Johnson & Johnson is a global American pharmaceutical and consumer goods company with headquarters in New Brunswick, New Jersey. The company is listed in the Dow Jones Industrial Average.
UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 29, 1996 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 1-3215 JOHNSON & JOHNSON (Exact name of registrant as specified in its charter) NEW JERSEY 22-1024240 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) New Brunswick, New Jersey 08933 (Address of principal executive offices, including zip code) 908-524-0400 Registrant's telephone number, including area code Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. On October 25, 1996, 1,331,718,956 shares of Common Stock, $1.00 par value, were outstanding. - 1 -
JOHNSON & JOHNSON AND SUBSIDIARIES TABLE OF CONTENTS Part I - Financial Information Page No. Consolidated Balance Sheet - September 29, 1996 and December 31, 1995 3 Consolidated Statement of Earnings for the Fiscal Quarter Ended September 29, 1996 and October 1, 1995 5 Consolidated Statement of Earnings for the Fiscal Nine Months Ended September 29, 1996 and October 1, 1995 6 Consolidated Statement of Cash Flows for the Fiscal Nine Months Ended September 29, 1996 and October 1, 1995 7 Notes to Consolidated Financial Statements 8 Management's Discussion and Analysis of Financial Condition and Results of Operations 12 Signatures 17 Part II - Other Information Items 1 through 5 are not applicable Item 6 - Exhibits and Reports on Form 8-K 16 - 2 -
Part I - FINANCIAL INFORMATION Item 1 - FINANCIAL STATEMENTS JOHNSON & JOHNSON AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (Unaudited; Dollars in Millions) ASSETS September 29, December 31, 1996 1995 Current Assets: Cash and cash equivalents $ 2,088 1,201 Marketable securities 135 163 Accounts receivable, trade, less allowances $322 (1995 - $258) 3,355 2,903 Inventories (Note 3) 2,631 2,276 Deferred taxes on income 714 717 Prepaid expenses and other receivables 677 678 Total current assets 9,600 7,938 Marketable securities, non-current 356 338 Property, plant and equipment, at cost 8,829 8,175 Less accumulated depreciation and amortization 3,494 2,979 5,335 5,196 Intangible assets, net (Note 4) 2,944 2,950 Deferred taxes on income 404 307 Other assets 1,271 1,144 Total assets $ 19,910 17,873 See Notes to Consolidated Financial Statements - 3 -
JOHNSON & JOHNSON AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (Unaudited; Dollars in Millions) LIABILITIES AND STOCKHOLDERS' EQUITY September 29, December 31, 1996 1995 Current Liabilities: Loans and notes payable $ 503 321 Accounts payable 1,320 1,602 Accrued liabilities 2,212 1,949 Accrued salaries, wages and commissions 493 292 Taxes on income 405 224 Total current liabilities 4,933 4,388 Long-term debt 1,717 2,107 Deferred tax liability 167 156 Certificates of extra compensation 89 86 Other liabilities 2,326 2,091 Stockholders' Equity: Preferred stock - without par value (authorized and unissued 2,000,000 shares) - - Common stock - par value $1.00 per share (authorized 2,160,000,000 shares; issued 1,534,823,000 shares) 1,535 1,535 Note receivable from employee stock ownership plan (57) (64) Cumulative currency translation adjustments (27) 148 Retained earnings 10,750 9,743 12,201 11,362 Less common stock held in treasury, at cost (202,161,000 & 239,465,000 shares) 1,523 2,317 Total stockholders' equity 10,678 9,045 Total liabilities and stockholders' equity $19,910 17,873 See Notes to Consolidated Financial Statements - 4 -
