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, 1995
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
May 8, 1995
was 172,770,710.
Page 1 of 20 pages
The exhibit index is set forth on page 16.
<PAGE>
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
----------------------
1995 1994
-------- --------
Net sales $808,717 $800,696
Other revenue 58,019 10,271
-------- --------
Operating revenue 866,736 810,967
-------- --------
Cost of products sold 225,286 202,768
Research and development 144,048 154,781
Marketing and administrative 297,777 301,453
-------- --------
Operating income 199,625 151,965
Interest income 19,805 13,258
Interest expense (5,943) (6,418)
Foreign exchange gains (losses) 292 (1,729)
All other, net (262) 2,313
-------- --------
Earnings from continuing operations before
income taxes 213,517 159,389
Provision for income taxes 61,900 35,500
-------- --------
Earnings from continuing operations 151,617 123,889
Earnings from discontinued operation (net of tax) 10,864
-------- --------
Net earnings 151,617 134,753
Dividends on preferred stock (net of tax) 3,068 3,037
-------- --------
Net earnings on common stock $148,549 $131,716
======== ========
Earnings per common share:
Primary - Earnings from continuing operations $.85 $.70
- Discontinued operation .06
---- ----
- Net earnings $.85 $.76
==== ====
Fully - Earnings from continuing operations $.83 $.68
diluted- Discontinued operation .06
---- ----
- Net earnings $.83 $.74
==== ====
See accompanying notes.
<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
----------------------
1995 1994
-------- --------
Net cash provided by operations $ 45,676 $200,295
-------- --------
Cash provided (required) by investment activities:
Property, plant and equipment additions (42,653) (52,956)
Proceeds from sale of property, plant and
equipment 452 23,976
Proceeds from sale of investments 35,104 11,633
Purchase of investments (103,193) (98,355)
Proceeds from the sale of discontinued operation 7,943
Other 3,615 (5,625)
-------- --------
Net cash required by investment activities (106,675) (113,384)
-------- --------
Cash provided (required) by financing activities:
Proceeds from issuance of debt 6,940 5,183
Repayment of debt (7,729) (4,052)
Debt maturing in three months or less (net) (193) 2,454
Dividends paid to shareholders (65,940) (66,038)
Purchase of treasury stock (21,158) (20,884)
Other 4,267 733
-------- --------
Net cash required by financing activities (83,813) (82,604)
-------- --------
Effect of exchange rate changes on cash 8,770 2,045
-------- --------
Net change in cash and cash equivalents (136,042) 6,352
Cash and cash equivalents, beginning of year 502,346 281,132
Net cash of discontinued operation 10,618
-------- --------
Cash and cash equivalents, end of period $366,304 $298,102
======== ========
See accompanying notes.
<PAGE>
THE UPJOHN COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(All Dollar Amounts in Thousands)
March 31, December 31,
1995 1994
----------- ------------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 366,304 $ 502,346
Trade accounts receivable, less allowances
of $36,989 and $36,088 731,071 650,522
Inventories 473,807 458,676
Deferred income taxes 155,100 151,783
Other 499,431 367,111
---------- ----------
Total current assets 2,225,713 2,130,438
---------- ----------
Investments 607,097 647,092
---------- ----------
Property, plant and equipment, at cost 3,163,899 3,079,537
Less: Allowance for depreciation (1,330,611) (1,280,866)
---------- ----------
Net property, plant and equipment 1,833,288 1,798,671
---------- ----------
Other noncurrent assets 619,789 586,260
---------- ----------
Total assets $5,285,887 $5,162,461
========== ==========
See accompanying notes.
