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 June 30, 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
August 8, 1995
was 171,198,305.
Page 1 of 17 pages
The exhibit index is set forth on page 13.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
THE UPJOHN COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(All Dollar Amounts in Thousands, Except Per-Share Data)
<CAPTION>
Unaudited
----------------------------------------------
For Three Months For Six Months
Ended June 30, Ended June 30,
------------------- -----------------------
1995 1994 1995 1994
-------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales $834,729 $818,654 $1,643,446 $1,619,350
Other revenue 16,104 14,236 74,123 24,507
-------- -------- ---------- ----------
Operating revenue 850,833 832,890 1,717,569 1,643,857
Cost of products sold 221,542 217,790 446,828 420,558
Research & development 146,761 148,310 290,809 303,091
Marketing & administrative 330,376 316,529 628,153 617,982
-------- -------- ---------- ----------
Operating income 152,154 150,261 351,779 302,226
Interest income 20,885 14,098 40,690 27,356
Interest expense (7,045) (6,253) (12,988) (12,671)
Foreign exchange losses (1,439) (350) (1,147) (2,079)
All other, net (1,295) (2,687) (1,557) (374)
-------- -------- ---------- ----------
Earnings from continuing operations
before income taxes 163,260 155,069 376,777 314,458
Provision for income taxes 47,400 37,000 109,300 72,500
-------- -------- ---------- ----------
Earnings from continuing operations 115,860 118,069 267,477 241,958
Earnings from discontinued operation
(net of tax) 2,016 12,880
-------- -------- ---------- ----------
Net earnings 115,860 120,085 267,477 254,838
Dividends on preferred stock
(net of tax) 3,118 3,089 6,186 6,126
-------- -------- ---------- ----------
Net earnings on common stock $112,742 $116,996 $ 261,291 $ 248,712
======== ======== ========== ==========
Earnings per common share:
Primary - Earnings from continuing
operations $.66 $.66 $1.51 $1.36
- Discontinued operation .01 .07
---- ---- ----- -----
- Net earnings $.66 $.67 $1.51 $1.43
==== ==== ===== =====
Fully - Earnings from continuing
Diluted operations $.63 $.64 $1.46 $1.32
- Discontinued operation .01 .07
---- ---- ----- -----
- Net earnings $.63 $.65 $1.46 $1.39
==== ==== ===== =====
</TABLE>
See accompanying notes.
<PAGE>
THE UPJOHN COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30
(All Dollar Amounts in Thousands)
Unaudited
1995 1994
-------- --------
Net cash provided by operations $252,639 $311,471
-------- --------
Cash provided (required) by investment activities:
Property, plant and equipment additions (96,651) (113,920)
Proceeds from sale of property, plant and equipment 5,230 25,479
Proceeds from sale of investments 158,888 78,304
Purchase of investments (293,870) (189,850)
Proceeds from sale of discontinued operation 7,943
Other 6,038 (5,476)
-------- --------
Net cash required by investment activities (220,365) (197,520)
-------- --------
Cash provided (required) by financing activities:
Proceeds from issuance of debt 11,693 6,367
Repayment of debt (13,447) (13,566)
Debt maturing in three months or less (21,669) 3,814
Dividends paid to shareholders (131,855) (131,839)
Purchase of treasury stock (102,599) (23,021)
Other 12,546 1,582
-------- --------
Net cash required by financing activities (245,331) (156,663)
-------- --------
Effect of exchange rate changes on cash 14,625 2,167
-------- --------
Net change in cash and cash equivalents (198,432) (40,545)
Cash and cash equivalents, beginning of year 502,346 291,750
-------- --------
Cash and cash equivalents, end of period $303,914 $251,205
======== ========
See accompanying notes.
<PAGE>
THE UPJOHN COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(All Dollar Amounts in Thousands)
June 30, December 31,
1995 1994
----------- ------------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 303,914 $ 502,346
Trade accounts receivable, less allowances
of $35,538 and $36,088 671,767 650,522
Inventories 502,172 458,676
Deferred income taxes 157,397 151,783
Other 506,630 367,111
---------- ----------
Total current assets 2,141,880 2,130,438
---------- ----------
Investments, at cost 598,254 647,092
---------- ----------
Property, plant and equipment, at cost 3,203,532 3,079,537
Less: Allowance for depreciation (1,351,189) (1,280,866)
---------- ----------
Net property, plant and equipment 1,852,343 1,798,671
---------- ----------
Other noncurrent assets 651,109 586,260
---------- ----------
Total assets $5,243,586 $5,162,461
========== ==========
See accompanying notes.
