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 April 2, 2000 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.) One Johnson & Johnson Plaza New Brunswick, New Jersey 08933 (Address of principal executive offices) (Zip code) 732-524-0400 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 April 28, 2000, 1,390,893,277 shares of Common Stock, $1.00 par value, were outstanding. - 1 - JOHNSON & JOHNSON AND SUBSIDIARIES TABLE OF CONTENTS Part I - Financial Information Page No. Item 1. Financial Statements Consolidated Balance Sheet - April 2, 2000 and January 2, 2000 3 Consolidated Statement of Earnings for the Three Months Ended April 2, 2000 and April 4, 1999 5 Consolidated Statement of Cash Flows for the Three Months Ended April 2, 2000 and April 4, 1999 6 Notes to Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 13 Item 3. Quantitative and Qualitative Disclosures About Market Risk 17 Part II - Other Information Item 1 - Legal Proceedings 17 Item 5 - Other Information 18 Item 6 - Exhibits and Reports on Form 8-K 18 Signatures 19 - 2 - Part I - FINANCIAL INFORMATION Item 1 - Financial Statements JOHNSON & JOHNSON AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (Unaudited; Dollars in Millions) ASSETS April 2, January 2, 2000 2000 Current Assets: Cash and cash equivalents $ 2,663 2,363 Marketable securities, at cost 1,537 1,516 Accounts receivable, trade, less allowances $375 (1999 - $389) 4,365 4,233 Inventories (Note 3) 3,052 3,095 Deferred taxes on income 1,101 1,105 Prepaid expenses and other receivables 1,258 888 Total current assets 13,976 13,200 Marketable securities, non-current 421 441 Property, plant and equipment, at cost 11,073 11,046 Less accumulated depreciation and amortization 4,424 4,327 6,649 6,719 Intangible assets, net (Note 4) 7,528 7,571 Deferred taxes on income 68 104 Other assets 1,321 1,128 Total assets $29,963 29,163 See Notes to Consolidated Financial Statements - 3 - JOHNSON & JOHNSON AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (Unaudited; Dollars in Millions) LIABILITIES AND SHAREOWNERS' EQUITY April 2, January 2, 2000 2000 Current Liabilities: Loans and notes payable $ 1,217 1,806 Accounts payable 1,724 2,003 Accrued liabilities 3,054 2,972 Accrued salaries, wages and commissions498 467 Taxes on income 635 206 Total current liabilities 7,128 7,454 Long-term debt 2,443 2,450 Deferred tax liability 276 287 Employee related obligations 1,913 1,749 Other liabilities 1,053 1,010 Shareowners' 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 1,534,917,000 and 1,534,916,000 shares) 1,535 1,535 Note receivable from employee stock ownership plan (36) (41) Accumulated other comprehensive income(343) (396) (Note 7) Retained earnings 17,076 16,192 18,232 17,290 Less common stock held in treasury, at cost (144,592,000 & 145,233,000 shares) 1,082 1,077 Total shareowners' equity 17,150 16,213 Total liabilities and shareowners' equity $29,963 29,163 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 April 2, Percent April 4, Percent 2000 to Sales 1999 to Sales Sales to customers (Note 5) $7,319 100.0 6,739 100.0 Cost of products sold 2,241 30.6 2,070 30.7 Gross Profit 5,078 69.4 4,669 69.3 Selling, marketing and administrative expenses 2,609 35.6 2,437 36.1 Research expense 637 8.7 557 8.3 Interest income (77) (1.0) (54) (.8) Interest expense, net of portion capitalized 46 .6 54 .8 Other (income)expense, net (29) (.4) 53 .8 3,186 43.5 3,047 45.2 Earnings before provision for taxes on income 1,892 25.9 1,622 24.1 Provision for taxes on income (Note 2) 578 7.9 484 7.2 NET EARNINGS $1,314 18.0 1,138 16.9 NET EARNINGS PER SHARE (Note 6) Basic $ .95 .82 Diluted $ .93 .80 CASH DIVIDENDS PER SHARE $ .28 .25 AVG. SHARES OUTSTANDING Basic 1,389.7 1,390.2 Diluted 1,411.0 1,419.7 See Notes to Consolidated Financial Statements - 5 - JOHNSON & JOHNSON AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited; Dollars in Millions) Fiscal Quarter Ended April 2, April 4, 2000 1999 CASH FLOWS FROM OPERATING ACTIVITIES Net earnings $1,314 1,138 Adjustments to reconcile net earnings to cash flows: Depreciation and amortization of property and intangibles 431 419 Accounts receivable reserves (10) 8 Changes in assets and liabilities, net of effects from acquisition of businesses: Increase in accounts receivable (190) (417) Increase in inventories (6) (211) Changes in other assets and liabilities 226 208 