<PAGE>
THE UPJOHN COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(All Dollar Amounts in Thousands)
March 31, December 31,
1995 1994
---------- ------------
(unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt, including current
maturities of long-term debt $ 80,780 $ 42,090
Accounts payable 137,366 179,802
Compensation and vacation 97,404 110,699
Dividends payable 64,000 64,060
Income taxes payable 214,108 189,015
Other 532,839 533,274
---------- ----------
Total current liabilities 1,126,497 1,118,940
---------- ----------
Long-term debt 515,775 520,977
---------- ----------
Guarantee of ESOP debt 267,200 274,800
---------- ----------
Postretirement benefit cost 371,820 369,217
---------- ----------
Other noncurrent liabilities 401,310 396,671
---------- ----------
Deferred income taxes 101,710 99,238
---------- ----------
Shareholders' equity:
Preferred stock, one dollar par value;
authorized 12,000,000 shares; issued
Series B convertible 7,290 shares
(1994: 7,322 shares) at stated value 293,803 295,079
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 65,809 64,636
Retained earnings 2,841,777 2,757,260
Note receivable from ESOP Trust (ESOT) (33,520) (33,520)
ESOP deferred compensation (241,836) (243,962)
Currency translation adjustments 13,644 (33,057)
Treasury stock at cost 17,655,515 shares
(1994: 17,447,880 shares) (628,692) (614,408)
---------- ----------
Total shareholders' equity 2,501,575 2,382,618
---------- ----------
Total liabilities and shareholders' equity $5,285,887 $5,162,461
========== ==========
See accompanying notes.
<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, 1994, 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.
In December 1994, the company sold its interests in the Asgrow Seed Company.
Where appropriate, these financial statements have been restated to reflect
this sale 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,
1995 1994
--------- ------------
Estimated replacement cost
(FIFO basis):
Pharmaceutical finished products $216,880 $216,165
Raw materials, supplies and work in process 399,293 382,501
-------- --------
616,173 598,666
Less reduction to LIFO cost (142,366) (139,990)
-------- --------
$473,807 $458,676
======== ========
Inventories valued on the LIFO method had an estimated replacement cost (FIFO
basis) of $360,032 at March 31, 1995, and $360,124 at December 31, 1994.
D - DEBT:
Long-term debt consisted of the following:
March 31, December 31,
1995 1994
-------- ------------
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 13,439 18,103
Current maturities (3,664) (3,126)
-------- --------
$515,775 $520,977
======== ========
The Medium-Term Notes were issued under 1993 and 1991 shelf registrations
filed with the Securities and Exchange Commission. At March 31, 1995,
$134,000 remained available for issuance under these registrations.
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 has committed to make a series of investments, as certain progress
goals are met, in a company that intends to manufacture a hemoglobin-based
oxygen carrier. These investments could aggregate $179,000 over a period of
years. As of March 31, 1995, the company has invested $82,000. Also pursuant
to the agreement, the company has committed to conduct clinical development.
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.
On May 10, 1995 a jury verdict of patent infringement was handed down by the
United States District Court for the District of Delaware regarding the
marketing of a nonprescription ibuprofen/psuedoephedrine combination product.
The company expects to pay a royalty on all sales of the products from
commencement of the lawsuit until entry of a permanent injunction against
further sales by Upjohn is ordered by the Court. The plaintiff has not yet
moved for a permanent injunction against further sales, and the Court has not
entered such an injunction. If the injunction is ordered, Upjohn will have to
stop distributing the product in the United States. The amount of the royalty
is not expected to be material. The company is considering further legal
options.
The company is also involved in several administrative and judicial
proceedings relating to environmental matters, including actions brought by
the U.S. EPA and state environmental agencies for cleanup at approximately 40
"Superfund" or comparable sites. The company's estimate of the ultimate cost
to be incurred in connection with these environmental situations could change
due 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 30 other defendant
manufacturers and wholesalers, in numerous state and federal civil antitrust
lawsuits brought by retail pharmacies and retail pharmacy chains and
supermarkets. In the main, this series of actions seeks treble damages and
injunctive relief based on allegations of price discrimination and antitrust
violations with respect to discounts and rebates provided to certain customers
but denied to the plaintiffs. Federal cases have been consolidated for trial
on certain antitrust issues in the Federal District Court for the Northern
District of Illinois. That court has certified a class of retail pharmacy
plaintiffs in a class action. It is possible that additional cases making
similar claims will be filed naming the company as a defendant.
