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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995 COMMISSION FILE NUMBER 1-3215
JOHNSON & JOHNSON
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
NEW JERSEY 22-1024240
(State of (I.R.S. Employer
Incorporation) Identification No.)
ONE JOHNSON & JOHNSON PLAZA
NEW BRUNSWICK, NEW JERSEY 08933
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code (908) 524-0400
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT
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<CAPTION>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
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<S> <C>
Common Stock, Par Value $1.00 New York Stock Exchange
</TABLE>
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 / /
The aggregate market value of the voting stock held by non-affiliates of
the registrant on February 29, 1996 was approximately $58.9 billion.
On February 29, 1996 there were 666,316,374 shares of Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
<TABLE>
<S> <C>
Parts I and II: Portions of registrant's annual report to stockholders for fiscal year 1995.
Part III: Portions of registrant's proxy statement for its 1996 annual meeting of
stockholders.
</TABLE>
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K /X/
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PART I
<TABLE>
<CAPTION>
ITEM PAGE
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<C> <S> <C>
l. Business....................................................................... 1
General........................................................................ 1
Segments of Business; Geographic Areas......................................... 1
Consumer....................................................................... 1
Pharmaceutical................................................................. 1
Professional................................................................... 2
International.................................................................. 2
Raw Materials.................................................................. 2
Patents and Trademarks......................................................... 2
Seasonality.................................................................... 2
Competition.................................................................... 3
Research....................................................................... 3
Environment.................................................................... 3
Regulation..................................................................... 3
2. Properties..................................................................... 4
3. Legal Proceedings.............................................................. 4
4. Submission of Matters to a Vote of Security Holders............................ 5
Executive Officers of the Registrant........................................... 5
PART II
5. Market for Registrant's Common Equity and Related Stockholder Matters.......... 5
6. Selected Financial Data........................................................ 6
7. Management's Discussion and Analysis of Financial Condition and Results of
Operations..................................................................... 6
8. Financial Statements and Supplementary Data.................................... 6
9. Disagreements on Accounting and Financial Disclosure........................... 6
PART III
10. Directors and Executive Officers of the Registrant............................. 6
11. Executive Compensation......................................................... 6
12. Security Ownership of Certain Beneficial Owners and Management................. 6
13. Certain Relationships and Related Transactions................................. 6
PART IV
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K............... 7
Signatures..................................................................... 9
Report of Independent Auditors................................................. 11
Consent of Independent Auditors................................................ 12
Exhibit Index.................................................................. 13
</TABLE>
Form 10-Q Quarterly Reports Available. A copy of Johnson & Johnson's
Quarterly Report on Form 10-Q for any of the first three quarters of the current
fiscal year, without exhibits, will be provided without charge to any
stockholder submitting a written request to the Secretary at the principal
executive offices of the Company or by calling 800-328-9033. Each report will be
available about 45 days after the end of the quarter to which it relates.
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PART I
ITEM 1. BUSINESS
GENERAL
Johnson & Johnson, employing approximately 82,300 people worldwide, is
engaged in the manufacture and sale of a broad range of products in the health
care field in many countries of the world. Johnson & Johnson's primary interest,
both historically and currently, has been in products related to health and
well-being. Johnson & Johnson was organized in the State of New Jersey in 1887.
Johnson & Johnson is organized on the principles of decentralized
management. The Executive Committee of Johnson & Johnson is the principal
management group responsible for the operations of Johnson & Johnson. In
addition, three Executive Committee members are Chairmen of Group Operating
Committees, which are comprised of managers who represent key operations within
the group, as well as management expertise in other specialized functions. These
Committees oversee and coordinate the activities of domestic and international
companies related to each of the Consumer, Pharmaceutical, Professional and
Diagnostic businesses. Operating management of each company is headed by a
Chairman, President, General Manager or Managing Director who reports directly
to or through a Company Group Chairman. In line with this policy of
decentralization, each international subsidiary is, with some exceptions,
managed by citizens of the country where it is located.
SEGMENTS OF BUSINESS; GEOGRAPHIC AREAS
Johnson & Johnson's worldwide business is divided into three segments:
Consumer, Pharmaceutical and Professional. Johnson & Johnson further categorizes
its sales and operating profit by major geographic areas of the world. The
narrative and tabular (but not the graphic) descriptions of segments and
geographic categories captioned "Management's Discussion and Analysis of Results
of Operations and Financial Condition -- Segments of Business, Consumer,
Pharmaceutical, Professional and Geographic Areas" on pages 26 through 28 and 41
of Johnson & Johnson's Annual Report to Stockholders for fiscal year 1995 are
incorporated herein by reference thereto.
CONSUMER
The Consumer segment's principal products are personal care and hygienic
products, including oral and baby care products, first aid products,
nonprescription drugs, sanitary protection products and adult incontinence
products. Major brands include ACT Fluoride Rinse; BAND-AID Brand Adhesive
Bandages; CAREFREE Panty Shields; CLEAN & CLEAR skin care products; IMODIUM A-D,
an antidiarrheal; JOHNSON'S line of baby products; MONISTAT 7, an
over-the-counter remedy for vaginal yeast infections; MYLANTA gastrointestinal
products and PEPCID AC Acid Controller from Johnson & Johnson - Merck Consumer
Pharmaceuticals & Co.; NEUTROGENA skin and hair products; o.b. Tampons;
PEDIACARE children's cold and allergy medications; PENATEN and NATUSAN baby care
products; PIZ BUIN and SUNDOWN sun care products; REACH toothbrushes; RoC skin
care products; SERENITY incontinence products; SHOWER TO SHOWER personal care
powder products; STAYFREE and SURE & NATURAL sanitary protection products; and
the broad family of TYLENOL acetaminophen products. These products are marketed
principally to the general public and distributed both to wholesalers and
directly to independent and chain retail outlets.
PHARMACEUTICAL
The Pharmaceutical segment's principal worldwide franchises are in the
allergy, antifungal, biotech, central nervous system, contraceptive,
dermatology, gastrointestinal and immunobiology fields. These products are
distributed both directly and through wholesalers for use by health care
professionals and the general public. Prescription drugs include DURAGESIC (sold
outside the U.S. as DUROGESIC), a transdermal patch for chronic pain; EPREX
(sold in the U.S. as PROCRIT), a biotechnology derived version of the human
hormone erythropoietin, which stimulates red blood cell production; ERGAMISOL, a
colon cancer
<PAGE> 4
drug; FLOXIN, an antibacterial; HISMANAL, the once-a-day less sedating
antihistamine; IMODIUM, an antidiarrheal; LEUSTATIN, for hairy cell leukemia;
MOTILIUM, a gastrointestinal mobilizer; NIZORAL, SPORANOX and TERAZOL,
antifungals; ORTHOCLONE OKT-3, for reversing the rejection of kidney, heart and
liver transplants; ORTHO-NOVUM group of oral contraceptives; PREPULSID (sold in
the U.S. as PROPULSID), a gastrointestinal prokinetic; RETIN-A, a dermatological
cream for acne; RISPERDAL, an antipsychotic drug; and ULTRAM, a new centrally
acting prescription analgesic for moderate to moderately severe pain.
PROFESSIONAL
The Professional segment includes suture and mechanical wound closure
products, less-invasive surgical instruments, diagnostic products, medical
equipment and devices, disposable contact lenses, surgical instruments, joint
replacements and products for wound management and infection prevention. These
products are used principally in the professional fields by physicians,
dentists, nurses, therapists, hospitals, diagnostic laboratories and clinics.
Distribution to these markets is done both directly and through surgical supply
and other dealers. In February 1996 Johnson & Johnson acquired Cordis
Corporation which provides devices and systems for markets that include
cardiology, electrophysiology, radiology and interventional neuroradiology.
INTERNATIONAL
The international business of Johnson & Johnson is conducted by
subsidiaries manufacturing in 39 countries outside the United States and selling
in over 175 countries throughout the world. The products made and sold in the
international business include many of those described above under
"Business -- Consumer, Pharmaceutical and Professional." However, the principal
markets, products and methods of distribution in the international business vary
with the country and the culture. The products sold in the international
business include not only those which were developed in the United States but
also those which were developed by subsidiaries abroad.
Investments and activities in some countries outside the United States are
subject to higher risks than comparable domestic activities because the
investment and commercial climate is influenced by restrictive economic policies
and political uncertainties.
RAW MATERIALS
Raw materials essential to Johnson & Johnson's business are generally
readily available from multiple sources.
PATENTS AND TRADEMARKS
Johnson & Johnson has made a practice of obtaining patent protection on its
products and processes where possible. Johnson & Johnson owns or is licensed
under a number of patents relating to its products and manufacturing processes,
which in the aggregate are believed to be of material importance in the
operation of its business. However, it is believed that no single patent or
related group of patents is material in relation to Johnson & Johnson as a
whole.
Johnson & Johnson has made a practice of selling its products under
trademarks and of obtaining protection for these trademarks by all available
means. Johnson & Johnson's trademarks are protected by registration in the
United States and other countries where its products are marketed. Johnson &
Johnson considers these trademarks in the aggregate to be of material importance
in the operation of its business.
SEASONALITY
Worldwide sales do not reflect any significant degree of seasonality;
however spending has been heavier in the fourth quarter of each year than in
other quarters. This reflects increased spending decisions, principally for
advertising and research grants.
2
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COMPETITION
In all its product lines, Johnson & Johnson companies compete with
companies both large and small, located in the United States and abroad.
Competition is strong in all segments without regard to the number and size of
the competing companies involved. Competition in research, involving the
development of new products and processes and the improvement of existing
products and processes, is particularly significant and results from time to
time in product and process obsolescence. The development of new and improved
products is important to Johnson & Johnson's success in all areas of its
business. This competitive environment requires substantial investments in
continuing research and in multiple sales forces. In addition, the winning and
retention of customer acceptance of Johnson & Johnson's consumer products
involve heavy expenditures for advertising, promotion and selling.
RESEARCH
Research activities are important to all segments of Johnson & Johnson's
business. Major research facilities are located not only in the United States
but also in Australia, Belgium, Brazil, Canada, Germany, Switzerland and the
United Kingdom. The costs of Johnson & Johnson's worldwide research activities
relating to the development of new products, the improvement of existing
products, technical support of products and compliance with governmental
regulations for the protection of the consumer amounted to $1,634, $1,278 and
$1,182 million for fiscal years 1995, 1994 and 1993, respectively. These costs
are charged directly to income in the year in which incurred. All research was
sponsored by Johnson & Johnson.
ENVIRONMENT
During the past year Johnson & Johnson was subject to a variety of federal,
state and local environmental protection measures. Johnson & Johnson believes
that its operations comply in all material respects with applicable
environmental laws and regulations. Johnson & Johnson's compliance with these
requirements did not and is not expected to have a material effect upon its
capital expenditures, earnings or competitive position.
REGULATION
Most of Johnson & Johnson's business is subject to varying degrees of
governmental regulation in the countries in which operations are conducted, and
the general trend is toward regulation of increasing stringency. In the United
States, the drug, device, diagnostics and cosmetic industries have long been
subject to regulation by various federal, state and local agencies, primarily as
to product safety, efficacy, advertising and labeling. The exercise of broad
regulatory powers by the Food and Drug Administration (the "FDA") continues to
result in increases in the amounts of testing and documentation required for FDA
clearance of new drugs and devices and a corresponding increase in the expense
of product introduction. Similar trends toward product and process regulation
are also evident in a number of major countries outside of the United States,
especially in the European Economic Community where efforts are continuing to
harmonize the internal regulatory systems.
The costs of human health care have been and continue to be a subject of
study and investigation by governmental agencies and legislative bodies in the
United States and other countries. In the United States, attention has been
focused on drug prices and profits and programs that encourage doctors to write
prescriptions for particular drugs. Even in the absence of new government
regulation, managed care has become a more potent force in the market place and
it is likely that increased attention will be paid to drug pricing, appropriate
drug utilization and the quality of health care.
The regulatory agencies under whose purview Johnson & Johnson operates have
administrative powers that may subject Johnson & Johnson to such actions as
product recalls, seizure of products and other civil and criminal sanctions. In
some cases Johnson & Johnson may deem it advisable to initiate product recalls
voluntarily.
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ITEM 2. PROPERTIES
Johnson & Johnson and its worldwide subsidiaries operate 165 manufacturing
facilities occupying approximately 15 million square feet of floor space.
The manufacturing facilities are used by the industry segments of Johnson &
Johnson's business approximately as follows:
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SQUARE FEET
SEGMENT (IN THOUSANDS)
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Consumer............................................................... 5,877
Pharmaceutical......................................................... 2,966
Professional........................................................... 6,210
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Worldwide total.............................................. 15,053
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</TABLE>
Within the United States, 12 facilities are used by the Consumer segment, 7
by the Pharmaceutical segment and 40 by the Professional segment. Johnson &
Johnson's manufacturing operations outside the United States are often conducted
in facilities which serve more than one segment of the business.
The locations of the manufacturing facilities by major geographic areas of
the world are as follows:
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<CAPTION>
NUMBER OF SQUARE FEET
GEOGRAPHIC AREA FACILITIES (IN THOUSANDS)
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United States................................................ 59 7,119
Europe....................................................... 44 3,622
Western Hemisphere excluding U.S.A........................... 24 2,428
Africa, Asia and Pacific..................................... 38 1,884
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Worldwide total.................................... 165 15,053
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</TABLE>
In addition to the manufacturing facilities discussed above, Johnson &
Johnson maintains numerous office and warehouse facilities throughout the world.
Research facilities are also discussed under "Business -- Research."
Johnson & Johnson generally seeks to own its manufacturing facilities,
although some, principally in locations abroad, are leased. Office and warehouse
facilities are often leased.
Johnson & Johnson's properties are maintained in good operating condition
and repair and are well utilized.
For information regarding lease obligations see Note 9 "Rental Expenses and
Lease Commitments" under "Johnson & Johnson and Subsidiaries -- Notes to
Consolidated Financial Statements" on page 34 of Johnson & Johnson's Annual
Report to Stockholders for fiscal year 1995. Segment information on additions to
Johnson & Johnson's property, plant and equipment is contained on page 41 of
Johnson & Johnson's Annual Report to Stockholders for fiscal year 1995.
ITEM 3. LEGAL PROCEEDINGS
The information set forth in Note 18 "Pending Legal Proceedings" under
"Johnson & Johnson and Subsidiaries -- Notes to Consolidated Financial
Statements" on page 39 of Johnson & Johnson's Annual Report to Stockholders for
fiscal year 1995 is incorporated herein by reference.
The Company or its subsidiaries are parties to a number of administrative
and judicial environmental proceedings, including proceedings brought under the
Comprehensive Environmental Response, Compensation, and Liability Act, commonly
known as Superfund, and comparable state laws. The primary relief sought in
these proceedings is the cost of past and future remediation. While it is not
feasible to predict or determine the outcome of these proceedings, in the
opinion of the Company, such proceedings should not ultimately result in any
liability which would have a material adverse effect on its results of
operations, cash flows or financial position.
4
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
EXECUTIVE OFFICERS OF THE REGISTRANT
Listed below are the executive officers of Johnson & Johnson as of March
15, 1996, each of whom, unless otherwise indicated below, has been an employee
of the Company or its affiliates and held the position indicated during the past
five years. There are no family relationships between any of the executive
officers, and there is no arrangement or understanding between any executive
officer and any other person pursuant to which the executive officer was
selected. At the annual meeting of the Board of Directors which follows the
Annual Meeting of Stockholders executive officers are elected by the Board to
hold office for one year and until their respective successors are elected and
qualified, or until earlier resignation or removal.
Information with regard to the directors of the Company, including those of
the following executive officers who are directors, is incorporated herein by
reference to pages 3 through 7 of Johnson & Johnson's Proxy Statement dated
March 12, 1996.
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------------- --- ---------------------------------------------------
<S> <C> <C>
Roger S. Fine.................... 53 Member, Executive Committee; Vice President,
Administration
George S. Frazza................. 62 Member, Executive Committee; Vice President,
General Counsel
Ronald G. Gelbman................ 48 Member, Executive Committee; Worldwide Chairman,
Pharmaceutical and Diagnostics Group(a)
Clark H. Johnson................. 60 Member, Executive Committee; Vice President,
Finance
Christian A. Koffmann............ 55 Member, Executive Committee; Worldwide Chairman,
Consumer and Personal Care Group(b)
Ralph S. Larsen.................. 57 Chairman, Board of Directors and Chief Executive
Officer; Chairman, Executive Committee
James T. Lenehan................. 47 Member, Executive Committee; Worldwide Chairman,
Consumer Pharmaceuticals and Professional
Group(c)
Robert N. Wilson................. 55 Vice-Chairman, Board of Directors; Vice-Chairman
Executive Committee
</TABLE>
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(a) Mr. R. G. Gelbman joined the Company in 1972 and became a Company Group
Chairman in 1987. He became a Member of the Executive Committee and
Worldwide Chairman, Pharmaceutical and Diagnostics Group in 1994.
(b) Mr. C. A. Koffmann joined the Company in 1989 as a Company Group Chairman.
He became a Member of the Executive Committee and Worldwide Chairman,
Consumer and Personal Care Group in 1995.
(c) Mr. J. T. Lenehan joined the Company in 1976 and became a Company Group
Chairman in 1993. He became a Member of the Executive Committee and
Worldwide Chairman, Consumer Pharmaceuticals and Professional Group in 1994.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCK-
HOLDER MATTERS
The information called for by this item is incorporated herein by reference
to the material captioned "Management's Discussion and Analysis of Results of
Operations and Financial Condition--Common Stock Market Prices"and "Cash
Dividends Paid" on page 24 of Johnson & Johnson's Annual Report to Stockholders
for fiscal year 1995.
5
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ITEM 6. SELECTED FINANCIAL DATA
The information called for by this item is incorporated herein by reference
to the material captioned "Summary of Operations and Statistical Data 1985-1995"
on page 42 of Johnson & Johnson's Annual Report to Stockholders for fiscal year
1995.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information called for by this item is incorporated herein by reference
to the material captioned "Management's Discussion and Analysis of Results of
Operations and Financial Condition--Overview, Sales and Earnings, Costs and
Expenses, Liquidity and Capital Resources and Changing Prices and Inflation" on
pages 23 through 26 of Johnson & Johnson's Annual Report to Stockholders for
fiscal year 1995.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information called for by this item is incorporated herein by reference
to the consolidated financial statements and the notes thereto and the material
captioned "Independent Auditor's Report," on pages 29 through 40 of Johnson &
Johnson's Annual Report to Stockholders for fiscal year 1995.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information with respect to executive officers is presented at the end of
Part I hereof. Information with respect to directors is incorporated herein by
reference to the material captioned "Election of Directors-- Nominees" on pages
2 through 7 of Johnson & Johnson's Proxy Statement dated March 12, 1996.
ITEM 11. EXECUTIVE COMPENSATION
The information called for by this item is incorporated herein by reference
to the material captioned "Election of Directors--Directors' Fees, Committees
and Meetings" and "Executive Compensation" on pages 8 and 9, and 14 through 17
of Johnson & Johnson's Proxy Statement dated March 12, 1996.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information called for by this item is incorporated herein by reference
to the material captioned "General Information--Principal Stockholder" and
"Election of Directors--Stock Ownership/Control" on pages 2 and 8 of Johnson &
Johnson's Proxy Statement dated March 12, 1996.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable.
6
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
The financial statements to be included in this report are incorporated in
Part II, Item 8 hereof by reference to Johnson & Johnson's Annual Report to
Stockholders for fiscal year 1995.
2. Financial Statement Schedules
<TABLE>
<C> <S>
II Valuation and Qualifying Accounts
</TABLE>
Schedules other than those listed above are omitted because they are not
required or are not applicable.