NET CASH FLOWS FROM OPERATING ACTIVITIES 1,765 1,145 CASH FLOWS FROM INVESTING ACTIVITIES Additions to property, plant and equipment(310) (334) Proceeds from the disposal of assets 18 2 Acquisition of businesses, net of cash acquired (7) (188) Purchases of investments (817) (857) Sales of investments 765 717 Other 16 (66) NET CASH USED BY INVESTING ACTIVITIES (335) (726) CASH FLOWS FROM FINANCING ACTIVITIES Dividends to shareowners (381) (336) Repurchase of common stock (208) (131) Proceeds from short-term debt 280 93 Retirement of short-term debt (865) (249) Proceeds from long-term debt 8 9 Retirement of long-term debt (15) (6) Proceeds from the exercise of stock options 71 99 NET CASH USED BY FINANCING ACTIVITIES (1,110) (521) EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS (20) (51) INCREASE(DECREASE) IN CASH AND CASH EQUIVALENTS300 (153) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 2,363 1,994 CASH AND CASH EQUIVALENTS, END OF PERIOD 2,663 1,841 ACQUISITION OF BUSINESSES Fair value of assets acquired 83 188 Fair value of liabilities assumed (1) - 82 188 Treasury stock issued at fair value (75) - Net cash payments $ 7 188 See Notes to Consolidated Financial Statements - 6 - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - The accompanying unaudited 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 January 2, 2000. The unaudited financial statements have been prepared to give retroactive effect to the merger with Centocor on October 6, 1999. The unaudited 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. NOTE 2 - INCOME TAXES The effective income tax rates for the first three months of 2000 and 1999 are 30.5% and 29.8%, 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 21, 2010. NOTE 3 - INVENTORIES (Dollars in Millions) April 2, 2000 January 2, 2000 Raw materials and supplies $ 596 663 Goods in process 450 416 Finished goods 2,006 2,016 $ 3,052 3,095 - 7 - NOTE 4 - INTANGIBLE ASSETS (Dollars in Millions) April 2, 2000 January 2, 2000 Intangible assets $ 8,792 8,755 Less accumulated amortization 1,264 1,184 $ 7,528 7,571 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 up to 40 years. The cost of other acquired intangibles is amortized on a straight-line basis over their estimated useful lives. NOTE 5 - SEGMENTS OF BUSINESS AND GEOGRAPHIC AREAS (Dollars in Millions) SALES BY SEGMENT OF BUSINESS First Quarter Percent 2000 1999 Increase Consumer Domestic $ 943 927 1.7 International 809 801 1.0 1,752 1,728 1.4% Pharmaceutical Domestic $ 1,949 1,529 27.5 International 1,093 1,048 4.3 3,042 2,577 18.0% Professional Domestic $ 1,311 1,289 1.7 International 1,214 1,145 6.0 2,525 2,434 3.7% Domestic $ 4,203 3,745 12.2 International 3,116 2,994 4.1 Worldwide $ 7,319 6,739 8.6% - 8 - NOTE 5 - SEGMENTS OF BUSINESS AND GEOGRAPHIC AREAS (Dollars in Millions) OPERATING PROFIT BY SEGMENT OF BUSINESS First Quarter Percent 2000 1999 Change Consumer $ 222 223 (.5) Pharmaceutical 1,265 987 28.2 Professional 458 455 .7 Segments total 1,945 1,665 16.8 Expenses not allocated to segments (53) (43) Worldwide total $ 1,892 1,622 16.7% SALES BY GEOGRAPHIC AREA First Quarter Percent Increase 2000 1999 (Decrease) U.S. $ 4,203 3,745 12.2 Europe 1,678 1,746 (3.9) Western Hemisphere Excluding U.S. 516 478 7.9 Asia-Pacific, Africa 922 770 19.7 Total $ 7,319 6,739 8.6% NOTE 6 - EARNINGS PER SHARE The following is a reconciliation of basic net earnings per share to diluted net earnings per share for the three months ended April 2, 2000 and April 4, 1999: (Shares in Millions) April 2, April 4, 2000 1999 Basic net earnings per share $ .95 .82 Average shares outstanding - basic 1,389.7 1,390.2 Potential shares exercisable under stock option plans 55.2 72.3 Less: shares which could be repurchased under treasury stock method (33.9) (42.8) Adjusted average shares outstanding - diluted1,411.0 1,419.7 Diluted earnings per share $ .93 .80 - 9 - NOTE 7 - ACCUMULATED OTHER COMPREHENSIVE INCOME The total comprehensive income for the three months ended April 2, 2000 is $1,337 million, compared with $1,017 million for the same period a year ago. Total comprehensive income includes net earnings, net unrealized currency gains and losses on translation and net unrealized gains and losses on available for sale securities. NOTE 8 - ACQUISITIONS During the quarter, the Company completed the acquisition of Innovasive Devices and Medtrex. Innovasive Devices manufactures and sells devices for sport medicine surgery for soft tissue injuries. Medtrex develops and manufactures electrosurgical generators (HydrocoolT) and disposable products (EncoreT pencil). 