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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 29, 1996 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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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 25, 1997 was approximately $75.1 billion.
On February 25, 1997 there were 1,333,553,480 shares of Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
<TABLE>
<S> <C>
Parts I and II: Portions of registrant's annual report to shareowners for fiscal year 1996.
Part III: Portions of registrant's proxy statement for its 1997 annual meeting of
shareowners.
</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
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ITEM PAGE
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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 the Registrant's Common Equity and Related Shareowner Matters....... 6
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 shareowner
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 89,300 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 and Professional
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 Shareowners for fiscal year 1996 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 skin and hair
products. Major brands include ACT Fluoride Rinse; BAND-AID Brand Adhesive
Bandages; CAREFREE Panty Shields; JOHNSON'S CLEAN & CLEAR Skin Care Products;
IMODIUM A-D Antidiarrheal; JOHNSON'S Baby line of products; MONISTAT, a 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; NICOTROL smoking cessation 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; 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.
PHARMACEUTICAL
The Pharmaceutical segment's principal worldwide franchises are in the
allergy, antibacterial, 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. under the
trademark PROCRIT), a biotechnology derived version of the human hormone
erythropoietin, which stimulates red blood cell production; ERGAMISOL, a colon
cancer drug; FLOXIN, an
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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. under the trademark
PROPULSID), a gastrointestinal prokinetic; RETIN-A, a dermatological cream for
acne; RISPERDAL, an antipsychotic drug; and ULTRAM, a centrally acting
prescription analgesic for moderate to moderately severe pain.
PROFESSIONAL
The Professional segment includes suture and mechanical wound closure
products, minimally-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 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 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 $1,905, $1,634 and
$1,278 million for fiscal years 1996, 1995 and 1994, 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.
3
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ITEM 2. PROPERTIES
Johnson & Johnson and its worldwide subsidiaries operate 173 manufacturing
facilities occupying approximately 16.5 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............................................................... 5,931
Pharmaceutical......................................................... 3,980
Professional........................................................... 6,586
------
Worldwide total.............................................. 16,497
======
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Within the United States, 12 facilities are used by the Consumer segment, 9
by the Pharmaceutical segment and 41 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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NUMBER OF SQUARE FEET
GEOGRAPHIC AREA FACILITIES (IN THOUSANDS)
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United States................................................ 62 7,296
Europe....................................................... 44 4,474
Western Hemisphere excluding U.S.A........................... 23 2,441
Africa, Asia and Pacific..................................... 44 2,286
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Worldwide total.................................... 173 16,497
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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 Expense and
Lease Commitments" under "Johnson & Johnson and Subsidiaries -- Notes to
Consolidated Financial Statements" on page 34 of Johnson & Johnson's Annual
Report to Shareowners for fiscal year 1996. Segment information on additions to
Johnson & Johnson's property, plant and equipment is contained on page 41 of
Johnson & Johnson's Annual Report to Shareowners for fiscal year 1996.
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 Shareowners for
fiscal year 1996 is incorporated herein by reference.
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.
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
25, 1997, 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 Shareowners 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, 1997. Mr. Clark H. Johnson, a director referred to in such Proxy
Statement, passed away on March 13, 1997.
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NAME AGE POSITION
- --------------------------------- --- ---------------------------------------------------
<S> <C> <C>
Robert J. Darretta............... 50 Member, Executive Committee; Vice President,
Finance(a)
Russell C. Deyo.................. 47 Member, Executive Committee; Vice President,
Administration(b)
Roger S. Fine.................... 54 Member, Executive Committee; Vice President,
General Counsel(c)
Ronald G. Gelbman................ 49 Member, Executive Committee; Worldwide Chairman,
Pharmaceutical and Diagnostics Group(d)
JoAnn H. Heisen.................. 47 Member, Executive Committee; Vice President, Chief
Information Officer(e)
Christian A. Koffmann............ 56 Member, Executive Committee; Worldwide Chairman,
Consumer and Personal Care Group(f)
Ralph S. Larsen.................. 58 Chairman, Board of Directors and Chief Executive
Officer; Chairman, Executive Committee
James T. Lenehan................. 48 Member, Executive Committee; Worldwide Chairman,
Consumer, Pharmaceuticals and Professional
Group(g)
Robert N. Wilson................. 56 Vice-Chairman, Board of Directors; Vice-Chairman
Executive Committee
</TABLE>
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(a) Mr. R. J. Darretta joined the Company in 1968 and held various positions
before becoming President of Iolab Corporation in 1988. He became Treasurer
of the Company in 1995 and on March 24, 1997, became Vice President, Finance
and a Member of the Executive Committee.
(b) Mr. R. C. Deyo joined the Company in 1985 and became Associate General
Counsel in 1991. He became a Member of the Executive Committee and Vice
President, Administration in October 1996.
(c) Mr. R. S. Fine joined the Company in 1974 and became Assistant General
Counsel in 1978 and Associate General Counsel in 1984. He became a Member of
the Executive Committee and Vice President, Administration in 1991 and
became Vice President, General Counsel in October 1996.
(d) 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.
(e) Ms. J. H. Heisen joined the Company in 1989 as Assistant Treasurer and
became Vice President, Investor Relations in 1990, Treasurer in 1991 and
Controller in 1995. She became a Member of the Executive Committee and Vice
President, Chief Information Officer in January 1997.
(f) 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.
(g) 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.
5
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
SHAREOWNER 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 Shareowners
for fiscal year 1996.
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 1986-1996"
on page 42 of Johnson & Johnson's Annual Report to Shareowners for fiscal year
1996.
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 Shareowners for
fiscal year 1996.
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 Shareowners for fiscal year 1996.
ITEM 9. CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS 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 (except as noted in Item 4
above) 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, 1997.
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, 1997.
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 Shareowner" and
"Election of Directors--Stock Ownership/Control" on pages 2 and 8 of Johnson &
Johnson's Proxy Statement dated March 12, 1997.
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
Shareowners for fiscal year 1996.
2. Financial Statement Schedules
Schedule II -- Valuation and Qualifying Accounts
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 1996.
2
<PAGE> 10
JOHNSON & JOHNSON AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
FISCAL YEARS ENDED DECEMBER 29, 1996, DECEMBER 31, 1995 AND JANUARY 1, 1995
(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>
1996
Reserves deducted from
accounts receivable, trade
Reserve for doubtful Write-offs less
accounts............... $ 109 60 recoveries............... 27
Currency adjustments..... 1 141
Reserve for customer Customer rebates
rebates................ 115 686 allowed.................. 671
Currency adjustments..... 1 129
Reserve for cash
discounts.............. 34 388 Cash discounts allowed... 383 39
---- ----- --- ---
$ 258 1,134 1,083 309
==== ===== ===== ====
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
==== ===== === ===
</TABLE>
- ---------------
(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, 1997 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, 1997
- ----------------------------------- Chief Executive Officer, and
R. S. Larsen Director (Principal Executive
Officer)
/s/ R. J. DARRETTA Vice President -- Finance March 25, 1997
- ----------------------------------- (Principal Financial Officer)
R. J. Darretta
/s/ C. E. LOCKETT Controller March 26, 1997
- -----------------------------------
C. E. Lockett
/s/ J. W. BLACK Director March 27, 1997
- -----------------------------------
J. W. Black
/s/ G. N. BURROW Director March 27, 1997
- -----------------------------------
G. N. Burrow
/s/ J. G. COONEY Director March 27, 1997
- -----------------------------------
J. G. Cooney
/s/ J. G. CULLEN Director March 28, 1997
- -----------------------------------
J. G. Cullen
/s/ P. M. HAWLEY Director March 26, 1997
- -----------------------------------
P. M. Hawley
/s/ A. D. JORDAN Director March 28, 1997
- -----------------------------------
A. D. Jordan
/s/ A. G. LANGBO Director March 28, 1997
- -----------------------------------
A. G. Langbo
</TABLE>
9
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<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------- ------------------------------------ ---------------
<C> <S> <C>
- ----------------------------------- Director March , 1997
J. S. Mayo
/s/ T. S. MURPHY Director March 28, 1997
- -----------------------------------
T. S. Murphy
/s/ P. J. RIZZO Director March 25, 1997
- -----------------------------------
P. J. Rizzo
/s/ M. F. SINGER Director March 25, 1997
- -----------------------------------
M. F. Singer
/s/ R. B. SMITH Director March 26, 1997
- -----------------------------------
R. B. Smith
/s/ R. N. WILSON Vice Chairman, Board of Directors March 25, 1997
- ----------------------------------- and Director
R. N. Wilson
</TABLE>
10
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REPORT OF INDEPENDENT AUDITORS
To the Shareowners 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 1996 Annual Report to Shareowners 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 20, 1997
6
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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, 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 20, 1997, on our audits of the
consolidated financial statements and financial statement schedule of Johnson &
Johnson and subsidiaries as of December 29, 1996 and December 31, 1995, and for
each of the three years in the period ended December 29, 1996, 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, 1997
12
<PAGE> 15
EXHIBIT INDEX
<TABLE>
<CAPTION>
REG. S-K
EXHIBIT TABLE DESCRIPTION
ITEM NO. OF EXHIBIT
- ------------- ------------------------------------------------------------------------------
<C> <S>
3(a)(i) Restated Certificate of Incorporation dated April 26, 1990 -- Incorporated
herein by reference to Exhibit 3(a) of the Registrant's Form 10-K Annual
Report for the year ended December 30, 1990.
3(a)(ii) Certificate of Amendment to the Restated Certificate of Incorporation of the
Company 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(a)(iii) Certificate of Amendment to the Restated Certificate of Incorporation of the
Company dated May 21, 1996 -- Filed with this document.
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) Stock Option Plan for Non-Employee Directors -- Filed with this document.*
10(b) 1995 Stock Option Plan (as amended) -- Incorporated herein by reference to
Exhibit 10(a) of the Registrant's Form 10-K Annual Report for the year ended
December 31, 1995.*
10(c) 1991 Stock Option Plan -- Incorporated by reference to Registration Statement
No. 33-40294, Exhibit 4(a).*
10(d) 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(e) 1995 Stock Compensation Plan -- Incorporated herein by reference to Exhibit
10(e) of the Registrant's Form 10-K Annual Report for the year ended December
31, 1995.*
10(f) Executive Incentive Plan -- Filed with this document.*
10(g) Domestic Deferred Compensation Plan (as amended) -- Filed with this document.*
10(h) Deferred Fee Plan for Directors (as amended) -- Filed with this document.*
10(i) Executive Income Deferral Plan -- Filed with this document.*
10(j) Excess Savings Plan -- Filed with this document.*
10(k) 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(l) 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 Shareowners for fiscal year
1996 (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 29, 1996 -- Filed with this
document.
99 -- Annual Reports on Form 11-K for the Johnson & Johnson Savings Plans, to be
filed on or before June 30, 1997.
</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 shareowner submitting a written request specifying the desired exhibit(s)
to the Secretary at the principal executive offices of the Company.
13
<PAGE> 1
Exhibit 3(a)(iii)
CERTIFICATE OF AMENDMENT TO THE RESTATED
CERTIFICATE OF INCORPORATION OF
JOHNSON & JOHNSON
To: The Secretary of State
State of New Jersey
Pursuant to the provisions of Section 14A:7-15.1(3), 14A:9-2(2) and
14A:9-4(2) of the New Jersey Business Corporation Act, Johnson & Johnson, a
corporation organized under the laws of the State of New Jersey (the
"Corporation"), executes the following Certificate of Amendment to its Restated
Certificate of Incorporation:
1. The name of the corporation is Johnson & Johnson.
2. The following amendment to the Restated Certificate of Incorporation
of the Corporation (the "Amendment") was approved and duly adopted by the Board
of Directors of the Corporation effective on the 25th day of April, 1996 to be
effective as provided therein.
"The authorized Common Stock of the Company shall be increased from
1,080,000,000 to 2,160,000,000 and, in connection therewith, the Restated
Certificate of Incorporation of the Company, first sentence of Article Fourth,
is hereby amended, effective at the close of business on May 21, 1996, to read
as follows:
The aggregate number of shares of all classes of stock which
the Corporation has authority to issue is Two Billion One
Hundred Sixty Two Million (2,162,000,000), divided into Two
Million (2,000,000) shares of Preferred Stock without par
value and Two Billion One Hundred Sixty Million
(2,160,000,000) shares of Common Stock of the par value of
One Dollar ($1.00) each."
3. The Amendment will not adversely affect the rights or preferences of
the holders of outstanding shares of Common Stock of the Corporation and will
not result in the percentage of authorized shares of Common Stock that remains
unissued after the share division exceeding the percentage of authorized shares
of Common Stock that were unissued before the share division.
4. On the effective date of the Amendment, (i) each share of Common
Stock of the Corporation which was issued and outstanding or held in Treasury
shall be divided into two fully-paid and non-assessable shares of Common Stock,
par value of $1.00 per share, and (ii) each share of Common Stock allocated to
the Corporation's reserves for issuance under its stock compensation and stock
option plans or otherwise shall be divided into two shares of Common Stock, par
value $1.00 per share.
5. The Amendment and the division of shares of Common Stock of the
Corporation shall become effective at the close of business on the 21st day of
May, 1996.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
signed by its President and by its Secretary, and its Corporate Seal to be
hereto affixed on the first day of May, 1996.
JOHNSON & JOHNSON
<PAGE> 2
By: /s/ Ralph S. Larsen
---------------------
Ralph S. Larsen
President
By: /s/ Peter S. Galloway
---------------------
Peter S. Galloway
Secretary
[Seal]
<PAGE> 1
Exhibit 10(a)
JOHNSON & JOHNSON
STOCK OPTION PLAN
FOR NON-EMPLOYEE DIRECTORS
(Effective as of January 1, 1997)
1. Purpose. The purpose of the Stock Option Plan for Non-Employee
Directors of Johnson & Johnson (the "Plan") is to provide certain compensation
to eligible directors of Johnson & Johnson (the "Company") and to encourage the
highest level of director performance by providing such directors with an
interest in the Company's success and progress by granting them non-qualified
options ("Options") to purchase shares of the Company's Common Stock ("Common
Stock").
2. Administration. The Plan shall be administered by the Compensation
Committee or any successor thereto (the "Committee") of the Company's Board of
Directors (the "Board"). Questions involving eligibility for grants of Options,
entitlement to Options or the operation of the Plan shall be referred to the
Committee. All determinations of the Committee shall be conclusive. The
Committee may obtain such advice or assistance as it deems appropriate from
persons not serving on the Committee.
3. Eligibility and Grants. To be eligible to participate in the Plan, a
director must not be an officer or employee of the Company or any of its
subsidiaries or affiliates. On the first trading day of each calendar year, each
eligible director shall automatically be granted an Option to purchase 1,100
shares of Common Stock. Such amount may be increased or decreased by the
Committee in November or December of each year to reflect the competitive
environment with respect to director compensation. Each eligible director to
whom Options are granted is hereinafter referred to as a "Participant." Each
grant of Options shall be evidenced by a written agreement duly executed and
delivered by or on behalf of the Company and the Participant.
4. Shares Available. Subject to adjustment as provided in Section 10,
the maximum aggregate number of shares of Common Stock which shall be available
under the Plan for the issuance upon the exercise of Options is 150,000 shares.
5. Term of Options. Each Option granted under the Plan shall have a
term of ten years from the date of grant, subject to earlier termination as
provided in Section 8(b).
6. Option Price. Options are priced at 100% of the fair market value of
the Common Stock on the date of grant. Such price shall be subject to adjustment
as provided in Section 10. The fair market value of a share of Common Stock
shall be the average of the highest and lowest sales prices of the Common Stock
as reported on the New York Stock Exchange Composite Tape ("Fair Market Value").
7. Exercise of Options. (a) Each Option shall become 100% exercisable
at the earliest of the completion of a Participant's Board service or on a date
which is one year after the date of grant.
(b) An Option may be exercised at any time or from time to time, as to
any or all full shares of Common Stock as to which the Option is then
exercisable; provided, however, that any such exercise shall be for at least 100
shares of Common Stock or, if less, the total number of shares of Common Stock
as to which the Option is then exercisable.
(c) The purchase price of the Common Stock as to which an Option is
exercised shall be paid in full at the time of exercise; payment may be made in
cash or in shares of Common Stock valued at Fair Market Value.
<PAGE> 2
8. Completion of Directorship. (a) Completion. If a Participant
completes his/her service as a non-employee director of the Company for any
reason (other than death), the Participant's Options may be exercised at any
time during the remainder of the Option term.
(b) Death. In the event of Participant's death, regardless of whether
Participant is still serving as a director, the Option may be exercised, subject
to the provisions of Section 5, within three (3) years after death by
Participant's estate or by any person who acquires such option inheritance or
devices. Thereafter, such rights shall lapse.
9. Regulatory Compliance and Listing. The issuance or delivery of any
shares of Common Stock upon the exercise of Options may be postponed by the
Company for such period as may be required to comply with any applicable
requirements under the Federal securities laws, any applicable listing
requirements of any national securities exchange and requirements under any
other law or regulation applicable to the issuance or delivery of such shares,
and the Company shall not be obligated to issue or deliver any shares of Common
Stock if the issuance or delivery of such shares shall constitute a violation of
any provision of any law or of any regulation of any governmental authority or
any national securities exchange.
10. Adjustment in Event of Changes in Capitalization. In the event of a
recapitalization, stock split, stock dividend, combination or exchange of
shares, merger, consolidation, rights offering, separation, reorganization or
liquidation, or any other change in the corporate structure or shares of the
Company, the number of shares of Common Stock that may be awarded as Options or
that are subject to outstanding Option grants, and the option price per share
under outstanding Options, shall be adjusted automatically to prevent dilution
or enlargement of rights.
11. Termination or Amendment of the Plan. The Board may at any time
terminate the Plan and may from time to time alter or amend the Plan or any part
thereof (including any amendment deemed necessary to ensure that the Company may
comply with any regulatory requirement referred to in Section 9), provided that,
unless otherwise required by law, the rights of a Participant with respect to
Options granted prior to such termination, alteration or amendment may not be
impaired without the consent of such Participant.
12. Miscellaneous. (a) Nothing in the Plan shall be deemed to create
any obligation on the part of the Board to nominate any director for reelection
by the Company's shareholders.
(b) The Company shall have the right to require, prior to the issuance
or delivery of any Common Stock upon the exercise of Options, payment by the
Participant of any taxes required by law with respect to the issuance or
delivery of such shares. Such amount may be paid in cash, in shares of Common
Stock previously owned by the Participant (based on the Fair Market Value), or a
combination of cash and shares of Common Stock.
(c) The shares of Common Stock to be issued upon the exercise of
Options under the Plan shall, unless otherwise determined by the Committee, be
shares which have been or may be reacquired by the Company.
