-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, N8bdBaYPAy867cAghaeC4dLxaPQs7RiGRfvbCdHurKsv4pyFV5bj7vOZ9ltgcQx/ GO+eRKu45Mf2JX08cOmdHw== 0000200406-01-500007.txt : 20010816 0000200406-01-500007.hdr.sgml : 20010816 ACCESSION NUMBER: 0000200406-01-500007 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20010701 FILED AS OF DATE: 20010815 FILER: COMPANY DATA: COMPANY CONFORMED NAME: JOHNSON & JOHNSON CENTRAL INDEX KEY: 0000200406 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 221024240 STATE OF INCORPORATION: NJ FISCAL YEAR END: 0103 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-03215 FILM NUMBER: 1714772 BUSINESS ADDRESS: STREET 1: ONE JOHNSON & JOHNSON PLZ CITY: NEW BRUNSWICK STATE: NJ ZIP: 08933 BUSINESS PHONE: 9085240400 10-Q 1 secondqtrtenq.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (X) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended July 1, 2001 or ( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the for the transition period from to Commission file number 1-3215 JOHNSON & JOHNSON (Exact name of registrant as specified in its charter) NEW JERSEY 22-1024240 (State or other jurisdiction of (I.R.S. Employer Incorporation or organization) Identification No.) One Johnson & Johnson Plaza New Brunswick, New Jersey 08933 (Address of principal executive offices) Registrant's telephone number, including area code (732) 524-0400 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes (X) No Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. On July 27, 2001, 3,119,842,548 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 - July 1, 2001 and December 31, 2000 3 Consolidated Statement of Earnings for the Fiscal Quarter Ended July 1, 2001 and July 2, 2000 5 Consolidated Statement of Earnings for the Fiscal Six Months Ended July 1, 2001 and July 2, 2000 6 Consolidated Statement of Cash Flows for the Fiscal Six Months Ended July 1, 2001 and July 2, 2000 7 Notes to Consolidated Financial Statements 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 14 Item 3. Quantitative and Qualitative Disclosures About Market Risk 17 Part II - Other Information Item 1 - Legal Proceedings 17 Item 4 - Submission of Matters to a Vote of Security Holders 20 Item 5 - 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 July 1, December 31, 2001 2000 Current Assets: Cash and cash equivalents $ 4,722 4,278 Marketable securities, at cost 2,797 2,479 Accounts receivable, trade, less allowances $460 (2000 - $439) 4,805 4,601 Inventories (Note 4) 2,913 2,905 Deferred taxes on income 1,110 1,174 Prepaid expenses and other receivables 1,844 1,254 Total current assets 18,191 16,691 Marketable securities, non-current 1,143 717 Property, plant and equipment, at cost 11,936 11,866 Less accumulated depreciation and amortization 4,733 4,457 7,203 7,409 Intangible assets, net (Note 5) 7,616 7,535 Deferred taxes on income 250 240 Other assets 1,698 1,653 Total assets $36,101 34,245 See Notes to Consolidated Financial Statements All amounts have been restated under the pooling of interests method of accounting to give retroactive effect to the merger with ALZA Corporation, pursuant to the merger on June 22, 2001, see Note 1. - 3 - JOHNSON & JOHNSON AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (Unaudited; Dollars in Millions) LIABILITIES AND SHAREOWNERS' EQUITY July 1, December 31, 2001 2000 Current Liabilities: Loans and notes payable $ 924 1,489 Accounts payable 2,049 2,122 Accrued liabilities 3,218 2,793 Accrued salaries, wages and commissions 670 529 Taxes on income 485 322 Total current liabilities 7,346 7,255 Long-term debt 2,491 3,163 Deferred tax liability 242 255 Employee related obligations 1,812 1,804 Other liabilities 1,499 1,373 Shareowners' equity: Preferred stock - without par value (authorized and unissued 2,000,000 shares) - - Common stock - par value $1.00 per share (authorized 4,320,000,000 shares; issued 3,119,842,000 shares) 3,120 3,120 Note receivable from employee stock ownership plan (30) (35) Accumulated other comprehensive income/(loss) (Note 9) (552) (461) Retained earnings 20,469 18,113 23,007 20,737 Less common stock held in treasury, at cost (88,284,000 & 105,218,000 shares) 296 342 Total shareowners' equity 22,711 20,395 Total liabilities and shareowners' equity $36,101 34,245 See Notes to Consolidated Financial Statements All amounts have been restated under the pooling of interests method of accounting to give retroactive effect to the merger with ALZA Corporation, pursuant to the merger on June 22, 2001, see Note 1. - 4 - JOHNSON & JOHNSON AND SUBSIDIARIES CONSOLIDATED STATEMENT OF EARNINGS (Unaudited; dollars & shares in millions except per share figures) Fiscal Quarter Ended July 1, Percent July 2, Percent 2001 to Sales 2000 to Sales Sales to customers (Note 6) $8,342 100.0 7,670 100.0 Cost of products sold 2,362 28.3 2,261 29.5 Gross Profit 5,980 71.7 5,409 70.5 Selling, marketing and administrative expenses 2,975 35.7 2,829 36.9 Research expense 829 9.9 713 9.3 Interest income (120) (1.4) (88) (1.1) Interest expense, net of portion capitalized 50 .6 53 .7 Other (income)expense, net 117 1.4 (11) (.2) 3,851 46.2 3,496 45.6 Earnings before provision for taxes on income 2,129 25.5 1,913 24.9 Provision for taxes on income (Note 3) 647 7.7 550 7.1 NET EARNINGS $1,482 17.8 1,363 17.8 NET EARNINGS PER SHARE (Note 8) Basic $ .49 .46 Diluted $ .48 .44 CASH DIVIDENDS PER SHARE $ .18 .16 AVG. SHARES OUTSTANDING Basic 3,029.3 2,983.0 Diluted 3,110.5 3,094.9 See Notes to Consolidated Financial Statements All amounts have been restated under the pooling of interests method of accounting to give retroactive effect to the merger with ALZA Corporation, pursuant to the merger on June 22, 2001, see Note 1. - 5 - JOHNSON & JOHNSON AND SUBSIDIARIES CONSOLIDATED STATEMENT OF EARNINGS (Unaudited; dollars & shares in millions except per share figures) Fiscal Six Months July 1, Percent July 2, Percent 2001 to Sales 2000 to Sales Sales to customers (Note 6) $16,363 100.0 15,110 100.0 Cost of products sold 4,662 28.5 4,503 29.8 Gross Profit 11,701 71.5 10,607 70.2 Selling, marketing and administrative expenses 5,818 35.6 5,508 36.5 Research expense 1,588 9.7 1,390 9.2 Interest income (245) (1.5) (171) (1.1) Interest expense, net of portion capitalized 83 .5 114 .7 Other (income)expense, net 111 .6 (61) (.4) 7,355 44.9 6,780 44.9 Earnings before provision for taxes on income 4,346 26.6 3,827 25.3 Provision for taxes on income (Note 3) 1,312 8.1 1,133 7.5 NET EARNINGS $ 3,034 18.5 2,694 17.8 NET EARNINGS PER SHARE (Note 8) Basic $ 1.00 .90 Diluted $ .98 .88 CASH DIVIDENDS PER SHARE $ .34 .30 AVG. SHARES OUTSTANDING Basic 3,024.6 2,981.1 Diluted 3,106.3 3,091.7 See Notes to Consolidated Financial Statements All amounts have been restated under the pooling of interests method of accounting to give retroactive effect to the merger with ALZA Corporation, pursuant to the merger on June 22, 2001, see Note 1. - 6 - JOHNSON & JOHNSON AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited; Dollars in Millions) Fiscal Six Months July 1, July 2, 2001 2000 CASH FLOWS FROM OPERATING ACTIVITIES Net earnings $ 3,034 2,694 Adj. to reconcile net earnings to cash flows: Depreciation and amortization of property and intangibles 804 832 Accounts receivable reserves 59 (23) Changes in assets and liabilities, net of effects from acquisition of businesses: Increase in accounts receivable (431) (286) Increase in inventories (125) (40) Changes in other assets and liabilities 585 122 NET CASH FLOWS FROM OPERATING ACTIVITIES 3,926 3,299 CASH FLOWS FROM INVESTING ACTIVITIES Additions to property, plant and equip (571) (690) Proceeds from the disposal of assets 53 31 Acquisition of businesses, net of cash acquired (17) (7) Purchases of investments (4,430) (2,187) Sales of investments 3,649 2,189 Other (69) (92) NET CASH USED BY INVESTING ACTIVITIES (1,385) (756) CASH FLOWS FROM FINANCING ACTIVITIES Dividends to shareowners (950) (826) Repurchase of common stock (629) (369) Proceeds from short-term debt 187 162 Retirement of short-term debt (938) (1,086) Proceeds from long-term debt 10 6 Retirement of long-term debt (20) (22) Proceeds from the exercise of stock options 294 226 NET CASH USED BY FINANCING ACTIVITIES (2,046) (1,909) EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS (51) (25) INCREASE(DECREASE) IN CASH AND CASH EQUIVALENTS 444 609 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 4,278 2,512 CASH AND CASH EQUIVALENTS, END OF PERIOD $ 4,722 3,121 ACQUISITION OF BUSINESSES Fair value of assets acquired 159 83 Fair value of liabilities assumed (66) (1) 93 82 Treasury stock issued at fair value (76) (75) $ 17 7 See Notes to Consolidated Financial Statements All amounts have been restated under the pooling of interests method of accounting to give retroactive effect to the merger with ALZA Corporation, pursuant to the merger on June 22, 2001, see Note 1. - 7 - 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 and the Supplemental Consolidated Financial Statements on Form 8-K filed on August 7, 2001. The balance sheet as of December 31, 2000 and the unaudited interim statements of earnings and cash flows for the fiscal quarter and six months ended July 1, 2001 and July 2, 2000 have been prepared to give retroactive effect to the merger with ALZA Corporation on June 22, 2001. 