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 March 31, 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 April 26, 1996, 666,257,720 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 -
March 31, 1996 and December 31, 1995 3
Consolidated Statement of Earnings for the
Three Months Ended March 31, 1996 and
April 2, 1995 5
Consolidated Statement of Cash Flows
for the Three Months Ended March 31, 1996
and April 2, 1995 6
Notes to Consolidated Financial Statements 7
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 10
Signatures 14
Part II - Other Information
Items 1 through 5 are not applicable
Item 6 - Exhibits and Reports on Form 8-K 13
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Part I - FINANCIAL INFORMATION
Item 1 - FINANCIAL STATEMENTS
JOHNSON & JOHNSON AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Unaudited; Dollars in Millions)
ASSETS
March 31, December 31,
1996 1995
Current Assets:
Cash and cash equivalents $ 1,724 1,201
Marketable securities 139 163
Accounts receivable, trade, less
allowances $267 (1995 - $258) 3,223 2,903
Inventories (Note 3) 2,433 2,276
Deferred taxes on income 701 717
Prepaid expenses and other
receivables 783 678
Total current assets 9,003 7,938
Marketable securities, non-current 264 338
Property, plant and equipment, at cost 8,437 8,175
Less accumulated depreciation and
amortization 3,204 2,979
5,233 5,196
Intangible assets, net (Note 4) 2,944 2,950
Deferred taxes on income 333 307
Other assets 1,163 1,144
Total Assets $ 18,940 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
March 31, December 31,
1996 1995
Current Liabilities:
Loans and notes payable $ 267 321
Accounts payable 1,347 1,602
Accrued liabilities 2,049 1,949
Accrued salaries, wages and commissions 395 292
Taxes on income 364 224
Total current liabilities 4,422 4,388
Long-term debt 2,111 2,107
Deferred tax liability 163 156
Certificates of extra compensation 81 86
Other liabilities 2,335 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 1,080,000,000 shares;
issued 767,412,000 shares) 767 767
Note receivable from employee stock
ownership plan (57) (64)
Cumulative currency translation
adjustments 80 148
Retained earnings 10,551 10,511
11,341 11,362
Less common stock held in treasury,
at cost (101,074,000 & 119,732,000
shares) 1,513 2,317
Total stockholders' equity 9,828 9,045
Total liabilities and stockholders'
equity $18,940 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
March 31, Percent April 2, Percent
1996 to Sales 1995 to Sales
Sales to customers (Note 5) $5,334 100.0 4,496 100.0
Cost of products sold 1,719 32.2 1,447 32.2
Selling, marketing and
administrative expenses 1,996 37.4 1,720 38.2
Research expense 428 8.0 353 7.9
Interest income (30) (.6) (18) (.4)
Interest expense, net of
portion capitalized 35 .7 45 1.0
Other expense 62 1.2 28 .6
4,210 78.9 3,575 79.5
Earnings before provision
for taxes on income 1,124 21.1 921 20.5
Provision for taxes on
income (Note 2) 334 6.3 267 6.0
NET EARNINGS $ 790 14.8 654 14.5
NET EARNINGS PER SHARE $ 1.19 1.02
CASH DIVIDENDS PER SHARE $ .33 .29
AVG. SHARES OUTSTANDING 666.3 643.1
See Notes to Consolidated Financial Statements
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JOHNSON & JOHNSON AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited; Dollars in Millions)
Fiscal Quarter Ended
March 31, April 2,
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 790 654
Adjustments to reconcile net earnings to
cash flows:
Depreciation and amortization of
property and intangibles 244 204
Increase in accounts receivable, trade,
less allowances (234) (163)
Increase in inventories (125) (54)
Changes in other assets and liabilities 238 71
NET CASH FLOWS FROM OPERATING ACTIVITIES 913 712
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment (219) (218)
Proceeds from the disposal of assets 8 395
Other, principally marketable securities 166 (476)
NET CASH USED BY INVESTING ACTIVITIES (45) (299)
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends to stockholders (214) (187)
Repurchase of common stock (102) (77)
Proceeds from short-term debt 58 72
Retirement of short-term debt (41) (447)
Proceeds from long-term debt - 3
Retirement of long-term debt (79) (2)
Proceeds from the exercise of stock
options 39 29
NET CASH USED BY FINANCING
ACTIVITIES (339) (609)
EFFECT OF EXCHANGE RATE CHANGES ON CASH
AND CASH EQUIVALENTS (6) 20
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 523 (176)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD1,201 636
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,724 460
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.
