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 July 2, 2000
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.)
One Johnson & Johnson Plaza
New Brunswick, New Jersey
08933
(Address of principal executive offices) (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 July 28, 2000, 1,390,331,801 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.
Item 1. Financial Statements
Consolidated Balance Sheet -
July 2, 2000 and January 2, 2000 3
Consolidated Statement of Earnings for the
Fiscal Quarter Ended July 2, 2000 and
July 4, 1999 5
Consolidated Statement of Earnings for the
Fiscal Six Months Ended July 2, 2000 and
July 4, 1999 6
Consolidated Statement of Cash Flows for the
Fiscal Six Months Ended July 2, 2000 and
July 4, 1999 7
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 14
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 19
Part II - Other Information
Item 1 - Legal Proceedings 19
Item 4 - Submission of Matters to a Vote of Security Holders
21
Item 5 - Other Information 22
Item 6 - Exhibits and Reports on Form 8-K 22
Signatures 23
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Part I - FINANCIAL INFORMATION
Item 1 - Financial Statements
JOHNSON & JOHNSON AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Unaudited; Dollars in Millions)
ASSETS
July 2, January
2,
2000 2000
Current Assets:
Cash and cash equivalents $ 2,937 2,363
Marketable securities, at cost 1,562 1,516
Accounts receivable, trade, less
allowances $358 (1999 - $389) 4,441 4,233
Inventories (Note 3) 3,060 3,095
Deferred taxes on income 1,054 1,105
Prepaid expenses and other
receivables 1,312 888
Total current assets 14,366 13,200
Marketable securities, non-current 398 441
Property, plant and equipment, at cost 11,263 11,046
Less accumulated depreciation and
amortization 4,571 4,327
6,692 6,719
Intangible assets, net (Note 4) 7,395 7,571
Deferred taxes on income 90 104
Other assets 1,364 1,128
Total assets $30,305 29,163
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
July 2, January
2,
2000 2000
Current Liabilities:
Loans and notes payable $ 870 1,806
Accounts payable 1,785 2,003
Accrued liabilities 2,948 2,972
Accrued salaries, wages and commissions568 467
Taxes on income 434 206
Total current liabilities 6,605 7,454
Long-term debt 2,434 2,450
Deferred tax liability 276 287
Employee related obligations 1,884 1,749
Other liabilities 1,127 1,010
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 1,534,921,000 and
1,534,916,000 shares) 1,535 1,535
Note receivable from employee stock
ownership plan (35) (41)
Accumulated other comprehensive income(350) (396)
(Note 7)
Retained earnings 17,839 16,192
18,989
17,290
Less common stock held in treasury,
at cost (143,852,000 & 145,233,000
shares) 1,010 1,077
Total shareowners' equity 17,979 16,213
Total liabilities and shareowners'
equity $30,305 29,163
See Notes to Consolidated Financial Statements
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JOHNSON & JOHNSON AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EARNINGS
(Unaudited; dollars & shares in millions
except per share figures)
Fiscal Quarter Ended
July 2, Percent July 4,
Percent
2000 to Sales 1999 to
Sales
Sales to customers (Note 5) $7,508 100.0 6,971 100.0
Cost of products sold 2,256 30.0 2,123 30.5
Gross Profit 5,252 70.0 4,848 69.5
Selling, marketing and
administrative expenses 2,745 36.6 2,588 37.1
Research expense 667 8.9 596 8.5
Interest income (81) (1.1) (53) (.8)
Interest expense, net of
portion capitalized 38 .5 53 .8
Other (income)expense, net 17 .2 35 .5
3,386 45.1 3,219 46.1
Earnings before provision
for taxes on income 1,866 24.9 1,629 23.4
Provision for taxes on
income (Note 2) 535 7.2 465 6.7
NET EARNINGS $1,331 17.7 1,164 16.7
NET EARNINGS PER SHARE (Note 6)
Basic $ .95 .84
Diluted $ .94 .82
CASH DIVIDENDS PER SHARE $ .32 .28
AVG. SHARES OUTSTANDING
Basic 1,390.7 1,390.1
Diluted 1,413.6 1,421.2
See Notes to Consolidated Financial Statements
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JOHNSON & JOHNSON AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EARNINGS
