0000200406-01-500009.txt : 20011008
0000200406-01-500009.hdr.sgml : 20011008
ACCESSION NUMBER: 0000200406-01-500009
CONFORMED SUBMISSION TYPE: 8-K
PUBLIC DOCUMENT COUNT: 6
CONFORMED PERIOD OF REPORT: 20001230
ITEM INFORMATION: Resignations of registrant's directors
FILED AS OF DATE: 20010920
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: 8-K
SEC ACT: 1934 Act
SEC FILE NUMBER: 001-03215
FILM NUMBER: 1741166
BUSINESS ADDRESS:
STREET 1: ONE JOHNSON & JOHNSON PLZ
CITY: NEW BRUNSWICK
STATE: NJ
ZIP: 08933
BUSINESS PHONE: 9085240400
8-K
1
cover.txt
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Current Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): September 20,
2001
JOHNSON & JOHNSON
(Exact name of registrant as specified in its charter)
New Jersey 1-3215 22-1024240
(State or other Commission (I.R.S. Employer
jurisdiction File Number) Identification No.)
of incorporation)
One Johnson & Johnson Plaza, New Brunswick, New Jersey 08933
(Address of principal executive offices) (zip code)
Registrant's telephone number including area code: (732) 524-0400
Item 5. Other Events.
On August 7, 2001, Johnson & Johnson ("J&J") filed certain
supplemental financial information, including the
supplemental audited consolidated financial statements of
J&J and subsidiaries as of December 31, 2000 and January 2,
2000 and for each of the years in the three-year period
ended December 31, 2000, together with the related
Management's Discussion and Analysis of Financial Condition
and Results of Operations of J&J. Those supplemental
financial statements gave retroactive effect to the merger
with ALZA Corporation ("ALZA"), which has been accounted for
as a pooling of interests. Such supplemental financial
statements were filed since financial statements covering
the date of consummation of the merger with ALZA had not yet
been issued.
As financial statements covering the date of consummation of
the merger with ALZA have been issued, the previously filed
supplemental consolidated financial statements have now
become the historical consolidated financial statements of
J&J. Incorporated by reference as Exhibit 99.15 are the
audited consolidated financial statements of J&J and
subsidiaries as of December 31, 2000 and January 2, 2000 and
for each of the years in the three-year period ended
December 31, 2000, together with the related Management's
Discussion and Analysis of Financial Condition and Results
of Operations of J&J. Also incorporated herein by reference
is the independent accountant's report also included in
Exhibit 99.15.
Schedule II - Valuation and Qualifying Accounts for each of
the fiscal years in the three-year period ended December 31,
2000 and the related independent accountant's report are
being filed as Exhibit 99.2O and Exhibit 99.14,
respectively, to this Form 8-K and are incorporated herein
by reference. Also, the Statement of Computation of Ratio
of Earnings to Fixed Charges is being filed as Exhibit 12 to
this Form 8-K and is incorporated herein by reference.
Item 7. Financial Statements, Pro Forma Financial
Information and Exhibits.
(c) Exhibits
Exhibit No. Description of Exhibit
99.15 Audited consolidated financial statements for the
period ended December 31, 2000
99.2O Schedule II - Valuation and Qualifying Accounts
99.14 Report of Independent Accountants on
Financial Statement Schedule
12 Statement of Computation of Ratio of
Earnings to Fixed Charges
23 Consent of Independent Accountants
SIGNATURE
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 hereunto
duly authorized.
JOHNSON & JOHNSON
Date: September 20, 2001 By: /s/ Clarence E. Lockett
Clarence E. Lockett
Chief Accounting Officer
EX-99.15 OTH FIN ST
3
financials.txt
EXHIBIT 99.15
Management's Discussion and Analysis of Results of Operations and
Financial Condition
Overview
In 2000, the Company achieved solid financial results
highlighted by a number of significant events. The Pharmaceutical
segment continued its rapid growth while successfully integrating
Centocor into the Johnson & Johnson Family of Companies, the
Medical Devices & Diagnostics segment experienced the resurgence
of its cardiology franchise, and the Company completed the
restructuring of its worldwide manufacturing operations that was
announced at year-end 1998. Also during 2000, it became necessary
to restrict access to PROPULSID (cisapride) in a number of
markets around the world. Despite the loss of over $660 million
of PROPULSID sales, the Company was able to achieve strong
financial results reflecting the strength of the Company's
diverse portfolio of products and services.
The balance sheet remains strong with cash generated from
worldwide operations at a record $6.9 billion in 2000. Cash
dividends per share paid to shareowners in 2000 increased by
13.8% over 1999 and represented the 38th consecutive year of cash
dividend increases. The Company continues to be one of a few
companies with a Triple A credit rating.
The Company's objective is to achieve superior levels of
capital efficient profitable growth. To accomplish this, the
Company's management operates the business consistent with
certain strategic principles that have proven successful over
time. To this end, the Company participates in growth areas in
human health care and is committed to attain leadership positions
in these growth segments through the development of innovative
products and services. In 2000, $3.1 billion or 10.4% of sales
was invested in research and development, recognizing the
importance of rapid and accurate identification of new and
differentiated products and services.
The Company's system of management operates on a
decentralized basis. With 195 operating companies located in 51
countries, the Company views this management philosophy as an
asset and fundamental to the success of a broadly based business.
It also fosters an entrepreneurial spirit, combining the
extensive resources of a large organization with the ability to
react quickly to local market changes and challenges. Businesses
are managed for the long term in order to sustain leadership
positions and growth while continuing to be a source of enduring
value to shareowners.
Unifying the management team and the Company's dedicated
employees in achieving these objectives is the Johnson & Johnson
Credo. The Credo provides a common set of values and serves as a
constant reminder of the Company's responsibilities to its
customers, employees, communities and shareowners. The Company
believes that these basic principles, along with its overall
mission of improving the quality of life for people everywhere,
will enable Johnson & Johnson to continue to be among the leaders
in the health care industry.
Description of Business
The Company has approximately 100,000 employees worldwide
and is engaged in the manufacture and sale of a broad range of
products in the health care field. The Company conducts business
in virtually all countries of the world. The Company's primary
interest, both historically and currently, has been in products
related to human health and well-being.
The Company is organized on the principle of decentralized
management. The Executive Committee of Johnson & Johnson is the
principal management group responsible for the operations and
allocation of the resources of the Company. This Committee
oversees and coordinates the activities of domestic and
international companies related to each of the Consumer,
Pharmaceutical and Medical Devices & Diagnostics businesses. Each
international subsidiary is, with some exceptions, managed by
citizens of the country where it is located.
In all its product lines, the Company competes with
companies both large and small, located in the United States and
abroad. Competition is strong in all lines without regard to the
number and size of the competing companies involved. Competition
in research, involving the development and the improvement of new
and existing products and processes, is particularly significant
and results from time to time in product and process
obsolescence. The development of new and improved products is
important to the Company's success in all areas of its business.
This competitive environment requires substantial investments in
continuing research and in multiple sales forces. In addition,
the winning and retention of customer acceptance of the Company's
consumer products involves heavy expenditures for advertising,
promotion and selling.
Sales and Earnings
In 2000, worldwide sales increased 6.6% to $29.8 billion,
compared to increases of 14.8% in 1999 and 5.5% in 1998.
Excluding the impact of foreign currencies, worldwide sales
increased 9.9% in 2000, 16.7% in 1999 and 8.0% in 1998. The
continued strength of our pharmaceutical business and growth in
several Medical Devices & Diagnostics business franchises such as
DePuy, Cordis and Ethicon Endo-Surgery were the primary reasons
for the sales increase in 2000.
Worldwide net earnings for 2000 were $5.0 billion,
reflecting a 15.9% increase over 1999. Worldwide net earnings per
share for 2000 equaled $1.61 per share, an increase of 15.8% from
the $1.39 net earnings per share in 1999. Excluding the impact of
special charges, worldwide net earnings and net earnings per
share increased 14.9% and 14.8%, respectively, over 1999. The
special charge taken in 2000 includes in-process research and
development (IPR&D) costs associated with the acquisition of
Atrionix, Inc. and Crescendo of $66 million, net of a favorable
adjustment of $21 million to the costs associated with the 1998
global manufacturing restructuring charge. Other income and
expense includes gains related to the sale of certain equity
securities.
Worldwide net earnings for 1999, including the impact of
special charges, were $4.3 billion, reflecting a 37.8% increase
over 1998. Worldwide net earnings per share for 1999 equaled
$1.39 per share, an increase of 36.3% from the $1.02 net earnings
per share in 1998. Excluding the impact of special charges,
worldwide net earnings and net earnings per share increased 14.8%
and 14.5%, respectively over 1998. The special charges included
costs associated with the Centocor and SEQUUS mergers in 1999 and
the reconfiguration of the worldwide manufacturing network and
IPR&D charges in 1998.
Worldwide net earnings for 1998 were $3.1 billion,
reflecting a 0.1% decrease from 1997. Worldwide net earnings per
share for 1998 equaled $1.02 per share representing no change
from earnings per share in 1997.
Excluding the impact of special charges, worldwide net
earnings for 1998 were $3.8 billion, reflecting a 12.2% increase
over 1997. Excluding the impact of these charges, worldwide net
earnings per share for 1998 equaled $1.24 per share, an increase
of 11.7% over the $1.11 net earnings per share in 1997. The
special charges included costs associated with the
reconfiguration of the worldwide manufacturing network and IPR&D
charges in 1998 and the distribution of Crescendo shares and
IPR&D charges in 1997.
Average diluted shares of common stock outstanding were 3.1
billion in 2000, 1999 and 1998.
Sales by domestic companies were $17.7 billion in 2000,
$15.9 billion in 1999 and $13.3 billion in 1998. This represents
an increase of 11.2% in 2000, 20.1% in 1999 and 8.8% in 1998.
Sales by international companies were $12.1 billion in 2000,
$12.1 billion in 1999 and $11.1 billion in 1998. This represents
an increase of 0.4% in 2000, 8.4% in 1999 and 1.9% in 1998.
Excluding the impact of the foreign currency fluctuations over
the past three years, international company sales increased 7.9%
in 2000, 12.4% in 1999 and 7.1% in 1998.
All geographic areas throughout the world posted operational
gains during 2000. Excluding the effect of exchange rate
fluctuations between the U.S. dollar and foreign currencies,
sales increased 7.4% in Europe, 4.3% in the Western Hemisphere
(excluding the U.S.) and 10.9% in the Asia-Pacific, Africa
regions.
The Company achieved an annual compound growth rate of 10.1%
for worldwide sales for the 10-year period since 1990 with
domestic sales growing at a rate of 12.3% and international sales
growing at a rate of 7.6%. Worldwide net earnings achieved a 10-
year annual growth rate of 16.5%. For the last five years, the
annual compound growth rate for sales was 9.4% and 15.4% for net
earnings.
Cost and Expenses
Research activities represent a significant part of the Company's
business. These expenditures relate to the development of new
products, improvement of existing products, technical support of
products and compliance with governmental regulations for the
protection of the consumer. Worldwide costs of research
activities, excluding the special charges for IPR&D, were as
follows:
(Millions of Dollars)
2000 1999 1998
Research expense $3,105 2,768 2,506
Percent increase
over prior year 12.2% 10.5% 5.6%
Percent of sales 10.4 9.9 10.3
Research expense as a percent of sales for the
Pharmaceutical segment was 16.4% for 2000, 15.7% for 1999 and
17.1% for 1998 while averaging 6.0%, 6.0% and 6.1% in the other
two segments.
Advertising expenses, which are comprised of television,
radio and print media, as well as Internet advertising, were
$1.37 billion in 2000, $1.43 billion in 1999 and $1.21 billion in
1998. Additionally, expenditures were incurred for promotional
activities such as couponing and performance allowances.
The Company believes that its operations comply in all
material respects with applicable environmental laws and
regulations. The Company or its subsidiaries are parties to a
number of proceedings brought under the Comprehensive
Environmental Response, Compensation and Liability Act, commonly
known as Superfund, and comparable state laws, in which primary
relief sought is the cost of past and future remediation. While
it is not feasible to predict or determine the outcome of these
proceedings, in the opinion of the Company, such proceedings
would not have a material adverse effect on the results of
operations, cash flows or financial position of the Company.
Worldwide sales do not reflect any significant degree of
seasonality; however, spending has been heavier in the fourth
quarter of each year than in other quarters. This reflects
increased spending decisions, principally for advertising and
research grants.
The worldwide effective income tax rate was 27.9% in 2000,
27.3% in 1999 and 28.4% in 1998. Refer to Note 8 for additional
information.