JOHNSON & JOHNSON AND SUBSIDIARIES CONSOLIDATED STATEMENT OF EARNINGS (Unaudited; dollars & shares in millions except per share figures) Fiscal Quarter Ended Sept. 29, Percent Oct. 1, Percent 1996 to Sales 1995 to Sales Sales to customers (Note 5) $5,402 100.0 4,738 100.0 Cost of products sold 1,715 31.8 1,543 32.6 Selling, marketing and administrative expenses 2,092 38.7 1,857 39.2 Research expense 441 8.2 395 8.3 Interest income (36) (.7) (23) (.5) Interest expense, net of portion capitalized 32 .6 32 .7 Other expense 99 1.8 62 1.3 4,343 80.4 3,866 81.6 Earnings before provision for taxes on income 1,059 19.6 872 18.4 Provision for taxes on income (Note 2) 309 5.7 249 5.3 NET EARNINGS $ 750 13.9 623 13.1 NET EARNINGS PER SHARE $ .56 .48 CASH DIVIDENDS PER SHARE $ .19 .165 AVG. SHARES OUTSTANDING 1,332.9 1,295.5 See Notes to Consolidated Financial Statements - 5 -
JOHNSON & JOHNSON AND SUBSIDIARIES CONSOLIDATED STATEMENT OF EARNINGS (Unaudited; dollars & shares in millions except per share figures) Fiscal Nine Months Ended Sept. 29, Percent Oct. 1, Percent 1996 to Sales 1995 to Sales Sales to customers (Note 5)$16,118 100.0 13,996 100.0 Cost of products sold 5,166 32.0 4,552 32.5 Selling, marketing and administrative expenses 6,115 37.9 5,434 38.8 Research expense 1,317 8.2 1,128 8.1 Interest income (99) (.6) (74) (.5) Interest expense, net of portion capitalized 97 .6 115 .8 Other expense 220 1.4 117 .8 12,816 79.5 11,272 80.5 Earnings before provision for taxes on income 3,302 20.5 2,724 19.5 Provision for taxes on income (Note 2) 971 6.0 786 5.7 NET EARNINGS $ 2,331 14.5 1,938 13.8 NET EARNINGS PER SHARE $ 1.75 1.50 CASH DIVIDENDS PER SHARE $ .545 .475 AVG. SHARES OUTSTANDING 1,332.8 1,290.9 See Notes to Consolidated Financial Statements - 6 -
JOHNSON & JOHNSON AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited; Dollars in Millions) Fiscal Nine Months Ended Sept. 29, Oct. 1, 1996 1995 CASH FLOWS FROM OPERATING ACTIVITIES Net earnings $2,331 1,938 Adjustments to reconcile net earnings to cash flows: Depreciation and amortization of property and intangibles 758 604 Increase in accounts receivable, trade, less allowances (389) (425) Increase in inventories (362) (100) Changes in other assets and liabilities 610 417 NET CASH FLOWS FROM OPERATING ACTIVITIES 2,948 2,434 CASH FLOWS FROM INVESTING ACTIVITIES Additions to property, plant and equipment (801) (780) Proceeds from the disposal of assets 14 449 Acquisition of businesses, net of cash acquired (182) (100) Other, principally marketable securities 24 (59) NET CASH USED BY INVESTING ACTIVITIES (945) (490) CASH FLOWS FROM FINANCING ACTIVITIES Dividends to stockholders (720) (614) Repurchase of common stock (274) (182) Proceeds from short-term debt 185 184 Retirement of short-term debt (87) (507) Proceeds from long-term debt 7 5 Retirement of long-term debt (322) (271) Proceeds from the exercise of stock options 114 79 NET CASH USED BY FINANCING ACTIVITIES (1,097) (1,306) EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS (19) 19 INCREASE IN CASH AND CASH EQUIVALENTS 887 657 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,201 636 CASH AND CASH EQUIVALENTS, END OF PERIOD $ 2,088 1,293 ACQUISITIONS OF BUSINESSES Fair value of assets acquired $ 186 415 Fair value of liabilities assumed (4) (15) 182 400 Treasury stock issued - (300) Net cash payment $ 182 100 See Notes to Consolidated Financial Statements - 7 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - The accompanying interim financial statements and related notes should be read in conjunction with the Consolidated Financial Statements of Johnson & Johnson and Subsidiaries (the "Company") and related notes as contained in the Annual Report on Form 10-K for the fiscal year ended December 31, 1995. The interim financial statements include all adjustments (consisting only of normal recurring adjustments) and accruals necessary in the judgment of management for a fair presentation of such statements. Earnings per share were calculated on the basis of the weighted average number of shares of common stock outstanding during the applicable period. Earnings per share figures and shares outstanding reflect the