(Unaudited; dollars & shares in millions
except per share figures)
Fiscal Six Months
July 2, Percent July 4,
Percent
2000 to Sales 1999 to
Sales
Sales to customers (Note 5)$14,827 100.0 13,710 100.0
Cost of products sold 4,497 30.3 4,193 30.6
Gross Profit 10,330 69.7 9,517 69.4
Selling, marketing and
administrative expenses 5,354 36.2 5,025 36.7
Research expense 1,304 8.8 1,153 8.4
Interest income (158) (1.1) (107) (.8)
Interest expense, net of
portion capitalized 84 .6 107 .8
Other (income)expense, net (12) (.1) 88 .6
6,572 44.4 6,266 45.7
Earnings before provision
for taxes on income 3,758 25.3 3,251 23.7
Provision for taxes on
income (Note 2) 1,113 7.5 949 6.9
NET EARNINGS $ 2,645 17.8 2,302 16.8
NET EARNINGS PER SHARE (Note 6)
Basic $ 1.90 1.66
Diluted $ 1.87 1.62
CASH DIVIDENDS PER SHARE $ .60 .53
AVG. SHARES OUTSTANDING
Basic 1,390.2 1,390.0
Diluted 1,412.8 1,418.8
See Notes to Consolidated Financial Statements
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JOHNSON & JOHNSON AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited; Dollars in Millions)
Fiscal Six
Months
July 2,
July 4,
2000
1999
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 2,645 2,302
Adjustments to reconcile net earnings to
cash flows:
Depreciation and amortization of
property and intangibles 795 747
Accounts receivable reserves (25) (16)
Changes in assets and liabilities, net
of effects from acquisition of
businesses:
Increase in accounts receivable (280) (720)
Increase in inventories (35) (265)
Changes in other assets and liabilities 154 371
NET CASH FLOWS FROM OPERATING ACTIVITIES 3,254 2,419
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment(672) (682)
Proceeds from the disposal of assets 26 5
Acquisition of businesses, net of cash
acquired (7) (188)
Purchases of investments (2,139) (1,016)
Sales of investments 2,158 932
Other (76) (83)
NET CASH USED BY INVESTING ACTIVITIES (710) (1,032)
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends to shareowners (826) (713)
Repurchase of common stock (369) (402)
Proceeds from short-term debt 162 2,563
Retirement of short-term debt (1,086) (2,641)
Proceeds from long-term debt 6 4
Retirement of long-term debt (15) (140)
Proceeds from the exercise of stock options 183 142
NET CASH USED BY FINANCING ACTIVITIES (1,945) (1,187)
EFFECT OF EXCHANGE RATE CHANGES ON CASH
AND CASH EQUIVALENTS (25) (74)
INCREASE IN CASH AND CASH EQUIVALENTS 574 126
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 2,363 1,994
CASH AND CASH EQUIVALENTS, END OF PERIOD 2,937 2,120
ACQUISITION OF BUSINESSES
Fair value of assets acquired 83 188
Fair value of liabilities assumed (1) -
82 188
Treasury stock issued at fair value (75) -
Net cash payments $ 7 188
See Notes to Consolidated Financial Statements
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - The accompanying unaudited 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 January 2,
2000. The unaudited financial statements for the fiscal quarter
and six months ended July 4, 1999 have been prepared to give
retroactive effect to the merger with Centocor on October 6, 1999.
The unaudited 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.
NOTE 2 - INCOME TAXES
The effective income tax rates for the first half of 2000 and 1999
are 29.6% and 29.2%, respectively, as compared to the U.S. federal
statutory rate of 35%. The difference from the statutory rate is
primarily 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.
NOTE 3 - INVENTORIES
(Dollars in Millions) July 2, 2000 January 2,
2000
Raw materials and supplies $ 510 663
Goods in process 480 416
Finished goods 2,070 2,016
$ 3,060 3,095
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NOTE 4 - INTANGIBLE ASSETS
(Dollars in Millions) July 2, 2000 January 2,
2000
Intangible assets $ 8,701 8,755
Less accumulated amortization 1,306 1,184
$ 7,395 7,571
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 up to 40 years.
The cost of other acquired intangibles is amortized on a
straight-line basis over their estimated useful lives.