* * * * * *
<PAGE> 1
Exhibit 10(f)
JOHNSON & JOHNSON
EXECUTIVE INCENTIVE PLAN
(EFFECTIVE JANUARY 1, 1996)
I. PURPOSE
The purpose of the Johnson & Johnson Executive Incentive Plan (the
"Plan") is to attract and retain highly qualified individuals as executive
officers; to obtain from each the best possible performance; to underscore the
importance to them of achieving particular business objectives established for
Johnson & Johnson; and to include in their compensation package a bonus
component which is intended to qualify as performance-based compensation under
Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Internal
Revenue Code"), which compensation would be deductible by Johnson & Johnson
under the Internal Revenue Code.
II. DEFINITIONS
For the purposes of the Plan, the following terms shall have the
following meanings:
A. AWARDS. The cash and/or stock bonus awards made pursuant to
the Plan.
B. BOARD OF DIRECTORS. The Board of Directors of Johnson &
Johnson.
C. COMMITTEE. The Compensation Committee of the Board of
Directors or any successor thereto.
D. COMMON STOCK. The common stock of the Corporation, par
value $1.00 per share.
E. CONSOLIDATED EARNINGS. Consolidated net income for the year
for which an Award is made, adjusted to omit the effects of extraordinary items,
discontinued operations and the cumulative effects of changes in accounting
principles, all as shown on the audited consolidated
<PAGE> 2
statement of income of the Corporation and its subsidiaries and as determined in
accordance with generally accepted accounting principles.
F. CORPORATION. Johnson & Johnson.
G. ELIGIBLE EMPLOYEE. An Employee who is an Executive Officer
of the Corporation.
H. EMPLOYEE. An individual who is on the active payroll of the
Corporation or a subsidiary of the Corporation at any time during the period for
which an Award is made.
I. EXECUTIVE OFFICER. The Chairman and any Vice Chairman of
the Board of Directors and any other officer of the Corporation who has been
designated a part of the Office of the Chairman or elected a Member of the
Executive Committee of the Corporation.
J. FAIR MARKET VALUE. The average between the highest and
lowest quoted selling price per share of Common Stock on the New York Stock
Exchange Composite Transactions Tape on the grant date, provided that if there
shall be no sales of shares of Common Stock on such date, the Fair Market Value
shall be deemed equal to the average between the highest and lowest sales price
of a share of Common Stock on such Composite Tape for the last preceding date on
which sales of shares of Common Stock were reported.
III. EFFECTIVE DATE; TERM
The Plan is effective as of January 1, 1996, subject to approval by the
Corporation's stockholders at the Corporation's 1996 Annual Meeting of
Stockholders, and shall remain in effect until such time as it shall be
terminated by the Board of Directors.
IV. AMOUNTS AVAILABLE FOR AWARDS; SHARES SUBJECT TO THE PLAN
A. Awards with respect to any taxable year of the Corporation shall not
exceed the limitations specified in Section VI of the Plan.
B. Awards that are granted under the Plan in the form of stock, in
whole or in part, may be made in the aggregate of not more than 4 million shares
of Common Stock less the aggregate number of shares of Common Stock awarded
under the 1995 Stock Compensation Plan of the Corporation, subject in each case,
to adjustment as hereinafter provided. These shares may, in the discretion of
the
<PAGE> 3
Committee, consist either in whole or in part of authorized but unissued
shares of Common Stock or shares of Common Stock held in the treasury of the
Corporation.
C. In the event of a reorganization, recapitalization, stock split,
stock dividend, combination of shares, merger, consolidation, any separation
(including a spinoff or other distribution of stock or property), any partial or
complete liquidation or any other change in the corporate structure or shares of
the Corporation, the Committee shall make such adjustment as is equitably
required in the number and kind of shares authorized by and for the Plan or in
the number of shares of Common Stock covered by any outstanding deferred Award.
V. ELIGIBILITY FOR AWARDS
Awards for any period may be granted to those Eligible Employees who
are selected by the Committee. Such selections, except in the case of the
Corporation's Chairman, shall be made after considering the recommendations of
the Chairman. The Committee shall also give consideration to the contribution
made by the Eligible Employee to achievement of the Corporation's established
objectives and such other matters as it shall deem relevant.
In the discretion of the Committee, Awards may be made to Eligible
Employees who have retired or whose employment has terminated after the
beginning of the year for which an Award is made, or to the designee or estate
of an Eligible Employee who died during such period.
VI. DETERMINATION OF AMOUNTS OF AWARDS
The maximum Award payable with respect to any taxable year of the
Corporation to any Eligible Employee who is the Chairman or a Vice Chairman of
the Board of Directors or any other officer who has been designated a part of
the Corporation's Office of the Chairman during all or any portion of such
taxable year shall not exceed .08% of Consolidated Earnings for such year. The
maximum Award payable with respect to any taxable year of the Corporation to any
other Eligible Employee shall not exceed .04% of Consolidated Earnings for such
year. The amounts of Awards to Eligible Employees shall be determined by the
Committee acting in its discretion subject to the maximum amounts set forth
above. Such determinations, except in the case of the Award for the Chairman,
shall be made after
<PAGE> 4
considering the recommendations of the Chairman and such other matters as the
Committee shall deem relevant. The Committee, acting in its discretion, may
determine to pay a lesser award than the maximum specified herein.
Awards may be made at any time following the end of the taxable year;
provided, however, that no Awards shall be made until the Committee receives
assurances from both the Corporation's Chief Financial Officer and its
independent accountants that the amount of such Award does not exceed the
applicable limitation under this Section VI and the Committee certifies in
writing that such limitation has not been exceeded. For purposes of making these
determinations, the value of the Common Stock component of any Award shall be
its Fair Market Value.
VII. FORM OF AWARDS
Awards under the Plan shall be made in cash or Common Stock, as the
Committee shall determine, subject to the limitations set forth in Section IV.
VIII. PAYMENT OF AWARDS
A. Awards under the Plan shall be paid currently, unless the
Committee shall determine that any Award in cash or Common Stock or any portion
thereof shall be deferred. Deferred Awards may be made in one lump sum or in
installments and may bear interest in the case of any deferred cash Award or
dividend equivalents in the case of any deferred Common Stock Award, all as the
Committee shall determine.
B. When an Award is made, the Corporation shall cause the cash
or Common Stock to be paid or issued to the Eligible Employee at the time or
times specified by the Committee or, if no time or times is specified, as soon
as practicable after the Award is made.
IX. SPECIAL AWARDS AND OTHER PLANS
<PAGE> 5
A. Nothing contained in the Plan shall prohibit the
Corporation or any of its subsidiaries from establishing other special awards or
incentive compensation plans providing for the payment of incentive compensation
to Employees (including Eligible Employees).
B. Payments or benefits provided to an Eligible Employee under
any stock, deferred compensation, savings, retirement or other employee benefit
plan are governed solely by the terms of such plan.
X. ADMINISTRATION, AMENDMENT AND INTERPRETATION OF THE PLAN
A. Except as otherwise provided in the Plan, the Committee
shall administer the Plan. The Committee shall consist of not less than three
members of the Board of Directors. No director 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. Committee members
shall not be eligible to participate in the Plan while members of the Committee.
The Committee shall have full power to construe and interpret the Plan,
establish and amend rules and regulations for its administration, and perform
all other acts relating to the Plan, including the delegation of administrative
responsibilities, that it believes reasonable and proper and in conformity with
the purposes of the Plan.
B. The Committee shall have the right to amend the Plan from
time to time or to repeal it entirely or to direct the discontinuance of Awards
either temporarily or permanently; provided, however, that (i) no amendment of
the Plan shall operate to annul, without the consent of the Eligible Employee,
an Award already made hereunder, and (ii) no amendment of the Plan that (x)
changes the maximum Award payable to any Eligible Employee, as set forth in
Section VI, (y) materially amends the definition of Consolidated Earnings or (z)
increases the amount of shares available for awards under the Plan (except as
contemplated by Section IV.C.) shall be effective before approval by the
affirmative vote of a majority of shares voting at a meeting of the stockholders
of the Corporation.
<PAGE> 6
C. Any decision made, or action taken, by the Committee
arising out of or in connection with the interpretation and/or administration of
the Plan shall be final, conclusive and binding on all persons affected thereby.
XI. RIGHTS OF ELIGIBLE EMPLOYEES
A. Neither the Plan, nor the adoption or operation of the
Plan, nor any documents describing or referring to the Plan (or any part hereof)
shall confer upon any Employee any right to continue in the employ of the
Corporation or a subsidiary of the Corporation.
B. No individual to whom an Award has been made or any other
party shall have any interest in the cash or Common Stock, or any other asset of
the Corporation until such amount has been paid or issued. To the extent that
any party acquires a right to receive payments of cash and/or share certificates
under the Plan, such party shall have the status of unsecured creditor of the
Corporation with respect to such right.
C. No right or interest of any Eligible Employee in the Plan
shall be assignable or transferable, or subject to any claims of any creditor or
subject to any lien.
XII. MISCELLANEOUS
A. All expenses and costs incurred in connection with the
operation of the Plan shall be borne by the Corporation, and no part therefor
(other than the amounts of Awards under the Plan) shall be charged against the
maximum limitation of Section VI.
B. All Awards under the Plan are subject to withholding, where
applicable, for federal, state and local taxes.
C. Any provision of the Plan that is prohibited or
unenforceable shall be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions of the Plan.
D. The Plan and the rights and obligations of the parties to
the Plan shall be governed by, and construed and interpreted in accordance with,
the law of the State of New Jersey (without regard to principles of conflicts of
law).
<PAGE> 1
Exhibit 10(g)
JOHNSON & JOHNSON
CERTIFICATE OF EXTRA COMPENSATION PLAN
WITNESSETH - WHEREAS, Johnson & Johnson (the "Employer") wishes to
reward its employees, as well as employees of its subsidiaries (an "Employee")
for faithful service in the past and more particularly to encourage Employees in
their future work by permitting Employees to share in the growth and success of
the Employer's enterprises by issuing to them Shares of Certificates of Extra
Compensation (the "CEC Shares"), and to that end to receive as extra
compensation sums based upon and measured by (a) the amount of cash dividends
from time to time declared upon an equal number of shares of common stock of the
Employer (the "Common Stock") and (b) the formula value of such CEC Shares as
established pursuant to Article "NINTH" of this Plan (the "Formula Value") at
the time of termination of employment or death while in such employment:
NOW, THEREFORE, in consideration of the premises and the promises
herein contained, and so long as the Employee shall remain an Employee, it is
agreed that:
FIRST: The number of CEC Shares designated upon which the Employee's extra
compensation shall be based is the aggregate number of CEC Shares awarded to
such Employee in accordance with the Plan as evidenced by the written records of
Employer.
SECOND: While the Employee remains an Employee, the Employer shall pay to the
Employee on the same date on which is paid any cash dividend on the Employer's
Common Stock, a sum equivalent to such cash dividend multiplied by the total
number of CEC Shares designated for such Employee.
THIRD: In the event of the Employee's death while an Employee, the Employer
shall pay to the Employee's beneficiary (as last recorded over the Employee's
signature on the records of the Employer) a sum of money which shall be
determined as a percentage of the Formula Value of such CEC Shares. This
percentage shall be based upon the period elapsing between the date a CEC Share
has been awarded and death, as follows:
In the event of death within eighteen
(18) months of the date of an award...................... 30%
<PAGE> 2
In the event of death after eighteen
(18) months but within forty-two (42)
months of the date of an award........................... 70%
In the event of death after forty-two
(42) months of the date of an award...................... 100%
In the event of the termination of the Employee's
employment because of retirement, physical or mental disability,
or otherwise (except by reason of death), the Employer shall pay
to the Employee a sum of money which shall be determined as a
percentage of the Formula Value of such CEC Shares. For the
purposes of this Plan, an Employee placed on long-term disability
is not considered to be an Employee. This percentage shall be
based upon the period elapsing between the date a CEC Share has
been awarded and such termination of employment, as follows:
In the event of such termination within
twelve (12) months of the date of an award................ 0%
In the event of such termination after
twelve (12) months but within twenty-four
(24) months of the date of an award...................... 20%
In the event of such termination after
twenty-four (24) months but within thirty-six
(36) months of the date of an award...................... 40%
In the event of such termination after
thirty-six (36) months but within forty-eight
(48) months of the date of an award...................... 60%
In the event of such termination after
forty-eight (48) months but within sixty
(60) months of the date of an award...................... 80%
In the event of such termination after
sixty (60) months from the date of an award............. 100%
The Employer shall pay any such sum of money due under this Article
"THIRD", in a single lump sum, unless Employee has duly elected, pursuant to the
provisions of Article "SEVENTH" to defer receipt of such sum upon his/her
retirement.
FOURTH: At the election of each Employee, to be made as provided for below, the
payment of any sum due to an Employee upon his/her retirement may be deferred
and paid in either a single lump sum or in installments. A lump sum payment may
be deferred for up to ten taxable years following the Employee's retirement
date. If installment payments are elected, the first installment payment may be
made immediately upon retirement or be deferred for up to ten taxable years.
Installment payments will be made annually (in the manner described below) and
in approximately equal installment amounts (i.e., the value of the CEC payout
balance, plus accrued interest, divided by the number of remaining
installments). The minimum number of annual installments is two (2) and the
maximum number is fifteen (15). An Employee may elect to defer up to 100% of the
value of his/her total CEC holdings at retirement; or, any percentage increment
less than that. The following rules shall apply with respect to all payments:
<PAGE> 3
a) Immediate Lump Sum Payment - The Employee will receive the full
value of his/her CEC holdings in the calendar month of his/her retirement
effective date. Employees retiring prior to the determination of the prior years
CEC value will receive 97% of the estimated value with the remainder paid
shortly after the final value is determined.
b) Deferred Lump Sum Payment - The Employee will receive the full value
of his/her CEC holdings, plus any accrued interest, on or about January 15 of
the year he/she elects to receive payment in.
c) Immediate Commencement of Installments - The Employee will receive
the first installment in the calendar month of his/her retirement effective
date. All subsequent installments, plus any accrued interest, will be paid on or
about January 15 of each year.
d) Deferred Commencement of Installments - The Employee will receive
the first and all subsequent installments, plus any accrued interest, on or
about January 15 of each year.
FIFTH: With respect to any payments which are deferred and/or paid in
installments, interest shall be paid by the Employer from the effective date of
retirement to the date of any such payment. The interest rate for all deferred
and/or installment payments to an Employee shall be fixed at the date of
retirement and shall be the rate (rounded to 1 decimal place) offered, as
reported in the Wall Street Journal on the effective retirement date, on a
United States Treasury Instrument for the period comparable to the length of the
period of the deferral and/or installment payments. The interest shall be
compounded semi-annually on the last calendar day of June and December of each
year. If more than one instrument is quoted, the average of such rates shall be
utilized. By way of example, if an election is made to receive installments over
eight (8) years, the comparable eight (8) year U.S. Treasury Rate shall be
utilized; if an election is made to defer the commencement of installments for
two (2) years with installments paid out over ten (10) years, the comparable
twelve (12) year U.S. Treasury Rate shall be utilized. Once established, the
interest rate shall remain fixed for the period of the deferral.
SIXTH: In the event of death of an Employee (whether or not prior to the
termination of his/her employment) the Employer will make payment in full of the
balance, plus any accrued interest, as soon as administratively practical in a
single lump sum payment to the designated beneficiary.
In the event no deferral or installment election is made, the total
amount of the CEC holdings will be paid in accordance with the provisions of
paragraph (a) of Article "FOURTH" in a lump sum payment as soon as practical
following an Employee's retirement effective date.
SEVENTH: An election by an Employee to defer payment or elect installments of
all or a part of his/her CEC holdings beyond his/her effective retirement date
must be made a minimum of twelve (12) months prior to the date of such
retirement date. Any such election may be revised or revoked up to twelve (12)
months prior to such retirement date. For the twelve month period prior to such
retirement date, any election is irrevocable and thus may not be revoked or
otherwise revised.
The Employer may disallow an Employee's desire to defer payments and/or
elect installments if it determines that such participation would jeopardize the
Plan's compliance with applicable law or the Plan's status as a "top hat plan"
under ERISA.
Notwithstanding the above, an exception has been made for Employees who
have a retirement effective date between January 1, 1997 and June 30, 1997. For
such Employees, the deferral and/or installment election must be made a minimum
of three (3) months and in the calendar year prior to the retirement date. For
example, an Employee who retires on January 1, 1997, must make the deferral
and/or installment election no later than September 30, 1996; if the retirement
date is May 1, 1997, such election must be made not later than December 31,
1996. With respect to any retirement occurring between July 1, 1997, and
December 1, 1997, an election must be made prior to December 31, 1996. Any such
election to defer and/or receive installment payments may only be
<PAGE> 4
revised or revoked prior to the last permissible date for making such election.
After such time the election may not be revoked or otherwise revised.
An election to defer payment and/or be paid in installments is
effective only when filed with the administrator referred to in Article
"FIFTEENTH" on the form utilized for such purpose. Any election made after the
required deadline shall be disregarded.
AN ELECTION TO DEFER AND/OR BE PAID IN INSTALLMENTS SHOULD ONLY BE MADE
IN CONSULTATION WITH AN EMPLOYEE'S TAX AND/OR FINANCIAL ADVISOR.
EIGHTH: The number of CEC Shares designated and upon which is based and by which
is measured the extra compensation of the Employee shall be increased
proportionately from time to time to the extent that a stock split or a dividend
in Common Stock is declared and paid upon the issued and outstanding Common
Stock of the Employer. Likewise, the number of CEC Shares shall be reduced
proportionately from time to time to the extent that the number of CEC Shares of
issued and outstanding Common Stock of the Employer is reduced by
reorganization, reduction of capital, or otherwise.
NINTH: For the purposes of Article "THIRD" of this agreement, the Formula Value
of the CEC Shares shall be determined by the Employer's Board of Directors which
shall, except in the event mentioned below, determine such Formula Value as the
sum of one-half of the asset value per share of Common Stock plus one-half of
the earning-power value per share of Common Stock calculated as follows:
The sum of one-half of the consolidated net asset value per share of
Common Stock (being assets per share, less liabilities (including
reserves, other than surplus reserve) per share, as such assets and
liabilities appear on the books of the Employer and its subsidiaries as
of the fiscal year end immediately preceding the date of valuation)
plus one-half of the consolidated earning-power value per share of
Common Stock (determined as the average of annual net earnings per
share of Common Stock after all taxes as such net earnings appear on
the books of the Employer and its subsidiaries for five (5) fiscal
years preceding the date of valuation, capitalized as a return on
capital invested at eight percent (8%), i.e., a multiple of twelve and
one-half (12-1/2) times such average earnings per share).