NOTE 2 - INCOME TAXES
The effective income tax rates for the first three months of 1996
and 1995 are 29.7% and 29.0%, respectively, as compared to the U.S.
federal statutory rate of 35%. The difference from the statutory
rate is 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.
NOTE 3 - INVENTORIES
(Dollars in Millions) March 31, 1996 Dec. 31, 1995
Raw materials and supplies $ 655 625
Goods in process 530 519
Finished goods 1,248 1,132
$ 2,433 2,276
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NOTE 4 - INTANGIBLE ASSETS
(Dollars in Millions) March 31, 1996 Dec. 31, 1995
Intangible assets $ 3,370 3,345
Less accumulated amortization 426 395
$ 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
First Quarter
Percent
1996 1995 Increase
Consumer
Domestic $ 825 729 13.2
International 794 707 12.3
1,619 1,436 12.7%
Pharmaceutical
Domestic $ 792 607 30.5
International 970 876 10.7
1,762 1,483 18.8%
Professional
Domestic $ 1,035 840 23.2
International 918 737 24.6
1,953 1,577 23.8%
Domestic $ 2,652 2,176 21.9
International 2,682 2,320 15.6
Worldwide $ 5,334 4,496 18.6%
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NOTE 5 - SALES TO CUSTOMERS BY SEGMENT OF BUSINESS AND GEOGRAPHIC
AREAS
SALES BY GEOGRAPHIC AREA
First Quarter
Percent
1996 1995 Increase
U.S. $ 2,652 2,176 21.9
Europe 1,587 1,356 17.0
Western Hemisphere
excluding U.S. 464 406 14.3
Asia-Pacific, Africa 631 558 13.1
Total $ 5,334 4,496 18.6%
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.
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NOTE 7 - SUBSEQUENT EVENT
On April 25, 1996, the Board of Directors approved an increase in
the authorized common stock from 1.08 billion to 2.16 billion
shares enabling the Company to complete a two-for-one split of its
common stock. Par value will remain at $1.00 per common share.
One new share of common stock will be distributed on June 11, 1996
with respect to each existing share of common stock held of record
on May 21, 1996.
Item 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SALES AND EARNINGS
Consolidated sales for the first quarter of 1996 were $5,334
million, an increase of 18.6% over 1995 first quarter sales of
$4,496 million. The effect of the stronger dollar relative to
foreign currencies decreased first quarter's sales by .2%. The
sales increase of 18.8% due to operations included a positive price
change effect of .7%. Consolidated net earnings for the first
quarter of 1996 were $790 million, compared with $654 million for
the same period a year ago, an increase of 20.8%. Earnings per
share for the period were $1.19, compared with $1.02 for the same
period in 1995, an increase of 16.7%.
Domestic sales for the first three months of 1996 were $2,652
million, an increase of 21.9% over 1995 domestic sales of $2,176
million for the same period. Sales by international subsidiaries
were $2,682 million for the first quarter of 1996 compared with
$2,320 million for the same period a year ago, an increase of
15.6%. Excluding the impact of the higher value of the dollar,
international sales increased by 16.0% for the quarter.
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Domestic consumer sales increased 13.2% for the first quarter.
Growth was led by PEPCID AC Acid Controller, a product of Johnson
Johnson o Merck Consumer Pharmaceuticals Co.; Neutrogena, a line of
adult skin and hair care products; the TYLENOL line of
acetaminophen-based analgesic and cold products; and Children's
Motrin, the first new nonprescription children's fever and pain
reliever in 35 years. International consumer sales increased 12.3%
for the first quarter due to equally strong performance in Europe,
Latin America, and Asia-Pacific & Africa.
Worldwide pharmaceutical sales of $1.8 billion for the quarter
increased 18.8%, with domestic sales growing 30.5%. Leading the
increase in pharmaceutical sales were RISPERDAL, a new
antipsychotic medication; PROPULSID, a gastrointestinal product;
PROCRIT, for the treatment of anemia; ULTRAM, a centrally acting
prescription analgesic for moderate to moderately severe pain;
SPORANOX, a broad spectrum antifungal agent; and RENOVA.