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. Earnings per share figures and shares outstanding reflect the two-for-one stock split effective during the second quarter of 2001. Certain prior year amounts have been reclassified to conform with the 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. 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. As of July 1, 2001 the balance of deferred net gains on derivatives accumulated in OCI was $103 million (after tax). Of this amount, the Company expects that $101 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 July 1, 2001 the net impact of the hedges' ineffectiveness to the Company's financial statements was insignificant. For the quarter ended July 1, 2001 the Company has recorded a net gain of $2 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. 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 fiscal six months of 2001 and 2000 are 30.2% and 29.6%, 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) July 1, 2001 Dec. 31, 2000 Raw materials and supplies $ 760 718 Goods in process 538 480 Finished goods 1,615 1,707 $ 2,913 2,905 NOTE 5 - INTANGIBLE ASSETS (Dollars in Millions) July 1, 2001 Dec. 31, 2000 Intangible assets $ 9,323 9,076 Less accumulated amortization 1,707 1,541 $ 7,616 7,535 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 Second Quarter Percent Increase/ 2001 2000 (Decrease) Consumer Domestic $ 888 902 (1.6) International 796 805 (1.1) 1,684 1,707 (1.4)% Pharmaceutical Domestic $ 2,722 2,283 19.3 International 1,142 1,100 3.8 3,864 3,383 14.2% Med Dev & Diag Domestic $ 1,537 1,360 13.0 International 1,257 1,220 3.0 2,794 2,580 8.3% Domestic $ 5,147 4,545 13.2 International 3,195 3,125 2.2 Worldwide $ 8,342 7,670 8.8% Six Months Percent Increase/ 2001 2000 (Decrease) Consumer Domestic $ 1,867 1,845 1.2 International 1,603 1,614 (.7) 3,470 3,459 .3% Pharmaceutical Domestic $ 5,078 4,353 16.7 International 2,275 2,193 3.7 7,353 6,546 12.3% Med Dev & Diag Domestic $ 3,012 2,671 12.8 International 2,528 2,434 3.9 5,540 5,105 8.5% Domestic $ 9,957 8,869 12.3 International 6,406 6,241 2.6 Worldwide $16,363 15,110 8.3% - 10 - OPERATING PROFIT BY SEGMENT OF BUSINESS Second Quarter Percent 2001 2000 Change Consumer $ 243 227 7.0 Pharmaceutical(1) 1,410 1,319 6.9 Med. Dev. & Diag. 548 450 21.8 Segments total 2,201 1,996 10.3 Expenses not allocated to segments (72) (83) Worldwide total $ 2,129 1,913 11.3% Six Months Percent 2001 2000 Change Consumer $ 536 454 18.1 Pharmaceutical(1) 2,832 2,632 7.6 Med. Dev. & Diag. 1,119 921 21.5 Segments total 4,487 4,007 12.0 Expenses not allocated to segments (141) (180) Worldwide total $ 4,346 3,827 13.6% Note: Prior year amounts have been reclassified to conform with current year presentation. (1) Includes special charges of $109 million for restructuring and deal costs related to the ALZA merger. SALES BY GEOGRAPHIC AREA Second Quarter Percent 2001 2000 Increase U.S. $ 5,147 4,545 13.2 Europe 1,729 1,665 3.9 Western Hemisphere Excluding U.S. 539 507 6.3 Asia-Pacific, Africa 927 953 (2.7) Total $ 8,342 7,670 8.8% Six Months Percent 2001 2000 Increase U.S. $ 9,957 8,869 12.3 Europe 3,466 3,343 3.7 Western Hemisphere Excluding U.S. 1,062 1,023 3.8 Asia-Pacific, Africa 1,878 1,875 .1 Total $ 16,363 15,110 8.3% - 11 - 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 $56 million and $65 million for the first six months of 2001 and 2000, respectively. EITF 00-14 will 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 six months ended July 1, 2001 and July 2, 2000. Earnings per share figures and shares outstanding reflect the two-for-one stock split effective during the second quarter of 2001. (Shares in Millions) Fiscal Quarter Ended July 1, July 2, 2001 2000 Basic net earnings per share $ .49 .46 Average shares outstanding - basic 3,029.3 2,983.4 Potential shares exercisable under stock option plans 121.9 130.5 Less: shares which could be repurchased under treasury stock method (76.8) (80.4) Convertible debt shares 36.1 61.4 Adjusted average shares outstanding - diluted 3,110.5 3,094.9 Diluted earnings per share $ .48 .44 Fiscal Six Months Ended (Shares in Millions) July 1, July 2, 2001 2000 Basic net earnings per share $ 1.00 .90 Average shares outstanding - basic 3,024.6 2,981.6 Potential shares exercisable under stock option plans 123.3 129.4 Less: shares which could be repurchased under treasury stock method (77.7) (80.9) Convertible debt shares 36.1 61.6 Adjusted average shares outstanding - diluted 3,106.3 3,091.7 Diluted earnings per share $ .98 .88 - 12 - NOTE 9 - ACCUMULATED OTHER COMPREHENSIVE INCOME The total comprehensive income for the six months ended July 1, 2001 is $2,931 million, compared with $2,705 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 sets 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) 76 (15) - (461) 2001 Six Months changes Transition Adj. - - - 17 Net change associated to current period hedging transactions - - - 261 Net amount reclassed to net earnings - - - (175)* Net Six Months changes(209) 16 (1) 103 (91) July 1, 2001 $ (731) 92 (16) 103 (552) Note: All amounts, other than foreign currency translation, are net of tax. Foreign 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. 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 April 18, 2001, Johnson & Johnson completed their previously announced merger with Heartport, valued at approximately $81 million. Holders of Heartport common stock received 0.0614 shares of Johnson & Johnson common stock for each outstanding share of Heartport. Johnson & Johnson purchased the number of shares of Johnson & Johnson common stock equal to the number of such shares issued in connection with the merger in the open market. 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 June 22, 2001, Johnson & Johnson completed their previously announced merger with ALZA Corporation (ALZA). The transaction was completed after ALZA shareholders voted to approve the merger agreement with Johnson & Johnson. ALZA shareholders received a fixed exchange ratio of .98 shares of Johnson & Johnson common stock for each share of ALZA in a tax-free transaction. The transaction was accounted for by the pooling of interests method of accounting. 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. - 13 - On May 9, 2001, the Company announced it entered into a definitive merger agreement to acquire Inverness Medical Technologies, excluding certain businesses, in a stock-for-stock exchange. Inverness is a developer of innovative products focused primarily on the self-management of diabetes. The transaction is expected to close in the fourth quarter of 2001 and is subject to certain European regulatory approvals and other customary closing conditions. 