Based on information currently available and the company's experience with
lawsuits of the nature of those currently filed or anticipated to be filed
which have resulted from business activities to date, the amounts accrued for
product and environmental liabilities arising from the litigation and
proceedings referred to above are considered to be adequate. Although the
company cannot predict the outcome of individual lawsuits, at this time the
company believes the ultimate liability should not have a material effect on
consolidated financial position; and unless there is a significant deviation
from the historical pattern of resolution of such issues, the ultimate
liability should not have a material adverse effect on the company's results
of operations or liquidity.
For several years, the company has been in the process of evaluating existing
environmental conditions at the North Haven, Connecticut facility. This
evaluation, conducted in compliance with a corrective action order issued by
the U.S. EPA on September 29, 1989, is largely complete. The U.S. EPA and the
company have entered into an Administrative Order on Consent (effective as of
June 18, 1994) under which the company will conduct a Corrective Measures
Study and will implement interim measures appropriate for site stabilization
pending final remedial work as may be necessary.
G - DERIVATIVE FINANCIAL INSTRUMENTS:
The company utilizes derivative financial instruments in conjunction with its
foreign currency risk management programs and does not use such instruments
for trading purposes. These programs include the creation of designated
hedges of the net foreign currency transaction exposures of certain
significant international subsidiary operations. There were no hedges of
anticipated transactions at March 31, 1995.
The company's program to hedge net foreign currency transaction exposures is
designed to protect operating results and cash flows from potential adverse
effects of foreign currency fluctuations related to intercompany and selected
third-party transactions. The hedging activities seek to limit this risk by
offsetting the gains and losses on the underlying exposures with losses and
gains on the instruments utilized to create the hedge. This program utilizes
over-the-counter forward exchange contracts with terms consistent with the
underlying exposures. These contracts generally have maturities that do not
exceed twelve months and require the company to exchange currencies at agreed-
upon rates at maturity.
At March 31, 1995, the notional amount of the company's outstanding foreign
exchange forward contracts held related to the net transaction exposure
hedging program was $142,899.
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.
H - RESTRUCTURING:
The company accrued restructuring charges as of September 30, 1993, that
included costs of $136,109 related to a worldwide work-force reduction of
approximately 1,500 employees. The majority of these employees were employed
in marketing, administrative, and manufacturing functions. As of March 31,
1995, approximately 1,200 employees had terminated under this restructuring
program. Of the amount originally accrued for work-force reduction,
approximately $11,600 remains as current and noncurrent liabilities of the
company. There have been no adjustments made to increase or decrease the
liabilities originally accrued for the purpose of work-force reduction.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations:
RESULTS OF OPERATIONS
First Quarter
(Dollars in Millions,
except per-share data)
-------------------------------
Percent
1995 Change 1994
------ ------- ------
Total revenue $866.7 7% $811.0
Operating income 199.6 31 152.0
Earnings from continuing
operations before income taxes 213.5 34 159.4
Earnings from continuing
operations 151.6 22 123.9
Net earnings 151.6 13 134.8
Earnings per common share
on net earnings:
-Primary $.85 12 $.76
-Fully diluted $.83 12 $.74
All sales data and financial results for the first quarter of 1994 have been
restated to reflect the sale of the company's interests in the Asgrow Seed
Company as a discontinued operation.
First-quarter 1995 consolidated sales were up 1 percent with domestic sales
decreasing 15 percent to $409 million from $479 million. Domestic sales
represented 51 percent of total consolidated sales as compared to 60 percent
one year earlier. International sales of $400 million were up 24 percent from
$322 million in the first quarter of 1994. In total, consolidated sales were
up as the result of foreign exchange benefit of 3 percent offset by 1 percent
declines in both volume and price. Significant volume increases in
international markets were offset by volume declines in the U.S.
Total revenue benefited from the sale of the company's rights under a product
co-marketing agreement. This sale added $26 million (15 cents per share) to
first quarter 1995 net earnings. This agreement contributed 1 cent per share
to net earnings in the first quarter of 1994.