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. - 10 - NOTE 9 - NEW ACCOUNTING PRONOUNCEMENT In June 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 133 "Accounting for Derivative Instruments and Hedging Activities" (SFAS 133). This standard was amended by Statement of Financial Accounting Standards No. 137 "Accounting for Derivative Instruments and Hedging Activities-Deferral of the Effective Date of FASB Statement No. 133" and changed the effective date for SFAS 133 to all fiscal quarters of fiscal years beginning after June 15, 2000. SFAS 133 requires that all derivative instruments be recorded on the balance sheet at their respective fair values. Changes in the fair value of derivatives are recorded each period in current earnings or other comprehensive income, depending on the designation of the hedge transaction. For fair value hedge transactions in which the Company is hedging changes in the fair value of assets, liabilities or firm commitments, changes in the fair value of the derivative instrument will generally be offset by changes in the hedged item's fair value. For cash flow hedge transactions in which the Company is hedging the variability of cash flows related to a variable rate asset, liability or forecasted transaction, changes in the fair value of the derivative instrument will be reported in other comprehensive income. The gains and losses on the derivative instrument that are reported in other comprehensive income will be recognized in earnings in the periods in which earnings are impacted by the variability of the cash flows of the hedged item. The Company will adopt SFAS 133, as amended, in the first quarter of 2001 and does not expect it to have a material effect on the Company's results of operations, cash flows or financial position. - 11 - NOTE 10 - RESTRUCTURING AND SPECIAL CHARGES In the fourth quarter of 1998, the Company approved a plan to reconfigure its global network of manufacturing and operating facilities with the objective of enhancing operating efficiencies. This plan is currently underway and is targeted for completion in 2000. Among the initiatives supporting this plan were the closures of inefficient manufacturing facilities, exiting certain businesses which were not providing an acceptable return and related employee separations. The estimated cost of this plan is $613 million. The charge consisted of employee separation costs of $161 million, asset impairments of $322 million, impairments of intangibles of $52 million, and other exit costs of $78 million. Employee separations will occur primarily in manufacturing and operations facilities affected by the plan. The decision to exit certain facilities and businesses decreased expected future cash flows triggering the asset impairment. The amount of impairment of such assets was calculated using discounted cash flows or appraisals. Of the separation costs of $161 million, $3 million were paid in 1998 and $58 million were paid in 1999. With regard to the exit costs of $78 million, $38 million were paid in 1999. Payments made through three months ended April 2, 2000 of these severance and other exit costs are as follows: Remaining Remaining Accrual @ Cash Accrual @ January 2, 2000 Outlays April 2, 2000 Employee Separations $ 100 11 89 Other exit costs: Distributor terminations 11 - 11 Disposal costs 10 2 8 Lease termination 7 7 - Customer compensation 1 - 1 Other 11 6 5 Total other costs 40 15 25 $ 140 26 114 The restructuring plan consisted of the reduction of manufacturing facilities around the world by 36, from 159 to 123 plants. None of the assets affected by this plan were held for disposal. Changes in estimates to date have been immaterial. The headcount reduction related to this plan through April 2, 2000 was approximately 1,900 employees. - 12 - NOTE 11 - LEGAL PROCEEDINGS The information called for by this footnote is incorporated herein by reference to Item 1 ("Legal Proceedings") included in Part II of this Report on Form 10-Q. Item 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS SALES AND EARNINGS Consolidated sales for the first quarter of 2000 were $7.32 billion, an increase of 8.6% over 1999 first