Distribution of Sales Revenues
The distribution of sales revenues for 2000, 1999 and 1998 were:
2000 1999 1998
Employment costs 23.8% 24.0% 24.2%
Costs of materials
and services 48.2 50.0 46.9
Depreciation and
amortization of
property and
intangibles 5.3 5.4 5.5
Taxes other than
payroll 6.9 6.2 5.6
Earnings reinvested
in business 9.9 9.1 9.6
Cash dividends paid 5.8 5.3 5.3
Restructuring/IPR&D 0.1 - 2.9
Segments of Business
Financial information for the Company's three worldwide business
segments is summarized below. See Note 12 for additional
information on segments of business.
Sales
(Millions of Dollars)
Increase
2000 1999 Amount Percent
Consumer $6,904 6,864 40 0.6%
Pharmaceutical 12,661 11,230 1,431 12.7%
Med Dev & Diag 10,281 9,913 368 3.7%
Worldwide total $29,846 28,007 1,839 6.6%
Operating Profit
(Millions of Dollars)
Percent
of Sales
2000(1) 1999(2) 2000 1999
Consumer $ 867 683 12.6% 10.0%
Pharmaceutical 4,420 3,735 34.9% 33.3%
Med Dev & Diag 1,696 1,632 16.5% 16.5%
Segments total 6,983 6,050 23.4% 21.6%
Expenses not
allocated to
segments (115) (173)
Earnings before
taxes on income $6,868 5,877 23.0% 21.0%
(1) 2000 results include special charges related to In-Process
Research and Development and a gain related to restructuring.
Excluding these charges, operating profit as a percentage of
sales was: Consumer segment 12.2%, Pharmaceutical segment 35.0%
and Medical Devices & Diagnostics segment 17.0%.
(2) 1999 results include special charges related to the Centocor
and SEQUUS mergers. Excluding these charges, operating profit as
a percentage of sales for the Pharmaceutical segment was 34.0%.
The Consumer segment's principal products are personal care
and hygienic products, including nonprescription drugs, adult
skin and hair care products, baby care products, oral care
products, first aid products and sanitary protection products.
Major brands include AVEENO skin care products; BAND-AID Brand
Adhesive Bandages; BENECOL food products; CAREFREE Panty Shields;
CLEAN & CLEAR teen skin care products; IMODIUM A-D, an
antidiarrheal; JOHNSON'S Baby line of products; JOHNSON'S pH5.5
skin and hair care products; MONISTAT, a remedy for vaginal yeast
infections; adult and children's MOTRIN IB analgesic products;
MYLANTA gastrointestinal products and PEPCID AC Acid Controller
from the Johnson & Johnson Merck Consumer Pharmaceuticals Co.;
NEUTROGENA skin and hair care products; o.b. Tampons; PENATEN and
NATUSAN baby care products; PIZ BUIN and SUNDOWN sun care
products; REACH toothbrushes; RoC skin care products; SHOWER TO
SHOWER personal care products; SPLENDA, a non-caloric sugar
substitute; STAYFREE sanitary protection products; and the broad
family of TYLENOL acetaminophen products. These products are
marketed principally to the general public and distributed both
to wholesalers and directly to independent and chain retail
outlets.
Consumer segment sales in 2000 were $6.9 billion, an
increase of .6% over 1999. Domestic sales increased by 2.5% while
international sales gains in local currency of 5.0% were offset
by a negative currency impact of 6.6%. Consumer sales were led by
continued strength in the skin care franchise, which includes the
NEUTROGENA, RoC, AVEENO and CLEAN & CLEAR product lines, as well
as strong performances from the JOHNSON'S line of baby skin care
products.
During the fourth quarter, the Company acquired the ST.
JOSEPH aspirin business. The acquisition is the first entry into
the cardio-protective aspirin market by McNeil Consumer
Healthcare, the world leader in over-the-counter analgesics.
Consumer segment sales in 1999 were $6.86 billion, an
increase of 5.2% over 1998. Domestic sales increased by 10.4%
while international sales declined by .2%. International sales
gains in local currency of 7.0% were offset by a negative
currency impact of 7.2%. During 1999, the Company launched
various products that included BENECOL, the dietary ingredient
stanol ester that aids in the reduction of cholesterol and also
completed the acquisition of the AVEENO brand products.
Consumer segment sales in 1998 were $6.53 billion, an
increase of .4% over 1997. Domestic sales increased by 2.6% while
international declined by 1.7%. International sales gains in
local currency of 5.2% were offset by a negative currency impact
of 6.9%. The 1998 special pre-tax charge for the Consumer segment
was $244 million. See Note 14 for detailed discussion on the
Restructuring charges.
Pharmaceutical
The Pharmaceutical segment's principal worldwide franchises
are in the antifungal, anti-infective, cardiovascular,
contraceptive, dermatology, gastrointestinal, hematology,
immunology, neurology, oncology, pain management, psychotropic
(central nervous system) and urology fields. These products are
distributed both directly and through wholesalers for use by
health care professionals and the general public. Prescription
drugs in the antifungal field include NIZORAL (ketoconazole),
SPORANOX (itraconazole), TERAZOL (terconazole) and DAKTARIN
(miconazole nitrate) antifungal products. Prescription drugs in
the anti-infective field include FLOXIN (ofloxacin) and LEVAQUIN
(levofloxacin). Prescription drugs in the cardiovascular field
include RETAVASE (reteplase), a recombinant biologic cardiology
care product for the treatment of acute myocardial infarction to
improve blood flow to the heart and REOPRO (abciximab) for the
treatment of acute cardiac disease. Prescription drugs in the
contraceptive field include ORTHO-NOVUM (norethindrone/ethinyl
estradiol) and TRICILEST (norgestimate/ethinyl estradiol, sold in
the U.S. as ORTHO TRI-CYCLEN) group of oral contraceptives.
Prescription drugs in the dermatology field include RETIN-A MICRO
(tretinoin), a dermatological cream for acne. Prescription drugs
in the gastrointestinal field include ACIPHEX (rabeprazole
sodium), a proton pump inhibitor for treating erosive
gastroesophageal reflux disease (GERD) and duodenal ulcers;
IMODIUM (loperamide HCl), an antidiarrheal; MOTILIUM
(domperidone), a gastrointestinal mobilizer; and REMICADE
(infliximab), a novel monoclonal antibody for treatment of
certain Crohn's disease patients. REMICADE is also indicated for
the treatment of rheumatoid arthritis.
Prescription drugs in the hematology field include EPREX
(Epoetin alfa, sold in the U.S. as PROCRIT), a biotechnology
derived version of the human hormone erythropoietin that
stimulates red blood cell production. Prescription drugs in the
immunology field include ORTHOCLONE OKT-3 (muromonab-CD3), for
reversing the rejection of kidney, heart and liver transplants.
Prescription drugs in the neurology field include TOPAMAX
(topiramate) and STUGERON (cinnarizine). Prescription drugs in
the oncology field include DOXIL (doxorubicin), an anti-cancer
treatment, ERGAMISOL (levamisole hydrochloride), a colon cancer
drug and LEUSTATIN (cladribine), for hairy cell leukemia.
Prescription drugs in the psychotropics (central nervous sytem)
field include RISPERDAL (risperidone) and HALDOL (haloperidol),
antipsychotic drugs, and CONCERTA (methylphenidate) for attention
deficit/hyperactivity disorder. Prescription drugs in the pain
management field include DURAGESIC (fentanyl transdermal system,
sold abroad as DUROGESIC), a transdermal patch for chronic pain
and ULTRAM (tramadol hydrochloride), an analgesic for moderate to
moderately severe pain. Prescription drugs in the urology field
includes DITROPAN XL (oxybutynin) for the treatment of overactive
bladder.
Johnson & Johnson markets over 100 prescription drugs around
the world, with 33.3% of the sales generated outside the United
States. Thirty-four drugs sold by the Company had 2000 sales in
excess of $50 million, with 21 of them in excess of $100 million.
Pharmaceutical segment sales in 2000 were $12.7 billion, an
increase of 12.7% over 1999 including 21.4% growth in domestic
sales. Operationally, international sales increased 7.6% but were
more than offset by a negative currency impact of 8.9%. Worldwide
sales gains in local currency of 16.1% were partially offset by a
negative currency impact of 3.4%.
Sales growth reflects the strong performance of PROCRIT/EPREX,
RISPERDAL, DURAGESIC, LEVAQUIN, REMICADE, ULTRAM, TOPAMAX,
ACIPHEX/PARIET and the oral contraceptive line of products. Sales
growth was partially offset by the restricted access of PROPULSID
in a number of markets around the world. During the fourth
quarter, the Company received expanded labeling from the FDA for
REMICADE (infliximab) for the treatment of rheumatoid arthritis.
REMICADE is the first drug to be granted a label indicating that,
in combination with methotrexate, it inhibits the progression of
structural damage in patients with moderately to severely active
rheumatoid arthritis who have had an inadequate response to
methotrexate. The Company also filed a new drug application with
the U.S. Food and Drug Administration for the ORTHO EVRA
transdermal seven-day contraceptive patch.
During the fourth quarter, the Company announced a co-
marketing agreement with its McNeil Consumer Healthcare unit and
3M Pharmaceuticals for 3M's new asthma drug, QVAR Inhalation
Aerosol (beclomethasone diproprionate HFA.) QVAR is approved for
the maintenance treatment of asthma, a chronic inflammatory
disease of the large and small airways affecting an estimated 15
percent of the U.S. population.
Pharmaceutical segment sales in 1999 were $11.23 billion, an
increase of 20.7% over 1998, including 28.9% growth in domestic
sales. International sales increased 9.4% as sales gains in local
currency of 13.5% were offset by a negative currency impact of
4.1%. Worldwide growth reflected the strong performance of
PROCRIT, RISPERDAL, DURAGESIC, LEVAQUIN, and the oral
contraceptive line of products. During the fourth quarter, the
Company received approval from the FDA for ORTHO-PREFEST
(17(beta)-estradiol/norgestimate) for hormone replacement therapy
and an additional indication for REMICADE for the treatment of
rheumatoid arthritis.
Pharmaceutical segment sales in 1998 were $9.30 billion, an
increase of 13.7% over 1997 including 25.4% growth in domestic
sales. International sales increased .6% as sales gains in local
currency of 5.4% were offset by a negative currency impact of
4.8%. Worldwide growth reflected the strong performance of
PROCRIT, RISPERDAL, DURAGESIC, LEVAQUIN, and the oral
contraceptive line of products. At year-end 1998, the Company
received approval from the FDA for LEVAQUIN (levofloxacin) for
the indication of uncomplicated urinary tract infection.
Additionally, the Company completed the acquisition of the U.S.
and Canadian product rights for RETAVASE (reteplase), an acute-
care cardiovascular drug, from Roche Healthcare.
The 1998 special pre-tax charge for the Pharmaceutical
segment was $65 million. See Note 14 for detailed discussion on
the Restructuring and IPR&D charges.
Significant research activities continued in the
Pharmaceutical segment, increasing to $2.1 billion in 2000, or an
17.4% increase over 1999. This represents 16.4% of 2000
Pharmaceutical sales and a compound annual growth rate of
approximately 13.1% for the five-year period since 1995.
Worldwide Pharmaceutical research organizations include Janssen
Research Foundation, headquartered in Belgium, and the R.W.
Johnson Pharmaceutical Research Institute, located in La Jolla,
California and Raritan, New Jersey. Additional research is
conducted by Centocor and ALZA Technologies and through a
collaboration with the James Black Foundation in London, England.
Medical Devices & Diagnostics
The Medical Devices & Diagnostics segment includes a broad
range of products used by or under the direction of health care
professionals. These include suture and mechanical wound closure
products, surgical equipment and devices, wound management and
infection prevention products, interventional and diagnostic
cardiology products, diagnostic equipment and supplies, joint
replacements and disposable contact lenses. These products are
used principally in the professional fields by physicians,
nurses, therapists, hospitals, diagnostic laboratories and
clinics. Acquisitions and divestitures in the Medical Devices &
Diagnostics segment during recent years are part of an ongoing
process to transform this segment from a medical supply business
to one serving a range of higher technology medical specialties.
Worldwide sales in 2000 of $10.3 billion in the Medical
Devices & Diagnostics segment represented an increase of 3.7%
over 1999. Domestic sales were up 4.0%, while international sales
increased 3.4% as sales gains in local currency of 10.3% were
offset by a negative currency impact of 6.9%. Worldwide sales
gains in local currency of 6.9% were reduced by 3.2% due to the
strength of the U.S. dollar. Strong sales growth from Cordis'
coronary and endovascular stents, DePuy's spinal products,
Ethicon's MITEK suture anchors and Gynecare's women's health
products, Ethicon Endo-Surgery's MAMMOTOME breast biopsy system
and ULTRACISION Harmonic scalpel and Vistakon's disposable
contact lens products were the primary contributors to the
Medical Devices & Diagnostics segment growth. In the fourth
quarter, Cordis announced the U.S. market introduction of its new
Bx VELOCITY Coronary Stent with Hepacoat - the first drug-coated
stent utilizing a proprietary heparin coating to receive
regulatory approval in the U.S. and Europe. The proprietary
heparin coating retains its properties for periods lasting
several months when implanted into blood vessels. Cordis also
received favorable jury verdicts in its stent patent infringement
cases against Boston Scientific Corporation and Medtronic AVE,
Inc. For additional information, see Note 18.