3. Exhibits Required to be Filed by Item 60l of Regulation S-K
The information called for by this paragraph is incorporated herein by
reference to the Exhibit Index of this report.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the last quarter of 1995.
7
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JOHNSON & JOHNSON AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
FISCAL YEARS ENDED DECEMBER 31, 1995, JANUARY 1, 1995 AND JANUARY 2, 1994
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
DEDUCTIONS FROM RESERVES
ADDITIONS --------------------------------------------
BALANCE AT CHARGED BALANCE
BEGINNING TO COSTS AND AT END
OF PERIOD EXPENSES(A) DESCRIPTION AMOUNT OF PERIOD
----------- ------------- ------------------------- ------ ---------
<S> <C> <C> <C> <C> <C>
1995
Reserves deducted from
accounts receivable, trade
Reserve for doubtful Write-offs less
accounts............... $ 77 46 recoveries............... 15
Currency adjustments..... (1) 109
Reserve for customer Customer rebates
rebates................ 93 575 allowed.................. 553 115
Reserve for cash
discounts.............. 30 355 Cash discounts allowed... 351 34
----------- ------ ------ ---------
$ 200 976 918 258
========= ========== ====== =======
1994
Reserves deducted from
accounts receivable, trade
Reserve for doubtful Write-offs less
accounts............... $ 56 35 recoveries............... 17
Currency adjustments..... (3) 77
Reserve for customer Customer rebates
rebates................ 87 452 allowed.................. 447
Currency adjustments..... (1) 93
Reserve for cash
discounts.............. 27 276 Cash discounts allowed... 274
Currency adjustments..... (1) 30
----------- ------ ------ ---------
$ 170 763 733 200
========= ========== ====== =======
1993
Reserves deducted from
accounts receivable, trade
Reserve for doubtful Write-offs less
accounts............... $ 57 26 recoveries............... 24
Currency adjustments..... 3 56
Reserve for customer Customer rebates
rebates................ 60 406 allowed.................. 379 87
Reserve for cash
discounts.............. 26 245 Cash discounts allowed... 244 27
----------- ------ ------ ---------
$ 143 677 650 170
========= ========== ====== =======
</TABLE>
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(A) Charges related to customer rebates and cash discounts are reflected as
reductions of sales to customers.
8
<PAGE> 11
SIGNATURES
Pursuant to the requirements of Section 13 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.
Date: March 25, 1996 JOHNSON & JOHNSON
(Registrant)
By /s/ R. S. LARSEN
--------------------------------
R. S. Larsen, Chairman, Board of
Directors
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been duly signed by the following persons on behalf of the registrant
and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------- ------------------------------------ ---------------
<C> <S> <C>
/s/ R. S. LARSEN Chairman, Board of Directors and March 25, 1996
- ----------------------------------- Chief Executive Officer, and
R. S. Larsen Director (Principal Executive
Officer)
/s/ C. H. JOHNSON Vice President -- Finance and March 25, 1996
- ----------------------------------- Director (Principal Financial
C. H. Johnson Officer)
/s/ J. H. HEISEN Controller March 27, 1996
- -----------------------------------
J. H. Heisen
/s/ J. W. BLACK Director March 21, 1996
- -----------------------------------
J. W. Black
/s/ G. N. BURROW Director March 21, 1996
- -----------------------------------
G. N. Burrow
/s/ J. G. COONEY Director March 21, 1996
- -----------------------------------
J. G. Cooney
/s/ J. G. CULLEN Director March 27, 1996
- -----------------------------------
J. G. Cullen
/s/ P. M. HAWLEY Director March 22, 1996
- -----------------------------------
P. M. Hawley
/s/ A. D. JORDAN Director March 21, 1996
- -----------------------------------
A. D. Jordan
/s/ A. G. LANGBO Director March 27, 1996
- -----------------------------------
A. G. Langbo
</TABLE>
9
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<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------- ------------------------------------ ---------------
<C> <S> <C>
/s/ J. S. MAYO Director March 21, 1996
- -----------------------------------
J. S. Mayo
/s/ T. S. MURPHY Director March 22, 1996
- -----------------------------------
T. S. Murphy
/s/ P. J. RIZZO Director March 22, 1996
- -----------------------------------
P. J. Rizzo
/s/ M. F. SINGER Director March 22, 1996
- -----------------------------------
M. F. Singer
/s/ R. B. SMITH Director March 22, 1996
- -----------------------------------
R. B. Smith
/s/ R. N. WILSON Vice Chairman, Board of Directors March 25, 1996
- ----------------------------------- and Director
R. N. Wilson
</TABLE>
10
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REPORT OF INDEPENDENT AUDITORS
To the Stockholders and Board of Directors of
Johnson & Johnson:
Our report on the consolidated financial statements of Johnson & Johnson
and subsidiaries has been incorporated by reference in this Form 10-K from the
Johnson & Johnson 1995 Annual Report to Stockholders and appears on page 40
therein. In connection with our audits of such financial statements, we have
also audited the related financial statement schedule listed in the index in
Item 14 of this Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
/s/ COOPERS & LYBRAND L.L.P.
COOPERS & LYBRAND L.L.P.
New York, New York
January 23, 1996,
except for Note 20,
as to which the date is
February 23, 1996
11
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CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in Registration Statements No.
33-52252, 33-40294, 33-40295, 33-32875, 2-67443, 33-7634 and 033-59009 on Form
S-8, No. 33-55977 and 33-47424 on Form S-3 and No. 33-57583 and 333-00391 on
Form S-4 and related Prospectuses of our reports dated January 23, 1996, except
for Note 20, as to which the date is February 23, 1996, on our audits of the
consolidated financial statements and financial statement schedule of Johnson &
Johnson and subsidiaries as of December 31, 1995 and January 1, 1995, and for
each of the three years in the period ended December 31, 1995, which reports are
included or incorporated by reference in this Annual Report on Form 10-K.
/s/ COOPERS & LYBRAND L.L.P.
COOPERS & LYBRAND L.L.P.
New York, New York
March 28, 1996
12
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EXHIBIT INDEX
<TABLE>
<CAPTION>
REG. S-K
EXHIBIT TABLE DESCRIPTION
ITEM NO. OF EXHIBIT
- ------------- --------------------------------------------------------------------------------
<C> <S>
3(a) Certificate of Amendment to the Restated Certificate of Incorporation of the
Company and Restated Certificate of Incorporation, dated May 20,
1992 -- Incorporated herein by reference to Exhibit 3(a) of the Registrant's
Form 10-K Annual Report for the year ended January 3, 1993.
3(b) By-Laws of the Company, as amended April 26, 1990 -- Incorporated herein by
reference to Exhibit 3(b) of the Registrant's Form 10-K Annual Report for the
year ended January 3, 1993.
4(a) Upon the request of the Securities and Exchange Commission, the Registrant will
furnish a copy of all instruments defining the rights of holders of long term
debt of the Registrant.
10(a) 1995 Stock Option Plan (as amended) -- Filed with this document.*
10(b) 1991 Stock Option Plan -- Incorporated by reference to Registration Statement
No. 33-40294, Exhibit 4(a).*
10(c) 1986 Stock Option Plan (as amended) -- Incorporated herein by reference to
Exhibit 10(b) of the Registrant's Form 10-K Annual Report for the year ended
January 3, 1993.*
10(d) 1980 Stock Option Plan (as amended) -- Incorporated herein by reference to
Exhibit 10(d) of the Registrant's Form 10-K Annual Report for the year ended
January 3, 1993.*
10(e) 1995 Stock Compensation Plan -- Filed with this document.*
10(f) Domestic Deferred Compensation Plan -- Incorporated herein by reference to
Exhibit 10(g) of the Registrant's Form 10-K Annual Report for the year ended
January 3, 1993.*
10(g) Deferred Fee Plan for Directors (as amended) -- Filed with this document.*
10(h) Supplemental Retirement Plan -- Incorporated herein by reference to Exhibit
10(h) of the Registrant's Form 10-K Annual Report for the year ended January 3,
1993.*
10(i) Executive Life Insurance Plan -- Incorporated herein by reference to Exhibit
10(i) of the Registrant's Form 10-K Annual Report for the year ended January 3,
1993.*
11 -- Calculation of Earnings Per Share -- Filed with this document.
12 -- Statement of Computation of Ratio of Earnings to Fixed Charges -- Filed with
this document.
13 -- Pages 23-42 of the Company's Annual Report to Stockholders for fiscal year
1995 (only those portions of the Annual Report incorporated by reference in this
document are deemed "filed") -- Filed with this document.
21 -- Subsidiaries -- Filed with this document.
27 -- Financial Data Schedule for Year Ended December 31, 1995 -- Filed with this
document.
99 -- Form 11-K for the Johnson & Johnson Savings Plan to be filed on or before
June 30, 1996.
</TABLE>
- ---------------
* Management contracts and compensatory plans and arrangements required to be
filed as Exhibits to this form pursuant to Item 14(c) of the report.
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.
13
<PAGE> 1
EXHIBIT 10(a)
JOHNSON & JOHNSON
1995 STOCK OPTION PLAN
(EFFECTIVE APRIL 27, 1995, AS AMENDED NOVEMBER 30, 1995)
1. PURPOSE
The purpose of the Johnson & Johnson 1995 Stock Option Plan (the "Plan") is
to promote the interests of Johnson & Johnson (the "Company") by ensuring
continuity of management and increased incentive on the part of officers and
executive employees responsible for major contributions to effective management,
through facilitating their acquisition of an equity interest in the Company on
reasonable terms.
2. ADMINISTRATION
The Plan shall be administered by the Compensation Committee of the Board
of Directors (the "Committee"). The Committee shall consist of not less than
three directors. No person shall be eligible to serve as a member of such
Committee unless such person is a "disinterested person" within the meaning of
Rule 16b-3 of the General Rules and Regulations under the Securities Exchange
Act of 1934, as amended, and an "outside director" within the meaning of Section
162(m) of the Internal Revenue Code of 1986, as amended (the "Internal Revenue
Code"). Committee members shall not be eligible to participate in the Plan while
members of the Committee. It shall have the power to select optionees, to
establish the number of shares and other terms applicable to each such option,
to construe the provisions of the Plan, and to adopt rules and regulations
governing the administration of the Plan.
The Board of Directors, within its discretion, shall have authority to
amend the Plan and the terms of any option issued hereunder without the
necessity of obtaining further approval of the stockholders, unless such
approval is required by law.
3. ELIGIBILITY
Those eligible to participate in the Plan will be selected by the Committee
from the following:
(1) Directors who are employees of the Company or its domestic
subsidiaries (excluding members from time to time of the Committee).
(2) Officers and other key employees of the Company and its domestic
subsidiaries.
(3) Key employees of subsidiaries outside the United States.
(4) Key employees of a joint venture operation of the Company or its
subsidiaries and key employees of joint venture partners who are assigned
to such a joint venture.
In all cases, optionees shall be selected on the basis of demonstrated
ability to contribute substantially to the effective management of the Company.
In no event shall an option be granted to any individual who, immediately
after such option is granted, is considered to own stock possessing more than
10% of the combined voting power of all classes of stock of Johnson & Johnson or
any of its subsidiaries within the meaning of Section 422 of the Internal
Revenue Code.
1
<PAGE> 2
4. ALLOTMENT OF SHARES
A maximum of 28,000,000 authorized but unissued shares of the Common Stock
of the Company (par value $1.00) will be allotted to the Plan, subject to the
required approval by the stockholders. The total number of shares which may be
awarded under the Plan to any optionee in any one year shall not exceed 5% of
the total shares allotted to the Plan. The Committee may, in its discretion, use
Treasury shares in lieu of authorized but unissued shares for the options. To
the extent this is done, the number of authorized but unissued shares to be used
for the Plan will be reduced.
Shares covered by options which lapse or have been terminated during the
duration of this Plan may be reallocated by the Committee.
5. EFFECTIVE DATE AND TERM OF PLAN
The Plan shall become effective on April 27, 1995. No option shall be
granted pursuant to this Plan later than April 26, 2000, but options theretofore
granted may extend beyond that date in accordance with their terms.
6. TERMS AND CONDITIONS
A. All Options
The following shall apply to all options granted under the Plan:
(i) Option Price
The option price per share for each stock option shall be
determined by the Committee and shall not be less than the fair market
value on the date the option is granted. The fair market value shall be
determined as prescribed by the Internal Revenue Code and Regulations.
(ii) Time of Exercise of Option
The Committee shall establish the time or times within the option
period when the stock option may be exercised in whole or in such parts
as may be specified from time to time by the Committee. With respect to
an optionee whose employment has terminated by reason of death,
disability or retirement, the Committee may in its discretion accelerate
the time or times when any particular stock option held by said optionee
may be so exercised so that such time or times are earlier than those
originally provided in said option. In all cases exercise of a stock
option shall be subject to the provisions of Section 6B(ii) or 6C(iii),
as the case may be.
(iii) Payment
The entire option price may be paid at the time the option is
exercised. When an option is exercised prior to termination of
employment, the Committee shall have the discretion to arrange for the
payment of such price, in whole or in part, in installments. In such
cases, the Committee shall obtain such evidence of the optionee's
obligation, establish such interest rate and require such security as it
may deem appropriate for the adequate protection of the Company.
(iv) Non-Transferability of Option
Unless otherwise specified by the Committee to the contrary, an
option by its terms shall not be transferable by the optionee otherwise
than by will or by the laws of descent and distribution and
2
<PAGE> 3
shall be exercisable during the optionee's lifetime only by the
optionee. The Committee may, in the manner established by the Committee,
provide for the transfer, without payment of consideration, of a
non-qualified option by an optionee to a member of the optionee's
immediate family or to a trust or partnership whose beneficiaries are
members of the optionee's immediate family. In such case, the option
shall be exercisable only by such transferee. For purposes of this
provision, an optionee's "immediate family" shall mean the holder's
spouse, children and grandchildren.
(v) Adjustment in Event of Recapitalization of the Company
In the event of a reorganization, recapitalization, stock split,
stock dividend, combination of shares, merger, consolidation, rights
offering, or any other change in the corporate structure or shares of
the Company, the Board of Directors shall make such adjustment as it may
deem equitably required in the number and kind of shares authorized by
and for the Plan, in the number and kind of shares covered by the
options granted, in the number of shares which may be awarded to an
optionee in any one year, and in the option price.
B. Non-Qualified Stock Options
The Committee may, in its discretion, grant options under the Plan which,
in whole or in part, do not qualify as incentive stock options under Section 422
of the Internal Revenue Code. In addition to the terms and conditions set forth
in Section 6A above, the following terms and conditions shall govern any option
(or portion thereof) to the extent that it does not so qualify.
(i) Form of Payment
Payment of the option price of any option (or portion thereof) not
qualifying as an incentive stock option shall be made in cash or, in the
discretion of the Committee, in the Common Stock of the Company valued
at its fair market value (as the same shall be determined by the
Committee), or a combination of such Common Stock and cash.
(ii) Rights after Termination of Employment
In the event of termination of employment due to any cause
including death, disability or retirement, rights to exercise the stock
option shall cease, except for those which have accrued to the date of
termination, unless the Committee shall otherwise specify. These rights
shall remain exercisable for a period of three months, or such longer
period (not to exceed three years) as the Committee shall provide,
following termination for any cause other than death, disability or
retirement and for a period of three years following termination due to
death, disability or retirement, unless the Committee otherwise
specifies. The Committee may, in its discretion, extend the period
within which any particular option may be exercised beyond the
expiration date originally provided in said option. However, no stock
option shall, in any event, be exercised after the expiration of the
full term of the option.
(iii) Period of Option
The exercise period of each non-qualified stock option shall be
specified by the Committee at the time of grant.
C. Incentive Stock Options
The Committee may, in its discretion, grant options under the Plan which
qualify in whole or in part as incentive stock options under Section 422 of the
Internal Revenue Code. In addition to the terms and
3
<PAGE> 4
conditions set forth in Section 6A above, the following terms and conditions
shall govern any option (or portion thereof) to the extent that it so qualifies:
(i) Maximum Fair Market Value of Incentive Stock Options
The aggregate fair market value (determined as of the time such
option is granted) of the Common Stock for which any optionee may have
stock options which first became vested in any calendar year (under all
incentive stock option plans of the Company and its parent and
subsidiary corporations) shall not exceed $100,000.
(ii) Form of Payment
Payment of the option price for incentive stock options shall be
made in cash or in the Common Stock of the Company valued at its fair
market value (as the same shall be determined by the Committee), or a
combination of such Common Stock and cash. Where payment of the option
price is to be made with Common Stock acquired under a Company
compensation plan (within the meaning of paragraph 11(g) of Opinion No.
25 of the Accounting Principles Board), such Common Stock will not be
accepted as payment unless the optionee has beneficially owned such
Common Stock for at least six months (increased to one year if such
Common Stock was acquired under an incentive stock option) prior to such
payment.
(iii) Rights after Termination of Employment
In the event of termination of employment due to any cause
including death, disability or retirement, rights to exercise the stock
option shall cease, except for those which have accrued to the date of
termination, unless the Committee shall otherwise specify. These rights
shall remain exercisable for a period of three months, or such longer
period (not to exceed three years) as the Committee shall provide,
following termination for any cause other than death, disability or
retirement and for a period of three years following termination due to
death, disability or retirement, unless the Committee otherwise
specifies. However, no incentive stock option shall, in any event, be
exercised after the expiration of 10 years from the date such option is
granted, or such earlier date as may be specified in the option.
(iv) Period of Option
The exercise period of each incentive stock option by its terms
shall not be more than 10 years from the date the option is granted as
specified by the Committee.
4
<PAGE> 1
EXHIBIT 10(e)
JOHNSON & JOHNSON
1995 STOCK COMPENSATION PLAN
The Johnson & Johnson 1995 Stock Compensation Plan (the "Plan") provides,
in general, for the awarding of shares of Common Stock of Johnson & Johnson
(the "Company") to employees of the Company (including executive officers and
officers), its subsidiaries and affiliates, both in the United States and
abroad. The Plan continues a practice of the Company which began in 1922. An
award is by way of a bonus to the employees and is not regarded as part of the
employee's regular compensation. The Plan, in the judgement of the Board of
Directors, promotes the interests of the Company by insuring continuity of
management and increased incentive on the part of the participants by insuring
their acquisition of an equity interest in the Company and by providing an
adequate overall compensation level.
The Common Stock to be distributed in the operation of the Plan will not
exceed 4,000,000 shares of the Company's authorized but unissued shares (to be
reduced in all events by the number of Treasury shares used for the Plan).
Stockholders have no preemptive rights with regard to these shares.
Participants are to be selected by the Board of Directors of the Company
from the group of key management personnel, generally at the supervisor level
and above, and sales personnel of the Company and its domestic and
international subsidiaries and affiliates. Under certain conditions, and with
the approval of the Management Compensation Committee of the Company, or its
delegate, awards may be granted to employees not meeting the above criteria.
Participants are to be selected on the basis of demonstrated ability and
potential to contribute substantially to the Company's success.
Subject to the approval of stockholders of the Company, the Plan shall
become effective April 27, 1995. The term of the Plan expires on April 26,
2000. The Plan does not provide any maximum on the number of shares which can
be awarded to an employee.
The Board of Directors, or a committee appointed thereby, shall have full
power and authority to administer the Plan, including the authority to select
participants and to determine the number of shares to be awarded to each
participant. In the event of a reorganization, recapitalization, stock split,
stock dividend or any other change in the corporate structure or shares of the
Company, the Board of Directors shall make such adjustment as it may deem
equitably required in the number and kind of shares authorized by and for the
Plan.