<PAGE>
THE UPJOHN COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(All Dollar Amounts in Thousands)
June 30, December 31,
1995 1994
----------- ------------
(unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt, including current
maturities of long-term debt $ 60,285 $ 42,090
Accounts payable 131,703 179,802
Compensation and vacation 102,016 110,699
Dividends payable 63,400 64,060
Income taxes payable 226,702 189,015
Other 494,967 533,274
---------- ----------
Total current liabilities 1,079,073 1,118,940
---------- ----------
Long-term debt 515,005 520,977
---------- ----------
Guarantee of ESOP debt 267,200 274,800
---------- ----------
Postretirement benefit cost 374,607 369,217
---------- ----------
Other noncurrent liabilities 403,443 396,671
---------- ----------
Deferred income taxes 101,879 99,238
---------- ----------
Shareholders' equity:
Preferred stock, one dollar par value;
authorized 12,000,000 shares; issued
Series B convertible 7,263 shares
(1994: 7,322 shares) at stated value 292,719 295,079
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 62,828 64,636
Retained earnings 2,891,048 2,757,260
Note receivable from ESOP Trust (ESOT) (33,520) (33,520)
ESOP deferred compensation (239,910) (243,962)
Currency translation adjustments 34,463 (33,057)
Less treasury stock at cost 17,655,515 shares
(1994: 17,447,880 shares) (695,839) (614,408)
---------- ----------
Total shareholders' equity 2,502,379 2,382,618
---------- ----------
Total liabilities and shareholders' equity $5,243,586 $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:
June 30, December 31,
1995 1994
-------- ------------
Estimated replacement cost
(FIFO basis):
Pharmaceutical finished products $226,570 $216,165
Raw materials, supplies and work in process 420,344 382,501
-------- --------
646,914 598,666
Less reduction to LIFO cost (144,742) (139,990)
-------- --------
$502,172 $458,676
======== ========
Inventories valued on the LIFO method had an estimated replacement cost (FIFO
basis) of $375,873 at June 30, 1995, and $360,124 at December 31, 1994.
D - DEBT:
Long-term debt consisted of the following:
June 30, 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 13,207 18,103
Current maturities (4,202) (3,126)
-------- --------
$515,005 $520,977
======== ========
The Medium-Term Notes were issued under 1993 and 1991 shelf registrations
filed with the Securities and Exchange Commission. At June 30, 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 June 30, 1995, the company has invested $96,000. 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, and over 100 lawsuits in Australia involving DEPO-MEDROL.
The company is 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.
Upjohn has been named, along with at least 30 other defendants (both
manufacturers and wholesalers), in a number of federal civil antitrust
lawsuits some of which have been or are in the process of being consolidated
and transferred to the Federal District Court for the Northern District of
Illinois for purposes of discovery. These suits, brought by retail pharmacies
and chains, generally allege unlawful conspiracy, price discrimination and
price fixing and, in some cases, unfair competition, and specifically allege
that Upjohn and the other named defendants violated: (1) the Robinson Patman
Act by giving substantial discounts to hospitals, nursing homes, mail-order
pharmacies, and HMOs without according the same discounts to retail
drugstores, and (2) Section 1 of the Sherman Antitrust Act by entering into
illegal vertical combinations with other manufacturers and wholesalers to
restrict certain discounts and rebates so they benefited only favored
customers. The Federal District Court for the Northern District of Illinois
has certified a class consisting of retail pharmacies, and the same court has
pending before it a suit with approximately 2,500 named retail pharmacies.
The suits seek treble damages and an injunction prohibiting the alleged
illegal practices. In addition, similar actions have been brought in Alabama,
California, Colorado, Minnesota, New York, Washington, and Wisconsin state
courts. The California State court has recently certified a class of
consumers seeking damages resulting from the same alleged conspiracy by the
defendant pharmaceutical companies.
