FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1994
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 of incorporation) (I. R. S. Employer
Identification No.)
7000 Portage Road, Kalamazoo, Michigan 49001
(Address of principal executive offices)
Registrant's telephone number 616-323-4000
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 twelve months, and (2) has been subject
to such filing requirements for the past 90 days. YES X NO
The number of shares of Common Stock, $1 Par Value, outstanding as of
April 30, 1994
was 172,989,398.
Page 1 of 18 pages
The exhibit index is set forth on page 13.
<PAGE>
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
THE UPJOHN COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
For the Three Months Ended March 31
(All Dollar Amounts in Thousands, Except Per-Share Data)
Unaudited
----------------------
1994 1993
-------- --------
Net sales $905,783 $912,267
Other revenue 10,198 5,942
-------- --------
Operating revenue 915,981 918,209
-------- --------
Cost of products sold 259,790 247,858
Research and development 162,859 150,050
Marketing and administrative 324,688 337,252
-------- --------
Operating income 168,644 183,049
Interest income 13,834 12,894
Interest expense (6,418) (8,724)
Foreign exchange (losses) (1,868) (1,865)
All other, net 94 12,398
-------- --------
Earnings from continuing operations before
income taxes and minority equity 174,286 197,752
Provision for income taxes 41,800 47,300
Minority equity in (losses) (2,267) (997)
-------- --------
Earnings from continuing operations 134,753 151,449
Earnings from discontinued operation (net of tax) 920
-------- --------
Earnings before cumulative effect of
accounting changes 134,753 152,369
Cumulative effect of accounting changes
(net of tax) (18,906)
-------- --------
Net earnings 134,753 133,463
Dividends on preferred stock (net of tax) 3,037 3,041
-------- --------
Net earnings on common stock $131,716 $130,422
======== ========
Earnings per common share:
Primary - Earnings from continuing operations
before accounting changes $.76 $.85
- Discontinued operation .01
- Cumulative effect of accounting changes (.11)
---- ----
- Net earnings $.76 $.75
==== ====
Fully - Earnings from continuing operations
diluted before accounting changes $.74 $.82
- Discontinued operation .01
- Cumulative effect of accounting changes (.10)
---- ----
- Net earnings $.74 $.73
==== ====
See accompanying notes.<PAGE>
<PAGE>
THE UPJOHN COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31
(All Dollar Amounts in Thousands)
Unaudited
----------------------
1994 1993
-------- --------
Net cash provided by operations $200,295 $159,932
-------- --------
Cash provided (required) by investment activities:
Property, plant and equipment additions (52,956) (63,509)
Proceeds from sale of property, plant and equipment 23,976 2,767
Proceeds from sale of investments 11,633 43,352
Purchase of investments (98,355) (30,717)
Proceeds from the sale of discontinued operation 7,943
Other (5,625) (14,104)
-------- --------
Net cash (required) by investment activities (113,384) (62,211)
-------- --------
Cash provided (required) by financing activities:
Proceeds from issuance of debt 5,183 131,478
Repayment of debt (4,052) (6,165)
Debt maturing in three months or less (net) 2,454 (182,989)
Dividends paid to shareholders (66,038) (66,747)
Purchase of treasury stock (20,884) (25,215)
Other 733 6,078
-------- --------
Net cash (required) by financing activities (82,604) (143,560)
-------- --------
Effect of exchange rate changes on cash 2,045 (2,407)
-------- --------
Net change in cash and cash equivalents 6,352 (48,246)
Cash and cash equivalents, beginning of year 291,750 239,513
-------- --------
Cash and cash equivalents, end of period $298,102 $191,267
======== ========
See accompanying notes.