<PAGE> 1
EXHIBIT 10(g)
Amended as of
January 1, 1995
JOHNSON & JOHNSON
DEFERRED FEE PLAN FOR DIRECTORS
1. Purpose. The purpose of the Johnson & Johnson Deferred Fee Plan
for Directors (the "Plan") is to provide outside Directors of Johnson & Johnson
(the "Company") the opportunity to defer receipt of compensation earned as a
Director to a date following termination of such service. The provision of
such an opportunity is designed to aid the Company in attracting and retaining
as members of its Board of Directors persons whose abilities, experience and
judgment can contribute to the well being of the Company.
2. Effective Date. The effective date of the Plan was January 1,
1983. The Plan was amended in its entirety, effective as of January 1, 1995.
3. Eligibility. Any Director of the Company who is not also an
Employee of the Company or any related company shall participate in the Plan.
4. Deferred Compensation Account. A deferred compensation account
shall be established for each Director.
5. Amount of Deferral. Each participant shall be required to defer
receipt of Fifteen Thousand Dollars ($15,000.) of his/her annual fee for
serving on the Board of Directors (the "Required Deferral"). In addition, a
participant may elect to defer receipt of all or a specified part of any
remaining compensation payable to the participant for serving on the Board of
Directors or for serving on committees of the Board of Directors of the
Company. An amount equal to all deferred compensation will be credited to the
participant's deferred compensation account as of the 15th day of the month in
which such compensation is payable (the "Payment Date").
6. Deferred Compensation Account - Hypothetical
Investment Options.
(a) All Required Deferrals and, unless otherwise specified by the
participant pursuant to the terms of paragraph (b) of this Section 6, all
amounts elected to be deferred under this Plan for any calendar year shall be
credited to the participant's deferred compensation account, converted into
equivalent units of
<PAGE> 2
2
Johnson & Johnson Common Stock ("Company Stock") and adjusted as if the
compensation deferred had been invested in Company Stock as of the Payment
Date, until the date of final payment pursuant to Section 9 hereof ("Company
Stock Equivalent Units"). The number of Company Stock Equivalent Units shall
be determined by dividing the amount of compensation payable by the average of
the high and low price of the Company Stock on the Payment Date, as reported by
the Wall Street Journal. The number of Company Stock Equivalent Units included
in a participant's deferred compensation account shall be adjusted to reflect
dividends and the value of such account shall be adjusted to reflect increases
or decreases in market value which would have resulted had funds equal to the
balance of the participant's deferred compensation account been invested in
Company Stock. Nothing herein obligates the Company to purchase any such
Company Stock; and if such Company Stock is purchased, it shall remain the sole
property of the Company.
(b) Except with respect to the Required Deferral amount, at the
election of each participant, to be made as provided for in Section 7, each
deferred compensation account will be credited with interest from the Payment
Date, until the date of final payment pursuant to Section 9 hereof, at a rate
equal to the annual rate of growth of investment in the Johnson & Johnson
Domestic Deferred Compensation Plan (the "CEC Plan"), for the prior year
provided, however, that the computation of said growth rate shall not include
dividend equivalents paid under the CEC Plan. The election permitted under
this Section 6(b) shall not be available to any participant who becomes a
participant in the Plan after December 31, 1995.
(c) With respect to Company Stock Equivalent Units in a deferred
compensation account, the Company shall credit such account on each dividend
payment date declared with respect to the Company's Stock, a number of Company
Stock Equivalent Units equal to: (i) the product of (y) the dividend per share
of the Company's Stock which is payable as of the dividend payment date,
multiplied by (z) the number of Company Stock Equivalent Units credited to such
account as of the applicable dividend record date, divided by (ii) the average
of the high and low price of the Company Stock on the dividend payment date as
reported by the Wall Street Journal. Fractional Company Stock Equivalent Units
shall be carried forward and fractional dividend equivalent units shall be
payable thereon.
(d) All account balances in Company Stock Equivalent Units from the
Company's Retirement Plan for Nonemployee Directors which have been transferred
to his/her deferred compensation account under this Plan, as of January 1,
1995, by reason of the termination of such Retirement Plan, shall be treated
for purposes of this Plan as Required Deferrals.
<PAGE> 3
3
7. Time of Election of Deferral. Except as to Required Deferrals,
which shall at all times be held in Company Stock Equivalent Units, a
participant may change (i) the amount of compensation deferred and/or (ii) the
option elected under Section 6 with respect to his/her account and deferrals
for subsequent years, once annually in December by completing forms provided by
the Company for that purpose. Any such change shall become effective on
January 1 of the following year. If a participant elects to change his/her
investment option available under Section 6, the participant's account shall be
valued as of December 31 with that value being entered into his/her account
under the new investment option as of the following January 1 (except if such
change is to Company Stock Equivalent Units, the first trading day following
such January 1 shall be used).
8. Value of Deferred Compensation Account. The value of each
participant's deferred compensation account shall, as the case may be, include
compensation deferred, interest credited thereon, if any, and any adjustments
for dividends, and increases or decreases in the market value of Company Stock,
pursuant to the option selected under Section 6 or as otherwise required under
the Plan. If the Company Stock does not trade on any date a calculation of
Common Stock Equivalent Units is to be made hereunder, the next preceding date
on which such stock was traded shall be utilized.
9. Payment of Deferred Compensation. Upon ceasing to be a member
of the Board of Directors, each participant (or in the event of the
participant's death, the named beneficiary) shall be entitled to receive in
cash in a lump sum the value of his/her deferred compensation account as of the
date of such termination. Company Stock Equivalent Units shall be valued at
the average of the high and low price of the Company's Stock on such date as
reported by the Wall Street Journal. No withdrawal may be made from the
participant's deferred compensation account prior to termination of the
participant's service as a Director. The value of a participant's deferred
compensation account shall be paid as soon as practicable following the
termination of said service or death.
10. Designation of Beneficiary. Each participant may, from time to
time, by writing filed with the Secretary of the Company, designate any legal
or natural person or persons (who may be designated contingently or
successively) to whom payments of a participant's deferred compensation
account are to be made if a participant dies prior to the receipt of payment
of such account. A beneficiary designation will be effective only if the
signed form is filed with the Secretary of the Company while the participant is
alive and will cancel all beneficiary designation forms filed earlier. If a
participant fails to designate a beneficiary as provided above, or if all
designated beneficiaries die before the participant or before complete payment
of the deferred compensation
<PAGE> 4
4
account, such account shall be paid to the estate of the last to die of the
participant and designated beneficiaries as soon as practicable after such
death.
11. Participant's Rights Unsecured. The right of any participant
to receive payment under the provisions of the Plan shall be an unsecured claim
against the general assets of the Company, and no provisions contained in the
Plan shall be construed to give any participant or beneficiary at any time a
security interest in any deferred compensation account or any other asset in
trust with the Company for the benefit of any participant or beneficiary.
12. Statement of Account. A statement will be sent to participants
as soon as practical following the end of each year as to the value of his/her
deferred compensation account as of December 31 of such year.
13. Assignability. No right to receive payments hereunder shall be
transferable or assignable by a participant or a beneficiary, except by will or
by the laws of descent and distribution.
14. Administration of the Plan. The Plan shall be administered by
a Committee appointed by and responsible to the Board of Directors. The
Committee shall consist of three officers of the Company. The Committee shall
act by vote or written consent of a majority of its members.
15. Amendment or Termination of Plan. This Plan may at any time
or from time to time be amended, modified or terminated by the Board of
Directors of the Company. No amendment, modification or termination shall,
without the consent of a participant, adversely affect such participant's
accruals in his deferred compensation accounts.
16. Governing Law. This Agreement shall be governed by and
construed in accordance with the Laws of the State of New Jersey.
<PAGE> 1
EXHIBIT 11
JOHNSON & JOHNSON AND SUBSIDIARIES
CALCULATION OF EARNINGS PER SHARE(A)
(DOLLARS AND SHARES IN MILLIONS EXCEPT PER SHARE FIGURES)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
----------------------------------------------------------------------
DECEMBER 31, JANUARY 1, JANUARY 2, JANUARY 3, DECEMBER 29,
1995 1995 1994 1993 1991
------------ ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
1. Net Earnings...................... $2,403 2,006 1,787 1,030 1,461
------------ ---------- ------ ------ ------
2. Average number of shares
outstanding during the year....... 645.9 643.1 651.7 659.5 666.1
------------ ---------- ------ ------ ------
3. Earnings per share based upon
average outstanding shares (1 /
2)................................ $ 3.72 3.12 2.74 1.56 2.19
========== ======== ========== ========== ==========
4. Fully diluted earnings per share:
a. Average number of shares
outstanding during the
year......................... 645.9 643.1 651.7 659.5 666.1
b. Shares issuable under stock
compensation agreements at
year-end..................... -- .1 .3 .7 .8
c. Shares reserved under the
stock option plans for which
the market price at fiscal
year-end exceeds the option
price........................ 31.4 35.9 29.0 26.9 29.0
d. Aggregate proceeds to the
Company from the exercise of
options in 4c................ 1,551 1,499 998 894 902
e. Market price of the Company's
common stock at fiscal
year-end..................... 85.50 54.75 44.88 50.50 57.25
f. Shares which could be
repurchased under the
treasury stock method
(4d / 4e)..................... 18.1 27.4 22.2 17.7 15.8
g. Addition to average
outstanding shares(4b + 4c -
4f).......................... 13.3 8.6 7.1 9.9 14.0
h. Shares for fully diluted
earnings per share
calculation(4a + 4g)......... 659.2 651.7 658.8 669.4 680.1
========== ======== ========== ========== ==========
i. Fully diluted earnings per
share
(1 / 4h)...................... $ 3.65 3.08 2.71 1.54 2.15
========== ======== ========== ========== ==========
</TABLE>
- ---------------
(A) All share and per share amounts have been adjusted for the two-for-one stock
split in 1992.
14
<PAGE> 1
EXHIBIT 12
JOHNSON & JOHNSON AND SUBSIDIARIES
STATEMENT OF COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES(1)
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
------------------------------------------------------------------------------
DECEMBER 31, JANUARY 1, JANUARY 2, JANUARY 3, DECEMBER 29,
1995 1995 1994 1993 1991
------------ ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Determination of Earnings:
Earnings Before Provision
for Taxes on Income and
Cumulative Effect of
Accounting Changes...... $3,317 2,681 2,332 2,207 2,038
Fixed Charges.............. 219 234 211 210 209
------------ ---------- ------ ------ ------
Total Earnings as
Defined.......... $3,536 2,915 2,543 2,417 2,247
========== ======= ========== ========== ==========
Fixed Charges and Other:
Rents...................... $ 76 92 85 86 80
Interests.................. 143 142 126 124 129
------------ ---------- ------ ------ ------
Fixed Charges...... 219 234 211 210 209
Capitalized Interest....... 70 44 48 53 46
------------ ---------- ------ ------ ------
Total Fixed
Charges.......... $ 289 278 259 263 255
========== ======= ========== ========== ==========
Ratio of Earnings to Fixed
Charges.................... 12.24 10.49 9.82 9.19 8.81
========== ======= ========== ========== ==========
</TABLE>
- ---------------
(1) The ratio of earnings to fixed charges represents the historical ratio of
the Company and is calculated on a total enterprise basis. The ratio is
computed by dividing the sum of earnings before provision for taxes and
fixed charges (excluding capitalized interest) by fixed charges. Fixed
charges represent interest (including capitalized interest) and amortization
of debt discount and expense and the interest factor of all rentals,
consisting of an appropriate interest factor on operating leases.
15
<PAGE> 1
================================================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
- --------------------------------------------------------------------------------
OVERVIEW
Record sales of $18.84 billion reinforced the Company's position as the largest
and most comprehensive health care company in the world. Worldwide sales
increased for the sixty-third consecutive year, growing $3.11 billion or 19.8%
over 1994, primarily due to volume, with a total price increase of only .2%.
This year's volume growth was primarily the result of new product introductions
and the continued expansion of base businesses.
Growth through new products is being driven by the Company's commitment to
investing in research and development. During 1995, $1.63 billion was invested
in research and development, the highest level in the Company's history,
emphasizing its commitment to achieving significant advances in health care
through the discovery and development of innovative, cost effective products
that prolong and enhance the quality of life. In addition to the research and
development effort, strategic acquisitions have also enabled the Company to
achieve gains in sales.
During 1995, the Company continued initiatives to streamline its businesses
worldwide and to make the organization more cost effective. These initiatives,
implemented during the last few years, have increased productivity and are
showing positive results. The Company views the reengineering effort as a
continuous process, and one that is essential to compete effectively and to
constrain price increases while providing resources for investing in
advertising, marketing and research and development.
The continued growth in sales and increased profitability during 1995
resulted in a 19.2% increase in earnings per share to $3.72.
Earnings in 1995 generated $3.38 billion in cash from operations. When
combined with $2.98 billion of cash generated from operations in 1994, the $6.36
billion in cash from operations financed capital investments and acquisitions
during the past two years, and reduced net debt (debt net of cash and current
marketable securities) by 44.9% since 1993 to $1.06 billion.
In the U.S. and in countries around the world, health care systems continue
to be transformed. The Company feels that it is well positioned to take
advantage of these changes due to its diversification in health care, global
reach, development of cost effective unique new products, decentralized
management, dedicated employees and strong Credo values.
SALES AND EARNINGS
In 1995, worldwide sales increased 19.8% to $18.84 billion compared to increases
of 11.3% and 2.8% in 1994 and 1993, respectively. Excluding the impact of the
relatively weaker dollar in 1995 and 1994, and the relatively stronger dollar in
1993, compared to international currencies, worldwide sales increased 16.7%,
10.7% and 7% in 1995, 1994 and 1993, respectively.
CHART 1: Bar graph showing Sales to customers for years 1986 through 1995.
See appendix for a complete description.
Worldwide net earnings totaled $2.4 billion, or $3.72 per share, reflecting
increases of 19.8% and 19.2% over 1994, respectively. The income margin for 1995
was 12.8%, the highest in the Company's history, despite an increase of over two
percentage points in the effective tax rate over 1994.
Worldwide net earnings for 1994 were $2.01 billion, or $3.12 per share,
representing increases of 12.3% and 13.9% over 1993, respectively. In 1993,
worldwide net earnings of $1.79 billion, or $2.74 per share, increased 10% and
11.4% over 1992, excluding the 1992 one-time charge for the adoption of three
new accounting standards for postretirement benefits, postemployment benefits
and income taxes.
Average shares of common stock outstanding in 1995 were 645.9 million
compared with 643.1 million and 651.7 million in 1994 and 1993, respectively.
CHART 2: Bar graph showing Net Earnings for the years 1986 through 1995.
See appendix for a complete description.
Sales by domestic companies were $9.19, $7.81 and $7.2 billion in 1995, 1994
and 1993, representing increases of 17.6%, 8.5% and 4.3%, respectively. The
increase in domestic sales in 1995 was the result of new product launches as
well as continued growth of base businesses.
Sales by international companies were $9.65, $7.92 and $6.94 billion in 1995,
1994 and 1993, representing increases of 21.8%, 14.2% and 1.2%, respectively.
All geographic areas throughout the world posted strong gains during 1995. Sales
in Europe increased 23.7%, while revenues in the Asia-Pacific, Africa region and
the Western Hemisphere (excluding the U.S.) increased 23.1% and 14.6%,
respectively. Excluding the impact of the relatively weaker dollar in 1995 and
1994 and the stronger dollar in 1993, compared to international currencies,
international company sales increased 15.6%, 13% and 9.6% in 1995, 1994 and
1993, respectively.
23
<PAGE> 2
================================================================================
The Company achieved an annual compound growth rate of 11.4% for worldwide
sales for the ten-year period since 1985 with domestic and international sales
growing at rates of 8.7% and 14.8%, respectively. For the same ten-year period,
worldwide net earnings achieved an annual growth rate of 14.6%, while earnings
per share grew at a rate of 16%. For the last five years, annual compound growth
rates for sales, net earnings and earnings per share were 10.9%, 16% and 16.7%,
respectively.
COMMON STOCK MARKET PRICES
The Company's common stock is listed on the New York Stock Exchange under the
symbol JNJ. The approximate number of stockholders of record at year-end 1995
was 113,500. The composite market price ranges for Johnson & Johnson common
stock during 1995 and 1994 were:
<TABLE>
<CAPTION>
1995 1994
- --------------------------------------------------------------------------------
HIGH LOW High Low
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
First quarter $63 53 5/8 45 3/4 36
Second quarter 71 1/4 58 3/8 44 5/8 36 1/4
Third quarter 74 7/8 64 3/8 52 3/8 42 1/4
Fourth quarter 92 3/8 73 1/8 56 1/2 49 1/2
Year-end close 85 1/2 54 3/4
</TABLE>
CASH DIVIDENDS PAID
The Company increased its dividend in 1995 for the thirty-third consecutive
year. Cash dividends paid were $1.28 per share in 1995 and $1.13 per share in
1994, an increase of 13.3% and 11.9% over 1994 and 1993, respectively. The
dividends were distributed as follows:
<TABLE>
<CAPTION>
1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
First quarter $ .29 .26 .23
Second quarter .33 .29 .26
Third quarter .33 .29 .26
Fourth quarter .33 .29 .26
--------------------------------
Total $1.28 1.13 1.01
================================
</TABLE>
On January 2, 1996, the Board of Directors declared a regular cash dividend of
$.33 per share, paid on March 12, 1996 to stockholders of record on February 20,
1996.
The Company expects to continue the practice of paying regular cash
dividends.
CHART 3: Bar graph showing Net Earnings Per Share and Cash Dividends Paid Per
Share for the years 1986 through 1995. See appendix for a complete
description.
COSTS AND EXPENSES
The percentage relationships of costs and expenses to sales for 1995, 1994 and
1993 were:
<TABLE>
<CAPTION>
1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Employment costs 25.0% 27.2% 28.8%
Cost of materials
and services 52.3 50.6 49.7
Depreciation and
amortization of
property and
intangibles 4.5 4.6 4.4
Taxes other than
payroll 5.4 4.9 4.5
</TABLE>
CHART 4: Pie chart showing Distribution of Sales Revenue for 1995.
See appendix for a complete description.
Research activities represent a significant part of the Company's business.
These expenditures relate to the development of new products, improvement of
existing products, technical support of products and compliance with
governmental regulations for the protection of the consumer. Worldwide costs of
research activities were as follows:
<TABLE>
<CAPTION>
(Dollars in Millions) 1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Research expense $1,634 1,278 1,182
Percent increase over
prior year 27.9% 8.1% 4.9%
Percent of sales 8.7 8.1 8.4
</TABLE>
Research expense as a percent of sales for the Pharmaceutical segment was 15.3%,
14.9% and 15.2% in 1995, 1994 and 1993, respectively, while averaging 5.4%, 4.8%
and 5.2% in the other two segments.
CHART 5: Bar graph showing Research Expense for the years 1986 through 1995.
See appendix for a complete description.
24
<PAGE> 3
================================================================================
Advertising expenses worldwide, which are comprised of television, radio and
print media, were $1.03 billion in 1995, $800 million in 1994 and $753 million
in 1993. Additionally, significant expenditures were incurred for promotional
activities such as couponing and performance allowances.
The Company believes that its operations comply in all material respects with
applicable environmental laws and regulations. The Company or its subsidiaries
are parties to a number of proceedings brought under the Comprehensive
Environmental Response, Compensation, and Liability Act, commonly known as
Superfund, and comparable state laws, in which the primary relief sought is the
cost of past and future remediation. While it is not feasible to predict or
determine the outcome of these proceedings, in the opinion of the Company, such
proceedings would not have a material adverse effect on the results of
operations, cash flows or financial position of the Company.