For the purpose of the foregoing calculation, the books of the Employer and its
subsidiaries shall be conclusive. The method of consolidation shall be that
adopted by the Employer in preparing the last previous annual report to its
stockholders, including appropriate provision for taxes both foreign and
domestic which might be incurred in remitting income of the subsidiaries to the
Employer. The decisions of the Employer's Treasurer at all times, and from time
to time, as to procedures to be adopted in maintaining the books of the Employer
and its subsidiaries, preparation of balance sheets and income statements,
method of and adjustments made in consolidation, and all matters of accounting
practice and procedures shall be conclusive.
In the event that it shall be the opinion of the Board of Directors of
the Employer that the calculation made as provided above does not result in a
true value, as of any date at which under Article "THIRD" such determination is
necessary, the Board may but shall not be obligated to vary the formula to the
extent of modifying the multiple by which the average earnings per share shall
be multiplied.
The Board of Directors shall, on or before May fifteenth of each year,
determine and announce the Formula Value of the Employer's common stock as of
the immediately preceding fiscal year end for the purposes of this Plan.
TENTH: Dividends and share values are used herein only as measures of the extra
compensation to be paid hereunder. Nothing herein contained shall be construed
as an agreement to transfer to the Employee, or to his/her beneficiary, nor
shall either acquire, by virtue of his/her being awarded CEC Shares, any right,
title, or interest whatsoever in or to, any of the Employer's Common Stock.
<PAGE> 5
ELEVENTH: No right of benefit to CEC Shares awarded under the Plan is
assignable. The Employer does not fund the obligations created by the Employee
participation in the CEC Plan. Rather, the Employer makes an unsecured promise
to pay these obligations out of general corporate assets. This applies to
obligations for both active and retired participants. Commencing with awards
made at year end 1996, certificates representing CEC shares will no longer be
issued. Instead the number of CEC shares awarded shall be recorded on the books
of the Employer.
TWELFTH: Regular part-time employees (those working 20 hours or more a week)
shall be considered Employees under this Plan. Any change to part-time status of
less than 20 hours a week shall be considered a termination, provided, however,
that in the event such employee is over the age of 55, such employee shall, for
purposes of this Plan only, be deemed to have retired. Nothing contained in the
Plan shall be construed to alter the present employment for an indefinite term,
which is terminable by either Employee or Employer without prior advance notice
to the other.
THIRTEENTH: An Employee may designate one or more beneficiaries to receive the
value of his/her payout upon death. Should a beneficiary predecease the
Employee, or should a beneficiary not be named, the amount designated for such
beneficiary or the Employee's payout balance, as the case may be, will be
distributed to the Employee's Estate. Beneficiary designations may be made or
revised at any time by submitting a Beneficiary Designation Form to the
Employer. The beneficiary or beneficiaries indicated in such Form shall
supersede any prior designation, including designations appearing on any
certificates representing CEC Shares.
FOURTEENTH: In the first quarter of each calendar year, statements will be sent
to active Employees participating in the CEC Plan as well as to retirees with
deferred CEC holdings. The report for active Employees will provide the value of
CEC holdings based on the prior years' final CEC value. The statement will also
include previously made deferral elections and beneficiary designations. The
report for retirees will provide the deferred CEC payout balance plus interest,
as well as the deferred and/or installment election and beneficiary
designations.
FIFTEENTH: The CEC Plan is administered by the Extra Compensation Services
Department at the Corporate Headquarters of Employer. Questions in regard to the
administration of the CEC Plan should be addressed to it.
* * * * * * * * * *
<PAGE> 1
Exhibit 10(h)
Amended as of
December 5, 1996
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 original effective date of the Plan was January
1, 1983. The Plan was amended in its entirety, effective as of January 1, 1995
and again as of December 5, 1996.
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 (effective January 1,
1997) be required to defer receipt of Twenty Thousand Dollars ($20,000.) 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
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
Certificate of Extra 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.
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
<PAGE> 3
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 under the Plan, the next preceding
date on which such stock was traded shall be utilized.
9. Payment of Deferred Compensation. Upon a participant's completion of
service as a member of the Board of Directors (the "Completion Date"), each
participant (or in the event of the participant's death, the named beneficiary
or his/her estate) shall be entitled to receive in cash in a lump sum the value
of his/her deferred compensation account as of the Completion Date, unless such
participant has elected, pursuant to the provisions of Section 10 below, to
further defer payment of his/her deferred compensation account beyond such
Completion Date. 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 the Completion Date. The value of a participant's
deferred compensation account shall, subject to any further election made
pursuant to Section 10 below, be paid as soon as practicable following the
Completion Date or death.
10. Further Deferral Election. In addition to the deferral elections
referred to above, a participant may also elect (in the manner provided for
below) to continue to defer the receipt of his/her deferred compensation account
beyond his/her Completion Date. The value of a participant's account on his/her
Completion Date may be deferred for up to 10 taxable years following such
Completion Date. If installments are elected, the first installment payment may
be made immediately at the Completion Date or be deferred for up to 10 taxable
years. Installment payments will be made annually (in the manner described
below) in approximately equal amounts (i.e. the balance of the account). The
minimum number of installments is two and the maximum number is 10 provided,
however, that all payments shall be made within ten (10) years of the Completion
Date. A participant may elect to defer up to 100% of the value of his/her
account at the Completion Date; or any percentage increment less than that. All
deferred or installment payments shall be made in cash. The following additional
rules shall apply:
<PAGE> 4
a) Immediate Lump Sum Payment. The participant will receive the full
value of his/her account in the calendar month of his/her Completion Date.
b) Deferred Lump Sum Payment. The participant will receive the full
value of his/her account on or about January 15 of the year he/she elects to
receive payment in.
c) Immediate Commencement of Installments. The participant will receive
the first installment in the calendar month of his/her Completion Date. All
subsequent installments on or about January 15 of each year.
d) Deferred Commencement of Installments. The participant will receive
the first and all subsequent installments on or about January 15 of each year.
e) In the event of death of a participant, the Company will make
payment in full of the balance of an account, as soon as administratively
practical in a single lump sum payment to the designated beneficiary or his/her
estate.
f) In making any payment due on or about January 15, the value of a
participant's account on the first trading day of such month shall be utilized.
Any and all deferrals following a Completion Date shall be invested in
Company Stock Equivalent Units described in Section 6(a) above. To the extent a
participant's account was credited with the annual growth rate of an investment
in the CEC Plan (as described in Section 6(b) above), such account shall be
converted to Common Stock Equivalent units as of the Completion Date.
An election by a participant to defer payment or elect installments of
all or a part of his/her deferred compensation account beyond the Completion
Date must be made a minimum of twelve (12) months prior to such Completion Date.
Any such election may be revised or revoked up to twelve (12) months prior to
such Completion Date; after such time any election may not be revoked or
otherwise revised.
Notwithstanding the above and upon implementation of the Plan, an
exception has been made for participants having a Completion Date during 1997.
For such participants, the deferral and or installment election must be made a
minimum of three (3) months and in the calendar year prior to the Completion
Date. For example, a participant having a Completion Date of April 1, 1997, must
make the deferral and/or installment election no later than December 31, 1996.
Any such election to defer and/or receive installment payments may only be
revised or revoked prior to the last permissible date for making such election.
After such time the election may not be revoked or otherwise revised.
An election to defer payment and/or be paid in installments beyond a
Completion Date is effective only when filed with Extra Compensation Services on
the
<PAGE> 5
form utilized for such purposes. Any election made after the required deadline
shall be disregarded.
11. 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 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.
12. 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.
13. 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.
14. 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.
15. 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.
16. 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.
17. Governing Law. This Agreement shall be governed by and construed in
accordance with the Laws of the State of New Jersey.
<PAGE> 1
Exhibit 10(i)
JOHNSON & JOHNSON
EXECUTIVE INCOME DEFERRAL PLAN
The Johnson & Executive Income Deferral Plan (the "Plan") is intended
to permit a select group of executives to defer income which would otherwise be
immediately payable to them under various compensation and/or incentive plans of
Johnson & Johnson (the "Company").
1. ADMINISTRATION. This Plan is administered by the Compensation
Committee of the Company's Board of Directors. The Committee shall have
responsibility for determining which investments will from time to time be
available under the Plan and shall review the investment options at least once
every three years. The Committee shall make all decisions affecting the timing,
price or amount of any and all of the Deferred Awards (as hereinafter defined)
of participants subject to Section 16 of the Securities Exchange Act of 1934, as
amended, but may otherwise delegate any of its authority under this Plan.
2. ELIGIBILITY. Eligibility to defer under this Plan will be initially
limited to members of the Executive Committee of the Company. The Committee may
from time to time expand eligibility to defer compensation under this Plan to
other executives of the Company. The Committee, however, has the authority to
refuse to permit an participant to participate in this Plan or elect to defer
payments, if the Committee determines that such participation would jeopardize
the Plan's compliance with applicable law or the Plan's status as a top hat plan
under ERISA.
3. DEFERRAL INTO AN INCOME DEFERRAL ACCOUNT. participants may elect to
defer up to (i) fifty percent (50%) of annual salary, (ii) fifty percent (50%)
of cash payments under the Company's Executive Incentive Plan and (iii) one
hundred percent (100%) of dividend equivalents paid under the Company's
Certificate of Extra Compensation ("CEC") Plan. Amounts so deferred are known as
"Deferred Awards" and will be credited to a participant's "Income Deferral
Account". A participant's decision to defer under the Plan must be made on or
before September 30 of the year prior to the commencement of the fiscal year as
to which the compensation, incentive payment or dividend equivalent monies to be
deferred will be earned. At the Plan's inception, amounts otherwise payable in
1997 (regardless of the year in which earned) may be deferred under this Plan by
elections made on or before December 15, 1996. Any election to defer pursuant to
this Section 3 shall be effective only when timely filed with Extra Compensation
Services on the form utilized for such purpose. A participant shall designate,
in multiples of 1% of the Deferred Award, the portion to be allocated to each
investment option available under this Plan. A participant may change the
investment options for Deferred Awards not yet credited to his/her Income
Deferred Account not more than once each month, such change to be effective as
of the first day of the month following the month in which a participant's
request to change such allocation is received by Extra Compensation Services.
Any elections to defer dividend equivalents under the Company's CEC
Plan will be applied such that elections will apply to the CEC contracts in the
reverse order of their issuance. Deferred Awards shall be held in one account
regardless of the form of compensation or plan under which they were earned.
Upon ceasing to be an employee of the Company, each participant (or in
the event of a participant's death, the named beneficiary or his/her estate)
shall be entitled to receive in cash in lump sum the value of his/her Income
Deferral Account as of the date of such termination, unless such participant has
elected, pursuant to the provisions of Section 7 below, to further defer payment
of his/her Income Deferral Account beyond retirement. Notwithstanding the above,
if a participant is in any fiscal year a "named executive officer" for proxy
statement reporting purposes by reason of his/her being the chief executive
officer of the Company or one of the four highest compensated officers (other
than the chief executive officer), any payment
<PAGE> 2
from an Income Deferral Account otherwise due to be made in such year shall be
postponed to a date which is on or about the 15th day of January of the
following fiscal year.
4. INVESTMENT OF INCOME DEFERRAL ACCOUNTS. At the election of each
participant, amounts in an Income Deferral Account may be invested utilizing the
options set forth below. Amounts to be deferred in any month will be credited to
a participant's Income Deferral Account on the last day of each month.
(a) Common Stock Equivalent Units. All amounts elected to be deferred
under this option shall be converted into equivalent units of the Company's
Common Stock ("Common Stock") as if the compensation deferred had been invested
in Common Stock ("Common Stock Equivalent Units"). The number of Common Stock
Equivalent Units shall be determined by dividing the amount of compensation to
be deferred by the average of the high and low prices of the Common Stock as
reported in the Wall Street Journal for the last trading day of each month. The
Company shall credit the participant's Income Deferral Account with the number
of full and partial shares of the Company's Common Stock so determined. However,
at no time shall any shares be purchased or earmarked for such Account and the
participant shall not have any of the rights of a shareholder with respect to
shares credited to his/her Income Deferral Account. The number of Common Stock
Equivalent Units included in a participant's Account shall be adjusted to
reflect dividends and increases or decreases in market value which would have
resulted had funds equal to such deferred amount been invested in Common Stock.
In the event of a reorganization, 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 Committee shall
make such adjustment, if any, as it may deem appropriate in the number and kind
of shares of the Company's Common Stock credited to participants' Income
Deferral Accounts.
(b) Balanced Fund. All amounts elected to be deferred under this option
shall be deemed to be invested in and credited with the investment rate of
return earned under the Balanced Fund option under the Company's Savings Plan or
any such successor fund. However, no Balanced Fund shares shall be purchased or
earmarked for a participant's Account.
(c) One Year Treasury Bill Rate. All amounts elected to be deferred
under this option shall be deemed to be invested in an interest bearing account
which bears interest at the One Year Treasury Bill Rate, compounded monthly. For
purposes of the Plan, the One Year Treasury Bill Rate shall be the interest rate
for One Year Treasury Bills quoted in the Wall Street Journal on the last
trading day of the preceding calendar year. Such rate shall be adjusted
annually. No Treasury Bills will be actually purchased or earmarked for a
participant's Account.
5. REDESIGNATION OF INVESTMENT OPTIONS WITHIN AN INCOME DEFERRAL
ACCOUNT. A participant may redesignate amounts previously credited to an Income
Deferral Account among the investments available under this Plan. Participants
who wish to redesignate out of a particular investment vehicle may not at the
same time redesignate into such investment vehicle. No redesignation of
investment may take place during the 30 days prior to a scheduled distribution
under this Plan. The following additional rules shall apply with respect to
redesignations of previously credited amounts:
(a) Permitted Frequency--Redesignation by a participant may be made not
more than once during any consecutive twelve month period.
(b) Amount and Extent of Redesignation--Redesignation for any
participant must be in 1% multiples of the investment from which redesignation
is being made.
(c) Timing--Redesignation shall take place as of the first day of the
month following the month in which a participant's written redesignation is
received by Extra Compensation Services. The value of the Company's Common Stock
for purposes of investment redesignation shall be the average of the high and
low
<PAGE> 3
prices of the Common Stock as reported in the Wall Street Journal for the last
trading day of the applicable month.
(d) Special rules for Redesignation Into or Out of Common Stock
Equivalent Units previously credited to an Income Deferred Account:
(i) Material, Nonpublic Information--The Committee in its sole
discretion and with advice of counsel at any time may rescind a redesignation
into or out of Common Stock Equivalent Units if such redesignation was made by a
participant who, a) at the time of the redesignation was in the possession of
material, nonpublic information with respect to the Company; and b) in the
Committee's estimation benefited from such information in the timing of his/her
redesignation.
The Committee's determination shall be final and binding. In the event
of such rescission, the participant's Income Deferral Account shall be returned
to a status as though such redesignation had not occurred. Notwithstanding the
above, the Committee shall not rescind a redesignation if the facts were
reviewed by the participant with the General Counsel of the Company or a
designee prior to the redesignation and if the General Counsel or designee had
concluded that such participant was not in possession of material, nonpublic
information.
(ii) A participant subject to Section 16(b) of the Securities Exchange
Act of 1934 may redesignate into or out of Common Stock Equivalent Units only
during the applicable "window period" with respect to the release of any
quarterly or annual statements of sales and earnings by the Company.
(iii) A redesignation into or out of Common Stock Equivalent Units may
not be made within 6 months of a discretionary "opposite way transaction" into
or out of Common Stock held by the participant in the Company's Savings Plan.
6. DISTRIBUTION OF INCOME DEFERRAL ACCOUNTS. If a participant's
employment is terminated for any reason (including death or disability), and
such participant is not eligible to retire from active service under the
Company's pension plan, then his/her Income Deferral Account will be
automatically paid in a lump sum as soon as administratively feasible in the
month following his/her termination of employment. Distributions in cash of the
value of equivalent shares of the Company's Common Stock will be valued at the
average of high and low market prices of the Common Stock as reported in the
Wall Street Journal on the last trading day of the month of his/her termination
of employment.
7. POST RETIREMENT DEFERRALS. At the further election of each
participant, to be made as provided for below, the payment of any sum otherwise
due to a participant upon his/her retirement may be further deferred and paid in
either a single lump sum or in installments. A lump sum payment may be deferred
for up to ten taxable years following the participant's retirement date. If
installment payments are elected, the first installment payment may be made
immediately upon retirement or be deferred for up to ten taxable years.
Installment payments will be made annually (in the manner described below) and
in approximately equal installment amounts (i.e., the value of the balance of
the Income Deferral Account, plus accrued interest, divided by the number of
remaining installments). The minimum number of annual installments is two (2)
and the maximum number is fifteen (15). An participant may elect to defer up to
100% of the value of his/her total Income Deferral Account at retirement; or,
any percentage increment less than that. The payment of any amounts from an
Income Deferral Account pursuant to this Section 7 shall be subject to the
provisions of the last sentence of Section 3 above. The following additional
rules shall apply with respect to all payments:
a) Immediate Lump Sum Payment - The participant will receive the full
value of his/her Income Deferral Account in the calendar month of his/her
retirement effective date.
b) Deferred Lump Sum Payment - The participant will receive the full
value of his/her Income Deferral Account, plus any accrued interest, on or about
January 15 of the year he/she elects to receive payment in.
<PAGE> 4
c) Immediate Commencement of Installments - The participant will
receive the first installment in the calendar month of his/her retirement
effective date, subject to the provisions of the last sentence of Section 3
above. All subsequent installments, plus any accrued interest, will be paid on
or about January 15 of each year.
d) Deferred Commencement of Installments - The participant will receive
the first and all subsequent installments, plus any accrued interest, on or
about January 15 of each year.
With respect to any amounts which are deferred and/or paid in
installments, interest shall be paid by the Employer from the effective date of
retirement to the date of any such payment. The interest rate for all deferred
and/or installment payments to a participant shall be fixed at the date of
retirement and shall be the rate (rounded to 1 decimal place) offered, as
reported in the Wall Street Journal on the effective retirement date, on a
United States Treasury Instrument for the period comparable to the length of the
period of the deferral and/or installment payments. The interest shall be
compounded semi-annually on the last calendar day of June and December of each
year. If more than one instrument is quoted, the average of such rates shall be
utilized. By way of example, if an election is made to receive installments over
eight (8) years, the comparable eight (8) year U.S. Treasury Rate shall be
utilized; if an election is made to defer the commencement of installments for
two (2) years with installments paid out over ten (10) years, the comparable
twelve (12) year U.S. Treasury Rate shall be utilized. Once established, the
interest rate shall remain fixed for the period of the deferral and/or
installments.
