction.
Contracts that do not qualify as hedges for accounting purposes are marked-to-
market with the resulting gains and losses recognized in other income or
expense.
Other - Certain reclassifications have been made to conform prior years' data
to the current presentation. In 1992 and 1991, the Consolidated Earnings
Statements reflect reclassification of certain expenses from marketing and
administrative to research and development. This change more accurately
reflects the underlying activity and conforms to industry practice.
B. DISCONTINUED OPERATION
In December 1993, the company sold the assets of Asgrow Florida Company (AFC)
to Terra Industries, Inc. The sale represents complete divestiture of the
company's operations in the agricultural chemical business. The vegetable and
agronomic seed sales activities of AFC will be continued by the company's
Asgrow Seed subsidiary. The gain on the sale, amounting to $4,926 on an
after-tax basis, included accruals for certain retained liabilities.
Operating results for the discontinued agricultural chemical operation were:
Period ended December 31 1993 1992 1991
---- ---- ----
Operating revenue $84,517 $90,355 $81,550
======= ======= =======
Earnings before income taxes 6,294 3,476 4,651
Income taxes (2,400) (700) (1,400)
------- ------- -------
Earnings from operations $ 3,894 $ 2,776 $ 3,251
======= ======= =======
C. RESTRUCTURING
The company has incurred restructuring charges in each of the past three
years. In the third quarter of 1993, restructuring charges of $216,000
($159,177 after tax) were recorded to reflect the costs associated with a
worldwide work-force reduction of approximately 1,500 employees ($141,875);
elimination or reduction of excess manufacturing capacity in 14 plants
worldwide over the next several years ($31,631); the write-down of certain
intangibles ($19,000); facilities and equipment ($18,404); and other ($5,090).
In 1992, net restructuring charges of $23,956 ($14,536 after tax) were
incurred for a special voluntary early retirement program for approximately
500 employees in the U.S. and Puerto Rico, and staff reductions in various
non-U.S. locations.
In 1991, restructuring charges totaling $5,000 ($3,135 after tax) were
incurred for the write-down of certain facilities and equipment.
D. ACCOUNTING CHANGES
During 1993 and 1992, the company adopted three accounting statements and made
one other accounting change. The effects of these changes on prior years were
reported as the cumulative effect of accounting changes (net of tax). The
changes were as follows:
1993 1992
---- ----
Change in subsidiary reporting year $ 7,791 $
Adoption of: SFAS No. 112 11,115
SFAS No. 106 235,677
SFAS No. 109 (12,782)
------- --------
Cumulative effect of accounting changes $18,906 $222,895
======= ========
Effective January 1, 1993, the company's subsidiaries that previously reported
on a fiscal year ending November 30 changed their reporting period to* a
calendar-year basis. The change was made to reflect the results of operations
and financial position of these subsidiaries on a more timely basis and to
increase operating and planning efficiency. The results of operations of
these subsidiaries for the period December 1 through December 31, 1992,
constituted the accounting change that reduced after-tax earnings per share by
$.04. The cash flows of these subsidiaries for the thirteen-month period
ended December 31, 1993, are reflected in the Consolidated Statements of Cash
Flows.
Including December 1993 instead of December 1992 in the results of operations
for the year 1993 for approximately 50 subsidiaries involved in the accounting
change, had the effect of increasing earnings from continuing operations by
$33,466 ($.19 per share) when contrasted to the fiscal year prior practice.
The pro forma effect of reporting 1992 on a calendar-year basis would have
reduced earnings from continuing operations by $29,095 ($.17 per share).
These effects were due to several factors. In most subsidiaries, December
1992 sales were below both those of 1993 and 1991. In the non-U.S.
pharmaceutical subsidiaries, circumstances related to health programs in Japan
and certain European countries resulted in high December 1993 sales. December
1991 included sales to certain Central European customers that did not occur
in December 1992. In 1992, sales to certain vegetable processor customers
were significantly below those of 1993 when favorable price discounts passed
on savings in storage costs. Sales of agronomic seed in December 1992 were
also significantly lower than December 1993 when shipments were accelerated to
dealers with the intent of increasing the availability of seed to farmers
early in the sales season.
The company also adopted SFAS No. 112, "Employers' Accounting for
Postemployment Benefits," which pertains to benefits provided to former or
inactive employees after employment but before retirement. This change became
effective January 1, 1993. The cumulative effect of this change reduced
after-tax earnings per share by $.07. Effective January 1, 1992, the company
adopted SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other
Than Pensions," which requires accrual accounting for these benefits rather
than cash-basis accounting. The cumulative effect of this change reduced
after-tax earnings per share by $1.33. The incremental charge against 1992
earnings from adoption of SFAS No. 106 reduced pretax earnings by $32,000 for
the year and was spread evenly to each of the four quarters, reducing net
earnings by approximately $6,000 per quarter (see Note R).
Also effective January 1, 1992, the company adopted SFAS No. 109, "Accounting
for Income Taxes," which had the cumulative effect of increasing after-tax
earnings per share by $.07 (see Note E).