<PAGE>
<PAGE>
THE UPJOHN COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(All Dollar Amounts in Thousands)
March 31, December 31,
1994 1993
----------- ------------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 298,102 $ 291,750
Trade accounts receivable, less allowances
of $61,267 and $52,451 716,201 723,858
Inventories 558,088 570,923
Deferred income taxes 168,367 168,748
Other 241,548 166,487
---------- ----------
Total current assets 1,982,306 1,921,766
---------- ----------
Investments, at cost 649,018 644,431
---------- ----------
Property, plant and equipment, at cost 3,022,040 2,983,276
Less: Allowance for depreciation 1,240,868 1,212,006
---------- ----------
Net property, plant and equipment 1,781,172 1,771,270
---------- ----------
Other noncurrent assets 559,554 548,630
---------- ----------
Total assets $4,972,050 $4,886,097
========== ==========
See accompanying notes.<PAGE>
<PAGE>
THE UPJOHN COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(All Dollar Amounts in Thousands)
March 31, December 31,
1994 1993
---------- ------------
(unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt, including current
maturities of long-term debt $ 54,298 $ 44,122
Accounts payable 164,857 160,609
Compensation and vacation 83,159 80,204
Dividends payable 63,976 64,170
Income taxes payable 160,157 181,395
Other 535,209 527,465
---------- ----------
Total current liabilities 1,061,656 1,057,965
---------- ----------
Long-term debt 521,583 526,837
---------- ----------
Guarantee of ESOP debt 275,000 275,000
---------- ----------
Postretirement benefit cost 387,940 382,123
----------- ----------
Other liabilities 405,767 407,071
---------- ----------
Deferred income taxes 97,894 94,007
---------- ----------
Minority equity in subsidiaries 59,303 57,444
---------- ----------
Shareholders' equity:
Preferred stock, one dollar par value;
authorized 12,000,000 shares; issued
Series B convertible 7,369 shares
(1993: 7,379 shares) at stated value 296,982 297,387
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 65,126 66,406
Retained earnings 2,602,722 2,535,010
Note receivable from ESOP Trust (ESOT) (31,548) (31,548)
ESOP deferred compensation (249,469) (251,301)
Currency translation adjustments (91,387) (114,198)
Less treasury stock at cost 17,632,065 shares
(1993: 17,157,689 shares) (620,109) (606,696)
---------- ----------
Total shareholders' equity 2,162,907 2,085,650
---------- ----------
Total liabilities and shareholders' equity $4,972,050 $4,886,097
========== ==========
See accompanying notes.<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
(All Dollar Amounts in Thousands, Except Per-Share Data):
A - INTERIM CONSOLIDATED FINANCIAL STATEMENTS:
The consolidated financial information presented herein is unaudited, other
than the consolidated balance sheet at December 31, 1993, which is derived
from audited financial statements. The interim financial statements and notes
thereto do not include all disclosures required by generally accepted
accounting principles and should be read in conjunction with the financial
statements and notes thereto included in the company's latest annual report on
Form 10-K.
In the opinion of management, the interim financial statements reflect all
adjustments of a normal recurring nature necessary for a fair statement of the
results for interim periods. The current period's results of operations are
not necessarily indicative of results that ultimately may be achieved for the
year.
Reclassification of certain deferred income tax balances has been made on the
balance sheet to conform prior year's data to the current year presentation.
In December 1993, the company divested Asgrow Florida Company. Where
appropriate, these financial statements have been restated to reflect this
divestiture as a discontinued operation.
B - EARNINGS PER COMMON SHARE:
Earnings per share are computed by dividing net earnings available to the
common shareholder by the sum of the weighted average number of shares of
common stock outstanding plus common stock equivalents principally in the form
of employee stock option awards and, in the case of fully diluted earnings per
share, the number of common shares into which the preferred stock would be
assumed to be converted. Also in the fully diluted computation, net earnings
are adjusted by the difference between dividends on preferred and common stock
under the if-converted assumption.
