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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 1, 2001
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 1-3215
JOHNSON & JOHNSON
(Exact name of registrant as specified in its charter)
NEW JERSEY 22-1024240
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Johnson & Johnson Plaza
New Brunswick, New Jersey 08933
(Address of principal executive offices) (Zip code)
732-524-0400
Registrant's telephone number, including area code
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of
each of the issuer's classes of common stock, as of the latest practicable date.
On April 27, 2001, 1,396,971,060 shares of
Common Stock, $1.00 par value, were outstanding.
- 1 -
JOHNSON & JOHNSON AND SUBSIDIARIES
TABLE OF CONTENTS
Part I - Financial Information Page No.
Item 1. Financial Statements
Consolidated Balance Sheet -
April 1, 2001 and December 31, 2000 3
Consolidated Statement of Earnings for the
Three Months Ended April 1, 2001 and
April 2, 2000 5
Consolidated Statement of Cash Flows for the
Three Months Ended April 1, 2001 and
April 2, 2000 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 13
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 18
Part II - Other Information
Item 1 - Legal Proceedings 18
Item 6 - Exhibits and Reports on Form 8-K 20
Signatures 21
- 2 -
Part I - FINANCIAL INFORMATION
Item 1 - Financial Statements
JOHNSON & JOHNSON AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Unaudited; Dollars in Millions)
ASSETS
April 1, December 31,
2001 2000
Current Assets:
Cash and cash equivalents $ 3,647 3,411
Marketable securities, at cost 2,253 2,333
Accounts receivable, trade, less
allowances $398 (2000 - $411) 4,606 4,464
Inventories (Note 4) 2,810 2,842
Deferred taxes on income 1,110 1,151
Prepaid expenses and other
receivables 1,995 1,249
Total current assets 16,421 15,450
Marketable securities, non-current 243 269
Property, plant and equipment, at cost 11,134 11,248
Less accumulated depreciation and
amortization 4,376 4,277
6,758 6,971
Intangible assets, net (Note 5) 7,164 7,256
Deferred taxes on income 37 54
Other assets 1,252 1,321
Total assets $31,875 31,321
See Notes to Consolidated Financial Statements
- 3 -
JOHNSON & JOHNSON AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Unaudited; Dollars in Millions)
LIABILITIES AND SHAREOWNERS' EQUITY
April 1, December 31,
2001 2000
Current Liabilities:
Loans and notes payable $ 901 1,479
Accounts payable 1,928 2,083
Accrued liabilities 2,753 2,776
Accrued salaries, wages and commissions 502 488
Taxes on income 736 314
Total current liabilities 6,820 7,140
Long-term debt 1,571 2,037
Deferred tax liability 246 255
Employee related obligations 1,860 1,753
Other liabilities 1,286 1,328
Shareowners' equity:
Preferred stock - without par value
(authorized and unissued 2,000,000
shares) - -
Common stock - par value $1.00 per share
(authorized 2,160,000,000 shares;
issued 1,534,921,000 shares) 1,535 1,535
Note receivable from employee stock
ownership plan (30) (35)
Accumulated other comprehensive income (564) (470)
(Note 9)
Retained earnings 20,067 18,812
21,008 19,842
Less common stock held in treasury,
at cost (137,982,000 & 143,984,000
shares) 916 1,034
Total shareowners' equity 20,092 18,808
Total liabilities and shareowners'
equity $31,875 31,321
See Notes to Consolidated Financial Statements
- 4 -
JOHNSON & JOHNSON AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EARNINGS
(Unaudited; dollars & shares in millions
except per share figures)
Fiscal Quarter Ended
April 1, Percent April 2, Percent
2001 to Sales 2000 to Sales
Sales to customers (Note 6) $7,791 100.0 7,319 100.0
Cost of products sold 2,279 29.2 2,241 30.6
Gross Profit 5,512 70.8 5,078 69.4
Selling, marketing and
administrative expenses 2,721 34.9 2,609 35.6
Research expense 701 9.0 637 8.7
Interest income (105) (1.3) (77) (1.0)
Interest expense, net of
portion capitalized 19 .2 46 .6
Other (income)expense, net 36 .5 (29) (.4)
3,372 43.3 3,186 43.5
Earnings before provision
for taxes on income 2,140 27.5 1,892 25.9
Provision for taxes on
income (Note 3) 640 8.2 578 7.9
NET EARNINGS $1,500 19.3 1,314 18.0
