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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 JANUARY 2, 2000 COMMISSION FILE NUMBER 1-3215
JOHNSON & JOHNSON
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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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)
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Registrant's telephone number, including area code (732) 524-0400
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT
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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
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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 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]
The aggregate market value of the voting stock held by non-affiliates of
the registrant on February 22, 2000 was approximately $108.1 billion.
On February 22, 2000 there were 1,389,935,650 shares of Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
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Parts I and Portions of registrant's annual report to shareowners for
II: fiscal year 1999.
Part III: Portions of registrant's proxy statement for its 2000 annual
meeting of shareowners.
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PART I
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ITEM PAGE
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1. 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................................................. 3
Competition................................................. 3
Research.................................................... 3
Environment................................................. 3
Regulation.................................................. 3
2. Properties.................................................. 4
3. Legal Proceedings........................................... 5
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
7A. Quantitative and Qualitative Disclosures About Market
Risk........................................................ 7
8. Financial Statements and Supplementary Data................. 7
9. Changes in and Disagreements on Accounting and Financial
Disclosure.................................................. 7
PART III
10. Directors and Executive Officers of the Registrant.......... 7
11. Executive Compensation...................................... 7
12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 7
13. Certain Relationships and Related Transactions.............. 7
PART IV
14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K......................................................... 8
Signatures.................................................. 10
Report of Independent Accountants........................... 12
Exhibit Index............................................... 13
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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 97,800 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, certain Executive Committee members serve as Worldwide 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 segments of business. Operating management of
each company is headed by a Chairman, President, General Manager or Managing
Director who reports directly to, or through a line executive to, a Group
Operating Committee. 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.
Additional information required by this item is incorporated herein by reference
to the narrative and tabular (but not the graphic) descriptions of segments and
geographic areas 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 29 and 45
of Johnson & Johnson's Annual Report to Shareowners for fiscal year 1999.
CONSUMER
The Consumer segment's principal products are personal care and hygienic
products, including nonprescription drugs, adult skin and hair care products,
baby care products, oral care products, first aid products and sanitary
protection products. Major brands include AVEENO skin care products; BAND-AID
Brand Adhesive Bandages; BENECOL food products; CAREFREE Panty Shields; CLEAN &
CLEAR teen skin care products; IMODIUM A-D, an antidiarrheal; JOHNSON'S Baby
line of products; JOHNSON'S pH 5.5 skin and hair care products; LACTAID
lactose-intolerance products; MONISTAT, a remedy for vaginal yeast infections;
adult and children's MOTRIN IB ibuprofen products; MYLANTA gastrointestinal
products and PEPCID AC Acid Controller from the Johnson & Johnson - Merck
Consumer Pharmaceuticals Co.; NEUTROGENA skin and hair care products; o.b.
Tampons; 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 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
antifungal, anti-infective, cardiovascular, contraceptive, dermatology,
gastrointestinal, hematology, immunology, neurology, oncology, pain management
and psychotropic fields. These products are distributed both directly and
through wholesalers for use by health care professionals and the general public.
Prescription drugs in the antifungal field include NIZORAL (ketoconazole),
SPORANOX (itraconazole), TERAZOL (terconazole) and DAKTARIN (miconazole nitrate)
antifungal products. Prescription drugs in the anti-infective field include
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FLOXIN (ofloxacin) and LEVAQUIN (levofloxacin). Prescription drugs in the
cardiovascular field include RETAVASE (reteplase), a recombinant biologic
cardiology care product for the treatment of acute myocardial infarction to
improve blood flow to the heart, and REOPRO (abciximab) for the treatment of
acute cardiac disease. Prescription drugs in the contraceptive field include
ORTHO-NOVUM (norethindrone/ethinyl estradiol) and TRICILEST
(norgestimate/ethinyl estradiol, sold in the U.S. as ORTHO TRI-CYCLEN) group of
oral contraceptives. Prescriptions drugs in the dermatology field include
RETIN-A MICRO (tretinoin), a dermatological cream for acne. Prescription drugs
in the gastrointestinal field include ACIPHEX (rabeprazole sodium), a proton
pump inhibitor for treating erosive gastroesophageal reflux disease (GERD) and
duodenal ulcers; IMODIUM (loperamide HCl), an antidiarrheal; MOTILIUM
(domperidone), a gastrointestinal mobilizer; PREPULSID (cisapride, sold in the
U.S. as PROPULSID), a gastrointestinal prokinetic; and REMICADE (infliximab), a
novel monoclonal antibody for treatment of certain Crohn's disease patients.
Prescription drugs in the hematology field include EPREX (epoetin alfa,
sold in the U.S. as PROCRIT), a biotechnology derived version of the human
hormone erythropoietin that stimulates red blood cell production. Prescription
drugs in the immunology field include ORTHOCLONE OKT-3 (muromonab-CD3), for
reversing the rejection of kidney, heart and liver transplants. Prescription
drugs in the neurology field include REMINYL (galantamine), TOPAMAX (topiramate)
and STUGERON (cinnarizine). Prescription drugs in the oncology field include
ERGAMISOL (levamisole hydrochloride), a colon cancer drug, and LEUSTATIN
(cladribine), for hairy cell leukemia. Prescription drugs in the pain management
field include DURAGESIC (fentanyl transdermal system, sold abroad as DUROGESIC),
a transdermal patch for chronic pain; and ULTRAM (tramadol hydrochloride), an
analgesic for moderate to moderately severe pain. Prescription drugs in the
psychotropics field include RISPERDAL (risperidone), an antipsychotic drug, and
HALDOL (haloperidol).
PROFESSIONAL
The Professional segment includes a broad range of products used by or
under the direction of health care professionals, including, suture and
mechanical wound closure products, surgical equipment and devices, wound
management and infection prevention products, interventional and diagnostic
cardiology products, diagnostic equipment and supplies, joint replacements and
disposable contact lenses. These products are used principally in the
professional fields by physicians, nurses, therapists, hospitals, diagnostic
laboratories and clinics. Distribution to these markets is done both directly
and through surgical supply and other dealers.
INTERNATIONAL
The international business of Johnson & Johnson is conducted by
subsidiaries manufacturing in 35 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
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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.
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 $2,600, $2,336 and
$2,209 million for fiscal years 1999, 1998 and 1997, 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.
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The costs of human health care have been and continue to be a subject of
study, investigation and regulation 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 or recommend particular medical
devices. 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.
ITEM 2. PROPERTIES
Johnson & Johnson and its worldwide subsidiaries operate 169 manufacturing
facilities occupying approximately 17.6 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.................................................... 5,744
Pharmaceutical.............................................. 4,506
Professional................................................ 7,344
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Worldwide total................................... 17,594
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Within the United States, 11 facilities are used by the Consumer segment, 8
by the Pharmaceutical segment and 45 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............................................... 64 7,515
Europe...................................................... 47 5,420
Western Hemisphere excluding U.S.A.......................... 19 2,373
Africa, Asia and Pacific.................................... 39 2,286
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Worldwide total................................... 169 17,594
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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 in Item 1 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 4 "Rental Expense and
Lease Commitments" under "Notes to Consolidated Financial Statements" on page 35
of Johnson & Johnson's Annual Report to Shareowners for fiscal year 1999.
Segment information on additions to Johnson & Johnson's property, plant and
equipment is contained on page 45 of Johnson & Johnson's Annual Report to
Shareowners for fiscal year 1999. For information regarding plans to close
certain manufacturing facilities, see Note 14 "Restructuring
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and In-Process Research and Development Charges" under "Notes to Consolidated
Financial Statements" on page 40 of Johnson & Johnson's Annual Report to
Shareowners for fiscal year 1999.
ITEM 3. LEGAL PROCEEDINGS
The information set forth in Note 18 "Legal Proceedings" under "Notes to
Consolidated Financial Statements" on page 42 of Johnson & Johnson's Annual
Report to Shareowners for fiscal year 1999 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.
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
24, 2000, 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 4 through 7 of Johnson & Johnson's Proxy Statement dated
March 8, 2000.
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NAME AGE POSITION
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Robert J. Darretta..................... 53 Member, Executive Committee; Vice President,
Finance(a)
Russell C. Deyo........................ 50 Member, Executive Committee; Vice President,
Administration(b)
Roger S. Fine.......................... 57 Member, Executive Committee; Vice President, General
Counsel(c)
JoAnn Heffernan Heisen................. 50 Member, Executive Committee; Vice President, Chief
Information Officer(d)
Christian A. Koffmann.................. 59 Member, Executive Committee; Worldwide Chairman,
Consumer & Personal Care Group(e)
Ralph S. Larsen........................ 61 Chairman, Board of Directors and Chief Executive
Officer; Chairman, Executive Committee
James T. Lenehan....................... 51 Member, Executive Committee; Worldwide Chairman,
Medical Devices & Diagnostics Group(f)
Brian D. Perkins....................... 46 Member, Executive Committee; Worldwide Chairman,
Consumer Pharmaceuticals & Nutritionals Group(g)
William C. Weldon...................... 51 Member, Executive Committee; Worldwide Chairman,
Pharmaceuticals Group(h)
Robert N. Wilson....................... 59 Vice-Chairman, Board of Directors; Vice-Chairman
Executive Committee
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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 and Treasurer of the
Company in 1995. He became a Member of the Executive Committee and Vice
President, Finance in 1997.
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(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 1996.
(c) Mr. R. S. Fine joined the Company in 1974 and became a Member of the
Executive Committee and Vice President, Administration in 1991 and Vice
President, General Counsel in 1996.
(d) Ms. J. H. Heisen joined the Company in 1989 and became Treasurer in 1991 and
Controller in 1995. She became a Member of the Executive Committee and Vice
President, Chief Information Officer in 1997.
(e) 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 & Personal Care Group in 1995.
(f) Mr. J. T. Lenehan joined the Company in 1976 and became a Company Group
Chairman in 1993. He has been a Member of the Executive Committee since 1994
and became Worldwide Chairman, Consumer Pharmaceuticals and Professional
Group in 1994 and Worldwide Chairman, Medical Devices & Diagnostics Group in
September 1999.
(g) Mr. B. D. Perkins joined the Company in 1980 and held various positions
before becoming President of McNeil Consumer Products Company in 1994 and
Company Group Chairman for OTC Pharmaceuticals in 1999. He became a Member
of the Executive Committee and Worldwide Chairman, Consumer Pharmaceuticals
& Nutritionals Group in September 1999.
(h) Mr. W. C. Weldon joined the Company in 1971 and held various positions
before becoming President of Ethicon Endo-Surgery in 1992 and Company Group
Chairman of Ethicon Endo-Surgery in 1995. He became a Member of the
Executive Committee and Worldwide Chairman, Pharmaceuticals Group in 1998.
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 23 of Johnson & Johnson's Annual Report to Shareowners
for fiscal year 1999.
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 1989-1999"
on page 46 of Johnson & Johnson's Annual Report to Shareowners for fiscal year
1999.
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 narrative and tabular (but not the graphic) material included in the
material captioned "Management's Discussion and Analysis of Results of
Operations and Financial Condition" on pages 22 through 29 of Johnson &
Johnson's Annual Report to Shareowners for fiscal year 1999.
On March 23, 2000, the Company's Janssen Pharmaceutica U.S. subsidiary
announced that a limited-access program would be initiated in the U.S. for
PROPULSID (cisapride) tablets and suspension, a medication for the treatment of
adults with nighttime heartburn due to gastroesophageal reflux disease, and the
medication would no longer be marketed in the United States. Under the new
program, the medication will remain available to appropriate patients for whom
other therapies are not effective and who meet clearly defined eligibility
criteria. These criteria are being established in close collaboration with the
FDA. Enrollment in the limited access program is expected to begin May 1. To
assure that the medication is available to patients during the transition,
distribution will continue until July 14, and the product is scheduled to remain
in pharmacies until mid-August.
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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 -- Financial Instruments" on page 24 of
Johnson & Johnson's Annual Report to Shareowners for fiscal year 1999.
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 30 through 44 of Johnson &
Johnson's Annual Report to Shareowners for fiscal year 1999.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information called for by this item is incorporated herein by reference
to (a) the material under the caption "Election of Directors -- Nominees" on
pages 3 through 7 of Johnson & Johnson's Proxy Statement dated March 8, 2000,
(b) the material in Part I hereof under the caption "Executive Officers of the
Registrant" and (c) the material under the caption "Section 16(a) Beneficial
Ownership Reporting Compliance" on page 10 of Johnson & Johnson's Proxy
Statement dated March 8, 2000.
ITEM 11. EXECUTIVE COMPENSATION
The information called for by this item is incorporated herein by reference
to the following sections of Johnson & Johnson's Proxy Statement dated March 8,
2000: "Election of Directors -- Directors' Fees, Committees and Meetings" on
pages 9 through 10; "Compensation Committee Report on Executive Compensation" on
pages 10 through 13; "Shareowner Return Performance Graphs" on pages 14 through
15; and "Executive Compensation" on pages 16 through 19.
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 "Election of Directors--Stock Ownership/Control" on
page 8 of Johnson & Johnson's Proxy Statement dated March 8, 2000.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report
1. Financial Statements
The following Consolidated Financial Statements and the Notes thereto and
the Independent Auditor's Report on pages 30 through 44 of Johnson & Johnson's
Annual Report to Shareowners for fiscal year 1999 are incorporated herein by
reference:
Consolidated Balance Sheets at end of Fiscal Years 1999 and 1998
Consolidated Statements of Earnings for Fiscal Years 1999, 1998 and 1997
Consolidated Statements of Equity for Fiscal Years 1999, 1998 and 1997
Consolidated Statements of Cash Flows for Fiscal Years 1999, 1998 and
1997
Notes to Consolidated Financial Statements
Independent Auditor's Report
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 item is incorporated herein by reference
to the Exhibit Index in this report.
(b) Reports on Form 8-K
A Report on Form 8-K was filed on December 14, 1999, which included
supplemental combined financial statements prepared to reflect the merger of
Johnson & Johnson with Centocor, Inc., which was accounted for by the
pooling-of-interests method of accounting. The Report included Form 10-K for the
period ended January 3, 1999; Financial Data Schedule as of January 3, 1999;
Form 10-Q for the period ended October 3, 1999; and Financial Data Schedule as
of October 3, 1999.
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JOHNSON & JOHNSON AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
FISCAL YEARS ENDED JANUARY 2, 2000, JANUARY 3, 1999 AND DECEMBER 28, 1997(A)
(DOLLARS IN MILLIONS)
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<CAPTION>
DEDUCTIONS FROM RESERVES
ADDITIONS ---------------------------------------------------
BALANCE AT CHARGED BALANCE
BEGINNING TO COSTS AND AT END
OF PERIOD EXPENSES(B) DESCRIPTION AMOUNT OF PERIOD
---------- ------------ ----------- ------ ---------
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1999
Reserves deducted from
accounts receivable, trade
Reserve for doubtful
accounts............... $184 53 Write-offs less recoveries..... 63
Currency adjustments........... (19) 193
Reserve for customer
rebates................ 157 1,028 Customer rebates allowed....... 1,056
Currency adjustments........... (6) 135
Reserve for cash
discounts.............. 47 520 Cash discounts allowed......... 506 61
---- ----- ----- ---
$388 1,601 1,600 389
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1998
Reserves deducted from
accounts receivable, trade
Reserve for doubtful
accounts............... $152 42 Write-offs less recoveries..... 15
Currency adjustments........... (5) 184
Reserve for customer
rebates................ 164 978 Customer rebates allowed....... 993
Currency adjustments........... (8) 157
Cash discounts allowed......... 429
Reserve for cash
discounts.............. 42 431 Currency adjustments........... (3) 47
---- ----- ----- ---
$358 1,451 1,421 388
==== ===== ===== ===
1997
Reserves deducted from
accounts receivable, trade
Reserve for doubtful
accounts............... $141 49 Write-offs less recoveries..... 29
Currency adjustments........... 9 152
Reserve for customer
rebates................ 129 855 Customer rebates allowed....... 813
Currency adjustments........... 7 164
Cash discounts allowed......... 341
Reserve for cash
discounts.............. 39 352 Currency adjustments........... 8 42
---- ----- ----- ---
$309 1,256 1,207 358
==== ===== ===== ===
</TABLE>
- ---------------
(A) This Schedule has been prepared to give retroactive effect to the merger
between Johnson & Johnson and Centocor on October 6, 1999.
(B) Charges related to customer rebates and cash discounts are reflected as
reductions of sales to customers.
9
<PAGE> 12
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 22, 2000 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 signed below 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 26, 2000
- ------------------------------------------ Chief Executive Officer, and
R. S. Larsen Director (Principal Executive
Officer)
/s/ R. J. DARRETTA Vice President -- Finance March 22, 2000
- ------------------------------------------ (Principal Financial Officer)
R. J. Darretta
/s/ C. E. LOCKETT Controller March 24, 2000
- ------------------------------------------
C. E. Lockett
/s/ G. N. BURROW Director March 22, 2000
- ------------------------------------------
G. N. Burrow
/s/ J. G. COONEY Director March 22, 2000
- ------------------------------------------
J. G. Cooney
/s/ J. G. CULLEN Director March 23, 2000
- ------------------------------------------
J. G. Cullen
/s/ M. J. FOLKMAN Director March 24, 2000
- ------------------------------------------
M. J. Folkman
/s/ A. D. JORDAN Director March 23, 2000
- ------------------------------------------
A. D. Jordan
/s/ A. G. LANGBO Director March 24, 2000
- ------------------------------------------
A. G. Langbo
/s/ J. S. MAYO Director March 22, 2000
- ------------------------------------------
J. S. Mayo
</TABLE>
10
<PAGE> 13
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ L.F. MULLIN Director March 23, 2000
- ------------------------------------------
L.F. Mullin
Director March , 2000
- ------------------------------------------
P. J. Rizzo
/s/ H. B. SCHACHT Director March 24, 2000
- ------------------------------------------
H. B. Schacht
/s/ M. F. SINGER Director March 22, 2000
- ------------------------------------------
M. F. Singer
/s/ J. W. SNOW Director March 23, 2000
- ------------------------------------------
J. W. Snow
/s/ R. N. WILSON Vice Chairman, Board of Directors March 23, 2000
- ------------------------------------------ and Director
R. N. Wilson
</TABLE>
11
<PAGE> 14
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Shareowners and Board of Directors of
Johnson & Johnson:
Our audits of the consolidated financial statements of Johnson & Johnson
referred to in our report dated January 24, 2000 appearing in the Johnson &
Johnson 1999 Annual Report to Shareowners (which report and consolidated
financial statements are incorporated by reference in this Annual Report on Form
10-K) also included an audit of the financial statement schedule listed in Item
14 of this Form 10-K.
In our opinion, this financial statement schedule presents fairly, in all
material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements.
/s/ PricewaterhouseCoopers LLP
PRICEWATERHOUSECOOPERS LLP
New York, New York
January 24, 2000
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 -- Incorporated herein by reference to Exhibit
3(a)(iii) of the Registrant's Form 10-K Annual Report for
the year ended December 29, 1996.
3(b) By-Laws of the Company, as amended effective April 23,
1999 -- Incorporated herein by reference to Exhibit 3 of the
Registrant's Form 10-Q Quarterly Report for the quarter
ended July 4, 1999.
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 -- Incorporated
herein by reference to Exhibit 10(a) of the Registrant's
Form 10-K Annual Report for the year ended December 29,
1996.*
10(b) 1995 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, 1999.*
10(c) 1991 Stock Option Plan (as amended) -- Incorporated herein
by reference to Exhibit 10(c) of the Registrant's Form 10-K
Annual Report for the year ended December 28, 1997.*
10(d) 1986 Stock Option Plan (as amended) -- Incorporated herein
by reference to Exhibit 10(d) of the Registrant's Form 10-K
Annual Report for the year ended December 28, 1997.*
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 -- Incorporated herein by reference
to Exhibit 10(f) of the Registrant's Form 10-K Annual Report
for the year ended December 29, 1996.*
10(g) Domestic Deferred Compensation Plan (as
amended) -- Incorporated herein by reference to Exhibit
10(g) of the Registrant's Form 10-K Annual Report for the
year ended December 29, 1996.*
10(h) Deferred Fee Plan for Directors (as amended) -- Incorporated
herein by reference to Exhibit 10(h) of the Registrant's
Form 10-K Annual Report for the year ended December 29,
1996.*
10(i) Executive Income Deferral Plan (as amended) -- Filed with
this document.*
10(j) Excess Savings Plan -- Incorporated herein by reference to
Exhibit 10(j) of the Registrant's Form 10-K Annual Report
for the year ended December 29, 1996.*
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.*
10(m) Stock Option Gain Deferral Plan -- Filed with this
document.*
10(n) Estate Preservation Plan -- Filed with this document.*
12 -- Statement of Computation of Ratio of Earnings to Fixed
Charges -- Filed with this document.
</TABLE>
13
<PAGE> 16
<TABLE>
<CAPTION>
REG. S-K
EXHIBIT TABLE DESCRIPTION
ITEM NO. OF EXHIBIT
- ------------- -----------
<C> <S>
13 -- Pages 22 through 46 of the Company's Annual Report to
Shareowners for fiscal year 1999 (only those portions of the
Annual Report incorporated by reference in this report are
deemed "filed") -- Filed with this document.