two-for-one stock split effective during the second quarter of 1996. Certain prior year amounts have been reclassified to conform with current year presentation. NOTE 2 - INCOME TAXES The effective income tax rates for 1996 and 1995 are as follows: 1996 1995 First Quarter 29.7% 29.0% First Half 29.5 29.0 Nine Months 29.4 28.9 The effective income tax rates for the first nine months of 1996 and 1995 are 29.4% and 28.9%, respectively, as compared to the U.S. federal statutory rate of 35%. The difference from the statutory rate is primarily the result of domestic subsidiaries operating in Puerto Rico under a grant for tax relief expiring on December 31, 2007 and the result of subsidiaries manufacturing in Ireland under an incentive tax rate expiring on December 31, 2010. The increase in the 1996 worldwide effective tax rate was primarily due to an increase in income subject to tax in the U.S. The Omnibus Budget Reconciliation Act of 1993 includes a change in the tax code which will reduce the benefit the Company receives from its operations in Puerto Rico by 60% gradually over a five year period. - - 8 -
NOTE 3 - INVENTORIES (Dollars in Millions) Sept. 29, 1996 Dec. 31, 1995 Raw materials and supplies $ 751 625 Goods in process 419 519 Finished goods 1,461 1,132 $ 2,631 2,276 NOTE 4 - INTANGIBLE ASSETS (Dollars in Millions) Sept. 29, 1996 Dec. 31, 1995 Intangible assets $ 3,444 3,345 Less accumulated amortization 500 395 $ 2,944 2,950 The excess of the cost over the fair value of net assets of purchased businesses is recorded as goodwill and is amortized on a straight-line basis over periods of 40 years or less. The cost of other acquired intangibles is amortized on a straight-line basis over their estimated useful lives. NOTE 5 - SALES TO CUSTOMERS BY SEGMENT OF BUSINESS AND GEOGRAPHIC AREAS (Dollars in Millions) SALES BY SEGMENT OF BUSINESS Third Quarter Nine Months Percent Percent 1996 1995 Increase 1996 1995 Increase Consumer Domestic $ 800 717 11.6 2,342 2,131 9.9 International 783 744 5.2 2,404 2,235 7.6 1,583 1,461 8.4% 4,746 4,366 8.7% Pharmaceutical Domestic 864 702 23.1 2,479 1,968 26.0 International 953 896 6.4 2,908 2,733 6.4 1,817 1,598 13.7% 5,387 4,701 14.6% Professional Domestic 1,126 916 22.9 3,258 2,642 23.3 International 876 763 14.8 2,727 2,287 19.2 2,002 1,679 19.2% 5,985 4,929 21.4% Domestic 2,790 2,335 19.5 8,079 6,741 19.8 International 2,612 2,403 8.7 8,039 7,255 10.8 Worldwide $5,402 4,738 14.0% 16,118 13,996 15.2% - 9 -
NOTE 5 - SALES TO CUSTOMERS BY SEGMENT OF BUSINESS AND GEOGRAPHIC AREAS SALES BY GEOGRAPHIC AREAS Third Quarter Nine Months Percent Percent 1996 1995 Increase 1996 1995 Increase U.S. $2,790 2,335 19.5 8,079 6,741 19.8 Europe 1,445 1,347 7.3 4,637 4,195 10.5 Western Hemisphere excluding U.S. 491 447 9.8 1,419 1,275 11.3 Asia-Pacific, Africa 676 609 11.0 1,983 1,785 11.1 Total $5,402 4,738 14.0% 16,118 13,996 15.2% NOTE 6 - MERGER AND ACQUISITIONS During the third quarter, Johnson & Johnson completed the acquisitions of Indigo Medical, Lactaid Inc., Codiex, S.A., and D.J. Sullivan & Assoc. Indigo Medical is a pioneer in the use of advanced, low cost diode lasers for interstitial thermotherapy. Indigo markets diode lasers in Europe for treating benign prostatic hyperplasia (BPH), a condition that affects more than 20 million men worldwide. Johnson & Johnson exercised the option to acquire the trademarks of Lactaid, Inc. Lactaid is a natural dairy digestive supplement. Codiex, S.A. is a current licensee of Johnson & Johnson consumer products in Peru. D.J. Sullivan & Assoc. is a consulting firm that specializes in operating room consulting for small and medium size hospitals. The aggregate purchase price for these acquisitions was $182 million. Pro forma results of the acquisitions, assuming that the transactions were consummated at the beginning of each year presented, would not be materially different from the results reported. On February 23, 1996, Johnson & Johnson and Cordis Corporation completed the previously announced merger between the two companies. The number of Johnson & Johnson shares issued in the - 10 -