NET EARNINGS PER SHARE (Note 8)
Basic $ 1.08 .95
Diluted $ 1.06 .93
CASH DIVIDENDS PER SHARE $ .32 .28
AVG. SHARES OUTSTANDING
Basic 1,393.7 1,389.7
Diluted 1,414.7 1,411.0
See Notes to Consolidated Financial Statements
- 5 -
JOHNSON & JOHNSON AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited; Dollars in Millions)
Fiscal Quarter Ended
April 1, April 2,
2001 2000
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $1,500 1,314
Adjustments to reconcile net earnings to
cash flows:
Depreciation and amortization of
property and intangibles 391 431
Accounts receivable reserves (6) (10)
Changes in assets and liabilities, net
of effects from acquisition of
businesses:
Increase in accounts receivable (254) (190)
Increase in inventories (54) (6)
Changes in other assets and liabilities 51 237
NET CASH FLOWS FROM OPERATING ACTIVITIES 1,628 1,776
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment (257) (310)
Proceeds from the disposal of assets 19 18
Acquisition of businesses, net of cash
acquired (17) (7)
Purchases of investments (1,331) (817)
Sales of investments 1,409 765
Other (22) 16
NET CASH USED BY INVESTING ACTIVITIES (199) (335)
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends to shareowners (447) (381)
Repurchase of common stock (257) (208)
Proceeds from short-term debt 116 280
Retirement of short-term debt (645) (865)
Proceeds from long-term debt 4 8
Retirement of long-term debt (10) (15)
Proceeds from the exercise of stock options 78 60
NET CASH USED BY FINANCING ACTIVITIES (1,161) (1,121)
EFFECT OF EXCHANGE RATE CHANGES ON CASH
AND CASH EQUIVALENTS (32) (20)
INCREASE(DECREASE) IN CASH AND CASH EQUIVALENTS 236 300
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 3,411 2,363
CASH AND CASH EQUIVALENTS, END OF PERIOD 3,647 2,663
ACQUISITION OF BUSINESSES
Fair value of assets acquired 22 83
Fair value of liabilities assumed (5) (1)
17 82
Treasury stock issued at fair value - (75)
Net cash payments $ 17 7
See Notes to Consolidated Financial Statements
- 6 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - The accompanying unaudited interim financial
statements and related notes should be read in
conjunction with the Consolidated Financial Statements
of Johnson & Johnson and Subsidiaries (the "Company")
and related notes as contained in the Annual Report
on Form 10-K for the fiscal year ended December 31, 2000.
The unaudited interim financial statements include
all adjustments (consisting only of normal recurring
adjustments) and accruals necessary in the judgment
of management for a fair presentation of such statements.
Certain prior year amounts have been reclassified to
conform with current year presentation.
NOTE 2 - ACCOUNTING FOR DERIVATIVES
AND HEDGING ACTIVITIES
Effective January 1, 2001, the Company
adopted SFAS 133 "Accounting for
Derivative Instruments and Hedging Activities",
as amended by SFAS 138 "Accounting for Certain
Derivative Instruments and Certain Hedging Activities,
an amendment of FASB Statement No 133", collectively
referred to as SFAS 133.
SFAS 133 requires that all derivative instruments
be recorded on the balance sheet at fair value.
Changes in the fair value of derivatives are recorded
each period in current earnings or other comprehensive
income (OCI), depending on whether the derivative is
designated as part of a hedge transaction, and, if it
is depending on the type of hedge transaction.
The Company uses forward exchange contracts
to manage its exposure to the variability of cash flows,
primarily related to the foreign exchange rate changes of
future product purchases designated in foreign currency.
The Company also uses currency swaps to manage currency
risk primarily related to borrowings. Both of these types
of derivatives are designated as cash flow hedges.
Additionally, the Company uses forward exchange
contracts to offset its exposure to certain foreign currency
assets and liabilities. These forward exchange contracts
are not designated as hedges and, therefore, changes
in the fair values of these derivatives are recognized
in earnings, thereby offsetting the current earnings
effect of the related foreign currency assets and liabilities.