21 -- Subsidiaries -- Filed with this document.
23 -- Consent of Independent Accountants -- Filed with this
document.
27 -- Financial Data Schedule for Year Ended January 2,
2000 -- Filed with this document.
99(a) -- Annual Reports on Form 11-K for the Johnson & Johnson
Savings Plans, to be filed on or before June 30, 2000.
99(b) -- Cautionary Statement pursuant to Private Securities
Litigation Reform Act of 1995: "Safe Harbor" for
Forward-Looking Statements -- Filed with this document.
</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.
14
<PAGE> 1
EXHIBIT 10(I)
JOHNSON & JOHNSON
EXECUTIVE INCOME DEFERRAL PLAN
The Johnson & 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. The 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 the Plan.
2. Eligibility. Eligibility to defer income and other amounts under the
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 the Plan to other executives of the Company. The Committee,
however, has the authority to refuse to permit any executive to participate in
the 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 or Estate Preservation
Plan. Participants may elect to defer up to (i) fifty percent (50%) of annual
salary, (ii) one hundred percent (100%) of cash and/or stock awards under the
Company's Executive Incentive Plan, (iii) one hundred percent (100%) of dividend
equivalents paid under the Company's Certificate of Extra Compensation ("CEC")
Plan and (iv) one hundred percent (100%) of dividend equivalents paid on
deferred "gain" shares under the Company's Stock Option Gain Deferral Plan.
Amounts so deferred are known as "Deferred Awards" and will be directed, at the
election of a participant, to either an "Income Deferral Account" or the Estate
Preservation Plan (as described below). 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, bonus, incentive
payment or dividend equivalent monies to be deferred will be earned.
Notwithstanding the foregoing, the required notice period for elections made in
respect of amounts to be deferred under (iv) above shall be governed by the
notice and election provisions of the Stock Option Gain Deferral Plan. 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 the Plan. A
participant may change the investment options for Deferred Awards not yet
credited to his or her Income Deferral 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 filed with Extra
Compensation Services.
In determining the maximum amounts which can be deferred by any participant
under the Plan, the Committee shall take into account (and include) any
commitment made by such participant under the Estate Preservation Plan. To the
extent that the amount of salary and/or cash award under the Company's Executive
Incentive Plan is insufficient to meet the prior deferral commitment made by a
participant under the Plan and the Estate Preservation Plan, then the deferral
commitment under the Plan shall be reduced accordingly so that the deferral
commitment under the Estate Preservation Plan is funded in full.
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
<PAGE> 2
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 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
investment options set forth below. Amounts to be deferred in any month
(including any stock award) will be valued and credited to a participant's
Income Deferral Account on the last day of each month. Amounts to be deferred
into the Estate Preservation Plan are separate and distinct from the amounts
deferred into Income Deferral Accounts.
(a) Common Stock Equivalent Units. All amounts elected to be deferred
under this investment 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 or dividend equivalents to be deferred by the average of the high
and low prices of the Common Stock on the last trading day of each month as
reported in The Wall Street Journal. 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 of
the Company's Common Stock actually be purchased or earmarked for such Income
Deferral Account. No participant shall have any of the rights of a shareowner
with respect to any shares credited to his or her Income Deferral Account. The
number of Common Stock Equivalent Units included in a participant's Income
Deferral Account shall be adjusted to reflect payment of dividends and increases
or decreases in market value which would have resulted had funds equal to such
deferred amount actually been invested in Common Stock.
The value of the Company's Common Stock for purposes of investment
redesignation (as described in Section 5) shall be the closing price of the
Company's Common Stock on the last trading day of the month in which the
participant's redesignation request is received by Extra Compensation Services,
as reported in The Wall Street Journal.
Distributions in cash of the value of equivalent shares of the Company's
Common Stock will be valued at the closing price of the Company's Common Stock
on the last trading date preceding the distribution date, as reported in The
Wall Street Journal.
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 investment options available under the Plan.
Participants who wish to redesignate out of a particular investment option may
not at
<PAGE> 3
the same time redesignate into the same investment option. No redesignation of
investments may take place during the 30 days prior to a scheduled distribution
under the Plan. The following additional rules shall apply with respect to the
redesignation of any such 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 trading price of the Common Stock as
reported in The Wall Street Journal for the last trading day of such prior
month.
(d) Special rules for Redesignation Into or Out of Common Stock
Equivalent Units previously credited to an Income Deferral 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 or 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 his or her Income Deferral Account
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) No redesignation of amounts in an Income Deferral Account
shall be made into or out of Common Stock Equivalent Units within six
(6) months of a discretionary "opposite way transaction" into or out of
Common Stock held by the participant in the Company's Savings Plan.
(e) Estate Preservation Plan -- Participants may transfer amounts from
their Income Deferral Account balance to the Estate Preservation Plan, in
accordance with the terms of the Estate Preservation Plan. However, once
transferred into the Estate Preservation Plan, such amounts may not be
transferred back into an Income Deferral Account.
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 or her Income Deferral Account will be automatically paid
in a lump sum as soon as administratively feasible in the month following his or
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 the high
and low trading prices of the Common Stock as reported in The Wall Street
Journal for the last trading day of the month in which employment was
terminated.
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.
<PAGE> 4
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 or her Income Deferral Account in the calendar month of
his or her retirement effective date. Participants retiring prior to the
determination of a prior years incentive plan award will receive 75% of the
estimated value with the remainder paid shortly after the final value is
determined.
(b) Deferred Lump Sum Payment -- The participant will receive the full
value of his or her Income Deferral Account, plus any accrued interest, on
or about January 15 of the year he or 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 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 Company 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 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 Company
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
<PAGE> 5
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. Estate Preservation Plan.
(a) As described in Section 5 above, a participant may elect to transfer
all or any portion of the balance of his or her Income Deferral Account to the
Estate Preservation Plan, in accordance with the terms of the Estate
Preservation Plan. In the event of such election, the participant's Income
Deferral Account shall be reduced, as directed by the participant, as of
December 31 of the year in which the transfer is to occur. Transfers from an
Income Deferral Account to the Estate Preservation Plan shall only be made
effective as of December 31 in any year. Any such transfer shall be irrevocable
when made, pursuant to the terms of a split dollar life insurance agreement, as
designated by the Compensation Committee, and otherwise upon the terms and
conditions set by the Compensation Committee. Upon the election of any
participant to so transfer amounts from his or her Income Deferral Account to
the Estate Preservation Plan, such participant shall be deemed to have waived
irrevocably any and all rights to benefits which might be due under the Plan
with respect to those amounts so transferred.
(b) In addition to the terms set forth in paragraph (a) above, amounts from
a participant's Income Deferral Account may have to be transferred to the Estate
Preservation Plan in order to satisfy a prior obligation of such participant in
connection with the Estate Preservation Plan. Any such transfer shall be made
solely upon the direction of the Compensation Committee, upon the determination
of the Compensation Committee that such transfer is necessary, and shall be
effected under the same terms and conditions as a voluntary transfer under
paragraph (a) above. If it is determined by the Committee that such a transfer
is necessary, the participant's Income Deferral Account shall be reduced by the
requisite amount as of December 31st in the year as directed by the Compensation
Committee. Upon the determination of the Compensation Committee and the
subsequent transfer of amounts into the Estate Preservation Plan, such
participant shall be deemed to have waived irrevocably any and all rights to
benefits which might be due under the Plan with respect to those amounts so
transferred.
9. Deductions From Distributions. The Company will deduct from each
distribution amounts required to be withheld for income, Social Security and
other tax purposes. Such withholding will be done on a pro rata basis per
investment. The Company may also deduct any amounts the participant owes the
Company for any reason.
10. 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.
11. Amendments. The Committee may amend the 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.
12. Miscellaneous. The Company does not fund the obligations created by
the participant's participation in the Plan. Rather, the Company 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 the Plan as well as to retirees with
Deferral Accounts. The statement will also include previously made deferral
<PAGE> 6
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.
The Plan shall be administered by the Extra Compensation Services
Department at the Corporate Headquarters of Company. 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 A PARTICIPANT'S TAX AND/OR FINANCIAL ADVISOR.
<PAGE> 1
EXHIBIT 10(M)
JOHNSON & JOHNSON
STOCK OPTION GAIN DEFERRAL PLAN
The Johnson & Johnson Stock Option Gain Deferral Plan (the "Plan") is
intended to permit a select group of executives to defer tax recognition on
gains from non-qualified stock options (NQSOs) granted by Johnson & Johnson (the
"Company") through the delayed receipt of exercised option "gain shares".
1. Administration. This Plan is administered by the Compensation Committee
of the Company's Board of Directors. The Committee shall have responsibility for
determining terms and conditions of the plan and eligibility criteria for
participation. The Committee 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 receipt of option "gain shares"
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 receipt of "gain shares", 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 of Option "Gain Shares". Participants may elect to defer
receipt of the "gain shares" that would otherwise be due upon exercise of a
non-qualified stock option (NQSO). The election must be made a minimum of ninety
days prior to the exercise of a non-qualified stock option (NQSO) and no later
than six months prior to the last date on which the option can be exercised by
the executive.
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. Each election must specify a.) option grant(s) and number of shares to
be exercised; b.) deferral period (from one tax year to post-retirement); and,
c.) Form of distribution (lump sum or installments). The participant elects the
period of deferral from the date of exercise. The distribution of the deferred
"gain shares" will be made as of the last trading day of the month so
determined. The exercise date is not elected at the time of the deferral
election. In addition, in order to be able to defer the "gain shares", the
option must be exercised while the participant is actively employed.
A participant may extend the "deferred-to" date specified in election form,
provided such election is made at least 12 months prior to the date on which the
shares would otherwise have been distributed. Only one such extension shall be
permitted, per deferral election.
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 the "gain shares" that have deferred.
Participants must use a "stock-for-stock" exercise, and must tender mature
shares (owned for more than six months) for the option grant price. Options can
be exercised on any date that is at least ninety days after the election to
defer has been made (and prior to option expiration) and at least one year
before the distribution date which has been elected.
FICA and Medicare taxes are due on exercise of option and will be paid for
with a portion of the "gain shares" resulting from the exercise. Participants
are responsible for any additional tax liability generated by the use of "gain
shares" to cover FICA and Medicare taxes. In the process of reducing the option
gain for FICA and Medicare taxes, if a fractional share amount results, the
number of deferred "gain shares" will be rounded down to the nearest whole share
amount.
The Company will credit the participant with the number of deferred "gain
shares" (the option gain, reduced for FICA and Medicare taxes, divided by the
market price at exercise).
<PAGE> 2
4. Dividend Equivalents. Upon the introduction of this deferred gain plan,
the Company will require that dividend equivalents on the deferred shares be
deferred under the "Executive Income Deferral Plan", and subject to the
provisions of that Plan. The Company may, at a future point, choose to permit
participants to make an election to receive dividend equivalents from deferred
"gain shares" currently as a cash payment or to defer them to a future date.
5. Distribution of Option "Gain Shares". Distributions of "gain shares"
from a Stock Option Gain Deferral will be made in J&J stock. Distribution of
deferred "gain shares" may be made as follows:
While Actively Employed: The deferred "gain shares" from an exercise may
be distributed to an participant while he/she is actively employed. The
distribution will be for the full number of shares attributed to the exercise
that resulted in their deferral (as reduced for FICA and Medicare taxes),
adjusted for stock splits.
Upon Retirement: At retirement, the deferred "gain shares" may either be
distributed in a single lump sum or in installments, pursuant to the election
made by the participant. A lump sum distribution or the first installment
distribution may be deferred for up to ten taxable years following the
participant's retirement date. Installment payments will be made annually and in
approximately equal shares amounts (i.e., number of shares comprising the
balance due divided by the number of years payment is to be made). Minimum
number of annual installments is two (2) and the maximum number is fifteen (15).
Upon Termination of Employment (other than retirement): If an
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, all of his/her deferred "gain shares" will
immediately be distributed, as soon as administratively feasible, following
termination of employment, regardless of any previously made election.
In the event of death of a participant following retirement, the Company
will immediately distribute the full balance of deferred "gain shares" due as
soon as administratively feasible to the designated beneficiary. The beneficiary
designations elected by an participant under the "Participant Income Deferral
Plan" shall be the beneficiary designations under this plan, unless the
participant had notified the Extra Compensation Services department in writing
to the contrary.
As an Early Withdrawal: In the event an participant wishes to withdraw
his/her deferred option "gain shares" prior to the deferred payment date, an
early withdrawal will be allowed, subject to an assessment of a penalty equal to
10% of the shares being withdrawn.
The following additional rules shall apply with respect to all payments:
(a) Immediate Lump Sum Distribution -- The participant will receive
the number of deferred "gain shares" in the calendar month of his/her
retirement effective date.
(b) Deferred Lump Sum Distribution -- 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.
(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 on or about January 15 of
each year.
6. Deductions from Distributions. The Company will deduct from each
distribution amounts required to be withheld for income, Social Security and
other tax purposes. Such withholding will be done on a pro rata basis per
investment. The Company may also deduct any amounts the participant owes the
Company for any reason.
<PAGE> 3
7. Beneficiary Designations. A participant may designate one or more
beneficiaries to receive the Deferred "Gain Shares" 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.
8. 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 "Gain
Shares" elected theretofore.
9. 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 "gain share" balance, as well as the payout/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(N)
JOHNSON & JOHNSON ESTATE PRESERVATION PLAN
SUMMARY DESCRIPTION
Johnson & Johnson (the "Company") has established the Estate Preservation
Plan (the "EPP") to assist selected key employees of the Company to better plan
for their retirement and estate needs. The EPP provides for the Company and the
participant, or a trust created by the participant, to purchase a life insurance
policy on the life of the participant or the joint life of the participant and
spouse. The Split Dollar Agreement (the "Agreement," annexed to this Summary
Description as Annex 1) represents the controlling document regarding the
respective rights, benefits and obligations of the parties under the EPP and the
life insurance policy. The following is a description of the operative
provisions of the Agreement and the coordination of the EPP with the Executive
Income Deferral Plan. The EPP is separate and distinct from the Executive Income
Deferral Plan.
ELIGIBILITY TO PARTICIPATE
1. Selected key executives who are also participants in the Executive
Income Deferral Program will be notified of their eligibility to participate in
the EPP.
2. The Compensation Committee (the "Committee") may decide that a
participant is no longer eligible for participation due to a change in
employment status. If this happens, any Agreement(s) entered into prior to that
date will remain intact, however, the participant will no longer be eligible to
make future deferral commitments into the EPP, as described below.
ELECTION TO PARTICIPATE
1. The participant may elect to participate in the EPP by agreeing to defer
receipt of some portion of current compensation, either salary, bonus or both.
The amounts deferred can be either a stated dollar amount or a percentage and
will be made on a form approved by the Committee.
2. The participant can choose to have the amounts deferred only for the
next calendar year or for a period of up to 5 years. The elections are
irrevocable after a ninety day period.
3. If the participant elects to defer a percentage of salary or bonus, the
amount which will be contributed to the EPP will be fixed as of the initial
election -- in other words, the amount to be deferred will not be increased as a
result of increasing salary or bonus.
4. The participant may also choose to waive the right to receive all or a
portion of current account balances under the Executive Income Deferral Program
in favor of participation in the EPP.
5. The amount that the participant chooses to defer (or waive) will be
contributed to the EPP in the form of premiums on a life insurance contract.
POLICY OWNERSHIP AND PROVISIONS
1. The participant will indicate at the time of the deferral election
whether the insurance contract is on the joint life of the participant and
spouse, or on the participant's life alone. The participant (or a trust created
by the participant to accomplish estate planning objectives) will be the owner
of the policy (the "Owner").
2. The participant will enter into a split dollar agreement giving certain
rights to the Company, as security for the amount of the premiums that it has
paid into the policy.
3. The Company's interest in the policy cash values or death benefit will
be limited to the lesser of the cash value or cumulative premiums paid.
4. The Owner's interest in the policy will be anything in excess of the
Company's interest.
<PAGE> 2
5. In the event of the Company's insolvency, all of the cash value in the
policy will be subject to creditors.
6. The Company will recover its interest in the policy upon the death of
the insured(s) or the termination of the split dollar agreement.
7. The Owner (participant or trust) will have the right to choose the funds
in which the policy cash values are invested.
8. Both the participant and the Company can assign their respective
interests in the policy to an individual or a trust.
9. The Owner (participant or trust) will not be permitted to withdraw or
borrow any portion of the cash value without the written consent of the Company.
10. The split dollar agreement will terminate at the death of the
insured(s), agreement of both parties, failure of the Company to pay premiums
due, or the insured's failure to complete the underwriting or policy issuance
process.
11. The participant will be provided with a financial projection based on
the amount of compensation that the participant elects to defer (or waive). This
projection is not a guarantee of policy performance, but only a projection based
on certain assumptions.
TAXATION TO PARTICIPANT
1. The participant will recognize "imputed income" annually on the value of
the death benefit provided under the agreement.
2. The value will be determined based on the insurance carriers one-year
term rates for either the participant alone or on the joint lives of participant
and spouse.
<PAGE> 3
ANNEX 1 TO
JOHNSON & JOHNSON
ESTATE PRESERVATION PLAN
SPLIT DOLLAR AGREEMENT
This Split Dollar Agreement is entered into as of
-----------------------------------------,
--------------, by and between JOHNSON & JOHNSON, a New Jersey corporation
(the "Employer"), and
- ------------
- ------------
- ------------------------, an individual (the "Employee"), or
- ------------------------
- ------------------------, a trust created by the Employee (hereinafter, the
Employee or this trust shall be referred to as the "Owner" when referred to in
that capacity).
RECITALS
Whereas, the Employee performs specified tasks for the Employer and is
eligible to participate in the Estate Preservation Plan; and
Whereas, the Employee wishes to provide protection to his family in the
event of death under a policy of insurance, and the Employer is willing to pay
the premiums due on such life insurance as an additional benefit to the
Employee; and
Whereas, Owner will be the sole owner and possessor of the Policy and
assign an interest in the Policy's death benefit and cash value to the Employer
as collateral to secure repayment of Employer's premium payments with respect to
the Policy; and
Whereas, it is the intent of the Employer and Owner to define the limited
extent of the Employer's security interest in the Policy;
Now, therefore, Employer and Owner mutually agree that:
(1) INTERESTS IN THE POLICY
The Policy, which is the subject of this Split Dollar Agreement, is issued
by
- ------------------------
- ------------------------ (the "Insurer") Policy Number
- ------------------------ insuring the life of the Employee, or the joint lives
of the Employee and the Employee's spouse (hereafter, referred to as the Insured
or Insureds as appropriate). The Employer's interest in the cash value of the
Policy (the "Employer's Interest") shall be equal to the total amount of the
premium payments made on the Policy, however, if this Agreement remains in force
for more than fifteen years from the date of execution of this Agreement, then
in that event only, the Employer's Interest shall be accumulated at interest
equal to a rate of 6.4575% per annum from that date forward. The Owner's
interest in the cash value of the Policy (the "Owner's Interest") shall be equal
to the remaining cash value of the Policy, if any, in excess of the Employer's
Interest, reduced by any distributions made to the Owner.
(2) PREMIUM PAYMENTS
On or before the due date of each premium payment on the Policies, or
within the grace period provided therein, Employer will pay the entire premium
due on the Policy. The Employer will make premium payments consistent with the
projection attached to this Agreement as Exhibit A, but in no event beyond the
termination of Employee's service with the Employer. The Employer reserves the
right to make additional premium payments in its sole discretion. The Employee
shall have imputed income each year in an amount equal to the annual cost of
current death benefit protection on the life of the Employee, measured by the
lower of (a) the PS 58 rate, as set forth in Revenue Ruling 55-747 (or the
corresponding applicable provision of any future Revenue Ruling), or (b) the
Insurer's current published premium rate for annually renewable term insurance
for standard risks. However, if the Policy was initially issued covering the
joint lives of the Employee and the Employee's spouse, then while both Insureds
are alive, the Employee shall have imputed income each year in an amount equal
to the annual cost of current death benefit protection on the life of the
Insureds,
<PAGE> 4
measured by the lower of (a) the rate designated as the PS 38 rate (or the
corresponding applicable provision of any future Revenue Ruling), or (b) the
Insurer's current published premium rate for annually renewable term insurance
for standard risks on the joint lives of the Insureds. Upon the first death of
one of the Insureds, the remaining Insured shall have imputed income each year,
in an amount equal to the annual cost of current death benefit protection on the
life of the remaining Insured, measured by the lower of (a) the PS 58 rate, as
set forth in Revenue Ruling 55-747 (or the corresponding applicable provision of
any future Revenue Ruling), or (b) the Insurer's current published premium rate
for annually renewable term insurance for standard risks.
(3) DEATH BENEFIT AMOUNTS
In the event of Employee's death prior to the termination of this
Agreement, the death benefit payable to the Employer (or the Employer's
designated beneficiaries) under this Agreement shall be equal to the Employer's
Interest in the Policy at the time of Employee's death.