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. NOTE 12 - NEW ACCOUNTING PRONOUNCEMENTS In April 2001, the EITF reached a consensus on EITF Issue No. 00-25, "Accounting for Consideration from a Vendor to a Retailer in Connection with the Purchase or Promotion of the Vendor's Products." EITF Issue No. 00-25 requires that certain expenses included in marketing, administration and research costs be recorded as a reduction of operating revenue and will be effective in the first quarter of 2002. The Company is currently in the process of determining the impact of EITF No. 00-25. In July 2001, the Financial Accounting Standards Board issued SFAS No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets." All business combinations consummated after July 1, 2001 (including the Inverness acquisition) will be accounted for in accordance with the new pronouncements. In addition, effective January 1, 2002, the Company will no longer be required to amortize goodwill and certain other intangible assets on acquisitions prior to July 1, 2001 as a charge to earnings. Also, the Company will be required to review goodwill and other intangible assets for potential impairment. The Company is currently in the process of quantifying the impact of the new standards. Item 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS SALES AND EARNINGS Consolidated sales for the first six months of 2001 were $16.36 billion, which exceeded sales of $15.11 billion for the first six months of 2000 by 8.3%. The strength of the U.S. dollar relative to the foreign currencies decreased sales for the first six months of 2001 by 3.5%. Excluding the effect of the stronger U.S. dollar relative to foreign currencies, sales increased 11.8% on an operational basis for the first six months of 2001. Consolidated net earnings for the first six months of 2001 were $3.03 billion, compared with net earnings of $2.69 billion for the first six months of 2000. Other income and expense for 2001 reflects special charges of $102 million after-tax for restructuring and deal costs related to the ALZA merger. For 2000, other income and expense includes gain related to the sale of certain equity securities. Worldwide basic net earnings per share for the first six months of 2001 were $1.00, compared with $.90 for the same period in 2000, an increase of 11.1%. Excluding special charges, basic net earnings per share were $1.04, an increase of 15.6% compared to $.90 for the same period in 2000. Worldwide diluted net earnings per share for the first six months of 2001 were $.98, compared with $.88 for the same period in 2000, an increase of 11.4%. Excluding special charges, diluted earnings per share were $1.01, compared with $.88 for the same period in 2000, an increase of 14.8%. - 14 - Consolidated sales for the second quarter of 2001 were $8.34 billion, an increase of 8.8% over 2000 second quarter sales of $7.67 billion. The effect of the stronger U.S. dollar relative to foreign currencies decreased second quarter sales by 3.3%. Consolidated net earnings for the second quarter of 2001 were $1.48 billion, compared with $1.36 billion for the same period a year ago, an increase of 8.7%. Worldwide basic net earnings per share for the second quarter of 2001 rose 6.5% to $.49, compared with $.46 in the 2000 period. Excluding special charges, worldwide basic net earnings per share for the second quarter were $.52, compared with $.46 for the same period a year ago, an increase of 13.0%. Worldwide diluted net earnings per share for the second quarter of 2001 rose 9.1% to $.48, compared with $.44 in 2000. Excluding special charges, worldwide diluted net earnings per share for the second quarter were $.51, compared to $.44 for the same period a year ago, an increase of 15.9%. Domestic sales for the first six months of 2001 were $9.96 billion, an increase of 12.3% over 2000 domestic sales of $8.87 billion for the same period a year ago. Sales by international subsidiaries were $6.41 billion for the first six months of 2001 compared with $6.24 billion for the same period a year ago, an increase of 2.6%. Excluding the impact of the stronger value of the dollar, international sales increased by 10.9%. Worldwide Consumer sales for the second quarter of 2001 were $1.7 billion, an operational increase of 2.4% versus the same period a year ago. Domestic sales decreased by 1.6%, while international sales gains in local currency of 6.9% were entirely offset by negative currency, resulting in a reported worldwide sales decrease of 1.4%. During the quarter, McNeil Consumer Healthcare reintroduced the 110-year- old ST. JOSEPH Aspirin brand. Once known exclusively as a baby aspirin, ST. JOSEPH Aspirin now offers adult consumers a single tablet in the strength that doctors recommend most for cardio therapy. Worldwide Pharmaceutical sales of $3.9 billion for the quarter resulted in an operational increase of 16.5% over the same period in 2000. Domestic sales increased 19.3%. International sales increased operationally 10.8% but were offset by a negative currency impact of 7.0%. Worldwide reported sales growth including a 2.3% negative currency impact was 14.2%. 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, for the treatment of rheumatoid arthritis and Crohn's disease; TOPAMAX, an antiepileptic, and ACIPHEX/PARIET, a proton pump inhibitor for gastrointestinal disorders. On June 22, 2001, the Company completed the merger with ALZA Corporation, 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. - 15 - During the quarter, the Company received U.S. Food and Drug Administration (FDA) approval for an oral solution formulation of REMINYL (galantamine hydrobromide), a new treatment for mild to moderate Alzheimer's disease. REMINYL Oral Solution provides patients and their caregivers with a new dosing option for individuals who prefer a liquid or cannot swallow tablets. REMINYL tablets were launched in the United States in April. The Company also received FDA approval for SPORANOX (itraconazole) for empiric therapy of febrile, neutropenic patients with suspected fungal infections. Empiric therapy allows physicians to prescribe treatment promptly based on their observation and experience without time-consuming tests. Worldwide sales for the Medical Devices and Diagnostics segment were $2.8 billion in the second quarter of 2001, which represented an increase of 12.4% in local currency as compared to the same period in 2000. Domestic sales were up 13.0%, while international sales increased 11.9% on an operational basis. Worldwide sales gains including the negative impact of currency were reported at 8.3%. The primary contributors to the segment's growth were the Cordis circulatory disease management products; DePuy's orthopaedic joint reconstruction and spinal products; Ethicon's Mitek suture anchors and Gynecare women's health products; and Ethicon Endo- Surgery's minimally invasive surgical products. On April 18, 2001, the Company announced the completion of the 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. In the second quarter, the Company announced it entered into a definitive merger agreement to acquire Inverness Medical Technologies, excluding certain businesses, in a stock-for-stock exchange. Inverness is a developer of innovative products focused primarily on the self-management of diabetes. The transaction is expected to close in the fourth quarter of 2001 and is subject to certain European regulatory approvals and other customary closing conditions. LIQUIDITY AND CAPITAL RESOURCES Cash and current marketable securities increased $762 million during the first six months of 2001 to $7.52 billion at July 1, 2001. Total borrowings decreased $1.24 billion during the first six months of 2001 to $3.42 billion. Net cash (cash and current marketable securities net of debt) as of July 1, 2001 was $4.1 billion, compared with $2.11 billion at the end of 2000. Total debt represented 13.1% of total capital (shareowners' equity and total debt) at quarter end compared with 18.6% 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 11,928,000 shares of Johnson & Johnson common stock. For the period ended July 1, 2001, there were no material cash commitments. Additions to property, plant and equipment were $571 million for the first six months of 2001, compared with $690 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 was issued on 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 July 16, 2001, the Board of Directors approved a regular quarterly dividend of $.18 cents per share, payable on September 11, 2001 to shareowners of record as of August 21, 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. 