C - INVENTORIES:
March 31, December 31,
1994 1993
--------- ------------
Estimated replacement cost
(FIFO basis):
Pharmaceutical finished products $185,194 $174,615
Seeds 147,084 171,716
Raw materials, supplies and work in process 379,157 375,170
-------- --------
711,435 721,501
Less reduction to LIFO cost (153,347) (150,578)
-------- --------
$558,088 $570,923
======== ========
Inventories valued on the LIFO method had an estimated replacement cost (FIFO
basis) of $454,616 at March 31, 1994, and $461,090 at December 31, 1993.
D - DEBT:
Long-term debt consisted of the following:
March 31, December 31,
1994 1993
-------- ------------
7.5% Industrial Revenue Bonds due 2023 $ 40,000 $ 40,000
5.35-7.95% Medium-Term Notes due 1997-1999 266,000 266,000
5.875% Notes due 2000 200,000 200,000
Other 19,858 24,083
Current maturities (4,275) (3,246)
-------- --------
$521,583 $526,837
======== ========
The medium-term notes were issued under 1991 and 1993 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
($300,000 under the 1991 registration and $100,000 under the 1993
registration). At March 31, 1994, $34,000 remained available for issuance
under the 1991 registration and $100,000 under the 1993 registration.
Unused bank credit facilities at April 30, 1994 were increased to a total of
$150 million, all available to support commercial paper borrowings or other
corporate purposes.
E - CONTINGENT LIABILITIES:
The consolidated balance sheets include accruals for estimated product and
environmental liabilities. The latter includes exposures related to
discontinued operations, including the industrial chemical facility at North
Haven, Connecticut, and environmental exposures at several "Superfund" or
comparable sites. The company believes that existing accruals are adequate
based upon information currently available, although added costs are
reasonably possible (see Note F).
The company has an agreement with the manufacturer of a blood supplement
currently under development. Pursuant to the agreement, investments by the
company could aggregate $179,000 over a period of years, and the company has
committed to pay the expense of clinical development which is currently in
process. As of March 31, 1994, the company has invested $57,500.
F - 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 one of the Halcion suits, plaintiffs are seeking certification as
a class action.
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.
Activities 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 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. It is possible that the U.S. EPA
and the company may enter into an Administrative Order on Consent under which
the company will complete a Corrective Measures Study and will finish
implementation of several interim remediation measures at the site. 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.
G - ACCOUNTING CHANGES:
Effective January 1, 1993, the company's majority-owned subsidiaries that
previously reported financial results on a fiscal year basis ending November
30 changed their reporting period to a calendar year ending December 31. The
results of operations of these subsidiaries for the period December 1 through
December 31, 1992 are included in the March 31, 1993 Consolidated Statement of
Earnings as the cumulative effect of an accounting change that reduced net
earnings by $7,791 ($.04 per share after tax). The cash flows of these
subsidiaries for the four-month period December 1, 1992 through March 31, 1993
are reflected in the Consolidated Statement of Cash Flows for the period ended
March 31, 1993.
In December 1993, the company adopted Statement of Financial Standards 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, retroactively, as of January 1,
1993. The effect of this change related to years prior to 1993 was $11,115
($.07 per share after tax) and is reported as a cumulative effect of an
accounting change.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations:
RESULTS OF OPERATIONS
The table below provides a year-to-year comparison of net sales by business
segment and major product groups within each segment:
First Quarter
(Dollars in Millions)
-------------------------------
1994 Change 1993
------ ------- ------
Central nervous system agents $112.8 (36.6%) $178.0
Steroids, anti-inflammatory and
analgesic agents 264.3 17.6 224.8
Antibiotics 113.4 3.4 109.7
Other products and materials 232.5 11.7 208.2
------ ------
Total Human Health Care 723.0 0.3 720.7
------ ------
Animal health 77.7 (2.8) 79.9
Seeds 105.1 (5.9) 111.7
------ ------
Total Agricultural 182.8 (4.6) 191.6
------ ------
Consolidated sales $905.8 (0.7) $912.3
====== ======
All sales data and financial results for the first quarter of 1993 have been
restated to reflect the divestiture of Asgrow Florida Company which was
treated as a discontinued operation.