In addition, Cordis completed the acquisition of Atrionix,
Inc., valued at $62.8 million. Atrionix is developing a
proprietary, catheter-based system for the treatment of atrial
fibrillation, a disruption in the heart's normal sinus rhythm.
Worldwide sales in 1999 of $9.91 billion in the Medical
Devices & Diagnostics segment represented an increase of 15.7%
over 1998. Domestic sales increased 16.9%, while international
sales gains in local currency of 15.7% were partially offset by
the strength of the U.S. dollar. In the fourth quarter, Cordis
launched the new Bx VELOCITY coronary stent in Europe, where it
has been well received by the medical community. Ethicon's new
products included: PRONOVA Poly (hexafluoropropylene-VDF) Suture,
a synthetic nonabsorbable monofilament for cardiovascular and
vascular surgery and SURGIFOAM Absorbable Gelatin Sponge USP,
which is proven in surgery for over 50 years in Europe and has
given Ethicon a full line of hemostasis products. Ethicon also
received a fourth quarter approval for Gynecare's THERMACHOICE II
Uterine Balloon Therapy System, the latex-free next generation
ablation technology system used for excessive uterine bleeding.
1998 worldwide sales of $8.57 billion in the Medical Devices
& Diagnostics segment represented an increase of 1.6% over 1997.
Domestic sales decreased 2.4%, while international sales gains in
local currency of 10.7% were partially offset by the strength of
the U.S. dollar. During the fourth quarter of 1998, the Company
completed the acquisition of DePuy, one of the world's leading
orthopaedic products companies with products in reconstructive,
spinal, trauma and sports medicine. The Company also completed
the acquisition of FemRx, a leader in the development of
proprietary surgical systems that enable surgeons to perform less
invasive alternatives to hysterectomy. The 1998 special pre-tax
charge for the Medical Devices & Diagnostics segment for
restructuring was $304 million. See Note 14 and Note 17 for
detailed discussion on Restructuring and IPR&D charges and
Acquisitions.
Geographic Areas
The Company's sales by major geographic area are presented below:
Sales
(Millions of Dollars)
Increase
2000 1999 Amount Percent
United States $17,707 15,921 1,786 11.2%
Europe 6,365 6,711 (346) (5.2%)
Western Hemisphere
excluding U.S. 2,084 2,023 61 3.0%
Asia-Pacific, Africa 3,690 3,352 338 10.1
Worldwide total $29,846 28,007 1,839 6.6%
International sales were negatively impacted by the
translation of local currency operating results into U.S dollars
in all regions. Average exchange rates to the dollar have
declined each year since 1995. See Note 12 for additional
information on geographic areas.
Liquidity and Capital Resources
Cash generated from operations and selected borrowings
provide the major sources of funds for the growth of the
business, including working capital, additions to property, plant
and equipment and acquisitions. Cash and current marketable
securities totaled $6.8 billion at the end of 2000 as compared
with $4.10 billion at the end of 1999. On July 19, 2000, ALZA
called for the redemption of its outstanding 5% convertible
subordinated debentures issued in 1996. Each 5% Debenture was
convertible, at the option of the holder, into the equivalent of
shares of Johnson & Johnson common stock at an initial conversion
price of $19.47 per share, subject to certain anti-dilution
adjustments. Substantially all holders of the outstanding 5%
Debentures elected to convert their debentures at the conversion
price of $19.47 per share of Johnson & Johnson common stock, or
approximately 51.31 shares per $1,000 principal amount of
debentures. The aggregate number of equivalent Johnson & Johnson
shares issued from conversion of the 5% Debentures was 25.2
million. The amount paid to redeem the remaining 5% Debentures
was not significant.
Total unused credit available to the Company approximates
$3.0 billion, including $1.5 billion of credit commitments with
various banks worldwide that expire on October 4, 2001.
The Company's shelf registration filed with the Securities
and Exchange Commission enables the Company to issue up to $2.59
billion of unsecured debt securities and warrants to purchase
debt securities under its medium term note (MTN) program. No
MTN's were issued in 2000. At December 31, 2000, the Company had
$1.79 billion remaining on its shelf registration. A summary of
borrowings can be found in Note 6.
Total borrowings at the end of 2000 and 1999 were $4.65
billion and $5.20 billion, respectively. In 2000 net cash (cash
and current marketable securities net of debt) was $2.11 billion.
In 1999, net debt (debt net of cash and current marketable
securities) was 6.1% of net capital (shareowners' equity and net
debt). Total debt represented 18.6% of total capital
(shareowners' equity and total debt) in 2000 and 23.4% of total
capital in 1999. Shareowners' equity per share at the end of 2000
was $6.77 compared with $5.70 at year-end 1999, an increase of
18.8%. For the period ended December 31, 2000, there were no
material cash commitments.
Financial Instruments
The Company uses financial instruments to manage the impact
of foreign exchange rate changes on cash flows. Accordingly, the
Company enters into forward foreign exchange contracts to protect
the value of existing foreign currency assets and liabilities and
to hedge future foreign currency product costs. Gains or losses
on these contracts are offset by the gains or losses on the
underlying transactions. A 10% appreciation of the U.S. Dollar
from December 31, 2000 market rates would increase the unrealized
value of the Company's forward contracts by $266 million.
Conversely, a 10% depreciation of the U.S. Dollar from December
31, 2000 market rates would decrease the unrealized value of the
Company's forward contracts by $206 million. In either scenario,
the gain or loss on the forward contract would be offset by the
gain or loss on the underlying transaction and therefore would
have no impact on future earnings and cash flows.
The Company enters into currency swap contracts to manage
the Company's exposure to changes in currency exchange rates and
hedge foreign currency denominated assets and liabilities. The
impact of a 1% change in interest rates on the Company's interest
rate sensitive financial instruments would be immaterial.
The Company does not enter into financial instruments for
trading or speculative purposes. Further, the Company has a
policy of only entering into contracts with parties that have at
least an "A" (or equivalent) credit rating. The counterparties to
these contracts are major financial institutions and the Company
does not have significant exposure to any one counterparty.
Management believes the risk of loss is remote.
Changing Prices and Inflation
Johnson & Johnson is aware that its products are used in a
setting where, for more than a decade, policymakers, consumers
and businesses have expressed concern about the rising cost of
health care. In response to these concerns, Johnson & Johnson has
a long-standing policy of pricing products responsibly. For the
period 1990 - 2000, in the United States, the weighted average
compound annual growth rate of Johnson & Johnson price increases
for health care products (prescription and over-the-counter
drugs, hospital and professional products) was below the U.S.
Consumer Price Index (CPI) for the period.
Inflation rates, even though moderate in many parts of the
world during 2000, continue to have an effect on worldwide
economies and, consequently, on the way companies operate. In the
face of increasing costs, the Company strives to maintain its
profit margins through cost reduction programs, productivity
improvements and periodic price increases.
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 133
"Accounting for Derivative Instruments and Hedging Activities"
(SFAS 133). The standard was most recently amended in June 2000
by Statement of Financial Accounting Standards No. 138
"Accounting for Certain Derivative Instruments and Certain
Hedging Activities - an amendment of FASB Statement No. 133." The
standards are collectively referred to as SFAS 133. The Company
adopted SFAS 133 effective January 1, 2001.
SFAS 133 requires that all derivative instruments be
recorded on the balance sheet at their respective fair values.
Changes in the fair value of derivatives are recorded each period
in current earnings or other comprehensive income, depending on
whether the derivative is designated as part of a hedge
transaction and, if it is, depending on the type of hedge
transaction. For fair value hedge transactions in which the
Company is hedging changes in the fair value of assets,
liabilities or firm commitments, changes in the fair value of the
derivative instrument will generally be offset in earnings by
changes in the hedged item's fair value. For cash flow hedge
transactions in which the Company is hedging the variability of
cash flows related to a variable rate asset, liability or
forecasted transaction, changes in the fair value of the
derivative instrument will be reported in other comprehensive
income. The gains and losses on the derivative instrument that
are reported in other comprehensive income will be recognized in
earnings in the periods in which earnings are impacted by the
variability of the cash flows of the hedged item.
The Company uses forward exchange contracts to manage its
exposure to the variability of cash flows primarily related to
the foreign exchange rate changes of future foreign currency
product costs. The Company also uses currency swaps to manage
currency risk primarily related to borrowings. Effective with the
adoption of SFAS 133, the Company designated both of these types
of derivatives as cash flow hedges.
On January 1, 2001 the Company recorded a $17 million net-of-
tax cumulative effect adjustment gain in accumulated other
comprehensive income to recognize at fair value all derivative
instruments designated as cash flow hedges. The Company also
determined that the adjustment to net earnings was immaterial.
In May 2000, the Emerging Issues Task Force (EITF) reached a
consensus on Issue 00-14, Accounting for Certain Sales
Incentives, addressing both the recognition and income statement
classification of certain 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 for fiscal years 2000, 1999 and 1998 is
estimated to be $112 million, $112 million, and $107 million,
respectively. EITF 00-14 is expected to take effect in the second
quarter of fiscal 2001 and the impact on the Company will be the
reclassification of the above-mentioned amounts from expense to a
reduction of sales.
The Company has adopted EITF Issue 00-10, Accounting for
Shipping and Handling Fees and Costs. The amount of revenue
received for shipping and handling is immaterial for all periods
presented. Additional disclosure related to the costs of shipping
and handling is provided in Note 1 of the financial statements.
Common Stock Market Prices
The Company's common stock is listed on the New York Stock
Exchange under the symbol JNJ. The approximate number of
shareowners of record at year-end 2000 was 164,158. The composite
market price ranges (adjusted for the 2-for-1 stock split
effective June 12, 2001) for Johnson & Johnson common stock
during 2000 and 1999 were:
2000 1999
High Low High Low
First quarter $48.47 33.065 47 38.5
Second quarter 50.94 35 51.5 43.905
Third quarter 50.72 45.125 52.94 45
Fourth quarter 52.97 44.595 53.44 45.065
Year-end close 52.53 46.625
Cash Dividends Paid
The Company increased its cash dividends in 2000 for the
38th consecutive year. Cash dividends paid were $0.62 per share
in 2000 compared with dividends of $0.545 per share in 1999 and
$0.485 per share in 1998. The dividends were distributed as
follows:
2000 1999 1998
First quarter $.14 .125 .11
Second quarter .16 .14 .125
Third quarter .16 .14 .125
Fourth quarter .16 .14 .125
Total $.62 .545 .485
On January 2, 2001, the Board of Directors declared a
regular cash dividend of $.16 per share, paid on March 13, 2001
to shareowners of record on February 20, 2001.
The Company expects to continue the practice of paying
regular cash dividends.
Five Year Summary:
(Dollars in millions except per share amounts)
Fiscal Year Ended
Dec 29 Dec 28 Jan 3 Jan 2 Dec 31
1996 1997(1) 1999(2) 2000(3)
2000(4)
EARNINGS DATA
Sales $21,984 23,118 24,398 28,007 29,846
Costs & exp. 17,841 18,776 20,065 22,130 22,978
Earnings bef. tax 4,143 4,342 4,333 5,877 6,868
Net earnings 2,958 3,105 3,101 4,273 4,953
Earnings per
Diluted share $ 0.98 1.02 1.02 1.39 1.61
Cash dividends
per share (5) $0.3675 0.425 0.485 0.545 0.62
BALANCE SHEET
DATA
Assets $22,248 23,615 28,966 31,064 34,245
Long-term debt 2,347 2,084 2,652 3,429 3,163
Shareowners'
Equity 11,958 13,300 14,674 16,995 20,395
(1) 1997 excluding special charges relating to distribution of
Crescendo shares and in-process and development charges, costs
and expenses were $18,420; earnings before tax were $4,698; net
earnings were $3,385; and earnings per diluted share were $1.11.
(2) 1998 excluding special charges relating to restructuring and
in-process research and development charges, costs and expenses
were $19,154; earnings before tax were $5,244; net earnings were
$3,798; and earnings per diluted share were $1.24.
(3) 1999 excluding special charges relating to the Centocor and
SEQUUS mergers, costs and expenses were $22,048; earnings before
tax were $5,959; net earnings were $4,348; and earnings per
diluted share were $1.42.
(4) 2000 excluding special charges relating to in-process
research and development charges net of a favorable adjustment to
the costs associated with the 1998 global manufacturing
restructuring charge, costs and expenses were $22,945; earnings
before tax were $$6,901; net earnings were $4,998; and earnings
per diluted share were $1.63.
(5) In 1997, ALZA recorded a dividend of $49 for the distribution
of Crescendo shares to ALZA shareholders.