E. PROVISION FOR INCOME TAXES
Earnings from continuing operations before income taxes and minority equity
were as follows:
Years ended December 31 1993 1992 1991
---- ---- ----
Domestic $497,073 $635,543 $583,389
Foreign (6,651) 61,164 132,164
-------- -------- --------
$490,422 $696,707 $715,553
======== ======== ========
Provisions for income taxes on continuing operations consisted of:
1993 1992 1991
Currently payable: ---- ---- ----
Domestic $105,591 $ 81,000 $145,300
Foreign 50,241 35,200 62,600
State 16,269 10,500 13,300
-------- -------- --------
172,101 126,700 221,200
Deferred: -------- -------- --------
Domestic (50,200) 33,300 (38,400)
Foreign (25,900) (4,500) (3,500)
State (7,000) (2,200) (600)
-------- -------- --------
(83,100) 26,600 (42,500)
-------- -------- --------
$ 89,001 $153,300 $178,700
======== ======== ========
Components of net deferred tax assets were as follows:
Years ended December 31 1993 1992
---- ----
Taxed profit on intercompany transfers $ 34,675 $ 33,878
Employee benefit plans 48,483 42,647
Accounts receivable reserves 21,404 21,614
Postretirement benefits other than pensions 154,031 138,748
Environmental and product accruals 105,889 81,279
Restructuring 38,819
Alternative minimum tax 23,307 12,439
All other 60,515 54,177
-------- --------
Total deferred tax assets (net of valuation allowance) 487,123 384,782
-------- --------
Depreciation 126,336 127,474
Withholding taxes 69,689 57,578
Pension plans 47,583 51,796
Capitalized interest 30,617 26,145
All other 17,953 19,095
-------- --------
Total deferred tax liabilities 292,178 282,088
-------- --------
Net deferred tax assets $194,945 $102,694
======== ========
Deferred income taxes are included in the Consolidated Balance Sheets as
follows:
December 31 1993 1992
---- ----
Current assets $192,055 $126,299
Noncurrent assets 27,208
Noncurrent liabilities (24,318) (23,605)
-------- --------
Net deferred tax assets $194,945 $102,694
======== ========
Certain deferred tax assets resulting from the third-quarter restructuring are
not likely to be realized. A valuation allowance of $28,239 was provided for
those and other deferred tax assets.
Differences between the effective income tax rate and the U.S. statutory tax
rate were as follows:
Percent of pretax income 1993 1992 1991
---- ---- ----
Statutory tax rate 35.0% 34.0% 34.0%
Benefit of tax exemptions in Puerto Rico (22.2) (11.0) (12.5)
Foreign earnings taxed at a different
effective rate 3.3 (1.8) 2.1
All other, net 2.0 .8 1.4
---- ---- ----
18.1% 22.0% 25.0%
==== ==== ====
The effective tax rate for 1993 was 22.0 percent excluding the favorable tax
effect resulting from the third-quarter restructuring charges and other
unusual items.
A manufacturing subsidiary operates in Puerto Rico under a tax exemption
grant, expiring in 1998, which provides for partial exemption from Puerto Rico
income and property taxes. The grant, together with U.S. Internal Revenue
Code Section 936, reduced income taxes by approximately $108,900 ($.62 per
share) in 1993; $77,000 ($.44 per share) in 1992; and $90,000 ($.51 per share)
in 1991. Deferred withholding taxes have been provided on accumulated
earnings in Puerto Rico. These taxes range from 3.5 percent to 10 percent and
are payable when dividends are remitted.
At December 31, 1993, undistributed earnings of foreign subsidiaries,
considered permanently invested, for which deferred income taxes have not been
provided, were $321,627.
F. EARNINGS PER COMMON SHARE
Primary earnings per share are computed by dividing net earnings available to
holders of common stock by the sum of the weighted average number of shares of
common stock outstanding plus common share equivalents principally in the form
of employee stock option awards.
Fully diluted earnings per share have been computed assuming that all of the
convertible preferred stock is converted into common shares. Under this
assumption, the weighted average number of common shares outstanding is
increased accordingly, and net earnings is reduced by the amount of an
incremental Employee Stock Ownership Plan (ESOP) contribution. This
incremental contribution is the net-of-tax difference between the income the
ESOP would have received on the preferred stock and the assumed dividend yield
to be earned on the common shares.
The number of shares used for computing primary and fully diluted earnings per
share was as follows (in thousands):
1993 1992 1991
---- ---- ----
Primary 174,372 175,864 177,527
Fully diluted 181,775 183,285 184,963
G. INVENTORIES
Inventories are summarized as follows:
December 31 1993 1992
Estimated replacement cost (FIFO basis): ---- ----
Pharmaceutical and other finished products $174,615 $187,070
Seeds 171,716 163,413
Raw materials, supplies and work in process 375,170 329,580
-------- --------
721,501 680,063
Less reduction to LIFO cost (150,578) (139,395)
-------- --------
$570,923 $540,668
======== ========
Inventories valued on the LIFO method had an estimated replacement cost (FIFO
basis) of $461,090 at December 31, 1993, and $421,924 at December 31, 1992.
H. INVESTMENTS
Investments, at cost, held by a subsidiary operating in Puerto Rico were:
December 31 1993 1992
---- ----
U.S. government issued or guaranteed $308,750 $246,934
Other 335,681 322,977
-------- --------
Total cost $644,431 $569,911
======== ========
Estimated fair value $671,000 $596,000
======== ========
The fair value of investments is based on estimates received from brokers, by
reference to a quotation service and by computations based on future cash
flows that were applied individually to the instruments as applicable.
I. LINES OF CREDIT AND LONG-TERM DEBT
Unused domestic bank credit facilities at December 31, 1993, totaled $100,000,
all available to support commercial paper borrowings. These lines of credit
do not require compensating balances; however, a nominal commitment fee is
paid.
Total credit facilities available to various foreign subsidiaries at December
31, 1993, were $112,742, of which $72,668 were unused. The facilities are
subject to various fee and compensating balance arrangements.