Also affecting year-to-year comparisons, the discontinued Asgrow Seed Company
contributed $11 million (6 cents per share) to net earnings in 1994. An
increase in the annual effective tax rate in the first quarter of 1995 reduced
primary earnings per share by 6 cents when compared to the first quarter of
1994.
PRODUCT SALES
The table below provides a year-to-year comparison of consolidated net sales
by major pharmaceutical product group:
(Dollars in Millions)
-----------------------------
Percent
1995 Change 1994
------ ------- ------
Central nervous system $104.2 (8%) $112.8
Steroids, anti-inflammatory and
analgesic 83.9 (17) 101.4
Reproductive and women's health 125.5 5 119.2
Critical care, transplant and cancer 116.1 24 94.0
Infectious disease 138.7 25 111.4
Animal health 83.8 8 77.7
Other products and materials 156.5 (15) 184.2
------ ------
Consolidated net sales $808.7 1 $800.7
====== ======
The decline in worldwide sales of central nervous system agents was the net
result of strong international sales increases for both XANAX, the anti-
anxiety agent and HALCION, the sleep inducing agent being offset by continuing
significant generic competition against XANAX in the U.S. The first-quarter
1995 U.S. sales decline in XANAX was significantly less in both dollars and as
a percent of prior year sales than that experienced in the first three months
of 1994.
A significant decline in the U.S. sales of ANSAID (flurbiprofen), resulting
from generic competition first encountered in late 1994, led to the overall
decline in the steroid, anti-inflammatory and analgesic product group for the
first quarter of 1995. MOTRIN IB, the over-the-counter nonsteroidal
analgesic, also recorded a significant sales decline in the first quarter of
1995. This decline has been attributed to an effort by wholesalers to reduce
inventories. As the result of a court verdict issued in May 1995, it is
possible that the company may be enjoined from distributing the product MOTRIN
IB Sinus in the U.S. in the near future. Sales of MOTRIN IB Sinus are not
material to total consolidated sales.
Good U.S. sales performance by DEPO-PROVERA, the injectable contraceptive,
continued to lead growth in the reproductive and women's health products
group. This performance was offset by a decline in the sales of OGEN, the
estrogen replacement therapy, that has been subject to generic substitution.
The sales increase in the critical care, transplant and cancer products group
was led by the sales performance of SOLU-MEDROL, the injectable steroid, and
other MEDROL products outside the U.S. Strong international sales growth from
the DALACIN (CLEOCIN in the U.S.) family of antibiotic products led the growth
in the infectious disease category that also benefited from the continuing
solid performance of VANTIN, the broad-spectrum oral antibiotic.
The increase in sales of animal health products was driven by good performance
from several products in international markets, led by the Lincomycin and
Spectinomycin antibiotic products. International growth also benefited from
an increase in sales of the antibiotic EXCENEL (NAXCEL in U.S. markets). A
decline in U.S. sales of NAXCEL for the first quarter of 1995 was attributable
to an overall healthier cattle population and high sales in 1994 resulting
from purchases preceding a price increase.
Generic competition for MICRONASE (glyburide), the oral anti-diabetes agent
that lost U.S. market exclusivity in the second quarter of 1994, led to the
decline in sales of other products and materials. GLYNASE PresTab, the oral
anti-diabetes agent, continued to record good growth. Increased sales of
pharmaceutical and specialty chemicals also showed growth in this product
group.
OPERATING EXPENSE AND INCOME
(Percent of Sales)
First Quarter
-----------------
1995 1994
---- ----
Cost of products sold 27.9% 25.3%
Research and development 17.8 19.3
Marketing and administrative 36.8 37.6
Operating income 24.7 19.0
The increase in the cost of products sold as a percent of sales is the result
of a change in product and geographic mix. The company's generic and other
products carry lower gross margins than the products that have recently lost
patent protection. Also, as noted above, a higher percentage of total sales
were realized in international markets where the company's product line
generally carries lower gross margins.
