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 29, 1998
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 1-3215
JOHNSON & JOHNSON
(Exact name of registrant as specified in its charter)
NEW JERSEY 22-1024240
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization)
Identification No.)
New Brunswick, New Jersey 08933
(Address of principal executive offices, including zip code)
732-524-0400
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 24, 1998, 1,344,664,760 shares of Common Stock,
$1.00 par value, were outstanding.
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JOHNSON & JOHNSON AND SUBSIDIARIES
TABLE OF CONTENTS
Part I - Financial Information
Page No.
Consolidated Balance Sheet -
March 29, 1998 and December 28, 1997 3
Consolidated Statement of Earnings for the
Three Months Ended March 29, 1998 and
March 30, 1997 5
Consolidated Statement of Cash Flows for the
Three Months Ended March 29, 1998 and
March 30, 1997 6
Notes to Consolidated Financial Statements 7
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 10
Signatures 15
Part II - Other Information
Item 1 through 5 are not applicable
Item 6 - Exhibits and Reports on Form 8-K 14
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Part I - FINANCIAL INFORMATION
Item 1 - FINANCIAL STATEMENTS
JOHNSON & JOHNSON AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Unaudited; Dollars in Millions)
ASSETS
March 29,
December 28,
1998
1997
Current Assets:
Cash and cash equivalents $ 2,893 2,753
Marketable securities, at cost 128 146
Accounts receivable, trade, less
allowances $353 (1997 - $358) 3,500 3,329
Inventories (Note 4) 2,710 2,516
Deferred taxes on income 828 831
Prepaid expenses and other
receivables 1,075 988
Total current assets 11,134 10,563
Marketable securities, non-current 385 385
Property, plant and equipment, at cost 9,460 9,444
Less accumulated depreciation and
amortization 3,792 3,634
5,668 5,810
Intangible assets, net (Note 5) 3,303 3,261
Deferred taxes on income 366 332
Other assets 1,059 1,102
Total assets $ 21,915 21,453
See Notes to Consolidated Financial Statements
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JOHNSON & JOHNSON AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Unaudited; Dollars in Millions)
LIABILITIES AND SHAREOWNERS' EQUITY
March 29,
December 28,
1998
1997
Current Liabilities:
Loans and notes payable $ 570 714
Accounts payable 1,483 1,753
Accrued liabilities 2,342 2,258
Accrued salaries, wages and commissions413 332
Taxes on income 407 226
Total current liabilities 5,215 5,283
Long-term debt 1,124 1,126
Deferred tax liability 178 175
Certificates of extra compensation 128 126
Other liabilities 2,465 2,384
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 (45) (51)
Accumulated other comprehensive
Income (Note 2) (427) (378)
Retained earnings 13,175 12,661
14,238
13,767
Less common stock held in treasury,
at cost (189,895,000 & 189,687,000
shares) 1,433 1,408
Total shareowners' equity 12,805 12,359
Total liabilities and shareowners'
equity $21,915 21,453
See Notes to Consolidated Financial Statements
- 4 -
JOHNSON & JOHNSON AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EARNINGS
(Unaudited; dollars & shares in millions
except per share figures)
Fiscal Quarter Ended
March 29, Percent March 30,
Percent
1998 to Sales 1997 to
Sales
Sales to customers (Note 6) $5,783 100.0 5,715 100.0
Cost of products sold 1,777 30.7 1,772 31.0
Selling, marketing and
administrative expenses 2,100 36.3 2,138 37.4
Research expense 494 8.5 478 8.4
Interest income (61) (1.0) (36) (.6)
Interest expense, net of
portion capitalized 28 .5 33 .5
Other expense, net 11 .2 28 .5
4,349 75.2 4,413 77.2
Earnings before provision
for taxes on income 1,434 24.8 1,302 22.8
Provision for taxes on
income (Note 3) 424 7.3 393 6.9
NET EARNINGS $1,010 17.5 909 15.9
NET EARNINGS PER SHARE (Notes 1 and 8)
Basic $ .75 .68