Worldwide sales do not reflect any significant degree of seasonality;
however, spending has been heavier in the fourth quarter of each year than in
other quarters. This reflects increased spending decisions, principally for
advertising and research grants.
The worldwide effective income tax rate was 27.6% in 1995, 25.2% in 1994 and
23.4% in 1993. See page 33 for additional information.
For 1995, the Company has subsidiaries operating in Puerto Rico under a grant
for tax relief expiring December 31, 2007. The Omnibus Budget Reconciliation Act
of 1993 included 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. In addition, the Company has subsidiaries manufacturing in
Ireland under an incentive tax rate expiring on December 31, 2010.
A summary of operations and related statistical data for the years 1985 -
1995 can be found on page 42.
LIQUIDITY AND CAPITAL RESOURCES
Cash generated from operations and selected borrowings provide the major sources
of funds for the growth of the business, including working capital, additions to
property, plant and equipment and acquisitions. Cash and current marketable
securities totaled $1.36 billion at the end of 1995 as compared with $704
million at the end of 1994.
Total unused credit available to the Company approximates $3.4 billion,
including $1.2 billion of credit commitments with various worldwide banks, $800
million of which expires on October 4, 1996 and $400 million on October 6, 2000.
During 1995, the Company did not issue any long-term public debt. At December
31, 1995, the Company had $2.29 billion remaining on its shelf registration,
which was filed for $2.59 billion in October 1994. A summary of borrowings can
be found on page 33.
Total borrowings at the end of 1995 and 1994 were $2.43 billion and $3.1
billion, respectively. In 1995 and 1994, net debt (debt net of cash and current
marketable securities) was 10.5% and 25.2% of net capital (stockholders' equity
and net debt), respectively. Total debt represented 21.2% and 30.3% of total
capital (stockholders' equity and total debt) in 1995 and 1994, respectively.
Stockholders' equity per share at the end of 1995 was $13.97 compared with
$11.08 at year-end 1994, an increase of 26.1%.
Financial instruments are used to manage interest rate and foreign exchange
risks. The Company does not enter into derivative financial instruments for
trading or speculative purposes. The principal financial instruments used are
forward exchange contracts and interest rate swaps. Management believes that
the risk of incurring losses related to these instruments is remote and that
such losses, if any, would be immaterial. See page 37 for additional
information.
Additions to property, plant and equipment amounting to $1,256, $937 and $975
million in 1995, 1994 and 1993, respectively, were made primarily to increase
the capacity of facilities for existing and new products. The Company intends to
continue this level of investment to support the business operations. No
material commitments for capital expenditures were outstanding at the end of
1995.
Statement of Financial Accounting Standard (SFAS) No. 121, "Accounting for
the Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of,"
requires that long-lived assets be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of the asset in
question may not be recoverable. The new standard, which will be adopted in
1996, will not have an effect on the Company's results of operations, cash flows
or financial position as the Company's current policy is similiar, in all
material aspects, to SFAS No. 121.
During 1995, 1994 and 1993, certain businesses were acquired amounting to
$456 ($154 million in cash and 4,656,000 shares of the Company's common stock
issued from treasury valued at $302 million), $1,932 and $266 million,
respectively. See page 38 for additional information.
The Company annually repurchases a sufficient amount of its common stock in
the open market to replace shares issued under various employee stock plans.
During 1995, the Company repurchased 4.6 million shares of its common stock at a
total cost of $322 million for use in the Company's employee benefit plans; 1994
and 1993 repurchases for this purpose totaled 3.8 million and 3.0 million shares
at a cost of $185 million and $132 million, respectively. In 1993, the Company
also repurchased 12.4 million shares of its common stock for general corporate
purposes at a cost of $500 million.
Statement of Financial Accounting Standard No. 123, "Accounting for
Stock-Based Compensation," requires companies to measure employee stock
compensation plans based on the fair value method of accounting. However, the
statement allows the alternative of continued use of Accounting Principles Board
(APB) Opinion No. 25, "Accounting for Stock Issued to Employees," with pro forma
disclosure of net income and earnings per share determined as if the fair value
based method had been applied in measuring compensation cost. The Company will
adopt the new standard in 1996 and expects to elect the continued use of APB
Opinion No. 25. Pro forma disclosure is expected to be immaterial.
25
<PAGE> 4
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CHANGING PRICES AND INFLATION
Johnson & Johnson is aware that its products are used in a setting where, for
more than a decade, policy makers, consumers and businesses have expressed
concern about the rising cost of health care. In response to these concerns,
Johnson & Johnson has a long standing policy of pricing products responsibly.
For the period 1980-1994, in the United States, the weighted average compound
growth rate of Johnson & Johnson's price increases for health care products
(prescription and over-the-counter drugs, hospital and professional products)
was below the U.S. Consumer Price Index (CPI) for the period. This was true
again in 1995.
Inflation rates, even though moderate in many parts of the world during 1995,
continue to have an effect on worldwide economies and, consequently, on the way
companies operate. In the face of increasing costs, the Company strives to
maintain its profit margins through cost reduction programs, productivity
improvements and timely price increases.
SEGMENTS OF BUSINESS
Financial information for the Company's three worldwide business segments is
summarized below. Refer to page 41 for additional information on segments of
business.
Chart 6: Bar graph Showing Sales by Segment of Business for the years 1993
through 1995. See appendix for a complete description.
<TABLE>
<CAPTION>
SALES Increase
----------------
(Dollars in Millions) 1995 1994 Amount Percent
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Consumer $ 5,831 5,251 580 11.0%
Pharmaceutical 6,274 5,158 1,116 21.6
Professional 6,737 5,325 1,412 26.5
----------------------------
Worldwide total $18,842 15,734 3,108 19.8%
============================
</TABLE>
Chart 7: Bar graph showing Operating Profit by Segment of Business for the
years 1993 through 1995. See appendix for a complete description.
<TABLE>
<CAPTION>
OPERATING PROFIT Percent of Sales
----------------
(Dollars in Millions) 1995 1994 1995 1994
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Consumer $ 298 443 5.1% 8.4%
Pharmaceutical 2,073 1,669 33.0 32.4
Professional 1,203 843 17.9 15.8
----------------
Segments total 3,574 2,955 19.0 18.8
Expenses not
allocated to
segments (257) (274) (1.4) (1.8)
----------------
Earnings before taxes
on income $3,317 2,681 17.6% 17.0%
================
</TABLE>
CONSUMER
The Consumer segment's principal products are personal care and hygienic
products, including oral and baby care products, first aid products,
nonprescription drugs, sanitary protection products and adult incontinence
products. Major brands include ACT Fluoride Rinse; BAND-AID Brand Adhesive
Bandages; CAREFREE Panty Shields; CLEAN & CLEAR skin care products; IMODIUM A-D,
an antidiarrheal; JOHNSON'S Baby line of products; MONISTAT 7, a remedy for
vaginal yeast infections; MYLANTA gastrointestinal products and PEPCID AC Acid
Controller from the Johnson & Johnson - Merck Consumer Pharmaceuticals Co.;
NEUTROGENA skin and hair care products; `o.b.' Tampons; PEDIACARE children's
cold and allergy medications; PENATEN and NATUSAN baby care products; PIZ BUIN
and SUNDOWN sun care products; REACH toothbrushes; RoC skin care products;
SERENITY incontinence products; SHOWER TO SHOWER personal care products;
STAYFREE and SURE & NATURAL sanitary protection products; and the broad family
of TYLENOL acetaminophen products. These products are marketed principally to
the general public and distributed both to wholesalers and directly to
independent and chain retail outlets.
Consumer segment sales in 1995 were $5.83 billion, an increase of 11% over
1994. Sales by domestic companies accounted for 49% of the total segment, while
international companies accounted for 51%. Growth was led by the addition of the
Neutrogena line of high quality hair and skin care products, which was acquired
in the third quarter of 1994; the U.S. launch of PEPCID AC Acid Controller, by
Johnson & Johnson - Merck Consumer Pharmaceuticals Co., and the continued growth
in international markets, most notably Brazil. In addition to PEPCID AC,
Children's MOTRIN, a nonprescription children's fever and pain reliever that
lasts up to eight hours, was introduced as an over-the-counter product.
Consumer segment sales in 1994 were $5.25 billion, an increase of 8.9% over
1993. Sales by domestic companies accounted for 51.3% of the total segment,
while international companies accounted for 48.7%. The worldwide Consumer
segment sales increase included the acquisitions of RoC S.A. in late 1993 and
Neutrogena at the end of the third quarter of 1994. Additionally, new products
such as TYLENOL Extended Relief, MYLANTA Soothing Lozenges, the ARTHRITIS
FOUNDATION line of pain relievers and
26
<PAGE> 5
================================================================================
JOHNSON'S HEALTHFLOW Infant Feeding System were introduced during the year.
Consumer segment sales were $4.82 billion in 1993. Sales by domestic
companies accounted for 54.5% of the total segment and international
subsidiaries accounted for 45.5%. Domestic Consumer sales growth was slowed by a
sluggish retail environment and fierce competition faced by MONISTAT 7.
International Consumer sales reflected improvements in Latin America, Asia and
Africa, which reduced the substantial decline in the U.S. dollar value of sales
from European operations.
Acquisitions and divestitures during 1995 and 1994 are described in more
detail on page 38.
PHARMACEUTICAL
The Pharmaceutical segment represents over 50% of operating profit for all
segments. The Pharmaceutical segment's principal worldwide franchises are in the
allergy, antifungal, biotech, central nervous system, contraceptive,
dermatology, gastrointestinal and immunobiology fields. These products are
distributed both directly and through wholesalers for use by health care
professionals and the general public.
Prescription drugs include DURAGESIC, a transdermal patch for chronic pain;
EPREX (sold in the U.S. as PROCRIT), a biotechnology derived version of the
human hormone erythropoietin, which stimulates red blood cell production;
ERGAMISOL, a colon cancer drug; FLOXIN, an antibacterial; HISMANAL, the
once-a-day less sedating antihistamine; IMODIUM, an antidiarrheal; LEUSTATIN,
for hairy cell leukemia; MOTILIUM, a gastrointestinal mobilizer; NIZORAL,
SPORANOX and TERAZOL, antifungals; ORTHOCLONE OKT-3, for reversing the rejection
of kidney, heart and liver transplants; ORTHO-NOVUM group of oral
contraceptives; PREPULSID (sold in the U.S. as PROPULSID), a gastrointestinal
prokinetic; RETIN-A, a dermatological cream for acne; RISPERDAL, an
antipsychotic drug; and ULTRAM, a new centrally acting prescription analgesic
for moderate to moderately severe pain.
Johnson & Johnson markets more than 90 prescription drugs around the world,
with 57% of the sales generated outside the United States. Twenty-seven drugs
sold by the Company had 1995 sales in excess of $50 million, with 19 of them in
excess of $100 million.
Pharmaceutical segment sales in 1995 were $6.27 billion, an increase of 21.6%
over 1994. Domestic sales advanced 25.9%, while international sales rose 18.6%.
The worldwide sales growth reflects the outstanding performances of RISPERDAL,
PROPULSID, SPORANOX, DURAGESIC and PROCRIT. Additionally, ULTRAM, launched in
late March, was also an important contributor to sales growth.
Pharmaceutical segment sales in 1994 were $5.16 billion, an increase of 14.9%
over 1993. Domestic sales advanced 20.7%, while international sales rose 11%.
The worldwide sales increase was attributed to the outstanding February, 1994
launch of RISPERDAL and the continued strong growth of PROPULSID, first
introduced in late 1993. The sales increase was also led by the strong growth of
EPREX, PROCRIT, SPORANOX, DURAGESIC and FLOXIN.
In 1993, Pharmaceutical segment sales increased 3.5% over 1992, to $4.49
billion. This growth was led by sales gains from PREPULSID, PROPULSID, SPORANOX,
EPREX, PROCRIT, FLOXIN, LEUSTATIN and DURAGESIC. Domestic Pharmaceutical sales
advanced 7.4%, while international sales were negatively impacted by the
strength of the U.S. dollar relative to international currencies as well as the
pressure on pharmaceutical prices in Germany and Italy.
Significant research activities continued in Pharmaceutical segment
companies, increasing to $961 million in 1995, or $194 million over 1994. This
represents 15.3% of 1995 Pharmaceutical sales and a compound growth rate of 16%
for the ten-year period since 1985.
Pharmaceutical research is led by two worldwide organizations, Janssen
Research Foundation headquartered in Belgium and the R.W. Johnson Pharmaceutical
Research Institute headquartered in the United States. Other research involves
collaborations with the Scripps Clinic and Research Foundation in La Jolla,
California and the James Black Foundation in London, England.
PROFESSIONAL
The Professional segment includes suture and mechanical wound closure products,
less invasive surgical instruments, diagnostic products, medical equipment and
devices, disposable contact lenses, surgical instruments, joint replacements and
products for wound management and infection prevention. These products are used
principally in the professional fields by physicians, dentists, nurses,
therapists, hospitals, diagnostic laboratories and clinics. Distribution to
these markets is done both directly and through surgical supply and other
dealers.
In 1995, Professional segment sales increased 26.5% over 1994, to $6.74
billion. Strong sales growth continued to be fueled by the rapid market
acceptance of the PALMAZ-SCHATZ Coronary Stent due to its efficiency in reducing
restenosis, or recurring blockage of coronary arteries following balloon
angioplasty. LifeScan's blood glucose monitoring systems, Vistakon's disposable
contact lenses, Ethicon Endo-Surgery's minimally invasive surgical instruments
and Ethicon sutures continued to deliver solid growth. Johnson & Johnson
Clinical Diagnostics, the diagnostic business acquired from Eastman Kodak in
November 1994, also contributed to significant sales growth in the Professional
segment. Of the 1995 Professional segment sales, domestic and international
companies accounted for 54% and 46% of the total, respectively.
In 1994, Professional segment sales increased 10.4% over 1993, to $5.33
billion. Domestic sales posted a 6.4% increase, while international sales rose
15.8%. The worldwide Professional segment sales increase was attributed to the
continued growth of ACUVUE disposable contact lenses; ONE TOUCH II blood glucose
monitoring systems; the PALMAZ-SCHATZ Stent and various Ethicon Endo-Surgery
devices for less invasive surgery. Base businesses, such as Ethicon sutures,
also contributed significantly to the increase. The acquisition of Eastman
Kodak's Clinical Diagnostics business was completed on November 30, 1994;
however, the increase in sales resulting from the acquisition was reduced by the
divestitures of the "A" Company and
27
<PAGE> 6
================================================================================
the ophthalmic pharmaceutical business of IOLAB. Sales by domestic companies
accounted for 55.9% of the total segment, while international companies
accounted for 44.1%.
In 1993, Professional segment sales increased 4.1% over 1992, to $4.82
billion. Worldwide sales gains were led by LifeScan, Ethicon Endo-Surgery and
Vistakon. Domestic sales posted a 5.8% gain, aided by strong sales of PROTECTIV
catheter safety system products, the DINAMAP Plus vital signs monitor and P.F.C.
Hip and Knee orthopaedic joint reconstruction products. These gains were reduced
by a decline in sales at Johnson & Johnson Medical, Inc., due to a reduction in
inventories at hospitals and distributors. International sales rose 1.9%,
despite the adverse impact of the stronger U.S. dollar relative to international
currencies.
Acquisitions and divestitures during 1995 and 1994 are described in more
detail on page 38.
GEOGRAPHIC AREAS
The Company further categorizes its sales and operating profit by major
geographic area as presented for the years 1995 and 1994:
<TABLE>
<CAPTION>
SALES Increase
-----------------
(Dollars in Millions) 1995 1994 Amount Percent
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
United States $ 9,190 7,812 1,378 17.6%
Europe 5,573 4,504 1,069 23.7
Western Hemisphere
excluding U.S. 1,731 1,511 220 14.6
Asia-Pacific, Africa 2,348 1,907 441 23.1
----------------------------
Worldwide total $18,842 15,734 3,108 19.8%
============================
</TABLE>
<TABLE>
<CAPTION>
OPERATING PROFIT Percent of Sales
----------------
(Dollars in Millions) 1995 1994 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
United States $1,872 1,534 20.4% 19.6%
Europe 1,267 1,050 22.7 23.3
Western Hemisphere
excluding U.S. 195 173 11.3 11.4
Asia-Pacific, Africa 240 198 10.2 10.4
----------------
Segments total $3,574 2,955 19.0% 18.8%
================
</TABLE>
International sales and operating profit were favorably impacted in 1995 and
1994 by the translation of local currency operating results into U.S. dollars at
higher average exchange rates than in 1994 and 1993, respectively.
Operating profit reported above is before deduction of taxes on income and
certain income and expense items not allocated to segments, such as interest
expense, minority interests and general corporate income and expense.
See page 41 for additional information on geographic areas.
Chart 8: Bar graph showing Sales by Geographic Area of Business for the years
1993 through 1995. See appendix for a complete description.
Chart 9: Bar graph showing Operating Profit by Geographic Area of Business for
the years 1993 through 1995. See appendix for a complete description.
DESCRIPTION OF BUSINESS
The Company, employing 82,300 employees worldwide, is engaged in the manufacture
and sale of a broad range of products in the health care field in many countries
of the world. The Company's primary interest, both historically and currently,
has been in products related to health and well-being.
The Company is organized on the principles of decentralized management. The
Executive Committee of Johnson & Johnson is the principal management group
responsible for the operations of the Company. In addition, three Executive
Committee members are Chairmen of Group Operating Committees, which are
comprised of managers who represent key operations within the group, as well as
management expertise in other specialized functions. These Committees oversee
and coordinate the activities of domestic and international companies related to
each of the Consumer, Pharmaceutical, Professional and Diagnostic businesses.
Operating management of each company is headed by a Chairman, President, General
Manager or Managing Director who reports directly to or through a Company Group
Chairman.
In line with this policy of decentralization, each international subsidiary
is, with some exceptions, managed by citizens of the country where it is
located. The Company's international business is conducted by subsidiaries
manufacturing in 39 countries outside the United States and selling in over 175
countries throughout the world.
In all its product lines, the Company competes with companies both large and
small, located in the U.S. and abroad. Competition is strong in all lines
without regard to the number and size of the competing companies involved.
Competition in research, involving the development of new products and processes
and the improvement of existing products and processes, is particularly
significant and results from time to time in product and process obsolescence.
The development of new and improved products is important to the Company's
success in all areas of its business. This competitive environment requires
substantial investments in continuing research and in multiple sales forces. In
addition, the winning and retention of customer acceptance of the Company's
consumer products involves heavy expenditures for advertising, promotion and
selling.