Cautionary Factors That May Affect Future Results
This Annual Report 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 approval, 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 that 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 report on Form 10-K
for the year ended December 31, 2000 that was filed in March
2001, contained, as an Exhibit, a discussion of various factors
that could cause actual results to differ from expectations. The
Company notes these factors as permitted by the Private
Securities Litigation Reform Act of 1995.
JOHNSON & JOHNSON AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Dollars in Millions)
At December 31, 2000 and January 2, 2000
(Dollars in Millions Except Per Share Figures) (Note 1)
ASSETS
2000 1999
Current Assets
Cash and cash equivalents
(Notes 1 and 16) $ 4,278 2,512
Marketable securities, at cost
(Notes 1 and 16) 2,479 1,584
Accounts receivable, trade, less
allowances $439 (1999 - $407) 4,601 4,329
Inventories (Notes 1 and 2) 2,905 3,164
Deferred taxes on income (Note 8) 1,174 1,122
Prepaid expenses and other receivables 1,254 892
Total current assets 16,691 13,603
Marketable securities,
non-current (Note 1) 717 823
Property, plant and equipment, net
(Notes 1, 3 and 14) 7,409 7,155
Intangible assets, net (Notes 1, 7
and 14) 7,535 7,854
Deferred taxes on income (Note 8) 240 258
Other assets 1,653 1,371
Total assets $34,245 31,064
Liabilities and Shareowners' Equity
Current liabilities
Loans and notes payable (Note 6) $ 1,489 1,814
Accounts payable 2,122 2,049
Accrued liabilities 2,793 2,992
Accrued salaries, wages and commissions 529 499
Taxes on income 322 203
Total current liabilities 7,255 7,557
Long-term debt (Note 6) 3,163 3,429
Deferred tax liability (Note 8) 255 287
Employee related obligations (Note 5) 1,804 1,794
Other liabilities 1,373 1,002
Shareowners' equity
Preferred stock - without par value
(authorized and unissued 2,000,000
shares) - -
Common stock - par value $1.00 per
share (Note 20) (authorized
4,320,000,000 shares; issued
3,119,842,000 shares and
3,119,832,000 shares) 3,120 3,120
Note receivable from employee stock
ownership plan (Note 15) (35) (41)
Accumulated other comprehensive income
(Note 11) (461) (399)
Retained earnings 18,113 14,768
20,737 17,448
Less: common stock held in treasury,
at cost (Note 20) (105,218,000
& 140,154,000) 342 453
Total shareowners' equity 20,395 16,995
Total liabilities and shareowners'
equity $34,245 31,064
See Notes to Consolidated Financial Statements
Amounts have been restated under the pooling of interests
method of accounting to include the financial results of
ALZA Corporation effective on June 22, 2001, see Note 1.
JOHNSON & JOHNSON AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EARNINGS
(Dollars in Millions Except Per Share Figures) (Note 1)
2000 1999 1998
Sales to customers $29,846 28,007 24,398
Cost of products sold (1998 includes
$60 of inventory write-offs for
restructuring) 8,908 8,498 7,646
Gross Profit 20,938 19,509 16,752
Selling, marketing and administrative
Expenses 11,218 10,756 9,166
Research expense 3,105 2,768 2,506
Purchased in-process research and
development (Notes 14 and 17) 66 - 298
Interest income (429) (266) (302)
Interest expense, net of portion
capitalized (Note 3) 204 255 186
Other (income) expense, net (61) 100 12
Restructuring charge (Note 14) (33) 19 553
14,070 13,632 12,419
Earnings before provision for taxes
on income 6,868 5,877 4,333
Provision for taxes on income
(Note 8) 1,915 1,604 1,232
Net earnings $ 4,953 4,273 3,101
Basic net earnings per share
(Notes 1 and 19) $ 1.65 1.43 1.04
Diluted net earnings per share
(Notes 1 and 19) $ 1.61 1.39 1.02
See notes to Consolidated Financial Statements
Amounts have been restated under the pooling of interests
method of accounting to include the financial results of
ALZA Corporation effective on June 22, 2001, see Note 1.
JOHNSON & JOHNSON AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREOWNERS' EQUITY
(Dollars in Millions) (Note 1)
Note
Receiv
From
Emp
Stock Accum Comm
Owner Other Stock Treas
Comp Ret Plan Comp Iss Stock
Total Inc Earn (ESOP) Inc Amt Amt
Bal, Dec. 28, 1997$13,300 10,997 (51) (375) 3,120 (391)
Net earnings 3,101 3,101 3,101
Cash div paid (1,305) (1,305)
Employee compens
and stock option
plans 449 (425) 874
Repurchase of common
stock (930) (930)
Business comb 10 7 3
Other comprehensive
income, net of tax:
Curr transl adj 89 89 89
Unrealized gains
(losses) on
securities (47) (47) (47)
Reclass adjustment 34
Total compre income 3,177
Note rec from ESOP 7 7
Bal, Jan 3, 1999 $14,674 12,375 (44) (333) 3,120 (444)
Net earnings 4,273 4,273 4,273
Cash div paid (1,479) (1,479)
Employee compens
and stock option
plans 428 (401) 829
Repurchase of common
stock (840) (840)
Business comb 2 2
Other comprehensive
income, net of tax:
Curr transl adj (155) (155) (155)
Unrealized gains
(losses) on
securities 89 89 89
Reclass adjustment 23
Total compre income 4,230
Note rec from ESOP 3 3
Bal, Jan 2, 2000 $16,995 14,768 (41) (399) 3,120 (453)
Net earnings 4,953 4,953 4,953
Cash div paid (1,724) (1,724)
Employee compens
and stock option
plans 619 (456) 1,075
Conversion of
Subordinated
Debentures 504 504
Repurchase of common
stock (973) (973)
Business comb 77 68 9
Other comprehensive
income, net of tax:
Curr transl adj (45) (45) (45)
Unrealized gains
(losses) on
securities (2) (2) (2)
Pension liab adj (15) (15) (15)
Reclass adjustment (40)
Total compre income 4,851
Note rec from ESOP 6 6
Bal, Dec 31, 2000 $20,395 18,113 (35) (461) 3,120 (342)
See Notes to Consolidated Financial Statements
Amounts have been restated under the pooling of interests
method of accounting to include the financial results of
ALZA Corporation effective on June 22, 2001, see Note 1.
Consolidated Statements of Cash Flows
(Dollars in Millions) (Note 1)
2000 1999 1998
Cash flows from operating activities
Net earnings $ 4,953 4,273 3,101
Adjustments to reconcile
net earnings to cash flows:
Depreciation and amortization
of property and intangibles 1,592 1,510 1,335
Purchased in-process research
and development 66 - 298
Increase in deferred taxes (128) (26) (300)
Accounts receivable reserves 41 23 25
Changes in assets and liabilities,
net of effects from acquisition of
businesses:
Increase in accounts receivable (468) (630) (163)
Decrease (increase) in inventories 128 (347) (113)
Increase in accounts payable and
accrued liabilities 41 226 602
Decrease in other current and
non-current assets 124 310 221
Increase in other current and
non-current liabilities 554 581 100
Net cash flows from operating
Activities 6,903 5,920 5,106
Cash flows from investing activities
Additions to property, plant and
Equipment (1,689)(1,822) (1,610)
Proceeds from the disposal of assets 166 55 108
Acquisition of businesses, net
of cash acquired (Note 17) (151) (271) (3,818)
Purchases of investments (5,676)(3,832) (1,328)
Sales of investments 4,827 3,057 717
Other (142) (280) (268)
Net cash used by investing
activities (2,665)(3,093) (6,199)
Cash flows from financing activities
Dividends to shareowners (1,724)(1,479) (1,305)
Repurchase of common stock (973) (840) (930)
Proceeds from short-term debt 814 3,208 2,424
Retirement of short-term debt (1,485)(4,063) (226)
Proceeds from long-term debt 591 793 535
Retirement of long-term debt (35) (187) (475)
Issuances of common stock 95 41 61
Proceeds from the exercise of
stock options 292 180 178
Net cash (used) provided by
financing activities (2,425) (2,347) 262
Effect of exchange rate changes
on cash and cash equivalents (47) (72) 24
Increase (decrease) in cash
and cash equivalents 1,766 408 (807)
Cash and cash equivalents,
beginning of year (Note 1) 2,512 2,104 2,911
Cash and cash equivalents,
end of year (Note 1) $ 4,278 2,512 2,104
Consolidated Statements of Cash Flows
(continued)
(Dollars in Millions) (Note 1)
2000 1999 1998
Supplemental cash flow data
Cash paid during the year for:
Interest $ 215 238 204
Income taxes 1,651 1,459 1,344
Supplemental schedule of noncash
investing and financing activities
Treasury stock issued for employee
compensation and stock option plans,
net of cash proceeds $ 754 675 717
Conversion of debt 504 6 1
Acquisitions of businesses
Fair value of assets acquired $ 241 271 4,659
Fair value of liabilities assumed
(including $296 of assumed debt
in 1998) (5) - (545)
236 271 4,114
Treasury stock issued at fair value (85) - -
Net purchase price $ 151 271 4,114
See Notes to Consolidated Financial Statements
Amounts have been restated under the pooling of interests
method of accounting to include the financial results of
ALZA Corporation effective on June 22, 2001, see Note 1.
1 Summary of Significant Accounting Principles
Basis of Presentation
The consolidated financial statements of Johnson & Johnson have
been prepared to give retroactive effect to the merger with ALZA
Corporation (ALZA) on June 22, 2001.
Principles of Consolidation
The financial statements include the accounts of Johnson &
Johnson and subsidiaries. Intercompany accounts and transactions
are eliminated.
Cash Equivalents
The Company considers securities with maturities of three months
or less, when purchased, to be cash equivalents.
Investments
Short-term marketable securities are carried at cost, which
approximates fair value. Long-term debt securities that the
Company has the ability and intent to hold until maturity are
carried at amortized cost which also approximates fair value.
Investments classified as available-for-sale are carried at
estimated fair value with unrealized gains and losses recorded as
a component of shareowners' equity. Gross unrealized holding
gains and losses are not material. Investments consist primarily
of commercial paper and corporate debt securities. Management
determines the appropriate classification of its investments in
debt and equity securities at the time of purchase and
reevaluates such determination at each balance sheet date.
Property, Plant and Equipment and Depreciation
Property, plant and equipment are stated at cost. The Company
utilizes the straight-line method of depreciation over the
estimated useful lives of the assets:
Building and building equipment 20-40 years
Land and land improvements 10-20 years
Machinery and equipment 2-13 years
Revenue Recognition
The Company recognizes revenue from product sales when the goods
are shipped and title passes to the customer. In instances where
title does not pass to the customer upon shipment, the Company
recognizes revenue upon delivery. The Company has adopted Staff
Accounting Bulletin (SAB) 101, Revenue Recognition in Financial
Statements, the effects of which are immaterial for all periods
presented.
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 for 2000, 1999 and 1998 is
estimated to be $112 million, $112 million, and $107 million,
respectively. EITF 00-14 is expected to take effect in the second
quarter of 2001 and the impact on the Company will be the
reclassification of the above mentioned amounts from expense to a
reduction of sales.
Shipping and Handling
Shipping and handling costs incurred were $492 million, $470
million and $401 million in 2000, 1999 and 1998, respectively,
and are included in selling, marketing and administrative
expense. The amount of revenue received for shipping and handling
is immaterial for all periods presented.
Inventories
Inventories are stated at the lower of cost or market determined
by the first-in, first-out method.
Intangible Assets
The excess of the cost over the fair value of net assets of
purchased businesses is recorded as goodwill and is amortized on
a straight-line basis over periods of 40 years or less. The cost
of other acquired intangibles is amortized on a straight-line
basis over their estimated useful lives. The Company continually
evaluates the carrying value of goodwill and other intangible
assets. Any impairments would be recognized when the expected
future operating cash flows derived from such intangible assets
is less than their carrying value.
Financial Instruments
Gains and losses on foreign currency hedges of existing assets or
liabilities, or hedges of firm commitments, are deferred and
recognized in income as part of the related transaction.
Unrealized gains and losses on currency swaps that hedge
third party debt are classified in the balance sheet as other
assets or liabilities. Interest expense under these agreements,
and on the debt instruments they hedge, are recorded at the net
effective interest rate of the hedge transaction.
In the event of early termination of a currency swap
contract that hedges third party debt, the gain or loss on the
swap contract is amortized over the remaining life of the related
transaction. If the underlying transaction associated with a
swap, or other derivative contract, is accounted for as a hedge
and is terminated early, the related derivative contract is
terminated simultaneously and any gains or losses would be
included in earnings immediately.
The Company adopted SFAS 133 effective January 1, 2001. 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 foreign currency product costs.
The Company also uses currency swaps to manage currency risk
primarily related to borrowings. Effective with the adoption of
SFAS 133, the Company designated both of these types of
derivatives as cash flow hedges.