The designation as a cash flow hedge is made
at the later of the date of entering into the derivative
contract or January 1, 2001. At inception, all derivatives
are expected to be highly effective. Changes in the
fair value of a derivative that is designated as a
cash flow hedge and that is highly effective, are
recorded in OCI, until the underlying transaction
affects earnings. Fair value of a forward exchange
contract represents the present value of the
change in forward exchange rates times the
notional amount of the derivative. The fair value
of a currency swap contract is determined by
discounting to the present all future cash flows
of the currencies to be exchanged at interest
rates prevailing in the market for the periods the
currency exchanges are due, and expressing the
result in U.S. Dollars at the current spot foreign
currency exchange rate.
- 7 -
At inception, and on an ongoing basis, the Company
assesses whether each derivative is expected to be highly
effective in offsetting changes in the cash flows of hedged
items. When a derivative is no longer expected to be
highly effective, hedge accounting is discontinued.
Hedge ineffectiveness, if any, is included in current period earnings.
The Company documents all relationships
between hedged items and derivatives. The overall
risk management strategy includes reasons for
undertaking hedge transactions and entering into
derivatives. The objectives of this strategy are:
(1) minimize foreign currency exposure's impact on
the Company's financial performance; (2) protect the
Company's cash flow from adverse movements in
foreign exchange rates; (3) ensure the appropriateness
of financial instruments; (4) manage the enterprise risk
associated with financial institutions.
On January 1, 2001 the Company recorded a
$17 million net-of-tax cumulative effect transition
adjustment gain in OCI to recognize at fair value
all derivative instruments designated as cash
flow hedges. The adjustment to net earnings was
immaterial.
380: As of April 1, 2001 the balance of deferred
net gains on derivatives accumulated in OCI was
$105 million (after tax). Of this amount, the Company
expects that $102 million, which includes the transition
adjustment, will be reclassified into earnings over
the next 12 months as a result of transactions that
are expected to occur over that period. The amount
ultimately realized in earnings will differ as foreign
exchange rates change. Realized gains and losses
are ultimately determined by actual exchange rates
at maturity of the derivative. The underlying
transactions which will occur and cause the amount
deferred in OCI to affect earnings primarily represent
sales to third parties and purchases of inventory.
The maximum length of time over which the
Company is hedging its exposure to the variability
in future cash flows for forecasted transactions
is 15 months.
For the quarter ended April 1, 2001
the net impact of the hedges' ineffectiveness
to the Company's financial statements was
insignificant.
382: For the quarter ended April 1, 2001
the Company has recorded a net gain of less
than $1 million (after tax) in the 'Other (income)
expense, net' category of the consolidated
statement of earnings, representing the impact
of discontinuance of cash flow hedges because
it is probable that the original forecasted transactions
will not occur by the end of the originally specified
time period.
383: Refer to Note 9 - Accumulated Other
Comprehensive Income for disclosure of movements in OCI.
- 8 -
NOTE 3 - INCOME TAXES
The effective income tax rates for the first three months of 2001 and 2000
are 29.9% and 30.5%, respectively, as compared to the
U.S. federal statutory rate of 35%. The difference from
the statutory rate is primarily the result of domestic
subsidiaries operating in Puerto Rico under a grant for
tax relief expiring on December 31, 2007 and the result
of subsidiaries manufacturing in Ireland under an
incentive tax rate expiring on December 21, 2010.
NOTE 4 - INVENTORIES
(Dollars in Millions) April 1, 2001 December 31, 2000
Raw materials and supplies $ 726 702
Goods in process 478 458
Finished goods 1,606 1,682
$ 2,810 2,842
NOTE 5 - INTANGIBLE ASSETS
(Dollars in Millions) April 1, 2001 December 31, 2000
Intangible assets $ 8,713 8,726
Less accumulated amortization 1,549 1,470
$ 7,164 7,256
The excess of the cost over the fair value of net assets
of purchased
businesses is recorded as goodwill and is
amortized on a straight-line basis over periods of up to 40 years.
The cost of other acquired intangibles
is amortized on a straight-line
basis over their estimated useful lives.