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 June 30, 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 June 30, 1995, the notional amount of the company's outstanding foreign
exchange forward contracts held related to the net transaction exposure
hedging program was $151,332.
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 June 30,
1995, approximately 1,300 employees had terminated under this restructuring
program. Of the amount originally accrued for work-force reduction,
approximately $8,600 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
(Dollars in Millions, except per share)
-----------------------------------------------
Second Quarter Six Months
-------------------- -----------------------
Percent Percent
1995 Change 1994 1995 Change 1994
---- ------- ---- ---- ------- ----
Total revenue $850.8 2% $832.9 $1,717.6 4% $1,643.9
Operating income 152.2 1 150.3 351.8 16 302.2
Earnings from continuing
operations before income
taxes 163.3 5 155.1 376.8 20 314.5
Earnings from continuing
operations 115.9 (2) 118.1 267.5 11 242.0
Net earnings 115.9 (4) 120.1 267.5 5 254.8
Earnings per common share
from continuing
operations:
- Primary $.66 - $.66 $1.51 11 $1.36
- Fully diluted $.63 (1) $.64 $1.46 11 $1.32
All sales data and financial results for the second quarter and six months of
1994 have been restated to reflect the sale of the Asgrow Seed Company as a
discontinued operation.
Second-quarter 1995 international sales were up 18 percent to $422 million
from $357 million in the second quarter of 1994. International sales
represented 51 percent of the consolidated total as compared to 44 percent one
year earlier. Domestic sales of $413 million declined 11 percent from $462
million for the same comparative period. Total consolidated sales for the
second quarter were $835 million, up from $819 million in the second quarter
of 1994 as the result of a three percent increase in price, a four percent
increase from foreign exchange, offset by a five percent decline in volume.
For the six months ended June 30, 1995, international sales of $822 million
were up 21 percent from $678 million while domestic sales of $821 million were
down 13 percent from $941 million. International sales represented slightly
over 50% of the consolidated total for the 1995 year-to-date period.
Total revenue for the first six months of 1995 benefited from the first
quarter sale of the company's rights under a product co-marketing agreement.
This sale added $26 million (15 cents per share) to net earnings for the six
months ended June 30, 1995. This agreement increased earnings per share by 2
cents and 3 cents, respectively, in the second quarter and first six months of
1994.
An increase in the effective tax rate reduced primary earnings per share by 5
cents and 13 cents for the second quarter and first six months of 1995,
respectively. Also affecting year-to-year comparisons, the discontinued
Asgrow Seed Company contributed $2 million (1 cent per share) and $13 million
(7 cents per share) to net earnings in the second quarter and first six months
of 1994, respectively.
The table below provides a year-to-year comparison of consolidated net sales
by major pharmaceutical product group:
(Dollars in Millions)
-------------------------------------------------
Second Quarter Six Months
-------------------- -------------------------
Percent Percent
1995 Change 1994 1995 Change 1994
---- ------- ---- ---- ------- ----
Central nervous system $110.5 (2) $112.4 $ 214.7 (5) $ 225.2
Steroids, anti-
inflammatory and
analgesic 90.2 (15) 106.7 174.1 (16) 208.1
Reproductive and women's
health 141.7 13 125.5 267.2 9 244.7
Critical care, transplant
and cancer 116.3 12 104.1 232.4 17 198.1
Infectious disease 121.5 16 104.3 260.2 21 215.7
Animal health 87.6 16 75.8 171.4 12 153.5
Other products and
materials 166.9 (12) 189.9 323.4 (14) 374.1
------ ------ -------- --------
Consolidated net sales $834.7 2 $818.7 $1,643.4 1 $1,619.4
====== ====== ======== ========
PRODUCT SALES
The second quarter 1995 worldwide decline in sales of central nervous system
agents was the net result of continuing international sales growth recorded
for both XANAX/alprazolam, the anti-anxiety agent, and HALCION/triazolam, the
sleep inducing agent, being offset by ongoing generic competition against
XANAX in the U.S. The second 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 during either the second quarter of 1994 or the first quarter
of 1995.
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 both
the second quarter and first six months of 1995. MOTRIN IB, the over-the-
counter nonsteroidal analgesic agent, also recorded significant sales declines
for both measurement periods in 1995. These declines have been attributed to
trade efforts to reduce inventories and to intense competition resulting from
increased promotional activity within this market segment. Strong sales
increases of specialty and commodity steroids in Europe mitigated the decline
in this product group for the quarter.