First-quarter 1994 consolidated domestic sales decreased three percent to $541
million from $557 million in the prior year and represented 60 percent of
total consolidated sales as compared to 61 percent one year earlier. Non-U.S.
sales of $365 million were up almost three percent from $355 million in the
first quarter of 1993. Consolidated sales were down one percent as the result
of a one percent increase in volume, a one percent decrease in price, and a
one percent decline from foreign exchange. Human health care sales
represented 80 percent of the consolidated total for the first quarter of 1994
as compared to 79 percent for this period in the prior year, the balance being
agricultural.
Human health care sales in the U.S. of $432 million were down two percent
from $442 million in the first quarter of 1993 while non-U.S. sales of $291
million in 1994 were up five percent from $279 million. Non-U.S. human health
care sales represented 40 percent of the worldwide total compared to 39
percent in the first quarter of 1993. Agricultural sales in the U.S. were
$109 million in the first quarter of 1994 compared to $114 million while non-
U.S. agricultural sales of $74 million were down four percent from $78 million
in the first quarter of 1993.
The decline in worldwide sales of central nervous system agents was primarily
the result of generic competition for XANAX, the anti-anxiety agent that lost
U.S. patent protection in October 1993. The decline of XANAX was partially
offset by sales of the company's generic anti-anxiety agent, alprazolam, which
is sold at a significantly lower price than XANAX and competes in the market
with a number of other generic products. HALCION, the sleep-inducing agent,
also lost U.S. patent protection in October 1993 and continues to suffer from
the controversy and adverse publicity which began in prior years. The company
is selling triazolam, the generic name for HALCION, and is anticipating
generic competition in the future.
Pharmaceutical sales growth was led by the steroid, anti-inflammatory and
analgesic product group which includes sales of OGEN, the estrogen replacement
therapy that was acquired at the end of 1993. The strong U.S. performance of
DEPO-PROVERA, the injectable contraceptive, which also recorded growth in non-
U.S. markets, contributed to growth in this product class. MOTRIN IB, the
over-the-counter nonsteroidal analgesic agent, continued its pattern of growth
in the U.S. Sales of SOLU-MEDROL, the injectable steroid, and other MEDROL
products were up slightly. Sales of ANSAID, the non-steroidal anti-
inflammatory agent, declined moderately in the U.S. due to continuing
competition from other products in its therapeutic class. The patent on
ANSAID expired in February 1993; no generic competition has appeared to date.
Sales of antibiotic products as a group continued to record growth over the
prior year primarily as the result of the performance of VANTIN, the broad-
spectrum oral antibiotic introduced in the U.S. late in 1992. Non-U.S. sales
of the CLEOCIN family of products were flat while U.S. sales of this product
line were down slightly for the quarter.
ROGAINE, the treatment for hair loss, led sales growth in the other products
and materials category. ROGAINE sales rose significantly over those of the
first quarter of 1993 which were low due to incentives offered in December
1992. Combined U.S. sales of MICRONASE and GLYNASE PresTab, the oral
antidiabetes agents, were up slightly while sales of MICRONASE alone were down
moderately. The FDA moratorium on the approval of Abbreviated New Drug
Applications (ANDAs) for products containing glyburide, the generic name for
MICRONASE, expires in May 1994. The company has begun to sell its generic
glyburide to reduce the effect of anticipated third party generic competition.
Generic glyburide sells at a significantly lower price, and it is believed
that sales of MICRONASE will continue to decline in the foreseeable future.
ATGAM, the immunosuppressant, continues to record excellent sales increases.
Worldwide animal health products sales were led by the U.S. performance of
NAXCEL, the antibiotic, which continued its pattern of growth during the first
quarter of this year. PIRSUE, the treatment for mastitis which was introduced
in late 1993, also contributed to sales in the agricultural segment.