merger for each Cordis share is the result of dividing $109 by the average of the closing prices per Johnson & Johnson share for the 10 trading days prior to the closing of the merger. This resulted in an exchange ratio of 2.2584 shares of Johnson & Johnson stock on a post split basis for each share of Cordis stock. The merger has a total value, net of cash, of approximately $1.8 billion. Cordis had approximately 17.6 million shares outstanding on a fully diluted basis. The merger has been accounted for as a pooling of interests, however, prior period financial statements have not been restated as the effect of reflecting data relating to this merger would not materially affect previously issued financial statements. Cordis is a leader in angiography and angioplasty (balloon catheters). The combination of Cordis and Johnson & Johnson's interventional cardiology business is an important strategic step for both companies to meet the challenge of providing for customer needs in the fast changing healthcare industry. - 11 -
Item 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS SALES AND EARNINGS Consolidated sales for the first nine months of 1996 of $16,118 million exceeded sales of $13,996 million for the first nine months of 1995 by 15.2%. The strength of the U.S. dollar relative to the foreign currencies decreased sales for the first nine months of 1996 by 1.7%. The sales increase of 16.9% due to operations included a positive price change effect of .4%. Consolidated net earnings for the first nine months of 1996 were $2,331 million, compared with net earnings of $1,938 million for the first nine months of 1995. Earnings per share for the first nine months of 1996 were $1.75, compared with $1.50 for the same period a year ago. Net earnings and earnings per share rose 20.3% and 16.7%, respectively. Consolidated sales for the third quarter of 1996 were $5,402 million, an increase of 14.0% over 1995 third quarter sales of $4,738 million. The effect of the stronger U.S. dollar relative to foreign currencies decreased third quarter sales by 1.8%, while price changes contributed .1%. Consolidated net earnings for the third quarter of 1996 were $750 million, compared with $623 million for the same period a year ago, an increase of 20.4%. Earnings per share for the third quarter of 1996 rose 16.7% to $.56, compared with $.48 in the 1995 period. Domestic sales for the first nine months of 1996 were $8,079 million, an increase of 19.8% over 1995 domestic sales of $6,741 million for the same period a year ago. Sales by international subsidiaries were $8,039 million for the first nine months of 1996 compared with $7,255 million for the same period a year ago, an increase of 10.8%. Excluding the impact of the stronger value of the dollar, international sales increased by 14.1%. - - 12 -
Worldwide consumer sales for third quarter 1996 increased by 8.4%, with U.S. and international sales up 11.6% and 5.2% respectively. Contributing to the growth were the TYLENOL line of acetaminophen-based analgesic and cold products; MONISTAT 3, the three-day miconazole nitrate treatment for curing vaginal yeast infection; the NEUTROGENA and RoC lines of adult skin and hair care products; and the NICOTROL nicotine transdermal system. On July 3, the Company received marketing clearance from the Food and Drug Administration for NICOTROL, the first nicotine transdermal patch available for sale directly to consumers without a doctor's prescription. The non-prescription version of NICOTROL uses a simple dosing regimen and short length of therapy -- two distinct benefits for smoking cessation