quarter sales of $6.74 billion. The effect of the stronger dollar relative to foreign currencies decreased first quarter sales by 2.5%. The operational sales increase of 11.1% included a positive price change effect of .5%. Consolidated net earnings for the first quarter of 2000 were $1.31 billion, compared with $1.14 billion for the same period a year ago, an increase of 15.5%. Other income and expense reflects gains related to the sale of certain equity securities. Also included in other income and expense is the write-down of certain intangible assets to their realizable market value for potential sale. Worldwide basic net earnings per share for the period were $.95, compared with $.82 for the same period in 1999, an increase of 15.9%. Worldwide diluted net earnings per share for the period were $.93, compared with $.80 for the same period in 1999, an increase of 16.3%. Domestic sales for the first three months of 2000 were $4.20 billion, an increase of 12.2% over 1999 domestic sales of $3.75 billion for the same period. Sales by international subsidiaries were $3.12 billion for the first quarter of 2000 compared with $2.99 billion for the same period a year ago, an increase of 4.1%. Excluding the impact of the higher value of the dollar, international sales increased by 9.6% for the quarter. Worldwide Consumer segment sales for the first quarter of 2000 were $1.8 billion, an increase of 1.4% versus the same period a year ago. Domestic sales were up 1.7% while international sales gains in local currency of 6.0% were partially offset by a negative currency impact of 5.0%. Consumer sales were led by continued strength in the skin care franchise, which includes the NEUTROGENA and RoC product lines. During the quarter, the Company launched AFLEXA, a glucosamine product that helps promote and maintain healthy joint tissue. - 13 - Worldwide pharmaceutical sales of $3.0 billion for the quarter increased 18.0% over the same period in 1999, including 27.5% growth in domestic sales and a 4.3% increase in international sales. International sales gains in local currency of 11.5% were partially offset by a negative currency impact of 7.2%. Sales growth reflects the strong performance of PROCRIT/EPREX, for the treatment of anemia; RISPERDAL, an antipsychotic medication; DURAGESIC, a transdermal patch for chronic pain; LEVAQUIN, an anti- infective; ULTRAM, an analgesic; REMICADE, a treatment for rheumatoid arthritis and Crohn's disease; and the oral contraceptive line of products. The sales growth was partially offset by a decline in sales of PROPULSID (cisapride), a gastrointestinal prokinetic. In January, the Company revised its marketing of Propulsid to doctors to include more comprehensive directions to ensure appropriate use. The primary revisions to the prescribing information included a requirement for physicians to conduct certain tests to identify patients who are not appropriate candidates for Propulsid therapy. The updated labeling states that an initial electrocardiogram must be conducted to exclude patients with cardiac abnormalities, along with an assessment of electrolytes (calcium, magnesium and potassium) and creatinine, a substance excreted by the kidneys. In March, the Company announced a limited-access program for PROPULSID and that the product will no longer be marketed in the United States. As a result, the Company recorded reserves related to inventory and sales returns associated with this limited-access program for PROPULSID. During the quarter, the Company received approval from the U.S. Food and Drug Administration (FDA) for an additional indication for LEVAQUIN (levofloxacin) for the treatment of penicillin-resistant streptococcus pheumoniae in community-acquired pneumonia (CAP). This new indication makes LEVAQUIN the first prescription antimicrobial agent specifically indicated for CAP caused by this resistant bacterium. The Company also received European approval for an expanded indication for EPREX (epoetin alfa) for anemia associated with non-platinum chemotherapy, which includes solid tumors, malignant lymphoma and multiple myeloma. EPREX is highly effective in increasing hemoglobin, reducing transfusion requirements, reducing fatigue and increasing the overall quality of life in cancer patients receiving chemotherapy. The Company also received its first regulatory approval within the European Union from Sweden for