In the event of the Employee's death prior to the termination of this
Agreement, the death benefit payable to the Owner (or the Owner's designated
beneficiaries) shall be the excess of the total death proceeds under the Policy
less the amount payable to the Employer (or the Employer's designated
beneficiaries). Following the termination of this Agreement and upon the
satisfaction of the Employer's Interest in the Policy, the Owner's death benefit
will be equal to the total death benefit provided by the Policy.
Owner understands that sufficiency of cash value in the Policy to provide
expected amounts of death benefit under this Agreement may vary as a result of
Policy performance and duration of premium payments and this is in no event
guaranteed by the Employer or the Insurer.
(4) OWNERSHIP AND RIGHTS IN THE POLICY
The Policy will be owned exclusively by the Owner or the Owner's Assignee
(for purposes of this Agreement, Owner's Assignee shall be included in the
definition of Owner). While this Agreement is in effect, the Employer has a
security interest in the Policy limited exclusively to: (a) that portion of the
cash value of the Policy equal to the Employer's Interest in the Policy; or (b)
an amount of the death benefit equal to the Employer's Interest in the Policy.
In addition, the Owner shall have the right to make any investment choices
permitted by the Policy with respect to the cash value of the Policy, and
Employer shall agree to waive this right as long as this Agreement remains in
force in accordance with the established procedures of the Insurer. The Owner's
rights include the right to irrevocably assign any of their rights under the
Policy, with the consent of the Employer and the Insurer and to select and
change beneficiaries to receive Owner's death benefits. The Owner will not be
permitted to withdraw all or any portion of the cash value of the Policy, borrow
against, or partially or totally surrender the Policy as long as the Collateral
Assignment remains in force, unless the Employer consents in writing to such
distribution. Any other rights in the Policy other than those specifically
mentioned in this Agreement must be exercised with the written consent of both
the Owner and the Employer.
(5) ASSIGNMENT OF POLICY TO SECURE EMPLOYER'S PAYMENTS
To secure Employer's Interest in the Policy under this Agreement, Owner
will collaterally assign the Policy to the Employer by signing the separate
Collateral Assignment. The Collateral Assignment cannot be altered without the
Employer's, Owner's, and Insurer's consent.
(6) TERMINATION OF SPLIT DOLLAR AGREEMENT
This Split Dollar Agreement, and all obligations of the Employer to pay
premiums under it, will terminate upon the earliest to occur of the following:
- Death of the Insured(s);
- Written agreement of both the Owner and the Employer to terminate this
Agreement;
- Failure of the Employer to pay any premiums due as set forth in this
Agreement, in which event the Employer shall forfeit any and all Interest
in the Policy; and,
<PAGE> 5
- Failure of the Insured(s) or Owner to complete all necessary requirements
for the Insurer to issue a policy.
Upon Termination of this Agreement, the Employer shall receive the
Employer's Interest, if any, in the Policy as soon as is practical, but in no
event shall receipt be later than sixty (60) days from the earliest of the dates
listed above. In the event of termination of this Agreement for reason other
than the death of the Employee, the Employer's Interest in the Policy and under
this Agreement shall be satisfied either directly from the cash value of the
Policy or by direct payment by the Owner, at the discretion of the Owner. In
this event, the recovery of the Employer's Interest shall be limited to the cash
surrender value of the Policy at that time. In the event of Termination of this
Agreement by reason of the death of the Employee, the Employer's Interest in the
Policy and under this Agreement shall be satisfied through direct payment from
the Insurer from the Policy proceeds.
(7) PAYMENT OF PROCEEDS OR CASH VALUE TO EMPLOYER
Upon receipt of the Employer's Interest in the Policy, as provided above,
either from the Policy, or from the Owner, the Employer will release the
Collateral Assignment. Upon satisfaction of the Employer's Interest in the
Policy, or in the event of termination of this Agreement pursuant to section
6(c) above, the Owner shall have unrestricted ownership to the Policy.
Upon termination of this Split Dollar Agreement by reason of the death of
the Insured (or in the event of a Policy initially issued covering the lives of
the Employee and the Employee's spouse, upon the death of both Insureds), the
Insurer in satisfaction of the Owner's obligations, will issue a check directly
to the Employer as collateral assignee in an amount equal to the Employer's
Interest in the Policy.
(8) MISCELLANEOUS
Not an Employment Agreement. This Split Dollar Agreement does not in any
way constitute an employment agreement, and the Employer reserves the right to
terminate Employee's relationship with the Employer to the same extent as though
the Split Dollar Agreement did not exist. This Split Dollar Agreement may be
amended at any time by written agreement signed on behalf of the Employer and by
the Owner.
Binding Effect. This Agreement shall be binding upon and inure to the
benefit of the Employer and its successors and assigns, and to the Owner and the
Owner's successors, assigns, heirs, executor or personal representative, and
beneficiaries.
Notices. Any notice, consent or demand required or permitted under this
Agreement shall be made in writing and shall be signed by the party making the
notice, consent, or demand. Such notice shall be sent by United States certified
mail, postage pre-paid and shall be sent to the other party's last known address
as shown on the records of the Employer. The date of such mailing shall be
deemed to be the date of such notice, consent or demand.
Governing Law. This Agreement shall be governed by and be construed in
accordance with the laws of the State of New Jersey.
(9) CLAIMS PROCEDURES
Any person or entity claiming a benefit, requesting an interpretation or
ruling under the Plan, or requesting information under the Plan (hereinafter
referred to as "Claimant") shall present the request in writing to the Employer,
which shall respond in writing as soon as practicable. If the claim or request
is denied, the written notice of denial shall state the reason for denial, with
specific reference to the provisions on which the denial is based, a description
of any additional material or information required and an explanation of why it
is necessary, and an explanation of the program's claims review procedure.
Any Claimant whose claim or request is denied or who has not received a
response within sixty (60) days may request a review by notice given in writing
to the Employer. Such request must be made within sixty (60) days after receipt
by the Claimant of the written notice of denial, or in the event Claimant has
not
<PAGE> 6
received a response sixty (60) days after receipt by the Employer of Claimant's
claim or request. The claim or request shall be reviewed by the Employer which
may, but shall not be required to, grant the Claimant a hearing. On review, the
Claimant may have representation, examine pertinent documents, and submit issues
and comments in writing.
The decision on review shall normally be made within sixty (60) days after
the Employer's receipt of Claimant's claim or request. If an extension of time
is required for a hearing or other special circumstances, the Claimant shall be
notified and the time limit shall be one hundred twenty (120) days. The decision
shall be in writing and shall state the reason and the relevant provisions. All
decisions on review shall be final and bind all parties concerned.
IN WITNESS WHEREOF, the Employer and the Owner (or the Owner's Assignee)
have signed this Split Dollar Agreement, which is effective as of the effective
date of the Policy described herein.
<TABLE>
<S> <C>
JOHNSON & JOHNSON
By:
----------------------------------------------------
--------------------------------------------------------
Name and Title
- --------------------------------------------------- --------------------------------------------------------
Witness Owner(1)
------------------------------
Date
- --------------------------------------------------- --------------------------------------------------------
Witness Owner(2)
------------------------------
Date
</TABLE>
<PAGE> 1
EXHIBIT 12
JOHNSON & JOHNSON AND SUBSIDIARIES
STATEMENT OF COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES(1)(2)
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
--------------------------------------------------------------------
JANUARY 2, JANUARY 3, DECEMBER 28, DECEMBER 29, DECEMBER 31,
2000 1999(3) 1997 1996 1995
---------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Determination of Earnings:
Earnings Before Provision for Taxes
on Income......................... $5,753 4,182 4,587 4,020 3,260
Fixed Charges........................ 275 210 203 213 237
------ ----- ----- ----- -----
Total Earnings as Defined.... $6,028 4,392 4,790 4,233 3,497
====== ===== ===== ===== =====
Fixed Charges and Other:
Rents................................ 78 81 79 80 77
Interests............................ 197 129 124 133 160
------ ----- ----- ----- -----
Fixed Charges................ 275 210 203 213 237
Capitalized Interest................. 81 72 40 55 70
------ ----- ----- ----- -----
Total Fixed Charges.......... $ 356 282 243 268 307
====== ===== ===== ===== =====
Ratio of Earnings to Fixed Charges..... 16.93 15.57 19.71 15.79 11.39
====== ===== ===== ===== =====
</TABLE>
- ---------------
(1) This Statement has been prepared to give retroactive effect to the merger
between Johnson & Johnson and Centocor on October 6, 1999.
(2) 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.
(3) Earnings for the year ended January 3, 1999 include charges related to
restructuring of $613 million and in-process research and development
charges of $298 million. Excluding the effect of these charges, the ratio of
earnings to fixed charges would have been 18.80.
<PAGE> 1
EXHIBIT 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
OVERVIEW
Worldwide sales in 1999 were a record $27.5 billion, an increase of 14.5%
and marked the 67th consecutive year of positive sales growth. The Company
achieved sales growth of 16.4% on an operational basis before the effect of the
stronger U.S. dollar that depressed sales growth by 1.9%.
During 1999, the Company completed its merger with Centocor, Inc., which
was accounted for by the pooling-of-interests method of accounting. As a result,
this Annual Report reflects the combination of financial information for all
periods. For detailed discussion of acquisitions, see Note 17.
Reported net earnings increased by 38.8% to $4.2 billion. Prior to the
effect of special charges for both 1999 and 1998, net earnings increased by
13.8%. For detailed discussions on special charges, see Note 14 and Note 17.
In 1999, $2.6 billion or 9.5% of sales was invested in research and
development. This investment, the highest in the Company's history, reflects the
Company's continued commitment to achieving significant advances in health care
through the discovery and development of innovative, knowledge-based, cost
effective products that prolong and enhance the quality of life.
Cash generated from operations in 1999 was $5.68 billion and served as the
primary source of funding to finance the capital investments of $1.73 billion,
dividend distribution of $1.48 billion and the purchase of treasury stock of
$0.84 billion for employee benefit plans. Cash dividends paid to shareowners in
1999 increased by 13.3% over 1998 and represented the 37th consecutive year of
dividend increases.
Total equity market capitalization at year-end 1999 was $129.6 billion or
an increase of 11.2% over 1998 while the percentage return on average
shareowners' equity was 27.5% in 1999.
The worldwide health care market continues to be transformed as customers
have become more knowledgeable and demand even greater value. Simultaneously,
the marketplace has become increasingly more competitive. The Company believes
that it is well positioned to meet these challenges by providing innovative
products as demonstrated by the Company's commitment to research and
development. In addition, dedicated employees along with strong Credo values and
a decentralized management structure enable the Company to provide its customers
with value-creating, innovative products and services.
SALES AND EARNINGS
In 1999, worldwide sales increased 14.5% to $27.5 billion compared to
increases of 5.1% in 1998 and 4.9% in 1997. Excluding the impact of foreign
currencies, worldwide sales increased 16.4% in 1999, 7.6% in 1998 and 8.9% in
1997. The strong performance of products introduced in the past few years and
the continued expansion of base businesses resulted in the sales increase in
1999. Additionally, the full year impact of the DePuy acquisition contributed to
this sales growth.
<PAGE> 2
SALES TO CUSTOMERS
Millions of Dollars
[SALES TO CUSTOMERS BAR GRAPH]
<TABLE>
<CAPTION>
DOMESTIC INTERNATIONAL
-------- -------------
<S> <C> <C>
90 5485.00 5812.00
6293.00 6207.00
7011.00 6868.00
7270.00 6944.00
7871.00 7930.00
9225.00 9696.00
10986.00 10769.00
11895.00 10935.00
12848.00 11147.00
99 15385.00 12086.00
</TABLE>
Worldwide net earnings for 1999 were $4.2 billion, reflecting a 38.8%
increase over 1998. Worldwide net earnings per share for 1999 equaled $2.94 per
share, an increase of 38.7% from the $2.12 net earnings per share in 1998.
Excluding the impact of special charges, both worldwide net earnings and net
earnings per share increased 13.8% over 1998. The special charges included costs
associated with the Centocor merger in 1999 and the reconfiguration of the
worldwide manufacturing network and in-process research and development (IPR&D)
charges in 1998.
Worldwide net earnings for 1998 including the impact of the Restructuring
and IPR&D charges were $3.0 billion, reflecting a 9.3% decrease from 1997.
Worldwide net earnings per share for 1998 equaled $2.12 per share, a decrease of
9.4% from the $2.34 net earnings per share in 1997.
Excluding the impact of the Restructuring and IPR&D charges, worldwide net
earnings for 1998 were $3.7 billion, reflecting an 11.7% increase over 1997.
Excluding the impact of these charges, worldwide net earnings per share for 1998
equaled $2.61 per share, an increase of 11.5% over the $2.34 net earnings per
share in 1997.
Worldwide net earnings for 1997 were $3.31 billion, or net earnings per
share of $2.34, representing an increase over 1996 of 14.9% and 14.1%,
respectively.
Average diluted shares of common stock outstanding were 1.42 billion in
1999, 1998 and 1997.
NET EARNINGS
Millions of Dollars
[NET EARNINGS BAR GRAPH]
<TABLE>
<CAPTION>
NET EARNINGS
------------
<S> <C>
90 1055.00
91 1332.00
92 904.00
93 1740.00
94 1923.00
95 2367.00
96 2882.00
97 3311.00
98 3003.00
98* 3700.00
99 4167.00
</TABLE>
*1998 results excluding Restructuring and In-Process
Research and Development charges
Sales by domestic companies were $15.39 billion in 1999, $12.85 billion in
1998 and $11.90 billion in 1997. This represents an increase of 19.7% in 1999,
8.0% in 1998 and 8.3% in 1997.
Sales by international companies were $12.09 billion in 1999, $11.15
billion in 1998 and $10.93 billion in 1997. This represents an increase of 8.4%
in 1999, 1.9% in 1998 and 1.5% in 1997. Excluding the impact of the foreign
currency fluctuations over the past three years, international company sales
increased 12.4% in 1999, 7.1% in 1998 and 9.6% in 1997.
<PAGE> 3
All geographic areas throughout the world posted solid operational gains
during 1999. Excluding the effect of exchange rate fluctuations of the U.S.
dollar on foreign currencies, sales increased 10.1% in Europe, 12.3% in the
Western Hemisphere (excluding the U.S.) and 18.6% in the Asia-Pacific, Africa
regions.
The Company achieved an annual compound growth rate of 10.8% for worldwide
sales for the 10 year period since 1989 with domestic sales growing at a rate of
12.1% and international sales growing at a rate of 9.5%. Worldwide net earnings
achieved a 10 year annual growth rate of 14.4%, while earnings per share grew at
a rate of 14.0%. For the last five years, the annual compound growth rate for
sales was 11.7%. The annual compound growth rate for net earnings was 16.7% and
the annual compound growth rate for earnings per share was 15.2%.
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 1999
was 169,384. The composite market price ranges for Johnson & Johnson common
stock during 1999 and 1998 were:
<TABLE>
<CAPTION>
1999 1998
------------- -------------
HIGH LOW HIGH LOW
---- --- ---- ---
<S> <C> <C> <C> <C>
First quarter........................................... $ 94 77 76 1/2 63 3/8
Second quarter.......................................... 103 87 13/16 77 7/8 67
Third quarter........................................... 105 7/8 90 80 3/4 68 1/4
Fourth quarter.......................................... 106 7/8 90 1/8 89 3/4 72 5/8
Year-end close.......................................... 93 1/4 83 7/8
</TABLE>
CASH DIVIDENDS PAID
The Company increased its dividends in 1999 for the 37th consecutive year.
Cash dividends paid were $1.09 per share in 1999 compared with dividends of $.97
per share in 1998 and $.85 per share in 1997. The dividends were distributed as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
----- ---- ----
<S> <C> <C> <C>
First quarter............................................... $ .25 .22 .19
Second quarter.............................................. .28 .25 .22
Third quarter............................................... .28 .25 .22
Fourth quarter.............................................. .28 .25 .22
----- --- ---
Total....................................................... $1.09 .97 .85
===== === ===
</TABLE>
On January 3, 2000, the Board of Directors declared a regular cash dividend
of $.28 per share, paid on March 7, 2000 to shareowners of record on February
15, 2000.
The Company expects to continue the practice of paying regular cash
dividends.
COSTS AND EXPENSES
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, excluding the special charges of IPR&D, were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------ ----- -----
(MILLIONS OF DOLLARS)
<S> <C> <C> <C>
Research expense........................................... $2,600 2,336 2,209
Percent increase over prior year........................... 11.3% 5.7% 12.6%
Percent of sales........................................... 9.5 9.7 9.7
</TABLE>
Research expense as a percent of sales for the Pharmaceutical segment was
15.0% for 1999, 15.9% for 1998 and 17.1% for 1997 while averaging 6.0%, 6.1% and
5.7% in the other two segments.
<PAGE> 4
RESEARCH EXPENSES
Millions of Dollars
[RESEARCH EXPENSE BAR GRAPH]
<TABLE>
<CAPTION>
RESEARCH EXPENSE
----------------
<S> <C>
90 880.00
1052.00
1233.00
1248.00
1348.00
1700.00
1962.00
2209.00
2336.00
99 2600.00
</TABLE>
Advertising expenses, which are comprised of television, radio, print media
as well as Internet advertising, were $1.39 billion in 1999, $1.19 billion in
1998 and $1.26 in 1997. 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 primary relief sought is
the cost of past and future remediation. While it is not feasible to predict or
determine the outcome of these proceedings, in the opinion of the Company, such
proceedings would not have a material adverse effect on the results of
operations, cash flows or financial position of the Company.
Worldwide sales do not reflect any significant degree of seasonality;
however, spending has been heavier in the fourth quarter of each year than in
other quarters. This reflects increased spending decisions, principally for
advertising and research grants.
The worldwide effective income tax rate was 27.6% in 1999, 28.2% in 1998
and 27.8% in 1997. The reduction in the 1999 worldwide effective tax rate as
compared to 1998 is primarily due to the Company's non-deductible IPR&D charge
taken in connection with the acquisition of DePuy in 1998. Refer to Note 8 for
additional information.
DISTRIBUTION OF SALES REVENUES
The distribution of sales revenues for 1999, 1998 and 1997 were:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Employment costs............................................ 23.1% 24.0% 23.9%
Costs of materials and services............................. 50.1 48.9 50.8
Depreciation and amortization of property and intangibles... 5.3 5.4 4.7
Taxes other than payroll.................................... 6.3 6.3 6.1
Earnings reinvested in business............................. 9.8 7.1 9.5
Cash dividends paid......................................... 5.4 5.4 5.0
Restructuring/IPR&D......................................... -- 2.9 --
</TABLE>
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 $3.88 billion at the end of 1999 as compared with
$2.78 billion at the end of 1998.
Total unused credit available to the Company approximates $3.0 billion,
including $1.2 billion of credit commitments with various banks worldwide, $800
million of which expire on September 29, 2000 and $400 million on October 6,
2004.
<PAGE> 5
The Company's shelf registration filed with the Securities and Exchange
Commission enables the Company to issue up to $2.59 billion of unsecured debt
securities, and warrants to purchase debt securities, under its medium term note
(MTN) program. In 1999, the Company issued a total of $500 million notes from
the shelf registration: $200 million of 6.625% notes due 2009 and $300 million
of 6.95% notes due 2029. At January 2, 2000, the Company had $1.79 billion
remaining on its shelf registration.
In addition to the notes issued under the shelf registration, the Company
issued $250 million, 6.0% Eurodollar notes due in 2001. A summary of borrowings
can be found in Note 6.
Total borrowings at the end of 1999 and 1998 were $4.26 billion and $4.48
billion, respectively. In 1999 and 1998, net debt (debt net of cash and current
marketable securities) was 2.3% and 10.8%, respectively of net capital
(shareowners' equity and net debt). Total debt represented 20.8% of total
capital (shareowners' equity and total debt) in 1999 and 24.2% of total capital
in 1998. Shareowners' equity per share at the end of 1999 was $11.67 compared
with $10.13 at year-end 1998, an increase of 15.2%. For the period ended January
2, 2000, there were no material cash commitments.
FINANCIAL INSTRUMENTS
The Company uses financial instruments to manage the impact of interest
rate and foreign exchange rate changes on earnings and cash flows. Accordingly,
the Company enters into forward foreign exchange contracts to protect the value
of existing foreign currency assets and liabilities and to hedge future foreign
currency product costs. Gains or losses on these contracts are offset by the
gains or losses on the underlying transactions. A 10% appreciation of the U.S.
Dollar from January 2, 2000 market rates would increase the unrealized value of
the Company's forward contracts by $271 million. Conversely, a 10% depreciation
of the U.S. Dollar from January 2, 2000 market rates would decrease the
unrealized value of the Company's forward contracts by $251 million. In either
scenario, the gain or loss on the forward contract would be offset by the gain
or loss on the underlying transaction and therefore would have no impact on
future earnings and cash flows.
The Company enters into interest rate and currency swap contracts to manage
the Company's exposure to interest rate changes and hedge foreign currency
denominated debt. The impact of a 1% change in interest rates on the Company's
interest rate sensitive financial instruments would be immaterial.
The Company does not enter into financial instruments for trading or
speculative purposes. Further, 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 the risk of loss is remote.