Expenditures for research and development were down somewhat as a percent of
sales for the first quarter of 1995. This fluctuation is the result of a
favorable comparison due to the timing of certain expenditures related to
major clinical trials. It is expected that research and development
expenditures in dollars for the current year will approximate those incurred
for the full year 1994.
The decline in marketing and administrative expense was the result of expense
controls and cost savings realized from the 1993 restructuring. Restructuring
programs were in the early stages of implementation during the first quarter
of 1994. Some of the savings from these efforts were offset by higher costs
resulting from foreign exchange comparisons, especially in Japan and certain
European markets.
The increase in operating income as a percent of sales is the direct result of
the revenue realized from the sale of rights under the agreement discussed
above. Excluding this revenue, operating income would have been 19.5 percent
of sales, up slightly from the first quarter of 1994.
NONOPERATING INCOME AND EXPENSE
The favorable interest income to interest expense comparison made a greater
contribution to earnings from continuing operations before income taxes in the
first quarter of 1995 than in 1994. This was realized due to higher total
returns from investments, including investment of the proceeds from the sale
of the discontinued Asgrow Seed Company. First-quarter 1994 minority equity
in losses of $2.2 million has been reclassified to "All other, net" for
consistency with the current-year presentation. First-quarter 1995 minority
equity in losses was immaterial.
INCOME TAXES
The estimated annual effective tax rate for 1995 is 29 percent, compared to 24
percent in 1994 (the effective rate for the first quarter of 1994 was 22.5
percent after the restatement to reflect the exclusion of Asgrow Seed
Company). The higher rate for 1995 is the result of changes in the U.S. tax
law, which significantly reduced tax benefits from operations in Puerto Rico.
FINANCIAL CONDITION
The following ratios are presented as indicators of financial condition and
performance:
March 31, December 31,
1995 1994
--------- ------------
Working capital (in millions) $1,099 $1,011
Current ratio 1.98 1.90
Debt to total capitalization 25.6% 26.0%
Return on average equity -
continuing operations 24.8% 22.0%
Working capital at March 31, 1995 was up with a corresponding improvement in
the current ratio. This resulted from increased accounts receivable at the
end of the quarter relating to a special sales promotion in 1994; the effects
of exchange on receivables in Europe and Japan; and the receivable from the
sale of the co-marketing rights, noted above. In future quarters, accounts
receivable are expected to decline from the current level. The proceeds from
the sale of the Asgrow Seed Company also contributed to the relatively high
level of working capital. A common stock repurchase program that will utilize
approximately $300 million is underway. The ratio of debt to total
capitalization benefited from the increase in total shareholders' equity. The
increase in the return on average equity is largely due to the proceeds from
the sale of the company's rights under the marketing alliance agreement,
discussed above.
Cash from operations in the first quarter of 1995 of $46 million was down
significantly from the first quarter of 1994 due to the increase in accounts
receivable as noted above and a reduction in accounts payable. Cash from
operations was also reduced by approximately $20 million in spending against
restructuring reserves established in 1993. For the remainder of 1995, there
is not expected to be significant cash spending related to restructuring.
Cash required for the acquisition of property, plant and equipment declined
from the prior year, primarily due to timing. Cash required for the purchase
of treasury stock is up slightly for the quarter but is expected to increase
significantly as the year progresses as the result of the common stock
repurchase program noted above.
See Note G for a discussion of the company's use of derivative financial
instruments.
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 Notes E and 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 4.Submission of Matters to a Vote of Security Holders
Three shareholder proposals were voted on and 6 directors were
elected by security holders at the company's Annual Meeting of
Shareholders which convened on April 18, 1995.
Shareholder Proposal No. 1 requested the Board to create and
implement a policy of price restraint for pharmaceutical products.
Affirmative votes 11,414,133
Negative votes 124,577,803
Abstentions 23,754,080
Shareholder Proposal No. 2 requested that the Board commit to uphold
the South African Council of Churches Code of Conduct for Businesses
Operating in South Africa and report to shareholders on its
implementation.