28
<PAGE> 7
================================================================================
CONSOLIDATED BALANCE SHEET Johnson & Johnson and Subsidiaries
<TABLE>
<CAPTION>
At December 31, 1995 and January 1, 1995 (Dollars in Millions) (Note 1) 1995 1994
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
- -------------------------------------------------------------------------------------------------------
CURRENT ASSETS
Cash and cash equivalents (Notes 1 and 16) $ 1,201 636
Marketable securities at cost (Note 16) 163 68
Accounts receivable trade, less allowances $258 (1994, $200) 2,903 2,601
Inventories (Notes 1 and 2) 2,276 2,161
Deferred taxes on income (Note 6) 717 582
Prepaid expenses and other receivables 678 632
---------------------
TOTAL CURRENT ASSETS 7,938 6,680
=====================
Marketable securities, non-current (Note 16) 338 354
Property, plant and equipment, net (Notes 1 and 3) 5,196 4,910
Intangible assets, net (Notes 1 and 4) 2,950 2,403
Deferred taxes on income (Note 6) 307 262
Other assets 1,144 1,059
---------------------
TOTAL ASSETS $ 17,873 15,668
=====================
LIABILITIES AND STOCKHOLDERS' EQUITY
- -------------------------------------------------------------------------------------------------------
CURRENT LIABILITIES
Loans and notes payable (Note 5) $ 321 899
Accounts payable 1,602 1,192
Accrued liabilities 1,949 1,602
Accrued salaries, wages and commissions 292 257
Taxes on income 224 316
---------------------
TOTAL CURRENT LIABILITIES 4,388 4,266
=====================
Long-term debt (Note 5) 2,107 2,199
Deferred tax liability (Note 6) 156 130
Certificates of extra compensation (Note 11) 86 85
Other liabilities 2,091 1,866
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 and 767,392,000 shares) 767 767
Note receivable from employee stock ownership plan (Note 14) (64) (73)
Cumulative currency translation adjustments (Note 7) 148 (35)
Retained earnings 10,511 8,966
---------------------
11,362 9,625
Less common stock held in treasury, at cost
(119,732,000 and 124,382,000 shares) 2,317 2,503
---------------------
TOTAL STOCKHOLDERS' EQUITY 9,045 7,122
=====================
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 17,873 15,668
=====================
</TABLE>
See Notes to Consolidated Financial Statements
29
<PAGE> 8
================================================================================
CONSOLIDATED STATEMENT OF EARNINGS Johnson & Johnson and Subsidiaries
<TABLE>
<CAPTION>
(Dollars in Millions Except Per Share Figures) (Note 1) 1995 1994 1993
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SALES TO CUSTOMERS $ 18,842 15,734 14,138
==================================
Cost of products sold 6,235 5,299 4,791
Selling, marketing and administrative expenses 7,462 6,350 5,771
Research expense 1,634 1,278 1,182
Interest income (115) (60) (80)
Interest expense, net of portion capitalized (Note 3) 143 142 126
Other expense, net 166 44 16
----------------------------------
15,525 13,053 11,806
----------------------------------
Earnings before provision for taxes on income 3,317 2,681 2,332
Provision for taxes on income (Note 6) 914 675 545
----------------------------------
NET EARNINGS $ 2,403 2,006 1,787
==================================
NET EARNINGS PER SHARE (Note 1) $ 3.72 3.12 2.74
==================================
</TABLE>
================================================================================
CONSOLIDATED STATEMENT OF COMMON STOCK, RETAINED EARNINGS AND TREASURY STOCK
<TABLE>
<CAPTION>
Common Stock Issued Treasury Stock
-------------------- Retained ---------------------
(Dollars in Millions; Shares in Thousands) (Notes 1, 10 and 17) Shares Amount Earnings Shares Amount
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 3, 1993 767,366 $ 767 $ 6,648 111,970 $ 2,006
=============================================================
Net earnings -- -- 1,787 -- --
Cash dividends paid (per share: $1.01) -- -- (659) -- --
Employee compensation and stock option plans -- -- (49) (3,066) (134)
Repurchase of common stock -- -- -- 15,487 632
Other 6 -- -- -- --
-------------------------------------------------------------
BALANCE, JANUARY 2, 1994 767,372 767 7,727 124,391 2,504
=============================================================
Net earnings -- -- 2,006 -- --
Cash dividends paid (per share: $1.13) -- -- (727) -- --
Employee compensation and stock option plans -- -- (78) (3,855) (186)
Repurchase of common stock -- -- -- 3,846 185
Other 20 -- 38 -- --
-------------------------------------------------------------
BALANCE, JANUARY 1, 1995 767,392 767 8,966 124,382 2,503
=============================================================
Net earnings -- -- 2,403 -- --
Cash dividends paid (per share: $1.28) -- -- (827) -- --
Employee compensation and stock option plans -- -- (35) (4,576) (309)
Repurchase of common stock -- -- -- 4,582 322
Acquisitions -- -- -- (4,656) (199)
Other 20 -- 4 -- --
-------------------------------------------------------------
BALANCE, DECEMBER 31, 1995 767,412 $ 767 $ 10,511 119,732 $ 2,317
=============================================================
</TABLE>
See Notes to Consolidated Financial Statements
30
<PAGE> 9
================================================================================
CONSOLIDATED STATEMENT OF CASH FLOWS Johnson & Johnson and Subsidiaries
<TABLE>
<CAPTION>
(Dollars in Millions) (Note 1) 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 2,403 2,006 1,787
Adjustments to reconcile net earnings to cash flows:
Depreciation and amortization of property and intangibles 857 724 617
Tax deferrals (63) (66) (19)
Changes in assets and liabilities, net of effects from acquisition of businesses:
Increase in accounts receivable, less allowances (265) (239) (310)
Increase in inventories (9) (162) (29)
Increase (decrease) in accounts payable and accrued liabilities 617 462 (3)
(Increase) decrease in other current and non-current assets (294) (112) 102
Increase in other current and non-current liabilities 136 362 23
---------------------------------
NET CASH FLOWS FROM OPERATING ACTIVITIES 3,382 2,975 2,168
=================================
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment (1,256) (937) (975)
Proceeds from the disposal of assets 465 332 66
Acquisition of businesses, net of cash acquired (Note 17) (154) (1,932) (266)
Other, principally marketable securities (151) (19) (86)
---------------------------------
NET CASH USED BY INVESTING ACTIVITIES (1,096) (2,556) (1,261)
=================================
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends to stockholders (827) (727) (659)
Repurchase of common stock (322) (185) (632)
Proceeds from short-term debt 197 328 297
Retirement of short-term debt (634) (263) (336)
Proceeds from long-term debt -- 960 511
Retirement of long-term debt (260) (363) (468)
Proceeds from the exercise of stock options 112 62 43
---------------------------------
NET CASH USED BY FINANCING ACTIVITIES (1,734) (188) (1,244)
=================================
Effect of exchange rate changes on cash and cash equivalents 13 33 (36)
---------------------------------
Increase (decrease) in cash and cash equivalents 565 264 (373)
Cash and cash equivalents, beginning of year (Note 1) 636 372 745
---------------------------------
CASH AND CASH EQUIVALENTS, END OF YEAR (Note 1) $ 1,201 636 372
=================================
- --------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL CASH FLOW DATA
Cash paid during the year for:
Interest, net of portion capitalized $ 137 133 118
Income taxes 1,071 612 665
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Treasury stock issued for employee compensation and stock option plans,
net of cash proceeds $ 212 133 95
ACQUISITIONS OF BUSINESSES
Fair value of assets acquired $ 493 2,279 339
Fair value of liabilities assumed (37) (347) (73)
---------------------------------
456 1,932 266
Treasury stock issued (302) -- --
---------------------------------
Net cash payments $ 154 1,932 266
=================================
</TABLE>
See Notes to Consolidated Financial Statements
31
<PAGE> 10
================================================================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Johnson & Johnson and Subsidiaries
- --------------------------------------------------------------------------------
1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Johnson & Johnson
and subsidiaries. Intercompany accounts and transactions are eliminated.
CASH EQUIVALENTS
The Company considers securities with maturities of three months or less, when
purchased, to be cash equivalents.
REVENUE RECOGNITION
The Company recognizes revenue from product sales when the goods are shipped to
the customer.
INVENTORIES
Inventories are stated at the lower of cost (determined principally by the
first-in, first-out method) or market.
DEPRECIATION OF PROPERTY
The Company utilizes the straight-line method of depreciation for financial
statement purposes for all additions to property, plant and equipment placed in
service after January 1, 1989. Property, plant and equipment placed in service
prior to January 1, 1989 is generally depreciated using an accelerated method.
INTANGIBLE ASSETS
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. The Company continually
evaluates the carrying value of goodwill and other intangible assets. Any
impairments would be recognized when the expected future operating cash flows
derived from such intangible assets is less than their carrying value.
LONG-LIVED ASSETS
Statement of Financial Accounting Standard (SFAS) No. 121, "Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of,"
requires that long-lived assets be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of the asset in
question may not be recoverable. The new standard, which will be adopted in
1996, will not have an effect on the Company's results of operations, cash flows
or financial position as the Company's current policy is similiar, in all
material aspects, to SFAS No. 121.
FINANCIAL INSTRUMENTS
Gains and losses on foreign currency hedges of existing assets or liabilities,
or hedges of firm commitments are deferred and are recognized in income as part
of the related transaction.
INCOME TAXES
The Company intends to continue to reinvest its undistributed international
earnings to expand its international operations; therefore, no tax has been
provided to cover the repatriation of such undistributed earnings. At December
31, 1995 and January 1, 1995 the cumulative amount of undistributed
international earnings was approximately $4.7 billion and $3.7 billion,
respectively.
NET EARNINGS PER SHARE
Net earnings per share are calculated using the average number of shares
outstanding during each year. Shares issuable under stock option and
compensation plans would not materially reduce net earnings per share. All share
and per share amounts have been restated to retroactively reflect prior year
stock splits.
RISKS AND UNCERTAINTIES
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported. Actual results are not
expected to differ from those estimates.
ANNUAL CLOSING DATE
The Company follows the concept of a fiscal year which ends on the Sunday
nearest to the end of the month of December. Normally each fiscal year consists
of 52 weeks, but every five or six years, as was the case in 1992, the fiscal
year consists of 53 weeks.
RECLASSIFICATION
Certain prior year amounts have been reclassified to conform with current year
presentation.
- --------------------------------------------------------------------------------
2 INVENTORIES
At the end of 1995 and 1994, inventories comprised:
<TABLE>
<CAPTION>
(Dollars in Millions) 1995 1994
- --------------------------------------------------------------
<S> <C> <C>
Raw materials and supplies $ 625 477
Goods in process 519 640
Finished goods 1,132 1,044
------------------
$2,276 2,161
==================
</TABLE>
- --------------------------------------------------------------------------------
3 PROPERTY, PLANT AND EQUIPMENT
At the end of 1995 and 1994, property, plant and equipment at cost and
accumulated depreciation comprised:
<TABLE>
<CAPTION>
(Dollars in Millions) 1995 1994
- --------------------------------------------------------------
<S> <C> <C>
Land and land improvements $ 344 300
Buildings and building equipment 2,611 2,521
Machinery and equipment 4,217 4,102
Construction in progress 1,003 732
-----------------
8,175 7,655
Less accumulated depreciation 2,979 2,745
-----------------
$5,196 4,910
=================
</TABLE>
32
<PAGE> 11
================================================================================
The Company capitalizes interest expense as part of the cost of construction of
facilities and equipment. Interest expense capitalized in 1995, 1994 and 1993
was $70, $44 and $48 million, respectively.
Upon retirement or other disposal of fixed assets, the cost and related
amount of accumulated depreciation or amortization are eliminated from the asset
and reserve accounts, respectively. The difference, if any, between the net
asset value and the proceeds is adjusted to income.
- --------------------------------------------------------------------------------
4 INTANGIBLE ASSETS
At the end of 1995 and 1994, intangible assets, consisting primarily of patents,
trademarks and goodwill, comprised:
<TABLE>
<CAPTION>
(Dollars in Millions) 1995 1994
- --------------------------------------------------------------
<S> <C> <C>
Intangible assets $3,345 2,667
Less accumulated amortization 395 264
-----------------
$2,950 2,403
=================
</TABLE>
- --------------------------------------------------------------------------------
5 BORROWINGS
The components of long-term debt are as follows:
<TABLE>
<CAPTION>
EFF. EFF.
(Dollars in Millions) 1995 RATE 1994 RATE
- ---------------------------------------------------------------
<S> <C> <C> <C> <C>
8.72% Debentures due 2024 $ 300 8.72% 300 8.72%
8 1/2% Notes due 1995 - - 250 8.50
6.73% Debentures due 2023 250 6.73 250 6.73
7 3/8% Eurodollar Notes
due 1997 200 7.43 200 7.40
8% Notes due 1998 200 8.00 200 7.97
7 3/8% Notes due 2002 198 7.49 198 7.46
8.25% Eurodollar Notes
due 2004 198 8.37 198 8.24
9% European Currency
Unit Notes due 1997(1) 192 6.84 185 6.80
7.38% to 8.38% Medium Term
Notes due 1996-8 160 8.05 160 8.23
5 3/8% Swiss Franc Notes
due 1997(1) 132 5.13 117 5.31
11 1/4% Italian Lire Notes
due 1998(1) 128 5.33 125 5.53
8.82% Italian Lire Notes
due 2003(1) 96 5.58 94 4.07
Industrial Revenue Bonds 66 4.90 73 4.87
4 1/2% Currency Indexed
Notes due 1998(1) 57 5.69 66 4.08
Other, principally
international 46 - 44 -
------ -----
2,223 7.20(2) 2,460 7.24(2)
Less current portion 116 261
------ -----
$2,107 2,199
====== =====
</TABLE>
(1) These debt issues include the effect of foreign currency movements in the
principal amounts shown. Such debt was converted to fixed or floating rate U.S.
dollar liabilities via interest rate and currency swaps. Unrealized currency
gains (losses) on currency swaps are not included in the basis of the related
debt transactions which such swaps hedge and are classified in the balance sheet
as other assets (liabilities). Also, see Note 16.
(2) Weighted average effective rate.
The Company has access to substantial sources of funds at numerous banks
worldwide. Total unused credit available to the Company approximates $3.4
billion, including $1.2 billion of credit commitments with various worldwide
banks, $800 million of which expire on October 4, 1996 and $400 million on
October 6, 2000. Borrowings under the credit line agreements will bear interest
based on either bids provided by the banks, the prime rate or London Interbank
Offered Rates (LIBOR), plus applicable margins. Commitment fees under the
agreements are not material.
In 1994, the Company filed a shelf registration with the Securities and
Exchange Commission, and in combination with $585 million remaining from a prior
shelf registration, initiated a third series of its Medium Term Note Program
(MTN) for the issuance of up to $2.59 billion of unsecured debt securities and
warrants to purchase debt securities. No MTN's were issued during 1995 or 1994.
The Company did not issue any long-term public debt in 1995. In 1994, the
Company issued $300 million of 8.72% Debentures due 2024 from the shelf
registration and $127.5 million equivalent of 11.25% Italian Lire Notes due
1998; $116.4 million equivalent of 5.375% Swiss Franc Bonds due 1997; $200
million 7.375% Eurodollar Notes due 1997; and $200 million 8.25% Eurodollar
Notes due 2004. The proceeds were used for general corporate purposes, including
the retirement of commercial paper and financing of acquisitions. At December
31, 1995, the Company had $2.29 billion remaining on its shelf registration.
Short-term borrowings amounted to $321 million at the end of 1995. These
borrowings are composed of $95 million of medium term notes and $226 million of
local borrowings principally by international subsidiaries.
Interest rates on the Industrial Revenue Bonds vary from 4% to 6%, while
rates on other long-term obligations vary from 2% to 20% according to local
conditions.
Aggregate maturities of long-term obligations for each of the next five years
commencing in 1996 are:
<TABLE>
<CAPTION>
(Dollars in Millions) 1996 1997 1998 1999 2000
- --------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$116 533 461 15 7
</TABLE>
- --------------------------------------------------------------------------------
6 INCOME TAXES
The provision for taxes on income consists of:
<TABLE>
<CAPTION>
(Dollars in Millions) 1995 1994 1993
- --------------------------------------------------------------
<S> <C> <C> <C>
Currently payable:
U.S. taxes on
domestic income $480 348 191
U.S. tax benefit on
international income (33) (30) (1)
International taxes 468 374 344
U.S. state and local taxes 62 49 30
---------------------------
977 741 564
---------------------------
Deferred:
U.S. taxes (42) (36) (26)
International taxes (21) (30) 7
---------------------------
(63) (66) (19)
---------------------------
$914 675 545
===========================
</TABLE>
Deferred income taxes are recognized for tax consequences of "temporary
differences" by applying enacted statutory tax rates, applicable to future
years, to differences between the financial reporting and the tax basis of
existing assets and liabilities.
33
<PAGE> 12
================================================================================
Temporary differences and carryforwards for 1995 are as follows:
<TABLE>
<CAPTION>
Deferred Tax
-----------------
(Dollars in Millions) Asset Liability
- --------------------------------------------------------------
<S> <C> <C>
Postretirement benefits $ 275 -
Postemployment benefits 102 -
Employee benefit plans 97 -
Depreciation - 251
Non-deductible intangibles - 136
Alternative minimum tax credits 101 -
International R&D capitalized for tax 95 -
Reserves & liabilities 293 -
Income reported for tax purposes 174 -
Miscellaneous international 100 138
Miscellaneous U.S. 257 149
-----------------
Total deferred income taxes $1,494 674
=================
</TABLE>
A comparison of income tax expense at the federal statutory rate of 35% in 1995,
1994, and 1993 to the Company's effective tax rate is as follows:
<TABLE>
<CAPTION>
(Dollars in Millions) 1995 1994 1993
- ----------------------------------------------------------------
<S> <C> <C> <C>
Earnings before taxes on income:
U.S. $1,642 1,317 1,006
International 1,675 1,364 1,326
-----------------------------
Worldwide $3,317 2,681 2,332
=============================
Statutory taxes $1,161 938 816
Tax rates:
Statutory 35.0% 35.0% 35.0%
Puerto Rico &
Ireland operations (7.3) (9.2) (9.7)
Research tax credits (0.2) (0.5) (0.7)
Domestic state and local 1.2 1.2 0.8
International subsidiaries
excluding Ireland (1.7) (1.8) (2.4)
All other 0.6 0.5 0.4
-----------------------------
Effective tax rate 27.6% 25.2% 23.4%
=============================
</TABLE>
The increase in the 1995 worldwide effective tax rate was primarily due to the
increase in income subject to tax in the United States.
For 1995, the Company has subsidiaries operating in Puerto Rico under a grant
for tax relief expiring December 31, 2007. 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. In addition, the Company has subsidiaries manufacturing in
Ireland under an incentive tax rate expiring on December 31, 2010.
- --------------------------------------------------------------------------------
7 INTERNATIONAL CURRENCY TRANSLATION
For translation of its international currencies, the Company has determined that
the local currencies of its international subsidiaries are the functional
currencies except those in highly inflationary economies, which are defined as
those which have had compound cumulative rates of inflation of 100% or more
during the past three years.
In consolidating international subsidiaries, balance sheet currency effects
are recorded as a separate component of stockholders' equity. This equity
account includes the results of translating all balance sheet assets and
liabilities at current exchange rates, except for those located in highly
inflationary economies, principally Latin America, which are reflected in
operating results.
An analysis of the changes during 1995 and 1994 in the separate component of
stockholders' equity for cumulative currency translation adjustments follows:
<TABLE>
<CAPTION>
(Dollars in Millions) 1995 1994
- --------------------------------------------------------------
<S> <C> <C>
Beginning of year $(35) (338)
Translation adjustments 183 303
----------------
End of year $148 (35)
================
</TABLE>
Net currency transaction and translation gains and losses included in other
expense were after-tax losses of $14, $4 and $5 million in 1995, 1994 and 1993,
respectively, incurred principally in Latin America.
- --------------------------------------------------------------------------------
8 INTERNATIONAL SUBSIDIARIES
The following amounts are included in the consolidated financial statements for
international subsidiaries:
<TABLE>
<CAPTION>
(Dollars in Millions) 1995 1994
- --------------------------------------------------------------
<S> <C> <C>
Current assets $4,488 3,702
Current liabilities 2,234 1,970
Net property, plant and equipment 2,298 1,893
Parent company equity in net assets 5,525 4,514
Excess of parent company equity
over investments 4,953 4,030
</TABLE>
International sales to customers were $9,652, $7,922 and $6,935 million for
1995, 1994 and 1993, respectively.
