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 June 30, 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 July 26, 1996, 1,332,644,572 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 - June 30, 1996 and December 31, 1995 3 Consolidated Statement of Earnings for the Fiscal Quarter Ended June 30, 1996 and July 2, 1995 5 Consolidated Statement of Earnings for the Fiscal Six Months Ended June 30, 1996 and July 2, 1995 6 Consolidated Statement of Cash Flows for the Fiscal Six Months Ended June 30, 1996 and July 2, 1995 7 Notes to Consolidated Financial Statements 8 Management's Discussion and Analysis of Financial Condition and Results of Operations 11 Signatures 17 Part II - Other Information Item 4 - Submission of Matters to a Vote of Security Holders 15 Item 6 - Exhibits and Reports on Form 8-K 16 Items 1, 2, 3 and 5 are not applicable - 2 -
Part I - FINANCIAL INFORMATION Item 1 - FINANCIAL STATEMENTS JOHNSON & JOHNSON AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (Unaudited; Dollars in Millions) ASSETS June 30, December 31, 1996 1995 Current Assets: Cash and cash equivalents $ 1,860 1,201 Marketable securities 98 163 Accounts receivable, trade, less allowances $272 (1995 - $258) 3,380 2,903 Inventories (Note 3) 2,506 2,276 Deferred taxes on income 668 717 Prepaid expenses and other receivables 732 678 Total current assets 9,244 7,938 Marketable securities, non-current 287 338 Property, plant and equipment, at cost 8,584 8,175 Less accumulated depreciation and amortization 3,335 2,979 5,249 5,196 Intangible assets, net (Note 4) 2,913 2,950 Deferred taxes on income 358 307 Other assets 1,254 1,144 Total assets $ 19,305 17,873 See Notes to Consolidated Financial Statements - 3 -
JOHNSON & JOHNSON AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (Unaudited; Dollars in Millions) LIABILITIES AND STOCKHOLDERS' EQUITY June 30, December 31, 1996 1995 Current Liabilities: Loans and notes payable $ 260 321 Accounts payable 1,360 1,602 Accrued liabilities 2,122 1,949 Accrued salaries, wages and commissions 395 292 Taxes on income 262 224 Total current liabilities 4,399 4,388 Long-term debt 2,101 2,107 Deferred tax liability 161 156 Certificates of extra compensation 88 86 Other liabilities 2,316 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 (37) 148 Retained earnings 10,296 9,743 11,737 11,362 Less common stock held in treasury, at cost (201,610,000 & 239,465,000 shares) 1,497 2,317 Total stockholders' equity 10,240 9,045 Total liabilities and stockholders' equity $19,305 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 June 30, Percent July 2, Percent 1996 to Sales 1995 to Sales Sales to customers (Note 5) $5,382 100.0 4,762 100.0 Cost of products sold 1,732 32.2 1,562 32.8 Selling, marketing and administrative expenses 2,027 37.7 1,857 39.0 Research expense 448 8.3 380 8.0 Interest income (33) (.6) (33) (.7) Interest expense, net of portion capitalized 30 .5 38 .8 Other expense 59 1.1 27 .5 4,263 79.2 3,831 80.4 Earnings before provision for taxes on income 1,119 20.8 931 19.6 Provision for taxes on income (Note 2) 328 6.1 270 5.7 NET EARNINGS $ 791 14.7 661 13.9 NET EARNINGS PER SHARE $ .60 .51 CASH DIVIDENDS PER SHARE $ .19 .165 AVG. SHARES OUTSTANDING 1,332.9 1,291.1 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 Six Months Ended June 30, Percent July 2, Percent 1996 to Sales 1995 to Sales Sales to customers (Note 5)$10,716 100.0 9,258 100.0 Cost of products sold 3,451 32.2 3,009 32.5 Selling, marketing and administrative expenses 4,023 37.6 3,577 38.7 Research expense 876 8.2 733 7.9 Interest income (63) (.6) (51) (.6) Interest expense, net of portion capitalized 65 .6 83 .9 Other expense 121 1.1 55 .6 8,473 79.1 7,406 80.0 Earnings before provision for taxes on income 2,243 20.9 1,852 20.0 Provision for taxes on income (Note 2) 662 6.1 537 5.8 NET EARNINGS $ 1,581 14.8 1,315 14.2 NET EARNINGS PER SHARE $ 1.19 1.02 CASH DIVIDENDS PER SHARE $ .355 .31 AVG. SHARES OUTSTANDING 1,332.8 1,289.0 See Notes to Consolidated Financial Statements - 6 -
JOHNSON & JOHNSON AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited; Dollars in Millions) Fiscal Six Months Ended June 30, July 2, 1996 1995 CASH FLOWS FROM OPERATING ACTIVITIES Net earnings $1,581 1,315 Adjustments to reconcile net earnings to cash flows: Depreciation and amortization of property and intangibles 492 404 Increase in accounts receivable, trade, less allowances (417) (407) Increase in inventories (241) (78) Changes in other assets and liabilities 228 41 NET CASH FLOWS FROM OPERATING ACTIVITIES 1,643 1,275 CASH FLOWS FROM INVESTING ACTIVITIES Additions to property, plant and equipment (495) (472) Proceeds from the disposal of assets 12 443 Acquisition of businesses, net of cash acquired - (70) Other, principally marketable securities 154 (2) NET CASH