On January 1, 2001 the Company recorded a $17 million net-of-
tax cumulative effect adjustment gain in accumulated other
comprehensive income to recognize at fair value all derivative
instruments that will be designated as cash flow hedges. The
Company determined that the cumulative effect adjustment to net
earnings was immaterial.
Advertising
Costs associated with advertising are expensed in the year
incurred. Advertising expenses worldwide, which are comprised of
television, radio, print media as well as Internet advertising
were $1.37 billion in 2000, $1.43 billion in 1999 and $1.21
billion in 1998.
Income Taxes
The Company intends to continue to reinvest its undistributed
international earnings to expand its international operations;
therefore no tax has been provided to cover the repatriation of
such undistributed earnings. At December 31, 2000, and January 2,
2000 the cumulative amount of undistributed international
earnings was approximately $9.5 billion and $8.3 billion,
respectively.
Net Earnings Per Share
Basic earnings per share is computed by dividing net income
available to common shareowners by the weighted average number of
common shares outstanding for the period. Diluted earnings per
share reflects the potential dilution that could occur if
securities or other contracts to issue common stock were
exercised or converted into common stock.
Risks and Uncertainties
The preparation of consolidated financial statements in
conformity with accounting principles generally accepted in the
United States requires management to make estimates and
assumptions that affect the amounts reported. Actual results may
or may not differ from those estimates.
Annual Closing Date
The Company follows the concept of a fiscal year which ends on
the Sunday nearest to the end of the month of December. Normally
each fiscal year consists of 52 weeks, but every five or six
years, as was the case in 1998, the fiscal year consists of 53
weeks.
Reclassification
Certain prior year amounts have been reclassified to conform with
current year presentation.
Stock Split
On April 26, 2001, the Board of Directors declared a 2-for-1
stock split. Shareowners of record at the close of business on
May 22, 2001 were issued one additional share of Johnson &
Johnson common stock on June 12, 2001 for each share owned as of
record date. All shares and per share data for all periods
presented in these financial statements have been adjusted to
reflect the stock split.
2 Inventories
At the end of 2000 and 1999, inventories were comprised of:
(Dollars in Millions)
2000 1999
Raw materials and supplies $ 718 689
Goods in process 480 426
Finished goods 1,707 2,049
$ 2,905 3,164
3 Property, Plant and Equipment
At the end of 2000 and 1999, property, plant and equipment at
cost and accumulated depreciation were:
(Dollars in Millions)
2000 1999
Land and land improvements $ 427 409
Buildings and building equipment 3,659 3,450
Machinery and equipment 6,312 6,298
Construction in progress 1,468 1,471
11,866 11,628
Less accumulated depreciation 4,457 4,473
$ 7,409 7,155
The Company capitalizes interest expense as part of the cost of
construction of facilities and equipment. Interest expense
capitalized in 2000, 1999 and 1998 was $97, $84 and $73 million,
respectively.
Upon retirement or disposal of fixed assets, the cost and
related amount of accumulated depreciation or amortization are
eliminated from the asset and accumulated depreciation accounts,
respectively. The difference, if any, between the net asset value
and the proceeds is adjusted to earnings. For additional
discussion on property, plant and equipment, see Note 14.
4 Rental Expense and Lease Commitments
Rentals of space, vehicles, manufacturing equipment and office
and data processing equipment under operating leases amounted to
approximately $264 million in 2000, $245 million in 1999 and $248
million in 1998.
The approximate minimum rental payments required under operating
leases that have initial or remaining non-cancelable lease terms
in excess of one year at December 31, 2000 are:
(Dollars in Millions)
After
2001 2002 2003 2004 2005 2005 Total
111 99 79 63 49 217 $618
Commitments under capital leases are not significant.
5 Employee Related Obligations
At the end of 2000 and 1999, employee related obligations were:
(Dollars in Millions)
2000 1999
Post-retirement benefits $ 822 805
Post employment benefits 101 111
Pension liabilities 601 647
Deferred compensation 280 231
Employee related obligations $1,804 1,794
6 Borrowings
The components of long-term debt are as follows:
(Dollars in Millions)
Eff. Eff.
2000 Rate% 1999 Rate%
3% Zero Coupon Convertible
Subordinated Debentures
due 2020 609 3.00 - -
5.25% Zero Coupon Convertible
Subordinated Debentures
due 2014 464 5.25 444 5.25
4.75% Convertible
Subordinated Debentures
due 2005 460 4.75 460 4.75
8.72% Debentures
due 2024 300 8.72 300 8.72
6.95% Notes due 2029 293 7.14 293 7.14
6.73% Debentures
due 2023 250 6.73 250 6.73
6% Eurodollar due 2001 250 6.02 250 6.02
7.375% Notes due 2002 200 7.49 199 7.49
8.25% Eurodollar Notes
due 2004 199 8.37 199 8.37
6.625% Notes due 2009 198 6.80 197 6.80
5% Deutsche Mark Notes
due 2001(2) 85 1.98 93 1.98
5.12% Notes due 2003(3) 60 0.82 60 0.82
Industrial Revenue Bonds 44 5.77 47 5.78
Other, principally
international 150 - 175 -
5% Convertible
Subordinated Debentures
due 2000 - 5.00 496 5.00
3,562 5.63(1)3,463 6.05(1)
Less current portion 399 34
$3,163 3,429
(1) Weighted average effective rate.
(2) Represents 5% Deutsche Mark notes due 2001 issued by a
Japanese subsidiary and converted to a 1.98% fixed rate yen note
via a currency swap.
(3) Represents 5.12% U.S. Dollar notes due 2003 issued by a
Japanese subsidiary and converted to a 0.82% fixed rate yen note
via a currency swap.
The Company has access to substantial sources of funds at
numerous banks worldwide. Total unused credit available to the
Company approximates $3.0 billion, including $1.5 billion of
credit commitments with various banks worldwide that expire on
October 4, 2001. Interest charged on borrowings under the credit
line agreements is based on either bids provided by the banks,
the prime rate or London Interbank Offered Rates (LIBOR), plus
applicable margins. Commitment fees under the agreements are not
material.
The Company's shelf registration filed with the Securities and
Exchange Commission enables the Company to issue up to $2.6
billion of unsecured debt securities and warrants to purchase
debt securities under its medium term note (MTN) program. No
MTN's were issued in 2000. At December 31, 2000, the Company had
$1.8 billion remaining on its shelf registration.
Long term debt includes convertible subordinated debentures
issued by Centocor and ALZA prior to their respective mergers
with Johnson & Johnson.
With respect to the 4.75% Convertible Subordinated Debentures
which were originally issued by Centocor, the Company exercised
its option redeem the debentures and set February 21, 2001 as the
redemption date, at a price equal to 102.714% of the principal
amount plus accrued interest. The debentures are convertible by
the holders into approximately 11,974,000 shares of Johnson &
Johnson stock at a conversion price of $38.546 per share. The
option expired at the close of business on February 14, 2001.
On July 28, 2000, ALZA completed a private offering of the 3%
Zero Coupon Convertible Subordinated Debentures which were issued
at a price of $551.26 per $1,000 principal amount at maturity.
At December 31, 2000, the outstanding 3% Debentures had a total
principal amount at maturity of $1.09 billion with a yield to
maturity of 3% per annum, computed on a semiannual bond
equivalent basis. There are no periodic interest payments. The
offering resulted in approximately $587.4 million of net proceeds
to the Company. At the option of the holder, each 3% Debenture is
convertible into 13.7465 shares of common stock, subject to
certain anti-dilution adjustments. At the option of the holder,
the 3% Debentures may be repurchased by the Company on July 28,
2003, 2008 or 2013, at a purchase price equal to the issue price
plus accreted original issue discount to such purchase date. The
Company, at its option, may elect to deliver either Johnson &
Johnson common stock or cash, or a combination of stock and cash,
in the event of repurchase of the 3% Debentures. The Company, at
its option, may also redeem any or all of the 3% Debentures after
July 28, 2003 at the issue price plus accreted original issue
discount. At December 31, 2000, the fair value based on quoted
market value of the 3% Debentures was $759.8 million.
In 1996, ALZA issued $500 million of the 5% Convertible
Subordinated Debentures. Each 5% Debenture was convertible, at
the option of the holder, into the equivalent of Johnson &
Johnson common stock at an initial conversion price of $19.47 per
share, subject to certain anti-dilution adjustments. On July 19,
2000, ALZA called for the redemption of its outstanding 5%
Debentures. Substantially all holders of the outstanding 5%
Debentures elected to convert their debentures at the equivalent
conversion price of $19.47 per share of Johnson & Johnson common
stock, or approximately 51.31 shares per $1,000 principal amount
of debentures. The aggregate number of equivalent Johnson &
Johnson shares issued from conversion of the 5% Debentures common
stock was 25.7 million. The amount paid to redeem the remaining
5% Debentures was not significant.
In 1994, ALZA issued the 5.25% Zero Coupon Convertible
Subordinated Debentures at a price of $354.71 per $1,000
principal amount at maturity. At December 31, 2000, the
outstanding 5.25% Debentures had a total principal amount at
maturity of $935.9 million, with a yield to maturity of 5.25% per
annum, computed on a semiannual bond equivalent basis. There are
no periodic interest payments. At the option of the holder, each
5.25% Debenture is convertible into 25.4545 shares of common
stock. At the option of the holder, the 5.25% Debentures will be
purchased by the Company on July 14, 2004 or July 14, 2009, at a
purchase price equal to the issue price plus accreted original
issue discount to such purchase date. The Company, at its
option, may elect to deliver either common stock or cash in the
event of conversion or purchase of the 5.25% Debentures. The
Company, at its option, may also redeem any or all of the 5.25%
Debentures for cash after July 14, 1999 at a redemption price
equal to the issue price plus accreted original issue discount.
At December 31, 2000 and 1999, the fair value based on quoted
market value of the 5.25% Debentures was $1,038.3 million and
$472.5 million, respectively.
Short-term borrowings and current portion of long-term debt
amounted to $1.5 billion at the end of 2000. These borrowings are
comprised of $0.8 billion of U.S. commercial paper, at an average
interest rate of 6.5%, and $0.7 billion of local borrowings,
principally by international subsidiaries.
Aggregate maturities of long-term obligations commencing in 2001
are:
(Dollars in Millions)
After
2001 2002 2003 2004 2005 2005
$ 399 226 75 222 467 2,173
7 Intangible Assets
At the end of 2000 and 1999, the gross and net amounts of
intangible assets were:
(Dollars in Millions)
2000 1999
Goodwill - gross $4,377 4,270
Less accumulated amortization 540 424
Goodwill - net $3,837 3,846
Patents and trademarks - gross $1,948 2,014
Less accumulated amortization 457 399
Patents & trademarks - net $1,491 1,615
Other intangibles - gross $2,751 2,800
Less accumulated amortization 544 407
Other intangibles - net $2,207 2,393
Total intangible assets - gross $9,076 9,084
Less accumulated amortization 1,541 1,230
Total intangible assets - net $7,535 7,854
The weighted average amortization periods for goodwill, patents
and trademarks and other intangibles are 32 years, 21 years and
18 years, respectively.
8 Income Taxes
The provision for taxes on income consists of:
(Dollars in Millions)
2000 1999 1998
Currently payable:
U.S. taxes $ 1,375 1,031 1,047
International taxes 668 599 485
2,043 1,630 1,532
Deferred:
U.S. taxes (36) 75 (183)
International taxes (92) (101) (117)
(128) (26) (300)
$ 1,915 1,604 1,232
A comparison of income tax expense at the federal statutory rate
of 35% in 2000, 1999 and 1998, to the Company's effective tax
rate is as follows:
(Dollars in Millions)
2000 1999 1998
U.S. $3,892 3,365 2,673
International 2,976 2,512 1,660
Earnings before taxes
on income: $6,868 5,877 4,333
Statutory taxes $2,404 2,057 1,517
Tax rates:
Statutory 35.0% 35.0% 35.0%
Puerto Rico and
Ireland operations (5.0) (5.3) (5.4)
Research tax credits (0.8) (0.7) (0.6)
Domestic state and local 0.8 1.0 1.2
International
subsidiaries
excluding Ireland (2.9) (2.4) (3.2)
IPR&D 0.3 0.1 1.3
All other 0.5 (0.4) 0.1
Effective tax rate 27.9% 27.3% 28.4%
During 2000, the Company had subsidiaries operating in Puerto
Rico under a tax incentive grant expiring December 31, 2007. In
addition, the Company has subsidiaries manufacturing in Ireland
under an incentive tax rate effective through the year 2010.
Deferred income taxes are recognized for tax consequences of
"temporary differences" by applying enacted statutory tax rates,
applicable to future years, to differences between the financial
reporting and the tax basis of existing assets and liabilities.