- --------------------------------------------------------------------------------
9 RENTAL EXPENSE AND LEASE COMMITMENTS
Rentals of space, vehicles, manufacturing equipment and office and data
processing equipment under operating leases amounted to approximately $227
million in 1995, $207 million in 1994 and $254 million in 1993.
The approximate minimum rental payments required under operating leases that
have initial or remaining noncancellable lease terms in excess of one year at
December 31, 1995 are:
<TABLE>
<CAPTION>
After
(Dollars in Millions) 1996 1997 1998 1999 2000 2000 Total
- -----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$83 69 53 34 24 68 331
</TABLE>
Commitments under capital leases are not significant.
34
<PAGE> 13
================================================================================
- --------------------------------------------------------------------------------
10 COMMON STOCK, STOCK OPTION PLANS AND STOCK COMPENSATION AGREEMENTS
The Company has stock option plans which provide for the granting of options to
certain officers and employees to purchase shares of its common stock within
prescribed periods at prices equal to the fair market value on the date of
grant. Share activity during 1995 and 1994 under the Company's stock option
plans is summarized below:
<TABLE>
<CAPTION>
(Shares in Thousands, Price Per Share) 1995 1994
- ---------------------------------------------------------------
<S> <C> <C>
Held at beginning of year by 3,591
employees (1994-3,304) 36,272 34,995
Granted to 2,957 employees
(1994-1,850) 8,451 5,709
---------------------
44,723 40,704
Exercised (1993-2,182) (4,092) (3,169)
Cancelled or expired (1,319) (1,263)
---------------------
Held at end of year by 3,931 employees
(1994-3,591) 39,312 36,272
=====================
Shares exercisable, end of year
(1993-13,880) 15,724 14,566
=====================
Shares available for future grants, end
of year (1993-8,883) 20,026 4,125
=====================
Price range of options exercised $ 8.91 to 8.85 to
(1993-$8.85 to $35.66) $ 50.69 50.28
=====================
$12.69 to 8.91 to
Price range of options held, end of year $ 86.25 57.75
=====================
</TABLE>
At year-end, the Company was obligated to deliver, over a period of not more
than two years, 33 thousand shares of common stock (1994-115) in performance of
outstanding stock compensation agreements with 826 employees (1994-1,944).
Statement of Financial Accounting Standard No. 123, "Accounting for
Stock-Based Compensation," requires companies to measure employee stock
compensation plans based on the fair value method of accounting. However, the
statement allows the alternative of continued use of Accounting Principles Board
(APB) Opinion No. 25, "Accounting for Stock Issued to Employees," with pro forma
disclosure of net income and earnings per share determined as if the fair value
based method had been applied in measuring compensation cost. The Company will
adopt the new standard in 1996 and expects to elect the continued use of APB
Opinion No. 25. Pro forma disclosure is expected to be immaterial.
- --------------------------------------------------------------------------------
11 CERTIFICATES OF EXTRA COMPENSATION
The Company has a deferred compensation program for senior management and other
key personnel. The value of units awarded under the program is related to the
net asset value of the Company and historical earning power of its common stock.
Amounts earned under the program are payable only after employment with the
Company has ended.
- --------------------------------------------------------------------------------
12 SEGMENTS OF BUSINESS AND GEOGRAPHIC AREAS
See page 41 for information on segments of business and geographic areas.
- --------------------------------------------------------------------------------
13 RETIREMENT AND PENSION PLANS
The Company sponsors various retirement and pension plans, including defined
benefit, defined contribution and termination indemnity plans, which cover most
employees worldwide.
Plan benefits are primarily based on the employee's compensation during the
last three to five years before retirement and the number of years of service.
The Company's objective in funding its domestic plans is to accumulate funds
sufficient to provide for all accrued benefits. International subsidiaries have
plans under which funds are deposited with trustees, annuities are purchased
under group contracts, or reserves are provided.
In certain countries other than the United States, the funding of pension
plans is not a common practice as funding provides no economic benefit.
Consequently, the Company has several pension plans which are not funded.
Net pension expense for the Company's defined benefit plans for 1995, 1994
and 1993 included the following components:
<TABLE>
<CAPTION>
(Dollars in Millions) 1995 1994 1993
- --------------------------------------------------------------
<S> <C> <C> <C>
Service cost-benefits earned
during period $ 121 120 109
Interest cost on projected
benefit obligations 207 188 168
Actual return on plan
assets (555) (3) (350)
Net amortization and deferral 310 (199) 149
Curtailment and settlement
losses (gains) 25 1 (5)
----------------------------
Net periodic pension cost $ 108 107 71
============================
</TABLE>
The net periodic pension cost attributable to domestic plans and included above
was $43 million in 1995, $49 million in 1994 and $27 million in 1993.
The following tables provide the domestic assumptions and the range of
international assumptions, which are based on the economic environment of each
applicable country, used to develop net periodic pension cost and the actuarial
present value of projected benefit obligations:
<TABLE>
<CAPTION>
DOMESTIC PENSION PLANS 1995 1994 1993
- --------------------------------------------------------------
<S> <C> <C> <C>
Expected long-term rate of
return on plan assets 9.0% 9.0% 9.0%
Weighted average discount
rate 7.25 8.75 7.5
Rate of increase in
compensation levels 5.5 5.5 5.5
INTERNATIONAL PENSION PLANS
- -------------------------------------------------------------
Expected long-term rate of
return on plan assets 5.0-10.0% 5.0-10.0% 5.0-9.5%
Weighted average discount
rates 4.25-9.5 4.5-10.0 4.5-9.5
Rate of increase in
compensation levels 3.0-7.0 3.0-7.0 3.0-6.5
</TABLE>
35
<PAGE> 14
================================================================================
The following table sets forth the actuarial present value of benefit
obligations and funded status at year-end 1995 and 1994 for the Company's
defined benefit plans:
<TABLE>
<CAPTION>
Year-end 1995 Year-end 1994
---------------------------------- ----------------------------------
Domestic International Domestic International
---------------------------------- ----------------------------------
Over- Under- Over- Under-
(Dollars in Millions) funded funded funded funded
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Plan assets at fair value, primarily stocks and bonds $ 1,893 883 76 1,540 814 22
Book reserves (prepaids) 323 (77) 250 273 (42) 192
------------------------------------------------------------------------
Total assets and reserves 2,216 806 326 1,813 772 214
------------------------------------------------------------------------
Actuarial present value of benefit obligations:
Vested benefits 1,670 575 224 1,349 519 158
Nonvested benefits 17 24 42 17 33 26
------------------------------------------------------------------------
Accumulated benefit obligation 1,687 599 266 1,366 552 184
Effect of projected future salary increases 336 196 82 208 186 38
------------------------------------------------------------------------
Projected benefit obligation 2,023 795 348 1,574 738 222
------------------------------------------------------------------------
Assets and reserves in excess of (less than)
projected benefit obligation $ 193 11 (22) 239 34 (8)
========================================================================
Components of assets and reserves in excess of
(less than) projected benefit
obligation:
Unrecognized prior service cost $ (68) (27) (4) (70) (28) (4)
Unrecognized net gain (loss) 227 (46) -- 273 (17) (1)
Unamortized net transition assets (liabilities) 19 84 (23) 24 79 (10)
Additional minimum liability 15 -- 5 12 -- 7
------------------------------------------------------------------------
Total $ 193 11 (22) 239 34 (8)
========================================================================
Assets and reserves in excess of accumulated
benefit obligation $ 529 207 60 447 220 30
========================================================================
</TABLE>
- --------------------------------------------------------------------------------
14 SAVINGS PLAN
The Company has several voluntary 401(k) savings plans designed to enhance the
existing retirement programs covering eligible employees. The Company matches a
percentage of each employee's contributions consistent with the provisions of
the plan for which he/she is eligible.
In the U.S. salaried plan, one-third of the Company match is paid in Company
stock under an employee stock ownership plan (ESOP). In 1990, to establish the
ESOP, the Company loaned $100 million to the ESOP Trust to purchase shares of
Company stock on the open market. In exchange, the Company received a note, the
balance of which is recorded as a reduction of stockholders' equity.
Total Company contributions to the plans were $45 million in 1995, $41
million in 1994 and $42 million in 1993.
- --------------------------------------------------------------------------------
15 OTHER POSTRETIREMENT BENEFITS
The Company provides postretirement benefits, primarily health care, to all
domestic retired employees and their dependents. Most international employees
are covered by government-sponsored programs and the cost to the Company is not
significant. The Company does not fund retiree health care benefits in advance
and has the right to modify these plans in the future.
The net periodic postretirement benefit costs for retirees included the
following components:
<TABLE>
<CAPTION>
(Dollars in Millions) 1995 1994 1993
- --------------------------------------------------------------
<S> <C> <C> <C>
Service cost-benefits earned
during the current year $12 16 18
Interest cost on accumulated
postretirement benefit
obligation 44 44 57
Actual return on plan assets (3) - (4)
Net amortization and deferral (7) (3) (1)
--------------------------
Net periodic postretirement
benefit cost $46 57 70
==========================
</TABLE>
The plans' status as of year-end 1995 and 1994 was as follows:
<TABLE>
<CAPTION>
Year-end
-----------------
(Dollars in Millions) 1995 1994
- --------------------------------------------------------------
<S> <C> <C>
Accumulated postretirement
benefit obligation:
Retirees $ 394 344
Fully eligible active participants 76 62
Other active participants 140 100
-----------------
Accumulated postretirement
benefit obligation 610 506
Life insurance plan assets at
fair value 38 36
-----------------
Accumulated postretirement benefit
obligation in excess of plans' assets 572 470
------------------
Unrecognized net gain 112 188
Unrecognized prior service cost 6 5
-----------------
Accrued postretirement benefit cost $ 690 663
=================
</TABLE>
36
<PAGE> 15
================================================================================
The postretirement benefit obligation was determined by application of the terms
of the various plans, together with relevant actuarial assumptions. Health care
cost trends are projected at annual rates grading from 11% for employees under
age 65 and 8% for employees over age 65 down to 5% for both groups by the year
2006 and beyond. The effect of a 1% annual increase in these assumed cost trend
rates would increase the accumulated postretirement benefit obligation at
year-end by $69 million and the service and interest cost components of the net
periodic postretirement benefit cost for 1995 by a total of $7 million.
Assumptions used to develop net periodic postretirement benefit cost and the
actuarial present value of projected postretirement benefit obligations were as
follows:
<TABLE>
<CAPTION>
1995 1994 1993
- ----------------------------------------------------------------
<S> <C> <C> <C>
Expected long-term rate of return
on plan assets 9.0% 9.0% 9.0%
Weighted average discount rate 7.25 8.75 7.5
Rate of increase in compensation
levels 5.5 5.5 5.5
</TABLE>
The Company also provides postemploymemt benefits to qualified former or
inactive employees. The Company does not fund these benefits and has the right
to modify these plans in the future.
- --------------------------------------------------------------------------------
16 FINANCIAL INSTRUMENTS
DERIVATIVE FINANCIAL INSTRUMENT RISK
The Company uses derivative financial instruments to reduce exposures to market
risks resulting from fluctuations in interest rates and foreign exchange. The
Company does not enter into financial instruments for trading or speculative
purposes.
The Company has a policy of only entering into contracts with parties that
have at least an "A" (or equivalent) credit rating. The counterparties to these
contracts are major financial institutions and the Company does not have
significant exposure to any one counterparty. Management believes that risk of
loss is remote and in any event would be immaterial.
INTEREST RATE RISK MANAGEMENT
The Company uses interest rate and currency swaps to manage interest rate risk
related to borrowings. Interest rate and currency swap agreements which hedge
third party debt issues mature with these borrowings and are described in Note
5.
Forward rate agreements are used by the Company to fix the rates received on
short-term floating-rate investments and mature within 1 year.
The following table illustrates the notional amounts outstanding, maturity
dates, and the weighted average receive and pay rates of interest rate hedge
agreements by type. (Notional amounts provide an indication of the extent of the
Company's involvement in such agreements but do not represent its exposure to
market risk.)
<TABLE>
<CAPTION>
1995
-----------------------------------------
Weighted Avg. Rate
National Maturity ------------------
(Dollars in Millions) Amounts Date Receive Pay
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest rate and
currency swaps
Pay variable(1) $116 1997 5.4% 5.1%
193 1998 9.0 5.5
95 2003 8.8 5.6
Pay fixed $188 1997 9.0 6.8
Forward rate
agreements $680 1996 6.8% 3.8%
</TABLE>
(1) Variable rates are primarily indexed to the Federal Reserve H.15 30 day
commercial paper rate.
Interest expense under these agreements, and the respective debt instruments
that they hedge, are recorded at the net effective interest rate of the hedged
transactions.
FOREIGN EXCHANGE RISK MANAGEMENT
The Company enters into forward exchange contracts to hedge product costs and
revenues that are denominated in foreign currencies and currency swaps to hedge
foreign currency denominated debt. These hedging instruments are classified
consistent with the item being hedged.
The Company enters into various types of foreign exchange contracts maturing
within five years and almost always acts as a buyer. The Company has forward
exchange contracts outstanding at year-end in various currencies principally in
U.S. Dollars, Japanese Yen and German Marks. In addition, the Company has
currency swaps outstanding principally in Swiss Francs, Italian Lire and British
Pounds. Deferred unrealized gains and losses, based on dealer-quoted prices,
from hedging firm commitments are presented in the following table:
<TABLE>
<CAPTION>
1995
---------------------------------------
Notional
(Dollars in Millions) Amounts Gains Losses
- --------------------------------------------------------------
<S> <C> <C> <C>
Forwards $2,382 54 31
Currency swaps 1,932 15 6
</TABLE>
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash and cash equivalents approximates fair value due to
the short-term maturities of these instruments. The fair value of current and
non-current marketable securities, long-term debt and foreign interest rate and
currency swap agreements (used to hedge third party debt issues) were estimated
based on quotes obtained from brokers for those or similar instruments. The fair
value of foreign interest rate and currency contracts (used for hedging
purposes) and long-term investments were estimated based on quoted market prices
at year-end.
37
<PAGE> 16
================================================================================
The estimated fair value of the Company's financial instruments are as
follows:
<TABLE>
<CAPTION>
1995 1994
-------------------------------------------
(Dollars in CARRYING FAIR Carrying Fair
Millions) AMOUNT VALUE Amount Value
- --------------------------------------------------------------
<S> <C> <C> <C> <C>
NONDERIVATIVES
Cash and cash
equivalents $1,201 1,201 636 636
Marketable
securities -
current 163 164 68 68
Marketable
securities -
non-current 338 341 354 354
Long-term
investments(1) 192 196 147 149
Long-term
debt 2,223 2,345 2,460 2,387
DERIVATIVES
Other assets (liabilities):
Currency swaps
(net) - 9 - -
Forwards (net) - 23 - (11)
Forward rate
agreements - 5 - 5
Interest and
currency swap
agreements
related to debt (13) 28 5 (13)
</TABLE>
(1) Included in other assets on the balance sheet.
The carrying amounts in the table are included in the statement of financial
position under the indicated captions.
CONCENTRATION OF CREDIT RISK
The Company invests its excess cash in both deposits with major banks throughout
the world and other high quality short-term liquid money market instruments
(commercial paper, government and government agency notes and bills, etc.). The
Company has a policy of making investments only with commercial institutions
that have at least an "A" (or equivalent) credit rating. These investments
generally mature within six months and the Company has not incurred any related
losses.
The Company sells a broad range of products in the health care field in most
countries of the world. Concentrations of credit risk with respect to trade
receivables are limited due to the large number of customers comprising the
Company's customer base. Ongoing credit evaluations of customers' financial
condition are performed and, generally, no collateral is required. The Company
maintains reserves for potential credit losses and such losses, in the
aggregate, have not exceeded management's expectations.
- --------------------------------------------------------------------------------
17 ACQUISITIONS AND DIVESTITURES
During 1995 and 1994, certain businesses were acquired for $456 million ($154
million in cash and 4,656,000 shares of the Company's common stock issued from
treasury valued at $302 million) and $1,932 million, respectively. These
acquisitions were accounted for by the purchase method and accordingly the
results of operations of the acquired businesses have been included in the
accompanying consolidated financial statements from their respective dates of
acquisition.
The 1995 acquisitions included: Mitek Surgical Products, Inc., a manufacturer
and marketer of suture anchor products for soft tissue reattachment; Menlo Care,
Inc., a manufacturer and marketer of vascular access products to hospital and
home health care professionals; Joint Medical Products Inc., a developer and
marketer of artificial hips (S-Rom(TM)) and knee joints; Gyno Pharma, Inc., the
exclusive licensor and marketer of the PARAGARD T380A (intrauterine device) in
the United States and UltraCision, Inc., the developer and manufacturer of
ultrasonic surgical instruments (Harmonic Scalpel(TM)).
The excess of purchase price over the estimated fair market value of 1995
acquisitions amounted to $435 million. This amount has been allocated to
identifiable intangibles and goodwill. Pro forma information is not provided for
1995 as the impact of the acquisitions does not have a material effect on
operating results.
On September 27, 1994, the Company acquired substantially all of the
outstanding shares of the Neutrogena Corporation pursuant to a cash tender
offer. On October 3, 1994 the Company consummated a short form merger pursuant
to which the remaining shares were acquired. The price, net of cash acquired,
was $924 million. Neutrogena Corporation is a manufacturer of high quality skin
and hair care products.
On November 30, 1994 the Company acquired Eastman Kodak's Clinical
Diagnostics business, a worldwide supplier of diagnostic products, for $1,008
million.
The fair market value of net assets acquired in the Neutrogena and Clinical
Diagnostics acquisitions was $360 million. The excess of purchase price over the
fair value has been allocated to identifiable intangibles ($877 million) and
goodwill ($695 million). Identifiable intangibles and goodwill are being
amortized on a straight line basis over periods of 15 to 40 years.
Summarized below are unaudited pro forma combined results of operations for
the years ended January 1, 1995 and January 2, 1994 assuming the Neutrogena and
Clinical Diagnostics acquisitions occurred at the beginning of each year
presented:
<TABLE>
<CAPTION>
(Dollars in Millions Except Per Share Figures) 1994 1993
- --------------------------------------------------------------------------
<S> <C> <C>
Sales $16,414 14,955
Net earnings 1,980 1,770
Net earnings per share 3.08 2.72
</TABLE>
38
<PAGE> 17
================================================================================
The unaudited pro forma combined results of operations are not necessarily
indicative of the results of operations that would have occurred had the
businesses actually been combined during the periods presented; nor is this
information indicative of future combined results of operations.
In 1995, the Company completed the sales of Johnson & Johnson Advanced
Materials Company and Chicopee B.V., Netherlands, worldwide developers and
marketers of non-woven materials used in a broad range of health care, consumer
and industrial applications. In addition, the Company sold the IOLAB ophthalmic
surgical business to Chiron Vision, a division of Chiron Corporation.
In 1994, the Company completed the sales of the Janssen Chimica prepak and
bulk chemical supply business and the "A" Company orthodontic supplies business.
In addition, the Company sold the ophthalmic pharmaceutical product line of
IOLAB Corporation to Ciba Vision for approximately $300 million.
The 1995 divestitures resulted in an after-tax capital gain of $103 million.
The after-tax gains on the 1995 and 1994 divestitures were reinvested in certain
base businesses.
- --------------------------------------------------------------------------------
18 PENDING 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 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 for injuries occurring on or before
December 31, 1985, it will be substantially covered by insurance.
Due to the general unavailability of traditional liability insurance,
including product liability insurance, the Company is substantially uninsured
for injuries occurring on or after January 1, 1986. The Company has a
self-insurance program which provides reserves for such injuries based on claims
experience.
Additionally, 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 is also involved in a number of patent, trademark and other
lawsuits incidental to its business.
