UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 30, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
- -----------------------------------------------------------------
Commission file number 1-3215
JOHNSON & JOHNSON
(Exact name of registrant as specified in its charter)
NEW JERSEY 22-1024240
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
New Brunswick, New Jersey 08933
(Address of principal executive offices, including zip code)
908-524-0400
Registrant's telephone number, including area code
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date.
On April 25, 1997, 1,331,894,781 shares of Common Stock, $1.00
par value, were outstanding.
- 1 -<PAGE>
JOHNSON & JOHNSON AND SUBSIDIARIES
TABLE OF CONTENTS
Part I - Financial Information Page No.
Consolidated Balance Sheet -
March 30, 1997 and December 29, 1996 3
Consolidated Statement of Earnings for the
Three Months Ended March 30, 1997 and
March 31, 1996 5
Consolidated Statement of Cash Flows
for the Three Months Ended March 30, 1997
and March 31, 1996 6
Notes to Consolidated Financial Statements 7
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 10
Signatures 13
Part II - Other Information
Items 1 through 5 are not applicable
Item 6 - Exhibits and Reports on Form 8-K 12
- 2 -<PAGE>
Part I - FINANCIAL INFORMATION
Item 1 - FINANCIAL STATEMENTS
JOHNSON & JOHNSON AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Unaudited; Dollars in Millions)
ASSETS
March 30, December 29,
1997 1996
Current Assets:
Cash and cash equivalents $ 2,190 2,011
Marketable securities at cost 114 125
Accounts receivable, trade, less
allowances $321 (1996 - $309) 3,499 3,251
Inventories (Note 3) 2,547 2,498
Deferred taxes on income 730 711
Prepaid expenses and other
receivables 892 774
Total current assets 9,972 9,370
Marketable securities, non-current 354 351
Property, plant and equipment, at cost 8,984 9,023
Less accumulated depreciation and
amortization 3,485 3,372
5,499 5,651
Intangible assets, net (Note 4) 3,119 3,107
Deferred taxes on income 278 287
Other assets 1,398 1,244
Total Assets $ 20,620 20,010
See Notes to Consolidated Financial Statements
- 3 -<PAGE>
JOHNSON & JOHNSON AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Unaudited; Dollars in Millions)
LIABILITIES AND SHAREOWNERS' EQUITY
March 30, December 29,
1997 1996
Current Liabilities:
Loans and notes payable $ 906 872
Accounts payable 1,451 1,743
Accrued liabilities 2,248 2,010
Accrued salaries, wages and commissions 386 322
Taxes on income 463 237
Total current liabilities 5,454 5,184
Long-term debt 1,296 1,410
Deferred tax liability 172 170
Certificates of extra compensation 110 108
Other liabilities 2,414 2,302
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 (51) (57)
Cumulative currency translation
adjustments (287) (122)
Retained earnings 11,563 11,012
12,760 12,368
Less common stock held in treasury,
at cost (202,571,000 & 202,340,000
shares) 1,586 1,532
Total shareowners' equity 11,174 10,836
Total liabilities and shareowners'
equity $20,620 20,010
See Notes to Consolidated Financial Statements
- 4 -<PAGE>
JOHNSON & JOHNSON AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EARNINGS
(Unaudited; dollars & shares in millions
except per share figures)
Fiscal Quarter Ended
March 30, Percent March 31, Percent
1997 to Sales 1996 to Sales
Sales to customers (Note 5) $ 5,715 100.0 5,334 100.0
Cost of products sold 1,772 31.0 1,719 32.2
Selling, marketing and
administrative expenses 2,138 37.4 1,996 37.4
Research expense 478 8.4 428 8.0
Interest income (36) (.6) (30) (.6)
Interest expense, net of
portion capitalized 33 .5 35 .7
Other expense, net 28 .5 62 1.2
4,413 77.2 4,210 78.9
Earnings before provision
for taxes on income 1,302 22.8 1,124 21.1
Provision for taxes on
income (Note 2) 393 6.9 334 6.3
NET EARNINGS $ 909 15.9 790 14.8
NET EARNINGS PER SHARE $ .68 .59
CASH DIVIDENDS PER SHARE $ .19 .165
AVG. SHARES OUTSTANDING 1,333.1 1,332.7
See Notes to Consolidated Financial Statements
- 5 -<PAGE>
JOHNSON & JOHNSON AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited; Dollars in Millions)
Fiscal Quarter Ended
March 30, March 31,
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 909 790
Adjustments to reconcile net earnings to
cash flows:
Depreciation and amortization of
property and intangibles 280 244