In the event of death of a participant following retirement, the
Employer will make payment in full of the balance of his/her Income Deferral
Account, plus any accrued interest, as soon as administratively practical in a
single lump sum payment to the designated beneficiary, subject to the provisions
of the last sentence of Section 3 above.
In the event no deferral or installment election is made under this
Section 7, the total amount of the Income Deferral Account will be paid in
accordance with the provisions of Section 3 in a lump sum payment as soon as
practical following an participant's retirement effective date.
An election by a participant to defer payment or elect installments of
all or a part of his/her Account beyond his/her effective retirement date must
be made a minimum of twelve (12) months prior to the date of such retirement
date. Any such election may be revised or revoked up to twelve (12) months prior
to such retirement date. For the twelve month period prior to such retirement
date, any election is irrevocable and thus may not be revoked or otherwise
revised.
Notwithstanding the above, at the Plan's inception, an exception has
been made for participants who have a retirement effective date between January
1, 1997 and December 31, 1997. For participants having a retirement effective
date prior to June 30, 1997, the deferral and/or installment election must be
made a minimum of three (3) months and in the calendar year prior to the
retirement date. For such participants having a retirement date between July 1,
1997 and December 31, 1997, such election must be made at least six (6) months
prior to the retirement date. For example, a participant who retires on April 1,
1997, must make the deferral and/or installment election no later than December
31, 1996; if the retirement date is August 1, 1997, such election must be made
not later than January 31, 1997. Any such election to defer and/or receive
installment payments may only be revised or revoked prior to the last
permissible date for making such election. After such time the election may not
be revoked or otherwise revised.
An election to defer payment and/or be paid in installments is
effective only when timely filed with Extra Compensation Services on the form
utilized for such purpose. Any election made after the required deadline shall
be disregarded.
8. DEDUCTIONS FROM DISTRIBUTIONS. The Company will deduct from each
distribution amounts required to be withheld for income, Social Security and
other tax purposes. The Company may also deduct any amounts the participant owes
the Company for any reason.
<PAGE> 5
9. BENEFICIARY DESIGNATIONS. A participant may designate one or more
beneficiaries to receive the value of his/her Income Deferral Account upon
death. Should a beneficiary predecease the participant, or should a beneficiary
not be named, the amount designated for such beneficiary or the participant's
balance, as the case may be, will be distributed to the participant's Estate.
Beneficiary designations may be made or revised at any time by submitting a
Beneficiary Designation Form to Extra Compensation Services.
10. AMENDMENTS. The Committee may amend this Plan at any time. However,
such amendment shall not without the consent of a participant, materially
adversely affect any right or obligation with respect to any Deferred Award made
theretofore.
11. MISCELLANEOUS. The Employer does not fund the obligations created
by the participant's participation in the Plan. Rather, the Employer makes an
unsecured promise to pay these obligations out of general corporate assets. This
applies to obligations for both active and retired participants.
In the first quarter of each calendar year, statements will be sent to
active participants participating in this Plan as well as to retirees with
Deferral Accounts. The statement will also include previously made deferral
elections and beneficiary designations. The report for retirees will provide the
deferred payout balance plus interest, as well as the deferred and/or
installment election and beneficiary designations.
This Plan is administered by the Extra Compensation Services Department
at the Corporate Headquarters of Employer. Questions in regard to the
administration of the Plan should be addressed to it.
AN ELECTION TO DEFER AND/OR BE PAID IN INSTALLMENTS SHOULD ONLY BE MADE
IN CONSULTATION WITH AN PARTICIPANT'S TAX AND/OR FINANCIAL ADVISOR.
<PAGE> 1
Exhibit 10(j)
THE JOHNSON & JOHNSON
EXCESS SAVINGS PLAN
<PAGE> 2
Effective as of
January 1, 1996
THE JOHNSON & JOHNSON
EXCESS SAVINGS PLAN
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE PAGE
- ------- ----
<S> <C> <C>
ARTICLE I PURPOSE 1
ARTICLE II DEFINITIONS 1
ARTICLE III ELIGIBILITY 2
ARTICLE IV AMOUNT AND METHOD OF PAYMENT OF BENEFITS 2
ARTICLE V GENERAL PROVISIONS 6
ARTICLE VI ADMINISTRATION OF THE PLAN 7
ARTICLE VII NON-DUPLICATION OF BENEFITS 8
</TABLE>
<PAGE> 3
THE JOHNSON & JOHNSON
EXCESS SAVINGS PLAN
ARTICLE I - PURPOSE
1.1 The purpose of the Plan, which is intended to constitute
an unfunded deferred compensation plan, is to provide its Members benefits
arising from the limitations of Section 401(a)(17) of the Internal Revenue Code
of 1986, as amended, and the impact of such limitations on the Johnson & Johnson
Savings Plan.
1.2 The Johnson & Johnson Excess Savings Plan (the Plan ) is
effective January 1, 1996.
ARTICLE II - DEFINITIONS
When used herein, the following defined terms have the
following meanings:
2.1 "Code" means the Internal Revenue Code of 1986, as amended
from time to time.
2.2 "Compensation" means compensation as defined in the
Savings Plan, without regard to the Code Section 401(a)(17) limit.
2.3 "Effective Date" means January 1, 1996.
2.4 "Employee" means any person who is employed by the
Employer.
2.5 "Employer" means Johnson & Johnson and affiliated
companies eligible to participate in the Savings Plan.
2.6 "ERISA" means the Employee Retirement Income Security Act
of 1974, as amended from time to time.
2.7 "Long Term Disability" means a physical or mental
condition that renders the Member incapacitated as defined under the Johnson &
Johnson Long Term Disability Plan.
2.8 "Member" means a person who is designated to participate
in the Plan in the manner described in Article III.
<PAGE> 4
2.9 "Normal Retirement Date" means the first day of the month
next following a Member's attainment of age 65.
2.10 "Pension Committee" means the Committee that has been
designated by the Board of Directors of the Employer.
2.11 "Plan" means the Johnson & Johnson Excess Savings Plan as
set forth herein and as may be amended and restated from time to time.
2.12 "Plan Year" means the 12 month period beginning on
January first.
2.13 "Savings Plan" means the Johnson & Johnson Savings Plan
as may be amended and restated from time to time.
ARTICLE III - ELIGIBILITY
3.1 An Employee will automatically become a Member under the
Plan if he is eligible to be a member of the Savings Plan under the terms of the
Savings Plan, as it may be amended from time to time, and if his Compensation
exceeds the Code Section 401(a)(17) limitation on compensation.
3.2 Any change in a Member's eligibility to participate under
the Plan will not affect Plan benefits previously credited to the Member's
bookkeeping account.
3.3 Any Employee who is ineligible or becomes ineligible to
make contributions to the Savings Plan (whether or not he continues to maintain
an account balance under the Savings Plan) is ineligible to participate in this
Plan.
ARTICLE IV - AMOUNT AND METHOD OF PAYMENT OF BENEFITS
4.1 Plan Benefit. If the employer contributions to a Member's
account under the Savings Plan are or could be reduced or limited in any year
because of the limitation imposed by Section 401(a)(17) of the Code, and
assuming for these purposes that the Member participates in the Savings Plan and
contributes the maximum amount eligible to be matched by the Employer, then a
benefit will be paid under this Plan in favor of the Member.
4.2 Amount of Benefit. The amount of the benefit payable under
this Plan for each Member or, if applicable, to the Member's designated
beneficiary, assuming for these purposes that the Member participated in the
Savings Plan and contributed the maximum amount eligible to be matched by the
Employer, will be equal to the excess of (a) over (b) where:
<PAGE> 5
(a) is equal to the maximum matching employer
contribution that would otherwise be
allocated to the Member's account under the
Savings Plan if the provisions of the
Savings Plan were administered without
regard to the limitations imposed by Section
401(a)(17) of the Code, and
(b) is the maximum matching employer
contribution that would have been allocated
to the Member's account under the Savings
Plan after giving effect to any reduction of
the employer contribution required by reason
of the limitations imposed by Section
401(a)(17) of the Code.
4.3 No Employee Contribution Required or Permitted. A Member
will be entitled to a benefit under this Plan without regard to whether the
Employee made any employee contributions (including any salary reduction
contributions) under the Savings Plan. No Member contribution is required or
permitted under the Plan.
4.4 Bookkeeping Account. The benefits provided under Section
4.2 will be credited each month, or as soon as administratively practicable
thereafter, to a bookkeeping account established for each eligible Member.
4.5 Earnings on Bookkeeping Account. Amounts credited to a
Member's bookkeeping account will be deemed to be invested in and credited with
the investment rate of return earned under the Savings Plan's Balanced Fund or
any such successor fund. Earnings will be credited for periods following the
crediting of benefits to a Member's bookkeeping account in a manner similar to
how such earnings are credited under the Savings Plan. No Member is entitled to
earnings on his bookkeeping account for service prior to the date of the
Member's participation in the Plan. The Pension Committee reserves the right to
designate a different rate of earnings for amounts credited or to be credited
under this Plan, provided that any new rate shall not apply retroactively.
4.6 Election for Payment of Benefits.
(a) Each Member may elect, at the time of his or
her notification of eligibility to
participate in the Plan or as soon as
administratively practicable thereafter, one
of the following distribution methods:
(1) lump sum distribution of the entire
bookkeeping account balance as soon
as administratively practicable
following the Member's termination
of employment with the Employer; or
(2) annual installments over a period of
at least 2 tax years but no more
than 15 tax years with the first
installment to begin as soon as
administratively
<PAGE> 6
practicable following the Member's
termination of employment with the
Employer.
(i) The amount of the first
installment payment under
distribution method (2) will be
equal to the value of the Member's
bookkeeping account determined in
the month preceding the month in
which the installment payment is
made multiplied by a fraction, the
numerator of which is one and the
denominator of which is the number
of remaining annual installments
including the one being paid, so
that at the end of the installment
period, the entire bookkeeping
account will have been distributed;
provided, however, that adjustments
to future installment payments will
be made at least annually to the
extent necessary to reflect earnings
deemed allocable to the Member's
bookkeeping account. Annual
installments after the first
installment will be determined in
accordance with the procedures
specified in the preceding sentence
and will be made as soon as
administratively practicable
following the year-end valuation of
the Member's bookkeeping account.
During the installment period, the
value of the Member's bookkeeping
account will continue to be credited
with earnings as set forth in
Section 4.5.
If a member makes a distribution election
subsequent to the administratively
practicable period in which he first
receives his notification of eligibility to
participate in the Plan, then such election
shall be effective only if it is made at
least 12 months prior to his termination of
employment with the Employer.
(b) Each Member may also elect, either at the
time of his initial participation in the
Plan or at the time no later than 12 months
prior to his termination of employment with
the Employer, to defer the payment of
benefits under this Plan for up to 10 tax
years after the Member's termination of
employment with the Employer. In the case of
any Member who elects a deferred payment, a
lump sum distribution of his benefit or the
first installment of his benefit (as the
member may elect) will be made as soon as
administratively practicable in the year
selected for the deferred payment based upon
the previous year-end's valuation of the
Member's bookkeeping account. Future
installment
<PAGE> 7
payments for the Member shall be made as
soon as administratively practicable in
accordance with the installment procedures
specified above. During the deferral period,
the value of the Member's bookkeeping
account will continue to be credited with
earnings as set forth in Section 4.5.
(c) If a Member terminates employment with the
Employer prior to attaining age 55, the
Member's entire bookkeeping account will be
distributed in a lump sum as soon as
administratively practicable following the
Member's termination of employment,
notwithstanding a Member's election under
subsections (a)(2) or (b) of this Section
4.6 to the contrary.
4.7 Revocation of Election for Payment of Benefits. Each
Member may revoke and change the method of his distribution election made in
accordance with Section 4.6, as long as the revocation and distribution election
is made no later than 12 months prior to his termination of employment with the
Employer. The last distribution election received by the Pension Committee no
later than 12 months prior to the Member's termination of employment with the
Employer will control.
4.8 Payment Where No Election is Made. If no election is made
for the distribution of benefits under this Plan, payment will be made in a lump
sum as soon as administratively practicable following the Member's termination
of employment with the Employer.
4.9 Payment to Beneficiary. Notwithstanding any provision in
this Article, including any election made by the Member in accordance with
Section 4.6 to the contrary, if the Member dies prior to or following the
commencement of payments to him under the Plan, his entire remaining bookkeeping
account balance will be paid to the person designated as his beneficiary (or the
person otherwise provided under Section 5.7) as soon as administratively
practicable following the Member's death.
4.10 Limitation on Withdrawal. The commencement of Long Term
Disability will not be an event that will entitle a Member to any distributions
under the Plan.
4.11 Not "Compensation" For Other Purposes. Any benefits
payable under this Plan will not be considered Compensation to the Member for
purposes of the Savings Plan or any other qualified retirement plan maintained
by the Employer.
4.12 Vesting of Account. The benefits provided under this Plan
will vest in the same manner and at the same time as employer contributions made
under the Savings Plan.
<PAGE> 8
ARTICLE V - GENERAL PROVISIONS
5.1 Authorization. The adoption of this Plan has been duly
authorized by the Pension Committee of Johnson & Johnson.
5.2 No Right to Continued Employment. This Plan is not an
employment contract and neither the Plan nor any action taken hereunder will be
construed as giving to a Member the right to be retained in the employ of the
Employer. The Employer may terminate the Member's employment as freely and with
the same effect as if this Plan were not in existence.
5.3 Binding Nature. This Plan will bind and inure to the
benefit of the Employer and its successors and assigns, the Member and his
beneficiary. No provision of this Plan precludes the Employer from consolidating
or merging into or with, or transferring all or substantially all of its assets
to another corporation that assumes this Plan and all obligations of the
Employer. In the event of a consolidation, merger or transfer of assets, the
term "Employer" will refer to the corporation that assumes the Plan, and this
Plan will continue in full force and effect.
5.4 Non-Funded Nature. The Employer's obligations under this
Plan will not be funded. Notwithstanding the establishment of a bookkeeping
account by the Employer under Section 4.4 of this Plan, all payments hereunder
will be made out of general assets of the Employer and no special or separate
fund will be established or other segregation of assets made to assure its
payments.
5.5 Non-Assignability. Benefits payable to Members and their
beneficiaries may not be anticipated, assigned (either at law or in equity),
alienated, pledged, encumbered or subjected to attachment, garnishment, levy,
execution or other legal or equitable process.
5.6 Withholding Taxes. The Employer may withhold from any
amounts deemed credited or benefits payable under this Plan all Federal, State,
City or other taxes as required pursuant to any law or governmental regulation
or ruling.
5.7 Beneficiary Designation. For purposes of the designation
of a beneficiary under this Plan, the beneficiary will be the Member's
designated beneficiary under the Savings Plan. If no designation is made or if
no designated beneficiary survives the Member, the payment will be made in
accordance with the procedures set forth in the Savings Plan.
<PAGE> 9
5.8 Disputes Concerning Beneficiaries. If the Pension
Committee is in doubt as to the right of any person to receive a benefit payable
under this Plan, the Pension Committee may, among other alternatives, pay the
disputed amount to any court of competent jurisdiction. The payment of the
disputed amount to a court of competent jurisdiction shall be a complete
discharge of the liability of the Employer therefor.
5.9 Amendment and Termination. This Plan may be amended,
suspended or terminated, in whole or in part, subject to applicable law, by
action of the Pension Committee at any time without the consent of any Employee,
Member, or beneficiary. No amendment to the Plan shall reduce any benefits that
any Member has been deemed to accrue under Article IV of this Plan on the date
of the amendment. Upon the termination of this Plan, any benefits that have been
deemed to accrue will be payable only in accordance with the time and manner of
payment as provided under Article IV.
ARTICLE VI - ADMINISTRATION OF THE PLAN
6.1 General Administration.
(a) The operation and administration of the Plan
will be controlled and managed by the
Employer, acting through the Pension
Committee.
(b) The Pension Committee shall, from time to
time, establish guidelines with respect to
the administration, claims review and appeal
procedures under this Plan. The Pension
Committee has the sole discretion to make
decisions and take any action with respect
to questions arising in connection with the
Plan, including the construction and
interpretation of the Plan.
(c) The Pension Committee shall, not less
frequently than annually, provide Members
with a statement reporting the Member's
current bookkeeping account balance.
(d) The Pension Committee shall exercise its
duties hereunder, and it may designate any
other person or persons to carry out its
functions and responsibilities.
(e) All decisions, actions or interpretations of
the Pension Committee will be final,
conclusive and binding on all parties.
6.2 Governing Law. The text of this Plan will control and the
headings to the Articles and Sections are for reference purposes only and do not
limit or extend the
<PAGE> 10
meaning of any of the Plan's provisions. The Plan will be governed by and
construed in accordance with the laws of the State of New Jersey, except to the
extent New Jersey law is preempted by federal law. In the event any applicable
federal law is inconsistent with New Jersey State law, but such federal law does
not preempt New Jersey State law, then New Jersey State law will control.
6.3 Records. The records of the Employer will be conclusive in
respect of the determination of a Member's eligibility, the calculation of
benefits, and all other matters involved in the administration of this Plan.
6.4 Gender. Any reference to the masculine gender shall
include the feminine.
ARTICLE VII - NON-DUPLICATION OF BENEFITS
7.1 If a Member participates in another non-qualified plan,
which is sponsored by the Employer, any affiliated employer or other
corporations that are members of a controlled group of corporations of which the
Employer is a member, within the meaning of Section 1563(a) of the Code,
benefits payable under the other non-qualified plan, to the extent attributable
to the Section 401(a)(17) limits affecting the Savings Plan, which are the
subject of this Plan, will be reduced by the benefits otherwise payable under
this Plan. The decision of the Pension Committee as to duplication of benefits
otherwise payable under this Plan will be final. For this purpose, if the other
plans have as their purpose the intent to recompense its eligible participants
for amounts affected by the Code Section 401(a)(17) limits, it will be deemed a
non-qualified plan regardless of the terminology employed.