Temporary differences and carryforwards for 2000 are as follows:
(Dollars in Millions)
Deferred Tax
Asset Liability
Employee related obligations 623
Depreciation (354)
Non-deductible intangibles (734)
International R&D capitalized
for tax 156
Reserves & liabilities 528
Income reported for tax purposes 280
Miscellaneous international 274 (217)
Loss carryforwards 113
Capitalized intangibles 160
Miscellaneous U.S. 268
Total deferred income taxes 2,402 (1,305)
The difference between the net deferred tax on income per the
balance sheet and the net deferred tax is reflected in Taxes on
Income.
9 International Currency Translation
For translation of its non-U.S. dollar currencies, the Company
has determined that the local currencies of its international
subsidiaries are the functional currencies except those in highly
inflationary economies, which are defined as those which have had
compound cumulative rates of inflation of 100% or more during the
past three years.
In consolidating international subsidiaries, balance sheet
currency effects are recorded as a separate component of
shareowners' equity. This equity account includes the results of
translating all balance sheet assets and liabilities at current
exchange rates, except for those located in highly inflationary
economies which are reflected in operating results.
An analysis of the changes during 2000 and 1999 for foreign
currency translation adjustments is included in Note 11.
Net currency transaction and translation gains and losses
included in other expense were after-tax losses of $67 million in
2000, after-tax losses of $48 million in 1999 and after-tax
losses of $15 million in 1998.
10 Common Stock, Stock Option Plans and Stock
Compensation Agreements
At December 31, 2000 the Company had 19 stock-based compensation
plans. Under the 2000 Stock Option Plan, the Company may grant
options to its employees for up to 1.6% of the issued shares of
the Company's Common Stock, plus the number of shares available
from the previous year that were not issued, as well as shares
issued under the Plan that expired or terminated without being
exercised. The shares outstanding are for contracts under the
Company's 1986, 1991, 1995 and 2000 Stock Option Plans, the 1997
Non-Employee Director's Plan and the Mitek, Cordis, Biosense,
Gynecare, Centocor, Innovasive and ALZA Stock Option plans.
Stock options expire 10 years from the date they are granted and
vest over service periods that range from one to six years. All
options granted are valued at current market price. Shares
available for future grants are based on 1.6% of the issued
shares each year. Based on current issued shares, 49.2 million
shares could be granted each year during the years 2001 through
2005. Shares available for future grants under the previous plan
were 10 million, and 30 million at the end of 1999 and 1998,
respectively.
A summary of the status of the Company's stock option plans as of
December 31, 2000, January 2, 2000 and January 3, 1999 and
changes during the years ending on those dates, is presented
below:
(Shares in Thousands)
Weighted
Options Average
Outstanding Exercise Price
Balance at December 28, 1997 177,614 $16.92
Options granted 26,996 35.64
Options exercised (25,768) 9.66
Options canceled/forfeited (5,000) 22.06
Balance at January 3, 1999 173,842 20.76
Options granted 33,674 41.95
Options exercised (21,410) 11.68
Options canceled/forfeited (4,620) 25.11
Balance at January 2, 2000 181,486 25.65
Options granted 46,456 48.29
Options exercised (27,130) 15.22
Options canceled/forfeited (6,824) 33.03
Balance at December 31, 2000 193,988 $32.27
The Company applies the provision of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation,"
that calls for companies to measure employee stock compensation
expense based on the fair value method of accounting. However, as
allowed by the Statement, the Company elected continued use of
Accounting Principle Board (APB) Opinion No. 25, "Accounting for
Stock Issued to Employees," with pro forma disclosure of net
income and earnings per share determined as if the fair value
method had been applied in measuring compensation cost. Had the
fair value method been applied, net income would have been
reduced by $189 million or $.06 per share in 2000, $140 million
or $.05 per share in 1999 and $97 million or $.03 per share in
1998. These calculations only take into account the options
issued since January 1, 1995. The average fair value of options
granted was $14.79 in 2000, $15.00 in 1999 and $9.81 in 1998. The
fair value was estimated using the Black-Scholes option pricing
model based on the weighted average assumptions of:
2000 1999 1998
Risk-free rate 5.45% 6.32% 4.52%
Volatility 27.0% 24.0% 22.0%
Expected life 5.0 yrs 5.0 yrs 5.0 yrs
Dividend yield 1.40% 1.13% 1.30%
The following table summarizes stock options outstanding and
exercisable at December 31, 2000:
(Shares in Thousands)
Outstanding Exercisable
Average Average
Exercise Average Exercise Exercise
Price Range Options Life(a) Price Options Price
$4.00-$14.97 43,402 2.7 $ 11.85 43,263 $ 11.85
$15.49-$32.22 46,004 5.3 22.41 28,986 22.57
$32.32-$46.63 42,152 7.5 36.41 18,030 32.51
$46.66-$63.83 62,430 9.5 50.42 132 50.68
$4.00-$63.83 193,988 6.7 $ 32.27 90,384 $ 19.46
(a) Average contractual life remaining in years.
11 Accumulated Other Comprehensive Income
Components of other comprehensive income/(loss) consist of the
following:
(Dollars in Millions)
Unreal Accumulated
Foreign Gains/ Pension Other
Currency (Losses) Liab Compre
Translat on Sec Adj Income/(Loss)
December 28, 1997 $(411) 36 - (375)
1998 change 89 (47) - 42
January 3, 1999 (322) (11) - (333)
1999 change (155) 89 - (66)
January 2, 2000 (477) 78 - (399)
2000 change (45) (2) (15) (62)
December 31, 2000 $(522) 76 (15) (461)
Total other comprehensive income for 2000 includes
reclassification adjustment gains of $80 million realized from
the sale and write-down of equity securities and the associated
tax expense of $28 million. In 1999, total other comprehensive
income included reclassification adjustment losses of $18 million
and the associated tax benefit of $7 million. The tax effect on
these unrealized gains/(losses) on equity securities is an
expense of $53 million in 2000 and $48 million in 1999 and a
benefit of $12 million in 1998.
The currency translation adjustments are not currently adjusted
for income taxes as they relate to permanent investments in non-
U.S. subsidiaries.
12 Segments of Business and Geographic Areas (1)
Sales to Customers(2)
(Dollars in Millions)
2000 1999 1998
Consumer - Domestic 3,760 3,670 3,325
International 3,144 3,194 3,201
Total 6,904 6,864 6,526
Pharmaceutical - Domestic 8,441 6,955 5,396
International 4,220 4,275 3,907
Total 12,661 11,230 9,303
Med Dev & Diag - Domestic 5,506 5,296 4,530
International 4,775 4,617 4,039
Total 10,281 9,913 8,569
Worldwide total 29,846 28,007 24,398
(Dollar in Millions)
Operating Profit(3) Identifiable Assets
2000(4) 1999(5) 1998(6) 2000 1999
1998
Consumer 867 683 414 4,761 4,901 4,904
Pharmaceutical 4,420 3,735 3,114 9,209 8,797 7,087
Med Dev & Diag 1,696 1,632 941 12,745 12,45813,244
Segments total 6,983 6,050 4,469 26,715 26,15625,235
Expenses not allocated
to segments (3) (115) (173) (136)
General corporate(7) 7,530 4,908 3,731
Worldwide total 6,868 5,877 4,333 34,245 31,06428,966
(Dollar in Millions)
Additions to Property Depreciation and
Plant & Equipment Amortization
2000 1999 1998 2000 1999 1998
Consumer 336 412 268 275 277 273
Pharmaceutical 627 760 665 474 407 402
Med Dev & Diag 665 576 627 801 786 629
Segments total 1,628 1,748 1,560 1,550 1,470 1,304
General corporate 61 74 50 42 40 31
Worldwide total 1,689 1,822 1,610 1,592 1,510 1,335
(Dollar in Millions)
Sales to Customers(2)
2000 1999 1998
United States 17,707 15,921 13,251
Europe 6,365 6,711 6,354
Western Hemisphere
Excluding U.S. 2,084 2,023 2,105
Asia-Pacific, Africa 3,690 3,352 2,688
Worldwide total 29,846 28,007 24,398
Long-Lived Assets(3)
2000 1999 1998
United States 10,043 10,033 9,270
Europe 3,551 3,698 4,135
Western Hemisphere
Excluding U.S. 653 550 429
Asia-Pacific, Africa 427 439 402
Segments total 14,674 14,720 14,236
General corporate(7) 255 282 262
Other non long-lived
assets 19,316 16,062 14,468
Worldwide total 34,245 31,064 28,966
(1) See Management's Discussion and Analysis for a description of
the segments in which the Company does business.
(2) Export sales and intersegment sales are not significant. No
single customer or country represents 10% or more of total sales.
(3) Amounts not allocated to segments include interest
income/expense, minority interest and general corporate income
and expense.
(4) 2000 results excluding Restructuring gain and In-Process
Research and Development charges are: Consumer $843,
Pharmaceutical $4,428, Medical Devices & Diagnostics $1,745.
(5) 1999 Pharmaceutical results excluding special charges related
to the Centocor and SEQUUS mergers equals $3,817.
(6) 1998 results excluding Restructuring and In-Process Research
and Development charges: Consumer $658, Pharmaceutical $3,313,
and Medical Devices & Diagnostics $1,409. See Note 14 for details
of Restructuring and IPR&D charges by segment.
(7) General corporate includes cash and marketable securities.
13 Retirement and Pension Plans
The Company sponsors various retirement and pension plans,
including defined benefit, defined contribution and termination
indemnity plans, which cover most employees worldwide. The
Company also provides postretirement benefits, primarily health
care to all domestic retired employees and their dependents.
Most international employees are covered by government-sponsored
programs and the cost to the Company is not significant.
Retirement plan benefits are primarily based on the employee's
compensation during the last three to five years before
retirement and the number of years of service. The Company's
objective in funding its domestic plans is to accumulate funds
sufficient to provide for all accrued benefits. International
subsidiaries have plans under which funds are deposited with
trustees, annuities are purchased under group contracts or
reserves are provided.
In certain countries other than the United States, the funding of
pension plans is not a common practice as funding provides no
economic benefit. Consequently, the Company has several pension
plans which are not funded.
The Company does not fund retiree health care benefits in advance
and has the right to modify these plans in the future.
Net periodic benefit costs for the Company's defined benefit
retirement plans and other benefit plans for 2000, 1999 and 1998
include the following components:
(Dollars in Millions)
Retirement Plans Other Benefit Plans
2000 1999 1998 2000 1999 1998
Service cost $ 201 208 185 20 24 20
Interest cost 295 270 254 51 50 50
Expected return
on plan assets (377)(330)(291) (5) (5) (14)
Amortization of
prior service cost 21 17 17 (1) (1) 2
Amortization of net
transition asset (7) (12) (14) - - -
Recognized actuarial
(gain)/loss (81) (17) (24) (10) (2) 8
Curtailments and
Settlements - 2 2 - - -
Net periodic
benefit cost $ 52 138 129 55 66 66
The net periodic (income) cost attributable to domestic
retirement plans included above was ($19) million in 2000, $56
million in 1999 and $40 million in 1998.
The following tables provide the weighted-average assumptions
used to develop net periodic benefit cost and the actuarial
present value of projected benefit obligations:
Retirement Plans Other Benefit Plans
2000 1999 1998 2000 1999 1998
Domestic Benefit Plans
Weighted average
discount rate 7.50 7.75 6.75 7.50 7.75 6.75
Expected long-term
Rate of return on
plan assets 9.00 9.00 9.00 9.00 9.00 9.00
Rate of increase in
compensation levels 5.00 5.00 5.00 5.00 5.00 5.00
International Benefit Plans
Weighted average
discount rate 6.00 5.75 5.50 6.75 6.75 6.00
Expected long-term
Rate of return on
plan assets 7.50 7.50 7.75 - - -
Rate of increase in
compensation levels 3.50 3.50 3.50 4.25 4.50 4.25
Health care cost trends are projected at annual rates grading
from 9% for employees under age 65 and 7% for employees over age
65 down to 5% for both groups by the year 2008 and beyond. The
effect of a 1% change in these assumed cost trends on the
accumulated postretirement benefit obligation at the end of 2000
would be an $89 million increase or a $78 million decrease and
the effect on the service and interest cost components of the net
periodic postretirement benefit cost for 2000 would be an $11
million increase or a $9 million decrease.