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. One group of cases against the Company concerns the Janssen product Propulsid, which was withdrawn from general sale and restricted to limited use in 2000. In the wake of publicity about those events, hundreds of lawsuits have been filed against Janssen, which is a wholly owned subsidiary of the Company, and the Company regarding Propulsid in state and federal courts across the country. Many of these actions involve the claims of multiple plaintiffs and a significant number seek certification as class actions. These actions accuse Janssen and the Company of inadequately testing for and warning about the drug's side effects, of promoting it for off-label use and of over-promotion. These actions seek substantial compensatory and punitive damages. Janssen and the Company dispute the claims against them and are vigorously defending these actions. The Company believes it has adequate self and commercially available excess insurance with respect to these cases. - 17 - 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 several weeks of trial, these cases were concluded based on a settlement agreement, yet to be approved finally by the court, which provides for a cash payment to the class, a package of consumer benefits available to class members based on certain eligibility requirements, and reciprocal requirements for Vision Care to provide contact lenses to alternative channels of supply (e.g., mail order) under specified circumstances and for the State Attorneys General to continue to enforce state laws governing sale of contact lenses by mail order firms. Several mail order firms have filed motions to intervene in the proceedings, arguing that the settlement, or Vistakon's interpretation of it, will harm them. 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. A settlement agreement has been reached with plaintiffs in this case which has been preliminarily approved by the court. The settlement provides for cash and consumer benefits based on proof of eligibility, and revision of certain Vision Care marketing and labeling materials. 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. - 18 - 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 November of this year. The Company and LifeScan believe these claims are without merit and are vigorously defending these actions. 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. - 19 - Part II - Other Information Item 4. Submission of Matters to a Vote of Security Holders (a) The annual meeting of the shareowners of the Company was held on April 26, 2001. (b) The shareowners elected all the Company's nominees for director. The shareowners also approved the appointment of PricewaterhouseCoopers LLP as the Company's independent auditors for 2001. 1. Election of Directors: For Withheld G. N. Burrow 1,160,305,362 4,401,900 J. G. Cooney 1,116,277,522 48,429,740 J. G. Cullen 1,160,372,918 4,334,344 M. J. Folkman 1,160,200,614 4,506,648 A. D. Jordan 1,160,081,291 4,625,971 A. G. Langbo 1,160,485,503 4,221,759 R. S. Larsen 1,160,552,294 4,154,968 J. T. Lenehan 1,160,727,491 3,979,771 J. S. Mayo 1,159,658,459 5,048,803 L. F. Mullin 1,160,375,408 4,331,854 H. B. Schacht 1,159,455,218 5,252,044 M. F. Singer 1,159,753,207 4,954,055 J. W. Snow 1,160,336,316 4,370,946 W. C. Weldon 1,160,686,159 4,021,103 R. N. Wilson 1,160,362,075 4,345,187 2. Approval of Appointment of PricewaterhouseCoopers LLP: For 1,129,588,939 Against 28,495,208 Abstain 6,623,115 (c) A shareowner proposal on pharmaceutical pricing was defeated. The vote on this proposal was as follows: For 56,404,756 Against 877,946,132 Abstain 35,161,337 Item 5. Exhibits and Reports on Form 8-K (a) Exhibit Numbers (1) Exhibit 3 - Certificate of Amendment to the Restated Certificate of Incorporation of the Company effective May 22, 2001. (2) Exhibit 99.2 - By-Laws of the Company, as amended effective June 11, 2001 (b) Reports on Form 8-K A Report on Form 8-K was filed on August 7, 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 April 1, 2001, December 31, 2000 and January 2, 2000 and the related consolidated statement of earnings, shareowners' equity and cash flows for April 1, 2001, April 2, 2000 and 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: August 15, 2001 By /s/ R. J. DARRETTA R. J. DARRETTA Vice President, Finance Date: August 15, 2001 By /s/ C. E. LOCKETT C. E. LOCKETT Controller (Chief Accounting Officer) - 21 - EX-3 3 certificateofamendment.txt EXHIBIT 3 CERTIFICATE OF AMENDMENT TO THE RESTATED CERTIFICATE OF INCORPORATION OF JOHNSON & JOHNSON To: The Secretary of State State of New Jersey Pursuant to the provisions of Section 14A:7-15.1(3), 14A:9-2(2) and 14A:9-4(2) of the New Jersey Business Corporation Act, Johnson a Johnson, a corporation organized under the laws of the State of New Jersey (the "Corporation"), executes the following Certificate of Amendment to its Restated Certificate of Incorporation: 1. The name of the corporation is Johnson & Johnson. 2. The following amendment to the Restated Certificate of Incorporation of the Corporation (the "Amendment") was approved and duly adopted by the Board of Directors of the Corporation effective on the 26th day of April, 2001 to be effective as provided therein. "The authorized Common Stock of the Company shall be increased from 2,160,000,000 to 4,320,000,000 and, in connection therewith, the Restated Certificate of Incorporation of the Company, first sentence of Article Fourth, is hereby amended, effective at the close of business on May 22, 2001, to read as follows: The aggregate number of shares of all classes of stock which the Corporation has authority to issue is Four Billion Three Hundred Twenty Two Million (4,322,000,000), divided into Two Million (2,000,000) shares of Preferred Stock without par value and Four Billion Three Hundred Twenty Million (4,320,000,000) shares of Common Stock of the par value of One Dollar ($1.00) each." 3. The Amendment will not adversely affect the rights or preferences of the holders of outstanding shares of Common Stock of the Corporation and will not result in the percentage of authorized shares of Common Stock that remains unissued after the share division exceeding the percentage of authorized shares of Common Stock that were unissued before the share division. 4. On the effective date of the Amendment, (i) each share of Common Stock of the Corporation which was issued and outstanding or held in Treasury shall be divided into two fully-paid and non-assessable shares of Common Stock, par value $1.00 per share, and (ii) each share of Common Stock allocated to the Corporation's reserves for issuance under its stock compensation and stock option plans or otherwise shall be divided into two shares of Common Stock, par value $1.00 per share. 5. The Amendment and the division of shares of Common Stock of the Corporation shall become effective at the close of business on the 22nd day of May, 2001. IN WITNESS WHEREOF, the Corporation has caused this Certificate to be signed by its President and by its Secretary, and its Corporate Seal to be hereto affixed on the third day of May, 2001. JOHNSON & JOHNSON By: /s/Ralph S. Larsen Ralph S. Larsen President By: /s/Michael H. Ullmann Michael H. Ullmann Secretary EX-99.2 BYLAWS 4 bylaws.txt EXHIBIT 99.2 JOHNSON & JOHNSON BY-LAWS Article I MEETINGS OF STOCKHOLDERS Section 1. Annual Meeting A meeting of the stockholders of the Corporation shall be held annually on such business day and at such time and at such place within or without the State of New Jersey as may be designated by the Board of Directors and stated in the notice of the meeting, for the purpose of electing directors and for the transaction of all other business that is properly brought before the meeting in accordance with these By-Laws. Section 2. Special Meetings A special meeting of the stockholders may be called at any time by the Chairman of the Board of Directors, by a Vice-Chairman of the Board of Directors, by the Chairman of the Executive Committee, by a Vice-Chairman of the Executive Committee, by the President, or by a majority of the Board of Directors and shall be held on such business day and at such time and at such place within or without the State of New Jersey as is stated in the notice of the meeting. Section 3. Adjournment of Meetings Any meeting of the stockholders of the Corporation