<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 29, DECEMBER 31, JANUARY 1, JANUARY 2, JANUARY 3,
1996 1995 1995 1994 1993
------------ ------------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
1. Net Earnings........................... $ 2,887 2,403 2,006 1,787 1,030
-------- ------- ------- ------- -------
2. Average number of shares outstanding
during the year........................ 1,332.6 1,291.9 1,286.1 1,303.5 1,318.9
-------- ------- ------- ------- -------
3. Earnings per share based upon average
outstanding shares (1 / 2)............. $ 2.17 1.86 1.56 1.37 .78
======== ======= ======= ======= =======
4. Fully diluted earnings per share:
a. Average number of shares
outstanding during the year....... 1,332.6 1,291.9 1,286.1 1,303.5 1,318.9
b. Shares issuable under stock
compensation agreements at
year-end.......................... -- -- .2 .6 1.4
c. Shares reserved under the stock
option plans for which the market
price at fiscal year-end exceeds
the option price.................. 71.9 62.8 71.8 58.0 53.8
d. Aggregate proceeds to the Company
from the exercise of options in
4c................................ 2,198 1,551 1,499 998 894
e. Market price of the Company's
common stock at fiscal year-end... 50.50 42.75 27.38 22.38 25.25
f. Shares which could be repurchased
under the treasury stock method
(4d / 4e)......................... 43.5 36.3 54.7 44.6 35.4
g. Addition to average outstanding
shares (4b + 4c - 4f)............. 28.4 26.5 17.3 14.0 19.8
h. Shares for fully diluted earnings
per share calculation (4a + 4g)... 1,361.0 1,318.4 1,303.4 1,317.5 1,338.7
======== ======= ======= ======= =======
i. Fully diluted earnings per share
(1 / 4h).......................... $ 2.12 1.82 1.54 1.36 .77
======== ======= ======= ======= =======
</TABLE>
- ---------------
(A) All share and per share amounts have been adjusted for the two-for-one stock
split in 1996.
15
<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 29, DECEMBER 31, JANUARY 1, JANUARY 2, JANUARY 3,
1996 1995 1995 1994 1993
------------ ------------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Determination of Earnings:
Earnings Before Provision for
Taxes on Income and
Cumulative Effect of
Accounting Changes........... $4,033 3,317 2,681 2,332 2,207
Fixed Charges................... 204 219 234 211 210
------ ----- ----- ----- -----
Total Earnings as
Defined............... $4,237 3,536 2,915 2,543 2,417
====== ===== ===== ===== =====
Fixed Charges and Other:
Rents........................... $ 79 76 92 85 86
Interests....................... 125 143 142 126 124
------ ----- ----- ----- -----
Fixed Charges........... 204 219 234 211 210
Capitalized Interest............ 55 70 44 48 53
------ ----- ----- ----- -----
Total Fixed Charges..... $ 259 289 278 259 263
====== ===== ===== ===== =====
Ratio of Earnings to Fixed
Charges......................... 16.36 12.24 10.49 9.82 9.19
====== ===== ===== ===== =====
</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.
16
<PAGE> 1
- ---------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
- ---------------------------------------------------------------------------
OVERVIEW
Record sales of $21.62 billion reinforced the Company's position as the largest
and most comprehensive health care company in the world. Worldwide sales
increased for the sixty-fourth consecutive year, growing $2.78 billion or 14.7%
over 1995, primarily due to volume, with a total price increase of only .1%. The
Company's volume sales growth was fueled by the solid performance of products
introduced in the past few years 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 1996, $1.91 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. The current year sales growth also includes
the full-year impact of the merger of Cordis Corporation in early 1996.
During 1996, the Company continued initiatives to streamline its
businesses worldwide and to make the organization more cost effective. The
Company views the reengineering effort as a continuous process, and one that is
essential to compete effectively while constraining price increases and
providing resources for investing in advertising, marketing, and research and
development. These initiatives, implemented during the last few years, have
increased productivity and are showing positive results.
For 1996, the gross profit margin improved from 66.9% to 67.5%, while
selling, marketing and administrative expenses as a percent of sales decreased
from 39.6% to 38.8%. Over the past two years, the improvement in gross margins
and reduced operating expenses has resulted in cost savings of nearly $600
million on an annual basis.
The continued growth in sales and increased profitability during 1996
resulted in a 16.7% increase in earnings per share to $2.17. Earnings in 1996
generated $3.89 billion in cash from operations. When combined with $3.38
billion of cash generated from operations in 1995, the $7.27 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 93.9% since 1994 to $146 million.
In the U.S. and in countries around the world, health care systems
continue to be transformed. The Company believes 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 1996, worldwide sales increased 14.7% to $21.62 billion compared to increases
of 19.8% and 11.3% in 1995 and 1994, respectively. Excluding the impact of the
relatively stronger dollar in 1996, and the relatively weaker dollar in 1995 and
1994, as compared to international currencies, worldwide sales increased 16.5%,
16.7% and 10.7% in 1996, 1995 and 1994, respectively.
SALES TO CUSTOMERS
- --------------------------------------------------------------------------------
Millions of Dollars
<TABLE>
<CAPTION>
DOMESTIC INTERNATIONAL WORLDWIDE
YEAR SALES SALES SALES
- ---- -------- ------------- ---------
<S> <C> <C> <C>
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
1996 10,899 10,721 21,620
</TABLE>
- --------------------------------------------------------------------------------
Worldwide net earnings for 1996 were $2.89 billion, reflecting a 20.1%
increase over 1995. Worldwide net earnings per share for 1996 equaled $2.17 per
share, compared with $1.86 per share for 1995, adjusted to reflect the 1996
two-for-one stock split, an increase of 16.7%. The income margin for 1996 was
13.4%, the highest in the Company's history, despite an increase in the
effective tax rate of nearly a full percentage point.
Worldwide net earnings for 1995 were $2.4 billion, or $1.86 per share on a
split-adjusted basis, representing increases over 1994 of 19.8% and 19.2%,
respectively. In 1994, worldwide net earnings of $2.01 billion, or $1.56 per
share on a split-adjusted basis, increased over 1993 by 12.3% and 13.9%,
respectively.
Average shares of common stock outstanding in 1996 were 1.33 billion
compared with 1.29 billion in both 1995 and 1994 on a split-adjusted basis.
NET EARNINGS
- --------------------------------------------------------------------------------
Millions of Dollars
<TABLE>
<CAPTION>
NET
YEAR EARNINGS
- ---- --------
<S> <C>
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
1996 2,887
</TABLE>
- --------------------------------------------------------------------------------
Sales by domestic companies were $10.9, $9.19 and $7.81 billion in 1996,
1995 and 1994, representing increases of 18.6%, 17.6% and 8.5%, respectively.
The increase in domestic sales in 1996 was driven by the strong performance of
products introduced in the past few years and the continued expansion of base
businesses.
Sales by international companies were $10.72, $9.65 and $7.92 billion in
1996, 1995 and 1994, representing increases of 11.1%, 21.8% and 14.2%,
respectively. All geographic areas
23
<PAGE> 2
throughout the world posted strong gains during 1996. Sales in Europe increased
10.4%, while revenues in the Asia-Pacific, Africa region and the Western
Hemisphere (excluding the U.S.) increased 13.1% and 10.6%, respectively.
Excluding the impact of the relatively stronger dollar in 1996, and the
relatively weaker dollar in 1995 and 1994, compared to international currencies,
international company sales increased 14.6%, 15.6% and 13% in 1996, 1995 and
1994, respectively.
The Company achieved an annual compound growth rate of 11.9% for worldwide
sales for the ten-year period since 1986 with domestic and international sales
growing at rates of 10.6% and 13.5%, respectively. For the same ten-year period,
excluding non-recurring charges in 1986, worldwide net earnings achieved an
annual growth rate of 15.1%, while earnings per share grew at a rate of 15.8%.
For the last five years, annual compound growth rates for sales, net earnings
and earnings per share were 11.7%, 14.6% and 14.6%, 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 shareowners of record at year-end 1996
was 138,500. The composite market price ranges for Johnson & Johnson common
stock during 1996 and 1995, adjusted to reflect the 1996 two-for-one stock
split, were:
<TABLE>
<CAPTION>
1996 1995
----------------------- -------------------
HIGH LOW High Low
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
First quarter $50 1/4 41 5/8 31 1/2 26 3/4
Second quarter 50 3/4 42 7/8 35 5/8 29 1/4
Third quarter 53 3/8 44 1/8 37 1/2 32 1/4
Fourth quarter 54 47 1/8 46 1/4 36 5/8
Year-end close 50 1/2 42 3/4
</TABLE>
CASH DIVIDENDS PAID
The Company increased its dividend in 1996 for the thirty-fourth consecutive
year. Cash dividends paid were $.735 per share in 1996 compared with a
split-adjusted dividend of $.64 per share in 1995 and $.565 in 1994, an increase
of 14.8% and 13.3% over 1995 and 1994, respectively. The dividends were
distributed as follows:
<TABLE>
<CAPTION>
1996 1995 1994
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
First quarter $.165 .145 .13
Second quarter .19 .165 .145
Third quarter .19 .165 .145
Fourth quarter .19 .165 .145
----------------------------------------
Total $.735 .64 .565
========================================
</TABLE>
On January 2, 1997, the Board of Directors declared a regular cash dividend of
$.19 per share, paid on March 11, 1997 to shareowners of record on February 18,
1997.
The Company expects to continue the practice of paying regular cash
dividends.
NET EARNINGS PER SHARE AND CASH DIVIDENDS PAID PER SHARE
- --------------------------------------------------------------------------------
Dollars Per Share
<TABLE>
<CAPTION>
NET EARNINGS CASH DIVIDENDS
YEAR PER SHARE PAID PER SHARE
- ---- ------------ --------------
<S> <C> <C>
1987 .60 .20
1988 .71 .24
1989 .81 .28
1990 .86 .33
1991 1.10 .385
1992 .78 .445
1993 1.37 .505
1994 1.56 .565
1995 1.86 .64
1996 2.17 .735
</TABLE>
- --------------------------------------------------------------------------------
COSTS AND EXPENSES
The percentage relationships of costs and expenses to sales for 1996, 1995 and
1994 were:
<TABLE>
<CAPTION>
1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Employment costs 24.4% 25.0% 27.2%
Cost of materials
and services 51.8 52.3 50.6
Depreciation and
amortization of property
and intangibles 4.6 4.5 4.6
Taxes other than payroll 5.8 5.4 4.9
</TABLE>
DISTRIBUTION OF SALES REVENUES - 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Employment Costs............................................ 24.4
Cost of Materials and Services.............................. 51.8
Depreciation and Amortization of Property and intangibles... 4.6
Taxes Other Then Payroll.................................... 5.8
Cash Dividend Paid.......................................... 4.5
Earnings Reinvested......................................... 8.9
</TABLE>
- --------------------------------------------------------------------------------
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>
(Millions of Dollars) 1996 1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Research expense $ 1,905 1,634 1,278
Percent increase over
prior year 16.6% 27.9% 8.1%
Percent of sales 8.8 8.7 8.1
</TABLE>
Research expense as a percent of sales for the Pharmaceutical segment was 15.2%,
15.3% and 14.9% in 1996, 1995 and 1994, respectively, while averaging 5.6%, 5.4%
and 4.8% in the other two segments.
24
<PAGE> 3
RESEARCH EXPENSE
- --------------------------------------------------------------------------------
Millions of Dollars
<TABLE>
<CAPTION>
RESEARCH
YEAR EXPENSE
------ --------
<S> <C>
1987 617
1988 674
1989 719
1990 834
1991 980
1992 1,127
1993 1,182
1994 1,278
1995 1,634
1996 1,905
</TABLE>
- --------------------------------------------------------------------------------
Advertising expenses worldwide, which are comprised of television, radio
and print media, were $1.26 billion in 1996, $1.03 billion in 1995 and $800
million in 1994. 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.
Statement of Position No. 96-1, "Environmental Remediation Liabilities,"
requires that environmental remediation liabilities be accrued when the criteria
of Financial Accounting Standards Board Statement of Financial Accounting
Standards No. 5, "Accounting for Contingencies," are met. The new standard,
which will be adopted in 1997, is not expected to have a material effect on the
Company's results of operations, cash flows or financial position.
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 28.4% in 1996, 27.6% in 1995
and 25.2% in 1994. The increase in the 1996 worldwide effective tax rate was
primarily due to the increase in income subject to tax in the United States. See
page 34 for additional information.
A summary of operations and related statistical data for the years
1986-1996 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 $2.14 billion at the end of 1996 as compared with $1.36
billion at the end of 1995.
Total unused credit available to the Company approximates $3.3 billion,
including $1.2 billion of credit commitments with various worldwide banks, $800
million of which expires on October 3, 1997 and $400 million on October 6, 2001.
During 1996, the Company issued $119 million equivalent of 5%
Euro-Deutsche Mark Notes due 2001. The proceeds were used for general corporate
purposes. The Company also redeemed its $200 million 8% Notes due 1998 and
Italian Lire 150 billion (U.S. $ equivalent of $95.4 million) 8.82% Notes due
2003 at par according to the call provisions of each debt issue. At December 29,
1996, 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 1996 and 1995 were $2.28 billion and $2.43
billion, respectively. In 1996 and 1995, net debt (debt net of cash and current
marketable securities) was 1.3% and 10.5% of net capital (shareowners' equity
and net debt), respectively. Total debt represented 17.4% and 21.2% of total
capital (shareowners' equity and total debt) in 1996 and 1995, respectively.
Shareowners' equity per share at the end of 1996 was $8.13 compared with the
stock split-adjusted $6.98 at year-end 1995, an increase of 16.5%.
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 currency 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 $1,373, $1,256 and
$937 million in 1996, 1995 and 1994, 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
1996.
Statement of Financial Accounting Standard No. 121, "Accounting for the
Impairment of Long-Lived Assets and for 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 was adopted in 1996,
did not have a material effect on the Company's results of operations, cash
flows or financial position.
During 1996, 1995 and 1994, certain businesses were acquired for $233,
$456 and $1,932 million, respectively. In 1995, the acquisition cost consisted
of $154 million in cash and 9.3 million shares, on a split-adjusted basis, of
the Company's common stock issued from treasury valued at $302 million. 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 1996, the Company repurchased 8.7 million shares of its common stock at a
total cost of $412 million for use in the Company's employee benefit plans; 1995
and 1994 repurchases for this purpose totaled 9.2 million and 7.7 million
25
<PAGE> 4
shares, on a split-adjusted basis, at a cost of $322 million and $185 million,
respectively.
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
adopted the new standard in 1996 and elected the continued use of APB Opinion
No. 25. Pro forma disclosure has not been provided, as the effect on 1996 net
earnings was immaterial.
CHANGING PRICES AND INFLATION
Johnson & Johnson is aware that its products are used in a setting where, for
more than a decade, policymakers, 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 1980-1995, 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 1996.
Inflation rates, even though moderate in many parts of the world during
1996, 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 periodic 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.
SALES BY SEGMENT OF BUSINESS
- --------------------------------------------------------------------------------
Millions of Dollars
<TABLE>
<CAPTION>
YEAR CONSUMER PHARM PROFESS TOTAL
- ---- -------- ------ ------- ---------
<S> <C> <C> <C> <C>
1994 33.4% 32.8% 33.8% $ 15,734
1995 30.9 33.3 35.8 18,842
1996 29.4 33.3 37.3 21,620
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SALES Increase
--------------------
(Millions of Dollars) 1996 1995 Amount Percent
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Consumer $ 6,364 5,831 533 9.1%
Pharmaceutical 7,188 6,274 914 14.6
Professional 8,068 6,737 1,331 19.8
------------------------------------
Worldwide total $21,620 18,842 2,778 14.7%
====================================
</TABLE>
OPERATING PROFIT BY SEGMENT OF BUSINESS
- --------------------------------------------------------------------------------
Millions of Dollars
<TABLE>
<CAPTION>
YEAR CONSUMER PHARM PROFESS TOTAL
- ---- -------- ----- ------- -------
<S> <C> <C> <C> <C>
1994 15.0% 56.3% 28.5% $ 2,955
1995 8.3 58.0 33.7 3,376
1996 8.5 58.2 33.3 4,254
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
OPERATING PROFIT Percent of Sales
--------------------
(Millions of Dollars) 1996 1995 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Consumer $ 361 298 5.7% 5.1%
Pharmaceutical 2,477 2,073 34.5 33.0
Professional 1,416 1,203 17.6 17.9
-----------------------
Segments total 4,254 3,574 19.7 19.0
Expenses not
allocated to
segments (221) (257) (1.0) (1.4)
Earnings before taxes ----------------------
on income $ 4,033 3,317 18.7% 17.6%
======================
</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 skin and hair care
products. Major brands include ACT Fluoride Rinse; BAND-AID Brand Adhesive
Bandages; CAREFREE Panty Shields; JOHNSON'S CLEAN & CLEAR skin care products;
IMODIUM A-D, an antidiarrheal; JOHNSON'S Baby line of products; MONISTAT, a
remedy for vaginal yeast infections; MYLANTA gastrointestinal products and
PEPCID AC Acid Controller from the Johnson & Johnson o Merck Consumer
Pharmaceuticals Co.; NEUTROGENA skin and hair care products; NICOTROL smoking
cessation 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; 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 1996 were $6.36 billion, an increase of 9.1%
over 1995. Sales by domestic companies accounted for 49.7% of the total segment,
while international companies accounted for 50.3%. The sales growth was led by
the strong performance of the OTC pharmaceutical business. PEPCID AC, a product
of the Johnson & Johnson o Merck Consumer Pharmaceuticals Co., and TYLENOL,
despite heavy competition, remain the dominant brands in their respective
categories. A strong performance by the adult skin and hair care franchise,
which includes the Neutrogena and RoC businesses, also contributed to the growth
in sales.
Consumer segment sales in 1995 were $5.83 billion, an increase of 11% over
1994. Sales by domestic companies accounted
26
<PAGE> 5
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 skin and
hair 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 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 and JOHNSON'S
HEALTHFLOW Infant Feeding System were introduced during the year.
Acquisitions and divestitures during 1996 and 1995 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, antibacterial, 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 54% of the sales generated outside the United States. Twenty-six
drugs sold by the Company had 1996 sales in excess of $50 million, with 19 of
them in excess of $100 million.
Pharmaceutical segment sales in 1996 were $7.19 billion, an increase of
14.6% over 1995. Domestic sales advanced 24.4%, while international sales
advanced 7.2%. The worldwide growth was a result of the outstanding performances
of PROCRIT, RISPERDAL, SPORANOX, PROPULSID, ULTRAM, and DURAGESIC.
At year-end 1996, the Company received several FDA approvals for new
chemical entities as well as new indications for existing compounds. The new
chemical entities approved were LEVAQUIN, the first once-a-day anti-infective
which is proven effective against community-acquired pneumonia, acute maxillary
sinusitis and acute exacerbation of chronic bronchitis; and TOPAMAX, a new
antiepileptic drug proven to reduce the frequency of seizures.
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 growth of
RISPERDAL and the continued strong growth of PROPULSID. The sales increase was
also led by the strong growth of EPREX, PROCRIT, SPORANOX, DURAGESIC and FLOXIN.
Significant research activities continued in the Pharmaceutical segment,
increasing to $1,096 million in 1996, or $135 million over 1995. This represents
15.2% of 1996 Pharmaceutical sales and a compound growth rate of 15.3% for the
ten-year period since 1986.