The Company believes that the above proceedings in the aggregate would not
have a material adverse effect on its results of operations, cash flows or
financial position.
- --------------------------------------------------------------------------------
19 SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Selected unaudited quarterly financial data for the years 1995 and 1994 is
summarized below:
<TABLE>
<CAPTION>
1995 1994
------------------------------------------ ------------------------------------------
(Dollars in Millions FIRST SECOND THIRD FOURTH First Second Third Fourth
Except Per Share Figures) QUARTER QUARTER QUARTER QUARTER Quarter Quarter Quarter Quarter
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SEGMENT SALES TO CUSTOMERS
Consumer $1,436 1,469 1,461 1,465 1,279 1,270 1,374 1,328
Pharmaceutical 1,483 1,620 1,598 1,573 1,190 1,308 1,347 1,313
Professional 1,577 1,673 1,679 1,808 1,221 1,338 1,317 1,449
---------------------------------------------------------------------------------------
TOTAL SALES 4,496 4,762 4,738 4,846 3,690 3,916 4,038 4,090
=======================================================================================
Gross margin 3,049 3,200 3,195 3,163 2,509 2,629 2,674 2,623
Earnings before provision for taxes
on income 921 931 872 593 736 762 713 470
NET EARNINGS 654 661 623 465 544 559 525 378
=======================================================================================
NET EARNINGS PER SHARE $ 1.02 1.02 .96 .72 .85 .86 .82 .59
=======================================================================================
</TABLE>
- --------------------------------------------------------------------------------
20 SUBSEQUENT EVENT
On November 13, 1995, Johnson & Johnson and Cordis Corporation announced the
signing of a definitive merger agreement for a $109 per share stock-for-stock
merger of the two companies. The shareholders of Cordis Corporation approved the
merger on February 23, 1996. Cordis has approximately 18.0 million shares
outstanding on a fully diluted basis, giving the merger a total equity value,
net of cash, of approximately $1.8 billion.
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.
39
<PAGE> 18
================================================================================
REPORT OF MANAGEMENT
- --------------------------------------------------------------------------------
The management of Johnson & Johnson is responsible for the integrity and
objectivity of the accompanying financial statements and related information.
The statements have been prepared in conformity with generally accepted
accounting principles, and include amounts that are based on our best judgements
with due consideration given to materiality.
Management maintains a system of internal accounting controls monitored by a
corporate staff of professionally trained internal auditors who travel
worldwide. This system is designed to provide reasonable assurance, at
reasonable cost, that assets are safeguarded and that transactions and events
are recorded properly. While the Company is organized on the principles of
decentralized management, appropriate control measures are also evidenced by
well-defined organizational responsibilities, management selection, development
and evaluation processes, communicative techniques, financial planning and
reporting systems and formalized procedures.
It has always been the policy and practice of the Company to conduct its
affairs ethically and in a socially responsible manner. This responsibility is
characterized and reflected in the Company's Credo and Policy on Business
Conduct which are distributed throughout the Company. Management maintains a
systematic program to ensure compliance with these policies.
Coopers & Lybrand L.L.P., independent auditors, is engaged to audit our
financial statements. Coopers & Lybrand L.L.P. obtains and maintains an
understanding of our internal control structure and conducts such tests and
other auditing procedures considered necessary in the circumstances to express
the opinion in the report that follows.
The Audit Committee of the Board of Directors, composed solely of outside
directors, meets periodically with the independent auditors, management and
internal auditors to review their work and confirm that they are properly
discharging their responsibilities. In addition, the independent auditors, the
General Counsel and the Vice President, Internal Audit are free to meet with the
Audit Committee without the presence of management to discuss the results of
their work and observations on the adequacy of internal financial controls, the
quality of financial reporting and other relevant matters.
/s/ Ralph S. Larsen /s/ Clark H. Johnson
- ---------------------------- ---------------------------
Ralph S. Larsen Clark H. Johnson
Chairman, Board of Directors Vice President, Finance
and Chief Executive Officer and Chief Financial Officer
================================================================================
INDEPENDENT AUDITOR'S REPORT
- --------------------------------------------------------------------------------
To the Stockholders and Board of Directors of Johnson & Johnson:
We have audited the consolidated balance sheet of Johnson & Johnson and
subsidiaries as of December 31, 1995 and January 1, 1995, and the related
consolidated statement of earnings, consolidated statement of common stock,
retained earnings and treasury stock, and consolidated statement of cash flows
for each of the three years in the period ended December 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and the significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Johnson & Johnson
and subsidiaries as of December 31, 1995 and January 1, 1995, and the results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1995, in conformity with generally accepted accounting
principles.
/s/ Coopers & Lybrand L.L.P
- ---------------------------
New York, New York
January 23, 1996,
except for Note 20,
as to which the date is
February 23, 1996
40
<PAGE> 19
================================================================================
SEGMENTS OF BUSINESS(1) Johnson & Johnson and Subsidiaries
<TABLE>
<CAPTION>
SALES TO CUSTOMERS(2)
- --------------------------------------------------------------------------------
(Dollars in Millions) 1995 1994 1993
-----------------------------------
<S> <C> <C> <C>
Consumer-Domestic $ 2,858 2,692 2,631
International 2,973 2,559 2,193
-----------------------------------
Total 5,831 5,251 4,824
-----------------------------------
Pharmaceutical-Domestic 2,697 2,143 1,775
International 3,577 3,015 2,715
-----------------------------------
Total 6,274 5,158 4,490
-----------------------------------
Professional-Domestic 3,635 2,977 2,797
International 3,102 2,348 2,027
-----------------------------------
Total 6,737 5,325 4,824
-----------------------------------
Worldwide total $18,842 15,734 14,138
===================================
</TABLE>
<TABLE>
<CAPTION>
OPERATING PROFIT IDENTIFIABLE ASSETS
------------------------------- ----------------------------
(Dollars in Millions) 1995 1994 1993 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Consumer $ 298 443 521 4,852 4,489 3,452
Pharmaceutical 2,073 1,669 1,406 5,129 4,756 3,815
Professional 1,203 843 655 6,679 5,765 4,365
-----------------------------------------------------------------
Segments total 3,574 2,955 2,582 16,660 15,010 11,632
Expenses not allocated to segments(3) (257) (274) (250)
General corporate 1,213 658 610
-----------------------------------------------------------------
Worldwide total $ 3,317 2,681 2,332 17,873 15,668 12,242
=================================================================
</TABLE>
<TABLE>
<CAPTION>
ADDITIONS TO PROPERTY, DEPRECIATION AND
PLANT & EQUIPMENT AMORTIZATION
----------------------- --------------------
(Dollars in Millions) 1995 1994 1993 1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Consumer $ 264 218 260 254 241 205
Pharmaceutical 427 327 313 219 183 159
Professional 472 365 368 322 268 221
----------------------------------------------
Segments total 1,163 910 941 795 692 585
General corporate 93 27 34 62 32 32
----------------------------------------------
Worldwide total $1,256 937 975 857 724 617
==============================================
</TABLE>
================================================================================
GEOGRAPHIC AREAS
<TABLE>
<CAPTION>
SALES TO CUSTOMERS(2) OPERATING PROFIT IDENTIFIABLE ASSETS
---------------------------- -------------------------- --------------------------
(Dollars in Millions) 1995 1994 1993 1995 1994 1993 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
United States $ 9,190 7,812 7,203 1,872 1,534 1,209 8,472 8,430 6,252
Europe 5,573 4,504 4,024 1,267 1,050 1,036 5,633 4,271 3,625
Western Hemisphere excluding U.S. 1,731 1,511 1,325 195 173 156 1,072 970 742
Asia-Pacific, Africa 2,348 1,907 1,586 240 198 181 1,483 1,339 1,013
-----------------------------------------------------------------------------------------
Segments total 18,842 15,734 14,138 3,574 2,955 2,582 16,660 15,010 11,632
Expenses not allocated
to segments(3) (257) (274) (250)
General corporate 1,213 658 610
-----------------------------------------------------------------------------------------
Worldwide total $18,842 15,734 14,138 3,317 2,681 2,332 17,873 15,668 12,242
=========================================================================================
</TABLE>
(1) See Management's Discussion and Analysis, pages 26 to 28, for a description
of the segments in which the Company does business.
(2) Export sales and intersegment sales are not significant. No single customer
represents 10% or more of total sales.
(3) Expenses not allocated to segments include interest expense, minority
interests and general corporate income and expense.
41
<PAGE> 20
<TABLE>
<CAPTION>
================================================================================================================================
SUMMARY OF OPERATIONS AND STATISTICAL DATA 1985-1995 Johnson & Johnson and Subsidiaries
(Dollars in Millions Except Per Share
Figures) 1995 1994 1993 1992 1991 1990 1989 1988 1987
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Sales to customers - Domestic $ 9,190 7,812 7,203 6,903 6,248 5,427 4,881 4,576 4,167
Sales to customers - International 9,652 7,922 6,935 6,850 6,199 5,805 4,876 4,424 3,845
----------------------------------------------------------------------------------------
TOTAL SALES 18,842 15,734 14,138 13,753 12,447 11,232 9,757 9,000 8,012
========================================================================================
Cost of products sold 6,235 5,299 4,791 4,678 4,204 3,937 3,480 3,292 2,958
Selling, marketing and administrative
expenses 7,462 6,350 5,771 5,671 5,099 4,469 3,897 3,630 3,228
Research expense 1,634 1,278 1,182 1,127 980 834 719 674 617
Permanent impairment of certain assets
and operations in Latin America - - - - - 104 - - -
Redirection charges - - - - - - - - -
Interest income (115) (60) (80) (93) (88) (98) (87) (72) (95)
Interest expense, net of portion
capitalized 143 142 126 124 129 201(4) 141 104 116
Other expense (income), net 166 44 16 39 85 162 93 (24) (5)
----------------------------------------------------------------------------------------
15,525 13,053 11,806 11,546 10,409 9,609 8,243 7,604 6,819
----------------------------------------------------------------------------------------
Earnings before provision for taxes
on income 3,317 2,681 2,332 2,207 2,038 1,623 1,514 1,396 1,193
Provision for taxes on income 914 675 545 582 577 480 432 422 360
----------------------------------------------------------------------------------------
Earnings before cumulative effect of
accounting changes 2,403 2,006 1,787 1,625 1,461 1,143 1,082 974 833
Cumulative effect of accounting
changes (net of tax) - - - (595) - - - - -
----------------------------------------------------------------------------------------
NET EARNINGS $ 2,403 2,006 1,787 1,030 1,461 1,143 1,082 974 833
========================================================================================
Percent of sales to customers 12.8 12.7 12.6 7.5(1) 11.7 10.2(2) 11.1 10.8 10.4
NET EARNINGS PER SHARE OF COMMON STOCK $ 3.72 3.12 2.74 1.56 2.19 1.72 1.62 1.43 1.21
========================================================================================
PERCENT RETURN ON AVERAGE
STOCKHOLDERS' EQUITY 29.7 31.6 33.3 19.1(1) 27.8 25.3(2) 28.3 27.9 26.4
========================================================================================
PERCENT INCREASE (DECREASE) OVER
PREVIOUS YEAR:
Sales to customers 19.8 11.3 2.8 10.5 10.8 15.1 8.4 12.3 14.4
NET EARNINGS PER SHARE 19.2 13.9 75.6(1) (28.8)(1) 27.3(2) 6.2(2) 13.3 18.2 -(3)
========================================================================================
SUPPLEMENTARY EXPENSE DATA:
Cost of materials and services(5) $ 9,852 7,952 7,033 6,857 6,329 5,728 4,908 4,528 4,030
Total employment costs 4,707 4,282 4,066 4,044 3,507 3,195 2,871 2,639 2,388
Depreciation and amortization 857 724 617 560 493 474 414 391 356
Maintenance and repairs(6) 252 217 202 210 203 185 193 191 180
Total tax expense(7) 1,433 1,142 968 1,000 966 825 708 678 591
TOTAL TAX EXPENSE PER SHARE(7) 2.22 1.78 1.49 1.52 1.45 1.24 1.06 1.00 .86
========================================================================================
SUPPLEMENTARY BALANCE SHEET DATA:
Property, plant and equipment, net $ 5,196 4,910 4,406 4,115 3,667 3,247 2,846 2,493 2,250
Additions to property, plant and
equipment 1,256 937 975 1,103 987 830 750 664 515
Total assets 17,873 15,668 12,242 11,884 10,513 9,506 7,919 7,119 6,546
Long-term debt 2,107 2,199 1,493 1,365 1,301 1,316 1,170 1,166 733
========================================================================================
COMMON STOCK INFORMATION:
Dividends paid per share $ 1.28 1.13 1.01 .89 .77 .66 .56 .48 .40
Stockholders' equity per share $ 13.97 11.08 8.66 7.89 8.44 7.36 6.23 5.26 5.06
Market price per share (year-end
close) $85 1/2 54 3/4 44 7/8 50 1/2 57 1/4 35 7/8 29 5/8 21 1/4 18 3/4
Average shares outstanding (millions) 645.9 643.1 651.7 659.9 666.1 666.1 666.2 681.2 690.3
STOCKHOLDERS OF RECORD (THOUSANDS) 113.5 104.7 96.1 84.1 69.9 64.6 60.5 54.5 51.2
========================================================================================
EMPLOYEES (THOUSANDS) 82.3 81.5 81.6 84.9 82.7 82.2 83.1 81.3 78.2
========================================================================================
<CAPTION>
(Dollars in Millions Except Per Share
Figures) 1986 1985
- -------------------------------------------------------------
<S> <C> <C>
Sales to customers - Domestic 3,972 3,990
Sales to customers - International 3,031 2,431
------------------
TOTAL SALES 7,003 6,421
==================
Cost of products sold 2,632 2,592
Selling, marketing and administrative
expenses 2,868 2,516
Research expense 521 471
Permanent impairment of certain assets
and operations in Latin America - -
Redirection charges 540 -
Interest income (100) (107)
Interest expense, net of portion
capitalized 66 46
Other expense (income), net 85 4
------------------
6,612 5,522
------------------
Earnings before provision for taxes
on income 391 899
Provision for taxes on income 61 285
------------------
Earnings before cumulative effect of
accounting changes 330 614
Cumulative effect of accounting
changes (net of tax) - -
------------------
NET EARNINGS 330 614
==================
Percent of sales to customers 4.7(3) 9.6
NET EARNINGS PER SHARE OF COMMON STOCK .46 .84
==================
PERCENT RETURN ON AVERAGE
STOCKHOLDERS' EQUITY 10.7(3) 19.5
==================
PERCENT INCREASE (DECREASE) OVER
PREVIOUS YEAR:
Sales to customers 9.1 4.8
NET EARNINGS PER SHARE (45.2)(3) 21.7
==================
SUPPLEMENTARY EXPENSE DATA:
Cost of materials and services(5) 3,642 3,274
Total employment costs 2,091 1,941
Depreciation and amortization 291 262
Maintenance and repairs(6) 170 133
Total tax expense(7) 284 466
TOTAL TAX EXPENSE PER SHARE(7) .40 .64
==================
SUPPLEMENTARY BALANCE SHEET DATA:
Property, plant and equipment, net 1,916 1,840
Additions to property, plant and
equipment 446 366
Total assets 5,877 5,095
Long-term debt 242 185
==================
COMMON STOCK INFORMATION:
Dividends paid per share .34 .32
Stockholders' equity per share 4.09 4.58
Market price per share (year-end
close) 16 7/8 13 1/8
Average shares outstanding (millions) 713.6 731.5
STOCKHOLDERS OF RECORD (THOUSANDS) 52.1 53.5
==================
EMPLOYEES (THOUSANDS) 77.1 74.9
==================
<FN>
(1) After the cumulative effect of accounting changes of $595 million. - 1992 earnings percent of sales to customers before
accounting changes is 11.8%.
- 1992 earnings percent return on average stockholders'
equity before accounting changes is 28.5%.
- 1993 net earnings per share percent increase over prior
year before accounting change is 11.4%; 1992 is 12.3%.
(2) After Latin America non-recurring charges of $125 million. - 1990 net earnings percent of sales to customers before
non-recurring charges is 11.3%.
- 1990 percent return on average stockholders' equity before
non-recurring charges is 27.6%.
- 1991 net earnings per share percent increase over prior year before
non-recurring charges is 15.3%; 1990 is 17.3%.
(3) After one-time charges of $380 million. - 1986 earnings percent of sales before one-time charges is 10.1%.
- 1986 percent return on average stockholders' equity before one-time charges is 21.6%.
- 1987 net earnings per share percent increase over prior year before one-time charges
is 22.2%; 1986 is 17.9%.
(4) Includes Latin America non-recurring charge of $36 million for the liquidation of Argentine debt.
(5) Net of interest and other income.
(6) Also included in cost of materials and services category.
(7) Includes taxes on income, payroll, property and other business taxes.
</FN>
</TABLE>
42
<PAGE> 21
APPENDIX
PAGE 1 OF 5
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
CHART 1
GRAPH PAGE 23
SALES TO CUSTOMERS
MILLIONS OF DOLLARS
1986 THROUGH 1995
Bar graph showing ten years of sales to customers. Each bar depicts total
sales for the year. Each bar is color coded to show domestic and international
sales as a piece of the whole.
Bar graph points:
<TABLE>
<CAPTION>
DOMESTIC INTERNATIONAL WORLDWIDE
YEAR SALES SALES SALES
- ----- -------- ------------- ---------
<S> <C> <C> <C>
1986 $3,972 $ 3,031 $ 7,003
1987 4,167 3,845 8,012
1988 4,576 4,424 9,000
1989 4,881 4,876 9,757
1990 5,427 5,805 11,232
1991 6,248 6,199 12,447
1992 6,903 6,850 13,753
1993 7,203 6,935 14,138
1994 7,812 7,922 15,734
1995 9,190 9,652 18,842
</TABLE>
CHART 2
GRAPH PAGE 23
NET EARNINGS
MILLIONS OF DOLLARS
1986 THROUGH 1995
Bar graph showing ten years of net earnings.
Bar graph points:
<TABLE>
<CAPTION>
NET
YEAR EARNINGS
- ----- --------
<S> <C>
1986 $ 330
1987 833
1988 974
1989 1,082
1990 1,143
1991 1,461
1992 1,030
1993 1,787
1994 2,006
1995 2,403
</TABLE>
<PAGE> 22
APPENDIX
PAGE 2 OF 5
CHART 3
GRAPH PAGE 24
NET EARNINGS PER SHARE AND CASH DIVIDENDS PAID PER SHARE
DOLLARS PER SHARE
1986 THROUGH 1995
Bar graph showing ten years of net earnings per share. Additionally, cash
dividends paid per share each year is shown on each bar in a different color.
Bar graph points:
<TABLE>
<CAPTION>
NET EARNINGS CASH DIVIDENDS
YEAR PER SHARE PAID PER SHARE
- ----- ------------ --------------
<S> <C> <C>
1986 $ .46 $ .34
1987 1.21 .40
1988 1.43 .48
1989 1.62 .56
1990 1.72 .66
1991 2.19 .77
1992 1.56 .89
1993 2.74 1.01
1994 3.12 1.13
1995 3.72 1.28
</TABLE>
CHART 4
PIE CHART PAGE 24
DISTRIBUTION OF SALES REVENUES -- 1995
A pie chart showing how 1995 sales revenues were distributed.