REMINYL (galantamine) for the treatment of Alzheimer's Disease. - 14 - Worldwide sales of $2.5 billion in the Professional segment represented an increase of 3.7% over the first quarter of 1999. Domestic sales were up 1.7% while international sales were up 6.0%. International sales gains in local currency of 10.5% were partially offset by a negative currency impact of 4.5%. Strong sales performance by DePuy's orthopaedic joint reconstruction and spinal products, Vistakon's disposable contact lens products and Cordis' coronary and endovascular stents were partially offset by a decline in sales of LifeScan's blood glucose monitoring systems. During the quarter, the Company completed its previously announced merger with Innovasive Devices, Inc., a manufacturer of surgical devices and instrumentation. Innovasive's products are used in sports medicine surgery and address soft tissue injuries in the knee, shoulder and other small joints. LIQUIDITY AND CAPITAL RESOURCES Cash and current marketable securities increased $321 million during the first three months of 2000 to $4,200 million at April 2, 2000. Total borrowings decreased $596 million during the first three months of 2000 to $3,660 million. Net cash (cash and current marketable securities net of debt) as of April 2, 2000 was $540 million. Net debt (debt net of cash and current marketable securities) as of the end of 1999 was $377 million. Total debt represented 17.6% of total capital (shareowners' equity and total debt) at quarter end compared with 20.8% at the end of 1999. For the period ended April 2, 2000, there were no material cash commitments. Additions to property, plant and equipment were $310 million for the first three months of 2000, compared with $334 million for the same period in 1999. On April 19, 2000, the Board of Directors approved a 14.3% increase in the quarterly dividend rate from 28 cents per share to 32 cents per share. The dividend is payable on June 13, 2000 to shareowners of record as of May 23, 2000. - 15 - CAUTIONARY FACTORS THAT MAY AFFECT FUTURE RESULTS This Form 10-Q contains "forward-looking statements." Forward- looking statements do not relate strictly to historical or current facts and anticipate results based on management's plans that are subject to uncertainty. Forward-looking statements may be identified by the use of words like "plans," "expects," "will," "anticipates," "estimates" and other words of similar meaning in conjunction with, among other things, discussions of future operations, financial performance, the Company's strategy for growth, product development, regulatory approvals, market position and expenditures. Forward-looking statements are based on current expectations of future events. The Company cannot guarantee that any forward- looking statement will be accurate, although the Company believes that it has been reasonable in its expectations and assumptions. Investors should realize that if underlying assumptions prove inaccurate or unknown risks or uncertainties materialize, actual results could vary materially from the Company's expectations and projections. Investors are therefore cautioned not to place undue reliance on any forward-looking statements. Furthermore, the Company assumes no obligation to update any forward-looking statements as a result of new information or future events or developments. The Company's Annual Report on Form 10-K for the fiscal year ended January 2, 2000 contains, in Exhibit 99(b), a discussion of various factors that could cause actual results to differ from expectations. That Exhibit from the Form 10-K is incorporated in this filing by reference. The Company notes these factors as permitted by the Private Securities Litigation Reform Act of 1995. - 16 - Item 3. Quantitative and Qualitative Disclosures About Market Risk There has been no material change in the Company's assessment of its sensitivity to market risk since its presentation set forth in Item 7A, "Quantitative and Qualitative Disclosures About Market Risk," in its Annual Report on Form 10-K for the fiscal year ended January 2, 2000. Part II - OTHER INFORMATION Item 1. Legal Proceedings The Company is involved in numerous product liability cases in the United States, many of which concern adverse reactions to drugs and medical devices. The damages claimed are substantial, and while the Company is confident of the adequacy of the