Long-term debt consisted of the following:
December 31 1993 1992
8% Notes due 1996 $ $200,000
7.5% Industrial Revenue Bonds due 2023 40,000 40,000
5.35-7.95% Medium-Term Notes due 1997-1999 266,000 138,150
5.875% Notes due 2000 200,000
Other 24,083 32,930
Current maturities (3,246) (8,197)
-------- --------
Total long-term debt at cost $526,837 $402,883
======== ========
Estimated fair value of long-term debt $542,000 $411,000
======== ========
The Medium-Term Notes were issued under 1993 and 1991 shelf registrations
filed with the Securities and Exchange Commission. Pursuant to these
registrations, the company may from time to time issue notes with varying
maturities, interest rates and amounts up to an aggregate total of $400,000
($100,000 under the 1993 registration and $300,000 under the 1991
registration). At December 31, 1993, $34,000 remained available for issuance
under the 1991 registration and $100,000 under the 1993 registration.
In April 1993, the company sold $200,000 of 5.875% notes due in 2000. The
proceeds of this sale were used to redeem the 8% notes due in 1996, which were
called by the company on July 1, 1993.
The company has guaranteed $275,000 of ESOP 9.79% notes due in 2004. The
estimated fair value of these notes is $333,000. Principal payments do not
begin until 1995, at which time they will constitute compensation expense (see
Note N).
The fair value of the long-term and guaranteed debt instruments was estimated
by reference to the public exchange market for the publicly traded long- and
medium-term securities of the company. Estimates of fair value developed by
the company were utilized for other long-term debt.
Annual aggregate maturities of long-term debt, during the four years
subsequent to 1994 are: 1995 - $7,357; 1996 - $9,799; 1997 - $41,701; and
1998 - $174,789.
J. COMMITMENTS AND OTHER CONTINGENT LIABILITIES
Future minimum payments under noncancellable operating leases at December 31,
1993, approximately 59 percent real estate and 41 percent equipment, are:
1994 - $31,011; 1995 - $14,858; 1996 - $5,980; 1997 - $3,031; 1998 - $2,212;
and later years - $1,591. The company leases an immaterial amount of
equipment under capital leases.
Capital asset spending approved for construction and equipment but unexpended
at December 31, 1993, was approximately $229,000.
The company has a development and license agreement with the manufacturer of a
blood substitute currently under development. The agreement calls for
investments by the company that could aggregate $179,000 over a period of
years as certain development milestones are achieved. As of December 31,
1993, the company has invested $50,000. Also, pursuant to the agreement the
company has committed to conduct clinical development, which resumed in early
1993.
The Consolidated Balance Sheets also include accruals for estimated product
and environmental liabilities. The latter includes exposures related to
discontinued operations, including the industrial chemical facility at North
Haven, Conn., and several "Superfund" sites (see Note K).
Among the sites on the U.S. Environmental Protection Agency's (EPA) National
Priorities List, in connection with which the company has been identified as a
potentially responsible party, is the West KL Avenue Landfill located in
Kalamazoo County, Mich. The company has assumed lead responsibility for
remedial action. The costs of remediation may exceed a current estimate of
approximately $40,000 (in current dollars), of which other viable settling
parties are expected to contribute more than half. Necessary accruals have
been made for the company's share of net estimated costs. Portions of the
company's payments could extend over the next 30 years.
During 1991, the company entered into an agreement with the Michigan
Department of Natural Resources that called for the installation of air
emission control equipment during 1992 and later years. The installation of
air emission controls is expected to be nearly complete during 1994 and will
require additional capital spending of approximately $25,000 ($8,000 of which
is included in the capital spending amount above) and the addition of a
limited number of employees. The expenditures are expected to also enhance
operations, and some offsetting cost reductions may be realized.
K. LITIGATION
There are various legal proceedings against the company, including a
substantial number of product liability suits claiming damages as a result of
the use of the company's products including approximately 100 cases involving
Halcion.
In October 1991, a Cook County, Illinois jury rendered a verdict of $128,000,
including $125,000 in punitive damages, which were subsequently reduced to
$35,000, against the company as a result of an incident involving the use of
the product Depo-Medrol. The company believes the decision was erroneous and
will vigorously appeal this judgement, but the outcome of the litigation is
uncertain. The company's insurance carriers have denied liability for
punitive damages, and the company is in litigation to determine the extent to
which the company's insurance policies cover punitive damages.
Two shareholder class action complaints against the company and certain of its
officers and directors are pending in the federal district court for Western
Michigan claiming damages resulting from alleged misrepresentations and
omissions of information by the company concerning its product, Halcion. One
of the actions also contains a derivative claim that certain directors
breached their fiduciary duty by allegedly failing to prevent improper
practices during the clinical testing of Halcion.
The company is also involved in several administrative and judicial
proceedings relating to environmental matters, including actions brought by
the EPA and state environmental agencies for cleanup at approximately 40
"Superfund" or comparable sites. The company is not able to determine its
ultimate exposure in connection with these environmental situations due to
uncertainties related to cleanup procedures to be employed, if any, the cost
of cleanup and the company's share of a site's cost. Some portion of the
liabilities and expenses associated with the foregoing product liability and
environmental actions may be covered by insurance, although such matters are
currently in litigation.
The company is a party, along with approximately 30 other defendants, in
several civil antitrust lawsuits alleging price discrimination and price-
fixing with respect to the level of discounts and rebates provided to certain
customers.
The company is of the opinion that, although the outcome of the litigation and
proceedings referred to above cannot be predicted with any certainty,
appropriate accruals have been made in the financial statements, and the
ultimate liability should not have a material adverse effect on the company's
consolidated financial position (see Note J).
Negotiations continue in connection with remediation of the site of the
company's discontinued industrial chemical operations in North Haven, Conn.