NOTE 5 - SEGMENTS OF BUSINESS AND GEOGRAPHIC AREAS
(Dollars in Millions)
SALES BY SEGMENT OF BUSINESS
Second Quarter Six Months
Percent Percent
2000 1999 Increase 2000 1999 Increase
(Decrease) (Decrease)
Consumer
Domestic $ 902 873 3.3 1,845 1,801 2.4
International 805 814 (1.1) 1,614 1,615 (.1)
1,707 1,687 1.2% 3,459 3,416 1.3%
Pharmaceutical
Domestic 2,121 1,716 23.6 4,070 3,244 25.5
International 1,100 1,113 (1.2) 2,193 2,162 1.4
3,221 2,829 13.9% 6,263 5,406 15.9%
Professional
Domestic 1,360 1,315 3.4 2,671 2,604 2.6
International 1,220 1,140 7.0 2,434 2,284 6.6
2,580 2,455 5.1% 5,105 4,888 4.4%
Domestic 4,383 3,904 12.3 8,586 7,649 12.2
International 3,125 3,067 1.9 6,241 6,061 3.0
Worldwide $7,508 6,971 7.7% 14,827 13,710 8.1%
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NOTE 5 - SEGMENTS OF BUSINESS AND GEOGRAPHIC AREAS
(Dollars in Millions)
OPERATING PROFIT BY SEGMENT OF BUSINESS
Second Quarter Six Months
Percent Percent
Increase Increase
2000 1999(Decrease) 2000 1999 (Decrease)
Consumer 221 156 41.7 443 380 16.6
Pharmaceutical 1,249 1,094 14.2 2,514 2,078 21.0
Professional 436 430 1.4 895 883 1.4
Segments total 1,906 1,680 13.5 3,852 3,341 15.3
Expenses not allocated
to segments (40) (51) (94) (90)
Worldwide total$1,8661,629 14.5 3,758 3,251 15.6
SALES BY GEOGRAPHIC AREA
Second Quarter Six Months
Percent Percent
Increase Increase
2000 1999(Decrease) 2000 1999 (Decrease)
U.S. $4,383 3,904 12.3 8,586 7,649 12.2
Europe 1,665 1,713 (2.8) 3,343 3,460 (3.4)
Western Hemisphere
excluding U.S. 507 503 .8 1,023 981 4.3
Asia-Pacific,
Africa 953 851 12.0 1,875 1,620 15.7
Worldwide $7,508 6,971 7.7% 14,827 13,710 8.1%
NOTE 6 - EARNINGS PER SHARE
The following is a reconciliation of basic net earnings per share
to diluted net earnings per share for the six months ended July 2,
2000 and July 4, 1999:
Fiscal
Fiscal
Quarter Ended Six Months
Ended
July 2, July 4, July 2, July 4,
2000 1999 2000 1999
Basic net earnings per share$ .95 .84 1.90 1.66
Average shares outstanding
- basic 1,390.7 1,390.1 1,390.2 1,390.0
Potential shares exercisable
under stock option plans 63.1 71.0 63.0 69.9
Less: shares which could be
repurchased under treasury
stock method (40.2) (39.9) (40.4) (41.1)
Adjusted average shares
outstanding - diluted 1,413.6 1,421.2 1,412.8 1,418.8
Diluted earnings per share $ .94 .82 1.87 1.62
The diluted earnings per share calculation does not include
approximately 6 million shares related to convertible debt and 12
million shares of options whose exercise price is greater than
average market value as the effect would be anti-dilutive.
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NOTE 7 - ACCUMULATED OTHER COMPREHENSIVE INCOME
The total comprehensive income for the six months ended July 2,
2000 is $2,652 million, compared with $2,140 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 available for sale
securities.
NOTE 8 - ACQUISITIONS
During the first quarter, the Company completed the acquisitions of
Innovasive Devices and Medtrex. Innovasive Devices manufactures
and sells devices for sport medicine surgery for soft tissue
injuries. Medtrex develops and manufactures electrosurgical
generators (HydrocoolT) and disposable products (EncoreT pencil).
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.
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NOTE 9 - NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards No. 133
"Accounting for Derivative Instruments and Hedging Activities"
(SFAS 133). This standard was amended by Statement of Financial
Accounting Standards No. 137 "Accounting for Derivative Instruments
and Hedging Activities-Deferral of the Effective Date of FASB
Statement No. 133" and changed the effective date for SFAS 133 to
all fiscal quarters of fiscal years beginning after June 15, 2000.