The following tables set forth the change in benefit obligations
and change in plan assets at year-end 2000 and 1999 for the
Company's defined benefit retirement plans and other
postretirement plans:
(Dollars in Millions)
Retirement Plans Other Benefit Plans
2000 1999 2000 1999
Change in Benefit Obligation
Benefit obligation
- beg of year $4,206 4,315 694 726
Service cost 201 208 20 24
Interest cost 295 270 51 50
Plan participant
contributions 14 11 - -
Amendments 2 81 (16) -
Actuarial loss/
(gain) 186 (346) 10 (81)
Acquisitions 1 51 - 11
Curtailments &
setlements (13) (7) - -
Total benefits
paid (219) (210) (35) (36)
Effect of exchange
rates (118) (167) (2) -
Benefit obligation
- end of year 4,555 4,206 722 694
Change in Plan Assets
Plan assets at fair value
- beg of year 5,254 4,173 62 57
Actual return on
plan assets (150) 1,301 (1) 8
Company contr. 62 46 31 32
Plan participant
contributions 14 11 - -
Acquisitions (5) 41 - -
Benefits paid from
plan assets (209) (198) (34) (35)
Effect of exchange
rates (119) (120) - -
Plan assets at fair value
- end of year 4,847 5,254 58 62
Amounts recognized in the Company's balance sheet consist of
the following:
(Dollars in Millions)
Retirement Plans Other Benefit Plans
2000 1999 2000 1999
Plan assets in excess of
(less than) projected
benefit obligation 292 1,048 (664) (632)
Unrecognized actuarial
gains (984) (1,801) (166) (200)
Unrecognized prior
service cost 128 156 (23) (9)
Unrecognized net
transition asset (20) (29) - -
Total recognized in
the consolidated
balance sheet (584) (626) (853) (841)
Book reserves (748) (775) (853) (841)
Prepaid benefits 138 120 - -
Other assets 26 29 - -
Total recognized in
consolidated balance
sheet (584) (626) (853) (841)
Plans with accumulated benefit obligations in excess of plan
assets consist of the following:
(Dollars in Millions)
Retirement Plans Other Benefit Plans
2000 1999 2000 1999
Accumulated benefit
obligation (451) (411) (692) (696)
Projected benefit
obligation (480) (528) - -
Plan assets at fair
value 49 53 88 62
14 Restructuring and In-Process Research and Development Charges
In the fourth quarter of 1998, the Company approved a plan to
reconfigure its global network of manufacturing and operating
facilities with the objective of enhancing operating
efficiencies. This plan was completed at year-end 2000. Among the
initiatives involved in this plan were the closure of inefficient
manufacturing facilities, exiting certain businesses which were
not providing an acceptable return and related employee
separations. The closure of these facilities represented
approximately 10% of the Company's manufacturing capacity.
The estimated cost of this plan was reflected in cost of sales
($60 million) and restructuring charge ($553 million). The charge
consisted of employee separation costs of $161 million, asset
impairments of $322 million, impairments of intangibles of $52
million and other exit costs of $78 million. Employee separations
occurred primarily in manufacturing and operations facilities
affected by the plan. The decision to exit certain facilities and
businesses decreased cash flows triggering the asset impairment.
The amount of impairment of such assets was calculated using
discounted cash flows or appraisals.
The asset impairments that amounted to $322 million consisted of
the following: machinery & equipment of $215 million, inventory
of $60 million, buildings of $32 million and leasehold
improvements of $15 million. Intangible assets of $52 million
included Menlo Care of $26 million, Innotech of $20 million and
other intangible assets of $6 million. The Menlo Care intangible
asset was related to the Aquavene biomaterial technology that was
no longer in use with all other intangible assets related to
products that were abandoned by the Company due to insufficient
financial return.
Other exit costs consisted of the following:
2000 2000
Beginning Cash Reversed Remaining
Accrual Outlays to Income Accrual
Restructuring charges:
Employee separations $100 57 25 18
Other exit costs:
Distributor
Terminations 11 11 - -
Disposal costs 10 7 3 -
Lease terminations 7 7 - -
Other costs 12 7 5 -
Total other exit
costs 40 32 8 -
$140 89 33 18
At year-end 2000, $33 million of the accrual was reversed to
income. This gain by segment of business was applied as follows:
$20 million - Consumer, $5 million - Pharmaceutical and $8
million - Professional. The remaining accrual represents on-going
payments to severed employees to be paid out over the next six
months. The restructuring plan resulted in the reduction of 35
manufacturing facilities around the world. Additionally, the
total headcount reduction due to the restructuring plan was
approximately 4,100 employees worldwide.
In connection with the businesses acquired in 1998, the Company
recognized charges for in-process research and development
(IPR&D) in the amount of $298 million related primarily to the
DePuy and RETAVASE acquisitions. The value of the IPR&D projects
was calculated with the assistance of third party appraisers and
was based on the estimated percentage completion of the various
research and development projects being pursued that ranged from
60% to 85% complete on acquisition date. The calculation reflects
cash flow projections discounted for the risk inherent in such
projects that ranged from 13% to 20%. The remaining effort to
complete these projects is not material.
The 1998 special charges impacted the business segments as
follows: the special pre-tax charge for the Consumer segment was
$244 million. This charge reflects $85 million for severance
costs associated with the termination of approximately 2,550
employees; $133 million for the write-down of impaired assets and
$26 million for other exit costs. Acquisitions within the
Pharmaceutical business segment resulted in a $134 million write-
off of purchased IPR&D. Additionally, the Pharmaceutical business
segment recorded $65 million of the special charge representing
$18 million for severance costs associated with the termination
of approximately 250 employees and $47 million for the write-down
of impaired assets. Acquisitions within the Medical Devices &
Diagnostics business segment resulted in a $164 million write-off
of purchased IPR&D. Additionally, the Medical Devices &
Diagnostics business segment recorded other special charges of
$304 million. This charge included $58 million for severance
costs associated with the termination of approximately 2,300
employees; $194 million for the write-down of impaired assets and
$52 million for other exit costs.
In the first quarter of 1999, the Company completed a merger with
SEQUUS Pharmaceuticals, Inc. and incurred restructuring charges
related to employee severance and other exit costs. Employee
severance costs related to the termination of approximately 100
employees were $5 million and other exits costs consisting
primarily of cancellation of lease agreements were $14 million.
At December 31, 2000, this restructuring accrual was fully
utilized.
15 Savings Plan
The Company has voluntary 401(k) savings plans designed to
enhance the existing retirement programs covering eligible
employees. The Company matches a percentage of each employee's
contributions consistent with the provisions of the plan for
which he/she is eligible.
In the U.S. salaried plan, one-third of the Company match is paid
in Company stock under an employee stock ownership plan (ESOP).
In 1990, to establish the ESOP, the Company loaned $100 million
to the ESOP Trust to purchase shares of the Company stock on the
open market. In exchange, the Company received a note, the
balance of which is recorded as a reduction of shareowners'
equity.
Total contributions to the plans were $86 million in 2000, $78
million in 1999, and $71 million in 1998.
16 Financial Instruments
Derivative Financial Instrument Risk
The Company uses derivative financial instruments to manage the
impact of foreign exchange rate changes on cash flows. The
Company does not enter into derivative financial instruments for
trading or speculative purposes.
The Company has a policy of only entering into contracts with
parties that have at least an "A" (or equivalent) credit rating.
The counterparties to these contracts are major financial
institutions and the Company does not have significant exposure
to any one counterparty. Management believes the risk of loss is
remote.
Foreign Exchange Risk Management
The Company uses currency swaps to manage currency risk related
to borrowings. Currency swap agreements that hedge third party
debt mature with these borrowings and are described in Note 6.
The Company enters into forward foreign exchange and currency
swap contracts maturing within five years to hedge future foreign
currency product costs and other cash flows, and to protect the
value of existing foreign currency assets and liabilities. The
Company has forward exchange contracts outstanding at year-end in
various currencies, principally in U.S. Dollars, Euros and Swiss
Francs. In addition, the Company has currency swaps outstanding,
principally in U.S. Dollars and Euros. Unrealized gains and
losses, based on market prices, are presented in the following
table:
(Dollars in Millions)
2000
Notional
Amounts Gains Losses
Forwards 5,548 174 121
Currency swaps 3,223 226 133
Fair Value of Financial Instruments
The carrying amounts of cash and cash equivalents and current and
non-current marketable securities approximates fair value of
these instruments. In addition, the carrying amount of long-term
investments, long-term debt (excluding the 3% Zero Coupon
Convertible Subordinated Debentures and the 5.25% Zero Coupon
Convertible Subordinated Debentures as noted in Note 6) and
currency swaps (used to hedge third party debt) approximates fair
value of these instruments for 2000 and 1999.
The fair value of current and non-current marketable securities,
long-term debt and currency swap agreements was estimated based
on market prices and quotes obtained from brokers for those or
similar instruments. The fair value of long-term investments was
estimated based on quoted market prices at year-end.
Concentration of Credit Risk
The Company invests its excess cash in both deposits with major
banks throughout the world and other high quality short-term
liquid money market instruments (commercial paper, government and
government agency notes and bills, etc.). The Company has a
policy of making investments only with commercial institutions
that have at least an "A" (or equivalent) credit rating. These
investments generally mature within six months and the Company
has not incurred any related losses.
The Company sells a broad range of products in the health care
field in most countries of the world. Concentrations of credit
risk with respect to trade receivables are limited due to the
large number of customers comprising the Company's customer base.
Ongoing credit evaluations of customers' financial condition are
performed and, generally, no collateral is required. The Company
maintains reserves for potential credit losses and such losses,
in the aggregate, have not exceeded management's expectations.
17 Mergers & Acquisitions
On June 22, 2001, Johnson & Johnson and ALZA Corporation
completed the merger between the two companies. This transaction
was accounted for as a pooling-of-interests. ALZA had
approximately 239 million shares outstanding (286 million on a
fully diluted basis) that were exchanged for approximately 234
million shares of Johnson & Johnson common stock. On a diluted
basis when adjusted for stock options and convertible debt, the
total number of Johnson & Johnson shares issued total
approximately 280 million shares. Holders of ALZA common stock
received 0.98 of a share of Johnson and Johnson common stock,
valued at $52.39 per share.
ALZA Corporation is research-based pharmaceutical company with
leading drug delivery technologies. The company 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.
As indicated in Note 1, these financial statements have been
restated to give effect to Johnson & Johnson's merger with ALZA.
The only adjustments to ALZA's historical financial statements
have been the reflection of income tax expense as if the
companies had been combined for all periods presented, the
elimination of transactions with Johnson & Johnson affiliate
companies and the reclassification of certain amounts to conform
with Johnson & Johnson presentation. For 2000, 1999 and 1998,
the revenue and net earnings of Johnson & Johnson prior to the
merger with ALZA was $29,139, $27,471 and $23,995 million,
respectively for revenue and $4,800, $4,167 and $3,003 million,
respectively of net earnings. For 2000, 1999 and 1998, the
revenue and net earnings of ALZA included in Johnson & Johnson's
restated financial results are $707, $536 and $403 million
respectively for revenue and $153, $106 and $98 million,
respectively of net earnings.
Certain businesses were acquired for $241 million during 2000
($156 million in cash and debt assumed and 1,775,832 shares of
the Company's common stock issued from Treasury valued at $77
million). These acquisitions were accounted for by the purchase
method and, accordingly, results of operations have been included
in the accompanying consolidated financial statements from their
respective dates of acquisition.
The 2000 acquisitions included Crescendo, a company formed by
ALZA for the purpose of selecting, developing and commercializing
human pharmaceutical products, Innovasive Devices, a company that
manufactures and sells devices for sport medicine surgery for
soft tissue injuries, Atrionix, Inc., a development stage company
whose primary product is a pulmonary ablation catheter for the
treatment of atrial fibrillation, Medtrex, a company that
develops and manufactures electrosurgical generators and
disposable products, and the St. Joseph aspirin business.
The excess of purchase price over the estimated fair value of
acquisitions amounted to $95 million and has been allocated to
identifiable intangibles and goodwill. Approximately $66 million
has been identified as the value of IPR&D associated with the
Atrionix, Inc. and Crescendo acquisitions. The IPR&D charge is
primarily related to an Atrionix project for the design of a
catheter system to be used in a procedure which blocks electrical
impulses originating in pulmonary veins, which can cause atrial
fibrillation. The value of the IPR&D was calculated with the
assistance of a third party appraiser using a cash flow
projection discounted for the risk inherent in such a project.
The discount rate used was 26%.
Pro forma information is not provided since the impact of the
acquisitions does not have a material effect on the Company's
results of operations, cash flows or financial position.
On October 6, 1999, Johnson & Johnson and Centocor, Inc.
completed the merger between the two companies. This transaction
was accounted for by the pooling-of-interests method of
accounting. Centocor had approximately 71 million shares
outstanding (83 million shares on a fully diluted basis) which
were exchanged for approximately 90 million shares of Johnson &
Johnson common stock. On a diluted basis, when adjusted for stock
options outstanding and convertible debt, Johnson & Johnson
issued approximately 106 million shares. Holders of Centocor
common stock received 1.2780 of a share of Johnson & Johnson
common stock for each share of Centocor common stock, valued at
$47.74 per share.
Centocor is a leading biopharmaceutical company that creates,
acquires and markets cost-effective therapies that yield long
term benefits for patients and the health care community. Its
products, developed primarily through monoclonal antibody
technology, help physicians deliver innovative treatments to
improve human health and restore patients' quality of life.
During 1999, certain businesses were acquired for $271 million.