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 1980-1999, in the United States, the weighted average compound
annual growth rate of Johnson & Johnson 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.
Inflation rates, even though moderate in many parts of the world during
1999, 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.
YEAR 2000
The "Year 2000" issue relates to potential problems resulting from a
practice by computer programmers. For some time, calendar years had frequently
been represented in computer programs by their last two digits. Thus, "1998"
would be rendered "98." The logic of the programs frequently assumed that the
first two digits
<PAGE> 6
of a year given in this format are "19." It was unclear what would happen with
respect to such computer programs upon the change in calendar year from 1999 to
2000. The program or device might interpret "00" as "2000," "1900," an error, or
some other input. In such a case, the computer program or device might cease to
function, function improperly, provide an erroneous result or act in some
unpredictable manner.
The Company has had a program in place since the fourth quarter of 1996 to
address Year 2000 issues in critical business areas related to its products,
information management systems, non-information systems with embedded
technology, suppliers and customers. A report on the progress of this program
was provided to the Audit Committee of the Company's Board of Directors. The
Company completed its review of its critical auto-mated information systems and
the related remediation of these systems prior to December 31, 1999.
The Company also reviewed and adjusted, where necessary, its other
automated systems prior to December 31, 1999. The Company had a plan for
assessment and testing of all of its products and determined that all current
products offered for sale on and after January 1, 2000 are Year 2000 ready.
The Company engaged additional outside consultants to examine selected
critical areas in certain of its major franchises. In addition, during 1999,
these consultants assessed critical sites worldwide to evaluate our programs,
processes and progress and to identify any remaining areas of effort required to
achieve compliance.
The total costs of addressing the Company's Year 2000 readiness issues were
not material to the Company's financial condition or results of operations.
Since initiation of its program in 1996, the Company expensed $210 million, on a
worldwide basis, in internal and external costs on a pre-tax basis to address
its Year 2000 readiness issues. These expenditures include information system
replacement and embedded technology upgrade costs of $120 million, supplier and
customer compliance costs of $16 million and all other costs of $74 million. The
Company currently estimates that the total of such costs for addressing its
internal Year 2000 readiness, on a worldwide basis, will not be materially more
than the amounts currently expended. These costs have been expensed as they were
incurred and have been funded through operating cash flows. No projects material
to the financial condition or results of operations of the Company were deferred
or delayed as a result of this project.
The ability of the Company to implement and effect its Year 2000 readiness
program and the related costs or the costs of non-implementation, cannot be
precisely determined at this time. The Company's automated systems (both
information technology and non-information systems) are generally complex but
are decentralized.
Although a failure to complete remediation of one system may adversely
affect other systems, the Company does not currently believe that such effects
are likely. If, however, a significant number of such failures should occur,
some of such systems might be rendered inoperable and would require manual
back-up methods or other alternatives, where available. In such a case, the
speed of processing business transactions, manufacturing and otherwise
conducting business would likely decrease significantly and the cost of such
activities would increase, if they could be carried on at all. This situation
could have a material adverse effect on the financial condition and results of
operations of the business.
The Company has highly integrated relationships with certain of its
suppliers and customers. These include among others: providers of energy,
telecommunications, raw materials and components, financial institutions,
managed care organizations and large retail establishments. The Company reviewed
with its critical suppliers and major customers the status of their Year 2000
readiness. The Company has requested assurances of Year 2000 readiness from such
suppliers. However, many critical suppliers have either declined to provide the
requested assurances or have limited the scope of assurances to which they are
willing to commit. The Company has completed its plan for monitoring of critical
suppliers.
The Company contacted major customers to assess their readiness to deal
with Year 2000 issues. If a significant number of such suppliers and customers
were to experience business disruptions as a result of their lack of Year 2000
readiness, their problems could have a material adverse effect on the financial
position and results of operations of the Company. This analysis of potential
exposures includes both the domestic and international operations of the
Company. During the period from December 31, 1999 through January 31,
<PAGE> 7
2000 the Company did not experience any Year 2000 issues with critical suppliers
or major customers that had a material adverse effect on the business or
operations of the Company.
The Company believes that its most reasonably likely "worst case scenario"
would occur if a significant number of its key suppliers or customers were not
fully Year 2000 functional, in which case the Company estimates that up to a 10
business day disruption in business operations could occur. In order to address
this situation, the Company has formulated contingency plans intended to deal
with the impact on the Company of Year 2000 problems that may be experienced by
such critical suppliers and major customers.
With respect to critical suppliers, these plans may include, among others,
arranging availability of substitute sources of utilities, closely managing
appropriate levels of inventory and identifying alternate sources of supply of
raw materials. The Company is also alerting customers to their need to address
these problems, but the Company has few alternatives available, other than
reversion to manual methods, for avoiding or mitigating the effects of lack of
Year 2000 readiness by major customers. In any event, even where the Company has
contingency plans, there can be no assurance that such plans will address all
the problems that may arise, or that such plans, even if implemented, will be
successful.
Notwithstanding the foregoing, the Company has no reason to believe that
its exposure to the risks of supplier and customer Year 2000 readiness is any
greater than the exposure to such risk that affects its competitors generally.
Further, the Company believes that its programs for Year 2000 readiness will
significantly improve its ability to deal with its own Year 2000 readiness
issues and those of suppliers and customers over what would have occurred in the
absence of such a program. That does not, however, guarantee that some material
adverse effects will not occur.
During the period from December 31, 1999 through January 31, 2000, the
Company's worldwide operations continued to function in the ordinary course in
all material respects. There were no material business interruptions or material
problems with the Company's products related to Year 2000 readiness and no
material customer or supplier issues arising from Year 2000 readiness issues
were noted.
The descriptions of Year 2000 issues set forth in this section are subject
to the qualifications set forth herein under the heading "Cautionary Factors
that May Affect Future Results."
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board 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. SFAS 133 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 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.
SEGMENTS OF BUSINESS
Financial information for the Company's three worldwide business segments
is summarized below. See Note 12 for additional information on segments of
business.
<PAGE> 8
SALES BY SEGMENT OF BUSINESS
Millions of Dollars
[SALES BY SEGMENT BAR GRAPH]
<TABLE>
<CAPTION>
CONSUMER PHARMACEUTICAL PROFESSIONAL
-------- -------------- ------------
<S> <C> <C> <C> <C>
97 28.50 34.60 36.90 22,830.00
98 27.20 37.10 35.70 23,995.00
99 25.00 38.90 36.10 27,471.00
</TABLE>
SALES
<TABLE>
<CAPTION>
INCREASE
-----------------
1999 1998 AMOUNT PERCENT
------- ------ ------ -------
(MILLIONS OF DOLLARS)
<S> <C> <C> <C> <C>
Consumer............................................... $ 6,864 6,526 338 5.2%
Pharmaceutical......................................... 10,694 8,900 1,794 20.2
Professional........................................... 9,913 8,569 1,344 15.7
------- ------ -----
Worldwide total........................................ $27,471 23,995 3,476 14.5%
======= ====== =====
</TABLE>
OPERATING PROFIT BY SEGMENT OF BUSINESS
Millions of Dollars
[OPERATING PROFIT BY SEGMENTS BAR GRAPH]
<TABLE>
<CAPTION>
CONSUMER PHARMACEUTICAL PROFESSIONAL
-------- -------------- ------------
<S> <C> <C> <C> <C>
97 11.80 55.10 33.10 4,666.00
98* 9.70 68.40 21.90 4,288.00
99 11.60 60.80 27.60 5,910.00
</TABLE>
*1998 results including Restructuring and In-Process Research
and Development charges. Excluding these charges, operating
profit by segment of business was: Consumer 12.7%,
Pharmaceutical 60.2%, and Professional 27.1%
OPERATING PROFIT
<TABLE>
<CAPTION>
PERCENT
OF SALES
------------
1999(1) 1998 1998(2) 1999 1998
------- ----- ------- ---- ----
(MILLIONS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
Consumer........................................... $ 683 414 658 10.0% 6.3%
Pharmaceutical..................................... 3,595 2,933 3,132 33.6 33.0
Professional....................................... 1,632 941 1,409 16.5 11.0
------ ----- -----
Worldwide total.................................... 5,910 4,288 5,199 21.5 17.9
Expenses not allocated to segments................. (157) (106) (106)
------ ----- -----
Earnings before taxes on income.................... $5,753 4,182 5,093 20.9% 17.4%
====== ===== =====
</TABLE>
- ---------------
(1) 1999 results include special charges related to the Centocor merger.
Excluding these charges, operating profit as a percent of sales for the
Pharmaceutical segment was 34.1%.
(2) 1998 results excluding Restructuring and In-Process Research and Development
charges. Excluding these charges, operating profit as a percentage of sales
by segment was: Consumer 10.1%, Pharmaceutical 35.2% and Professional 16.4%.
<PAGE> 9
CONSUMER
The Consumer segment's principal products are personal care and hygienic
products, including nonprescription drugs, adult skin and hair care products,
baby care products, oral care products, first aid products and sanitary
protection products. Major brands include AVEENO skin care products; BAND-AID
Brand Adhesive Bandages; BENECOL; CAREFREE Panty Shields; CLEAN & CLEAR teen
skin care products; IMODIUM A-D, an antidiarrheal; JOHNSON'S Baby line of
products; JOHNSON'S pH5.5 skin and hair care products; MONISTAT, a remedy for
vaginal yeast infections; adult and children's MOTRIN IB analgesic products;
MYLANTA gastrointestinal products and PEPCID AC Acid Controller from the Johnson
& Johnson -- Merck Consumer Pharmaceuticals Co.; NEUTROGENA skin and hair care
products; o.b. Tampons; 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 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 1999 were $6.86 billion, an increase of 5.2% over
1998. Domestic sales increased by 10.4% while international sales declined by
.2%. International sales gains in local currency of 7.0% were offset by a
negative currency impact of 7.2%. Consumer sales were led by continued strength
in the skin care franchise that includes the NEUTROGENA, RoC, and CLEAN & CLEAR
product lines, as well as strong performances from the adult and children's
TYLENOL line of analgesic products.
During 1999, the Company launched various products that included BENECOL,
the dietary ingredient stanol ester that aids in the reduction of cholesterol
and also completed the acquisition of the AVEENO brand products.
Consumer segment sales in 1998 were $6.53 billion, an increase of .4% over
1997. Sales by domestic companies accounted for 51.0% of the total segment,
while international companies accounted for 49.0%. During 1998, the Company
announced the signing of a definitive agreement to acquire the dermatological
skin care business of S.C. Johnson & Son, Inc., including the AVEENO brand
specialty soaps, bath, anti-itch and moisturizing cream and lotion products.
The 1998 special pre-tax charge for the Consumer segment was $244 million.
See Note 14 for detailed discussion on the Restructuring charges.
Consumer segment sales in 1997 were $6.50 billion, an increase of 2.1% over
1996. Sales by domestic companies accounted for 49.9% of the total segment,
while international companies accounted for 50.1%. During 1997, the Company
announced a licensing agreement with Raisio Group in Finland for the North
American marketing rights (as well as a letter of intent for the worldwide
marketing rights) to a dietary ingredient, stanol ester, which is patented for
use in reducing cholesterol. The Company also established an alliance with
Takeda Chemical Industries in Japan for the sale and distribution of OTC
products beginning with several forms of TYLENOL brand acetaminophen products.
PHARMACEUTICAL
The Pharmaceutical segment's principal worldwide franchises are in the
antifungal, anti-infective, cardiovascular, contraceptive, dermatology,
gastrointestinal, hematology, immunology, neurology, oncology, pain management
and psychotropic fields. These products are distributed both directly and
through wholesalers for use by health care professionals and the general public.
Prescription drugs in the antifungal field include NIZORAL (ketoconazole),
SPORANOX (itraconazole), TERAZOL (terconazole) and DAKTARIN (miconazole nitrate)
antifungal products.
Prescription drugs in the anti-infective field include FLOXIN (ofloxacin)
and LEVAQUIN (levofloxacin).
<PAGE> 10
Prescription drugs in the cardiovascular field include RETAVASE
(reteplase), a recombinant biologic cardiology care product for the treatment of
acute myocardial infarction to improve blood flow to the heart and REOPRO
(abciximab) for the treatment of acute cardiac disease.
Prescription drugs in the contraceptive field include ORTHO-NOVUM
(norethindrone/ethinyl estradiol) and TRICILEST (norgestimate/ethinyl estradiol,
sold in the U.S. as ORTHO TRI-CYCLEN) group of oral contraceptives.
Prescription drugs in the dermatology field include RETIN-A MICRO
(tretinoin), a dermatological cream for acne.
Prescription drugs in the gastrointestinal field include ACIPHEX
(rabeprazole sodium), a proton pump inhibitor for treating erosive
gastroesophageal reflux disease (GERD) and duodenal ulcers; IMODIUM (loperamide
HCl), an antidiarrheal; MOTILIUM (domperidone), a gastrointestinal mobilizer;
PREPULSID (cisapride, sold in the U.S. as PROPULSID), a gastrointestinal
prokinetic; and REMICADE (infliximab), a novel monoclonal antibody for treatment
of certain Crohn's disease patients.
Prescription drugs in the hematology field include EPREX (Epoetin alfa,
sold in the U.S. as PROCRIT), a biotechnology derived version of the human
hormone erythropoietin that stimulates red blood cell production.
Prescription drugs in the immunology field include ORTHOCLONE OKT-3
(muromonab-CD3), for reversing the rejection of kidney, heart and liver
transplants.
Prescription drugs in the neurology field include TOPAMAX (topiramate) and
STUGERON (cinnarizine).
Prescription drugs in the oncology field include ERGAMISOL (levamisole
hydrochloride), a colon cancer drug and LEUSTATIN (cladribine), for hairy cell
leukemia.
Prescription drugs in the psychotropics field include RISPERDAL
(risperidone), an antipsychotic drug and HALDOL (haloperidol).
Prescription drugs in the pain management field include DURAGESIC (fentanyl
transdermal system, sold abroad as DUROGESIC), a transdermal patch for chronic
pain; and ULTRAM (tramadol hydrochloride), an analgesic for moderate to
moderately severe pain.
On January 24, 2000, the U.S. prescribing information for PROPULSID
(cisapride) tablets and suspension, a medication for the treatment of symptoms
of nighttime heartburn in adults with gastroesophageal reflux disease (GERD),
was revised to include more comprehensive directions to ensure appropriate use.
The primary revisions to the prescribing information included a requirement for
physicians to conduct certain tests to identify patients who are not appropriate
candidates for PROPULSID therapy. Included also are new contraindicated
medications such as the class of protease inhibitors, which are used to treat
AIDS, and new contraindicated medical conditions, such as severe dehydration.
Johnson & Johnson markets over 100 prescription drugs around the world,
with 40.0% of the sales generated outside the United States. Thirty-three drugs
sold by the Company had 1999 sales in excess of $50 million, with 20 of them in
excess of $100 million.
Pharmaceutical segment sales in 1999 were $10.69 billion, an increase of
20.2% over 1998 including 28.6% growth in domestic sales. International sales
increased 9.4% as sales gains in local currency of 13.5% were offset by a
negative currency impact of 4.1%. Worldwide growth reflects the strong
performance of PROCRIT, RISPERDAL, DURAGESIC, LEVAQUIN, and the oral
contraceptive line of products. During the fourth quarter, the Company received
approval from the FDA for ORTHO-PREFEST (17(beta)-estradiol/norgestimate) for
hormone replacement therapy and an additional indication for REMICADE for the
treatment of rheumatoid arthritis.
Pharmaceutical segment sales in 1998 were $8.90 billion, an increase of
12.7% over 1997 including 24.3% growth in domestic sales. International sales
increased .6% as sales gains in local currency of 5.4% were offset
<PAGE> 11
by a negative currency impact of 4.8%. Worldwide growth reflects the strong
performance of RISPERDAL, PROCRIT, DURAGESIC, LEVAQUIN, and the oral
contraceptive line of products. At year-end 1998, the Company received approval
from the FDA for LEVAQUIN (levofloxacin) for the indication of uncomplicated
urinary tract infection. Additionally, the Company completed the acquisition of
the U.S. and Canadian product rights for RETAVASE (reteplase), an acute-care
cardiovascular drug, from Roche Healthcare. RETAVASE is a product administered
for the treatment of acute myocardial infarction (heart attack) to improve blood
flow to the heart.
The 1998 special pre-tax charge for the Pharmaceutical segment was $65
million. See Note 14 for detailed discussion on the Restructuring and IPR&D
charges.
Pharmaceutical segment sales in 1997 were $7.90 billion, an increase of
7.8% over 1996. This growth reflects the strong performance of RISPERDAL,
PROCRIT, ULTRAM, DURAGESIC, and LEVAQUIN, a new anti-infective launched in 1997.
At year-end 1997, the Company received approval from the FDA for REGRANEX
(becaplermin), the first biologic treatment proven to increase the incidence of
healing in diabetic foot ulcers.
Significant research activities continued in the Pharmaceutical segment,
increasing to $1.60 billion in 1999, or a 13.0% increase over 1998. This
represents 15.0% of 1999 Pharmaceutical sales and a compound annual growth rate
of approximately 13.8% for the five-year period since 1994.
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 Centocor and collaboration with the
James Black Foundation in London, England.
PROFESSIONAL
The Professional segment includes a broad range of products used by or
under the direction of health care professionals. These would include suture and
mechanical wound closure products, surgical equipment and devices, wound
management and infection prevention products, interventional and diagnostic
cardiology products, diagnostic equipment and supplies, joint replacements, and
disposable contact lenses. These products are used principally in the
professional fields by physicians, nurses, therapists, hospitals, diagnostic
laboratories and clinics. Distribution to these markets is done both directly
and through surgical supply and other dealers.
Worldwide sales in 1999 of $9.91 billion in the Professional segment
represented an increase of 15.7% over 1998. Domestic sales increased 16.9% while
international sales gains in local currency of 15.7% were partially offset by
the strength of the U.S. dollar. Strong sales growth from Ethicon Endo-Surgery's
products for minimally invasive surgery, Ethicon's MITEK suture anchors and
Gynecare's women's health products and the effect of the acquisition of DePuy's
orthopaedic products were the primary contributors to the Professional segment
growth. In the fourth quarter, Cordis launched the new BX VELOCITY coronary
stent in Europe, where it has been well received by the medical community.
Ethicon's new products launched included: PRONOVA Poly (hexafluoropropylene-VDF)
Suture, a synthetic nonabsorbable monofilament for cardiovascular and vascular
surgery and SURGIFOAM Absorbable Gelatin Sponge USP, which is proven in surgery
for over 50 years in Europe and will give Ethicon a full line of hemostasis
products. Ethicon also received a fourth quarter approval for Gynecare's
THERMACHOICE II Uterine Balloon Therapy System, the latex-free next generation
ablation technology system used for excessive uterine bleeding.
1998 worldwide sales of $8.57 billion in the Professional segment
represented an increase of 1.6% over 1997. Domestic sales decreased 2.4% while
international sales gains in local currency of 10.7% were partially offset by
the strength of the U.S. dollar. During the fourth quarter of 1998, the Company
completed the acquisition of DePuy, one of the world's leading orthopaedic
products companies with products in reconstructive, spinal, trauma and sports
medicine. The Company also completed the acquisition of FemRx, a leader in the
development of proprietary surgical systems that enable surgeons to perform less
invasive alternatives to hysterectomy.
<PAGE> 12
At year-end 1998, two new Cordis products were approved for marketing by
the FDA. The S.M.A.R.T. stent, a self-expanding, crush-recoverable nitinol stent
was approved for use in treating biliary obstructions. Its nitinol alloy design
allows for precise placement and flexibility in reaching lesions, even through
very tortuous vessels. In addition, the NINJA balloon was approved in the U.S.
for use in angioplasty procedures.
The 1998 special pre-tax charge for the Professional segment for
restructuring was $304 million. See Note 14 and Note 17 for detailed discussion
on Restructuring and IPR&D charges and Acquisitions.
Worldwide sales of $8.44 billion in 1997 in the Professional segment
represented an increase of 4.5% over 1996. Sales growth continued to be fueled
by the excellent performance of Ethicon Endo-Surgery's minimally invasive
surgical instruments, Johnson & Johnson's orthopaedics business, Johnson &
Johnson Vision Care, Inc.'s disposable contact lenses and LifeScan's blood
glucose monitoring systems. The Asia-Pacific and Central Europe regions
contributed significantly to the overall increase in the Professional segment.
There were also several business combinations in the Professional segment during
1997. These included Biopsys Medical, Inc., a maker of products for the
diagnosis and management of breast cancer; Biosense, Inc., a leader in medical
sensor technology for use in diagnostic and therapeutic interventional
procedures; Gynecare, Inc., a maker of minimally invasive medical devices for
the treatment of uterine disorders, and Spectacle Lens Group, a manufacturer of
equipment for high quality prescription eyeglass lenses.