- 9 -
NOTE 6 - SEGMENTS OF BUSINESS AND GEOGRAPHIC AREAS
(Dollars in Millions)
SALES BY SEGMENT OF BUSINESS
First Quarter
Percent
2001 2000 Increase
Consumer
Domestic $ 980 943 3.9
International 805 809 (.4)
1,785 1,752 1.9%
Pharmaceutical
Domestic $ 2,126 1,949 9.1
International 1,134 1,093 3.7
3,260 3,042 7.2%
Med Dev & Diag
Domestic $ 1,474 1,311 12.4
International 1,272 1,214 4.8
2,746 2,525 8.8%
Domestic $ 4,580 4,203 9.0
International 3,211 3,116 3.0
Worldwide $ 7,791 7,319 6.5%
OPERATING PROFIT BY SEGMENT OF BUSINESS
First Quarter
Percent
2001 2000 Change
Consumer $ 289 231 25.1
Pharmaceutical 1,350 1,277 5.7
Med. Dev. & Diag. 572 472 21.2
Segments total 2,211 1,980 11.7
Expenses not allocated
to segments (71) (88)
Worldwide total $ 2,140 1,892 13.1%
Note: Prior year amounts have been reclassified to conform
with current year presentation.
SALES BY GEOGRAPHIC AREA
First Quarter
Percent
2001 2000 Increase
U.S. $ 4,580 4,203 9.0
Europe 1,736 1,678 3.4
Western Hemisphere
Excluding U.S. 523 516 1.5
Asia-Pacific, Africa 952 922 3.3
Total $ 7,791 7,319 6.5%
- 10 -
NOTE 7 - ACCOUNTING FOR SALES INCENTIVES
The Company currently recognizes the
expense related to coupons and
certain sales incentives upon issuance and
classifies these expenses as selling,
marketing and administrative expense. The
amount of such sales incentives were $31 million
for the first quarter of 2001 and 2000. EITF
00-14 is expected to take effect in the
first quarter of 2002
and the impact on the Company will be the
reclassification of the above
mentioned amounts from expense to a
reduction of sales.
NOTE 8 - EARNINGS PER SHARE
The following is a reconciliation of basic net earnings per share
to diluted net earnings per share for the three months ended April 1, 2001
and April 2, 2000:
(Shares in Millions) April 1, April 2,
2001 2000
Basic net earnings per share $ 1.08 .95
Average shares outstanding - basic 1,393.7 1,389.7
Potential shares exercisable under
stock option plans 54.7 55.2
Less: shares which could be repurchased
under treasury stock method (33.7) (33.9)
Adjusted average shares outstanding - diluted 1,414.7 1,411.0
Diluted earnings per share $ 1.06 .93
NOTE 9 - ACCUMULATED OTHER COMPREHENSIVE INCOME
The total comprehensive income for the three months ended April 1, 2001
is $1,404 million, compared with $1,337 million for the same period a year ago.
Total comprehensive income includes net earnings, net unrealized currency
gains and losses on translation, net unrealized gains and losses on available
for sale securities, pension liability adjustments and net gains and losses
on derivative instruments qualifying and designated as cash flow hedges.
The following table set forth the components of accumulated
other comprehensive income.
Total
Unrld Gains/ Accum
For. Gains/ Pens (Losses) Other
Cur. (Losses) Liab on Deriv Comp
Trans. on Sec Adj. & Hedg Inc/(Loss)
December 31, 2000 $ (522) 67 (15) - (470)
2001 First Qtr changes
Transition Adj. - - - 17
Net change associated
to current period hedging
transactions - - - 249
Net amount reclassed to
net earnings - - - (161)*
Net First Qtr changes (160) (38) (1) 105 (94)
April 1, 2001 $ (682) 29 (16) 105 (564)
Note: All amounts, other than foreign currency translation, are net of tax.
currency translation adjustments are not currently adjusted for
income taxes, as
they relate to permanent investments in non US subsidiaries.
*Primarily offset by changes in value of the underlying transactions.
- 11 -
NOTE 10 - MERGERS & ACQUISITIONS
On March 2, 2001, Johnson & Johnson acquired BabyCenter, Inc. from eToys, Inc.
The purchase was an all cash transaction valued at approximately $10 million.