A decline in worldwide sales of agronomic seeds for the quarter was
encountered in both U.S. and non-U.S. markets. U.S. agronomic sales were
adversely affected by accelerated shipments in December 1993 to dealers
intended to increase availability of seed to farmers early in the sales
season. This action shifted a portion of 1994 sales into 1993. Worldwide
vegetable seed sales were up due to increased shipments to U.S. processors and
increased volume in certain non-U.S. markets.
Consolidated operating expenses, stated as a percent of sales, for each year
were as follows:
First Quarter
------------------
1994 1993
------ ------
Cost of products sold 28.7% 27.2%
Research and development 18.0 16.4
Marketing and administrative 35.8 37.0
The unfavorable comparison in cost of products sold was caused by a change in
product mix which resulted primarily from the generic competition encountered
with the various human health care products and an overall shift to lower
margin products. Gross margins on agricultural segment products were largely
unchanged from this period in 1993. Research and development expense was up
both in total dollars and as a percent of sales from the first quarter of
1993. Continuing costs associated with the development of FREEDOX IV Solution
(tirilazad mesylate) for several indications and other development efforts
have resulted in spending continuing at the relatively high level recorded
late in 1993. Marketing and administrative expense declined both in dollars
and as a percent of sales primarily as the result of cost reductions. The
restructuring announced in the third quarter of 1993 is expected to contribute
to reductions in all expense categories but, to date, has had the greatest
impact on marketing and administrative expense.
Business segment operating profits were as follows:
First Quarter
---------------------------------
(Dollars in Millions)
---------------------------------
Percent
1994 Change 1993
------ ------- ------
Operating profits:
Human health care $153.1 (11.5) $173.1
Agricultural 27.6 (18.5) 33.9
Corporate expense and net interest (6.4) (29.7) (9.2)
------ ------
Earnings from continuing operations
before income taxes, minority equity
and accounting changes $174.3 (11.9) $197.8
====== ======
Combined operating profits for the human health care and agricultural segments
of $181 million, before corporate expense and net interest, declined 13
percent from $207 in the first quarter of 1993. Human health care operating
profit of $173 million in the first quarter of 1993 included a pre-tax gain of
$13.4 million on the sale of the cough/cold medicine trademark, ORTHOXICOL.
The decline in the human health care segment was also attributable to the
generic competition encountered with XANAX. While the company's generic
strategy supported sales and helped to retain a significant share of the
alprazolam market, these sales were made at a significantly reduced unit
selling price from that of XANAX. Sales increases recorded by the company's
generic equivalents and other human health care products did not replace the
profits lost by XANAX. Operating profits were down in the agricultural
segment as the result of lower segment sales. Corporate expense and net
interest were lower than the prior year due to a more favorable comparison of
interest income to interest expense and from gains on the sale of certain
corporate fixed assets.
The effective tax rate for the first quarter of 1994 was 24 percent, the same
as that of the first quarter of 1993. This rate compares to the 22 percent
rate effective for the full year 1993 (after excluding the effects of
restructuring and other unusual items in that year). The increase in rate
from 1993 is due to a lesser proportion of total earnings from products
produced in Puerto Rico.
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 graduated 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).
In the first quarter of 1993, the company adopted calendar year reporting for
all subsidiaries previously reporting on a November 30 fiscal year, the
effects of which were reflected as the cumulative effects of an accounting
change. First quarter 1993 net earnings have been restated to reflect the
cumulative effect of an accounting change to adopt Statement of Financial
Accounting Standards (SFAS) No. 112, "Employers' Accounting for Postemployment
Benefits". See Note G.
Net earnings in the first quarter of 1994 of $135 million were up one percent
from $133 million for the prior-year first quarter. The 1993 measure included
the cumulative effect of two accounting changes that reduced net earnings by
$19 million. These charges were partially offset by the $12.3 million after-
tax gain on the sale of ORTHOXICOL, referred to above.