GEOGRAPHIC AREAS
The Company further categorizes its sales by major geographic area as
presented for the years 1999 and 1998:
SALES
<TABLE>
<CAPTION>
INCREASE
-----------------
1999 1998 AMOUNT PERCENT
--------- -------- ------ -------
(MILLIONS OF DOLLARS)
<S> <C> <C> <C> <C>
United States.................................. $15,385 12,848 2,537 19.7%
Europe......................................... 6,711 6,354 357 5.6
Western Hemisphere excluding U.S............... 2,023 2,105 (82) (3.9)
Asia-Pacific, Africa........................... 3,352 2,688 664 24.7
------- ------ -----
Worldwide total................................ $27,471 23,995 3,476 14.5%
======= ====== =====
</TABLE>
International sales were negatively impacted by the translation of local
currency operating results into U.S. dollars in all regions except for
Asia-Pacific. Average exchange rates to the dollar have declined each year since
1995. See Note 12 for additional information on geographic areas.
<PAGE> 13
SALES BY GEOGRAPHIC AREA OF BUSINESS
Millions of Dollars
[SALES BY GEOGRAPHIC REGION BAR GRAPH]
<TABLE>
<CAPTION>
UNITED STATES EUROPE WESTERN ASIA-PACIFIC, AFRICA
------------- ------ HEMISPHERE --------------------
EXCLUDING U.S.
--------------
<S> <C> <C> <C> <C> <C>
97 52.00 26.30 9.00 12.70 22,830.00
98 53.50 26.50 8.80 11.20 23,995.00
98 56.00 24.40 7.40 12.20 27,471.00
</TABLE>
DESCRIPTION OF BUSINESS
The Company, which employs 97,800 employees worldwide, is engaged in the
manufacture and sale of a broad range of products in the health care field. It
conducts business in virtually all countries of the world. The Company's primary
interest, both historically and currently, has been in products related to human
health and well-being.
The Company is organized on the principle of decentralized management. The
Executive Committee of Johnson & Johnson is the principal management group
responsible for the operations and allocation of the resources of the Company.
In addition, several Executive Committee members serve as 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. The composition of these Committees can change over time
in response to business needs. These Committees oversee and coordinate the
activities of domestic and international companies related to each of the
Consumer, Pharmaceutical and Professional businesses. Operating management is
headed by a Chairman, President, General Manager or Managing Director who
reports directly, or through a line executive to a Group Operating Committee.
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 35 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 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 and the improvement of new
and 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.
<PAGE> 14
CAUTIONARY FACTORS THAT MAY AFFECT FUTURE RESULTS
This Annual Report contains forward-looking statements that anticipate
results based on management's plans that are subject to uncertainty.
Forward-looking statements do not relate strictly to historical or current facts
and may be identified by the use of words like "plans," "expects," "will,"
"anticipates," "estimates" and other words of similar meaning. These statements
may address, among other things, the Company's strategy for growth, product
development, regulatory approval, market position, expenditures and financial
results.
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 that unknown risks or uncertainties materialize,
actual results could vary materially from our projections. The Company assumes
no obligation to update any forward-looking statements as a result of future
events or developments.
The Company's Annual Report on Form 10-K for the year ended January 2,
2000, that will be filed in April, 2000, will contain, as an Exhibit, a
discussion of various factors that could cause actual results to differ from
expectations. Prior to that filing of Form 10-K, investors should reference the
Company's filing on Form 8-K, filed December 14, 1999, in particular, Exhibit
99(b) of the Form 10-K for fiscal year 1998. The Company notes these factors as
permitted by the Private Securities Litigation Reform Act of 1995. Investors are
cautioned not to place undue reliance on any forward-looking statements.
Investors also should understand that it is not possible to predict or identify
all such factors and should not consider this list to be a complete statement of
all potential risks and uncertainties.
<PAGE> 15
JOHNSON & JOHNSON AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AT JANUARY 2, 2000 AND JANUARY 3, 1999
<TABLE>
<CAPTION>
1999 1998
--------- --------
(DOLLARS IN MILLIONS)
(NOTE 1)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents (Notes 1 and 16).................. $ 2,363 1,994
Marketable securities (Notes 1 and 16)...................... 1,516 789
Accounts receivable trade, less allowances $389 (1998,
$388)..................................................... 4,233 3,752
Inventories (Notes 1 and 2)................................. 3,095 2,898
Deferred taxes on income (Note 8)........................... 1,105 1,183
Prepaid expenses and other receivables...................... 888 870
------- ------
TOTAL CURRENT ASSETS........................................ $13,200 11,486
======= ======
Marketable securities, non-current (Notes 1 and 16)......... 441 437
Property, plant and equipment, net (Notes 1, 3 and 14)...... 6,719 6,395
Intangible assets, net (Notes 1, 7 and 14).................. 7,571 7,364
Deferred taxes on income (Note 8)........................... 104 411
Other assets................................................ 1,128 1,199
------- ------
TOTAL ASSETS................................................ $29,163 27,292
======= ======
LIABILITIES AND SHAREOWNERS' EQUITY
CURRENT LIABILITIES
Loans and notes payable (Note 6)............................ $ 1,806 2,753
Accounts payable............................................ 2,003 1,877
Accrued liabilities......................................... 2,972 3,012
Accrued salaries, wages and commissions..................... 467 445
Taxes on income............................................. 206 206
------- ------
TOTAL CURRENT LIABILITIES................................... 7,454 8,293
======= ======
Long-term debt (Note 6)..................................... 2,450 1,729
Deferred tax liability (Note 8)............................. 287 578
Employee related obligations (Note 5)....................... 1,749 1,738
Other liabilities........................................... 1,010 877
SHAREOWNERS' EQUITY
Preferred stock -- without par value (authorized and
unissued 2,000,000 shares)................................ -- --
Common stock -- par value $1.00 per share (Note 20)
(authorized 2,160,000,000 shares; issued 1,534,916,000 and
1,534,824,000 shares)..................................... 1,535 1,535
Note receivable from employee stock ownership plan (Note
15)....................................................... (41) (44)
Accumulated other comprehensive income (Note 11)............ (396) (322)
Retained earnings........................................... 16,192 13,968
------- ------
17,290 15,137
Less: common stock held in treasury, at cost (Note 20)
(145,233,000 and 145,560,000)............................. 1,077 1,060
------- ------
TOTAL SHAREOWNERS' EQUITY................................... 16,213 14,077
======= ======
TOTAL LIABILITIES AND SHAREOWNERS' EQUITY................... $29,163 27,292
======= ======
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE> 16
JOHNSON & JOHNSON AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
1999 1998 1997
--------- -------- --------
(DOLLARS IN MILLIONS EXCEPT PER
SHARE FIGURES) (NOTE 1)
<S> <C> <C> <C>
SALES TO CUSTOMERS.......................................... $27,471 23,995 22,830
======= ====== ======
Cost of products sold (1998 includes $60 of inventory
write-offs for restructuring)............................. 8,442 7,604 7,230
------- ------ ------
Gross profit................................................ 19,029 16,391 15,600
Selling, marketing and administrative expenses.............. 10,503 9,027 8,756
Research expense............................................ 2,600 2,336 2,209
Purchased in-process research and development (Notes 14 and
17)....................................................... -- 298 --
Interest income............................................. (246) (277) (213)
Interest expense, net of portion capitalized (Note 3)....... 197 129 124
Other expense, net.......................................... 222 143 137
Restructuring charge (Note 14).............................. -- 553 --
------- ------ ------
13,276 12,209 11,013
------- ------ ------
Earnings before provision for taxes on income............... 5,753 4,182 4,587
Provision for taxes on income (Note 8)...................... 1,586 1,179 1,276
------- ------ ------
NET EARNINGS................................................ $ 4,167 3,003 3,311
======= ====== ======
BASIC NET EARNINGS PER SHARE (Notes 1 and 19)............... $ 3.00 2.16 2.40
======= ====== ======
DILUTED NET EARNINGS PER SHARE (Notes 1 and 19)............. $ 2.94 2.12 2.34
======= ====== ======
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE> 17
JOHNSON & JOHNSON AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
<TABLE>
<CAPTION>
NOTE RECEIVABLE
FROM EMPLOYEE ACCUMULATED COMMON
STOCK OTHER STOCK TREASURY
COMPREHENSIVE RETAINED OWNERSHIP COMPREHENSIVE ISSUED STOCK
TOTAL INCOME EARNINGS PLAN (ESOP) INCOME AMOUNT AMOUNT
------- ------------- -------- --------------- ------------- ------ --------
(DOLLARS IN MILLIONS) (NOTE 1)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 29, 1996....... $11,324 11,043 (57) (43) 1,535 (1,154)
Net earnings..................... 3,311 3,311 3,311
Cash dividends paid.............. (1,137) (1,137)
Employee compensation and stock
option plans................... 300 (358) 658
Repurchase of common stock....... (628) (628)
Business combinations............ 17 (112) 129
Other comprehensive income, net
of tax:
Currency translation
adjustment..................... (294) (294) (294)
Unrealized gains (losses) on
securities..................... (33) (33) (33)
------
Total comprehensive income....... 2,984
======
Note receivable from ESOP........ 6 6
------- ------ --- ---- ----- ------
BALANCE, DECEMBER 28, 1997....... $12,866 12,747 (51) (370) 1,535 (995)
======= ====== === ==== ===== ======
Net earnings..................... 3,003 3,003 3,003
Cash dividends paid.............. (1,305) (1,305)
Employee compensation and stock
option plans................... 378 (484) 862
Repurchase of common stock....... (930) (930)
Business combinations............ 10 7 3
Other comprehensive income, net
of tax:
Currency translation
adjustment..................... 89 89 89
Unrealized gains (losses) on
securities..................... (41) (41) (41)
Reclassification adjustment...... 33
------
Total comprehensive income....... 3,084
======
Note receivable from ESOP........ 7 7
------- ------ --- ---- ----- ------
BALANCE, JANUARY 3, 1999......... $14,077 13,968 (44) (322) 1,535 (1,060)
======= ====== === ==== ===== ======
Net earnings..................... 4,167 4,167 4,167
Cash dividends paid.............. (1,479) (1,479)
Employee compensation and stock
option plans................... 357 (464) 821
Repurchase of common stock....... (840) (840)
Business combinations............ 2 2
Other comprehensive income, net
of tax:
Currency translation
adjustment..................... (155) (155) (155)
Unrealized gains (losses) on
securities..................... 81 81 81
Reclassification adjustment...... 17
------
Total comprehensive income....... 4,110
======
Note receivable from ESOP........ 3 3
------- ------ --- ---- ----- ------
BALANCE, JANUARY 2, 2000......... $16,213 16,192 (41) (396) 1,535 (1,077)
======= ====== === ==== ===== ======
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE> 18
JOHNSON & JOHNSON AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
1999 1998 1997
--------- ------- -------
(DOLLARS IN MILLIONS) (NOTE 1)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings................................................ $ 4,167 3,003 3,311
Adjustments to reconcile net earnings to cash flows:
Depreciation and amortization of property and
intangibles............................................ 1,444 1,285 1,082
Increase in deferred taxes................................ (7) (297) (132)
Accounts receivable reserves.............................. 11 24 61
Purchased in-process research and development............. -- 298 --
Changes in assets and liabilities, net of effects from
acquisition of businesses:
Increase in accounts receivable........................... (671) (163) (380)
Increase in inventories................................... (333) (100) (180)
Increase in accounts payable and accrued liabilities...... 242 646 487
Decrease in other current and non-current assets.......... 457 142 26
Increase in other current and non-current liabilities..... 367 57 121
-------- ------ ------
NET CASH FLOWS FROM OPERATING ACTIVITIES.................... 5,677 4,895 4,396
======== ====== ======
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment.................. (1,728) (1,545) (1,415)
Proceeds from the disposal of assets........................ 35 108 72
Acquisition of businesses, net of cash acquired (Note 17)... (271) (3,818) (180)
Purchases of investments.................................... (3,538) (1,005) (151)
Sales of investments........................................ 2,817 400 215
Other....................................................... (257) (205) (186)
-------- ------ ------
NET CASH USED BY INVESTING ACTIVITIES....................... (2,942) (6,065) (1,645)
======== ====== ======
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends to shareowners.................................... (1,479) (1,305) (1,137)
Repurchase of common stock.................................. (840) (930) (628)
Proceeds from short-term debt............................... 9,861 2,424 300
Retirement of short-term debt............................... (10,716) (226) (182)
Proceeds from long-term debt................................ 793 535 7
Retirement of long-term debt................................ (176) (471) (504)
Proceeds from the exercise of stock options................. 263 274 234
-------- ------ ------
NET CASH (USED BY) PROVIDED BY FINANCING ACTIVITIES......... (2,294) 301 (1,910)
======== ====== ======
Effect of exchange rate changes on cash and cash
equivalents............................................... (72) 24 (69)
-------- ------ ------
Increase (decrease) in cash and cash equivalents............ 369 (845) 772
Cash and cash equivalents, beginning of year (Note 1)....... 1,994 2,839 2,067
-------- ------ ------
CASH AND CASH EQUIVALENTS, END OF YEAR (NOTE 1)............. $ 2,363 1,994 2,839
======== ====== ======
SUPPLEMENTAL CASH FLOW DATA
Cash paid during the year for:
Interest, net of portion capitalized...................... $ 185 102 95
Income taxes.............................................. 1,406 1,310 1,431
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING
ACTIVITIES
Treasury stock issued for employee compensation and stock
option plans, net of cash proceeds........................ $ 592 621 451
ACQUISITIONS OF BUSINESSES
Fair value of assets acquired............................... $ 271 4,659 184
Fair value of liabilities assumed (including $296 of assumed
debt in 1998)............................................. -- (545) (4)
-------- ------ ------
Net purchase price.......................................... $ 271 4,114 180
======== ====== ======
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE> 19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1 SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
Basis of Presentation
The consolidated financial statements of Johnson & Johnson have been
prepared to give retroactive effect to the merger with Centocor on October 6,
1999.
Principles of Consolidation
The 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.
Investments
Short-term marketable securities are carried at cost, which approximates
fair value. Long-term debt securities that the Company has the ability and
intent to hold until maturity are carried at amortized cost which also
approximates fair value. Equity investments classified as available for sale are
carried at estimated fair value with unrealized gains and losses recorded as a
component of shareowners' equity. Additionally, gross unrealized holding gains
and losses are not material. Management determines the appropriate
classification of its investments in debt and equity securities at the time of
purchase and re-evaluates such determination at each balance sheet date.
Property, Plant and Equipment and Depreciation
Property, plant and equipment are stated at cost. The Company utilizes the
straight-line method of depreciation over the estimated useful lives of the
assets:
<TABLE>
<S> <C>
Buildings and building equipment............................ 20-40 years
Land and land improvements.................................. 10-20 years
Machinery and equipment..................................... 2-13 years
</TABLE>
Revenue Recognition
The Company recognizes revenue from product sales when the goods are
shipped and title passes to the customer.
Inventories
Inventories are stated at the lower of cost or market determined by the
first-in, first-out 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.
<PAGE> 20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Financial Instruments
Gains and losses on foreign currency hedges of existing assets or
liabilities, or hedges of firm commitments, are deferred and recognized in
income as part of the related transaction.
Unrealized gains and losses on currency swaps which hedge third party debt
are classified in the balance sheet as other assets or liabilities. Interest
expense under these agreements, and the respective debt instrument that they
hedge, are recorded at the net effective interest rate of the hedge transaction.
In the event of early termination of a currency swap contract that hedges
third party debt, the gain or loss on the swap contract is amortized over the
remaining life of the related transaction. If the underlying transaction
associated with a swap, or other derivative contract, is accounted for as a
hedge and is terminated early, the related derivative contract is terminated
simultaneously and any gains or losses would be included in income immediately.
Advertising
Costs associated with advertising are expensed in the year incurred.
Advertising expenses worldwide, which are comprised of television, radio, print
media as well as Internet advertising were $1.39 billion in 1999, $1.19 billion
in 1998 and $1.26 billion in 1997.
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 January 2,
2000, and January 3, 1999 the cumulative amount of undistributed international
earnings was approximately $8.3 billion and $7.0 billion, respectively.
Net 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.
Risks and Uncertainties
The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the amounts reported.
Actual results are not expected to differ materially from those estimates.
Annual Closing Date
The Company follows the concept of a fiscal year which endson the Sunday
nearest to the end of the month of December. Normally each fiscal year consists
of 52 weeks, but every five or six years, as was the case in 1998, the fiscal
year consists of 53 weeks.
Reclassification
Certain prior year amounts have been reclassified to conform with current
year presentation.
<PAGE> 21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2 INVENTORIES
At the end of 1999 and 1998, inventories were comprised of:
<TABLE>
<CAPTION>
1999 1998
-------- -------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Raw materials and supplies.................................. $ 663 776
Goods in process............................................ 416 510
Finished goods.............................................. 2,016 1,612
------ -----
$3,095 2,898
====== =====
</TABLE>
3 PROPERTY, PLANT AND EQUIPMENT
At the end of 1999 and 1998, property, plant and equipment at cost and
accumulated depreciation were:
<TABLE>
<CAPTION>
1999 1998
--------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Land and land improvements.................................. $ 586 466
Buildings and building equipment............................ 3,087 2,991
Machinery and equipment..................................... 5,936 5,686
Construction in progress.................................... 1,437 1,126
------- ------
11,046 10,269
Less accumulated depreciation............................... 4,327 3,874
------- ------
$ 6,719 6,395
======= ======
</TABLE>
The Company capitalizes interest expense as part of the cost of
construction of facilities and equipment. Interest expense capitalized in 1999,
1998 and 1997 was $81, $72 and $40 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. For additional discussion on
property, plant and equipment, see Note 14.
4 RENTAL EXPENSE AND LEASE COMMITMENTS
Rentals of space, vehicles, manufacturing equipment and office and data
processing equipment under operating leases amounted to approximately $233
million in 1999, $243 million in 1998 and $238 million in 1997.
The approximate minimum rental payments required under operating leases
that have initial or remaining noncancellable lease terms in excess of one year
at January 2, 2000 are:
<TABLE>
<CAPTION>
AFTER
2000 2001 2002 2003 2004 2004 TOTAL
---- ---- ---- ---- ----- ----- -----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
$85 71 56 46 30 62 350
</TABLE>
Commitments under capital leases are not significant.
<PAGE> 22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5 EMPLOYEE RELATED OBLIGATIONS
At the end of 1999 and 1998, employee related obligations were:
<TABLE>
<CAPTION>
1999 1998
-------- -------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Post retirement benefits.................................... $ 805 767
Post employment benefits.................................... 111 144
Unfunded pension liabilities................................ 647 677
Certificates of extra compensation.......................... 186 150
------ -----
Employee related obligations................................ $1,749 1,738
====== =====
</TABLE>
6 BORROWINGS
The components of long-term debt are as follows:
<TABLE>
<CAPTION>
EFF. EFF.
1999 RATE 1998 RATE
------ ---- ----- ----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
4.75% Convertible Subordinated Debentures due
2005(2)............................................ $ 460 4.75% 460 4.75%
8.72% Debentures due 2024............................ 300 8.72 300 8.72
6.95% Notes due 2029................................. 293 7.14 -- --
6.73% Debentures due 2023............................ 250 6.73 250 6.73
6% Eurodollar due 2001............................... 250 6.02 -- --
7.375% Notes due 2002................................ 199 7.49 199 7.49
8.25% Eurodollar Notes due 2004...................... 199 8.37 199 8.37
6.625% Notes due 2009................................ 197 6.80 -- --
5% Deutsche Mark Notes due 2001(3)................... 93 1.98 107 1.98
5.12% Notes due 2003(4).............................. 60 0.82 60 0.82
Industrial Revenue Bonds............................. 47 5.78 50 5.28
Other, principally international..................... 128 -- 139 --
------ ---- ----- ----
2,476 6.42(1) 1,764 6.25(1)
Less current portion................................. 26 35
------ -----
$2,450 1,729
====== =====
</TABLE>
- ---------------
(1) Weighted average effective rate.
(2) Represents 4.75% convertible subordinated debt issued by Centocor prior to
the merger with Johnson & Johnson. The debentures are convertible by the
holders into approximately 5,987,000 shares of Johnson & Johnson stock at a
conversion price of $77.091 per share. After February 21, 2001 the
debentures will be redeemable at the option of the Company. These bonds are
due February 2005.
(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.
(4) Represents 5.12% U.S. Dollar notes due 2003 issued by a Japanese subsidiary
and converted to a 0.82% 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 $3.0
billion, including $1.2 billion of credit commitments with various worldwide
banks, $800 million of which expire on September 29, 2000 and $400 million on
October 6, 2004. Interest charged on borrowings under the credit line agreements
is based on either bids provided by the
<PAGE> 23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
banks, the prime rate or London Interbank Offered Rates (LIBOR), plus applicable
margins. Commitment fees under the agreement are not material.
The Company's shelf registration filed with the Securities and Exchange
Commission enables the Company to issue up to $2.59 billion of unsecured debt
securities, and warrants to purchase debt securities, under its medium term note
(MTN) program. In 1999, the Company issued a total of $500 million notes from
the shelf registration: $200 million of 6.625% notes due 2009 and $300 million
of 6.95% notes due 2029. At January 2, 2000 the Company had $1.79 billion
remaining on its shelf registration.
In addition to the notes issued under the shelf registration, the Company
issued $250 million, 6.0% Eurodollar notes due in 2001. The proceeds of all new
borrowings were used for general corporate purposes.