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.
Additional research is conducted through a collaboration with the James Black
Foundation in London, England.
PROFESSIONAL
The Professional segment includes suture and mechanical wound closure products,
minimally 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 1996, Professional segment sales increased 19.8% over 1995, to $8.07
billion. The sales growth includes the full year impact of the merger with
Cordis Corporation in early 1996, and the continued growth of the interventional
cardiology business. Strong growth in the Asia-Pacific region also contributed
to the increase in the Professional segment, as did excellent performances by
LifeScan's blood glucose monitors, Vistakon's disposable contact lenses, Ethicon
Endo-Surgery's minimally invasive surgical instruments and Johnson & Johnson
Professional's orthopaedic business. Of the 1996 Professional segment sales,
domestic and international companies accounted for 54.3% and 45.7% of the total,
respectively.
In 1995, Professional segment sales increased 26.5% over 1994, to $6.74
billion. Strong sales growth was fueled by the rapid market acceptance of the
PALMAZ-SCHATZ Coronary Stent due to its efficacy in reducing restenosis, the
recurring blockage of coronary arteries following balloon angioplasty.
LifeScan's blood
27
<PAGE> 6
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. Sales by domestic companies
accounted for 55.9% of the total segment, while international companies
accounted for 44.1%.
Acquisitions and divestitures during 1996 and 1995 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 1996 and 1995:
<TABLE>
<CAPTION>
SALES Increase
-------------------
(Millions of Dollars) 1996 1995 Amount Percent
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
United States $10,899 9,190 1,709 18.6%
Europe 6,151 5,573 578 10.4
Western Hemisphere
excluding U.S. 1,914 1,731 183 10.6
Asia-Pacific, Africa 2,656 2,348 308 13.1
--------------------
Worldwide total $21,620 18,842 2,778 14.7%
====================
</TABLE>
<TABLE>
<CAPTION>
OPERATING PROFIT Percent of Sales
--------------------
(Millions of Dollars) 1996 1995 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
United States $2,405 1,872 22.1% 20.4%
Europe 1,382 1,267 22.5 22.7
Western Hemisphere
excluding U.S. 228 195 11.9 11.3
Asia-Pacific, Africa 239 240 9.0 10.2
-------------------
Segments total $4,254 3,574 19.7% 19.0%
===================
</TABLE>
International sales and operating profit in 1996 were unfavorably impacted by
the translation of local currency operating results into U.S. dollars at lower
average exchange rates than in 1995. International sales and operating profit in
1995 were favorably impacted by the translation of local currency operating
results into U.S. dollars at higher average exchange rates than in 1994.
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.
SALES BY GEOGRAPHIC AREA OF BUSINESS
- --------------------------------------------------------------------------------
Millions of Dollars
<TABLE>
<CAPTION>
AFRICA,
UNITED WESTERN ASIA AND
STATES EUROPE HEMISPHERE PACIFIC TOTAL
------ ------ ---------- -------- --------
<S> <C> <C> <C> <C> <C>
1994 49.7% 28.6% 9.6% 12.1% $ 15,734
1995 48.8 29.6 9.2 12.4 18,842
1996 50.4 28.4 8.9 12.3 21,620
</TABLE>
- --------------------------------------------------------------------------------
OPERATING PROFIT BY GEOGRAPHIC AREA OF BUSINESS
- --------------------------------------------------------------------------------
Millions of Dollars
<TABLE>
<CAPTION>
AFRICA,
UNITED WESTERN ASIA AND
STATES EUROPE HEMISPHERE PACIFIC TOTAL
------ ------ ---------- -------- --------
<S> <C> <C> <C> <C> <C>
1994 51.9% 35.5% 3.9% 6.7% $ 2,955
1995 52.4 35.6 5.5 6.7 3,576
1996 56.5 32.5 5.4 5.6 4,254
</TABLE>
- -------------------------------------------------------------------------------
DESCRIPTION OF BUSINESS
The company, employing 89,300 employees worldwide, is engaged in the manufacture
and sale of a broad range of products in the health care field in virtually all
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 and Professional 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
<TABLE>
<CAPTION>
- --------------------------
CONSOLIDATED BALANCE SHEET Johnson & Johnson and Subsidiaries
- --------------------------
At December 29, 1996 and December 31, 1995 (Dollars in Millions) (Note 1) 1996 1995
- ---------------------------------------------------------------------------------------------------------
ASSETS
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents (Notes 1 and 16) $ 2,011 1,201
Marketable securities at cost (Note 16) 125 163
Accounts receivable trade, less allowances $309 (1995, $258) 3,251 2,903
Inventories (Notes 1 and 2) 2,498 2,276
Deferred taxes on income (Note 6) 711 717
Prepaid expenses and other receivables 774 678
------------------------
TOTAL CURRENT ASSETS 9,370 7,938
========================
Marketable securities, non-current (Note 16) 351 338
Property, plant and equipment, net (Notes 1 and 3) 5,651 5,196
Intangible assets, net (Notes 1 and 4) 3,107 2,950
Deferred taxes on income (Note 6) 287 307
Other assets 1,244 1,144
------------------------
TOTAL ASSETS $ 20,010 17,873
========================
LIABILITIES AND SHAREOWNERS' EQUITY
- ---------------------------------------------------------------------------------------------------------
CURRENT LIABILITIES
Loans and notes payable (Note 5) $ 872 321
Accounts payable 1,743 1,602
Accrued liabilities 2,010 1,949
Accrued salaries, wages and commissions 322 292
Taxes on income 237 224
------------------------
TOTAL CURRENT LIABILITIES 5,184 4,388
========================
Long-term debt (Note 5) 1,410 2,107
Deferred tax liability (Note 6) 170 156
Certificates of extra compensation (Note 11) 108 86
Other liabilities 2,302 2,091
SHAREOWNERS' EQUITY
Preferred stock-without par value
(authorized and unissued 2,000,000 shares) -- --
Common stock-par value $1.00 per share
(authorized 2,160,000,000 shares; issued 1,534,824,000 shares) 1,535 1,535
Note receivable from employee stock ownership plan (Note 14) (57) (64)
Cumulative currency translation adjustments (Note 7) (122) 148
Retained earnings 11,012 9,743
------------------------
12,368 11,362
Less common stock held in treasury, at cost
(202,340,000 and 239,464,000 shares) 1,532 2,317
------------------------
TOTAL SHAREOWNERS' EQUITY 10,836 9,045
========================
TOTAL LIABILITIES AND SHAREOWNERS' EQUITY $ 20,010 17,873
========================
See Notes to Consolidated Financial Statements 29
</TABLE>
<PAGE> 8
<TABLE>
<CAPTION>
- ----------------------------------
CONSOLIDATED STATEMENT OF EARNINGS Johnson & Johnson and Subsidiaries
- ----------------------------------
(Dollars in Millions Except Per Share Figures) (Note 1) 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SALES TO CUSTOMERS $ 21,620 18,842 15,734
============================================
Cost of products sold 7,018 6,235 5,299
Selling, marketing and administrative expenses 8,394 7,462 6,350
Research expense 1,905 1,634 1,278
Interest income (139) (115) (60)
Interest expense, net of portion capitalized (Note 3) 125 143 142
Other expense, net 284 166 44
--------------------------------------------
17,587 15,525 13,053
--------------------------------------------
Earnings before provision for taxes on income 4,033 3,317 2,681
Provision for taxes on income (Note 6) 1,146 914 675
--------------------------------------------
NET EARNINGS $ 2,887 2,403 2,006
============================================
NET EARNINGS PER SHARE (Note 1) $ 2.17 1.86 1.56
============================================
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF COMMON STOCK, RETAINED EARNINGS AND TREASURY STOCK Johnson & Johnson and Subsidiaries
- ----------------------------------------------------------------------------
Common Stock Issued Treasury Stock
(Dollars in Millions; Shares in Thousands) ------------------------- Retained -----------------------
(Notes 1, 10 and 17) Shares Amount Earnings Shares Amount
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 2, 1994 1,534,744 $ 1,535 $ 6,959 248,782 $ 2,504
Net earnings -- -- 2,006 -- --
Cash dividends paid (per share: $0.565) -- -- (727) -- --
Employee compensation and stock option plans -- -- (78) (7,710) (186)
Repurchase of common stock -- -- -- 7,692 185
Other 40 -- 38 -- --
--------------------------------------------------------------------------
BALANCE, JANUARY 1, 1995 1,534,784 1,535 8,198 248,764 2,503
==========================================================================
Net earnings -- -- 2,403 -- --
Cash dividends paid (per share: $0.64) -- -- (827) -- --
Employee compensation and stock option plans -- -- (35) (9,152) (309)
Repurchase of common stock -- -- -- 9,164 322
Business combinations -- -- -- (9,312) (199)
Other 40 -- 4 -- --
--------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1995 1,534,824 1,535 9,743 239,464 2,317
==========================================================================
Net earnings -- -- 2,887 -- --
Cash dividends paid (per share: $0.735) -- -- (974) -- --
Employee compensation and stock option plans -- -- (185) (8,510) (389)
Repurchase of common stock -- -- -- 8,745 412
Business combinations -- -- (490) (37,359) (808)
Other -- -- 31 -- --
--------------------------------------------------------------------------
BALANCE, DECEMBER 29, 1996 1,534,824 $ 1,535 $ 11,012 202,340 $ 1,532
==========================================================================
See Notes to Consolidated Financial Statements 30
</TABLE>
<PAGE> 9
<TABLE>
<CAPTION>
- ------------------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS Johnson & Johnson and Subsidiaries
- ------------------------------------
(Dollars in Millions) (Note 1) 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 2,887 2,403 2,006
Adjustments to reconcile net earnings to cash flows:
Depreciation and amortization of property and intangibles 1,009 857 724
Tax deferrals (3) (63) (66)
Changes in assets and liabilities, net of effects from acquisition
of businesses:
Increase in accounts receivable, less allowances (306) (265) (239)
Increase in inventories (242) (9) (162)
Increase in accounts payable and accrued liabilities 245 617 462
Increase in other current and non-current assets (40) (294) (112)
Increase in other current and non-current liabilities 341 136 362
-------------------------------------
NET CASH FLOWS FROM OPERATING ACTIVITIES 3,891 3,382 2,975
=====================================
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment (1,373) (1,256) (937)
Proceeds from the disposal of assets 37 465 332
Acquisition of businesses, net of cash acquired (Note 17) (233) (154) (1,932)
Other, principally marketable securities (123) (151) (19)
-------------------------------------
NET CASH USED BY INVESTING ACTIVITIES (1,692) (1,096) (2,556)
=====================================
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends to shareowners (974) (827) (727)
Repurchase of common stock (412) (322) (185)
Proceeds from short-term debt 282 197 328
Retirement of short-term debt (128) (634) (263)
Proceeds from long-term debt 126 -- 960
Retirement of long-term debt (411) (260) (363)
Proceeds from the exercise of stock options 149 112 62
-------------------------------------
NET CASH USED BY FINANCING ACTIVITIES (1,368) (1,734) (188)
=====================================
Effect of exchange rate changes on cash and cash equivalents (21) 13 33
-------------------------------------
Increase in cash and cash equivalents 810 565 264
Cash and cash equivalents, beginning of year (Note 1) 1,201 636 372
-------------------------------------
CASH AND CASH EQUIVALENTS, END OF YEAR (Note 1) $ 2,011 1,201 636
=====================================
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SUPPLEMENTAL CASH FLOW DATA
Cash paid during the year for:
Interest, net of portion capitalized $ 113 137 133
Income taxes 1,210 1,071 612
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Treasury stock issued for employee compensation and stock option plans,
net of cash proceeds $ 252 212 133
ACQUISITIONS OF BUSINESSES
Fair value of assets acquired $ 237 493 2,279
Fair value of liabilities assumed (4) (37) (347)
-------------------------------------
233 456 1,932
Treasury stock issued -- (302) --
-------------------------------------
Net cash payments $ 233 154 1,932
=====================================
See Notes to Consolidated Financial Statements 31
</TABLE>
<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 No. 121, "Accounting for the
Impairment of Long-Lived Assets and for 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 was adopted in 1996,
did not have a material effect on the Company's results of operations, cash
flows or financial position.
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.
ADVERTISING
Costs associated with advertising are expensed in the year incurred.
Advertising expenses worldwide, which are comprised of television, radio and
print media, were $1.26 billion, $1.03 billion and $.8 billion in 1996, 1995 and
1994, respectively.
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
29, 1996 and December 31, 1995 the cumulative amount of undistributed
international earnings was approximately $5.5 billion and $4.7 billion,
respectively.
NET EARNINGS PER SHARE
Net earnings per share were 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 the current
and 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 will be the case in 1998, 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 1996 and 1995, inventories were comprised of:
<TABLE>
<CAPTION>
(Dollars in Millions) 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Raw materials and supplies $ 687 625
Goods in process 390 519
Finished goods 1,421 1,132
-----------------
$2,498 2,276
=================
</TABLE>
3 PROPERTY, PLANT AND EQUIPMENT
At the end of 1996 and 1995, property, plant and equipment at cost and
accumulated depreciation consisted of:
<TABLE>
<CAPTION>
(Dollars in Millions) 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Land and land improvements $ 339 344
Buildings and building equipment 2,892 2,611
Machinery and equipment 4,875 4,217
Construction in progress 917 1,003
---------------------
9,023 8,175
Less accumulated depreciation 3,372 2,979
---------------------
$5,651 5,196
=====================
</TABLE>
32
<PAGE> 11
The Company capitalizes interest expense as part of the cost of construction of
facilities and equipment. Interest expense capitalized in 1996, 1995 and 1994
was $55, $70 and $44 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 1996 and 1995, intangible assets, consisting primarily of patents,
trademarks and goodwill, comprised:
<TABLE>
<CAPTION>
(Dollars in Millions) 1996 1995
- --------------------------------------------------
<S> <C> <C>
Intangible assets $3,616 3,345
Less accumulated amortization 509 395
----------------
$3,107 2,950
================
</TABLE>
- --------------------------------------------------
5 BORROWINGS
The components of long-term debt are as follows:
<TABLE>
<CAPTION>
EFF. Eff.
(Dollars in Millions) 1996 RATE 1995 Rate
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
8.72% Debentures due 2024 $ 300 8.72% 300 8.72%
6.73% Debentures due 2023 250 6.73 250 6.73
7 3/8% Eurodollar Notes
due 1997 200 7.43 200 7.43
8% Notes due 1998 -- -- 200 8.00
7 3/8% Notes due 2002 199 7.49 198 7.49
8.25% Eurodollar Notes
due 2004 199 8.37 198 8.37
9% European Currency
Unit Notes due 1997(1) 186 6.84 192 6.84
11 1/4% Italian Lire Notes
due 1998(1) 132 4.84 128 5.33
5% Deutsche Mark Notes
due 2001(3) 114 1.98 -- --
5 3/8% Swiss Franc Notes
due 1997(1) 112 4.64 132 5.13
4 1/2% Currency Indexed
Notes due 1998(1) 67 5.12 57 5.69
8.18% to 8.25% Medium Term
Notes due 1998 65 8.23 160 8.05
Industrial Revenue Bonds 61 5.62 66 4.90
8.82% Italian Lire Notes
due 2003(1) -- -- 96 5.58
Other, principally
international 32 -- 46 --
------ -----
1,917 6.80(2) 2,223 7.20(2)
Less current portion 507 116
------ -----
$1,410 2,107
====== =====
- ---------------------------------------------------------------------------------------------------
</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.
(3) Represents 5% Deutsche Mark notes due 2001 issued by a Japanese subsidiary
and converted to a 1.98% fixed rate yen note via an interest rate and currency
swap.
The Company has access to substantial sources of funds at numerous banks
worldwide. Total unused credit available to the Company approximates $3.3
billion, including $1.2 billion of credit commitments with various worldwide
banks, $800 million of which expire on October 3, 1997 and $400 million on
October 6, 2001. 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 1996 or 1995.
In 1996, the Company issued $119 million equivalent of 5% Euro-Deutsche Mark
notes due 2001. The proceeds were used for general corporate purposes. The
Company also redeemed its $200 million 8% Notes due 1998 and Italian Lire 150
billion (U.S. equivalent $95.4 million) 8.82% Notes due 2003 at par according to
the call provisions of each debt issue. At December 29, 1996, the Company had
$2.29 billion remaining on its shelf registration.
Short-term borrowings amounted to $872 million at the end of 1996. These
borrowings are composed of $186 million of European currency notes, $200 million
of Eurodollar notes, $112 million of Swiss Franc notes and $374 million of local
borrowings principally by international subsidiaries.
Interest rates on the Industrial Revenue Bonds vary from 5% 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 1997 are:
<TABLE>
<CAPTION>
(Dollars in Millions) 1997 1998 1999 2000 2001
- --------------------------------------------------------------------------------
<C> <C> <C> <C> <C>
$507 278 15 5 117
- --------------------------------------------------------------------------------
</TABLE>
6 INCOME TAXES
The provision for taxes on income consists of:
<TABLE>
<CAPTION>
(Dollars in Millions) 1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Currently payable:
U.S. taxes $ 569 447 318
International taxes 487 468 374
U.S. state and local taxes 93 62 49
---------------------------
1,149 977 741
---------------------------
Deferred:
U.S. taxes 28 (42) (36)
International taxes (31) (21) (30)
---------------------------
(3) (63) (66)
---------------------------
$ 1,146 914 675
===========================
</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 1996 are as follows:
<TABLE>
<CAPTION>
Deferred Tax
-------------------------
(Dollars in Millions) Asset Liability
- -----------------------------------------------------------------
<S> <C> <C>
Postretirement benefits $ 288 --
Postemployment benefits 108 --
Employee benefit plans 141 --
Depreciation -- 293
Non-deductible intangibles -- 147
Alternative minimum tax credits 44 --
International R&D capitalized for tax 104 --
Reserves & liabilities 371 --
Income reported for tax purposes 158 --
Miscellaneous international 69 194
Miscellaneous U.S. 267 140
-------------------------
Total deferred income taxes $1,550 774
=========================
</TABLE>
A comparison of income tax expense at the federal statutory rate of 35% in 1996,
1995 and 1994, to the Company's effective tax rate is as follows:
<TABLE>
<CAPTION>
(Dollars in Millions) 1996 1995 1994
- --------------------------------------------------------------------------------
Earnings before taxes on income:
<S> <C> <C> <C>
U.S. $ 2,245 1,642 1,317
International 1,788 1,675 1,364
------------------------------------
Worldwide $ 4,033 3,317 2,681
====================================
Statutory taxes $ 1,412 1,161 938
Tax rates:
Statutory 35.0% 35.0% 35.0%
Puerto Rico &
Ireland operations (6.3) (7.3) (9.2)
Research tax credits (0.3) (0.2) (0.5)
Domestic state and local 1.6 1.2 1.2
International subsidiaries
excluding Ireland (2.0) (1.7) (1.8)
All other 0.4 0.6 0.5
------------------------------------
Effective tax rate 28.4% 27.6% 25.2%
====================================
</TABLE>
The increase in the 1996 worldwide effective tax rate was primarily due to the
increase in income subject to tax in the United States.