may be adjourned from time to time by the affirmative vote of the holders of a majority of the issued and outstanding stock entitled to vote at such meeting present in person or represented by proxy, for a period not exceeding one month at any one time and upon such notice, if any, as may be determined by the vote. At any adjourned meeting at which a quorum shall be present any business may be transacted which might have been transacted at the meeting as originally called. Section 4. Notices of Meetings (A) Notices. At least ten (l0) but not more than sixty (60) days before the date designated for the holding of any meeting of the stockholders, except as otherwise provided herein for adjourned meetings, written or printed notice of the time, place and purpose or purposes of such meeting shall be served by mail, telegram, radiogram, telex, or cablegram upon each stockholder of record entitled to vote at such meeting. (B) Service of Notice. A notice of meeting shall be deemed duly served when deposited in the United States Mail with postage fully paid, or placed in the hands of an agent of a telegraph, radio, or cable or other transmitting company with all transmittal fees fully paid, and plainly addressed to the stockholder at his latest address appearing in the stock records of the Corporation. Section 5. Quorum At any meeting of the stockholders, the holders of a majority of the issued and outstanding stock entitled to vote at such meeting shall be present in person or represented by proxy in order to constitute a quorum. Section 6. Voting (A) Vote Necessary. At any meeting of the stockholders, all questions, except as otherwise expressly provided by statute, the Certificate of Incorporation, or these By-Laws, shall be determined by vote of the holders of a majority of the issued and outstanding stock present in person or represented by proxy at such meeting and entitled to vote. (B) Inspectors. At any meeting of the stockholders, if the chairman of the meeting so directs or if before the voting begins, any stockholder present so requests, the polls shall be opened and closed, the proxies and ballots shall be received and taken in charge, and all questions with respect to the qualifications of voters, the validity of proxies, and the acceptance or rejection of votes, shall be decided by three (3) inspectors to be appointed by the chairman of the meeting. (C) Eligibility to Vote. Each stockholder shall have one vote for each share of stock entitled to vote as provided in the Certificate of Incorporation or otherwise by law and registered in his name in the stock records of the Corporation as of the record date. (D) Methods of Voting. At any meeting of the stockholders each stockholder shall be entitled to vote either in person or by proxy appointed either by instrument in writing subscribed by such stockholder, or by his duly authorized attorney or agent, or by cable, telegram or by any means of electronic communication which results in a writing from such stockholder or his duly authorized attorney or agent, and delivered to the Secretary or to the inspectors at or before the meeting. (E) Record Date. The Board of Directors may fix in advance, a date, not less than ten (l0) but not more than sixty (60) days preceding the date of any meeting as the record date for determining the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, notwithstanding any transfer of any stock in the stock records of the Corporation after any such record date designated as aforesaid. (F) List of Stockholders. The Board of Directors shall cause the officer or agent, who has charge of the stock transfer books of the Corporation, to make a complete list of all the stockholders entitled to vote at a stockholders' meeting or any adjournment thereof, arranged in alphabetical order, together with the latest address of each stockholder appearing upon the stock records of the Corporation and the number of shares held by each. The Board of Directors shall cause such list of stockholders to be produced (or available by means of a visual display) at the time and place of every meeting of stockholders and shall be open to examination by any stockholder listed therein for reasonable periods during the meeting. -2- Section 7. Transaction of Business at Annual Meeting At any annual meeting of the stockholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before an annual meeting, business must be (A) specified in the notice of meeting given by or at the direction of the Board of Directors (including stockholder proposals included in the Corporation's proxy materials pursuant to applicable rules and regulations), (B) otherwise properly brought before the meeting by or at the direction of the Board of Directors, or (C) otherwise properly brought before the meeting by a stockholder. For business (including, but not limited to, any nominations for director) to be properly brought before an annual meeting by a stockholder: (i) the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation and (ii) the subject matter thereof must be a matter which is a proper subject matter for stockholder action at such meeting. To be considered timely notice, a stockholder's notice must be received by the Secretary at the principal office of the Corporation not less than 120 calendar days before the date of the Corporation's proxy statement released to stockholders in connection with the prior year's annual meeting. However, if no annual meeting was held in the prior year, or if the date of the applicable annual meeting has been changed by more than 30 days from the date contemplated at the time of the prior year's proxy statement, then a stockholder's notice, in order to be considered timely, must be received by the Secretary not later than 60 days before the date the Corporation commences mailing of its proxy materials in connection with the applicable annual meeting. A stockholder's notice to the Secretary to submit business to an annual meeting must set forth: (i) the name and address of the stockholder, (ii) the number of shares of stock held of record and beneficially by such stockholder, (iii) the name in which all such shares of stock are registered on the stock transfer books of the Corporation, (iv) a brief description of the business desired to be brought before the meeting and the reasons therefor, (v) any personal or other material interest of the stockholder in the business to be submitted and (vi) all other information relating to the proposed business which may be required to be disclosed under applicable law. In addition, a stockholder seeking to submit such business at an annual meeting shall promptly provide any other information reasonably requested by the Corporation. Notwithstanding the foregoing provisions of this Section 7, a stockholder who seeks to have any proposal included in the Corporation's proxy materials must provide notice as required by and otherwise comply with the applicable requirements of the rules and regulations under the Securities Exchange Act of 1934, as amended. The chairman of an annual meeting shall determine all matters relating to the conduct of the meeting, including, but not limited to, determining whether any item of business has been properly brought before the meeting in accordance with these By-Laws, and if the chairman should so determine and declare that any item of business has not been properly brought before an annual meeting, then such business shall not be transacted at such meeting. -3- Article II BOARD OF DIRECTORS Section l. Number of Members and Qualification The number of directors of the Corporation shall be not less than nine (9) nor more than eighteen (18) as determined by the Board of Directors from time to time. Section 2. Term of Office Each director shall hold office for one (l) year and until his successor, if any, is duly elected and qualified, provided, however, that any director may be removed from office, with cause, at any time by a majority vote of the stockholders entitled to vote. Section 3. Annual Meeting At the place of holding the annual meeting of the stockholders, and immediately following the same, the Board of Directors, as constituted upon final adjournment of such annual meeting, shall convene without further notice for the purpose