In June 2000, the FASB issued SFAS 138, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities, an amendment
of SFAS 133". SFAS 133-138 requires that all derivative
instruments be recorded on the balance sheet at their respective
fair values. Changes in the fair value of derivatives are recorded
each period in current earnings or other comprehensive income,
depending on the designation of the hedge transaction. For fair
value hedge transactions in which the Company is hedging changes in
the fair value of assets, liabilities or firm commitments, changes
in the fair value of the derivative instrument will generally be
offset by changes in the hedged item's fair value. For cash flow
hedge transactions in which the Company is hedging the variability
of cash flows related to a variable rate asset, liability or
forecasted transaction, changes in the fair value of the derivative
instrument will be reported in other comprehensive income. The
gains and losses on the derivative instrument that are reported in
other comprehensive income will be recognized in earnings in the
periods in which earnings are impacted by the variability of the
cash flows of the hedged item.
The Company will adopt SFAS 133-138 in the first quarter of 2001
and does not expect it to have a material effect on the Company's
results of operations, cash flows or financial position.
During May 2000, the Emerging Issues Task Force ("EITF") issued
EITF Issue No. 00-14, "Accounting for Certain Sales Incentives."
EITF No. 00-14 addresses the classification of various sales
incentives and will be effective for the fourth quarter of 2000.
The Company has determined that the adoption of EITF Issue No. 00-
14 will have no effect on its financial position. The Company is
in the process of determining the potential effect on its statement
of earnings presentation and upon adoption, if necessary,
previously issued financial statements may need to be reclassified
to conform to the new presentation.
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NOTE 10 - RESTRUCTURING AND SPECIAL CHARGES
In the fourth quarter of 1998, the Company approved a plan to
reconfigure its global network of manufacturing and operating
facilities with the objective of enhancing operating efficiencies.
This plan is currently underway and is targeted for completion in
2000. Among the initiatives supporting this plan were the closures
of inefficient manufacturing facilities, exiting certain businesses
which were not providing an acceptable return and related employee
separations.
The estimated cost of this plan is $613 million. The charge
consisted of employee separation costs of $161 million, asset
impairments of $322 million, impairments of intangibles of $52
million, and other exit costs of $78 million. Employee separations
will occur primarily in manufacturing and operations facilities
affected by the plan. The decision to exit certain facilities and
businesses decreased expected future cash flows triggering the
asset impairment. The amount of impairment of such assets was
calculated using discounted cash flows or appraisals.
Of the separation costs of $161 million, $3 million were paid in
1998 and $58 million were paid in 1999. With regard to the exit
costs of $78 million, $38 million were paid in 1999. Payments made
through six months ended July 2, 2000 of these severance and other
exit costs are as follows:
Remaining Remaining
Accrual @ Cash Accrual @
January 2, 2000
Outlays July 2, 2000
Employee Separations $ 100 28 72
Other exit costs:
Distributor terminations 11 - 11
Disposal costs 10 3 7
Lease termination 7 7 -
Customer compensation 1 1 -
Other 11 6 5
Total other costs 40 17 23
$ 140 45 95
The restructuring plan consisted of the reduction of manufacturing
facilities around the world by 36, from 159 to 123 plants. None of
the assets affected by this plan were held for disposal. Changes
in estimates to date have been immaterial. The headcount reduction
related to this plan through July 2, 2000 was approximately 2,400
employees.
NOTE 11 - LEGAL PROCEEDINGS
The information called for by this footnote is incorporated
herein by reference to Item 1 ("Legal Proceedings") included in
Part II of this Report on Form 10-Q.