BabyCenter.com is the largest and best-known online parenting resource
serving expectant and new mothers and fathers. The BabyCenter
family of websites also
includes ParentCenter.com and BabyCentre.co.uk.
On March 27, 2001, Johnson & Johnson and ALZA Corporation
(ALZA) announced that they have entered into a merger agreement under which
Johnson & Johnson will merge with ALZA in a stock-for-stock exchange.
ALZA shareholders will receive a fixed exchange ratio of .49 shares
of Johnson & Johnson common stock for each share of ALZA
in a tax-free transaction
(or .98 shares of Johnson & Johnson common stock after giving
effect to the two-for-one
stock split discussed in Note 12). Johnson & Johnson
intends to account for the
transaction as a pooling of interests. The boards of directors of Johnson &
Johnson and ALZA have given approvals to the merger, which is subject to
customary closing conditions, including the approval of ALZA's shareholders.
The transaction is expected to close by the early
part of the third quarter of 2001.
ALZA Corporation is a research-based pharmaceutical
company and a leader in drug delivery technologies. ALZA applies its
delivery technologies to develop pharmaceutical products with
enhanced therapeutic value for its own portfolio and for many of
the world's leading pharmaceutical companies. ALZA's sales
and marketing efforts have been focused in oncology and urology.
NOTE 11 - LEGAL PROCEEDINGS
The information called for by this footnote is incorporated herein
by reference to Item 1 ("Legal Proceedings") included in
Part II of this Report on Form 10-Q.
- 12 -
NOTE 12 - SUBSEQUENT EVENTS
On April 18, 2001, Johnson & Johnson completed their previously
announced merger with Heartport, valued at approximately $81 million.
The transaction was completed after Heartport shareholders voted to approve
the merger agreement with Johnson & Johnson. Holders of Heartport common
stock will receive 0.0307 in Johnson & Johnson common stock for each
outstanding share of Heartport. Johnson & Johnson intends to purchase
the number of shares of Johnson & Johnson common stock equal to the
number of such shares issued in connection with this merger. Johnson &
Johnson intends to complete such purchases through open market
transactions within 90 days.
Heartport manufactures and markets less invasive cardiac
surgery products that enable surgeons to perform a wide range of
less invasive open-chest and minimally invasive heart operations,
including stopped heart and beating heart procedures.
On April 26, 2001, the Board of Directors of Johnson & Johnson
approved an increase in the authorized common stock from 2.16
billion to 4.32 billion shares and a subsequent two-for-one split
of its common stock. Par value will remain at $1.00 per common
share. One new share of common stock will be issued on or
about June 12, 2001 with respect to each existing share of common
stock held of record as of the close of business on May 22, 2001.
On May 9, 2001, the Company announced that it was in
advanced discussions regarding a definitive agreement with
Inverness Medical Technology, a developer of innovative products
focused primarily on the self-management of diabetes, whereby
Johnson & Johnson would acquire Inverness, excluding certain
businesses not related to diabetes, in a stock-for-stock exchange
Item 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SALES AND EARNINGS
Consolidated sales for the first quarter of 2001 were $7.79
billion, an increase of 6.5% over 2000 first quarter sales of $7.32 billion.
The effect of the stronger dollar relative to foreign currencies decreased
first quarter sales by 3.6%. The operational sales increase of 10.1%
included a positive price change effect of .9%.
Consolidated net earnings for the first quarter of 2001 were $1.50
billion, compared with $1.31 billion for the same period a year ago, an
increase of 14.2%. Worldwide basic net earnings per share for the period
were $1.08, compared with $.95 for the same period in 2000, an increase
of 13.7%. Worldwide diluted net earnings per share for the period were
$1.06, compared with $.93 for the same period in 2000, an increase of 14.0%.
- 13 -
Domestic sales for the first three months of 2001
were $4.58 billion, an increase of 9.0% over 2000 domestic sales of
$4.20 billion for the same period. Sales by international subsidiaries
were $3.21 billion for the first quarter of 2001 compared with $3.12
billion for the same period a year ago, an increase of 3.0%. Excluding
the impact of the higher value of the dollar, international sales increased
by 11.5% for the quarter.