Pie chart pieces:
<TABLE>
<S> <C>
Employment Costs............................................ 25.0%
Cost of Materials and Services.............................. 52.3
Depreciation and Amortization of Property and Intangibles... 4.5
Taxes Other Than Payroll.................................... 5.4
Cash Dividend Paid.......................................... 4.4
Earnings Reinvested in Business............................. 8.4
</TABLE>
<PAGE> 23
APPENDIX
PAGE 3 OF 5
CHART 5
GRAPH PAGE 24
RESEARCH EXPENSE
MILLIONS OF DOLLARS
1986 THROUGH 1995
Bar graph showing ten years of research expense.
Bar graph points:
<TABLE>
<CAPTION>
RESEARCH
YEAR EXPENSE
- ----- --------
<S> <C>
1986 $ 521
1987 617
1988 674
1989 719
1990 834
1991 980
1992 1,127
1993 1,182
1994 1,278
1995 1,634
</TABLE>
CHART 6
GRAPH PAGE 26
SALES BY SEGMENT OF BUSINESS
MILLIONS OF DOLLARS
1993 THROUGH 1995
Bar graph showing sales by segment of business. Each bar depicts total
sales. The segments are shown as a percentage of total sales each year and are
displayed in different colors.
Bar graph points:
<TABLE>
<CAPTION>
YEAR CONSUMER PHARM PROFESS TOTAL
- ----- -------- ----- ------- --------
<S> <C> <C> <C> <C>
1993 34.1% 31.8 % 34.1% $ 14,138
1994 33.4 32.8 33.8 15,734
1995 30.9 33.3 35.8 18,842
</TABLE>
<PAGE> 24
APPENDIX
PAGE 4 OF 5
CHART 7
GRAPH PAGE 26
OPERATING PROFIT BY SEGMENT OF BUSINESS
MILLIONS OF DOLLARS
1993 THROUGH 1995
Bar graph showing operating profit by segment of business. Each bar depicts
the total of segments operating profit. The segments are shown as a percentage
of total segments operating profit each year and are displayed in different
colors.
Bar graph points:
<TABLE>
<CAPTION>
YEAR CONSUMER PHARM PROFESS TOTAL
- ----- -------- ----- ------- -------
<S> <C> <C> <C> <C>
1993 20.2% 54.4 % 25.4% $ 2,582
1994 15.0 56.5 28.5 2,955
1995 8.3 58.0 33.7 3,574
</TABLE>
CHART 8
GRAPH PAGE 28
SALES BY GEOGRAPHIC AREA OF BUSINESS
MILLIONS OF DOLLARS
1993 THROUGH 1995
Bar graph showing sales by geographic area of business. Each bar depicts
total sales. The geographic areas are shown as a percentage of total sales each
year and are displayed in different colors.
Bar graph points:
<TABLE>
<CAPTION>
AFRICA,
UNITED WESTERN ASIA AND
STATES EUROPE HEMISPHERE PACIFIC TOTAL
------ ------ ---------- -------- --------
<S> <C> <C> <C> <C> <C>
1993 50.9% 28.5% 9.4% 11.2% $ 14,138
1994 49.7 28.6 9.6 12.1 15,734
1995 48.8 29.6 9.2 12.4 18,842
</TABLE>
<PAGE> 25
APPENDIX
PAGE 5 OF 5
CHART 9
GRAPH PAGE 28
OPERATING PROFIT BY GEOGRAPHIC AREA OF BUSINESS
MILLIONS OF DOLLARS
1993 THROUGH 1995
Bar graph showing operating profit by geographic area of business. Each bar
depicts the total of segments operating profit. The geographic areas are shown
as a percentage of total segments operating profit each year and are displayed
in different colors.
Bar graph points:
<TABLE>
<CAPTION>
AFRICA,
UNITED WESTERN ASIA AND
STATES EUROPE HEMISPHERE PACIFIC TOTAL
------ ------ ---------- -------- --------
<S> <C> <C> <C> <C> <C>
1993 46.8% 40.1% 6.1% 7.0% $ 2,582
1994 51.9 35.5 5.9 6.7 2,955
1995 52.4 35.4 5.5 6.7 3,574
</TABLE>
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES
Johnson & Johnson, a New Jersey corporation, has the domestic and
international subsidiaries shown below. Certain domestic subsidiaries and
international subsidiaries are not named because they are not significant in the
aggregate. Johnson & Johnson has no parent.
<TABLE>
<CAPTION>
JURISDICTION OF
NAME OF SUBSIDIARY ORGANIZATION
- ------------------------------------------------------------------------ ------------------
<S> <C>
Domestic Subsidiaries:
Cordis Corporation.................................................... Florida
Cordis International Corporation...................................... Delaware
Ethicon Endo-Surgery, Inc. ........................................... Ohio
Ethicon, Inc. ........................................................ New Jersey
GynoPharma Inc. ...................................................... Delaware
Janssen Pharmaceutica Inc. ........................................... New Jersey
Janssen Products, Inc. ............................................... Delaware
Johnson & Johnson Clinical Diagnostics, Inc. ......................... New York
Johnson & Johnson Consumer Products, Inc. ............................ New Jersey
Johnson & Johnson (CR), Inc. ......................................... New Jersey
Johnson & Johnson Development Corporation............................. New Jersey
Johnson & Johnson Finance Corporation................................. New Jersey
Johnson & Johnson Health Care Systems Inc. ........................... New Jersey
Johnson & Johnson International....................................... New Jersey
Johnson & Johnson Japan Inc. ......................................... New Jersey
Johnson & Johnson Medical, Inc. ...................................... New Jersey
Johnson & Johnson - Merck Consumer Pharmaceuticals Co. ............... New Jersey
Johnson & Johnson (Middle East) Inc. ................................. New Jersey
Johnson & Johnson Professional, Inc. ................................. New Jersey
Johnson & Johnson (Russia), Inc. ..................................... New Jersey
Johnson & Johnson S.A., Inc. ......................................... New Jersey
Johnson & Johnson Services, Inc. ..................................... New Jersey
Johnson & Johnson Slovakia, Ltd. ..................................... New Jersey
Johnson & Johnson Vision Products, Inc. .............................. Florida
Johnson & Johnson S.E., Inc. ......................................... New Jersey
Joint Medical Products Corporation.................................... Delaware
JJHC, Inc. ........................................................... Delaware
LifeScan, Inc. ....................................................... California
McNEIL-PPC, Inc. ..................................................... New Jersey
McNeilab, Inc. ....................................................... Pennsylvania
Mitek Surgical Products, Inc. ........................................ Delaware
Neutrogena Corporation................................................ Delaware
Noramco, Inc. ........................................................ Georgia
OMJ Pharmaceuticals, Inc. ............................................ Delaware
Ortho Biotech Inc. ................................................... New Jersey
Ortho Diagnostic Systems Inc. ........................................ New Jersey
Ortho Pharmaceutical Corporation...................................... Delaware
Raritan Advertising, Inc. ............................................ New Jersey
</TABLE>
16
<PAGE> 2
<TABLE>
<CAPTION>
JURISDICTION OF
NAME OF SUBSIDIARY ORGANIZATION
- ------------------------------------------------------------------------ ------------------
<S> <C>
Somerset Laboratories, Inc. .......................................... New Jersey
Therakos, Inc. ....................................................... Florida
International Subsidiaries:
Centra Healthcare..................................................... United Kingdom
Cilag AG International................................................ Switzerland
Cilag AG Pharmaceuticals.............................................. Switzerland
Cilag de Mexico, S.A. de C.V. ........................................ Mexico
Cilag Farmaceutica Ltda. ............................................. Brazil
Cilag G.m.b.H. ....................................................... Germany
Cilag Holding AG...................................................... Switzerland
Cordis A.B. .......................................................... Sweden
Cordis A.G. .......................................................... Switzerland
Cordis B.V. .......................................................... Netherlands
Cordis Espana S.A. ................................................... Spain
Cordis Europe N.V. ................................................... Netherlands
Cordis France SARL.................................................... France
Cordis Ges, m.b.H. ................................................... Austria
Cordis Holding (B.V.)................................................. Netherlands
Cordis Hungary KFT.................................................... Hungary
Cordis International S.A. ............................................ Belgium
Cordis Italia S.p.A. ................................................. Italy
Cordis Med. App. G.m.b.H. ............................................ Germany
Cordis S.A. .......................................................... Belgium
Cordis S.A. .......................................................... France
Cordis S.A. (PTY) Ltd. ............................................... South Africa
Cordis Sp. zoo........................................................ Poland
Cordis U.K. Ltd. ..................................................... United Kingdom
Ethicon Endo-Surgery (Europe) G.m.b.H. ............................... Germany
Ethicon G.m.b.H & Co. KG.............................................. Germany
Ethicon Limited....................................................... Scotland
Ethicon S.p.A. ....................................................... Italy
Ethnor Del Istmo S.A. ................................................ Panama
Ethnor (Proprietary) Limited.......................................... South Africa
Ethnor S.A. .......................................................... France
Greiter AG............................................................ Switzerland
Greiter G.m.b.H. ..................................................... Germany
Greiter (International) AG............................................ Switzerland
Instrumentos Medico-Cirurgico Cordis S.A. ............................ Portugal
Janssen Biotech N.V. ................................................. Belgium
Janssen-Cilag......................................................... Norway
Janssen-Cilag AB...................................................... Sweden
Janssen-Cilag AG...................................................... Switzerland
Janssen-Cilag A/S..................................................... Denmark
Janssen-Cilag Farmaceutica, Ltda. .................................... Portugal
Janssen-Cilag K.K. ................................................... Japan
Janssen-Cilag Limited................................................. United Kingdom
Janssen-Cilag N.V. ................................................... Belgium
</TABLE>
17
<PAGE> 3
<TABLE>
<CAPTION>
JURISDICTION OF
NAME OF SUBSIDIARY ORGANIZATION
- ------------------------------------------------------------------------ ------------------
<S> <C>
Janssen-Cilag OY...................................................... Finland
Janssen-Cilag Pharmaceutica B.V. ..................................... Netherlands
Janssen-Cilag Pharmaceutica S.A.C.I. ................................. Greece
Janssen-Cilag Pharma Vertrieb GmbH.................................... Austria
Janssen-Cilag Pty. Limited............................................ Australia
Janssen-Cilag S.A. ................................................... Spain
Janssen-Cilag S.A. ................................................... France
Janssen-Cilag S.p.A. ................................................. Italy
Janssen Farmaceutica Ltda............................................. Brazil
Janssen Farmaceutica Limitada......................................... Chile
Janssen Farmaceutica Portugal, Limitada............................... Portugal
Janssen Farmaceutica C.A. ............................................ Venezuela
Janssen Farmaceutica S.A ............................................. Spain
Janssen Farmaceutica S.A ............................................. Colombia
Janssen Farmaceutica, S.A. de C.V. ................................... Mexico
Janssen G.m.b.H. ..................................................... Germany
Janssen Internationaal N.V. .......................................... Belgium
Janssen Korea, Ltd. .................................................. Korea
Janssen-Kyowa Co., Ltd. .............................................. Japan
Janssenpharma A/S..................................................... Denmark
Janssen Pharmaceutica Inc. ........................................... Canada
Janssen Pharmaceutica Limited......................................... Thailand
Janssen Pharmaceutica N.V. ........................................... Belgium
Janssen Pharmaceutica (Proprietary) Limited........................... South Africa
Janssen Pharmaceutical Limited........................................ Ireland
JHC Nederland B.V. ................................................... Netherlands
JHC Ltd. ............................................................. Ireland
Johnson & Johnson AB.................................................. Sweden
Johnson & Johnson AG.................................................. Switzerland
Johnson & Johnson A/S................................................. Denmark
Johnson & Johnson S.A. de C.V. ....................................... Mexico
Johnson & Johnson de Argentina, S.A.C.e I. ........................... Argentina
Johnson & Johnson China, Ltd. ........................................ China
Johnson & Johnson Clinical Diagnostics (Europe) S.A. ................. France
Johnson & Johnson Clinical Diagnostics Ltd. .......................... England
Johnson & Johnson Clinical Diagnostics................................ France
Johnson & Johnson Clinical Diagnostics SpA............................ Italy
Johnson & Johnson Consumer Europe..................................... France
Johnson & Johnson de Chile S.A. ...................................... Chile
Johnson & Johnson de Colombia S.A. ................................... Colombia
Johnson & Johnson de Costa Rica S.A. ................................. Costa Rica
Johnson & Johnson del Ecuador S.A. ................................... Ecuador
Johnson & Johnson de Mexico, S.A. de C.V. ............................ Mexico
Johnson & Johnson de Uruguay S.A. .................................... Uruguay
Johnson & Johnson de Venezuela, S.A. ................................. Venezuela
Johnson & Johnson (Dominicana), C. por A. ............................ Dominican Republic
Johnson & Johnson Finance Limited..................................... United Kingdom
</TABLE>
18
<PAGE> 4
<TABLE>
<CAPTION>
JURISDICTION OF
NAME OF SUBSIDIARY ORGANIZATION
- ------------------------------------------------------------------------ ------------------
<S> <C>
Johnson & Johnson/Gaba B.V. .......................................... Netherlands
Johnson & Johnson G.m.b.H. ........................................... Germany
Johnson & Johnson Guatemala, S.A. .................................... Guatemala
Johnson & Johnson Hellas S.A. ........................................ Greece
Johnson & Johnson Hemisferica S.A. ................................... Puerto Rico
Johnson & Johnson Holding GmbH........................................ Germany
Johnson & Johnson (Hong Kong) Limited................................. Hong Kong
Johnson & Johnson Inc. ............................................... Canada
Johnson & Johnson Industria e Comercio Ltda........................... Brazil
Johnson & Johnson (Ireland) Limited................................... Ireland
Johnson & Johnson (Jamaica) Limited................................... Jamaica
Johnson & Johnson (Kenya) Limited..................................... Kenya
Johnson & Johnson Korea Ltd. ......................................... Korea
Johnson & Johnson Kft. ............................................... Hungary
Johnson & Johnson K.K. ............................................... Japan
Johnson & Johnson Leasing G.m.b.H. ................................... Germany
Johnson & Johnson Limitada............................................ Portugal
Johnson & Johnson Limited............................................. United Kingdom
Johnson & Johnson Limited............................................. India
Johnson & Johnson Ltd. ............................................... Russia
Johnson & Johnson Management Limited.................................. United Kingdom
Johnson & Johnson Medical B.V. ....................................... Netherlands
Johnson & Johnson Medical (China) Ltd. ............................... China
Johnson & Johnson Medical G.m.b.H..................................... Austria
Johnson & Johnson Medical G.m.b.H. ................................... Germany
Johnson & Johnson Medical K.K. ....................................... Japan
Johnson & Johnson Medical Korea Limited............................... Korea
Johnson & Johnson Medical Mexico S.A., de C.V. ....................... Mexico
Johnson & Johnson Medical Ltd. ....................................... United Kingdom
Johnson & Johnson Medical Mfg. SDN. BHD. ............................. Malaysia
Johnson & Johnson Products Inc. ...................................... Canada
Johnson & Johnson Medical Pty. Ltd. .................................. Australia
Johnson & Johnson Medical S.A. ....................................... Argentina
Johnson & Johnson Morocco S.A. ....................................... Morocco
Johnson & Johnson (New Zealand) Limited............................... New Zealand
Johnson & Johnson Pacific Pty. Ltd. .................................. Australia
Johnson & Johnson Pakistan (Private) Limited.......................... Pakistan
Johnson & Johnson Panama, S.A. ....................................... Panama
Johnson & Johnson (Philippines), Inc. ................................ Philippines
Johnson & Johnson Poland, Inc. Sp. z o.o. ............................ Poland
Johnson & Johnson (Private) Limited................................... Zimbabwe
Johnson & Johnson Produtos Profissionais Ltda......................... Brazil
Johnson & Johnson Professional Products (Pty.) Ltd. .................. South Africa
Johnson & Johnson (Proprietary) Limited............................... South Africa
Johnson & Johnson Pte. Ltd. .......................................... Singapore
Johnson & Johnson Pty. Limited........................................ Australia
Johnson & Johnson Research Pty. Limited............................... Australia
</TABLE>
19
<PAGE> 5
<TABLE>
<CAPTION>
JURISDICTION OF
NAME OF SUBSIDIARY ORGANIZATION
- ------------------------------------------------------------------------ ------------------
<S> <C>
Johnson & Johnson S.A. ............................................... France
Johnson & Johnson S.A. ............................................... Spain
Johnson & Johnson Medical S.A. ....................................... France
Johnson & Johnson SDN. BHD. .......................................... Malaysia
Johnson & Johnson S.p.A. ............................................. Italy
Johnson & Johnson, Spol.s.r.o. ....................................... Czech Republic
Johnson & Johnson Taiwan Ltd. ........................................ Taiwan
Johnson & Johnson (Thailand) Limited.................................. Thailand
Johnson & Johnson (Trinidad) Limited.................................. Trinidad
Johnson & Johnson Vision Products AB.................................. Sweden
Johnson & Johnson (Zambia) Limited.................................... Zambia
Laboratories Janssen -- Cilag S.A..................................... France
Laboratoires Polive S.N.C. ........................................... France
Lifescan Canada Ltd. ................................................. Canada
Medos S.A. ........................................................... Switzerland
Nihon RoC K.K. ....................................................... Japan
Neutrogena Corp. S.A.R.L. ............................................ France
Neutrogena Provence S.A.R.L........................................... France
Ortho Diagnostic Systems G.m.b.H. .................................... Germany
Ortho Clinical Diagnostics K.K. ...................................... Japan
Ortho Diagnostic Systems Limited...................................... United Kingdom
Ortho Diagnostic Systems N.V. ........................................ Belgium
Ortho Diagnostic Systems S.A. ........................................ France
Ortho Diagnostic Systems S.p.A. ...................................... Italy
Ortho-McNeil Inc. .................................................... Canada
Pharma Argentina S.A. ................................................ Argentina
P.T. Johnson & Johnson Indonesia...................................... Indonesia
RoC G.m.b.H. ......................................................... Germany
RoC K.K. ............................................................. Japan
RoC S.A. ............................................................. France
RoC S.A./N.V. ........................................................ Belgium
RoC Laboratoires de Dermoestetica S.A. ............................... Spain
The R.W. Johnson Pharmaceutical Research Institute.................... Switzerland
Shanghai Johnson & Johnson Pharmaceuticals Limited.................... China
Shanghai Johnson & Johnson Ltd. ...................................... China
Surgikos, S.A. de C.V. ............................................... Mexico
Tasmanian Alkaloids Pty. Ltd. ........................................ Australia
Taxandria Pharmaceutica B.V. ......................................... Netherlands
Vania Expansion SNC................................................... France
Woelm Pharma G.m.b.H. & Co. Arzneimittelvertrieb oHG.................. Germany
Woelm Pharma G.m.b.H. & Co. oHG....................................... Germany
Xian-Janssen Pharmaceutical Limited................................... China
</TABLE>
20
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 1,201
<SECURITIES> 163
<RECEIVABLES> 3,161
<ALLOWANCES> 258
<INVENTORY> 2,276
<CURRENT-ASSETS> 7,938
<PP&E> 8,175
<DEPRECIATION> 2,979
<TOTAL-ASSETS> 17,873
<CURRENT-LIABILITIES> 4,388
<BONDS> 2,223
<COMMON> 767
0
0
<OTHER-SE> 8,278
<TOTAL-LIABILITY-AND-EQUITY> 17,873
<SALES> 18,842
<TOTAL-REVENUES> 18,842
<CGS> 6,235
<TOTAL-COSTS> 6,235
<OTHER-EXPENSES> 1,634
<LOSS-PROVISION> 46
<INTEREST-EXPENSE> 143
<INCOME-PRETAX> 3,317
<INCOME-TAX> 914
<INCOME-CONTINUING> 2,403
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,403
<EPS-PRIMARY> 3.72
<EPS-DILUTED> 3.65
</TABLE>