Affirmative votes 13,006,850
Negative votes 108,434,057
Abstentions 38,305,109
Shareholder Proposal No. 3 requested that the Board form a committee
to formulate an educational plan that would inform women of the
possible abortifacient action of any of the company's products.
Affirmative votes 10,066,068
Negative votes 111,241,838
Abstentions 38,438,110
The following directors were elected at the meeting:
M. K. Eickhoff Votes for 156,430,074
Votes withheld 3,315,942
D. F. Grisham Votes for 156,399,248
Votes withheld 3,346,768
L. C. Hoff Votes for 156,257,277
Votes withheld 3,488,739
J. R. Mitchell Votes for 155,665,096
Votes withheld 4,080,920
W. U. Parfet Votes for 156,288,955
Votes withheld 3,457,061
A. M. Gotto, Jr. Votes for 156,489,903
Votes withheld 3,256,113
Members of the Board of Directors whose term of office continued
after the meeting include:
Richard H. Brown
Frank C. Carlucci
M. Kathryn Eickhoff
Antonio M. Gotto, Jr.
Daryl F. Grisham
Lawrence C. Hoff
Geraldine Kenney-Wallace
William E. LaMothe
Jerry R. Mitchell
William D. Mulholland
William U. Parfet
Ley S. Smith
John L. Zabriskie
Item 6.Exhibits and Reports on Form 8-K.
(a)(i) Exhibit A - Report of Independent Accountants (page 17).
(a)(ii) Exhibit 11 - Statement regarding computation of earnings per
share (page 18).
(a)(iii) Exhibit 12 - Ratio of Earnings to Fixed Charges (page 19).
(a)(iv) Exhibit 15 - Awareness of Coopers & Lybrand (page 20).
PART II - OTHER INFORMATION (Continued)
(a)(v) Exhibit 27 - Financial Data Schedule (EDGAR filing only).
(b) There were no reports on Form 8-K during the quarter ended
March 31, 1995.
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: 5/15/95 /S/R. C. SALISBURY
R. C. Salisbury
Executive Vice President
and Chief Financial Officer
DATE: 5/15/95 /S/K. M. CYRUS
K. M. Cyrus
Corporate Executive Vice President,
Secretary and General Counsel
EXHIBIT A
To the Shareholders and
Board of Directors
The Upjohn Company
We have reviewed the consolidated balance sheet of The Upjohn Company and
Subsidiaries as of March 31, 1995, the related condensed consolidated
statements of earnings and cash flows for the three-month periods ended March
31, 1995 and 1994. 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, 1994, and the
related consolidated statements of earnings, shareholders' equity, and cash
flows for the year ended (not presented herein); and in our report, dated
January 26, 1995, we expressed an unqualified opinion on those consolidated
financial statements. In our opinion, the information set forth in the
accompanying consolidated balance sheet as of December 31, 1994, is fairly
stated, in all material respects, in relation to the consolidated balance
sheet from which it has been derived.
COOPERS & LYBRAND L.L.P.