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Item 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SALES AND EARNINGS
Consolidated sales for the first six months of 2000 were $14.83
billion, which exceeded sales of $13.71 billion for the first six
months of 1999 by 8.1%. The strength of the U.S. dollar relative
to the foreign currencies decreased sales for the first six months
of 2000 by 2.5%. Excluding the effect of the stronger U.S. dollar
relative to foreign currencies, sales increased 10.6% on an
operational basis for the first six months of 2000. Consolidated
net earnings for the first six months of 2000 were $2.65 billion,
compared with net earnings of $2.30 billion for the first six
months of 1999. Other income and expense reflects gains related to
the sale of certain equity securities. Also included in other
income and expense is the write-down of certain intangible assets
to their realizable market value. Worldwide basic net earnings per
share for the first six months of 2000 were $1.90, compared with
$1.66 for the same period in 1999, an increase of 14.5%. Worldwide
diluted net earnings per share for the first six months of 2000
were $1.87, compared with $1.62 for the same period in 1999, an
increase of 15.4%
Consolidated sales for the second quarter of 2000 were $7.51
billion, an increase of 7.7% over 1999 second quarter sales of
$6.97 billion. The effect of the stronger U.S. dollar relative to
foreign currencies decreased second quarter sales by 2.5%.
Consolidated net earnings for the second quarter of 2000 were $1.33
billion, compared with $1.16 billion for the same period a year
ago, an increase of 14.3%. Worldwide basic net earnings per share
for the second quarter of 2000 rose 13.1% to $.95, compared with
$.84 in the 1999 period. Worldwide diluted net earnings per share
for the second quarter of 2000 rose 14.6% to $.94, compared with
$.82 in 1999.
Domestic sales for the first six months of 2000 were $8.59
billion, an increase of 12.2% over 1999 domestic sales of $7.65
billion for the same period a year ago. Sales by international
subsidiaries were $6.24 billion for the first six months of 2000
compared with $6.06 billion for the same period a year ago, an
increase of 3.0%. Excluding the impact of the stronger value of
the dollar, international sales increased by 8.6%.
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Worldwide Consumer segment sales for the second quarter of 2000
were $1.71 billion, an increase of 1.2% versus the same period a
year ago. Domestic sales were up 3.3% while international sales
gains in local currency of 5.0% were offset by a negative currency
impact of 6.1%. Consumer sales were led by continued strength in
the skin care franchise, which includes the NEUTROGENA, RoC and
CLEAN & CLEAR product lines. During the quarter, the Company
launched MOTRIN Migraine Pain, the first over-the-counter ibuprofen-
based treatment proven effective for migraine headache pain.
Worldwide pharmaceutical sales of $3.22 billion for the quarter
increased 13.9% over the same period in 1999, including 23.6%
growth in domestic sales and a 1.2% decrease in international
sales. International sales gains in local currency of 5.6% were
offset by a negative currency impact of 6.8%.
Sales growth reflects the strong performance of PROCRIT/EPREX,
for the treatment of anemia; RISPERDAL, an antipsychotic
medication; DURAGESIC, a transdermal patch for chronic pain;
LEVAQUIN, an anti-infective; ULTRAM, an analgesic; REMICADE, a
treatment for rheumatoid arthritis and Crohn's disease, and the
oral contraceptive line of products. PROPULSID (cisapride, sold
outside the United States as PREPULSID), a gastrointestinal
prokinetic, experienced an anticipated decline in sales. In March,
the Company announced a limited-access program for PROPULSID and
that the product would not longer be marketed in the United States.
In Europe, the European Agency for the Evaluation of Medicinal
Products (EMEA) has initiated an Article 12 procedure to review the
benefit/risk of PREPULSID. The product license has also been
temporarily suspended in a number of European countries pending the
outcome of the EMEA review. As a result of these actions, the
Company has recorded reserves related to inventory and sales
returns.
During the quarter, the Company received approval from the
European regulatory authority for REMICADE (infliximab) with
methotrexate for the reduction of signs and symptoms of rheumatoid
arthritis. REMICADE is the first of a new class of agents that
neutralize a key inflammatory mediator called TNF-alpha. On July
12, 2000 the Food and Drug Administration (FDA) Arthritis Advisory
Committee unanimously recommended approval of an additional claim
for the use of REMICADE (infliximab) with methotrexate for the
reduction of joint damage in patients with rheumatoid arthritis.
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On July 12, 2000 the Company also announced that REMINYL
(galantamine), a new treatment for mild to moderately severe
Alzheimer's disease, successfully completed the European Mutual
Recognition Process. Thirteen European countries, as well as
Norway and Iceland, have mutually agreed to recognize the earlier
approval of REMINYL by the Reference Member State, Sweden. REMINYL
has been shown to significantly benefit the cognitive, functional
and behavioral symptoms of patients with the disease.