The town is seeking to force the company to remove a sludge pile located on
the plant site because it violates local zoning ordinances. As a result of
the detection of PCBs in the pile in concentrations that may require
compliance with additional laws and regulations relative to disposal of PCBs,
coupled with significant changes in applicable regulations relating to
disposal of hazardous waste, the cost of off-site disposal (if, in fact, such
disposal is possible, legal and ultimately required) could be approximately
$200,000. The company cannot at the present time predict the final resolution
of the sludge pile issue. Because the company believes in-place closure of
the sludge pile is the most responsible course of action and the Connecticut
Department of Environmental Protection and the U.S. EPA had earlier approved
the company's plan for in-place closure of the sludge pile, which is
substantially less expensive than removal, the company has not established any
reserves for the cost of off-site disposal.
The company is also in the process of evaluating other existing environmental
conditions at the North Haven, Conn. facility with the intention of addressing
concerns that may be determined appropriate. The company believes that it has
established sufficient reserves to cover the costs of any actions required to
be taken after the evaluation process is completed.
L. FINANCIAL INSTRUMENTS AND CONCENTRATIONS OF CREDIT RISK
Financial Instruments - The company uses foreign exchange forward and option
contracts to manage exposure to currency fluctuations. These agreements are
designated hedges of obligations and hedges of net foreign currency
transaction exposures. At December 31, 1993, the company had outstanding
foreign exchange forward and foreign currency option contracts of a notional
amount totaling $112,719. The carrying and market values of these instruments
are immaterial.
Maturities, which are consistent with the settlement dates of items being
hedged, extend through December 1994.
The counterparties to these contracts consist of a limited number of major
international financial institutions. The company does not expect any losses
from credit exposure due to review and control procedures established by
corporate policy.
Concentrations of Credit Risk - The company invests excess cash in deposits
with major banks throughout the world and in high quality short-term liquid
money instruments. Such investments are made only in instruments issued or
enhanced by high quality financial institutions (investment grade or better).
Amounts invested in a single institution are limited to minimize risk. The
company has not incurred losses related to these investments.
The company sells a broad range of products to a diverse group of customers
operating in the health care and agricultural industries throughout the world.
In the U.S., the company makes substantial sales to relatively few large
wholesale customers. Credit limits, ongoing credit evaluation and account
monitoring procedures are utilized to minimize the risk of loss. Collateral
is generally not required.
M. SHAREHOLDERS' EQUITY
Preferred Stock - The Series B Convertible Perpetual Preferred Stock is held
by The Upjohn Company Employee Stock Ownership Trust (ESOT). The per-share
stated value is $40,300, 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 1,000 shares of the company's common
stock and has voting rights equal to 1,000 shares of common. The company may
redeem the preferred stock at any time after July 20, 1999, or upon
termination of the ESOP at a minimum price of $40,300 per share. Dividends,
at the rate of 6.25 percent, are cumulative and paid quarterly.
Common Stock - The number of common shares outstanding at December 31 was:
1993 - 173,431,918; 1992 - 174,580,928; and 1991 - 175,215,057. The number of
treasury shares acquired, net of shares issued for stock option, dividend
reinvestment plans and employee benefit plans was: 1993 - 1,149,010; 1992 -
632,213; and 1991 - 2,137,061.
On a per-share basis, dividends were declared on common stock at the rate of
$1.48 in 1993, $1.42 in 1992, and $1.26 in 1991. Dividends payable were
$64,170 and $64,595 at December 31, 1993 and 1992, respectively.
Note Receivable from ESOT - The note matures on February 1, 2005; bears
interest at 6.25 percent; and may be repaid, in whole or in part, at any time.
Accrued interest at the end of any calendar year shall be added to the note
principal.
ESOP Deferred Compensation - Upon recognition of the company's guarantee of
the debt of the ESOT (see Note N), an offsetting charge was made to
shareholders' equity referred to as "ESOP deferred compensation." To the
extent the company recognizes expense more rapidly than the corresponding cash
contributions are made, this balance will be reduced. The balance will also
diminish to the extent the company's ESOT debt guarantee commitment is reduced
beginning in 1995 (see Notes I and N).
N. EMPLOYEE STOCK OWNERSHIP PLAN (ESOP)
The ESOP is a funding vehicle for the Upjohn Employee Savings Plan that covers
substantially all U.S. employees. The ESOP is designed in such a way that the
annual debt service requirement of the ESOT is approximately equivalent to the
company's obligation to employees for both matching contributions to the
savings plan and dividends on shares allocated to participants.
Under the agreement whereby the company has guaranteed the $275,000 of third-
party debt of the ESOT, the company is obligated to contribute sufficient cash
annually to the ESOT 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 plus cash
contributions. The company has fully and unconditionally guaranteed the
ESOT'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 ESOT except in the event that the
ESOT 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 ESOT. At December 31, 1993, assets of the ESOT consisted
primarily of $297,387 of Upjohn Company Series B Convertible Perpetual
Preferred Stock.
Company expense is determined pursuant to the consensus position of the
Emerging Issues Task Force (Issue No. 89-8). A portion of future debt
principal payments is attributed to each year of the plan based on the number
of shares allocated during the period and treated as expense. Interest earned
on the note receivable from the ESOT is netted against this formula-driven
amount.
Key measures of the ESOP were:
Years ended December 31 1993 1992 1991
---- ---- ----
Interest expense of ESOT $28,779 $28,669 $28,566
Dividend income of ESOT 18,606 18,686 18,727
Company contribution to ESOT 7,870 7,511 5,044
Company ESOP expense (net) 12,344 11,972 10,179
O. EMPLOYEE STOCK OPTIONS
Employee stock options granted are 10-year options primarily exercisable after
one year of employment following date of grant. At December 31, 1993, 798
employees held options for 8,750,428 shares, of which 6,808,118 were
exercisable. Options for 5,343,311 shares; 7,270,754 shares; and 8,901,840
shares were available for future grants at December 31, 1993, 1992, and 1991,
respectively.