USED BY INVESTING ACTIVITIES (329) (101) CASH FLOWS FROM FINANCING ACTIVITIES Dividends to stockholders (467) (400) Repurchase of common stock (174) (129) Proceeds from short-term debt 100 151 Retirement of short-term debt (78) (475) Proceeds from long-term debt - 5 Retirement of long-term debt (100) (8) Proceeds from the exercise of stock options 82 59 NET CASH USED BY FINANCING ACTIVITIES (637) (797) EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS (18) 28 INCREASE IN CASH AND CASH EQUIVALENTS 659 405 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD1,201 636 CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,860 1,041 ACQUISITIONS OF BUSINESSES Fair value of assets acquired $ - 382 Fair value of liabilities assumed - (12) - 370 Treasury stock issued - (300) Net cash payment $ - 70 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% Second Quarter 29.3 29.0 First Half 29.5 29.0 The effective income tax rates for the first half of 1996 and 1995 are 29.5% and 29.0%, 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) June 30, 1996 Dec. 31, 1995 Raw materials and supplies $ 622 625 Goods in process 548 519 Finished goods 1,336 1,132 $ 2,506 2,276 NOTE 4 - INTANGIBLE ASSETS (Dollars in Millions) June 30, 1996 Dec. 31, 1995 Intangible assets $ 3,356 3,345 Less accumulated amortization 443 395 $ 2,913 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 Second Quarter Six Months Percent Percent 1996 1995 Increase 1996 1995 Increase Consumer Domestic $ 717 685 4.7 1,542 1,414 9.1 International 827 784 5.5 1,621 1,491 8.7 1,544 1,469 5.1% 3,163 2,905 8.9% Pharmaceutical Domestic 823 659 24.9 1,615 1,266 27.6 International 985 961 2.5 1,955 1,837 6.4 1,808 1,620 11.6% 3,570 3,103 15.0% Professional Domestic 1,097 886 23.8 2,132 1,726 23.5 International 933 787 18.6 1,851 1,524 21.5 2,030 1,673 21.3% 3,983 3,250 22.6% Domestic 2,637 2,230 18.3 5,289 4,406 20.0 International 2,745 2,532 8.4 5,427 4,852 11.9 Worldwide $5,382 4,762 13.0% 10,716 9,258 15.7% - 9 -
NOTE 5 - SALES TO CUSTOMERS BY SEGMENT OF BUSINESS AND GEOGRAPHIC AREAS SALES BY GEOGRAPHIC AREAS Second Quarter Six Months Percent Percent 1996 1995 Increase 1996 1995 Increase U.S. $2,637 2,230 18.3 5,289 4,406 20.0 Europe 1,605 1,492 7.6 3,192 2,848 12.1 Western Hemisphere excluding U.S. 464 422 10.0 928 828 12.1 Asia-Pacific, Africa 676 618 9.4 1,307 1,176 11.1 Total $5,382 4,762 13.0% 10,716 9,258 15.7% NOTE 6 - MERGER 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 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 1.1292 shares of Johnson & Johnson stock 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. - 10 -
Item 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS SALES AND EARNINGS Consolidated sales for the first six months of 1996 of $10,716 million exceeded sales of $9,258 million for the first six months of 1995 by 15.7%. The strength of the U.S. dollar relative to the foreign currencies decreased sales for the first six months of 1996 by 1.7%. The sales increase of 17.4% due to operations included a positive price change effect of .4%. Consolidated net earnings for the first six months of 1996 were $1,581 million, compared with net earnings of $1,315 million for the first six months of 1995. Earnings per share for the first six months of 1996 were $1.19, compared with $1.02 for the same period a year ago. Net earnings and earnings per share rose 20.2% and 16.7%, respectively. Consolidated sales for the second quarter of 1996 were $5,382 million, an increase of 13.0% over 1995 second quarter sales of $4,762 million. The effect of the stronger U.S. dollar relative to foreign currencies decreased second quarter sales by 3.1%, while price changes contributed .2%. Consolidated net earnings for the second quarter of 1996 were $791 million, compared with $661 million for the same period a year ago, an increase of 19.7%. Earnings per share for the second quarter of 1996 rose 17.6% to $.60, compared with $.51 in the 1995 period. Domestic sales for the first six months of 1996 were $5,289 million, an increase of 20.0% over 1995 domestic sales of $4,406 million for the same period a year ago. Sales by international subsidiaries were $5,427 million for the first six months of 1996 compared with $4,852 million for the same period a year ago, an increase of 11.9%. Excluding the impact of the stronger value of the dollar, international sales increased by 15.1%. - - 11 -