Worldwide Consumer sales for the first quarter of
2001 were $1.8 billion, an increase of 1.9% versus the same period
a year ago. Domestic sales increased by 3.9% while international
sales gains in local currency of 7.4% were entirely offset by negative
currency. Consumer sales were led by continued strength in the skin
care franchise, which includes the NEUTROGENA, AVEENO and
CLEAN & CLEAR product lines. During the quarter, Johnson &
Johnson completed the acquisition of BabyCenter, Inc. from eToys,
Inc. BabyCenter is the largest and best-known online parenting
resource serving expectant and new mothers and fathers.
Worldwide pharmaceutical sales of $3.3 billion
for the quarter increased 7.2% over the same period in 2000.
Domestic sales increased 9.1%. Operationally, international
sales increased 10.9% but were offset by a negative currency
impact of 7.2%. Worldwide sales gains in local currency of
9.8% were partially offset by a negative currency impact of 2.6%.
Excluding the impact of negative currency and PROPULSID, a
gastrointestinal drug which was transitioned to a limited-access
program in the United States and Canada in March 2000, worldwide
Pharmaceutical sales increased 15.1% versus the same period last year.
Sales growth reflects the strong performance
of PROCRIT/EPREX, for the treatment of anemia; RISPERDAL,
an antipsychotic medication; DURAGESIC, a transdermal patch
for chronic pain; REMICADE, a treatment for rheumatoid arthritis
and Crohn's disease; TOPAMAX, an antiepileptic and
ACIPHEX/PARIET, a proton pump inhibitor for gastrointestinal disorders.
- 14 -
During the quarter, the Company announced
that it had entered into a definitive merger agreement
with ALZA Corporation, a research-based pharmaceutical
company and leader in drug delivery technology. While the
transaction is expected to close by the early part of the third
quarter of 2001, it is subject to customary closing conditions,
including the approval of ALZA's shareholders.
The Company also received U.S. Food and
Drug Administration (FDA) approval for REMINYL (galantamine
hydrobromide), a new treatment for mild to moderate Alzheimer's
disease. It has been shown that REMINYL can have a beneficial
effect on a patient's daily function and ability to think.
Worldwide sales for the Medical Devices and
Diagnostics segment were $2.7 billion in the first quarter which
represented an increase of 8.8% over 2000. Domestic sales were
up 12.4%, while international sales increased 14.0% on an operational
basis. Worldwide sales gains in local currency of 13.3% were
reduced by 4.5% due to the strength of the U.S. dollar. The primary
contributors to the segment's growth were Cordis' coronary stents;
DePuy's orthopaedic joint reconstruction and spinal products; Ethicon's
hemostasis products, Mitek suture anchors and Gynecare's women's
health products; Ethicon Endo-Surgery's minimally invasive surgical
products; LifeScan's blood glucose monitoring products, and
Vistakon's disposable contact lenses.
In the first quarter, LifeScan announced the
U.S. market launch of ONE TOUCH Ultra, a new electrochemical
blood glucose meter and strip. The ONE TOUCH Ultra meter has
a five second test time, a one microliter sample size, capillary fill
and the option for forearm testing which has been shown to be a
significantly less painful alternative to fingerstick testing.
On April 2, 2001, the Company reported approval
from the FDA to market its Bx VELOCITY Coronary Stent with a
Rapid Exchange Delivery System. The Company originally
received FDA approval of the Bx VELOCITY stent on its
conventional over-the-wire delivery system in May 2000.
The Bx VELOCITY Stent with Rapid Exchange Delivery System
is indicated for treatment of abrupt and threatened vessel
closure in patients with failed interventional therapy in lesions
(greater or equal to 30 mm in length) with reference
diameters in the range of 2.25 mm to 4.00 mm.
- 15 -
On April 18, 2001, the Company announced
the completion of the previously announced merger with Heartport,
Inc. Heartport is a pioneer in developing, manufacturing and
selling less invasive cardiac open-chest and minimally
invasive heart operations, including stopped heart and
beating heart procedures.
On May 9, 2001, the Company announced
that it was in advanced discussions regarding a definitive
agreement with Inverness Medical Technology, a
developer of innovative products focused primarily
on the self-management of diabetes, whereby Johnson
& Johnson would acquire Inverness, excluding certain
businesses not related to diabetes, in a stock-for-stock exchange.