Good U.S. sales performance in the second quarter of 1995 by DEPO-PROVERA, the
injectable contraceptive, continued to lead the growth in the reproductive and
women's health products group. A U.S. Food and Drug Administration moratorium
protecting the exclusivity of DEPO-PROVERA expires in October 1995. This
sales growth was partially offset by the continuing decline in the sales of
OGEN, the estrogen replacement therapy, that has been subject to generic
substitution.
The sales increases in the critical care, transplant and cancer products group
was led by foreign sales of SOLU-MEDROL, the injectable steroid, and other
MEDROL products. Strong international sales growth in the DALACIN (CLEOCIN in
the U.S.) family of antibiotic products led the growth in the infectious
disease products category while sales of VANTIN, the broad-spectrum oral
antibiotic, were down slightly in the U.S.
The second quarter increase in sales of animal health products was led by
Lincomycin and Spectinomycin antibiotic products in international markets.
International sales also benefitted from the performance of the antibiotic
EXCENEL (NAXCEL in U.S. markets). U.S. sales of NAXCEL increased primarily as
the result of a favorable comparison to the prior year second quarter.
Continuing generic competition for MICRONASE Tablets (glyburide), the oral
anti-diabetes agent that lost U.S. market exclusivity in the second quarter of
1994, resulted in the decline in sales of other products and materials for
both the quarter and first six months of 1995. GLYNASE PresTab, the oral
anti-diabetes agent, continued to record good growth. U.S. FDA moratoriums on
the approval of Abbreviated New Drug Applications protecting the exclusivity
for GLYNASE expired at the end of March 1995.
COSTS AND EXPENSES
Consolidated operating expenses, stated as a percent of sales, were as
follows:
Second Quarter Six Months
-------------- -------------
1995 1994 1995 1994
---- ---- ---- ----
Cost of products sold 26.5% 26.6% 27.2% 26.0%
Research and development 17.6 18.1 17.7 18.7
Marketing and administrative 39.6 38.7 38.2 38.2
Operating income 18.2 18.4 21.4 18.7
Cost of products sold as a percent of sales was slightly below prior-year
levels for the quarter but was up for the year-to-date period as the result of
a change in product and geographic mix. These rates are higher than in prior
years because 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. The company's product line generally carries lower gross margins in
international markets.
Expenditures for research and development were down somewhat both in dollars
and as a percent of sales for the second quarter and first six months of 1995.
This is the result of a favorable comparison due to the timing of certain
expenditures related to major clinical trials. It is expected that, in
dollars, research and development expenditures for the current year will
approximate those incurred for the full year 1994.
The increase in marketing and administrative expense, as a percent of second
quarter sales, is primarily the result of additional marketing investments
required in the emerging international markets of Central Europe, Latin
American, and the Asian and Pacific region. This increase offset the
significant dollar savings realized in the U.S. from expense controls and from
the 1993 restructuring. For the year-to-date, this measure was flat as a
percent of sales because first quarter savings in the U.S. had exceeded the
expense growth in international markets.
The increase in operating income as a percent of sales for the current year-
to-date is the direct result of the revenue realized from the sale of rights
under the product co-marketing agreement discussed above. Excluding revenue
and direct expense related to this agreement, operating income would have been
18.8 percent of sales, up from 18.2 percent for the prior year-to-date period.
NONOPERATING INCOME AND EXPENSE
Net interest income increased in 1995 due largely to investment of the
proceeds from the sale of the discontinued Asgrow Seed Company. Second
quarter and six months 1994 minority equity in earnings (losses) of $1.9
million and ($.2) million, respectively, have been reclassified to "All other,
net" for consistency with the current year presentation. These measures for
the equivalent periods in 1995 were 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 six months of 1994 was 23
percent after the restatement to reflect the exclusion of Asgrow Seed
Company). The higher rate for 1995 resulted from 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:
June 30, December 31,
1995 1994
-------- ------------
Working capital (in millions) $1,063 $1,011
Current ratio 1.98 1.90
Debt to total capitalization 25.2% 26.0%
Return on average equity -
continuing operations 21.9% 21.9%
The increase in working capital at June 30, 1995, with a corresponding
improvement in the current ratio, resulted from increased inventories at the
end of the second quarter consisting of higher quantities of products facing
U.S. generic competition on the basis price and substitution. In
international markets, inventory levels were up as the result of exchange
fluctuations. Accounts receivable are also up due to the effects of exchange,
primarily in Europe and Japan, as well as due to a change to self-distribution
in Japan. 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 currently
in the process of implementation. The ratio of debt to total capitalization
benefited from the increase in total shareholders equity. The return on
average equity-continuing operations includes the benefit from the sale of the
company's rights under the co-marketing agreement noted above.