During 1996, the Company had 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. The Small Business Job Protection Act of 1996
repealed the Puerto Rico tax credit; however, the Company, as an existing credit
claimant, may claim the credit for an additional 10 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 shareowners' 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 1996 and 1995 in the separate component of
shareowners' equity for cumulative currency translation adjustments follows:
<TABLE>
<CAPTION>
(Dollars in Millions) 1996 1995
- ---------------------------------------------
<S> <C> <C>
Beginning of year $ 148 (35)
Translation adjustments (270) 183
---------------
End of year $(122) 148
===============
</TABLE>
Net currency transaction and translation gains and losses included in other
expense were after-tax gains of $2 million in 1996, and losses of $14 and $4
million in 1995 and 1994, respectively.
- --------------------------------------------------------------------------------
8 INTERNATIONAL SUBSIDIARIES
The following amounts are included in the consolidated financial statements for
international subsidiaries:
<TABLE>
<CAPTION>
(Dollars in Millions) 1996 1995
- ------------------------------------------------------------------
<S> <C> <C>
Current assets $5,218 4,488
Current liabilities 2,470 2,234
Net property, plant and equipment 2,569 2,298
Parent company equity in net assets 6,103 5,525
Excess of parent company equity
over investments 5,460 4,953
</TABLE>
International sales to customers were $10,721, $9,652, and $7,922 million for
1996, 1995 and 1994, 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 $237
million in 1996, $227 million in 1995 and $207 million in 1994.
The approximate minimum rental payments required under operating leases that
have initial or remaining noncancellable lease terms in excess of one year at
December 29, 1996 are:
<TABLE>
<CAPTION>
After
(Dollars in Millions) 1997 1998 1999 2000 2001 2001 Total
- --------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C>
$80 67 43 33 25 54 302
</TABLE>
Commitments under capital leases are not significant.
- --------------------------------------------------------------------------------
10 COMMON STOCK, STOCK OPTION PLANS AND STOCK COMPENSATION AGREEMENTS
At December 29, 1996 the Company had five stock-based compensation plans. Under
the 1995 Employee Stock Option Plan, the Company may grant options to its
employees for up to 56 million shares of common stock. The shares outstanding
are for contracts under the Company's 1986, 1991 and 1995 Employee Stock Option
Plans, and the Mitek and Cordis Employee Stock Option Plans.
34
<PAGE> 13
Stock options expire in ten years from the date they are granted and vest
over service periods that range from two to six years. Shares available for
future grants amounted to 32.9 million, 40.1 million and 8.3 million in 1996,
1995 and 1994, respectively.
A summary of the status of the Company's stock option plans as of December
29, 1996 and December 31, 1995, and changes during the years ending on those
dates, is presented below:
<TABLE>
<CAPTION>
Options Weighted Average
(Shares in Thousands) Outstanding* Exercise Price
- --------------------------------------------------------------------------------
<S> <C> <C>
Balance at January 1, 1995 72,544 $19.50
Options granted 16,902 41.76
Options exercised (8,184) 12.43
Options cancelled/forfeited (2,638) 23.46
---------------------------
Balance at December 31,1995 78,624 24.89
Options granted 10,120 43.81
Options exercised (7,442) 16.13
Options cancelled/forfeited (2,231) 29.27
---------------------------
Balance at December 29,1996 79,071 28.01
===========================
</TABLE>
* Adjusted to reflect the 1996 two-for-one stock split
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
adopted the new standard in 1996 and elected the continued use of APB Opinion
No. 25. Pro forma disclosure has not been provided, as the effect on 1996 net
earnings was immaterial.
The following table summarizes stock options outstanding and exercisable at
December 29, 1996.
<TABLE>
<CAPTION>
(Shares in Thousands) Outstanding Exercisable
- ---------------------------------------------- ----------------------
Average Average
Exercise Average Exercise Exercise
Price Range Options Life(a) Price Options Price
- ------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C>
$ 6.30-$17.86 18,289 2.7 $13.33 18,188 $13.36
$18.28-$36.85 37,907 6.7 24.24 16,770 23.92
$42.13-$52.00 22,875 9.2 46.01 -- --
------------------------------------------------------
$ 6.30-$52.00 79,071 6.5 28.01 34,958 18.43
======================================================
</TABLE>
(a) Average contractual life remaining in years
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 1996, 1995
and 1994 included the following components:
<TABLE>
<CAPTION>
(Dollars in Millions) 1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost for benefits earned
during period $ 159 121 120
Interest cost on projected
benefit obligations 230 207 188
Actual return on plan assets (403) (555) (3)
Net amortization and deferral 175 310 (199)
Curtailment and settlement
losses (gains) -- 25 1
-------------------------
Net periodic pension cost $ 161 108 107
=========================
</TABLE>
The net periodic pension cost attributable to domestic plans and included above
was $84 million in 1996, $43 million in 1995 and $49 million in 1994.
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 1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Expected long-term rate of
return on plan assets 9.0% 9.0% 9.0%
Weighted average discount rate 7.75 7.25 8.75
Rate of increase in
compensation levels 5.5 5.5 5.5
</TABLE>
<TABLE>
<CAPTION>
INTERNATIONAL PENSION PLANS
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Expected long-term rate of
return on plan assets 5.0-10.0% 5.0-10.0% 5.0-10.0%
Weighted average discount
rates 4.0-8.5 4.25-9.5 4.5-10.0
Rate of increase in
compensation levels 3.0-6.5 3.0-7.0 3.0-7.0
</TABLE>
35
<PAGE> 14
The following table sets forth the actuarial present value of benefit
obligations and funded status at year-end 1996 and 1995 for the Company's
defined benefit plans:
<TABLE>
<CAPTION>
Year-end 1996 Year-end 1995
------------------------------------------------------------------
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 $ 2,195 1,043 92 1,893 883 76
Book reserves (prepaids) 284 (82) 256 323 (77) 250
-------------------------------------------------------------
Total assets and reserves 2,479 961 348 2,216 806 326
-------------------------------------------------------------
Actuarial present value of benefit obligations:
Vested benefits 1,723 666 254 1,670 575 224
Nonvested benefits 52 26 49 17 24 42
-------------------------------------------------------------
Accumulated benefit obligation 1,775 692 303 1,687 599 266
Effect of projected future salary increases 338 224 80 336 196 82
-------------------------------------------------------------
Projected benefit obligation 2,113 916 383 2,023 795 348
-------------------------------------------------------------
Assets and reserves in excess of (less than)
projected benefit obligation $ 366 45 (35) 193 11 (22)
=============================================================
Components of assets and reserves in excess of
(less than) projected benefit obligation:
Unrecognized prior service cost $ (45) (34) (16) (68) (27) (4)
Unrecognized net gain (loss) 387 10 (6) 227 (46) --
Unamortized net transition assets (liabilities) 16 69 (17) 19 84 (23)
Additional minimum liability 8 -- 4 15 -- 5
-------------------------------------------------------------
Total $ 366 45 (35) 193 11 (22)
=============================================================
Assets and reserves in excess of accumulated
benefit obligation $ 704 269 45 529 207 60
=============================================================
</TABLE>
14 SAVINGS PLAN
The Company has 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 shareowners' equity.
Total Company contributions to the plans were $50 million in 1996, $45
million in 1995 and $41 million in 1994.
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) 1996 1995 1994
- ---------------------------------------------------------
<S> <C> <C> <C>
Service cost-benefits earned
during the current year $ 16 12 16
Interest cost on accumulated
postretirement benefit
obligation 46 44 44
Actual return on plan assets (6) (3) --
Net amortization and deferral 3 (7) (3)
----------------------
Net periodic postretirement
benefit cost $ 59 46 57
======================
</TABLE>
The plans' status as of year-end 1996 and 1995 was as follows:
<TABLE>
<CAPTION>
Year-end
-------------------
(Dollars in Millions) 1996 1995
- --------------------------------------------------------------
<S> <C> <C>
Accumulated postretirement
benefit obligation:
Retirees $387 394
Fully eligible active participants 62 76
Other active participants 142 140
------------------
Accumulated postretirement
benefit obligation 591 610
Life insurance plan assets at
fair value 41 38
------------------
Accumulated postretirement benefit
obligation in excess of plans' assets 550 572
------------------
Unrecognized net gain 172 112
Unrecognized prior service cost 8 6
------------------
Accrued postretirement benefit cost $730 690
==================
</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
2008 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 $66 million and the service and interest cost components of the net
periodic postretirement benefit cost for 1996 by a total of $9 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>
1996 1995 1994
- ------------------------------------------------------------------
<S> <C> <C> <C>
Expected long-term rate of return
on plan assets 9.0% 9.0% 9.0%
Weighted average discount rate 7.75 7.25 8.75
Rate of increase in compensation
levels 5.5 5.5 5.5
</TABLE>
The Company also provides postemployment 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 (FRA) are used by the Company to fix the rates
received on short-term floating-rate investments and mature within 1 year. There
were no FRA's outstanding at the end of 1996.
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>
1996
-----------------------------------------
Weighted Avg. Rate
Notional 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% 4.6%
193 1998 9.0 4.9
Pay fixed $188 1997 9.0 6.8
119 2001 5.0 2.0
</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. The Company has forward exchange contracts outstanding at
year-end in various currencies principally in U.S. Dollars, Japanese Yen and
Belgian Francs. In addition, the Company has currency swaps outstanding
principally in U.S. Dollars, French Francs and Belgian Francs. Deferred
unrealized gains and losses, based on dealer-quoted prices, from hedging firm
commitments are presented in the following table:
<TABLE>
<CAPTION>
1996
-----------------------------
Notional
(Dollars in Millions) Amounts Gains Losses
- ----------------------------------------------------
<S> <C> <C> <C>
Forwards $3,155 62 38
Currency swaps 1,934 19 28
</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.
<PAGE> 16
The estimated fair value of the Company's financial instruments are as
follows:
<TABLE>
<CAPTION>
1996 1995
- -----------------------------------------------------------------------------------
CARRYING FAIR Carrying Fair
(Dollars in Millions AMOUNT VALUE Amount Value
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NONDERIVATIVES
Cash and cash
equivalents $2,011 2,011 1,201 1,201
Marketable
securities -
current 125 125 163 164
Marketable
securities -
non-current 351 352 338 341
Long-term
investments(1) 484 491 382 386
Long-term
debt 1,917 1,987 2,223 2,345
DERIVATIVES
Other assets (liabilities):
Currency swaps
(net) -- (9) -- 9
Forwards (net) -- 24 -- 23
Forward rate
agreements -- -- -- 5
Interest and
currency swap
agreements
related to debt (1) 7 (13) 28
</TABLE>
(1) Primarily 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 MERGER, ACQUISITIONS AND DIVESTITURES
On February 23, 1996 Johnson & Johnson and Cordis Corporation completed the
merger between the two companies. The merger has been accounted for as a pooling
of interests; however, prior period financial statements have not been restated
as the effect of reflecting data relating to this merger would not materially
effect previously issued financial statements.
Johnson & Johnson issued 2.2584 shares of stock, on a split-adjusted
basis, for each share of Cordis stock. The exchange ratio resulted from dividing
$109 (exchange value of Cordis shares) by the average of the closing prices for
Johnson & Johnson shares for the 10 days prior to the merger. At the time of the
merger, Cordis had approximately 17.6 million shares outstanding on a fully
diluted basis, resulting in a total 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
was an important strategic step for both companies to meet the challenge of
providing for customer needs in the fast changing health care industry.
During 1996 certain businesses were acquired for $233 million. The 1996
acquisitions included Indigo Medical, Inc., a pioneer in the use of advanced,
low cost diode lasers for interstitial thermotherapy and the exercise of our
option to purchase the trademarks of Lactaid, Inc., producer of the natural
dairy digestive supplement LACTAID.
The excess of purchase price over the estimated fair market value of 1996
acquisitions amounted to $205 million. This amount has been allocated to
identifiable intangibles and goodwill. Pro forma information is not provided for
1996 as the impact of the acquisitions does not have a material effect on the
Company's results of operations, cash flows or financial position.
In 1995 certain businesses were acquired for $456 million consisting of
$154 million in cash and 9,312,000 shares, on a split-adjusted basis, of the
Company's stock issued from treasury valued at $302 million. 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).
38
<PAGE> 17
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 the
Company's results of operations, cash flows or financial position.
Divestitures in 1996 did not have a material effect on the Company's
results of operations, cash flows or financial position.
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.
The 1995 divestitures resulted in an after-tax capital gain of $103
million. The after-tax gains on the 1995 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 1996 and 1995 is
summarized below:
<TABLE>
<CAPTION>
1996 1995
- ---------------------------------------------------------------------------------- ------------------------------------------
(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 $1,619 1,544 1,583 1,618 1,436 1,469 1,461 1,465
Pharmaceutical 1,762 1,808 1,817 1,801 1,483 1,620 1,598 1,573
Professional 1,953 2,030 2,002 2,083 1,577 1,673 1,679 1,808
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL SALES 5,334 5,382 5,402 5,502 4,496 4,762 4,738 4,846
=================================================================================================================================
Gross margin 3,615 3,650 3,687 3,650 3,049 3,200 3,195 3,163
Earnings before provision for taxes
on income 1,124 1,119 1,059 731 921 931 872 593
NET EARNINGS 790 791 750 556 654 661 623 465
=================================================================================================================================
NET EARNINGS PER SHARE* $ .59 .60 .56 .42 .51 .51 .48 .36
=================================================================================================================================
</TABLE>
*Adjusted to reflect the 1996 two-for-one stock split
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 controls and conducts such tests and other
auditing procedures considered necessary in the circumstances to express their
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 Shareowners and Board of Directors of Johnson & Johnson:
We have audited the accompanying consolidated balance sheet of Johnson & Johnson
and subsidiaries as of December 29, 1996 and December 31, 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 29, 1996. 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 29,1996 and December 31, 1995, and the
results of its operations and its cash flows for each of the three years in the
period ended December 29, 1996, in conformity with generally accepted accounting
principles.
/s/ Coopers & Lybrand L.L.P.