Professional segment sales in the second quarter increased over
the same period in the prior year by 5.1% to $2.58 billion with
domestic and international sales of 3.4% and 7.0% respectively.
International sales gains in local currency of 11.1% were partially
offset by a negative currency impact of 4.1%. Strong sales
performances by DePuy's orthopaedic joint reconstruction and spinal
products; Ethicon Endo-Surgery's minimally invasive surgical
products; Cordis' coronary and endovascular stents; Ethicon's Mitek
suture anchors and Gynecare's women's health products, and
Vistakon's disposable contact lens products were the primary
contributors to the Professional segment growth.
During the quarter, the Company received FDA approval to market
its new BX VELOCITY Coronary Artery Stent for the treatment of
abrupt or threatened closure of arteries. The launch of the BX
VELOCITY has been very well received. The Company also received
European approval for its new heparin-coated BX VELOCITY Coronary
Stent utilizing a proprietary coating, Hepacoat. Heparin is a safe,
effective pharmaceutical agent widely used for reducing or helping
to prevent clotting.
- 16 -
In addition, on June 19, 2000, an FDA advisory panel unanimously
recommended approval of the Company's CHECKMATE Intravascular
Brachytherapy System for gamma radiation treatment of patients with
in-stent restenosis, a complication associated with coronary artery
disease. The CHECKMATE System, currently undergoing expedited
review at the FDA, is the first of its kind to be recommended by an
FDA panel for approval.
LIQUIDITY AND CAPITAL RESOURCES
Cash and current marketable securities increased $620 million
during the first six months of 2000 to $4,499 million at July 2,
2000. Total borrowings decreased $952 million during the first six
months of 2000 to $3,304 million. Net cash (cash and current
marketable securities net of debt) as of July 2, 2000 was $1,195
million. Net debt (debt net of cash and current marketable
securities) as of the end of 1999 was $377 million. Total debt
represented 15.5% of total capital (shareowners' equity and total
debt) at quarter end compared with 20.8% at the end of 1999. For
the period ended July 2, 2000, there were no material cash
commitments.
Additions to property, plant and equipment were $672 million for
the first six months of 2000, compared with $682 million for the
same period in 1999.
On July 17, 2000, the Board of Directors approved a regular
quarterly dividend of 32 cents per share, payable on September 12,
2000 to shareowners of record as of August 22, 2000.
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CAUTIONARY FACTORS THAT MAY AFFECT FUTURE RESULTS
This Form 10-Q contains "forward-looking statements." Forward-
looking statements do not relate strictly to historical or current
facts and anticipate results based on management's plans that are
subject to uncertainty. Forward-looking statements may be
identified by the use of words like "plans," "expects," "will,"
"anticipates," "estimates" and other words of similar meaning in
conjunction with, among other things, discussions of future
operations, financial performance, the Company's strategy for
growth, product development, regulatory approvals, market position
and expenditures.
Forward-looking statements are based on current expectations of
future events. The Company cannot guarantee that any forward-
looking statement will be accurate, although the Company believes
that it has been reasonable in its expectations and assumptions.
Investors should realize that if underlying assumptions prove
inaccurate or unknown risks or uncertainties materialize, actual
results could vary materially from the Company's expectations and
projections. Investors are therefore cautioned not to place undue
reliance on any forward-looking statements. Furthermore, the
Company assumes no obligation to update any forward-looking
statements as a result of new information or future events or
developments.
The Company's Annual Report on Form 10-K for the fiscal year
ended January 2, 2000 contains, in Exhibit 99(b), a discussion of
various factors that could cause actual results to differ from
expectations. That Exhibit from the Form 10-K is incorporated in
this filing by reference. The Company notes these factors as
permitted by the Private Securities Litigation Reform Act of 1995.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
There has been no material change in the Company's assessment of
its sensitivity to market risk since its presentation set forth in
Item 7A, "Quantitative and Qualitative Disclosures About Market
Risk," in its Annual Report on Form 10-K for the fiscal year ended
January 2, 2000.
Part II - OTHER INFORMATION
Item 1. 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 and
instructions for use 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,
it will be substantially covered by reserves established under its
self-insurance program and by commercially available excess
liability insurance.