candidates. Worldwide pharmaceutical sales for the quarter increased 13.7%, fueled primarily by the strong growth of 23.1% in the U.S. Sales growth was led by the strong performance of RISPERDAL, an antipsychotic medication; PROPULSID, a gastrointestinal product; SPORANOX, a broad spectrum antifungal agent; ULTRAM, a centrally acting prescription analgesic for moderate to moderately severe pain; and PROCRIT, a treatment for anemia. Since its introduction, RISPERDAL has become the standard of care in treating schizophrenia because of its efficacy, safety and tolerability. It is the first serotonin dopamine antagonist to receive marketing approval for first-line use in the treatment of schizophrenia. RISPERDAL recently became the most often prescribed antipsychotic, winning over 20% of the market. In June of this year, the Company received clearance from the Food and Drug Administration to market an oral solution formulation of RISPERDAL. - - 13 -
Due to its ease of administration, RISPERDAL Oral Solution will provide treatment benefits to a wider range of patients, particularly the elderly, for whom liquid formulations are frequently prescribed, and for patients treated in an acute care setting. Worldwide sales in the Professional segment increased 19.2% during the third quarter, with a 22.9% increase in the U.S. and 14.8% internationally. Strong sales growth benefited from the merger with Cordis as well as the continuing, rapid professional acceptance of the PALMAZ-SCHATZ Coronary Stent, due to its efficacy in reducing the incidence of recurring blockage of coronary arteries following balloon angioplasty. LifeScan's blood glucose monitoring systems posted strong growth, reflecting the successful launch of the SureStep System. Vistakon's disposable contact lenses, Ethicon's sutures, Johnson & Johnson Professional's orthopaedic implants, and Ethicon Endo-Surgery's minimally invasive surgical instruments continued to deliver solid growth. Average shares of common stock outstanding in the first nine months of 1996 were 1.3 billion, an increase of 41.9 million over the prior year, due to the 37.2 million shares issued for the Cordis merger in 1996 and the balance for various acquisitions using common stock during 1995. Earnings per share figures and shares outstanding reflect the two-for-one stock split effective during the second quarter of 1996. - - 14 -
LIQUIDITY AND CAPITAL RESOURCES Cash and current marketable securities increased $859 million during the first nine months of 1996 to $2,223 million at September 29, 1996. Total borrowings decreased $208 million during the first nine months of 1996 to $2,220 million. Net cash (cash and current securities net of borrowings) was $3 million at September 29, 1996 compared with net debt of $1,064 million at the end of 1995. Total debt represented 17.2% of total capital (stockholders' equity and total borrowings) at quarter end compared with 21.2% at the end of 1995. Additions to property, plant and equipment were $801 million for the first nine months of 1996, compared with $780 million for the same period in 1995. On October 21, 1996, the Board of Directors approved a regular quarterly dividend of 19 cents per share payable on December 10, 1996 to shareholders of record as of November 19, 1996. -15-
Part II - Other Information Item 6. Exhibits and Reports on Form 8-K (a) Exhibit Numbers (1) Exhibit 11 - Calculation of Earnings Per Share (2) Exhibit 27 - Financial Data Schedule (b) Reports on Form 8-K The Company did not file any reports on Form 8-K during the three month period ended September 29, 1996. -16-
SIGNATURES 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. JOHNSON & JOHNSON (Registrant) Date: November 11, 1996 By C. H. Johnson C. H. Johnson (Vice President, Finance) Date: November 11, 1996 By J. H. Heisen J. H. Heisen (Corporate Controller) - - 17 -