of electing officers and transacting all other business properly brought before it. Section 4. Regular Meetings Regular meetings of the Board of Directors shall be held at such places, either within or without the State of New Jersey, and on such business days and at such times as the Board may from time to time determine. Section 5. Special Meetings Special meetings of the Board of Directors may be held at any time and place whenever called by the Chairman of the Board of Directors, by a Vice-Chairman of the Board of Directors, by the Chairman of the Executive Committee, by a Vice-Chairman of the Executive Committee, by the President, by a Vice- President, by the Secretary, or by any three (3) or more directors. Section 6. Notices of Meetings (A) Notice Required. If so determined by a majority of the Board of Directors, no advance notice need be given; in the absence of such determination then, at least two (2) days prior to the date designated for the holding of any regular or special meeting of the Board, notice of the time, and place, and purpose of such meeting shall be served in person, by mail or other notice in writing, or by telegram, telephone, radiogram, telex, or cablegram, upon each member of the Board. (B) Waiver of Notice. Notice of the time, place, and purpose of any meeting of the Board of Directors may be waived, before or after any meeting, by instrument in writing or by telegram, radiogram, telex, or cablegram. -4- Section 7. Quorum and Participation (A) Quorum. A majority of the Board of Directors shall constitute a quorum for all purposes and at all meetings. (B) Participation. Any or all directors may participate in a meeting of the Board of Directors by means of conference telephone or any means of communications by which all persons participating in the meeting are able to hear each other. Section 8. Manner of Acting The act of a majority of the directors present at any meeting at which a quorum is present shall be the act of the Board of Directors. Section 9. Action without a Meeting Any action required or permitted to be taken pursuant to authorization voted at a meeting of the Board of Directors may be taken without a meeting if, prior to or subsequent to such action, all members of the Board of Directors consent thereto in writing and such written consents are filed with the minutes of the proceedings of the Board of Directors. Article III POWERS OF BOARD OF DIRECTORS Section l. General Powers The business, property, and affairs of the Corporation shall be managed by or under the direction of the Board of Directors. In the management and control of the property, business, and affairs of the Corporation, the Board is hereby vested with all powers possessed by the Corporation itself insofar as this delegation of authority is not inconsistent with or repugnant to the laws of the State of New Jersey, the Corporation's Certificate of Incorporation, or these By-Laws or any amendments of them. The Board shall have discretionary power to determine what constitutes net earnings, profits, and surplus, what amount shall be reserved for working capital and for any other purposes, and what amount shall be declared as dividends. Such determinations by the Board shall be final and conclusive. Section 2. Specific Powers (A) Power to Make and Amend By-Laws. Subject to the limitations contained in Article XI hereof, the Board of Directors shall have power to make, alter, amend, and repeal any By-Law, including a By-Law designating the number of directors, provided that the Board shall not make, alter, amend, or repeal any By-Law designating the qualification or term of office of any member or members of the then existing Board. -5- (B) Power to Elect Officers. The Board of Directors shall elect all officers of the Corporation. (C) Power to Remove Officers. Any officer or divisional officer, any agent of the Board of Directors, or any member of any committee or of any Management Board may be removed by the Board of Directors with or without cause, whenever in its sole judgment the interests of the Corporation will be served by such removal. (D) Power to Fill Vacancies. Vacancies in the Board of Directors, however created, shall be filled by appointment made by a majority of the remaining directors. The Board shall have power to fill any vacancy in any office. (E) Power to Fix Record Date. The Board of Directors may fix in advance a date as the record date for determining the Corporation's stockholders with regard to any corporate action or event and, in particular, for determining the stockholders entitled to receive payment of any dividend or allotment of any right. The record date may in no case be more than sixty (60) days prior to the corporate action or event to which it relates. Section 3. Committees and Delegation of Powers (A) Committees of the Board. The Board of Directors may appoint, from among its members, from time to time one or more committees, each committee to have such name or names and to have such powers and duties as may be determined from time to time by the Board. All committees shall report to the Board. The Board shall have the power to fill vacancies in, to change the membership of, or to dissolve any committee. Each committee may hold meetings and make rules for the conduct of its business and appoint such sub-committees and assistants as it shall from time to time deem necessary. A majority of the members of a committee shall constitute a quorum for all purposes and at all meetings. (B) Finance Committee. The Finance Committee, if one shall be appointed, shall consist of two (2) or more of the directors of the Corporation and shall have and may exercise all of the powers of the Board insofar as may be permitted by law, the Corporation's Certificate of Incorporation or these By-Laws, or any amendments of them, in the management of the business, affairs and property of the Corporation during the intervals between the meetings of the Board. The Finance Committee, however, shall not have the power to make, alter or repeal any By-Law of the Corporation; elect or appoint any director, or remove any officer or director; change the membership of, or fill vacancies in, the Finance Committee; submit to stockholders any action that requires stockholders' approval; nor amend or repeal any resolution theretofore adopted by the Board which by its terms is amendable or repealable only by the Board. (C) Emergency Management Committee. If, as a result of a physical disaster, war, nuclear attack, or other emergency conditions, a quorum of the Board of Directors cannot be convened to act, an Emergency Management Committee, consisting of all readily available -6- members of the Board of Directors, shall automatically be formed. In such case, two members shall constitute a quorum. If, as a result of such circumstances, a quorum of the Board of Directors cannot readily be convened to act, but a quorum of the Finance Committee can be so convened, the Finance Committee shall automatically become the Emergency Management Committee. All of the powers and duties vested in the Board of Directors, except the power to fill vacancies in the Board of Directors, shall vest automatically in the Emergency Management Committee. Other provisions of these By-Laws notwithstanding, the Emergency Management Committee (l) shall call a meeting of the Board of Directors as soon as circumstances permit for the purpose of filling vacancies on the Board of Directors and its committees and to take such other action as may be appropriate, and (2) if the Emergency Management Committee determines that less than a majority of the members of the Board of Directors are available for service, the Committee shall issue a call for a special meeting of stockholders to be held at the earliest date practicable for the election of directors. (D) Delegation of Duties. The Board of Directors may delegate from time to time to an officer or a committee of officers and/or directors any duties that are authorized or required to be executed during the intervals between meetings of the Board, and such officer or committee shall report to the Board when and as required by the Board. Each committee so established by the Board may hold meetings and make rules for the conduct of its business