Under the plan, upon stock-for-stock exercise of any non-qualified stock
options or any incentive stock options granted in 1991 or thereafter, an
active employee will receive a new, non-qualified "reloaded" stock option at
the then-current market price for the number of shares surrendered to exercise
an option. The "reloaded" stock option will have an exercise term equal to
the remaining term of the original exercised option. Officers subject to
Securities and Exchange Commission (SEC) Section 16(b) have a four-year period
before the "reloaded" options become exercisable, whereas other participants
have a six-month waiting period.
Changes in outstanding options were as follows:
Option Price Number
Per Share of Shares
------------ ---------
Balance outstanding,
January 1, 1991 $ 7.88-43.25 5,256,429
Granted 41.00-46.13 1,823,760
Exercised 7.88-43.25 (1,133,300)
Canceled 9.44-43.25 (83,482)
------------ ----------
Balance outstanding,
December 31, 1991 $ 7.88-46.13 5,863,407
Granted 30.00-45.19 1,901,929
Exercised 7.88-46.13 (319,237)
Canceled 30.88-45.19 (287,938)
------------ ----------
Balance outstanding,
December 31, 1992 $ 8.92-46.13 7,158,161
Granted 28.19-32.25 2,127,443
Exercised 8.92-31.75 (48,221)
Canceled 9.44-46.13 (486,955)
------------ ----------
Balance outstanding,
December 31, 1993 $ 9.44-46.13 8,750,428
============ ==========
P. SHAREHOLDER RIGHTS PLAN
Pursuant to the company's shareholder rights plan, each share of the company's
common stock includes one-third of a right. Each full right, which becomes
exercisable 10 days after a shareholder has acquired 20 percent or more or
commenced a tender offer for 30 percent or more of the company's stock, will
entitle the holder to purchase stock at an exercise price of $400 having a
market value of $800. In lieu of cash payment, the company has the option to
exchange common stock for the rights. The rights are redeemable for $.05 per
right during a period up to 30 days after 20 percent or more of the company's
stock has been acquired. The rights will expire on June 26, 1996, unless
redeemed earlier by the company.
Q. RETIREMENT BENEFITS
The company and its subsidiaries have various pension plans covering
substantially all employees. The following table summarizes the funded status
of these pension plans:
December 31 1993 1992
---- ----
Vested benefit obligation $ 564,599 $457,885
---------- --------
Accumulated benefit obligation $ 637,179 $514,457
---------- --------
Projected benefit obligation $ 904,122 $753,627
Plan assets at fair value 1,016,045 891,297
---------- --------
Plan assets in excess of projected
benefit obligation 111,923 137,670
Unrecognized net losses 64,856 68,529
Unamortized net asset at adoption (96,753) (107,500)
Unrecognized prior service cost 52,843 52,668
---------- --------
Prepaid pension cost $ 132,869 $151,367
========== ========
The U.S. projected benefit obligation, which comprises the majority of the
amounts reflected above, increased due to the regular service and interest
cost components of expense plus an inducement to early retirement offered to
certain eligible employees in connection with the third-quarter 1993
restructuring. Changes in the discount rate and salary growth rate
assumptions in 1993 had the net effect of increasing the projected benefit
obligation but did not immediately affect the balance of prepaid pension cost
nor current year expense. The U.S. discount rate was lowered to 7.5 percent
from 8.25 percent and the weighted average salary growth rate assumption was
lowered to 4.75 percent from 5.5 percent. Discount rates for non-U.S. plans
were also adjusted to reflect current interest rate patterns.
The assets of the domestic plans, which comprise the majority of the combined
amounts, are invested approximately two-thirds in equity securities. Fair
value is determined principally by reference to publicly quoted year-end
prices.
Accrued unfunded foreign separation pay plans not reflected in the funded
status summary above totaled $14,000 and $13,200 at December 31, 1993 and
1992, respectively.
The consolidated net pension expense amounts reflected below are exclusive of
the added costs associated with early retirement inducements offered in 1993
and 1992. These incremental charges are included in restructuring costs.
Years ended December 31 1993 1992 1991
---- ---- ----
Service cost - benefits
earned during the year $ 40,075 $ 36,425 $ 30,046
Interest cost on projected
benefit obligation 60,761 57,863 50,594
Actual return on plan assets (139,350) (59,667) (184,977)
Net amortization and deferral 59,070 (22,648) 108,339
--------- -------- ---------
Net pension expense $ 20,556 $ 11,973 $ 4,002
========= ======== =========
Assumptions used for net pension expense (U.S.):
1993 1992 1991
---- ---- ----
Discount rate 8.25% 8.25% 8.75%
Salary growth rate 5.5 % 5.5 % 5.5 %
Return on plan assets 9.5 % 9.5 % 9.0 %
A combination of factors has caused the net pension expense to rise in 1993
and 1992 including changes in rate assumptions in 1992 and the early
retirement program in the third quarter of 1992. The early retirement program
and the resultant lump-sum benefit payments increased net amortization
components of expense and reduced the asset base on which earnings were
projected for 1993.
Early Retirement Programs - In connection with the third-quarter 1993
restructuring, inducements were offered to certain eligible employees to
effectively retire early. Under this program, which generated an estimated
$15,000 pension cost, employees meeting certain age and service criteria could
terminate from the company while continuing to accrue pension benefits as
though still employed.
In June 1992, a special voluntary early retirement program was made available
to eligible employees in the U.S. and Puerto Rico. Approximately 500
employees accepted the inducements. In addition to added separation payments
made by the company, the pension trust incurred approximately $15,000 of
incremental cost. This was partly offset by a settlement gain of $8,000 that
resulted from the large amount of lump-sum payments made to retirees during
1992.