New York, New York
January 20, 1997
40
<PAGE> 19
SEGMENTS OF BUSINESS(1) Johnson & Johnson and Subsidiaries
<TABLE>
<CAPTION>
SALES TO CUSTOMERS(2)
---------------------------------
(Dollars in Millions) 1996 1995 1994
- ---------------------------------------------------------------
<S> <C> <C> <C>
Consumer-Domestic $ 3,166 2,858 2,692
International 3,198 2,973 2,559
---------------------------------
Total 6,364 5,831 5,251
---------------------------------
Pharmaceutical-Domestic 3,355 2,697 2,143
International 3,833 3,577 3,015
---------------------------------
Total 7,188 6,274 5,158
---------------------------------
Professional-Domestic 4,378 3,635 2,977
International 3,690 3,102 2,348
---------------------------------
Total 8,068 6,737 5,325
---------------------------------
Worldwide total $21,620 18,842 15,734
=================================
</TABLE>
<TABLE>
<CAPTION>
OPERATING PROFIT IDENTIFIABLE ASSETS
--------------------------- --------------------------
(Dollars in Millions) 1996 1995 1994 1996 1995 1994
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Consumer $ 361 298 443 4,874 4,852 4,489
Pharmaceutical 2,477 2,073 1,669 6,032 5,129 4,756
Professional 1,416 1,203 843 7,505 6,679 5,765
---------------------------------------------------------
Segments total 4,254 3,574 2,955 18,411 16,660 15,010
Expenses not allocated to segments(3) (221) (257) (274)
General corporate 1,599 1,213 658
---------------------------------------------------------
Worldwide total $4,033 3,317 2,681 20,010 17,873 15,668
=========================================================
</TABLE>
<TABLE>
<CAPTION>
ADDITIONS TO PROPERTY, DEPRECIATION AND
PLANT & EQUIPMENT AMORTIZATION
--------------------------- -------------------------
(Dollars in Millions) 1996 1995 1994 1996 1995 1994
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Consumer $ 283 264 218 247 254 241
Pharmaceutical 427 427 327 254 219 183
Professional 570 472 365 430 322 268
---------------------------------------------------------
Segments total 1,280 1,163 910 931 795 692
General corporate 93 93 27 78 62 32
---------------------------------------------------------
Worldwide total $1,373 1,256 937 1,009 857 724
=========================================================
</TABLE>
GEOGRAPHIC AREAS
<TABLE>
<CAPTION>
SALES TO CUSTOMERS(2) OPERATING PROFIT IDENTIFIABLE ASSETS
---------------------------- -------------------------- -----------------------
(Dollars in Millions) 1996 1995 1994 1996 1995 1994 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
United States $10,899 9,190 7,812 2,405 1,872 1,534 9,264 8,472 8,430
Europe 6,151 5,573 4,504 1,382 1,267 1,050 6,447 5,633 4,271
Western Hemisphere excluding U.S. 1,914 1,731 1,511 228 195 173 1,132 1,072 970
Asia-Pacific, Africa 2,656 2,348 1,907 239 240 198 1,568 1,483 1,339
-----------------------------------------------------------------------------------------
Segments total 21,620 18,842 15,734 4,254 3,574 2,955 18,411 16,660 15,010
Expenses not allocated
to segments(3) (221) (257) (274)
General corporate 1,599 1,213 658
-----------------------------------------------------------------------------------------
Worldwide total $21,620 18,842 15,734 4,033 3,317 2,681 20,010 17,873 15,668
=========================================================================================
</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
Johnson & Johnson and Subsidiaries
SUMMARY OF OPERATIONS AND STATISTICAL DATA 1986-1996
<TABLE>
<CAPTION>
(Dollars in Millions Except Per Share Figures) 1996 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales to customers - Domestic $ 10,899 9,190 7,812 7,203
Sales to customers - International 10,721 9,652 7,922 6,935
------------------------------------------------------
TOTAL SALES 21,620 18,842 15,734 14,138
======================================================
Cost of products sold 7,018 6,235 5,299 4,791
Selling, marketing and administrative expenses 8,394 7,462 6,350 5,771
Research expense 1,905 1,634 1,278 1,182
Permanent impairment of certain assets and operations
in Latin America -- -- -- --
Redirection charges -- -- -- --
Interest income (139) (115) (60) (80)
Interest expense, net of portion capitalized 125 143 142 126
Other expense (income), net 284 166 44 16
------------------------------------------------------
17,587 15,525 13,053 11,806
------------------------------------------------------
Earnings before provision for taxes on income 4,033 3,317 2,681 2,332
Provision for taxes on income 1,146 914 675 545
------------------------------------------------------
Earnings before cumulative effect of accounting changes 2,887 2,403 2,006 1,787
Cumulative effect of accounting changes (net of tax) -- -- -- --
------------------------------------------------------
NET EARNINGS $ 2,887 2,403 2,006 1,787
======================================================
Percent of sales to customers 13.4 12.8 12.7 12.6
NET EARNINGS PER SHARE OF COMMON STOCK* $ 2.17 1.86 1.56 1.37
======================================================
PERCENT RETURN ON AVERAGE SHAREOWNERS' EQUITY 29.0 29.7 31.6 33.3
======================================================
PERCENT INCREASE (DECREASE) OVER PREVIOUS YEAR:
Sales to customers 14.7 19.8 11.3 2.8
NET EARNINGS PER SHARE 16.7 19.2 13.9 75.6(1)
======================================================
SUPPLEMENTARY EXPENSE DATA:
Cost of materials and services(5) $ 11,204 9,852 7,952 7,033
Total employment costs 5,275 4,707 4,282 4,066
Depreciation and amortization 1,009 857 724 617
Maintenance and repairs(6) 281 252 217 202
Total tax expense(7) 1,699 1,433 1,142 968
TOTAL TAX EXPENSE PER SHARE(7)* 1.27 1.11 .89 .74
======================================================
SUPPLEMENTARY BALANCE SHEET DATA:
Property, plant and equipment, net $ 5,651 5,196 4,910 4,406
Additions to property, plant and equipment 1,373 1,256 937 975
Total assets 20,010 17,873 15,668 12,242
Long-term debt 1,410 2,107 2,199 1,493
======================================================
COMMON STOCK INFORMATION:*
Dividends paid per share $ .735 .64 .565 .505
Shareowners' equity per share $ 8.13 6.98 5.54 4.33
Market price per share (year-end close) $ 50 1/2 42 3/4 27 3/8 22 3/8
Average shares outstanding (millions) 1,332.6 1,291.9 1,286.1 1,303.5
SHAREOWNERS OF RECORD (THOUSANDS) 138.5 113.5 104.7 96.1
======================================================
EMPLOYEES (THOUSANDS) 89.3 82.3 81.5 81.6
======================================================
</TABLE>
<TABLE>
<CAPTION>
(Dollars in Millions Except Per Share Figures) 1992 1991 1990 1989
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales to customers - Domestic 6,903 6,248 5,427 4,881
Sales to customers - International 6,850 6,199 5,805 4,876
-----------------------------------------------------------
TOTAL SALES 13,753 12,447 11,232 9,757
===========================================================
Cost of products sold 4,678 4,204 3,937 3,480
Selling, marketing and administrative expenses 5,671 5,099 4,469 3,897
Research expense 1,127 980 834 719
Permanent impairment of certain assets and operations
in Latin America -- -- 104 --
Redirection charges -- -- -- --
Interest income (93) (88) (98) (87)
Interest expense, net of portion capitalized 124 129 201(4) 141
Other expense (income), net 39 85 162 93
-----------------------------------------------------------
11,546 10,409 9,609 8,243
-----------------------------------------------------------
Earnings before provision for taxes on income 2,207 2,038 1,623 1,514
Provision for taxes on income 582 577 480 432
-----------------------------------------------------------
Earnings before cumulative effect of accounting changes 1,625 1,461 1,143 1,082
Cumulative effect of accounting changes (net of tax) (595) -- -- --
-----------------------------------------------------------
NET EARNINGS 1,030 1,461 1,143 1,082
===========================================================
Percent of sales to customers 7.5(1) 11.7 10.2(2) 11.1
NET EARNINGS PER SHARE OF COMMON STOCK* .78 1.10 .86 .81
===========================================================
PERCENT RETURN ON AVERAGE SHAREOWNERS' EQUITY 19.1(1) 27.8 25.3(2) 28.3
===========================================================
PERCENT INCREASE (DECREASE) OVER PREVIOUS YEAR:
Sales to customers 10.5 10.8 15.1 8.4
NET EARNINGS PER SHARE (28.8)(1) 27.3(2) 6.2(2) 13.3
===========================================================
SUPPLEMENTARY EXPENSE DATA:
Cost of materials and services(5) 6,857 6,329 5,728 4,908
Total employment costs 4,044 3,507 3,195 2,871
Depreciation and amortization 560 493 474 414
Maintenance and repairs(6) 210 203 185 193
Total tax expense(7) 1,000 966 825 708
TOTAL TAX EXPENSE PER SHARE(7)* .76 .73 .62 .53
===========================================================
SUPPLEMENTARY BALANCE SHEET DATA:
Property, plant and equipment, net 4,115 3,667 3,247 2,846
Additions to property, plant and equipment 1,103 987 830 750
Total assets 11,884 10,513 9,506 7,919
Long-term debt 1,365 1,301 1,316 1,170
===========================================================
COMMON STOCK INFORMATION:*
Dividends paid per share .445 .385 .33 .28
Shareowners' equity per share 3.94 4.22 3.68 3.11
Market price per share (year-end close) 25 1/4 28 5/8 17 7/8 14 7/8
Average shares outstanding (millions) 1,318.9 1,332.3 1,332.2 1,332.5
SHAREOWNERS OF RECORD (THOUSANDS) 84.1 69.9 64.6 60.5
===========================================================
EMPLOYEES (THOUSANDS) 84.9 82.7 82.2 83.1
===========================================================
</TABLE>
<TABLE>
<CAPTION>
(Dollars in Millions Except Per Share Figures) 1988 1987 1986
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales to customers - Domestic 4,576 4,167 3,972
Sales to customers - International 4,424 3,845 3,031
-----------------------------------
TOTAL SALES 9,000 8,012 7,003
===================================
Cost of products sold 3,292 2,958 2,632
Selling, marketing and administrative expenses 3,630 3,228 2,868
Research expense 674 617 521
Permanent impairment of certain assets and operations
in Latin America -- -- --
Redirection charges -- -- 540
Interest income (72) (95) (100)
Interest expense, net of portion capitalized 104 116 66
Other expense (income), net (24) (5) 85
-----------------------------------
7,604 6,819 6,612
-----------------------------------
Earnings before provision for taxes on income 1,396 1,193 391
Provision for taxes on income 422 360 61
-----------------------------------
Earnings before cumulative effect of accounting changes 974 833 330
Cumulative effect of accounting changes (net of tax) -- -- --
-----------------------------------
NET EARNINGS 974 833 330
===================================
Percent of sales to customers 10.8 10.4 4.7(3)
NET EARNINGS PER SHARE OF COMMON STOCK* .71 .60 .23
===================================
PERCENT RETURN ON AVERAGE SHAREOWNERS' EQUITY 27.9 26.4 10.7(3)
===================================
PERCENT INCREASE (DECREASE) OVER PREVIOUS YEAR:
Sales to customers 12.3 14.4 9.1
NET EARNINGS PER SHARE 18.2 --(3) (45.2)(3)
===================================
SUPPLEMENTARY EXPENSE DATA:
Cost of materials and services(5) 4,528 4,030 3,642
Total employment costs 2,639 2,388 2,091
Depreciation and amortization 391 356 291
Maintenance and repairs(6) 191 180 170
Total tax expense(7) 678 591 284
TOTAL TAX EXPENSE PER SHARE(7)* .50 .43 .20
===================================
SUPPLEMENTARY BALANCE SHEET DATA:
Property, plant and equipment, net 2,493 2,250 1,916
Additions to property, plant and equipment 664 515 446
Total assets 7,119 6,546 5,877
Long-term debt 1,166 733 242
===================================
COMMON STOCK INFORMATION:*
Dividends paid per share .24 .20 .17
Shareowners' equity per share 2.63 2.53 2.04
Market price per share (year-end close) 10 5/8 9 3/8 8 1/2
Average shares outstanding (millions) 1,362.4 1,380.6 1,427.3
SHAREOWNERS OF RECORD (THOUSANDS) 54.5 51.2 52.1
===================================
EMPLOYEES (THOUSANDS) 81.3 78.2 77.1
===================================
</TABLE>
*Adjusted to reflect the 1996 two-for-one stock split
(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 shareowners'
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 shareowners' 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 shareowners' 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.
42
<PAGE> 21
THREE YEARS IN BRIEF-WORLDWIDE
<TABLE>
<CAPTION>
% Change
----------------
(Dollars in Millions Except Per Share Figures) 1996 1995 1994 1996 1995
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales to customers $ 21,620 18,842 15,734 14.7 19.8
Net earnings 2,887 2,403 2,006 20.1 19.8
Cash dividends paid 974 827 727 17.8 13.8
Shareowners' equity 10,836 9,045 7,122 19.8 27.0
-----------------------------------------------------------------
Percent return on average
shareowners' equity 29.0 29.7 31.6 -- --
-----------------------------------------------------------------
Per share*
Net earnings $ 2.17 1.86 1.56 16.7 19.2
Cash dividends paid .735 .64 .565 14.8 13.3
Shareowners' equity 8.13 6.98 5.54 16.5 26.0
Market price (year-end close) 50 1/2 42 3/4 27 3/8 18.1 56.2
-----------------------------------------------------------------
Average shares outstanding (millions)* 1,332.6 1,291.9 1,286.1 3.2 0.5
Shareowners of record (thousands) 138.5 113.5 104.7 22.0 8.4
Number of employees (thousands) 89.3 82.3 81.5 8.5 1.0
-----------------------------------------------------------------
</TABLE>
*Adjusted to reflect the 1996 two-for-one stock split
DESCRIPTION OF THE COMPANY
Johnson & Johnson, with $21.6 billion in sales, is the world's largest and most
comprehensive manufacturer of health care products serving the consumer,
pharmaceutical and professional markets. Johnson & Johnson has 89,300 employees
and more than 170 operating companies in 50 countries around the world, selling
products in more than 175 countries.
ON THE COVER
Dr. Zhu Hong-Sheng typifies surgeons throughout China, who are able to better
care for their patients with high quality ETHICON Silk Sutures, now that the
Company has begun local manufacturing in Shanghai.
CONTENTS
1 Letter to Shareowners
4 Editorial Section
23 Management's Discussion and Analysis of Results
29 Consolidated Financial Statements
32 Notes to Consolidated Financial Statements
40 Report of Management
40 Independent Auditor's Report
41 Segments of Business and Geographic Areas
42 Summary of Operations and Statistical Data 1986-1996
43 Principal Global Affiliates
46 Worldwide Family of Companies
50 Board of Directors and Committees of the Board
51 Corporate Officers, Company Group Chairmen, Corporate and Shareowner
Information
<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
Cordis Webster, Inc. .................................................... California
Ethicon Endo-Surgery, Inc. .............................................. Ohio
Ethicon, Inc. ........................................................... New Jersey
GynoPharma Inc. ......................................................... Delaware
Indigo Medical, Inc. .................................................... Delaware
Janssen Pharmaceutica Inc. .............................................. Pennsylvania
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 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
Nitinol Development Corporation.......................................... California
Noramco, Inc. ........................................................... Georgia
OMJ Pharmaceuticals, Inc. ............................................... Delaware
Ortho Biotech Inc. ...................................................... New Jersey
Ortho Diagnostic Systems Inc. ........................................... New Jersey
Ortho Pharmaceutical Corporation......................................... Delaware
</TABLE>
17
<PAGE> 2
<TABLE>
<CAPTION>
JURISDICTION OF
NAME OF SUBSIDIARY ORGANIZATION
- --------------------------------------------------------------------------- ---------------
<S> <C>
Raritan Advertising, Inc. ............................................... New Jersey
Therakos, Inc. .......................................................... Florida
International Subsidiaries:
Centra Healthcare........................................................ United Kingdom
Cilag AG................................................................. Switzerland
Cilag AG International................................................... Switzerland
Cilag AG Pharmaceuticals................................................. Switzerland
Cilag de Mexico, S.A. de C.V. ........................................... Mexico
Cilag Farmaceutica Ltda. ................................................ Brazil
Cilag Holding AG......................................................... Switzerland
Cordis A.B. ............................................................. Sweden
Cordis B.V. ............................................................. Netherlands
Cordis France SARL....................................................... France
Cordis Holding (B.V.).................................................... Netherlands
Cordis Italia S.p.A. .................................................... Italy
Cordis Med. App. G.m.b.H. ............................................... Germany
Cordis S.A. ............................................................. Belgium
Cordis S.A. ............................................................. France
Cordis SARL.............................................................. France
Cordis Sp. zoo........................................................... Poland
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 Distribution AG.................................................. Switzerland
Greiter (International) AG............................................... Switzerland
Instrumentos Medico-Cirurgico Cordis S.A. ............................... Portugal
Janssen Biotech N.V. .................................................... Belgium
Janssen-Cilag A/S........................................................ Norway
Janssen-Cilag AB......................................................... Sweden
Janssen-Cilag AG......................................................... Switzerland
Janssen-Cilag A/S........................................................ Denmark
Janssen-Cilag B.V. ...................................................... Netherlands
Janssen-Cilag Farmaceutica, Ltda. ....................................... Portugal
J-C Healthcare Ltd. ..................................................... Israel
Janssen-Cilag K.K. ...................................................... Japan
Janssen-Cilag Limited.................................................... United Kingdom
Janssen-Cilag Limited.................................................... South Africa
Janssen-Cilag Medizinische Information G.m.b.H. ......................... Austria
Janssen-Cilag N.V. ...................................................... Belgium
Janssen-Cilag OY......................................................... Finland
Janssen-Cilag Pharmaceutica B.V. ........................................ Netherlands
Janssen-Cilag Pharmaceutica S.A.C.I. .................................... Greece
</TABLE>
18
<PAGE> 3
<TABLE>
<CAPTION>
JURISDICTION OF
NAME OF SUBSIDIARY ORGANIZATION
- --------------------------------------------------------------------------- ---------------
<S> <C>
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 C.A. ............................................... Venezuela
Janssen Farmaceutica S.A ................................................ Spain
Janssen Farmaceutica S.A ................................................ Colombia
Janssen Farmaceutica, S.A. de C.V. ...................................... Mexico
Janssen-Cilag G.m.b.H. .................................................. Germany
Janssen Internationaal N.V. ............................................. Belgium
Janssen Korea, Ltd. ..................................................... Korea
Janssen-Kyowa Co., Ltd. ................................................. Japan
Janssen Ortho Inc. ...................................................... Canada
Janssenpharma A/S........................................................ Denmark
Janssen Pharmaceutica Inc. .............................................. Canada
Janssen Pharma S.A.R.L. ................................................. France
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 Consumer N.V./S.A...................................... Belgium
Johnson & Johnson de Colombia S.A. ...................................... Colombia
Johnson & Johnson del Ecuador S.A. ...................................... Ecuador
Johnson & Johnson de Mexico, S.A. de C.V. ............................... Mexico
Johnson & Johnson de Venezuela, S.A. .................................... Venezuela
Johnson & Johnson Finance Limited........................................ United Kingdom
Johnson & Johnson/Gaba B.V. ............................................. Netherlands
Johnson & Johnson G.m.b.H. .............................................. Germany
Johnson & Johnson Gesellschaft m.b.H..................................... Austria
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 International S.A. .................................... France
Johnson & Johnson (Ireland) Limited...................................... Ireland
</TABLE>
19
<PAGE> 4
<TABLE>
<CAPTION>
JURISDICTION OF
NAME OF SUBSIDIARY ORGANIZATION
- --------------------------------------------------------------------------- ---------------
<S> <C>
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 Lda.................................................... Portugal
Johnson & Johnson Limited................................................ United Kingdom
Johnson & Johnson Ltd. .................................................. India
Johnson & Johnson Ltd. .................................................. Russia
Johnson & Johnson Management Ltd. ....................................... 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 Medical NV/SA.......................................... Belgium
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 (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
Johnson & Johnson, S.A. de C.V. ......................................... Mexico
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 (Trinidad) Limited..................................... Trinidad
Johnson & Johnson Vision Products AB..................................... Sweden
Johnson & Johnson Vision Products (Ireland) Limited...................... Ireland
</TABLE>
20
<PAGE> 5
<TABLE>
<CAPTION>
JURISDICTION OF
NAME OF SUBSIDIARY ORGANIZATION
- --------------------------------------------------------------------------- ---------------
<S> <C>
Johnson & Johnson (Zambia) Limited....................................... Zambia
Laboratoires Polive S.N.C. .............................................. France
Lifescan Canada Ltd. .................................................... Canada
Medos S.A. .............................................................. Switzerland
Neutrogena Corp. S.A.R.L. ............................................... France
Neutrogena Provence S.A.R.L.............................................. France
Ortho-Clinical Diagnostic Systems G.m.b.H. .............................. Germany
Ortho-Clinical Diagnostics K.K. ......................................... Japan
Ortho-Clinical Diagnostics Limited....................................... England
Ortho-Clinical Diagnostics S.A. ......................................... Spain
Ortho-Clinical Diagnostic N.V. .......................................... Belgium
Ortho-Clinical Diagnostic S.A. .......................................... France
Ortho-Clinical Diagnostic S.p.A. ........................................ Italy
Ortho-McNeil Inc. ....................................................... Canada
Pharma Argentina S.A. ................................................... Argentina
Princeps S.A.R.L......................................................... France
P.T. Johnson & Johnson Indonesia......................................... Indonesia
RoC International S.A. .................................................. Germany
RoC International S.A.R.L. .............................................. Luxembourg
RoC S.A. ................................................................ France
RoC S.A./N.V. ........................................................... Belgium
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
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>
21
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 2,011
<SECURITIES> 125
<RECEIVABLES> 3,560
<ALLOWANCES> 309
<INVENTORY> 2,498
<CURRENT-ASSETS> 9,370
<PP&E> 9,023
<DEPRECIATION> 3,372
<TOTAL-ASSETS> 20,010
<CURRENT-LIABILITIES> 5,184
<BONDS> 1,917
<COMMON> 1,535
0
0
<OTHER-SE> 9,301
<TOTAL-LIABILITY-AND-EQUITY> 20,010
<SALES> 21,620
<TOTAL-REVENUES> 21,620
<CGS> 7,018
<TOTAL-COSTS> 7,018
<OTHER-EXPENSES> 1,905
<LOSS-PROVISION> 60
<INTEREST-EXPENSE> 125
<INCOME-PRETAX> 4,033
<INCOME-TAX> 1,146
<INCOME-CONTINUING> 2,887
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,887
<EPS-PRIMARY> 2.17
<EPS-DILUTED> 2.12
</TABLE>