Cash from operations in the first six months of 1995 of $253 million decreased
from $311 million due to the increases in inventories and accounts receivable,
noted above. The current year measure was reduced by approximately $24
million in spending against restructuring reserves established in 1993
compared to $49 million in the first six months of 1994. There is not
expected to be significant cash spending related to restructuring for the
remainder of the year. Cash required for the purchase of treasury stock is up
for the first six months of 1995.
See Note G for a discussion of the company's use of derivative financial
instruments.
OTHER ITEMS
In early July 1995, the U.S FDA approved CAVERJECT Sterile Powder (alprostadil
for injection) for the diagnosis and treatment of erectile dysfunction.
CAVERJECT had already been approved for sale in 25 countries around the world.
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 1. Legal Proceedings
The Office of Criminal Investigation, U.S. Food and Drug
Administration, in conjunction with the U.S. Attorney's Office in
Grand Rapids, Michigan, is conducting a review of the FDA's prior
Establishment Inspection Report on HALCION, including an assessment of
the conclusions of the report, the approval of the drug and related
FDA processes and procedures generally, to determine if there have
been violations of law and what further action, if any, is
appropriate. The company cannot predict the outcome of this review.
Item 6. Exhibits and Reports on Form 8-K.
(a)(i) Exhibit A - Report of Independent Accountants (page 14).
(a)(ii) Exhibit 11 - Statement regarding computation of earnings
per share (page 15).
(a)(iii) Exhibit 12 - Ratio of Earnings to Fixed Charges (page 16).
(a)(iv) Exhibit 15 - Awareness of Coopers & Lybrand (page 17).
(b) There were no reports on Form 8-K during the quarter ended
June 30, 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: 08/11/95 /S/R. C. SALISBURY
R. C. Salisbury
Executive Vice President
and Chief Financial Officer
DATE: 08/11/95 /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 June 30, 1995, the related condensed consolidated
statements of earnings and cash flows for the six-month periods ended June 30,
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
July 18, 1995
<TABLE>
THE UPJOHN COMPANY AND SUBSIDIARIES EXHIBIT 11
COMPUTATION OF EARNINGS PER COMMON SHARE - PRIMARY
(In millions, except per-share data)
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
1995 1994 1995 1994
------ ------ ------ ------
<S> <C> <C> <C> <C>
Earnings from continuing operations $115.9 $118.1 $267.5 $242.0
Discontinued operation 2.0 12.8
------ ------ ------ ------
Net earnings 115.9 120.1 267.5 254.8
Dividends on preferred stock, net of tax 3.1 3.1 6.2 6.1
------ ------ ------ ------
Net earnings on common shares - primary $112.8 $117.0 $261.3 $248.7
====== ====== ====== ======
Average number of common shares outstanding 171.8 173.0 172.4 173.2
Number of common shares issuable assuming
exercise of stock options 1.1 .1 .8 .1
Contingently issuable incentive common shares .3 .3 .3 .3
------ ------ ------ ------
Total shares - primary 173.2 173.4 173.5 173.6
====== ====== ====== ======
Primary earnings per common share:
Earnings from continuing operations $ .66 $ .66 $ 1.51 $ 1.36
Discontinued operation .01 .07
------ ------ ------ ------
Net earnings $ .66 $ .67 $ 1.51 $ 1.43
====== ====== ====== ======
COMPUTATION OF EARNINGS PER COMMON SHARE - FULLY DILUTED
Earnings from continuing operations $115.9 $118.1 $267.5 $242.0
Discontinued operation 2.0 12.8
------ ------ ------ ------
Net earnings 115.9 120.1 267.5 254.8