Diluted $ .73 .66
CASH DIVIDENDS PER SHARE $ .22 .19
AVG. SHARES OUTSTANDING
Basic 1,345.3 1,333.1
Diluted 1,374.7 1,368.5
See Notes to Consolidated Financial Statements
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JOHNSON & JOHNSON AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited; Dollars in Millions)
Fiscal Quarter
Ended
March 29, March
30,
1998
1997
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $1,010 909
Adjustments to reconcile net earnings to
cash flows:
Depreciation and amortization of
property and intangibles 294 280
Increase in accounts receivable, trade,
less allowances (195) (367)
Increase in inventories (221) (137)
Changes in other assets and liabilities 311 407
NET CASH FLOWS FROM OPERATING ACTIVITIES 1,199 1,092
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment(215) (200)
Proceeds from the disposal of assets 8 6
Acquisition of businesses, net of cash
acquired (78) (158)
Other, principally intangible assets (85) (53)
NET CASH USED BY INVESTING ACTIVITIES (370) (405)
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends to shareowners (296) (254)
Repurchase of common stock (347) (273)
Proceeds from short-term debt 76 101
Retirement of short-term debt (120) (133)
Proceeds from long-term debt - -
Retirement of long-term debt (104) -
Proceeds from the exercise of stock
options 111 92
NET CASH USED BY FINANCING
ACTIVITIES (680) (467)
EFFECT OF EXCHANGE RATE CHANGES ON CASH
AND CASH EQUIVALENTS (9) (41)
INCREASE IN CASH AND CASH EQUIVALENTS 140 179
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD2,753 2,011
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 2,893 2,190
See Notes to Consolidated Financial Statements
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - The accompanying interim financial statements and related
notes should be read in conjunction with the Consolidated Financial
Statements of Johnson & Johnson and Subsidiaries (the "Company")
and related notes as contained in the Annual Report on Form 10-K
for the fiscal year ended December 28, 1997. 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.
At year-end 1997, the Company adopted Statement of Financial
Accounting Standards No. 128 that requires the reporting of both
basic and diluted earnings per share. Basic earnings per share is
computed by dividing net income available to common shareowners by
the weighted average number of common shares outstanding for the
period. Diluted earnings per share reflects the potential dilution
that could occur if securities or other contracts to issue common
stock were exercised or converted into common stock. Prior periods
have been restated to reflect the new standard.
NOTE 2 - ADOPTION OF SFAS NO. 130
At March 29, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130 "Reporting Comprehensive Income"
("SFAS 130"). SFAS 130 establishes standards for reporting and
display of an alternative income measurement and its components
(revenue, expenses, gains and losses) in a full set of general
purpose financial statements. The total comprehensive income for
the three months ended March 29, 1998 is $961 million, compared
with $761 million for the same period a year ago. Total
comprehensive income includes net earnings, net unrealized currency
gains and losses on translation and net unrealized gains and losses
on securities.
NOTE 3 - INCOME TAXES
The effective income tax rates for the first three months of 1998
and 1997 are 29.6% and 30.2%, 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 21, 2010. The decrease in
the 1998 worldwide effective tax rate was primarily due to a
greater proportion of taxable income derived from lower tax rate
countries. The Omnibus Budget Reconciliation Act of 1993 included
a change in the tax code which will reduce the benefit the Company
receives from its operations in Puerto Rico by 60% gradually over a
five year period.