Increase in accounts receivable, trade,
less allowances (367) (234)
Increase in inventories (137) (125)
Changes in other assets and liabilities 407 238
NET CASH FLOWS FROM OPERATING ACTIVITIES 1,092 913
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment (200) (219)
Proceeds from the disposal of assets 6 8
Acquisition of businesses net of cash
acquired (158) -
Other, principally marketable securities (53) 166
NET CASH USED BY INVESTING ACTIVITIES (405) (45)
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends to shareowners (254) (214)
Repurchase of common stock (273) (102)
Proceeds from short-term debt 101 58
Retirement of short-term debt (133) (41)
Proceeds from long-term debt - -
Retirement of long-term debt - (79)
Proceeds from the exercise of stock
options 92 39
NET CASH USED BY FINANCING
ACTIVITIES (467) (339)
EFFECT OF EXCHANGE RATE CHANGES ON CASH
AND CASH EQUIVALENTS (41) (6)
INCREASE IN CASH AND CASH EQUIVALENTS 179 523
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD 2,011 1,201
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 2,190 1,724
See Notes to Consolidated Financial Statements
- 6 -<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - The accompanying interim financial statements and related
notes should be read in conjunction with the Consolidated Financial
Statements of Johnson & Johnson and Subsidiaries (the "Company")
and related notes as contained in the Annual Report on Form 10-K
for the fiscal year ended December 29, 1996. The interim financial
statements include all adjustments (consisting only of normal
recurring adjustments) and accruals necessary in the judgment of
management for a fair presentation of such statements. Earnings
per share were calculated on the basis of the weighted average
number of shares of common stock outstanding during the applicable
period. All share and per share amounts have been restated to
retroactively reflect the prior year stock split.
NOTE 2 - INCOME TAXES
The effective income tax rates for the first three months of 1997
and 1996 are 30.2% and 29.7%, respectively, as compared to the U.S.
federal statutory rate of 35%. The difference from the statutory
rate is the result of domestic subsidiaries operating in Puerto
Rico under a grant for tax relief expiring on December 31, 2007 and
the result of subsidiaries manufacturing in Ireland under an
incentive tax rate expiring on December 31, 2010. The increase in
the 1997 worldwide effective tax rate was primarily due to an
increase in income subject to tax in the U.S. The Omnibus Budget
Reconciliation Act of 1993 includes a change in the tax code which
will reduce the benefit the Company receives from its operations in
Puerto Rico by 60% gradually over a five year period.
NOTE 3 - INVENTORIES
(Dollars in Millions) March 30, 1997 Dec. 29, 1996
Raw materials and supplies $ 702 687
Goods in process 407 390
Finished goods 1,438 1,421
$ 2,547 2,498
- 7 -<PAGE>
NOTE 4 - INTANGIBLE ASSETS
(Dollars in Millions) March 30, 1997 Dec. 29, 1996
Intangible assets $ 3,655 3,616
Less accumulated amortization 536 509
$ 3,119 3,107
The excess of the cost over the fair value of net assets of
purchased businesses is recorded as goodwill and is amortized on a
straight-line basis over periods of 40 years or less.
The cost of other acquired intangibles is amortized on a
straight-line basis over their estimated useful lives.
NOTE 5 - SALES TO CUSTOMERS BY SEGMENT OF BUSINESS AND GEOGRAPHIC
AREAS
(Dollars in Millions)
SALES BY SEGMENT OF BUSINESS
First Quarter
Percent
1997 1996 Increase
Consumer
Domestic $ 832 825 .8
International 852 794 7.3
1,684 1,619 4.0%
Pharmaceutical
Domestic $ 960 792 21.2
International 983 970 1.3
1,943 1,762 10.3%
Professional
Domestic $ 1,155 1,035 11.6
International 933 918 1.6
2,088 1,953 6.9%
Domestic $ 2,947 2,652 11.1
International 2,768 2,682 3.2
Worldwide $ 5,715 5,334 7.1%
- 8 -<PAGE>
NOTE 5 - SALES TO CUSTOMERS BY SEGMENT OF BUSINESS AND GEOGRAPHIC
AREAS
SALES BY GEOGRAPHIC AREA
First Quarter
Percent
Increase
1997 1996 (Decrease)
U.S. $ 2,947 2,652 11.1
Europe 1,557 1,587 (1.9)
Western Hemisphere
excluding U.S. 495 464 6.7
Asia-Pacific, Africa 716 631 13.5
Total $ 5,715 5,334 7.1%
NOTE 6 - ACQUISITIONS
During the quarter the Company completed the acquisitions of
Innotech, Inc. and Nitinol Development Corporation. Innotech, Inc.