Short-term borrowings and current portion of long-term debt amounted to
$1.8 billion at the end of 1999. These borrowings are composed of $1.4 billion
U.S. commercial paper, at an average rate of 5.7% and $0.4 billion of local
borrowings, principally by international subsidiaries.
Aggregate maturities of long-term obligations for each of the next five
years commencing in 2000 are:
<TABLE>
<CAPTION>
2000 2001 2002 2003 2004
- ---- ---- ---- ---- ----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
$26 403 216 72 215
</TABLE>
7 INTANGIBLE ASSETS
At the end of 1999 and 1998, the gross and net amounts of intangible assets
were:
<TABLE>
<CAPTION>
1999 1998
-------- -------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Goodwill -- gross........................................... $4,270 4,151
Less accumulated amortization............................... 424 331
------ -----
Goodwill -- net............................................. $3,846 3,820
====== =====
Patents and trademarks -- gross............................. $2,014 1,760
Less accumulated amortization............................... 399 351
------ -----
Patents & trademarks -- net................................. $1,615 1,409
====== =====
Other intangibles -- gross.................................. $2,471 2,296
Less accumulated amortization............................... 361 161
------ -----
Other intangibles -- net.................................... $2,110 2,135
====== =====
Total intangible assets -- gross............................ $8,755 8,207
Less accumulated amortization............................... 1,184 843
------ -----
Total intangible assets -- net.............................. $7,571 7,364
====== =====
</TABLE>
The weighted average amortization periods for goodwill, patents and
trademarks and other intangibles are 32 years, 21 years and 18 years,
respectively. For additional discussion on intangible assets, see Note 14.
<PAGE> 24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8 INCOME TAXES
The provision for taxes on income consists of:
<TABLE>
<CAPTION>
1999 1998 1997
------ ----- -----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Currently payable:
U.S. taxes............................................... $ 994 991 953
International taxes...................................... 599 485 455
------ ----- -----
1,593 1,476 1,408
------ ----- -----
Deferred:
U.S. taxes............................................... 94 (180) (126)
International taxes...................................... (101) (117) (6)
------ ----- -----
(7) (297) (132)
------ ----- -----
$1,586 1,179 1,276
====== ===== =====
</TABLE>
Deferred income taxes are recognized for tax consequences of "temporary
differences" by applying enacted statutory tax rates, rates, applicable to
future years, to differences between the financial reporting and the tax basis
of existing assets and liabilities.
Temporary differences and carryforwards for 1999 are as follows:
<TABLE>
<CAPTION>
DEFERRED TAX
---------------------
ASSET LIABILITY
------- ----------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Employee benefit obligations................................ $ 449
Depreciation................................................ (327)
Non-deductible intangibles.................................. (694)
International R&D capitalized for tax....................... 45
Reserves & liabilities...................................... 587
Income reported for tax purposes............................ 156
Miscellaneous international................................. 266 (155)
Loss carryforwards.......................................... 209
Miscellaneous U.S. ......................................... 317
------ ------
Total deferred income taxes................................. $2,029 (1,176)
====== ======
</TABLE>
The difference between the net deferred tax on income per the balance sheet
and the net deferred tax is reflected in Taxes on Income.
A comparison of income tax expense at the federal statutory rate of 35% in
1999, 1998 and 1997, to the Company's effective tax rate is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------ ----- -----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
U.S. ...................................................... $3,241 2,522 2,853
International.............................................. 2,512 1,660 1,734
------ ----- -----
Earnings before taxes on income............................ $5,753 4,182 4,587
------ ----- -----
Statutory taxes............................................ $2,014 1,464 1,605
</TABLE>
<PAGE> 25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
1999 1998 1997
------ ----- -----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Tax rates:
Statutory.................................................. 35.0% 35.0% 35.0%
Puerto Rico and Ireland operations......................... (5.5) (5.5) (5.7)
Research tax credits....................................... (0.6) (0.3) (0.3)
Domestic state and local................................... 0.9 1.0 1.0
International subsidiaries excluding Ireland............... (2.4) (3.3) (2.7)
IPR&D...................................................... -- 1.3 --
All other.................................................. 0.2 -- 0.5
------ ----- -----
Effective tax rate......................................... 27.6% 28.2% 27.8%
====== ===== =====
</TABLE>
The reduction in the 1999 worldwide effective tax rate is primarily due to
the Company's non-deductible IPR&D charge taken in connection with the
acquisition of DePuy in 1998. During 1999, the Company had subsidiaries
operating in Puerto Rico under a tax incentive grant expiring December 31, 2007.
In addition, the Company has subsidiaries manufacturing in Ireland under an
incentive tax rate effective through the year 2010.
9 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 which are reflected in operating results.
An analysis of the changes during 1999 and 1998 for foreign currency
translation adjustments is included in Note 11.
Net currency transaction and translation gains and losses were after-tax
losses of $48 million in 1999, after-tax losses of $15 million in 1998 and
after-tax losses of $27 million in 1997.
10 COMMON STOCK, STOCK OPTION PLANS AND STOCK COMPENSATION AGREEMENTS
At January 2, 2000 the Company had 12 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, the 1997 Non-Employee Directors' Plan and the Mitek, Cordis, Biosense,
Gynecare and Centocor Stock Option plans.
Stock options expire 10 years from the date they are granted and vest over
service periods that range from one to six years. All options granted are valued
at current market price. Shares available for future grants amounted to 3.0
million, 15.0 million and 22.7 million at the end of 1999, 1998 and 1997,
respectively.
<PAGE> 26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of the status of the Company's stock option plans as of January
2, 2000, January 3, 1999 and December 28, 1997 and changes during the years
ending on those dates, is presented below:
<TABLE>
<CAPTION>
WEIGHTED
OPTIONS AVERAGE
OUTSTANDING EXERCISE PRICE
----------- --------------
(SHARES IN THOUSANDS)
<S> <C> <C>
Balance at December 29, 1996................................ 81,605 27.99
Options granted............................................. 13,053 60.40
Options exercised........................................... (11,157) 16.76
Options cancelled/forfeited................................. (2,240) 36.44
------- -----
Balance at December 28, 1997................................ 81,261 34.51
Options granted............................................. 10,852 78.20
Options exercised........................................... (11,414) 18.65
Options cancelled/forfeited................................. (2,304) 44.92
------- -----
Balance at January 3, 1999.................................. 78,395 42.55
Options granted............................................. 13,113 97.87
Options exercised........................................... (9,235) 23.84
Options cancelled/forfeited................................. (1,722) 55.53
------- -----
Balance at January 2, 2000.................................. 80,551 53.40
======= =====
</TABLE>
The Company applies the provision of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation," that calls for companies to
measure employee stock compensation expense based on the fair value method of
accounting. However, as allowed by the Statement, the Company elected continued
use of Accounting Principle 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 method had been applied in measuring
compensation cost. Had the fair value method been applied, net income would have
been reduced by $116 million or $.08 per share in 1999 and $77 million or $.05
per share in 1998. In 1997, net income would have been reduced by $35 million or
$.02 per share. These calculations only take into account the options issued
since January 1, 1995. The average fair value of options granted was $30.00 in
1999, $19.62 in 1998 and $17.50 in 1997. The fair value was estimated using the
Black-Scholes option pricing model based on the weighted average assumptions of:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Risk-free rate.............................................. 6.32% 4.52% 5.89%
Volatility.................................................. 24.0% 22.0% 21.5%
Expected life............................................... 5.0yrs 5.0yrs 5.3yrs
Dividend yield.............................................. 1.13% 1.30% 1.43%
</TABLE>
<PAGE> 27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes stock options outstanding and exercisable at
January 2, 2000:
<TABLE>
<CAPTION>
OUTSTANDING EXERCISABLE
------------------------------ -------------------
AVERAGE AVERAGE
EXERCISE AVERAGE EXERCISE EXERCISE
PRICE RANGE OPTIONS LIFE(A) PRICE OPTIONS PRICE
- ----------- ------- ------- -------- ------- --------
(SHARES IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
$ 8.00-$ 25.99...................... 20,256 3.0 $22.05 20,198 $22.06
$26.02-$ 50.94...................... 19,858 5.5 37.42 12,649 36.16
$51.22-$75.53....................... 18,583 7.6 60.07 4,131 55.90
$76.09-$104.41...................... 21,854 9.4 91.29 294 83.06
------ --- ------ ------ ------
$ 8.00-$104.41...................... 80,551 6.4 $53.40 37,272 $31.07
====== === ====== ====== ======
</TABLE>
- ---------------
(a) Average contractual life remaining in years.
11 ACCUMULATED OTHER COMPREHENSIVE INCOME
Components of other comprehensive income/(loss) consist of the following:
<TABLE>
<CAPTION>
ACCUMULATED
FOREIGN UNREALIZED OTHER
CURRENCY GAINS/(LOSSES) COMPREHENSIVE
TRANSLATION ON SECURITIES INCOME/(LOSS)
----------- -------------- -------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
December 29, 1996............................ $(117) 74 (43)
1997 change.................................. (294) (33) (327)
----- --- ----
December 28, 1997............................ (411) 41 (370)
1998 change.................................. 89 (41) 48
----- --- ----
January 3, 1999.............................. (322) -- (322)
1999 change.................................. (155) 81 (74)
----- --- ----
January 2, 2000.............................. $(477) 81 (396)
===== === ====
</TABLE>
The change in unrealized gains/(losses) on marketable securities during
1999 and 1998 includes reclassification adjustments of $27 million and $48
million of losses realized from the write-down of marketable securities and the
associated tax benefits of $10 million and $15 million. The tax effect on these
unrealized gains/(losses) on marketable securities is an expense of $50 million
in 1999 and benefits of $19 million and $21 million in 1998 and 1997,
respectively.
The currency translation adjustments are not currently adjusted for income
taxes as they relate to indefinite investments in non-US subsidiaries.
12 SEGMENTS OF BUSINESS AND GEOGRAPHIC AREAS
See page 45 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. The Company also 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.
<PAGE> 28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Retirement 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.
The Company does not fund retiree health care benefits in advance and has
the right to modify these plans in the future.
Effective December 29, 1997, the Company adopted Statement of Financial
Accounting Standards SFAS No. 132, "Employers' Disclosures about Pensions and
Postretirement Benefits" (SFAS 132) which standardizes the disclosure
requirements for pensions and other postretirement benefits. The Statement
addresses disclosure only. It does not address liability measurement or expense
recognition. There was no effect on financial position or net income as a result
of adopting SFAS 132.
Net periodic benefit costs for the Company's defined benefit retirement
plans and other benefit plans for 1999, 1998 and 1997 include the following
components:
<TABLE>
<CAPTION>
RETIREMENT PLANS OTHER BENEFIT PLANS
--------------------- --------------------
1999 1998 1997 1999 1998 1997
----- ---- ---- ---- ---- ----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Service cost........................... $ 208 185 166 24 20 17
Interest cost.......................... 270 254 239 50 50 46
Expected return on plan assets......... (330) (291) (256) (5) (14) (3)
Amortization of prior service cost..... 17 17 16 (1) 2 1
Amortization of net transition asset... (12) (14) (13) -- -- --
Recognized actuarial (gain)/loss....... (17) (24) (19) (2) 8 (6)
Curtailments and settlements........... 2 2 1 -- -- --
----- ---- ---- -- --- --
Net periodic benefit cost.............. $ 138 129 134 66 66 55
===== ==== ==== == === ==
</TABLE>
The net periodic cost attributable to domestic retirement plans included
above was $56 million in 1999, $40 million in 1998, and $50 million in 1997.
The following tables provide the weighted-average assumptions used to
develop net periodic benefit cost and the actuarial present value of projected
benefit obligations:
<TABLE>
<CAPTION>
RETIREMENT PLANS OTHER BENEFIT PLANS
-------------------- --------------------
1999 1998 1997 1999 1998 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
DOMESTIC BENEFIT PLANS
Weighted average discount rate........... 7.75% 6.75% 7.25% 7.75% 6.75% 7.25%
Expected long-term rate of return on plan
assets................................. 9.00 9.00 9.00 9.00 9.00 9.00
Rate of increase in compensation
levels................................. 5.00 5.00 5.00 5.00 5.00 5.00
INTERNATIONAL BENEFIT PLANS
Weighted average discount rate........... 5.75% 5.50% 6.25% 6.75% 6.00% 7.00%
Expected long-term rate of return on plan
assets................................. 7.50 7.75 7.75 -- -- --
Rate of increase in compensation
levels................................. 3.50 3.50 4.25 4.50 4.25 5.00
</TABLE>
<PAGE> 29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Health care cost trends are projected at annual rates grading from 10% for
employees under age 65 and 7% for employees over age 65 down to 5% for both
groups by the year 2008 and beyond. The effect of a 1% change in these assumed
cost trends on the accumulated postretirement benefit obligation at the end of
1999 would be an $83 million increase or a $75 million decrease and the effect
on the service and interest cost components of the net periodic postretirement
benefit cost for 1999 would be an $11 million increase or a $10 million
decrease.
The following tables set forth the change in benefit obligations and change
in plan assets at year-end 1999 and 1998 for the Company's defined benefit
retirement plans and other postretirement plans:
<TABLE>
<CAPTION>
OTHER BENEFIT
RETIREMENT PLANS PLANS
----------------- --------------
1999 1998 1999 1998
------- ------ ----- -----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation -- beginning of year.............. $4,315 3,704 726 691
Service cost......................................... 208 185 24 20
Interest cost........................................ 270 254 50 50
Plan participant contributions....................... 11 11 -- --
Amendments........................................... 81 13 -- --
Actuarial (gain) loss................................ (346) 325 (81) --
Acquisitions......................................... 51 -- 11 --
Curtailments & settlements........................... (7) (7) -- --
Total benefits paid.................................. (210) (203) (36) (33)
Effect of exchange rates............................. (167) 33 -- (2)
------ ----- --- ---
Benefit obligation -- end of year.................... $4,206 4,315 694 726
====== ===== === ===
CHANGE IN PLAN ASSETS
Plan assets at fair value -- beginning of year....... $4,173 3,694 57 46
Actual return on plan assets......................... 1,301 606 8 14
Company contributions................................ 46 45 32 29
Plan participant contributions....................... 11 11 -- --
Acquisitions......................................... 41 (4) -- --
Benefits paid from plan assets....................... (198) (193) (35) (32)
Effect of exchange rates............................. (120) 14 -- --
------ ----- --- ---
Plan assets at fair value -- end of year............. $5,254 4,173 62 57
====== ===== === ===
</TABLE>
<PAGE> 30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Amounts recognized in the Company's balance sheet consist of the following:
<TABLE>
<CAPTION>
OTHER BENEFIT
RETIREMENT PLANS PLANS
----------------- --------------
1999 1998 1999 1998
-------- ----- ----- -----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Plan assets in excess of (less than) projected
benefit obligation............................... $ 1,048 (142) (632) (668)
Unrecognized actuarial gains....................... (1,801) (511) (200) (117)
Unrecognized prior service cost.................... 156 98 (9) (11)
Unrecognized net transition asset.................. (29) (37) -- --
------- ---- ---- ----
Total recognized in the consolidated balance
sheet............................................ $ (626) (592) (841) (796)
------- ---- ---- ----
Book reserves...................................... $ (775) (726) (841) (796)
Prepaid benefits................................... 120 109 -- --
Other assets....................................... 29 25 -- --
------- ---- ---- ----
Total recognized in consolidated balance sheet..... $ (626) (592) (841) (796)
======= ==== ==== ====
</TABLE>
Plans with accumulated benefit obligations in excess of plan assets consist
of the following:
<TABLE>
<CAPTION>
RETIREMENT PLANS OTHER BENEFIT PLANS
---------------- --------------------
1999 1998 1999 1998
------ ------ -------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Accumulated benefit obligation.................... $(411) (558) (696) (696)
Projected benefit obligation...................... $(528) (723) -- --
Plan assets at fair value......................... $ 53 162 62 57
</TABLE>
14 RESTRUCTURING AND IN-PROCESS RESEARCH AND DEVELOPMENT 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. It was originally expected that the plan
would be completed over the following 18 months. This plan is currently underway
and is targeted for completion in 2000. Among the initiatives supporting this
plan were the closure of inefficient manufacturing facilities, exiting certain
businesses which were not providing an acceptable return and related employee
separations. The closure of these facilities represented approximately 10% of
the Company's manufacturing capacity.
The estimated cost of this plan is $613 million which has been reflected in
cost of sales ($60 million) and restructuring charge ($553 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 cash flows triggering the asset impairment.
The amount of impairment of such assets was calculated using discounted cash
flows or appraisals.
The asset impairments that amounted to $322 million consisted of the
following: machinery & equipment of $215 million, inventory of $60 million,
buildings of $32 million and leasehold improvements of $15 million. Intangible
assets of $52 million included Menlo Care of $26 million, Innotech of $20
million and other intangible assets of $6 million. The Menlo Care intangible
asset was related to the Aquavene biomaterial technology that was no longer in
use with all other intangible assets related to products that were abandoned by
the Company due to low margin and/or lack of strategic fit.
<PAGE> 31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Of the separation costs of $161 million, $3 million were paid at year-end
1998. These charges as well as the other exit costs consisted of the following:
<TABLE>
<CAPTION>
1999
BEGINNING 1999 REMAINING
ACCRUAL CASH OUTLAYS ACCRUAL
--------- ------------ ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Restructuring charges:
Employee separations.............................. $158 58 100
Other exit costs:
Distributor terminations.......................... 17 6 11
Disposal costs.................................... 15 5 10
Lease terminations................................ 21 14 7
Customer compensation............................. 11 10 1
Other costs..................................... 14 3 11
---- -- ---
Total other exit costs.................. 78 38 40
---- -- ---
$236 96 140
==== == ===
</TABLE>
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. The headcount reduction for the
years ended January 2, 2000 and January 3, 1999 was approximately 1,600 and 225
employees, respectively.
In connection with the businesses acquired in 1998, the Company recognized
charges for in-process research and development (IPR&D) in the amount of $298
million related primarily to the DePuy and RETAVASE acquisitions. The value of
the IPR&D projects was calculated with the assistance of third party appraisers
and was based on the estimated percentage completion of the various research and
development projects being pursued using cash flow projections discounted for
the risk inherent in such projects. For additional discussion on acquisitions,
see Note 17.
The 1998 special charges impacted the business segments as follows: the
special pre-tax charge for the Consumer segment was $244 million. This charge
reflects $85 million for severance costs associated with the termination of
approximately 2,550 employees; $133 million for the write-down of impaired
assets and $26 million for other exit costs. Acquisitions within the
Pharmaceutical business segment resulted in a $134 million write-off of
purchased IPR&D. Additionally, the Pharmaceutical business segment recorded $65
million of the special charge representing $18 million for severance costs
associated with the termination of approximately 250 employees and $47 million
for the write-down of impaired assets. Acquisitions within the Professional
business segment resulted in a $164 million write-off of purchased IPR&D.
Additionally, the Professional business segment recorded other special charges
of $304 million. This charge included $58 million for severance costs associated
with the termination of approximately 2,300 employees; $194 million for the
write-down of impaired assets and $52 million for other exit costs.
15 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 the 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.
<PAGE> 32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Total contributions to the plans were $70 million in 1999, $65 million in
1998, and $59 million in 1997.
16 FINANCIAL INSTRUMENTS
Derivative Financial Instrument Risk
The Company uses derivative financial instruments to manage the impact of
interest rate and foreign exchange rate changes on earnings and cash flows. 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 the risk of
loss is remote.
Interest Rate and Foreign Exchange Risk Management
The Company uses interest rate and currency swaps to manage interest rate
and currency risk primarily related to borrowings. Interest rate and currency
swap agreements that hedge third party debt mature with these borrowings and are
described in Note 6.
The Company enters into forward foreign exchange contracts maturing within
five years to protect the value of existing foreign currency assets and
liabilities and to hedge future foreign currency product costs. The Company has
forward exchange contracts outstanding at year-end in various currencies,
principally in U.S. Dollars, Euros and Swiss Francs. In addition, the Company
has currency swaps outstanding, principally in U.S. Dollars and Euros.
Unrealized gains and losses, based on dealer quoted market prices, are presented
in the following table:
<TABLE>
<CAPTION>
1999
---------------------------
NOTIONAL
AMOUNTS GAINS LOSSES
-------- ----- ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Forwards................................................... $5,941 104 170
Currency swaps............................................. 3,465 161 66
</TABLE>
Fair Value of Financial Instruments
The carrying amount of cash and cash equivalents and current and
non-current marketable securities approximates fair value of these instruments.
In addition, the carrying amount of long-term investments, long-term debt,
interest rate and currency swaps (used to hedge third party debt) approximates
fair value of these instruments for 1999 and 1998.
The fair value of current and non-current marketable securities, long-term
debt and interest rate and currency swap agreements was estimated based on
quotes obtained from brokers for those or similar instruments. The fair value of
long-term investments was estimated based on quoted market prices at year-end.
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.