warnings and instructions for use which accompany such products, it is not feasible to predict the ultimate outcome of litigation. However, the Company believes that if any liability results from such cases, it will be substantially covered by reserves established under its self-insurance program and by commercially available excess liability insurance. The Company, along with numerous other pharmaceutical manufacturers and distributors, is a defendant in a large number of individual and class actions brought by retail pharmacies in state and federal courts under the antitrust laws. These cases assert price discrimination and price-fixing violations resulting from an alleged industry-wide agreement to deny retail pharmacists price discounts on sales of brand name prescription drugs. The Company believes the claims against the Company in these actions are without merit and is defending them vigorously. The Company's subsidiary, Johnson & Johnson Vision Care Inc. (Vision Care), together with another contact lens manufacturer, a trade association and various individual defendants, is a defendant in several consumer class actions and an action brought by multiple State Attorneys General on behalf of consumers alleging violations of federal and state antitrust laws. These cases, which were filed between July 1994 and December 1996 and are consolidated before the United States district Court for the Middle District of Florida, assert that enforcement of Vision Care's long-standing policy of selling contact lenses only to licensed eye care professionals is a result of an unlawful conspiracy to eliminate alternative distribution channels from the disposable contact lens market. The Company believes that these actions are without merit and is defending them vigorously. - 17 - Johnson & Johnson Vision Care is also a defendant in a nationwide consumer class action brought on behalf of purchasers of its ACUVUE brand contact lenses. The plaintiffs in that action, which was filed in 1996 in New Jersey State Court, allege that Vision Care sold its 1-DAY ACUVUE lens at a substantially cheaper price than ACUVUE and misled consumers into believing these were different lenses when, in fact, they were allegedly "the same lenses." Plaintiffs are seeking substantial damages and an injunction against supposed improper conduct. The Company believes these claims are without merit and is defending the action vigorously. The Company's Ortho Biotech subsidiary is party to an arbitration proceeding filed against it in 1995 by Amgen, Ortho's licensor of U.S. non-dialysis rights to EPO, in which Amgen seeks to terminate Ortho's U.S. license rights and collect substantial damages based on alleged deliberate EPO sales by Ortho during the early 1990's into Amgen's reserved dialysis market. The Company believes no basis exists for terminating Ortho's U.S. license rights or for obtaining damages and is vigorously contesting Amgen's claims. However, Ortho's U.S. license rights to EPO are material to the Company; thus, an unfavorable outcome could have a material adverse effect on the Company's consolidated financial position, liquidity or results of operations. The Company is also involved in a number of patent, trademark and other lawsuits incidental to its business. The Company believes that the above proceedings, except as noted above, would not have a material adverse effect on its results of operations, cash flows or financial position. Item 5. Other Information Amgen is proceeding to trial this month in Boston, Massachusetts, in its patent infringement action against Transkaryotic Therapies, Inc. (TKT), the developer of a gene-activated EPO product, and Aventis S.A., which holds marketing rights to the TKT product. TKT and Aventis are seeking to invalidate the Amgen patents asserted against them, which patents are exclusively licensed to Ortho Biotech in the U.S. for non-dialysis indications. Ortho Biotech is not a party to the action and is not in a position to express views as to its probable outcome. Item 6. Exhibits and Reports on Form 8-K (a) Exhibit Numbers (1) 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 April 2, 2000. - 18 - 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: May 12, 2000 By /s/ R. J. DARRETTA R. J. DARRETTA Vice President, Finance Date: May 12, 2000 By /s/ C. E. LOCKETT C. E. LOCKETT Controller (Chief Accounting Officer) - 19 -