develops, manufactures and sells eyeglass lens products, desktop
eyeglass lens casting systems and related consumables that enable
eye care professionals and optical retailers to custom fabricate
high quality prescription eyeglass lenses at the point of sale.
Nitinol Development Corporation is a pioneer in shape memory alloys
used in the development of endovascular medical devices, including
stents. The aggregate purchase price for these acquisitions was
$158 million. Pro forma results of the acquisitions, assuming that
the transactions were consummated at the beginning of each year
presented, would not be materially different from the results
reported.
NOTE 7 - NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards Number 128 "Earnings
per Share" ("SFAS 128") which changes the method of calculating
earnings per share. SFAS 128 requires the presentation of "basic"
earnings per share and "diluted" earnings per share on the face of
the income statement. The statement is effective for financial
statements for periods ending after December 15, 1997. The Company
will adopt SFAS 128 in the fourth quarter of 1997, as early
adoption is not permitted. Basic earnings per share, for the
Company, is expected to be the same as reported earnings per share.
Diluted earnings per share is not expected to materially differ
from the fully diluted earnings per share reported in the Exhibit
to the Company's quarterly Form 10-Q.
- 9 -<PAGE>
Item 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SALES AND EARNINGS
Consolidated sales for the first quarter of 1997 were $5,715
million, an increase of 7.1% over 1996 first quarter sales of
$5,334 million. The effect of the stronger dollar relative to
foreign currencies decreased first quarter's sales by 3.1%. The
sales increase of 10.2% due to operations included a negative price
change effect of .2%. Consolidated net earnings for the first
quarter of 1997 were $909 million, compared with $790 million for
the same period a year ago, an increase of 15.1%. Earnings per
share for the period were $.68, compared with split adjusted
earnings per share of $.59 for the same period in 1996, an increase
of 15.3%.
Domestic sales for the first three months of 1997 were $2,947
million, an increase of 11.1% over 1996 domestic sales of $2,652
million for the same period. Sales by international subsidiaries
were $2,768 million for the first quarter of 1997 compared with
$2,682 million for the same period a year ago, an increase of 3.2%.
Excluding the impact of the higher value of the dollar,
international sales increased by 9.3% for the quarter.
Worldwide Consumer segment sales increased by 4.0% over the same
period a year ago. Sales were led by continued strength in our
hair and skin care franchise, which includes the NEUTROGENA, RoC
and CLEAN & CLEAR product lines. During the quarter, the Company
launched NASALCROM, the first over-the-counter allergy treatment
indicated for both prevention and treatment of allergic rhinitis
symptoms.
- 10 -<PAGE>
Worldwide pharmaceutical sales of $1.9 billion for the quarter
increased by 10.3%, which included 21.2% growth in domestic sales
and 1.3% increase in international sales. Leading the increase in
pharmaceutical sales was the continued strong growth of RISPERDAL,
an antipsychotic medication; PROCRIT,for the treatment of anemia;
DURAGESIC, a transdermal patch for chronic pain; FLOXIN, an anti-
infective; and ULTRAM, a centrally acting analgesic. The
successful U.S. launches of LEVAQUIN, the first once-per-day anti-
infective proven effective against three common upper-respiratory
infections, and TOPAMAX, a new antiepileptic drug, also contributed
to the strong pharmaceutical sales growth.
During the first quarter, the Company received approval from the
FDA for SPORANOX Oral Solution for the treatment of painful and
debilitating fungal infections of the mouth or the esophagus.
These infections, commonly called thrush, affect nearly half of all
HIV-positive individuals and up to 95% of patients with AIDS. The
Company also received approval for RETIN-A MICRO microsphere for
the treatment of acne. RETIN-A MICRO uses a unique technology
which improves upon the widely prescribed acne treatment by
reducing the potential for skin irritation while maintaining
efficacy.