R. OTHER POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS
The company provides non-pension benefits to eligible retirees and their
dependents, primarily in the form of medical and dental benefits. Accounting
for these benefits complies with SFAS No. 106, adopted effective January 1,
1992 (see Note D).
The following table summarizes the funded status of these plans:
December 31 1993 1992
Actuarial present value of benefit obligation: ---- ----
Retirees $ 168,468 $ 194,761
Fully eligible active participants 10,832 10,918
Other active participants 167,292 205,301
--------- ---------
Accumulated postretirement benefit obligation 346,592 410,980
Plan assets at fair value 56,037 34,631
--------- ---------
Accumulated postretirement benefit
obligation in excess of plan assets (290,555) (376,349)
Unrecognized net (gains)/losses (31,682) 2,469
Unrecognized prior service cost (59,886)
--------- ---------
Accrued postretirement benefit cost $(382,123) $(373,880)
========= =========
The accumulated postretirement benefit obligation declined at December 31,
1993 due to an amendment of the retiree medical coverage program. An annual
limit on the company's liability (a "cap") was established that is 140 percent
of 1993 costs and will be adjusted upwards annually for inflation. The effect
of this change will be amortized as an offset to expense in coming years.
Adoption of SFAS No. 106 in 1992 had no direct cash flow effect. The company
has, however, elected to begin a program of funding its obligations under the
plans. A Voluntary Employee Benefit Association (VEBA) or 501(c)(9) trust has
been established for this purpose. The funds are presently invested in short-
term securities. The fair value of plan assets was established by the trustee
of the fund. Future contributions are at the discretion of the company.
The discount rate used in determining the accumulated postretirement benefit
obligation was 7.5 percent at December 31, 1993 and 8.25 percent at December
31, 1992. The projected 1994 weighted-average health care cost trend rate
used last year reflected 10.2 percent growth trending down gradually to 6
percent over several years. Beginning in 1994, the initial weighted-average
cost trend rate was changed to 7.7 percent trending down to 5.5 percent. The
effects of these assumption changes on accrued postretirement benefit cost and
the related expense will not be realized until subsequent periods.
The composition of expense for the postretirement benefit plans is as follows:
Years ended December 31 1993 1992
---- ----
Service cost $14,085 $14,605
Interest cost 30,825 30,607
Actual return on plan assets (2,914) 1,369
Net amortization and deferral (324) (2,469)
------- -------
Net postretirement benefit cost $41,672 $44,112
======= =======
Upon adoption of SFAS No. 106 as of January 1, 1992, the company elected to
record the transition obligation as a one-time charge against earnings, rather
than amortize it over a number of years. The pretax earnings effect was
$375,880, or $235,677 after tax ($1.33 per share). The pretax amount
represents the actuarially computed present value of estimated future benefits
to current retirees plus that portion of benefits earned to date by active
employees.
The health care cost trend rate has a significant effect on the amounts
reported. For example, increasing the rate by one percentage point in each
year would increase the accumulated postretirement benefit obligation as of
December 31, 1993 by approximately $13,400 and the total of service and
interest cost components of net postretirement benefits cost for the year then
ended by approximately $8,000. The assumed long-term rate of growth of plan
assets is 9.5 percent.
As outlined in Note D, the company elected to adopt SFAS No. 112, "Employers'
Accounting for Postemployment Benefits," effective January 1, 1993. This
statement requires that certain benefits provided to former or inactive
employees, after employment but before retirement, also be accounted for on an
accrual basis. The company had been accounting for most such plans, but
medical and dental benefits had not previously been accrued. The cumulative
effect on earnings of this change in accounting was a one-time charge of
$18,000 or $11,115 after tax ($.07 per share) and has been reported as of
January 1, 1993. Previously reported results of the first quarter of 1993
have been restated accordingly. The incremental expense for these benefits in
1993 was not material.
S. SEGMENT OPERATIONS
The company operates principally in two industry segments. The human health
care segment produces and markets prescription and nonprescription
pharmaceutical products. The agricultural segment produces and markets
vegetable and agronomic seeds and animal health products.
The company participates in most of the world's markets for its products with
approximate percentages of sales being made in foreign markets as follows:
Years ended December 31 1993 1992 1991
---- ---- ----
Human health care 38.4% 37.8% 37.5%
Agricultural 41.6% 44.0% 43.9%
No single customer accounts for 10 percent or more of the company's sales.
U.S. exports to third-party customers are less than 10 percent of sales.
Sales to affiliates between geographic segments are priced to reflect
consideration of economic circumstances and the regulations of countries in
which the transferring entities are located. These transfers are principally
within the human health care segment from the U.S. to non-U.S. markets and are
eliminated in consolidation. Transfers to affiliates were as follows:
Years ended December 31 1993 1992 1991
---- ---- ----
United States $376,270 $374,487 $378,817
Europe 117,142 110,590 107,357
Japan and Pacific 351 1,201 3,462
Other foreign 12,835 10,205 7,254
-------- -------- --------
$506,598 $496,483 $496,890
======== ======== ========
(See page 30 for the Consolidated Statements of Segment Operations.)
T. FOREIGN OPERATIONS
The consolidated financial statements include amounts related to foreign
operations as follows:
December 31 1993 1992
---- ----
Working capital $533,560 $561,628
Net property and other assets 466,792 469,103
Noncurrent liabilities (96,545) (73,662)
Minority equity (57,501) (55,204)
Equity in foreign net assets $846,306 $901,865
The reported value of and, potentially, the cash flow from foreign working
capital and net investments are subject to fluctuations in the value of the
U.S. dollar relative to the respective foreign currencies in which the net
assets are denominated.
Foreign exchange (losses) gains included in earnings, net of minority equity
and taxes, were ($2,618) in 1993; ($1,354) in 1992; and $5,057 in 1991.