Working capital increased to $921 million at March 31, 1994, up from $864
million at December 31, 1993, with a corresponding improvement in the current
ratio to 1.87 from 1.82 at those dates, respectively. The ratio of debt to
total capitalization declined to 27.7 percent at March 31, 1994 from 28.3
percent at December 31, 1993. This improvement was realized due to a increase
in total shareholders equity at the end of the current quarter when compared
to that of the prior year-end. The annualized return on average equity for
the quarter improved to 25.4 percent from 19.1 percent for the full year 1993.
The 1993 measure included restructuring and the net of the cumulative effect
of the two accounting changes over the gain on the sale of ORTHOXICOL,
previously discussed.
Net cash provided by operations increased to $200 million for the first three
months of 1994 compared to $160 million in 1993. Current-quarter cash from
operations included approximately $30 million in spending against
restructuring reserves, primarily related to the reduction of personnel. Cash
from operations was greater than net earnings partially due to reduced seed
inventories and human health care accounts receivable. The largest source of
cash from non-operating activities was the proceeds received from the sale of
certain fixed assets no longer needed in operations. The greatest uses of
cash were investment purchases in excess of investment proceeds; the additions
of property, plant and equipment; the payment of dividends to shareholders;
and the purchase of treasury stock.
OTHER ITEMS
All company operations continue to be subject to increased environmental
regulation and legislation, as well as more stringent cleanup requirements and
legal actions (see Note F to the Consolidated Financial Statements).
The company is unable to predict what effect these matters or any pending or
future legislation, regulations, or government actions may have on its
business.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a)(i) Exhibit A - Report of Independent Accountants (page 15).
(a)(ii) Exhibit 11 - Statement regarding computation of earnings
per share (page 16).
(a)(iii) Exhibit 12 - Ratio of Earnings to Fixed Charges (page 17).
(a)(iv) Exhibit 15 - Awareness of Coopers & Lybrand (page 18).
(b) There were no reports on Form 8-K during the quarter ended
March 31, 1994.
SIGNATURE:
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE UPJOHN COMPANY
(Registrant)
DATE: MAY 11, 1994 /S/R. C. SALISBURY
Executive Vice President for
Finance and Chief Financial
Officer
DATE: MAY 11, 1994 /S/D. W. SCHMITZ
Assistant Secretary
EXHIBIT A
To the Shareholders and
Board of Directors
The Upjohn Company
We have reviewed the condensed consolidated balance sheet of The Upjohn
Company and Subsidiaries as of March 31, 1994, and the related condensed
consolidated statements of earnings and cash flows for the three-month periods
ended March 31, 1994 and 1993. These financial statements are the
responsibility of The Upjohn Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data and making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope that an audit
conducted in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying condensed consolidated financial statements
referred to above, for them to be in conformity with generally accepted
accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet as of December 31, 1993, and the
related consolidated statements of earnings, shareholders' equity, cash flows
and segment operations for the year ended (not presented herein); and in our
report, dated January 31, 1994, we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the information set forth
in the accompanying condensed consolidated balance sheet as of December 31,
1993, is fairly stated, in all material respects, in relation to the
consolidated balance sheet from which it has been derived.