and appoint such sub-committees and assistants as it shall from time to time deem necessary. A majority of the members of such a committee shall constitute a quorum for all purposes and at all meetings. (E) Executive Committee. The Executive Committee, if one shall be appointed, shall be the management committee of the Corporation. Its members shall be elected by the Board of Directors and thereby become officers of the Corporation. The Executive Committee shall not be a committee of the Board. The Executive Committee shall be responsible for the operation of the business of the Corporation on a day-to-day basis and for establishing and executing operating practices and policies of the Corporation. It shall also perform such other duties as the Board shall designate from time to time. Section 4. Designation of Depositories The Board of Directors shall designate or shall delegate to the Treasurer, or such other officer as it deems advisable, the responsibility to designate the trust company or trust companies, or the bank or banks, in which shall be deposited the moneys and securities of the Corporation. Section 5. Power to Establish Divisions The Board of Directors may establish administrative or operating divisions of the Corporation. Each such division may have a Management Board, the Chairman of which shall be appointed by the Chairman of the Board of Directors. The Chairman of the Management Board of a division shall appoint the other members of its Management Board and that Board may in turn appoint a President, one or more Vice-Presidents, a Treasurer and such other division officers as it may -7- determine to be necessary or desirable. The Management Board and the officers of the division shall perform the same duties and, except for the power to designate depositories, shall have the same powers as to their division as pertain, respectively, to a board of directors and officers of a corporation. The powers granted in the preceding sentence include, without limitation, the power to execute and deliver on behalf of the Corporation contracts, conveyances and other instruments. Such power and any other power granted in this Section shall at all times be subject to the right of the Board of Directors to act or direct action in the premises. Article IV OFFICERS Section l. Enumeration of Officers. The officers of the Corporation shall be a Chairman of the Board of Directors, a Chairman of the Executive Committee, a President, a Treasurer, and a Secretary. The officers of the Corporation may include one or more Vice-Chairmen of the Board of Directors, one or more Vice-Chairmen of the Executive Committee, one or more Executive Committee members, one or more Vice-Presidents, one or more Assistant Treasurers, one or more Assistant Secretaries, and such other officers as from time to time shall be designated and elected by the Board of Directors. Section 2. Election and Removal of Officers All officers of the Corporation shall be elected at the first meeting of the Board of Directors after the annual election of directors, and shall hold office for one (l) year and until their respective successors, if any, shall have been duly elected and qualified, provided, however, that all officers, agents, and employees of the Corporation shall be subject to removal at any time, with or without cause, by the affirmative vote of a majority of the Board. At its discretion, the Board may leave unfilled, for such period as it may deem proper, any office except that of President, Treasurer, and Secretary. Failure to elect any such officer shall be considered an exercise of this discretionary power. Section 3. Eligibility of Officers The Chairman of the Board, the Vice-Chairmen of the Board and the President shall be chosen from the members of the Board of Directors. No other person need be a director or a stockholder in order to qualify for office. The same person may hold, at the same time, one or more offices. Section 4. Duties of Officers (A) Chairman of the Board of Directors. The Chairman of the Board of Directors shall be the Chief Executive Officer of the Corporation and shall preside at all meetings of stockholders and directors. When presiding at such meetings of stockholders and directors, the Chairman of the Board shall establish and apply such rules of order as may be -8- advisable in his discretion. Except where by law the signature of the President is required, the Chairman of the Board shall possess the same power as the President to sign all certificates, contracts and other instruments of the Corporation authorized by the Board of Directors. He shall have all powers and shall perform all duties commonly incident to and vested in the office of Chairman of the Board of a corporation. He shall also perform such other duties as the Board shall designate from time to time. (B) Vice-Chairman of the Board of Directors. A Vice-Chairman of the Board of Directors shall perform the duties and have the powers of the Chairman during the absence or disability of the Chairman, and shall also perform such other duties as the Board shall designate from time to time. (C) Chairman of the Executive Committee. The Chairman of the Executive Committee shall preside at all meetings of the Executive Committee. During the absence or disability of the Chairman of the Board and the Vice-Chairman of the Board, he shall perform the duties and have the powers of the Chairman of the Board, and shall also perform such other duties as the Board shall designate from time to time. (D) Vice-Chairman of the Executive Committee. A Vice-Chairman of the Executive Committee shall perform the duties and have the powers of the Chairman of the Executive Committee during the absence or disability of the Chairman of the Executive Committee, and shall also perform such other duties as the Board shall designate from time to time. (E) Executive Committee Member. In addition to the powers and duties incident to his membership on the Executive Committee, an Executive Committee Member, in his individual capacity, shall have all powers and shall perform all duties commonly incident to and vested in an executive officer of a corporation. He shall also perform such other duties as the Board shall designate from time to time. (F) President. The President shall have general charge and supervision of the operations of the Corporation itself, and shall have all powers and shall perform all duties commonly incident to and vested in the office of President of a corporation. He shall also perform such other duties as the Board shall designate from time to time. (G) Vice-President. A Vice-President shall perform such duties and have such powers as the Board of Directors, the Chairman of the Board, a Vice-Chairman of the Board, or the President shall designate from time to time. (H) Treasurer. The Treasurer shall have the care and custody of the funds of the Corporation, and shall have and exercise, under the supervision of the Board of Directors, all powers and duties commonly incident to the office of Treasurer. He shall deposit all funds of the Corporation in such trust company or trust companies, or bank or banks, as the Board, the Treasurer, or any other officer to whom the Board shall have delegated the authority, shall designate from time to -9- time. He shall endorse for deposit or collection all checks, notes, and drafts payable to the Corporation or to its order, and make drafts on behalf of the Corporation. He shall keep accurate books of accounts of the Corporation's transactions, which books shall be the property of the Corporation, and, together with all its property in his possession, shall be subject at all times to the inspection and control of the Board. He shall have all powers and shall perform all duties commonly incident to and vested in the office of Treasurer of a corporation. He shall also have such other duties as the Board may designate from time to time. (I) Assistant Treasurer. An Assistant Treasurer shall perform the duties and have the powers of the Treasurer during the absence or disability of the Treasurer, and shall perform such other duties and have such other powers as the Board of Directors or Treasurer shall designate from time to time. (J) Secretary. The Secretary shall attend all meetings