U. SUPPLEMENTAL INFORMATION
Various charges to costs and expenses were:
Years ended December 31 1993 1992 1991
---- ---- ----
Interest cost incurred $ 47,195 $ 42,261 $ 33,025
Less: Capitalized on construction 15,699 11,008 13,069
-------- -------- --------
Interest expense $ 31,496 $ 31,253 $ 19,956
-------- -------- --------
Maintenance & repairs $ 92,385 $ 86,401 $ 83,976
Taxes, other than payroll
and income taxes $ 46,448 $ 47,929 $ 42,114
Advertising costs $226,659 $256,467 $221,612
Rents $ 41,742 $ 39,285 $ 32,400
Royalty expense $ 54,081 $ 65,854 $ 43,613
<PAGE>
<PAGE>
<TABLE>
FIVE-YEAR SUMMARY OF CONTINUING OPERATIONS
The Upjohn Company and Subsidiaries
Dollar amounts in millions
Annual Growth Rates - Percent
<CAPTION>
5-Year
1989-1993 Years ended December 31 1993 1992 1991 1990 1989
Operating results: ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
10 Sales to domestic destinations $2,204.7 $2,169.4 $2,040.6 $1,743.3 $1,547.1
5 Sales to foreign destinations 1,406.5 1,379.2 1,279.7 1,204.4 1,099.5
46 Other revenue 42.2 29.9 24.5 11.9 7.3
-------- -------- -------- -------- --------
8 Operating revenue 3,653.4 3,578.5 3,344.8 2,959.6 2,653.9
-------- -------- -------- -------- --------
7 Cost of products sold 919.7 904.8 804.9 760.8 696.9
10 Research and development 642.0 581.5 522.9 455.7 432.1
9 Marketing and administrative 1,409.2 1,389.7 1,301.4 1,121.3 998.0
Restructuring 216.0 24.0 5.0 (37.8) 57.5
-------- -------- -------- -------- --------
10 Operating costs and expenses 3,186.9 2,900.0 2,634.2 2,300.0 2,184.5
-------- -------- -------- -------- --------
(2) Operating income 466.5 678.5 710.6 659.6 469.4
Nonoperating and minority interest 25.0 19.2 2.3 (11.9) (1.3)
(10) Provision for income taxes (89.0) (153.3) (178.7) (192.8) (147.4)
-------- -------- -------- -------- --------
2 Earnings from continuing operations 402.5 544.4 534.2 454.9 320.7
Earnings (losses) from discontinued
operations 8.8 2.8 3.2 0.8 (144.7)
Cumulative effect of accounting changes
(net of tax) (18.9) (222.9)
-------- -------- -------- -------- --------
2 Net earnings 392.4 324.3 537.4 455.7 176.0
Dividends on preferred stock
(net of tax) 12.1 12.1 12.3 12.4
-------- -------- -------- -------- --------
1 Net earnings on common stock $ 380.3 $ 312.2 $ 525.1 $ 443.3 $ 176.0
======== ======== ======== ======== ========
Primary earnings per share-continuing
2 operations after accounting changes $ 2.13 $ 1.77 $ 2.94 $ 2.47 $ 1.72
3 Primary earnings per share-net earnings $ 2.18 $ 1.78 $ 2.96 $ 2.47 $ 0.95
Financial position:
6 Trade & other accounts receivable, net $ 796.6 $ 832.3 $ 748.5 $ 671.2 $ 588.5
8 Inventories 570.9 540.6 518.1 460.8 411.4
10 Other current assets 577.6 512.0 425.9 471.7 454.2
-------- -------- -------- -------- --------
8 Total current assets 1,945.1 1,884.9 1,692.5 1,603.7 1,454.1
Net assets of discontinued operations 26.0 22.9 26.6 48.1
8 Property, plant & equipment, net 1,771.3 1,664.8 1,535.9 1,417.2 1,271.8
18 Other assets 1,100.0 1,019.1 884.4 612.1 448.4
-------- -------- -------- -------- --------
9 Total assets 4,816.4 4,594.8 4,135.7 3,659.6 3,222.4
8 Less: Current liabilities 1,058.0 1,129.1 1,027.4 833.8 825.6
26 Long-term and guaranteed ESOP debt 801.8 677.9 570.5 549.6 256.4
23 Other liabilities 870.9 772.3 532.6 496.6 404.3
-------- -------- -------- -------- --------
3 Shareholders' equity $2,085.7 $2,015.5 $2,005.2 $1,779.6 $1,736.1
======== ======== ======== ======== ========
Common stock data:
(1) Common shares outstanding (thousands) 173,432 174,581 175,215 176,408 183,927
7 Number of common shareholders 46,681 42,226 36,531 34,649 35,430
13 Total common dividends paid $ 257.7 $ 243.5 $ 213.5 $ 178.8 $ 168.6
4 Shareholders' equity per common share $ 12.03 $ 11.55 $ 11.44 $ 10.09 $ 9.44
14 Dividends paid per common share $ 1.48 $ 1.39 $ 1.21 $ 1.00 $ 0.91
Other data:
(1) Employees 18,600 18,800 19,000 18,400 18,800
7 Additions of property, plant & equipment $ 323.5 $ 296.9 $ 274.8 $ 246.4 $ 239.2
Return on average equity-continuing
operations before accounting changes 19.6% 27.1% 28.2% 25.9% 18.0%
Shares outstanding and per-share data reflect a three-for-one stock split effective April 6,
1987, and a two-for-one stock split effective April 7, 1986.
