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
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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.
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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
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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
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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
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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
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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
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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
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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.
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<PAGE>
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%
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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
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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.
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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%.
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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 -
<PAGE>
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.
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<PAGE>
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.
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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.
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<PAGE>
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)
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Exhibit 11
JOHNSON & JOHNSON AND SUBSIDIARIES
CALCULATION OF EARNINGS PER SHARE
(Dollars and shares in millions except per share figures)
Fiscal Quarter Ended
Sept. 29, Oct. 1,
1996 1995
1. Net earnings ................ $ 750 623
2. Average number of shares outstanding
during the period............ 1,332.9 1,295.5
3. Earnings per share based upon average
outstanding shares (1 / 2) $ .56 .48
4. Fully diluted earnings per share:
a. Average number of shares out-
standing during the period. 1,332.9 1,295.5
b. Shares issuable under stock
compensation agreements at
quarter-end .............. - .2
c. Shares reserved under the stock
option plan for which the
market price at end of quarter
exceeds the option price.. 73.9 65.2
d. Aggregate proceeds to the Company
from the exercise of
options in 4c ............ 2,265 1,528
e. Market price of the Company's
common stock at fiscal
quarter-end............... 51.50 37.07
f. Shares which could be repurchased
under the treasury stock method
(4d / 4e) ................ 44.0 41.2
g. Addition to average outstanding
shares (4b + 4c - 4f)..... 29.9 24.2
h. Shares for fully diluted earnings
per share calculation
(4a + 4g) ................ 1,362.8 1,319.7
i. Fully diluted earnings per share
(1 / 4h) ................. $ .55 .47
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Exhibit 11
JOHNSON & JOHNSON AND SUBSIDIARIES
CALCULATION OF EARNINGS PER SHARE
(Dollars and shares in millions except per share figures)
Fiscal
Nine Months Ended
Sept. 29, Oct. 1,
1996 1995
1. Net earnings ................ $ 2,331 1,938
2. Average number of shares outstanding
during the period............ 1,332.8 1,290.9
3. Earnings per share based upon average
outstanding shares (1 / 2) $ 1.75 1.50
4. Fully diluted earnings per share:
a. Average number of shares out-
standing during the period. 1,332.8 1,290.9
b. Shares issuable under stock
compensation agreements at
quarter-end .............. - .2
c. Shares reserved under the stock
option plan for which the
market price at end of quarter
exceeds the option price.. 73.9 65.2
d. Aggregate proceeds to the Company
from the exercise of
options in 4c ............ 2,265 1,528
e. Market price of the Company's
common stock at fiscal
quarter-end............... 51.50 37.07
f. Shares which could be repurchased
under the treasury stock method
(4d / 4e) ................ 44.0 41.2
g. Addition to average outstanding
shares (4b + 4c - 4f)..... 29.9 24.2
h. Shares for fully diluted earnings
per share calculation
(4a + 4g) ................ 1,362.7 1,315.1
i. Fully diluted earnings per share
(1 / 4h) ................. $ 1.71 1.47
- - 19 -
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<FISCAL-YEAR-END> DEC-29-1996
<PERIOD-END> SEP-29-1996
<CASH> 2,088
<SECURITIES> 135
<RECEIVABLES> 3,677
<ALLOWANCES> 322
<INVENTORY> 2,631
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<BONDS> 0
<COMMON> 1,535
0
0
<OTHER-SE> 9,143
<TOTAL-LIABILITY-AND-EQUITY> 19,910
<SALES> 16,118
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<CGS> 5,166
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<OTHER-EXPENSES> 1,317
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<INCOME-TAX> 971
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