LIQUIDITY AND CAPITAL RESOURCES
Cash and current marketable securities
increased $156 million during the first three months of
2001 to $5.90 billion at April 1, 2001. Total borrowings
decreased $1.04 billion during the first three months of
2001 to $2.47 billion. Net cash (cash and current marketable
securities net of debt) as of April 1, 2001 was $3.43 billion,
compared with $2.23 billion at the end of 2000. Total
debt represented 10.9% of total capital (shareowners'
equity and total debt) at quarter end compared with
15.7% at the end of 2000. Johnson & Johnson
exercised its option to redeem the $460 million
convertible subordinated debentures of Centocor
due 2005 at a price equal to 102.714% of the
principal amount plus accrued interest. The debentures
were subsequently converted by the holders into
approximately 5,964,000 shares of Johnson &
Johnson common stock. For the period ended April 1, 2001,
there were no material cash commitments.
Additions to property, plant and equipment
were $257 million for the first three months of 2001,
compared with $310 million for the same period in 2000.
On April 26, 2001, the Board of Directors
approved an increase in the authorized common stock from
2.16 billion to 4.32 billion shares and a subsequent two-for-one
split of its common stock. Par value will remain at $1.00 per
common share. One new share of common stock will be
issued on or about June 12, 2001 with respect to each existing
share of common stock held of record as of the close of
business on May 22, 2001. In addition, the Board of
Directors raised the quarterly dividend from 32 cents to
36 cents per share on a pre-split basis (or from 16 cents
to 18 cents on a post-split basis), an increase of 12.5%.
The dividend is payable on June 12, 2001 to shareowners
of record as of May 22, 2001.
- 16 -
CAUTIONARY FACTORS THAT MAY AFFECT FUTURE RESULTS
This Form 10-Q contains "forward-looking
statements." Forward-looking statements do not relate
strictly to historical or current facts and anticipate results
based on management's plans that are subject to uncertainty.
Forward-looking statements may be identified by the use of words
like "plans," "expects," "will," "anticipates," "estimates" and other words
of similar meaning in conjunction with, among other things,
discussions of future operations, financial performance, the
Company's strategy for growth, product development, regulatory
approvals, market position and expenditures.
Forward-looking statements are based on
current expectations of future events. The Company cannot
guarantee that any forward-looking statement will be accurate,
although the Company believes that it has been
reasonable in its expectations and assumptions.
Investors should realize that if underlying assumptions
prove inaccurate or unknown risks or uncertainties materialize,
actual results could vary materially from the Company's
expectations and projections. Investors are therefore cautioned
not to place undue reliance on any forward-looking statements.
Furthermore, the Company assumes no obligation
to update any forward-looking statements as a result
of new information or future events or developments.
The Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 2000
contains, in Exhibit 99(b), a discussion of various factors
that could cause actual results to differ from expectations.
That Exhibit from the Form 10-K is incorporated in this filing
by reference. The Company notes these factors as permitted
by the Private Securities Litigation Reform Act of 1995.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
There has been no material change in the
Company's assessment of its sensitivity to market
risk since its presentation set forth in Item 7A, "Quantitative
and Qualitative Disclosures About Market Risk," in its Annual
Report on Form 10-K for the fiscal year ended December 31, 2000.
Part II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company is involved in numerous
product liability cases in the United States, many
of which concern adverse reactions to drugs and
medical devices. The damages claimed are
substantial, and while the Company is confident
of the adequacy of the warnings and instructions
for use which accompany such products, it is not
feasible to predict the ultimate outcome of litigation.
However, the Company believes that if any liability
results from such cases, it will be substantially covered
by reserves established under its self-insurance
program and by commercially available excess
liability insurance.
The Company's subsidiary, Johnson &
Johnson Vision Care Inc. (Vision Care), together
with a trade association and various individual
defendants, is a defendant in several consumer
class actions and an action brought by multiple State
Attorneys General on behalf of consumers
alleging violations of federal and state antitrust laws.