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NOTE 4 - INVENTORIES
(Dollars in Millions) March 29, 1998 Dec. 28, 1997
Raw materials and supplies $ 740 655
Goods in process 401 417
Finished goods 1,569 1,444
$ 2,710 2,516
NOTE 5 - INTANGIBLE ASSETS
(Dollars in Millions) March 29, 1998 Dec. 28,
1997
Intangible assets $ 3,982 3,885
Less accumulated amortization 679 624
$ 3,303 3,261
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 6 - SALES TO CUSTOMERS BY SEGMENT OF BUSINESS AND GEOGRAPHIC
AREAS
(Dollars in Millions)
SALES BY SEGMENT OF BUSINESS
First Quarter
Percent
Increase
1998 1997 (Decrease)
Consumer
Domestic $ 840 832 1.0
International 799 852 (6.2)
1,639 1,684 (2.7)%
Pharmaceutical
Domestic $ 1,169 960 21.8
International 923 983 (6.1)
2,092 1,943 7.7%
Professional
Domestic $ 1,086 1,155 (6.0)
International 966 933 3.5
2,052 2,088 (1.7)%
Domestic $ 3,095 2,947 5.0
International 2,688 2,768 (2.9)
Worldwide $ 5,783 5,715 1.2%
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NOTE 6 - SALES TO CUSTOMERS BY SEGMENT OF BUSINESS AND GEOGRAPHIC
AREAS
(Dollars in Millions)
SALES BY GEOGRAPHIC AREA
First Quarter
Percent
Increase
1998 1997 (Decrease)
U.S. $ 3,095 2,947 5.0
Europe 1,539 1,557 (1.2)
Western Hemisphere
Excluding U.S. 507 495 2.4
Asia-Pacific, Africa 642 716 (10.3)
Total $ 5,783 5,715 1.2%
NOTE 7 - ACQUISITIONS
During the quarter the Company completed an acquisition with
IsoStent, Inc. Cordis acquired intellectual property and specific
assets, including the BX Stent, a new flexible interventional
medical device in development for treatment of coronary artery
disease. Pro forma results of the acquisition, assuming that the
transaction was consummated at the beginning of each year
presented, would not be materially different from the results
reported.
NOTE 8 - EARNINGS PER SHARE
The following is a reconciliation of basic net earnings per share
to diluted net earnings per share for the three months ended March
29, 1998 and March 30, 1997:
(Shares in Millions) March 29, March 30,
1998 1997
Basic net earnings per share $ .75 .68
Average shares outstanding - basic 1,345.3 1,333.1
Potential shares exercisable under
stock option plans 73.2 73.6
Less: shares which could be repurchased
under treasury stock method (43.8) (38.2)
Adjusted average shares outstanding - diluted1,374.7 1,368.5
Diluted earnings per share $ .73 .66
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NOTE 9 - PENDING LEGAL PROCEEDINGS
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.
Further, the Company together with another contact lens
manufacturer, a trade association and various individual
defendants, is a defendant in several consumer class actions and an
action brought by multiple State Attorneys General on behalf of
consumers alleging violations of federal and state antitrust laws.
These cases assert that enforcement of the Company's long-standing
policy of selling contact lenses only to licensed eye care
professionals is a result of an unlawful conspiracy to eliminate
alternative distribution channels from the disposable contact lens
market. The Company believes that these actions are without merit
and is defending them vigorously.
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.
Item 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SALES AND EARNINGS
Consolidated sales for the first quarter of 1998 were $5,783
million, an increase of 1.2% over 1997 first quarter sales of
$5,715 million. The effect of the stronger dollar relative to
foreign currencies decreased first quarter's sales by 4.4%. The
sales increase of 5.6% due to operations included a positive price
change effect of .4%.
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Consolidated net earnings for the first quarter of 1998 were
$1,010 million, compared with $909 million for the same period a
year ago, an increase of 11.1%. Worldwide basic net earnings per
share for the period were $.75, compared with $.68 for the same
period in 1997, an increase of 10.3%. Worldwide diluted net
earnings per share for the period were $.73, compared with $.66 for
the same period in 1997, an increase of 10.6%.
Domestic sales for the first three months of 1998 were $3,095
million, an increase of 5.0% over 1997 domestic sales of $2,947
million for the same period. Sales by international subsidiaries
were $2,688 million for the first quarter of 1998 compared with
$2,768 million for the same period a year ago, a decrease of 2.9%.
Excluding the impact of the higher value of the dollar,
international sales increased by 6.1% for the quarter.
Worldwide Consumer segment sales for the first quarter of 1998
were $1.6 billion, a decrease of 2.7% versus the same period a year
ago. In local currency, worldwide sales increased 2.4% before
adjusting for a 5.1% negative currency impact. Consumer sales were
led by continued strength in the skin care franchise, which
includes the NEUTROGENA, RoC and CLEAN & CLEAR product lines, as
well as strong performances from the adult and children's MOTRIN
line of analgesic products.