<PAGE> 33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 MERGERS & ACQUISITIONS
On October 6, 1999, Johnson & Johnson and Centocor, Inc. completed a merger
between the two companies. This transaction was accounted for by the
pooling-of-interests method of accounting. Centocor had approximately 71 million
shares outstanding (83 million shares on a fully diluted basis) which were
exchanged for approximately 45 million shares of Johnson & Johnson common stock.
On a diluted basis when adjusted for stock options outstanding and convertible
debt, the total number of Johnson & Johnson shares issued total approximately 53
million shares. Holders of Centocor common stock received 0.6390 of a share of
Johnson & Johnson common stock for each share of Centocor common stock, valued
at $95.47 per share.
Centocor is a leading biopharmaceutical company that creates, acquires and
markets cost-effective therapies that yield long term benefits for patients and
the health care community. Its products, developed primarily through monoclonal
antibody technology, help physicians deliver innovative treatments to improve
human health and restore patients' quality of life.
As described in Note 1, these financial statements have been restated to
give effect to Johnson & Johnson's merger with Centocor. The only adjustment to
Centocor's historical financial statements has been the inclusion of the effect
of income taxes as if the companies had been combined for all periods presented.
For 1999, 1998 and 1997, the revenue and net earnings/(losses) of Centocor
combined with Johnson & Johnson are $462, $338 and $201 million, respectively,
for revenue and $9, ($57) and $8 million, respectively, of earnings/(losses).
During 1999 and 1998 certain businesses were acquired for $271 million and
$4.1 billion respectively. These acquisitions were accounted for by the purchase
method and accordingly the results of operations of the acquired businesses have
been included in the accompanying consolidated financial statements from their
respective dates of acquisition.
The 1999 acquisitions included AVEENO, the dermatological skin care
business from S.C. Johnson, ANGIOGUARD, Inc., a developer of an embolic
containment device used during interventional procedures, certain assets of
Cygnus' drug delivery business, certain assets of Medscand related to the TVT
incontinence product and the stock of Horizon Health Services, Inc., a company
specializing in the management of ambulatory surgery centers.
The excess of purchase price over the estimated fair market value of 1999
acquisitions amounted to $266 million. This amount has been allocated to
identifiable intangibles and goodwill. Pro forma information is not provided for
1999, as the impact of the acquisitions does not have a material effect on the
Company's results of operations, cash flows or financial position.
During 1999, the plan to integrate the DePuy business acquired in 1998 into
the Company's operations was completed and resulted in additional liabilities of
$81 million to address costs relating to distributor terminations, employee
separations and plant consolidations. At year-end 1999, $37 million of these
liabilities remained.
The 1998 acquisitions included DePuy, Inc., a leading orthopaedics company.
DePuy's product lines include reconstructive products (implants for hips, knees
and extremities), spinal implants, trauma repair and sports-related injury
products. Additionally, the Company completed the acquisition of the U.S. and
Canadian product rights for RETAVASE (reteplase), an acute-care cardiovascular
drug, from Roche Healthcare. RETAVASE is a recombinant biologic cardiology care
product administered for the treatment of acute myocardial infarction (heart
attack) to improve blood flow to the heart. It is among the class of
fibrinolytic
<PAGE> 34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
drugs known as "clot busters." RETAVASE received marketing authorization from
the FDA in October 1996 and was launched in January 1997.
The excess of purchase price over the estimated fair value amounted to $3.3
billion. This amount has been allocated to identifiable intangibles and
goodwill. Approximately $298 million has been identified as the value of IPR&D
associated with the acquisitions. This IPR&D charge of $298 million is
associated with DePuy and RETAVASE projects.
The IPR&D charge related to DePuy projects consisted of the following: the
Hip Cup System which is an Acetabular Cup system that will incorporate a next
generation outer shell with alternate bearing surfaces with a fair value of $55
million on the acquisition date and was 60% complete; the Spine Products which
include a cervical cage to better restore the alignment of the cervical spine
following fusion procedures and development of a user friendly, efficient set of
instruments for the implantation of the anterior and posterior lumbar cage with
a fair value at acquisition of $70 million and was approximately 50% complete;
the remaining $39 million consists of 30 projects with fair values under $3
million each that at acquisition ranged from 20% to 80% complete. At January 2,
2000, these projects were 75%, 80% and 25% to 85% complete, respectively.
The IPR&D charge of $134 million associated with the Centocor merger was
related to the valuation of Centocor's acquisition of RETAVASE from Roche. The
RETAVASE project represents planned development of a combination cardiovascular
therapy employing the fibrinolytic drug RETAVASE in combination with REOPRO
(abciximab). This project was 75% complete at acquisition and 85% completed at
January 2, 2000. The remaining effort to complete these projects is not expected
to be material.
The value of the IPR&D projects was calculated with the assistance of third
party appraisers and was based on the estimated percentage completion of the
various research and development projects being pursued using cash flow
projections discounted for the risk inherent in such projects. The discount
rates used ranged between 13% and 20%.
Divestitures in 1999 and 1998 did not have a material effect on the
Company's results of operations, cash flows or financial position.
18 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
<PAGE> 35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the disposable contact lens market. The Company believes that these actions are
without merit and is defending them vigorously.
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's licensor of U.S.
non-dialysis rights to EPO, in which Amgen seeks to terminate Ortho's U.S.
license rights and collect substantial damages based on alleged deliberate EPO
sales by Ortho during the early 1990's into Amgen's reserved dialysis market.
The Company believes no basis exists for terminating Ortho's U.S. license rights
or for obtaining damages and is vigorously contesting Amgen's claims. However,
Ortho'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.
19 EARNINGS PER SHARE
The following is a reconciliation of basic net earnings per share to
diluted net earnings per share for the years ended January 2, 2000, January 3,
1999 and December 28, 1997:
<TABLE>
<CAPTION>
1999(1) 1998(2) 1997
-------- ------- -------
(SHARES IN MILLIONS)
<S> <C> <C> <C>
Basic earnings per share............................... $ 3.00 2.16 2.40
Average shares outstanding -- basic.................... 1,390.1 1,389.8 1,380.6
Potential shares exercisable under stock option
plans................................................ 68.7 68.8 70.5
Less: shares repurchased under treasury stock method... (40.6) (41.4) (35.7)
Adjusted average shares outstanding -- diluted......... 1,418.2 1,417.2 1,415.4
-------- ------- -------
Diluted earnings per share............................. $ 2.94 2.12 2.34
======== ======= =======
</TABLE>
The diluted earnings per share calculation does not include approximately 6
million shares related to convertible debt and 11 million shares of options
whose exercise price is greater than average market value as the effect would be
anti-dilutive.
- ---------------
(1) 1999 results excluding special charges related to the Centocor merger are:
Basic EPS at $3.03 and diluted EPS at $2.97 (unaudited).
(2) 1998 results excluding Restructuring and In-Process Research & Development
charges are: Basic EPS at $2.66 and diluted EPS at $2.61 (unaudited).
<PAGE> 36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
20 CAPITAL AND TREASURY STOCK
Changes in treasury stock were:
<TABLE>
<CAPTION>
TREASURY STOCK
---------------------------
SHARES AMOUNT
---------- ---------
(DOLLARS IN MILLIONS EXCEPT
NUMBER OF SHARES IN
THOUSANDS)
<S> <C> <C>
Balance at December 29, 1996................................ 158,136 $1,154
Employee compensation and stock option plans................ (11,794) (658)
Repurchase of common stock.................................. 10,520 628
Business combinations....................................... (11,998) (129)
------- ------
Balance at December 28, 1997................................ 144,864 995
Employee compensation and stock option plans................ (11,906) (862)
Repurchase of common stock.................................. 12,602 930
Business combinations....................................... -- (3)
------- ------
Balance at January 3, 1999.................................. 145,560 1,060
Employee compensation and stock option plans................ (9,255) (821)
Repurchase of common stock.................................. 8,928 840
Business combinations....................................... -- (2)
------- ------
Balance at January 2, 2000.................................. 145,233 $1,077
======= ======
</TABLE>
Shares of common stock authorized and issued were 1,534,916,000 shares at
the end of 1999 and 1,534,824,000 shares at the end of 1998, 1997 and 1996.
21 SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Selected unaudited quarterly financial data for the years 1999 and 1998 are
summarized below:
<TABLE>
<CAPTION>
1999 1998
---------------------------------------- -------------------------------------------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER(1) QUARTER(2) QUARTER QUARTER QUARTER(3)
------- ------- ------- ---------- ---------- ------- ------- ----------
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Segment sales to customers
Consumer........................ $1,728 1,687 1,704 1,744 1,639 1,571 1,587 1,731
Pharmaceutical.................. 2,577 2,829 2,735 2,552 2,149 2,253 2,185 2,313
Professional.................... 2,434 2,455 2,445 2,581 2,052 2,050 2,039 2,426
------ ----- ----- ----- ----- ----- ----- -----
Total sales..................... $6,739 6,971 6,884 6,877 5,840 5,874 5,811 6,470
====== ===== ===== ===== ===== ===== ===== =====
Gross profit.................... 4,669 4,848 4,816 4,696 4,042 4,047 4,021 4,281
Earnings before provision for
taxes on income............... 1,622 1,629 1,531 971 1,294 1,391 1,321 176
Net earnings.................... 1,138 1,164 1,111 754 919 1,018 964 102
====== ===== ===== ===== ===== ===== ===== =====
Basic net earnings per share.... $ .82 .84 .80 .54 .66 .73 .69 .07
====== ===== ===== ===== ===== ===== ===== =====
Diluted net earnings per
share......................... $ .80 .82 .78 .53 .65 .72 .68 .07
====== ===== ===== ===== ===== ===== ===== =====
</TABLE>
- ---------------
(1) 1999 results excluding special charges related to the Centocor merger:
Earnings before taxes $1,020; Net earnings $796; Basic EPS $.57 and Diluted
EPS $.56.
<PAGE> 37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(2) 1998 Q1 results excluding In-Process Research & Development charges:
Earnings before taxes $1,428; Net earnings $1,006; Basic EPS $.72 and
Diluted EPS $.71.
(3) 1998 Q4 results excluding Restructuring and In-Process Research &
Development charges: Earnings before taxes $953; Net earnings $712; Basic
EPS $.51 and Diluted EPS $.50.
<PAGE> 38
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 accounting principles
generally accepted in the United States, and include amounts that are based on
our best judgments 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 principle 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 that are distributed throughout the Company. Management maintains a
systematic program to ensure compliance with these policies.
PricewaterhouseCoopers LLP, independent auditors,is engaged to audit our
financial statements. PricewaterhouseCoopers LLP 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.
<TABLE>
<S> <C>
/s/ RALPH S. LARSEN /s/ ROBERT J. DARRETTA
Ralph S. Larsen Robert J. Darretta
Chairman, Board of Directors Vice President, Finance
and Chief Executive Officer and Chief Financial Officer
</TABLE>
<PAGE> 39
INDEPENDENT AUDITOR'S REPORT
To the Shareowners and Board of Directors of Johnson & Johnson:
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of earnings, consolidated statements of equity
and consolidated statements of cash flows present fairly, in all material
respects, the financial position of Johnson & Johnson and its subsidiaries at
January 2, 2000 and January 3, 1999, and the results of their operations and
their cash flows for each of the three years in the period ended January 2,
2000, in conformity with accounting principles generally accepted in the United
States. 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 of these statements in
accordance with auditing standards generally accepted in the United States which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
[PricewaterhouseCooper LLP]
New York, New York
January 24, 2000
<PAGE> 40
JOHNSON & JOHNSON AND SUBSIDIARIES
SEGMENTS OF BUSINESS(1)
<TABLE>
<CAPTION>
SALES TO CUSTOMERS(2)
---------------------------
1999 1998 1997
------- ------ ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Consumer -- Domestic........................................ $ 3,670 3,325 3,240
International................................... 3,194 3,201 3,258
------- ------ ------
Total............................................... 6,864 6,526 6,498
------- ------ ------
Pharmaceutical -- Domestic.................................. 6,419 4,993 4,015
International............................... 4,275 3,907 3,882
------- ------ ------
Total............................................... 10,694 8,900 7,897
------- ------ ------
Professional -- Domestic.................................... 5,296 4,530 4,640
International.................................. 4,617 4,039 3,795
------- ------ ------
Total............................................... 9,913 8,569 8,435
------- ------ ------
Worldwide total............................................. $27,471 23,995 22,830
======= ====== ======
</TABLE>
<TABLE>
<CAPTION>
OPERATING PROFIT IDENTIFIABLE ASSETS
--------------------------- --------------------------
1999(4) 1998(5) 1997 1999 1998 1997
------- ------- ----- ------ ------ ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Consumer................................................. $ 683 414 551 4,901 4,904 4,745
Pharmaceutical........................................... 3,595 2,933 2,572 7,483 5,918 6,324
Professional............................................. 1,632 941 1,543 12,458 13,244 7,773
------ ----- ----- ------ ------ ------
Segments total........................................... 5,910 4,288 4,666 24,842 24,066 18,842
Expenses not allocated to segments(3).................... (157) (106) (79)
General corporate........................................ 4,321 3,226 3,266
------ ----- ----- ------ ------ ------
Worldwide total.......................................... $5,753 4,182 4,587 29,163 27,292 22,108
====== ===== ===== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
ADDITIONS TO PROPERTY, DEPRECIATION AND
PLANT & EQUIPMENT AMORTIZATION
------------------------ -----------------------
1999 1998 1997 1999 1998 1997
------ ----- ----- ----- ----- -----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Consumer.................................................... $ 412 268 267 277 273 265
Pharmaceutical.............................................. 666 600 484 341 352 282
Professional................................................ 576 627 573 786 629 495
------ ----- ----- ----- ----- -----
Segments total.............................................. 1,654 1,495 1,324 1,404 1,254 1,042
General corporate........................................... 74 50 91 40 31 40
------ ----- ----- ----- ----- -----
Worldwide total............................................. $1,728 1,545 1,415 1,444 1,285 1,082
====== ===== ===== ===== ===== =====
</TABLE>
GEOGRAPHIC AREAS(2)
<TABLE>
<CAPTION>
SALES TO CUSTOMERS(2) LONG-LIVED ASSETS
--------------------------- --------------------------
1999 1998 1997 1999 1998 1997
------- ------ ------ ------ ------ ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
United States............................................. $15,385 12,848 11,895 9,321 8,531 5,728
Europe.................................................... 6,711 6,354 5,995 3,698 4,135 2,390
Western Hemisphere excluding U.S. ........................ 2,023 2,105 2,044 550 429 457
Asia-Pacific, Africa...................................... 3,352 2,688 2,896 439 402 384
------- ------ ------ ------ ------ ------
Segments total............................................ 27,471 23,995 22,830 14,008 13,497 8,959
General corporate......................................... 282 262 250
Other non long-lived assets............................... 14,873 13,533 12,899
------- ------ ------ ------ ------ ------
Worldwide total........................................... $27,471 23,995 22,830 29,163 27,292 22,108
======= ====== ====== ====== ====== ======
</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
or country represents 10% or more of total sales.
<PAGE> 41
(3) Amounts not allocated to segments include interest income/expense, minority
interests and general corporate income and expense.
(4) 1999 Pharmaceutical results excluding special charges related to the
Centocor merger is $3,644.
(5) 1998 results excluding Restructuring and In-Process Research and Development
charges: Consumer $658, Pharmaceutical $3,132, and Professional $1,409.
See Note 14 for details of Restructuring and IPR&D charges by segment.
<PAGE> 42
JOHNSON & JOHNSON AND SUBSIDIARIES
SUMMARY OF OPERATIONS AND STATISTICAL DATA 1989-1999(8)
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995 1994
-------- ------- ------- ------- ------- -------
(DOLLARS IN MILLIONS EXCEPT PER SHARE FIGURES)
<S> <C> <C> <C> <C> <C> <C>
Sales to customers -- Domestic.... $ 15,385 12,848 11,895 10,986 9,225 7,871
Sales to
customers -- International....... 12,086 11,147 10,935 10,769 9,696 7,930
-------- ------- ------- ------- ------- -------
TOTAL SALES................. 27,471 23,995 22,830 21,755 18,921 15,801
======== ======= ======= ======= ======= =======
Cost of products sold............. 8,442 7,604 7,230 7,079 6,264 5,315
Selling, marketing and
administrative expenses.......... 10,503 9,027 8,756 8,427 7,491 6,375
Research expense.................. 2,600 2,336 2,209 1,962 1,700 1,348
Purchased in-process research and
development...................... -- 298 -- -- -- 37
Interest income................... (246) (277) (213) (149) (125) (66)
Interest expense, net of portion
capitalized...................... 197 129 124 133 160 162
Other expense, net................ 222 143 137 283 171 76
Restructuring charge.............. -- 553 -- -- -- --
-------- ------- ------- ------- ------- -------
21,718 19,813 18,243 17,735 15,661 13,247
-------- ------- ------- ------- ------- -------
Earnings before provision for
taxes on income.................. 5,753 4,182 4,587 4,020 3,260 2,554
Provision for taxes on income..... 1,586 1,179 1,276 1,138 893 631
-------- ------- ------- ------- ------- -------
Earnings before cumulative effect
of accounting changes............ 4,167 3,003 3,311 2,882 2,367 1,923
Cumulative effect of accounting
changes (net of tax)............. -- -- -- -- -- --
-------- ------- ------- ------- ------- -------
NET EARNINGS...................... $ 4,167 3,003 3,311 2,882 2,367 1,923
======== ======= ======= ======= ======= =======
PERCENT OF SALES TO CUSTOMERS..... 15.2 12.5(3) 14.5 13.2 12.5 12.2
Basic net earnings per share of
common stock*.................... $ 3.00 2.16 2.40 2.10 1.78 1.46
======== ======= ======= ======= ======= =======
Diluted net earnings per share of
common stock*.................... $ 2.94 2.12 2.34 2.05 1.75 1.45
======== ======= ======= ======= ======= =======
Percent return on average
shareowners' equity.............. 27.5 22.3(3) 27.4 28.0 28.5 29.4
======== ======= ======= ======= ======= =======
PERCENT INCREASE (DECREASE) OVER
PREVIOUS YEAR:
Sales to customers................ 14.5 5.1 4.9 15.0 19.7 11.2
Basic net earnings per share...... 38.9(3) (10.0)(3) 14.3 18.0 21.9 11.5
======== ======= ======= ======= ======= =======
Diluted net earnings per share.... 38.7(3) (9.4)(3) 14.1 17.1 20.7 11.5
======== ======= ======= ======= ======= =======
SUPPLEMENTARY EXPENSE DATA:
Cost of materials and
services(5)...................... $ 13,789 11,736 11,600 11,278 9,903 7,983
Total employment costs............ 6,350 5,755 5,446 5,324 4,750 4,318
Depreciation and amortization..... 1,444 1,285 1,082 1,023 869 738
Maintenance and repairs(6)........ 317 296 266 282 254 219
Total tax expense(7).............. 2,237 1,821 1,850 1,694 1,415 1,101
TOTAL TAX EXPENSE PER SHARE(7)*... 1.61 1.31 1.34 1.23 1.06 .84
======== ======= ======= ======= ======= =======
SUPPLEMENTARY BALANCE SHEET DATA:
Property, plant and equipment,
net.............................. $ 6,719 6,395 5,887 5,713 5,264 4,980
Additions to property, plant and
equipment........................ 1,728 1,545 1,415 1,378 1,261 942
Total assets...................... 29,163 27,292 22,108 20,603 18,379 16,203
Long-term debt.................... 2,450 1,729 1,181 1,465 2,339 2,431
======== ======= ======= ======= ======= =======
COMMON STOCK INFORMATION*
Dividends paid per share.......... $ 1.09 .97 .85 .735 .64 .565
Shareowners' equity per share..... $ 11.67 10.13 9.26 8.23 6.95 5.56
Market price per share (year-end
close)........................... $ 93 1/4 83 7/8 64 7/8 50 1/2 42 3/4 27 3/8
Average shares outstanding
(millions) -- basic.............. 1,390.1 1,389.8 1,380.6 1,375.1 1,329.1 1,317.8
-- diluted... 1,418.2 1,417.2 1,415.4 1,402.7 1,349.8 1,329.0
SHAREOWNERS OF RECORD
(THOUSANDS)...................... 169.4 168.9 160.0 142.0 117.7 109.7
======== ======= ======= ======= ======= =======
EMPLOYEES (THOUSANDS)............. 97.8 94.3 91.1 89.8 82.8 82.1
======== ======= ======= ======= ======= =======
<CAPTION>
1993 1992 1991 1990 1989
------- ------- ------- ------- -------
(DOLLARS IN MILLIONS EXCEPT PER SHARE FIGURES)
<S> <C> <C> <C> <C> <C>
Sales to customers -- Domestic.... 7,270 7,011 6,293 5,485 4,931
Sales to
customers -- International....... 6,944 6,868 6,207 5,812 4,898
------- ------- ------- ------- -------
TOTAL SALES................. 14,214 13,879 12,500 11,297 9,829
======= ======= ======= ======= =======
Cost of products sold............. 4,807 4,700 4,221 3,947 3,488
Selling, marketing and
administrative expenses.......... 5,807 5,758 5,188 4,508 3,918
Research expense.................. 1,248 1,233 1,052 880 764
Purchased in-process research and
development...................... -- -- 70 115 --
Interest income................... (84) (101) (100) (105) (92)
Interest expense, net of portion
capitalized...................... 146 144 140 203(4) 143
Other expense, net................ 32 132 87 260(4) 94
Restructuring charge.............. -- -- -- -- --
------- ------- ------- ------- -------
11,956 11,866 10,658 9,808 8,315
------- ------- ------- ------- -------
Earnings before provision for
taxes on income.................. 2,258 2,013 1,842 1,489 1,514
Provision for taxes on income..... 518 514 510 434 432
------- ------- ------- ------- -------
Earnings before cumulative effect
of accounting changes............ 1,740 1,499 1,332 1,055 1,082
Cumulative effect of accounting
changes (net of tax)............. -- (595) -- -- --
------- ------- ------- ------- -------
NET EARNINGS...................... 1,740 904 1,332 1,055 1,082
======= ======= ======= ======= =======
PERCENT OF SALES TO CUSTOMERS..... 12.2 6.5(1) 10.7 9.3(2) 11.0
Basic net earnings per share of
common stock*.................... 1.31 .67 .98 .78 .80
======= ======= ======= ======= =======
Diluted net earnings per share of
common stock*.................... 1.30 .66 .97 .77 .79
======= ======= ======= ======= =======
Percent return on average
shareowners' equity.............. 31.4 16.1(1) 24.3 22.6(2) 27.5
======= ======= ======= ======= =======
PERCENT INCREASE (DECREASE) OVER
PREVIOUS YEAR:
Sales to customers................ 2.4 11.0 10.6 14.9 8.5
Basic net earnings per share...... 95.5(1) (31.6)(1) 25.6(2) (2.5)(2) 12.7
======= ======= ======= ======= =======
Diluted net earnings per share.... 97.0(1) (32.0)(1) 26.0(2) (2.5)(2) 12.9
======= ======= ======= ======= =======
SUPPLEMENTARY EXPENSE DATA:
Cost of materials and
services(5)...................... 7,060 6,875 6,342 5,757 4,915
Total employment costs............ 4,114 4,109 3,561 3,229 2,891
Depreciation and amortization..... 635 565 497 477 417
Maintenance and repairs(6)........ 203 211 204 186 193
Total tax expense(7).............. 945 936 904 782 710
TOTAL TAX EXPENSE PER SHARE(7)*... .71 .70 .67 .58 .53
======= ======= ======= ======= =======
SUPPLEMENTARY BALANCE SHEET DATA:
Property, plant and equipment,
net.............................. 4,491 4,233 3,784 3,346 2,904
Additions to property, plant and
equipment........................ 977 1,121 1,018 878 765
Total assets...................... 12,706 12,389 11,073 9,798 8,075
Long-term debt.................... 1,731 1,603 1,560 1,358 1,193
======= ======= ======= ======= =======
COMMON STOCK INFORMATION*
Dividends paid per share.......... .505 .445 .385 .33 .28
Shareowners' equity per share..... 4.36 4.01 4.32 3.77 3.18
Market price per share (year-end
close)........................... 22 3/8 25 1/4 28 5/8 17 7/8 14 7/8
Average shares outstanding
(millions) -- basic.............. 1,330.0 1,344.2 1,354.1 1,348.8 1,347.3
-- dilu 1,342.1 1,359.5 1,379.9 1,364.3 1,365.1
SHAREOWNERS OF RECORD
(THOUSANDS)...................... 101.7 90.1 74.4 66.2 62.1
======= ======= ======= ======= =======
EMPLOYEES (THOUSANDS)............. 82.1 85.8 84.1 83.1 83.7
======= ======= ======= ======= =======
</TABLE>
- ---------------
* Adjusted to reflect the 1996 two-for-one stock split.