Less ESOP contribution assumed to be required
if preferred shares are converted into
common shares 1.3 1.3 2.6 2.5
------ ------ ------ ------
Net earnings on common shares - fully diluted $114.6 $118.8 $264.9 $252.3
====== ====== ====== ======
Average number of common shares outstanding 171.8 173.0 172.4 173.2
Number of common shares issuable assuming
exercise of stock options 1.3 .2 1.3 .2
Contingently issuable incentive common shares .3 .3 .3 .3
Number of common shares issuable assuming
conversion of preferred shares 7.3 7.3 7.3 7.3
------ ------ ------ ------
Total shares - fully diluted 180.7 180.8 181.3 181.0
====== ====== ====== ======
Fully diluted earnings per common share:
Earnings from continuing operations $ .63 $ .64 $ 1.46 $ 1.32
Discontinued operation .01 .07
------ ------ ------ ------
Net earnings $ .63 $ .65 $ 1.46 $ 1.39
====== ====== ====== ======
</TABLE>
<TABLE>
EXHIBIT 12
THE UPJOHN COMPANY AND CONSOLIDATED SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollar amounts in thousands)
<CAPTION>
Six Months Year Ended December 31,
Ended ----------------------------------------------
June 30, 1995 1994 1993 1992 1991 1990
------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Earnings from continuing
operations before income
taxes $376,777 $643,296 $480,037 $671,903 $715,553 $651,800
Less: Asgrow 21,786 26,940
Less: Equity in undistributed
net income of companies
owned less than 50% 99 2,264 3,119 2,212 1,455 1,742
-------- -------- -------- -------- -------- --------
376,678 641,032 476,918 669,691 692,312 623,118
Add: Amortization of previously
capitalized interest 2,475 4,417 4,009 3,799 3,109 2,922
Fixed charges included in the
above:
Interest and amortization of
debt expense 26,313 51,496 58,381 58,155 46,851 53,502
Rental expense representative
of an interest factor 6,451 12,903 12,221 11,495 10,563 9,426
-------- -------- -------- -------- -------- --------
Earnings from continuing
operations before income
taxes and fixed charges $411,917 $709,848 $551,529 $743,140 $752,835 $688,968
======== ======== ======== ======== ======== ========
Interest incurred and
amortization of debt expense $ 31,239 $ 63,599 $ 74,080 $ 69,163 $ 59,920 $ 61,146
Rental expense representative
of an interest factor 6,451 12,903 12,221 11,495 10,563 9,426
-------- -------- -------- -------- -------- --------
Total fixed charges $ 37,690 $ 76,502 $ 86,301 $ 80,658 $ 70,483 $ 70,572
======== ======== ======== ======== ======== ========
Ratio of earnings to fixed
charges 10.93 9.28 6.39 9.21 10.68 9.76
===== ==== ==== ==== ===== =====
</TABLE>
EXHIBIT 15
August 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 July 18, 1995, on our review of interim
financial information of The Upjohn Company and Subsidiaries for the six-month
period ended June 30, 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 303,914
<SECURITIES> 0
<RECEIVABLES> 707,305
<ALLOWANCES> 35,538
<INVENTORY> 502,172
<CURRENT-ASSETS> 2,141,880
<PP&E> 3,203,532
<DEPRECIATION> 1,351,189
<TOTAL-ASSETS> 5,243,586
<CURRENT-LIABILITIES> 1,079,073
<BONDS> 515,005<F1>
<COMMON> 190,590
0
292,719
<OTHER-SE> 2,019,070
<TOTAL-LIABILITY-AND-EQUITY> 5,243,586
<SALES> 1,643,446
<TOTAL-REVENUES> 1,717,569
<CGS> 446,828
<TOTAL-COSTS> 446,828
<OTHER-EXPENSES> 290,809<F2>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,988
<INCOME-PRETAX> 376,777
<INCOME-TAX> 109,300
<INCOME-CONTINUING> 267,477
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 267,477
<EPS-PRIMARY> 1.51
<EPS-DILUTED> 1.46
<FN>
<F1>EXCLUDES COMPANY'S GUARANTEE OF ESOP DEBT: 267,200
<F2>ONLY INCLUDES R&D EXPENSE
</FN>
</TABLE>