COOPERS & LYBRAND
Chicago, Illinois
May 11, 1994
EXHIBIT 11
THE UPJOHN COMPANY AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE - PRIMARY
(In millions, except per-share data)
Three Months Ended
March 31,
--------------------
1994 1993
------ ------
Earnings from continuing operations $134.7 $151.5
Discontinued operation .9
Cumulative effect of accounting changes (18.9)
------ ------
Net earnings 134.7 133.5
Dividends on preferred stock, net of tax 3.0 3.1
------ ------
Net earnings on common shares - primary $131.7 $130.4
====== ======
Average number of common shares outstanding 173.3 174.3
Number of common shares issuable assuming
exercise of stock options .1 .1
Contingently issuable incentive common shares .3 .3
----- -----
Total shares - primary 173.7 174.7
===== =====
Primary earnings per common share:
Earnings from continuing operations $.76 $.85
Discontinued operation .01
Cumulative effect of accounting changes (.11)
---- ----
Net earnings $.76 $.75
==== ====
COMPUTATION OF EARNINGS PER COMMON SHARE - FULLY DILUTED
Earnings from continuing operations $134.7 $151.5
Discontinued operation .9
Cumulative effect of accounting changes (18.9)
------ ------
Net earnings 134.7 133.5
Less ESOP contribution assumed to be required if
preferred shares are converted into common shares (1.2) (1.3)
------ ------
Net earnings on common shares - fully diluted $133.5 $132.2
====== ======
Average number of common shares outstanding 173.3 174.3
Number of common shares issuable assuming
exercise of stock options .1 .2
Contingently issuable incentive common shares .3 .3
Number of common shares issuable assuming
conversion of preferred shares 7.4 7.4
----- -----
Total shares - fully diluted 181.1 182.2
===== =====
Fully diluted earnings per common share:
Earnings from continuing operations $.74 $.82
Discontinued operation .01
Cumulative effect of accounting changes (.10)
---- ----
Net earnings $.74 $.73
==== ====
<TABLE> EXHIBIT 12
THE UPJOHN COMPANY AND CONSOLIDATED SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollar amounts in thousands)
<CAPTION>
Three Months Year Ended December 31,
Ended ------------------------------------------------
March 31, 1994 1993 1992 1991 1990 1989
-------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Earnings from continuing
operations before accounting
changes, income taxes and
minority equity $174,286 $490,422 $696,707 $715,553 $651,800 $477,100
Less: Equity in undistributed
net income (loss) of companies
owned less than 50% 591 3,119 2,212 1,455 1,742 (1)
-------- -------- -------- -------- -------- --------
173,695 487,303 694,495 714,098 650,058 477,101
Add: Amortization of previously
capitalized interest 1,167 4,009 3,799 3,109 2,922 2,669
Fixed charges included in the
above:
Interest and amortization of
debt expense 13,143 58,381 58,155 46,851 53,502 31,693
Rental expense representative
of an interest factor 3,479 13,914 13,095 10,800 10,940 9,462
-------- -------- -------- -------- -------- --------
Earnings from continuing
operations before accounting
changes, income taxes, minority
equity and fixed charges $191,484 $563,607 $769,544 $774,858 $717,422 $520,925
======== ======== ======== ======== ======== ========
Interest incurred and
amortization of debt expense $ 16,286 $ 74,080 $ 69,163 $ 59,920 $ 61,146 $ 37,919
Rental expense representative
of an interest factor 3,479 13,914 13,095 10,800 10,940 9,462
-------- -------- -------- -------- -------- --------
Total fixed charges $ 19,765 $ 87,994 $ 82,258 $ 70,720 $ 72,086 $ 47,381
======== ======== ======== ======== ======== ========
Ratio of earnings to fixed
charges 9.69 6.41 9.36 10.96 9.95 10.99
==== ==== ==== ===== ==== =====
</TABLE>
EXHIBIT 15
May 11, 1994
Securities and Exchange Commission
500 North Capital Street
Washington, D.C. 20459
RE: The Upjohn Company
Registration on Form 10-Q
We are aware that our report dated May 9, 1994, on our review of interim
financial information of The Upjohn Company and Subsidiaries for the period
ended March 31, 1994, and for the three-month periods ended March 31, 1994 and
1993 included in this Form 10-Q is incorporated by reference in the Company's
prospectus in Form S-3 Registration Statement (No. 33-60304), the prospectus
in Form S-3 Registration Statement (No. 2-88841), the prospectus in Form S-3
Registration Statement (No. 33-42210), the prospectus in Form S-8 Registration
Statement (No. 33-14461), as amended and supplemented and in the Form S-8
Registration Statement (No. 33-15021). Pursuant to Rule 436(c) under the
Securities Act of 1933, this report should not be considered a part of the
registration statement prepared or certified by us within the meaning of
Sections 7 and 11 of the Act.
COOPERS & LYBRAND