These cases, which were filed between July 1994
and December 1996 and are consolidated before
the United States District Court for the Middle
District of Florida, assert that enforcement of Vision
Care's long-standing policy of selling contact lenses
only to licensed eye care professionals is a result of
an unlawful conspiracy to eliminate alternative distribution
channels from the disposable contact lens market.
In April 2001, after five weeks of trial, these cases
were concluded on terms which will be announced
by the Court in late May 2001.
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Johnson & Johnson Vision Care is also a
defendant in a nationwide consumer class action
brought on behalf of purchasers of its ACUVUE brand
contact lenses. The plaintiffs in that action, which was
filed in 1996 in New Jersey State Court, allege that Vision
Care sold its 1-DAY ACUVUE lens at a substantially
cheaper price than ACUVUE and misled consumers
into believing these were different lenses when, in fact,
they were allegedly "the same lenses." Plaintiffs are seeking
substantial damages and an injunction against supposed
improper conduct. The Company believes these claims
are without merit and is defending the action vigorously.
The Company's Ortho Biotech subsidiary is
party to an arbitration proceeding filed against it in
1995 by Amgen, Ortho Biotech's licensor of U.S. non-dialysis
rights to EPO, in which Amgen seeks to terminate Ortho
Biotech's U.S. license rights and collect substantial
damages based on alleged deliberate EPO sales by
Ortho Biotech during the early 1990's into Amgen's
reserved dialysis market. The Company believes no basis
exists for terminating Ortho Biotech's U.S. license
rights or for obtaining damages and is vigorously
contesting Amgen's claims. However, Ortho Biotech's
U.S. license rights to EPO are material to the Company;
thus, an unfavorable outcome on the termination issue
could have a material adverse effect on the Company's
consolidated financial position, liquidity and results
of operations. The arbitration is scheduled to
begin in September of this year.
The Company and its LifeScan subsidiary
are defendants in several class actions filed in federal
and state courts in California in 1998 in which it is
alleged that purchasers of SureStep blood glucose
meters and strips suffered economic harm because
those products contained undisclosed defects.
In late 2000, LifeScan pleaded guilty in federal
court to three misdemeanors and paid a total of
$60 million in fines and civil costs to resolve an
investigation related to those same alleged defects.
In one of the federal class actions, a nationwide class
was certified by the district court last year and trial
has been scheduled for September of this year.
The Company and LifeScan believe these claims
are without merit and are vigorously defending
these actions.
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In patent infringement actions tried
in Delaware Federal Court late last year,
Cordis, a Johnson & Johnson company, obtained
verdicts of infringement and patent validity, and
damage awards, against Boston Scientific Corporation
and Medtronic AVE, Inc., based on a number of Cordis
coronary stent patents. On December 15, 2000,
the jury in the damage action against Boston Scientific
returned a verdict of $324 million and on December 21, 2000
the jury in the Medtronic AVE action returned a verdict
of $271 million. These sums represent lost profit and
reasonable royalty damages to compensate Cordis
for infringement but do not include pre or post judgment
interest. In February 2001 a hearing was held on the
claims of Boston Scientific and Medtronic AVE that the
patents at issue are unenforceable owing to alleged
inequitable conduct before the patent office. Post trial
motions and appeals to the Federal Circuit Court of
Appeals will follow and no judgments are likely to be
paid, if at all, until those proceedings have run their
course. Furthermore, since the amount of damages,
if any, which the Company may receive cannot be quantified
until the legal process is complete, no gain has been
recorded in the financial statements for either of these awards.
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.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
A Report on Form 8-K was filed
on March 14, 2001, which included Management's Discussion
and Analysis of Results of Operations and Financial Condition,
the consolidated balance sheets of Johnson & Johnson and
subsidiaries as of December 31, 2000 and January 2, 2000
and the related consolidated statement of earnings, shareowners'
equity and cash flows for each of the three years in the period
ended December 31, 2000.
- 20 -
SIGNATURES
Pursuant to the requirements of the
Securities Exchange Act of 1934, the registrant
has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
JOHNSON & JOHNSON
(Registrant)
Date: May 14, 2001 By /s/ R. J. DARRETTA
R. J. DARRETTA
Vice President, Finance
Date: May 14, 2001 By /s/ C. E. LOCKETT
C. E. LOCKETT
Controller
(Chief Accounting Officer)
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