Worldwide consumer sales of $1.5 billion for the second quarter represented an increase of 5.1%. Growth was led by the NEUTROGENA line of adult skin and hair care products; PEPCID AC Acid Controller, a product of Johnson & Johnson o Merck Consumer Pharmaceuticals Co.; and the TYLENOL line of acetaminophen-based analgesic and cold products. On July 3, the Company received marketing clearance from the Food and Drug Administration for NICOTROL, the first nicotine transdermal patch to become available for sale directly to consumers without a prescription. The decision to make NICOTROL patches available without a prescription follows the FDA's marketing clearance in March of this year for NICOTROL NS, a unique prescription nicotine nasal spray designed to reduce nicotine withdrawal symptoms and help smokers quit, when used as part of a comprehensive smoking cessation program. Another new consumer product recently approved by the Food and Drug Administration is MONISTAT 3. This three-day miconazole nitrate treatment, which cures most vaginal yeast infections, will offer a shorter course of treatment. MONISTAT continues to be the number one doctor-recommended cure. Currently, vaginal yeast infections affect more than 13 million women each year in the United States. Three quarters of women will experience at least one vaginal yeast infection during their lifetime. Worldwide pharmaceutical sales of $1.8 billion for the quarter increased 11.6%, with domestic sales growing 24.9%. Leading the increase in pharmaceutical sales growth were RISPERDAL, an antipsychotic medication; ULTRAM, a centrally acting prescription pain reliever; PROCRIT, for the treatment of anemia; and SPORANOX, a broad spectrum antifungal medication. SPORANOX, recently - 12 -
approved for a new indication, onychomycosis, is the first advance in treating fungal nail disease in three decades. Since its launch for that indication last fall, SPORANOX has generated excellent positive feedback from primary care physicians, dermatologists and podiatrists. Worldwide sales of $2.0 billion in the Professional segment represented an increase of 21.3% over the second quarter in 1995. 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, Vistakon's ACUVUE disposable contact lenses, Johnson & Johnson Professional's orthopaedic implants, and Ethicon Endo-Surgery's minimally invasive surgical instruments continued to deliver solid performance. Average shares of common stock outstanding in the first half of 1996 were 1.3 billion, an increase of 43.8 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. -13-
LIQUIDITY AND CAPITAL RESOURCES Net debt (borrowings net of cash and current marketable securities) as of June 30, 1996 was 3.8% of net capital (stockholders' equity and net debt) compared with 10.5% at the end of 1995. Net debt decreased by $661 million during the first six months of 1996 to $403 million at June 30, 1996. Total debt represented 18.7% 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 $495 million for the first six months of 1996, compared with $472 million for the same period in 1995. On July 15, 1996, the Board of Directors approved a regular quarterly dividend of 19 cents per share payable on September 10, 1996 to shareholders of record as of August 20, 1996. -14-
Part II - Other Information Item 4. Submission of Matters to a Vote of Security Holders (a) The annual meeting of the stockholders of the Company was held on April 25, 1996. (b) The Stockholders elected all the Company's nominees for director, approved the Johnson & Johnson Executive Plan and approved the appointment of Coopers & Lybrand L.L.P. as the Company's independent auditors for 1996. The votes were as follows: 1. Election of Directors: For Withheld J. W. Black 576,238,632 6,937,997 G. N. Burrow 580,937,697 2,238,932 J. G. Cooney 580,541,854 2,634,775 J. G. Cullen 580,511,044 2,665,585 P. M. Hawley 576,591,469 6,585,160 C. H. Johnson 580,415,700 2,760,929 A. D. Jordan 580,839,786 2,336,843 A. G. Langbo 580,811,187 2,365,442 R. S. Larsen 580,489,845 2,686,784 J. S. Mayo 580,916,509 2,260,120 T. S. Murphy 580,445,094 2,731,535 P. J. Rizzo 580,521,442 2,655,187 M. F. Singer 580,845,027 2,331,602 R. B. Smith 578,488,105 4,688,524 R. N. Wilson 580,484,143 2,692,486 2. Approval of the Johnson & Johnson Executive Incentive Plan: For 557,946,808 Against 18,492,437 Abstain 6,737,384 3. Approval of Appointment of Coopers & Lybrand L.L.P. For 579,948,067 Against 1,433,477 Abstain 1,795,085 -15-
Item 6. Exhibits and Reports on Form 8-K (a) Exhibit Numbers (1) Exhibit 3 - Restated Certificate of Incorporation of the Company as last amended on May 21, 1996. (2) Exhibit 11 - Calculation of Earnings Per Share (3) 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 June 30, 1996. A copy of any of the exhibits listed above will be provided without charge to any stockholder submitting a written request specifying the desired exhibit(s) to the Secretary at the principal executive offices of the Company. - - 1 6 -
SIG NATURES 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: August 9, 1996 By C. H. Johnson C. H. Johnson (Vice President, Finance) Date: August 9, 1996 By J. H. Heisen J. H. Heisen (Corporate Controller) - - 17 -