Chicago, Illinois
April 17, 1995
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,
--------------------
1995 1994
---- ----
Earnings from continuing operations $151.6 $123.9
Discontinued operations 10.8
------ ------
Net earnings 151.6 134.7
Dividends on preferred stock, net of tax 3.1 3.0
------ ------
Net earnings on common shares - primary $148.5 $131.7
====== ======
Average number of common shares outstanding 173.1 173.3
Number of common shares issuable assuming
exercise of stock options .6 .1
Contingently issuable incentive common shares .3 .3
----- -----
Total shares - primary 174.0 173.7
===== =====
Primary earnings per common share:
Earnings from continuing operations $.85 $.70
Discontinued operations .06
---- ----
Net earnings $.85 $.76
==== ====
COMPUTATION OF EARNINGS PER COMMON SHARE - FULLY DILUTED
Earnings from continuing operations $151.6 $123.9
Discontinued operations 10.8
------ ------
Net earnings 151.6 134.7
Less ESOP contribution assumed to be required
if preferred shares are converted into
common shares (1.2) (1.2)
------ ------
Net earnings on common shares-fully diluted $150.4 $133.5
====== ======
Average number of common shares outstanding 173.1 173.3
Number of common shares issuable assuming
exercise of stock options 1.0 .1
Contingently issuable incentive common shares .3 .3
Number of common shares issuable assuming
conversion of preferred shares 7.3 7.4
----- -----
Total shares - fully diluted 181.7 181.1
===== =====
Fully diluted earnings per common share:
Earnings from continuing operations $.83 $.68
Discontinued operations .06
---- ----
Net earnings $.83 $.74
==== ====
<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, 1995 1994 1993 1992 1991 1990
-------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Earnings from continuing
operations before income
taxes and minority
equity $213,434 $643,296 $480,037 $671,903 $715,553 $651,800
Less: Asgrow 21,786 26,940
Less: Equity in undistributed
net income (loss) of
companies owned less
than 50% 193 2,264 3,119 2,212 1,455 1,742
-------- ------ -------- -------- -------- --------
213,241 641,032 476,918 669,691 692,312 623,118
Add: Amortization of previously
capitalized interest 2,030 4,417 4,009 3,799 3,109 2,922
Fixed charges included in the
above:
Interest and amortization
of debt expense 12,675 51,496 58,381 58,155 46,851 53,502
Rental expense representative
of an interest factor 3,226 12,903 12,221 11,495 10,563 9,426
-------- -------- -------- -------- -------- --------
Earnings from continuing
operations before income
taxes, minority equity
and fixed charges $231,172 $709,848 $551,529 $743,140 $752,835 $688,968
======== ======== ======== ======== ======== ========
Interest incurred and
amortization of debt
expense $ 15,474 $ 63,599 $ 74,080 $ 69,163 $ 59,920 $ 61,146
Rental expense representative
of an interest factor 3,226 12,903 12,221 11,495 10,563 9,426
-------- -------- -------- -------- -------- --------
Total fixed charges $ 18,700 $ 76,502 $ 86,301 $ 80,658 $ 70,483 $ 70,572
======== ======== ======== ======== ======== ========
Ratio of earnings to fixed
charges 12.36 9.28 6.39 9.21 10.68 9.76
===== ==== ==== ==== ===== =====
</TABLE>
EXHIBIT 15
May 11, 1995
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 April 17, 1995, on our review of interim
financial information of The Upjohn Company and Subsidiaries for the three-
month period ended March 31, 1995 and 1994, included in this Form 10-Q is
incorporated by reference in the Company's prospectus 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 in Form S-8 Registration Statement (No. 33-14461), as
amended and supplemented; in the Form S-8 Registration Statement (No. 33-
15021); and in Form S-8 Registration Statement (No. 33-51659). 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.
Very truly yours,
COOPERS & LYBRAND L.L.P.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
EARNINGS STATEMENT AND THE BALANCE SHEET AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1995
<CASH> 366,304
<SECURITIES> 0
<RECEIVABLES> 768,060
<ALLOWANCES> 36,989
<INVENTORY> 473,807
<CURRENT-ASSETS> 2,225,713
<PP&E> 3,163,899
<DEPRECIATION> 1,330,611
<TOTAL-ASSETS> 5,285,887
<CURRENT-LIABILITIES> 1,126,497
<BONDS> 515,775<F1>
<COMMON> 190,590
0
293,803
<OTHER-SE> 2,017,182
<TOTAL-LIABILITY-AND-EQUITY> 5,285,887
<SALES> 808,717
<TOTAL-REVENUES> 866,736
<CGS> 225,286
<TOTAL-COSTS> 225,286
<OTHER-EXPENSES> 144,048<F2>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,943
<INCOME-PRETAX> 213,517
<INCOME-TAX> 61,900
<INCOME-CONTINUING> 151,617
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 151,617
<EPS-PRIMARY> .85
<EPS-DILUTED> .83
<FN>
<F1>EXCLUDES COMPANY'S GUARANTEE OF ESOP DEBT: $267,200.
<F2>ONLY INCLUDES R&D EXPENSE.
</FN>
</TABLE>