Worldwide pharmaceutical sales of $2.1 billion for the quarter
increased 7.7% over the same period in 1997. In local currency,
worldwide sales increased 12.1% before a negative currency impact
of 4.4%, due to the stronger U.S. dollar. This growth reflects the
strong performance of PROCRIT, for the treatment of anemia;
PROPULSID, a gastrointestinal product; DURAGESIC, a transdermal
patch for chronic pain; LEVAQUIN, an anti-infective; and ULTRAM, an
analgesic. REGRANEX, the first biologic treatment proven to
increase the incidence of healing in diabetic foot ulcers, was
launched in the U.S. in the first quarter.
- 11 -
During the quarter, the company received European approval for a
peri-surgery indication for EPREX. Additionally, the company
announced a worldwide collaboration with Ergo Science Corporation
for the development and commercialization of bromocriptine mesylate
and other potential products for the treatment of Type 2 diabetes
and obesity. A New Drug Application (NDA) for the use of
bromocriptine mesylate to treat Type 2 diabetes was accepted by the
FDA for filing in October, 1997.
At the end of March, an NDA for ACIPHEX (rabeprazole), a proton
pump inhibitor for gastroesophagel reflux disease (GERD), GERD
maintenance and duodenal and gastric ulcers, was submitted to the
FDA by our partner Eisai, Inc. Eisai and Janssen Pharmaceutica, a
wholly-owned subsidiary of Johnson & Johnson, have entered into a
strategic alliance to market rabeprazole worldwide with the
exception of Japan and certain other territories.
Worldwide sales of $2.1 billion in the Professional segment
represented a decrease of 1.7% over the first quarter of 1997. In
local currency, worldwide sales increased 1.9% before adjusting for
a 3.6% negative currency impact. Strong sales growth of Ethicon
Endo-Surgery's laparoscopy and wound closure products and
LifeScan's blood glucose monitoring systems were offset by a
decline in sales of Cordis' coronary stents.
During the quarter, the company launched the THERMACHOICE Uterine
Balloon Therapy System in the U.S. for the treatment of excessive
menstrual bleeding in women. The product has been well received by
the obstetrical/gynecological community and over 1,900
practitioners have already been trained. Also in the quarter, an
FDA advisory committee unanimously recommended the approval of
DERMABOND, a topical skin adhesive for wound closure. Ethicon,
Inc., a wholly-owned subsidiary of Johnson & Johnson, has exclusive
worldwide marketing and distribution rights for DERMABOND.
Average shares of common stock outstanding in the first three
months of 1998 were 1,345.3 million, compared with 1,333.1 million
for the same period a year ago.
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LIQUIDITY AND CAPITAL RESOURCES
Cash and current marketable securities increased $122 million
during the first three months of 1998 to $3,021 million at March
29, 1998. Total borrowings decreased $146 million during the first
three months of 1998 to $1,694 million. Net cash (cash and current
securities net of borrowings) was $1,327 million at March 29, 1998
compared with $1,059 million at the end of 1997. Total debt
represented 11.7% of total capital (shareowners' equity and total
borrowings) at quarter end compared with 13.0% at the end of 1997.
Additions to property, plant and equipment were $215 million for
the first three months of 1998, compared with $200 million for the
same period in 1997.
On April 23, 1998, the Board of Directors approved a 13.6%
increase in the quarterly dividend rate from 22 cents per share to
25 cents per share. The dividend is payable on June 9, 1998 to
shareowners of record as of May 19, 1998.
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Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit Numbers
(1) 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 29, 1998.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
JOHNSON & JOHNSON
(Registrant)
Date: May 8, 1998 By /s/ R. J. DARRETTA
R. J. DARRETTA
(Vice President, Finance)
Date: May 8, 1998 By /s/ C. E. LOCKETT
C. E. LOCKETT
(Corporate Controller)
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