</TABLE>
<PAGE>
<PAGE>
<TABLE>
SELECTED FINANCIAL AND QUARTERLY DATA
The Upjohn Company and Subsidiaries
Dollar amounts in millions, except per-share data
Selected Financial Data
<CAPTION>
Years Ended December 31 1993 1992 1991 1990 1989
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Operating revenue $3,653.4 $3,578.5 $3,344.8 $2,959.6 $2,653.9
Earnings from continuing operations
before cumulative effect of
accounting changes(a) 402.5 544.4 534.2 454.9 320.7
Earnings per share from continuing
operations before cumulative effect
of accounting changes(a) 2.24 3.03 2.94 2.47 1.72
Dividends declared per share 1.48 1.42 1.26 1.04 .94
Total assets 4,816.4 4,594.8 4,135.7 3,659.6 3,222.4
Long-term debt 526.8 402.9 295.5 274.6 256.4
(a)Refer to Notes D and R relating to January 1, 1993 accounting changes resulting in a net charge of $18.9
or $.11 per share and to January 1, 1992 accounting changes resulting in a net charge of $222.9 or $1.26
per share.
</TABLE>
<TABLE>
<CAPTION>
Quarterly Data (Unaudited) 1993 1992
---- ----
First Second Third Fourth First Second Third Fourth
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Operating revenue:
Net sales $912.3 $894.6 $877.9 $926.4 $ 849.8 $858.6 $873.1 $967.1
Other revenue 5.9 8.9 10.0 17.4 4.0 8.9 6.3 10.7
------ ------ ------ ------ ------- ------ ------ ------
918.2 903.5 887.9 943.8 853.8 867.5 879.4 977.8
------ ------ ------ ------ ------- ------ ------ ------
Operating costs and expenses:
Cost of products sold 247.9 226.2 203.6 242.0 218.0 236.2 207.5 243.1
Research and development 150.1 166.0 165.9 160.0 136.3 136.5 145.1 163.6
Marketing and administrative 337.2 348.0 362.1 361.9 322.6 343.8 341.3 382.0
Restructuring 216.0 24.0
------ ------ ------ ------ ------- ------ ------ ------
735.2 740.2 947.6 763.9 676.9 716.5 717.9 788.7
------ ------ ------ ------ ------- ------ ------ ------
Operating income $183.0 $163.3 $(59.7) $179.9 $ 176.9 $151.0 $161.5 $189.1
------ ------ ------ ------ ------- ------ ------ ------
Earnings from continuing
operations before income
taxes and minority equity $197.7 $164.2 $(59.8) $188.3 $ 180.5 $163.3 $164.8 $188.2
------ ------ ------ ------ ------- ------ ------ ------
Cumulative effect of
accounting changes $(18.9) $(222.9)
------ ------ ------ ------ ------- ------ ------ ------
Net earnings (loss) $133.5 $125.3 $(30.1) $163.7 $ (85.3) $123.9 $131.5 $154.2
====== ====== ====== ====== ======= ====== ====== ======
Net earnings per common share:
Primary
- - Earnings before
accounting changes $.85 $.70 $(.19) $.88 $ .76 $.69 $.72 $.86
- - Discontinued operation .01 .04 .01
- - Cumulative effect of
accounting changes (.11) (1.26)
------ ------ ------ ------ ------ ------ ------ ------
Primary - Net earnings $.75 $.70 $(.19) $.92 $(.50) $.69 $.73 $.86
====== ====== ====== ====== ====== ====== ====== ======
Fully diluted
- - Earnings before
accounting changes $.82 $.68 $(.19) $.86 $ .74 $.67 $.70 $.83
- - Discontinued operation .01 .03 .01
- - Cumulative effect of
accounting changes (.10) (1.21)
------ ------ ------ ------ ------ ------ ------ ------
Fully diluted - Net earnings $.73 $.68 $(.19) $.89 $(.47) $.67 $.71 $.83
====== ====== ====== ====== ====== ====== ====== ======
Dividends declared per share $.37 $.37 $ .37 $.37 $ .34 $.34 $.37 $.37
Market price:
High 32 3/4 31 1/4 29 5/8 35 45 7/8 37 5/8 35 7/8 33 3/8
Low 26 27 3/4 25 5/8 28 36 1/2 31 1/4 31 29 5/8
</TABLE>
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
Jurisdiction
in which
Corporate Name Incorporated
THE UPJOHN COMPANY Delaware (Parent)
Subsidiaries (excluding those which when
considered in the aggregate as a single
subsidiary did not constitute a significant
subsidiary as of December 31, 1993):
Asgrow Seed Company Delaware
Japan Upjohn Limited Japan
Laboratoires Upjohn S.A.R.L. France
The Upjohn Holding Company M Delaware
The Upjohn Manufacturing Company Delaware
Upjohn Farmoquimica, S.A. Spain
Upjohn GmbH Germany
Upjohn Inter-American Corporation Michigan
Upjohn Limited England
Upjohn Pharmaceuticals Limited Delaware
Upjohn S.A. Belgium
Upjohn S.p.A. Italy
Upjohn Trading Corporation Michigan
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to incorporation by reference in the prospectus
included in Form S-3 Registration Statement (No. 33-31641); the
prospectus in Form S-3 Registration Statement (No. 33-42210); the
prospectus in Form S-3 Registration Statement (No. 33-60304); the
prospectus included in Form S-8 Registration Statement (No.
33-14461), as amended and supplemented; the prospectus included in
Form S-8 Registration Statement (No. 33-150121); and in the Form S-8
Registration Statement (No. 33-51659) of our reports dated January
31, 1994, on our audits of the consolidated financial statements and
financial statement schedules of The Upjohn Company and its
subsidiaries as of December 31, 1993 and 1992 and for the years ended
December 31, 1993, 1992 and 1991, included or incorporated by
reference into this Form 10-K for the fiscal year ended December 31,
1993 of The Upjohn Company.
Coopers & Lybrand
Chicago, Illinois
March 28, 1994