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's subsidiary, Johnson & Johnson Vision Care Inc.
(Vision Care), 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, which were filed
between July 1994 and December 1996 and are consolidated before the
United States district Court for the Middle District of Florida,
assert that enforcement of Vision Care'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.
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Johnson & Johnson Vision Care is also a defendant in a nationwide
consumer class action brought on behalf of purchasers of its ACUVUE
brand contact lenses. The plaintiffs in that action, which was
filed in 1996 in New Jersey State Court, allege that Vision Care
sold its 1-DAY ACUVUE lens at a substantially cheaper price than
ACUVUE and misled consumers into believing these were different
lenses when, in fact, they were allegedly "the same lenses."
Plaintiffs are seeking substantial damages and an injunction
against supposed improper conduct. The Company believes these
claims are without merit and is defending the action vigorously.
The Company's Ortho Biotech subsidiary is party to an arbitration
proceeding filed against it in 1995 by Amgen, Ortho Biotech's
licensor of U.S. non-dialysis rights to EPO, in which Amgen seeks
to terminate Ortho Biotech's U.S. license rights and collect
substantial damages based on alleged deliberate EPO sales by Ortho
Biotech during the early 1990's into Amgen's reserved dialysis
market. The Company believes no basis exists for terminating Ortho
Biotech's U.S. license rights or for obtaining damages and is
vigorously contesting Amgen's claims. However, Ortho Biotech's
U.S. license rights to EPO are material to the Company; thus, an
unfavorable outcome could have a material adverse effect on the
Company's consolidated financial position, liquidity or results of
operations.
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, except as noted
above, would not have a material adverse effect on its results of
operations, cash flows or financial position.
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Item 4. Submission of Matters to a Vote of Security Holders
(a) The
annual meeting of the shareowners of the
Company was held on April 19, 2000.
(b) The shareowners elected all the Company's
nominees for director. The shareowners also
approved the 2000 Stock Option Plan, the
2000 Stock Compensation Plan and the
appointment of PricewaterhouseCoopers LLP as
the Company's independent auditors for 2000.
1. Election of Directors:
For Withheld
G. N. Burrow 1,155,700,526 7,437,615
J. G. Cooney 1,154,712,364 8,425,777
J. G. Cullen 1,155,878,391 7,259,750
M. J. Folkman 1,155,629,570 7,508,571
A. D. Jordan 1,106,253,244 56,884,897
A. G. Langbo 1,155,488,038 7,650,103
R. S. Larsen 1,155,596,357 7,541,784
J. S. Mayo 1,155,195,414 7,942,727
L. F. Mullin 1,155,818,188 7,319,953
H. B. Schacht 1,154,984,816 8,153,325
M. F. Singer 1,155,512,348 7,625,793
J. W. Snow 1,155,442,074 7,696,067
R. N. Wilson 1,155,670,335 7,467,806
2. Approval of 2000 Stock
Option Plan:
For 835,600,448
Against 101,471,104
Abstain 10,433,301
3. Approval of 2000 Stock Compensation Plan:
For 867,703,013
Against 69,114,213
Abstain 10,687,627
4. Approval of Appointment of PricewaterhouseCoopers
LLP:
For 1,154,552,902
Against 3,293,981
Abstain 5,291,258
(c) A shareowner proposal on pharmaceutical pricing was defeated.
The vote on this proposal was as follows:
For 47,632,626
Against 867,824,720
Abstain 32,047,507
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Item 5. Other Information
Testimony in Amgen`s patent infringement trial in Boston,
Massachusetts against Transkaryotic Therapies, Inc. (TKT), the
developer of a gene-activated EPO product, and Aventis S.A., which
holds marketing rights to the TKT product, should conclude in
September. TKT and Aventis are seeking to invalidate the Amgen
patents asserted against them, which patents are exclusively
licensed to Ortho Biotech in the U.S. for non-dialysis indications.
Ortho Biotech is not a party to the action and is not in a position
to express views as to its probable outcome.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit Numbers
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 July 2, 2000.
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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: August 11, 2000 By /s/ R. J. DARRETTA
R. J. DARRETTA
Vice President, Finance
Date: August 11, 2000 By /s/ C. E. LOCKETT
C. E. LOCKETT
Controller
(Chief Accounting Officer)
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