of the stockholders, and of the Board of Directors, and shall keep and preserve in books of the Corporation true minutes of the proceedings of all such meetings. He shall have the custody of all valuable papers and documents of the Corporation, and shall keep the Corporation's stock books, stock ledgers, and stock transfer books, and shall prepare, issue, record, transfer, and cancel certificates of stocks as required by the proper transactions of the Corporation and its stockholders unless these functions be performed by a duly appointed and authorized transfer agent or registrar other than this Corporation. He shall keep in his custody the seal of the Corporation, and shall have authority to affix same to all instruments where its use is required. He shall give all notices required by statute, by the Certificate of Incorporation, or by the By-Laws. He shall have all powers and shall perform all duties commonly incident to and vested in the office of Secretary of a corporation. He shall also perform such other duties as the Board shall designate from time to time. (K) Assistant Secretary. An Assistant Secretary shall perform the duties and have the powers of the Secretary during the absence or disability of the Secretary, and shall perform such other duties and have such other powers as the Board of Directors or Secretary shall designate from time to time. Article V INDEMNIFICATION OF DIRECTORS AND OFFICERS To the full extent permitted by the laws of the State of New Jersey, as they exist on the date hereof or as they may hereafter be amended, the Corporation shall indemnify any person (an "Indemnitee") who was or is involved in any manner (including, without limitation, as a party or witness) in any threatened, pending or completed investigation, claim, action, suit or proceeding, whether civil, criminal, administrative, arbitrative, legislative or investigative (including, without limitation, any action, suit or proceeding by or in the right of the Corporation to procure a judgement in its favor) (a "Proceeding"), or who is threatened with being so involved, by reason of the fact that he or she is or was a director or officer of the Corporation -10- or, while serving as a director or officer of the Corporation, is or was at the request of the Corporation also serving as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise (including, without limitation, any employee benefit plan), against all expenses (including attorneys' fees), judgements, fines, penalties, excise taxes and amounts paid in settlement actually and reasonably incurred by the Indemnitee in connection with such Proceeding, provided that, there shall be no indemnification hereunder with respect to any settlement or other nonadjudicated disposition of any threatened or pending Proceeding unless the Corporation has given its prior consent to such settlement or disposition. The right of indemnification created by this Article shall be a contract right enforceable by an Indemnitee against the Corporation, and it shall not be exclusive of any other rights to which an Indemnitee may otherwise be entitled. The provisions of this Article shall inure to the benefit of the heirs and legal representatives of an Indemnitee and shall be applicable to Proceedings commenced or continuing after the adoption of this Article, whether arising from acts or omissions occurring before or after such adoption. No amendment, alteration, change, addition or repeal of or to these By-Laws shall deprive any Indemnitee of any rights under this Article with respect to any act or omission of such Indemnitee occurring prior to such amendment, alteration, change, addition or repeal. ARTICLE VI STOCK Section l. Stock Ownership The shares of stock of the Corporation shall be either represented by certificates or uncertificated. Each holder of stock of the Corporation shall, upon request to the Corporation, be provided with a stock certificate signed by the President or a Vice-President, and also by the Treasurer or an Assistant Treasurer, or by the Secretary or an Assistant Secretary. Any or all signatures upon a certificate may be facsimiles. The certificates of shares shall be in such form as shall be prescribed by the Board of Directors. Section 2. Loss of Stock Certificate In the case of loss, mutilation, or destruction of an issued and outstanding certificate of stock, a duplicate certificate may be issued upon such terms as the Board of Directors may prescribe. Section 3. Transfer of Shares of Stock Shares of stock of the Corporation shall be transferred on the books of the Corporation only (1) upon presentation and surrender of the appropriate certificate by the registered holder of such shares in person or by his or her duly authorized attorney or by a person presenting proper evidence of succession, assignment or authority to transfer such shares and, in any of such cases, cancellation of a certificate or of certificates for an equivalent number of shares or (2) in the case of uncertificated shares upon receipt of proper transfer instructions from the registered holder of such shares or from a duly authorized attorney or upon presentation of proper evidence of succession, assignment or authority to transfer such shares. -11- Article VII EXECUTION OF INSTRUMENTS Section l. Checks and Drafts All checks, drafts, and orders for payment of moneys shall be signed in the name of the Corporation or one of its divisions, and in its behalf, by such officers or agents as the Board of Directors shall designate from time to time. Section 2. Contracts and Conveyances Any contract, conveyance, or other instrument may be executed by the Chairman of the Board of Directors, a Vice-Chairman of the Board of Directors, any member of the Executive Committee, the President, or a Vice President in the name and on behalf of the Corporation and the Secretary or an Assistant Secretary may affix the Corporate Seal thereto. Section 3. In General The Board of Directors shall have power to designate officers and agents who shall have authority to execute any instrument in behalf of the Corporation. Article VIII VOTING UPON STOCK HELD BY THE CORPORATION Unless otherwise ordered by the Board of Directors, the Chairman of the Board of Directors, a Vice-Chairman of the Board of Directors, the Chairman of the Executive Committee, a Vice-Chairman of the Executive Committee, any member of the Executive Committee, the President, any Vice-President, or the Treasurer shall have full power and authority in behalf of the Corporation to attend, to act at, and to vote at any meeting of stockholders of any corporation in which this Corporation may hold stock, and at any such meeting shall possess, and may exercise all rights and powers incident to the ownership of such stock which any owner thereof might possess and exercise if present. Such officers may also, in behalf of the Corporation, appoint attorneys and agents as the Corporation's proxy to exercise any of the foregoing powers. The Board, by resolution, from time to time, may confer like powers upon any other person or persons. Article IX SEAL OF THE CORPORATION The seal of the Corporation shall consist of a flat-faced circular die bearing the words and figures "Johnson & Johnson, Seal l887". -12- Article X FISCAL YEAR The fiscal year of the Corporation shall end on the Sunday closest to the end of the calendar month of December and shall begin on the Monday following that Sunday. Article XI AMENDMENT OF BY-LAWS These By-Laws may be amended, altered, changed, added to, or repealed at any annual meeting of the stockholders, or at any special meeting of the stock- holders, or by the Board of Directors at any regular or special meeting of the Board, if notice of the proposed amendment, alteration, change, addition, or repeal be contained in the notice of such meeting, provided, however, that action taken by the stockholders intended to supersede action taken by the Board in making, amending, altering, changing, adding to, or repealing any By-Laws, shall supersede prior action of the Board and shall deprive the Board of further jurisdiction in the premises to the extent indicated in the statement, if any, of the stockholders accompanying such action of the stockholders. -13- -----END PRIVACY-ENHANCED MESSAGE-----