The Food and Drug Administration approved a new indication,
onychomycosis, for SPORANOX last fall. One in every 25 Americans
suffers from nail infection and SPORANOX is the first therapy to
offer significant improvement to patients. Positive feedback is
being received from dermatologists, primary care physicians and
podiatrists concerning the efficacy of SPORANOX.
RENOVA is the first prescription skin cream proven to reduce fine
wrinkles, brown spots and surface roughness associated with chronic
sun exposure and the natural aging process, when used in addition
to a comprehensive skin care and sun avoidance program. RENOVA was
launched in the U.S. in February 1996.
Worldwide sales of $2.0 billion in the Professional segment
represented an increase of 23.8% over the first quarter in 1995.
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Included in the consolidated figure are sales from Cordis for the
first three months of this year. Strong sales growth continued to
be fueled by the rapid market adoption of the Johnson & Johnson
Interventional's 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 systems, and Ethicon
Endo-Surgery's minimally invasive surgical instruments continued to
deliver solid growth.
The joining of the Johnson & Johnson Interventional Systems and
Cordis businesses in February 1996, represents an important
strategic step which provides the combined businesses a greater
breadth of technically superior products. These include
balloon/stent systems, as well as the technological expertise and
resources to continue to lead new and innovative cardiology
developments.
Average shares of common stock outstanding in the first three
months of 1996 were 666.3 million, compared with 643.1 million for
the same period a year ago. The increase of 23.2 million shares
include 18.6 million shares for the Cordis merger in 1996 and the
balance for various acquisitions using common stock during 1995.
LIQUIDITY AND CAPITAL RESOURCES
Net debt (borrowings net of cash and current marketable
securities) as of March 31, 1996 was 5.0% of net capital
(stockholders' equity and net debt) compared with 10.5% at the end
of 1995. Net debt decreased by $549 million during the first three
months of 1996 to $515 million at March 31, 1996. Total debt
represented 19.5% of total capital (stockholders' equity and total
borrowings) at quarter end, compared with 21.2% at the end of 1995.
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Additions to property, plant and equipment were $219 million for
the first three months of 1996, compared with $218 million for the
same period in 1995.
On April 25, 1996, the Board of Directors approved an increase in
the authorized common stock from 1.08 billion to 2.16 billion
shares enabling the Company to complete a two-for-one split of its
common stock. Par value will remain at $1.00 per common share.
One new share of common stock will be distributed on June 11, 1996
with respect to each existing share of common stock held of record
on May 21, 1996. In addition, the Board of Directors raised the
quarterly dividend from 33 cents to 38 cents per share on a pre-
split basis, an increase of 15.2%. The dividend is payable on June
11, 1996 to shareholders of record as of May 21, 1996.
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:
A report on Form 8-K was filed on March 8, 1996, which
included pro forma financial information prepared to
reflect the merger of Johnson & Johnson and Cordis as
referred to under Note 7 - Merger: (a) Unaudited Pro
Forma Condensed Consolidated Statements of Income for
the nine months ended October 1, 1995 and the years
ended January 1, 1995, January 2, 1994 and January 3,
1993, (b) Unaudited Pro Forma Condensed Consolidated
Balance Sheet as of October 1, 1995 and (c) the notes
thereto.
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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 10, 1996 By C. H. Johnson
C. H. Johnson
(Vice President, Finance)
Date: May 10, 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)
First Quarter Ended
March 31, April 2,
1996 1995
1. Net Earnings ................ $ 790 654
2. Average number of shares outstanding
during the period............ 666.3 643.1
3. Earnings per share based upon average
outstanding shares (1 / 2) $ 1.19 1.02
4. Fully diluted earnings per share:
a. Average number of shares out-
standing during the period. 666.3 643.1
b. Shares issuable under stock
compensation agreements at
quarter-end .............. - .1
c. Shares reserved under the stock
option plan for which the
market price at end of quarter
exceeds the option price.. 39.2 34.6
d. Aggregate proceeds to the Company
from the exercise of
options in 4c ............ 2,286 1,503
e. Market price of the Company's
common stock at fiscal
quarter-end............... 92.25 59.50
f. Shares which could be repurchased
under the treasury stock method
(4d / 4e) ................ 24.8 25.3
g. Addition to average outstanding
shares (4b + 4c - 4f)..... 14.4 9.4
h. Shares for fully diluted earnings
per share calculation
(4a + 4g) ................ 680.7 652.5
i. Fully diluted earnings per share
(1 / 4h) ................. $ 1.16 1.00
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