(1) Excluding the cumulative effect of accounting changes of $595
million. -- 1992 earnings percent of sales to customers before accounting
changes is 10.8%. -- 1992 earnings percent return on average shareowners'
equity before accounting changes is 25.4%. -- 1993 basic net earnings per
share percent increase over prior year before accounting changes is 17.0%
and 18.2% for diluted earnings per share; 1992 is 14.3% for basic earnings
per share and 13.4% for diluted earnings per share.
(2) Excluding Latin America non-recurring charges of $125 million. -- 1990 net
earnings percent of sales to customers before non-recurring charges is
10.4%. -- 1990 percent return on average shareowners' equity before
non-recurring charges is 24.9%. -- 1991 basic net earnings per share percent
increase over prior year before non-recurring charges is 12.6% and 12.8% for
diluted earnings per share; 1990 is 8.8% for basic earnings per share and
8.9% for diluted earnings per share.
(3) Excluding Restructuring and In-Process Research and Development charges of
$697 million. -- 1998 earnings percent of sales to customers before special
charges is 15.4%. -- 1998 basic net earnings per share before special
charges is $2.66. -- 1998 diluted net earnings per share before special
charges is $2.61. -- 1998 percent return on average shareowners' equity
before special charges is 26.8%. -- 1998 basic net earnings per share
increase over prior year before special charges is 10.8%. -- 1998 diluted
net earnings per share increase over prior year before special charges is
11.5%; -- 1998 cost of products sold includes $60 million of inventory
write-offs for restructuring; -- 1999 excluding special charges, basic net
earnings per share percent increase over prior year is 13.9% and 13.8% for
diluted net earnings per share.
(4) Includes Latin America non-recurring charge of $36 million for the
liquidation of Argentine debt and $104 million write-down in other expenses
for permanent impairment of certain assets and operations in Latin America.
(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.
(8) All periods have been restated to include the effects of the Centocor
merger.
<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:
AngioGuard, Inc........................................... Delaware
Biosense, Inc............................................. Delaware
Biosense Webster, Inc..................................... California
Centocor, Inc............................................. Pennsylvania
Codman & Shurtleff, Inc................................... New Jersey
Cordis Corporation........................................ Florida
Cordis International Corporation.......................... Delaware
DePuy, Inc................................................ Delaware
DePuy ACE Medical Co...................................... California
DePuy AcroMed, Inc. ...................................... Ohio
DePuy Finance LLC......................................... Delaware
DePuy Orthopaedics, Inc. ................................. Indiana
DePuy Orthopaedic Technologies, Inc. ..................... Delaware
Ethicon Endo-Surgery, Inc. ............................... Ohio
Ethicon, Inc. ............................................ New Jersey
Ethicon LLC............................................... Delaware
GynoPharma Inc. .......................................... Delaware
Indigo Medical, Incorporated ............................. Delaware
Janssen Ortho LLC......................................... Delaware
Janssen Pharmaceutica Inc. ............................... Pennsylvania
Janssen Products, Inc. ................................... Delaware
Johnson & Johnson Consumer Companies, 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 - Merck Consumer Pharmaceuticals Co. ... New Jersey
Johnson & Johnson (Middle East) Inc. ..................... New Jersey
Johnson & Johnson (Russia), Inc. ......................... New Jersey
Johnson & Johnson S.E., Inc............................... New Jersey
Johnson & Johnson Services, Inc. ......................... New Jersey
Johnson & Johnson Vision Care, Inc. ...................... Florida
Joint Medical Products Corporation........................ Delaware
JJHC, Inc. ............................................... Delaware
LifeScan, Inc. ........................................... California
LifeScan LLC.............................................. Delaware
McNeil Consumer Brands, Inc............................... New Jersey
</TABLE>
<PAGE> 2
<TABLE>
<CAPTION>
JURISDICTION OF
NAME OF SUBSIDIARY ORGANIZATION
------------------ ---------------
<S> <C>
McNEIL-PPC, Inc. ......................................... New Jersey
NDC Investment Corporation................................ Delaware
Neutrogena Corporation.................................... Delaware
Nitinol Development Corporation........................... California
Noramco, Inc. ............................................ Georgia
OMJ Pharmaceuticals, Inc. ................................ Delaware
Ortho Biologics LLC....................................... Delaware
Ortho Biotech Inc. ....................................... New Jersey
Ortho-Clinical Diagnostics, Inc. ......................... New York
Ortho-McNeil Pharmaceutical, Inc. ........................ Delaware
Raritan Advertising, Inc. ................................ New Jersey
RoC USA Corporation....................................... Delaware
Therakos, Inc. ........................................... Florida
International Subsidiaries:
Abello Farmacia SL........................................ Italy
AcroMed BV................................................ Netherlands
Apsis..................................................... France
Bioland Pharma S.A.R.L. .................................. France
Centocor B.V. ............................................ Netherlands
Centra Medicamenta OTC SRL................................ Italy
Cilag AG.................................................. Switzerland
Cilag AG International.................................... Switzerland
Cilag De Mexico, S.A. de C.V. ............................ Mexico
Cilag Farmaceutica Ltda. ................................. Brazil
Cilag Holding AG.......................................... Switzerland
Cordis Europa N.V. ....................................... Netherlands
Cordis Medizinische Apparate GmbH ........................ Germany
Cordis S.A. .............................................. France
Cordis S.a.r.l............................................ Switzerland
DePuy Australia Pty. Ltd.................................. Australia
DePuy Bioland S.A......................................... France
DePuy France S.A.......................................... France
DePuy International Ltd................................... United Kingdom
DePuy Intl. (Holdings) Ltd................................ United Kingdom
DePuy Japan Inc........................................... Japan
DePuy New Zealand Limited................................. New Zealand
DePuy Orthopadie GmbH..................................... Germany
DePuy Orthopedie S.A...................................... France
DePuy SA.................................................. Belgium
DePuy UK Holdings Limited................................. United Kingdom
Ethicon Endo-Surgery (Europe) GmbH ....................... Germany
Ethicon GmbH.............................................. Germany
Ethicon Ireland Limited................................... Ireland
Ethicon Limited........................................... Scotland
Ethicon SAS............................................... France
Ethicon S.p.A. ........................................... Italy
Ethnor (Proprietary) Limited.............................. South Africa
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
JURISDICTION OF
NAME OF SUBSIDIARY ORGANIZATION
------------------ ---------------
<S> <C>
Greiter AG................................................ Switzerland
Greiter (International) AG................................ Switzerland
Impulse Dynamics (Ireland) Limited........................ Ireland
Janssen Animal Health BVBA................................ 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 Egypt Ltd. ................................. Egypt
Janssen-Cilag C.A. ....................................... Venezuela
Janssen-Cilag Farmaceutica Ltda........................... Brazil
Janssen-Cilag Farmaceutica, Ltda. ........................ Portugal
Janssen-Cilag International N.V. ......................... Belgium
Janssen-Cilag Ltd......................................... United Kingdom
Janssen-Cilag Limited..................................... South Africa
Janssen-Cilag N.V. ....................................... Belgium
Janssen-Cilag OY.......................................... Finland
Janssen-Cilag Pharmaceutical S.A.C.I. .................... Greece
Janssen-Cilag Pharma 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, S.A. de C.V. ....................... Mexico
Janssen-Cilag GmbH........................................ Germany
Janssen-Cilag International N.V........................... Belgium
Janssen International C.V. ............................... Belgium
Janssen Korea, Ltd. ...................................... Korea
Janssen-Kyowa Co., Ltd. .................................. Japan
Janssen Ortho Inc. ....................................... Canada
Janssen Pharmaceutica Limited............................. Thailand
Janssen Pharmaceutica N.V. ............................... Belgium
Janssen Pharmaceutical Limited............................ Ireland
J-C Healthcare Ltd. ...................................... Israel
JHC Nederland B.V. ....................................... Netherlands
J&J/MSD Consumer Pharmaceuticals S.A.S.................... France
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 France S.A.S................... France
Johnson & Johnson Consumer N.V./S.A....................... Belgium
Johnson & Johnson de Colombia S.A. ....................... Colombia
Johnson & Johnson del Ecuador S.A. ....................... Ecuador
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
JURISDICTION OF
NAME OF SUBSIDIARY ORGANIZATION
------------------ ---------------
<S> <C>
Johnson & Johnson (Egypt) S.A.E........................... Egypt
Johnson & Johnson Finance Limited......................... United Kingdom
Johnson & Johnson Financial Services GmbH................. Germany
Johnson & Johnson/Gaba B.V. .............................. Netherlands
Johnson & Johnson GmbH.................................... Germany
Johnson & Johnson Gesellschaft m.b.H...................... Austria
Johnson & Johnson Health Care Ltd......................... Russia
Johnson & Johnson Hellas S.A. ............................ Greece
Johnson & Johnson Holding AB.............................. Sweden
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 Financial Services Ireland
Company................................................
Johnson & Johnson International S.A. ..................... France
Johnson & Johnson Investments Limited..................... United Kingdom
Johnson & Johnson (Ireland) Limited....................... Ireland
Johnson & Johnson (Kenya) Limited......................... Kenya
Johnson & Johnson Kft. ................................... Hungary
Johnson & Johnson K.K. ................................... Japan
Johnson & Johnson Lda..................................... Portugal
Johnson & Johnson Ltd..................................... United Kingdom
Johnson & Johnson Ltd. ................................... India
Johnson & Johnson MSD Consumer Pharmaceuticals, S.A.S..... France
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 K.K. ........................... Japan
Johnson & Johnson Medical Korea Limited................... Korea
Johnson & Johnson Medical Limited. ....................... United Kingdom
Johnson & Johnson Medical Mexico, S.A. de C.V............. Mexico
Johnson & Johnson Medical NV/SA........................... Belgium
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 Sp. z o.o. ...................... Poland
Johnson & Johnson (Private) Limited....................... Zimbabwe
Johnson & Johnson Products Inc. .......................... Canada
Johnson & Johnson Produtos Profissionais Ltda............. Brazil
Johnson & Johnson Professional Products (Proprietary) South Africa
Ltd. ..................................................
Johnson & Johnson (Proprietary) Limited................... South Africa
Johnson & Johnson Pte. Ltd. .............................. Singapore
</TABLE>
<PAGE> 5
<TABLE>
<CAPTION>
JURISDICTION OF
NAME OF SUBSIDIARY ORGANIZATION
------------------ ---------------
<S> <C>
Johnson & Johnson Pty. Limited............................ Australia
Johnson & Johnson Research Pty. Limited................... Australia
Johnson & Johnson, S.A. de C.V. .......................... Mexico
Johnson & Johnson S.A.S. ................................. France
Johnson & Johnson S.A. ................................... Spain
Johnson & Johnson SDN. BHD. .............................. Malaysia
Johnson & Johnson S.p.A. ................................. Italy
Johnson & Johnson, Spol.s.r.o. ........................... Czech Republic
Johnson & Johnson Taiwan Ltd. ............................ Taiwan
Johnson & Johnson (Thailand) Ltd.......................... Thailand
Johnson & Johnson Vision Products AB...................... Sweden
Johnson & Johnson Vision Products (Ireland) Ltd........... Ireland
Johnson & Johnson (Zambia) Limited........................ Zambia
Laboratoires Martin Johnson & Johnson -- MSD S.A.S........ France
Laboratoires Polive S.N.C. ............................... France
Lifescan Canada Ltd. ..................................... Canada
McNeil Consumer Nutritionals Ltd.......................... England
Medos S.A. ............................................... Switzerland
Neutrogena Limited........................................ England
Neutrogena Provence S.A.R.L............................... France
OMJ Ireland Limited....................................... Ireland
OMJ Manufacturing Ltd..................................... Ireland
Ortho-Clinical Diagnostics European Support Center........ France
Ortho-Clinical Diagnostics GmbH........................... Germany
Ortho-Clinical Diagnostics K.K. .......................... Japan
Ortho-Clinical Diagnostics................................ United Kingdom
Ortho-Clinical Diagnostics S.A. .......................... Spain
Ortho-Clinical Diagnostics N.V. .......................... Belgium
Ortho-Clinical Diagnostics S.A. .......................... France
Ortho-Clinical Diagnostics S.p.A. ........................ Italy
Pharma Argentina S.A. .................................... Argentina
P.T. Johnson & Johnson Indonesia.......................... Indonesia
The R.W. Johnson Pharmaceutical Research Institute........ Switzerland
Shanghai Johnson & Johnson Pharmaceuticals, Ltd........... China
Shanghai Johnson & Johnson Ltd. .......................... China
Surgikos, S.A. de C.V. ................................... Mexico
Tasmanian Alkaloids Pty. Ltd. ............................ Australia
Taxandria Pharmaceutica B.V. ............................. Netherlands
The R.W. Johnson Pharmaceutical Research Institute........ Switzerland
Vania Expansion, S.N.C.................................... France
Woelm Pharma GmbH & Co.................................... Germany
Xian-Janssen Pharmaceutical Limited....................... China
</TABLE>
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements of Johnson & Johnson on Form S-8 (File No. 33-52252, 33-40294,
33-40295, 33-32875, 33-7634, 033-59009, 333-38055, 333-40681 and 333-26979),
Form S-3 (File No. 333-91349, 33-55977 and 33-47424) and Form S-4 (File No.
33-57583, 333-00391, 333-38097, 333-30081, 333-86611 and 333-94367) and related
Prospectuses, of our reports dated January 24, 2000, on our audits of the
consolidated financial statements and financial statement schedule of Johnson &
Johnson and subsidiaries as of January 2, 2000 and January 3, 1999, and for each
of the three years in the period ended January 2, 2000, which reports are
included or incorporated by reference in this Annual Report on Form 10-K.
[PricewaterhouseCooper LLP]
New York, New York
March 30, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-02-2000
<PERIOD-START> JAN-04-1999<F1>
<PERIOD-END> JAN-02-2000<F2>
<CASH> 2,363
<SECURITIES> 1,516
<RECEIVABLES> 4,622
<ALLOWANCES> 389
<INVENTORY> 3,095
<CURRENT-ASSETS> 13,200
<PP&E> 11,046
<DEPRECIATION> 4,327
<TOTAL-ASSETS> 29,163
<CURRENT-LIABILITIES> 7,454
<BONDS> 2,476
0
0
<COMMON> 1,535
<OTHER-SE> 14,678
<TOTAL-LIABILITY-AND-EQUITY> 29,163
<SALES> 27,471
<TOTAL-REVENUES> 27,471
<CGS> 8,442
<TOTAL-COSTS> 8,442
<OTHER-EXPENSES> 2,600
<LOSS-PROVISION> 53
<INTEREST-EXPENSE> 197
<INCOME-PRETAX> 5,753
<INCOME-TAX> 1,586
<INCOME-CONTINUING> 4,167
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,167
<EPS-BASIC> 3.00
<EPS-DILUTED> 2.94
<FN>
<F1>1999 results excluding special charges related to the Centocor merger: Earnings
before Taxes $5,802; Net Earnings $4,209; Basic EPS $3.03 and Diluted EPS
$2.97.
<F2>This Schedule has been prepared to give retroactive effect to the merger
between Johnson & Johnson and Centocor on October 6, 1999.
</FN>
</TABLE>
<PAGE> 1
EXHIBIT 99(b)
CAUTIONARY STATEMENT PURSUANT TO PRIVATE SECURITIES LITIGATION REFORM
ACT OF 1995 -- "SAFE HARBOR" FOR FORWARD-LOOKING STATEMENTS
The Company may from time to time make certain forward-looking statements
in publicly-released materials, both written and oral. 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.
Some important factors that could cause the Company's actual results to
differ from the Company's expectations in any forward-looking statements are as
follows:
Economic factors, including inflation and fluctuations in interest
rates and foreign currency exchange rates and the potential effect of such
fluctuations on revenues, expenses and resulting margins;
Competitive factors, including technological advances achieved and
patents attained by competitors and generic competition as patents on the
Company's products expire;
Domestic and foreign health care changes resulting in pricing
pressures, including the continued consolidation among health care
providers, trends toward managed care and health care cost containment and
government laws and regulations relating to sales and promotion,
reimbursement and pricing generally;
Government laws and regulations, affecting domestic and foreign
operations, including those relating to trade, monetary and fiscal
policies, taxes, price controls, regulatory approval of new products and
licensing;
Difficulties inherent in product development, including the potential
inability to successfully continue technological innovation, complete
clinical trials, obtain regulatory approvals in the United States and
abroad, gain and maintain market approval of products and the possibility
of encountering infringement claims by competitors with respect to patent
or other intellectual property rights which can preclude or delay
commercialization of a product;
Significant litigation adverse to the Company including product
liability claims, patent infringement claims, and antitrust claims, as well
as the arbitration proceeding filed by Amgen to terminate U.S. license
rights;
Product efficacy or safety concerns resulting in product recalls,
regulatory action on the part of the FDA (or foreign counterparts) or
declining sales;
The impact of business combinations, including acquisitions and
divestitures, both internally for the Company and externally in the
pharmaceutical and health care industries;
<PAGE> 2
Issuance of new or revised accounting standards by the American
Institute of Certified Public Accountants, the Financial Accounting
Standards Board or the Securities and Exchange Commission.
The foregoing list sets forth many, but not all, of the factors that could
impact upon the Company's ability to achieve results described in any
forward-looking statements. Investors should understand that it is not possible
to predict or identify all such factors and should not consider this list to be
a complete statement of all potential risks and uncertainties. The Company notes
the factors on this list as permitted by the Private Securities Litigation
Reform Act of 1995.