Worldwide sales of $2.1 billion in the Professional segment
represented an increase of 6.9% over the first quarter of 1996.
This included domestic growth of 11.6% along with international
growth of 1.6%. Professional growth was led by strong performances
of Vistakon's disposable contact lenses, Ethicon Endo-Surgery's
minimally invasive surgical instruments, LifeScan's blood glucose
monitoring systems and the Cordis interventional cardiology
franchise.
- 11 -<PAGE>
Average shares of common stock outstanding in the first three
months of 1997 were 1,333.1 million, compared with 1,332.7 million
for the same period a year ago.
LIQUIDITY AND CAPITAL RESOURCES
Cash and current marketable securities increased $168 million
during the first three months of 1997 to $2,304 million at March
30, 1997. Total borrowings decreased $80 million during the first
three months of 1997 to $2,202 million. Net cash (cash and current
securities net of borrowings) was $102 million at March 30, 1997
compared with net debt of $146 million at the end of 1996. Total
debt represented 16.5% of total capital (shareowners' equity and
total borrowings) at quarter end compared with 17.4% at the end of
1996.
Additions to property, plant and equipment were $200 million for
the first three months of 1997, compared with $219 million for the
same period in 1996.
On April 24, 1997, the Board of Directors declared a 15.8%
increase in the quarterly dividend rate from 19 cents per share to
22 cents per share. The dividend is payable on June 10, 1997 to
shareowners of record as of May 20, 1997.
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit Numbers
(1) Exhibit 11 - Calculation of Earnings Per Share
(2) Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K:
The Company did not file any reports on Form 8-K during
the three month period ended March 30, 1997.
- 12 -<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
JOHNSON & JOHNSON
(Registrant)
Date: May 9, 1997 By /s/ R. J. DARRETTA
R. J. Darretta
(Vice President, Finance)
Date: May 9, 1997 By /s/ C. E. LOCKETT
C. E. Lockett
(Corporate Controller)
- 13 -
Exhibit 11
JOHNSON & JOHNSON AND SUBSIDIARIES
CALCULATION OF EARNINGS PER SHARE
(Dollars and shares in millions except per share figures)
First Quarter Ended
March 30, March 31,
1997 1996
1. Net Earnings ................ $ 909 790
2. Average number of shares outstanding
during the period............ 1,333.1 1,332.7
3. Earnings per share based upon average
outstanding shares (1 / 2) $ .68 .59
4. Fully diluted earnings per share:
a. Average number of shares out-
standing during the period. 1,333.1 1,332.7
b. Shares issuable under stock
compensation agreements at
quarter-end .............. - -
c. Shares reserved under the stock
option plan for which the
market price at end of quarter
exceeds the option price.. 73.8 78.4
d. Aggregate proceeds to the Company
from the exercise of
options in 4c ............ 2,197 2,286
e. Market price of the Company's
common stock at fiscal
quarter-end............... 55.13 46.13
f. Shares which could be repurchased
under the treasury stock method
(4d / 4e) ................ 39.9 49.6
g. Addition to average outstanding
shares (4b + 4c - 4f)..... 33.9 28.8
h. Shares for fully diluted earnings
per share calculation
(4a + 4g) ................ 1,367.0 1,361.5
i. Fully diluted earnings per share
(1 / 4h) ................. $ .66 .58
- 14 -
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-28-1997
<PERIOD-END> MAR-30-1997
<CASH> 2,190
<SECURITIES> 114
<RECEIVABLES> 3,820
<ALLOWANCES> 321
<INVENTORY> 2,547
<CURRENT-ASSETS> 9,972
<PP&E> 8,984
<DEPRECIATION> 3,485
<TOTAL-ASSETS> 20,620
<CURRENT-LIABILITIES> 5,454
<BONDS> 0
<COMMON> 1,535
0
0
<OTHER-SE> 9,639
<TOTAL-LIABILITY-AND-EQUITY> 20,620
<SALES> 5,715
<TOTAL-REVENUES> 0
<CGS> 1,772
<TOTAL-COSTS> 1,772
<OTHER-EXPENSES> 478
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 33
<INCOME-PRETAX> 1,302
<INCOME-TAX> 393
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 909
<EPS-PRIMARY> .68
<EPS-DILUTED> .66
</TABLE>