These acquisitions were accounted for by the purchase method and,
accordingly, the results of operations of the acquired businesses
have been included in the accompanying consolidated financial
statements from their respective dates of acquisition.
The 1999 acquisitions included AVEENO, the dermatological skin
care business from S.C. Johnson, Angioguard, Inc., a developer of
an embolic containment device used during interventional
procedures, certain assets of Cygnus' drug delivery business,
certain assets of Medscand related to the TVT incontinence
product and the stock of Horizon Health Services, Inc., a company
specializing in the management of ambulatory surgery centers.
Additionally, the Company completed a merger with SEQUUS
Pharmaceuticals, Inc. that was accounted for as a pooling-of-
interests transaction. Accordingly, the Company's consolidated
financial statements and all financial information have been
retroactively restated for prior periods to reflect the combined
operations, financial position and cash flows of both companies.
The excess of purchase price over the estimated fair market value
of 1999 acquisitions amounted to $266 million. This amount has
been allocated to identifiable intangibles and goodwill. Pro
forma information is not provided for 1999, as the impact of the
acquisitions does not have a material effect on the Company's
results of operations, cash flows or financial position.
During 1999, the plan to integrate the DePuy business acquired in
1998 into the Company's operations was completed and resulted in
additional liabilities of $81 million to address costs relating
to distributor terminations, employee separations and plant
consolidations.
Divestitures in 2000 and 1999 did not have a material effect on
the Company's results of operations, cash flows or financial
position.
18 Legal Proceedings
The Company is involved in numerous product liability cases in
the United States, many of which concern adverse reactions to
drugs and medical devices. The damages claimed are substantial,
and while the Company is confident of the adequacy of the
warnings and instructions for use which accompany such products,
it is not feasible to predict the ultimate outcome of litigation.
However, the Company believes that if any liability results from
such cases, it will be substantially covered by reserves
established under its self-insurance program and by commercially
available excess liability insurance.
The Company, along with numerous other pharmaceutical
manufacturers and distributors, was a defendant in a federal and
a number of state antitrust class actions brought by retail
pharmacies alleging an industry-wide agreement to deny them price
discounts on sales of brand name prescription drugs. The Company
defeated the federal class action and has settled all but two of
the state class actions. The cases of a number of pharmacies that
opted out of the federal class action also remain. The Company
believes these remaining actions are without merit and is
defending them vigorously.
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.
Trial in the consolidated Florida actions is scheduled to begin
in late March of this year. The Company believes that these
actions are without merit and is defending them vigorously.
Johnson & Johnson Vision Care is also a defendant in a nationwide
consumer class action brought on behalf of purchasers of its
ACUVUE brand contact lenses. The plaintiffs in that action, which
was filed in 1996 in New Jersey State Court, allege that Vision
Care sold its 1-DAY ACUVUE lens at a substantially cheaper price
than ACUVUE and misled consumers into believing these were
different lenses when, in fact, they were allegedly "the same
lenses." Plaintiffs are seeking substantial damages and an
injunction against supposed improper conduct. The Company
believes these claims are without merit and is defending the
action vigorously.
The Company's Ortho Biotech subsidiary is party to an arbitration
proceeding filed against it in 1995 by Amgen, Ortho Biotech's
licensor of U.S. non-dialysis rights to EPO, in which Amgen seeks
to terminate Ortho Biotech's U.S. license rights and collect
substantial damages based on alleged deliberate EPO sales by
Ortho Biotech during the early 1990's into Amgen's reserved
dialysis market. The Company believes no basis exists for
terminating Ortho Biotech's U.S. license rights or for obtaining
damages and is vigorously contesting Amgen's claims. However,
Ortho Biotech's U.S. license rights to EPO are material to the
Company; thus, an unfavorable outcome could have a material
adverse effect on the Company's consolidated financial position,
liquidity and results of operations. The arbitration is scheduled
to begin in September of this year.
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 Earnings Per Share
The following is a reconciliation of basic net earnings per share
to diluted net earnings per share for the years ended December
31, 2000, January 2, 2000 and January 3, 1999.
2000(1) 1999(2) 1998(3)
Basic earnings per share $1.65 1.43 1.04
Average shares
outstanding - basic 2,993.5 2,978.2 2,973.6
Potential shares
exercisable under
stock option plans 119.0 141.7 142.1
Less: shares repurchased
under treasury stock method (71.7) (81.2) (82.8)
Convertible debt shares 58.4 61.7 49.8
Adjusted average shares
outstanding - diluted 3,099.2 3,100.4 3,082.7
Diluted earnings per share $1.61 1.39 1.02
Diluted earnings per share calculation includes the dilution
effect of convertible debt: a decrease in interest expense of $47
million and $48 million and $31 million after tax for years 2000,
1999 and 1998 respectively. Diluted earnings per share
calculation also includes the dilution effect of additional 58
million shares, 62 million shares and 50 million shares for 2000,
1999 and 1998, respectively due to convertible debt. The
dilution effect due to convertible debt in 1998 of 51 million
shares excludes 12 million shares related to the Centocor
convertible dentures as these shares would result in an anti-
dilutive effect on diluted earnings per share. Diluted earnings
per share excludes 62 million shares, 24 million shares and 19
million shares of options for the years 2000, 1999 and 1998,
respectively as the exercise price of these options were greater
than their average market value, resulting in an anti-dilutive
effect on diluted earnings per share.
(1) 2000 results excluding special charges related to In-Process
Research and Development charges and restructuring gain: Basic
EPS at $1.67 and Diluted EPS at $1.63 (unaudited).
(2) 1999 results excluding special charges related to the
Centocor and SEQUUS mergers are: Basic EPS at $1.46 and Diluted
EPS at $1.42 (unaudited).
(3) 1998 results excluding Restructuring and In-Process Research
and Development charges are: Basic EPS at $1.28 and Diluted EPS
at $1.24 (unaudited).
20 Capital and Treasury Stock
Changes in treasury stock were:
(Amounts in millions except number of shares in Thousands)
Treasury Stock
Shares Amount
Balance at December 28, 1997 148,236 $391
Employee compensation and
stock option plans (28,908) (874)
Repurchase of common stock 25,204 930
Business combinations - (3)
Balance at January 3, 1999 144,532 444
Employee compensation and
stock option plans (22,234) (829)
Repurchase of common stock 17,856 840
Business combinations - (2)
Balance at January 2, 2000 140,154 453
Employee compensation and stock
option plans (28,886) (1,075)
Conversion of subordinated
Debentures (25,676) -
Repurchase of common stock 21,402 973
Business combinations (1,776) (9)
Balance at December 31, 2000 105,218 $342
Shares of common stock authorized and issued were 3,119,842,000
shares at the end of 2000, 3,119,832,000 shares at the end of
1999 and 3,119,648,000 shares at the end of 1998 and 1997.
21 Selected Quarterly Financial Data (Unaudited)
Selected unaudited quarterly financial data for the years 2000
and 1999 are summarized below:
(Dollars in Millions
Except Per Share Amounts)
2000
1st 2nd 3rd 4th
Qtr Qtr Qtr Qtr (1)
Segment sales to customers
Consumer 1,752 1,707 1,722 1,723
Pharmaceutical 3,163 3,383 3,168 2,947
Med Dev & Diag 2,525 2,580 2,548 2,628
Total sales 7,440 7,670 7,438 7,298
Gross Profit 5,198 5,409 5,247 5,084
Earnings before provision
for taxes on income 1,914 1,913 1,834 1,207
Net earnings 1,331 1,363 1,323 936
Basic net EPS .45 .46 .44 .31
Diluted net EPS .44 .44 .43 .30
1999
1st 2nd 3rd 4th
Qtr Qtr Qtr Qtr (2)
Segment sales to customers
Consumer 1,728 1,687 1,704 1,744
Pharmaceutical 2,697 2,956 2,937 2,639
Med Dev & Diag 2,434 2,455 2,445 2,581
Total sales 6,859 7,098 7,086 6,964
Gross Profit 4,779 4,963 4,999 4,768
Earnings before provision
for taxes on income 1,630 1,676 1,593 978
Net earnings 1,146 1,201 1,158 768
Basic net EPS .38 .40 .39 .26
Diluted net EPS .37 .39 .38 .25
(1) 2000 results excluding special charges related to In-Process
Research and Development charge and restructuring gain: Earnings
before taxes $1,240; Net earnings $981; Basic EPS $.33 and
Diluted EPS $.32. The fourth quarter also includes an after tax
charge of $42 million relating to a federal government
investigation of LifeScan's SURESTEP Blood Glucose Meter.
(2) 1999 results excluding special charges related to the
Centocor & SEQUUS mergers; Earnings before taxes $1,060; Net
earnings $843; Basic EPS $.28 and Diluted EPS $.28.
Report of Independent Accountants
To the Shareowners and Board of Directors of Johnson & Johnson:
In our opinion, the accompanying consolidated balance sheets and
the related consolidated statements of earnings, consolidated
statements of equity, and consolidated statements of cash flows
present fairly, in all material respects, the financial position
of Johnson & Johnson and subsidiaries at December 31, 2000 and
January 2, 2000, and the results of their operations and their
cash flows for each of the three years in the period ended
December 31, 2000, in conformity with accounting principles
generally accepted in the United States of America. These
financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our
audits of these statements in accordance with auditing standards
generally accepted in the United States of America, which require
that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the
overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
New York, New York
January 22, 2001,
except as to the stock split which is as of June 12, 2001
and the pooling of interests with ALZA Corporation,
which is as of June 22, 2001, both described in Note 1
EX-99.2O OTH FIN ST
4
exhibitninetyninetwoo.txt
JOHNSON & JOHNSON AND SUBSIDIARIES
EXHIBIT 99.2O - SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
Fiscal Years Ended December 31, 2000, January 2, 2000 and January
3, 1999
(Dollars in Millions)
Amount
Reserves deducted from
Accounts receivable,
trade:
2000
Reserve for doubtful
accounts
Bal beginning
of period 206
Add'l charged to
costs and exp (A) 89
Write-offs less
recoveries (106)
Currency adj. (7)
Bal end of period 182
Reserve for customer
rebates
Bal beginning
of period 140
Add'l charged to
costs and exp (A) 1,220
Customer rebates
allowed (1,170)
Currency adj. (2)
Bal end of period 188
Reserve for cash
discounts
Bal beginning
of period 61
Add'l charged to
costs and exp (A) 494
Cash discounts
allowed (484)
Cash discounts
allowed (2)
Bal end of period 69
1999
Reserve for doubtful
accounts
Bal beginning
of period 188
Add'l charged to
costs and exp (A) 90
Write-offs less
recoveries (91)
Currency adj. 19
Bal end of period 206
Reserve for customer
rebates
Bal beginning
of period 157
Add'l charged to
costs and exp (A) 1,033
Customer rebates
allowed (1,056)
Currency adj. 6
Bal end of period 140
Reserve for cash
discounts
Bal beginning
of period 47
Add'l charged to
costs and exp (A) 520
Currency adj. (506)
Bal end of period 61
1998
Reserve for doubtful
accounts
Bal beginning
of period 157
Add'l charged to
costs and exp (A) 51
Write-offs less
recoveries (25)
Currency adj. 5
Bal end of period 188
Reserve for customer
rebates
Bal beginning
of period 164
Add'l charged to
costs and exp (A) 978
Customer rebates
allowed (993)
Currency adj. 8
Bal end of period 157
Reserve for cash
discounts
Bal beginning
of period 42
Add'l charged to
costs and exp (A) 431
Cash discounts
allowed (429)
Cash discounts
allowed 3
Bal end of period 47
EX-99.14 OTH CONSENT
5
exhibitninetyninefourteen.txt
Exhibit 99.14
Report of Independent Accountants on Financial Statement Schedule
To the Shareowners and Board of Directors of Johnson & Johnson:
Our audits of the consolidated financial statements of Johnson &
Johnson referred to in our report dated January 22, 2001, except
as to the stock split which is as of June 12, 2001 and the
pooling of interests with ALZA Corporation, which is as of June
22, 2001, appearing in this Current Report on Form 8-K filed on
September 20, 2001 also included an audit of the financial
statement schedule listed in Exhibit 99.2O of this Form 8-K.
In our opinion, this financial statement schedule presents
fairly, in all material respects, the information set forth
therein when read in conjunction with the related consolidated
financial statements.
PricewaterhouseCoopers LLP
New York, New York
January 22, 2001,
except as to the stock split which is as of June 12, 2001
and the pooling of interests with ALZA Corporation,
which is as of June 22, 2001, both described in Note 1
to the consolidated financial statements
EX-12
6
exhibittwelve.txt
Exhibit 12
JOHNSON & JOHNSON AND SUBSIDIARIES
STATEMENT OF COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(1)
(Dollars in Millions)
Fiscal Year Ended
Dec 31, Jan 2, Jan 3, Dec 28, Dec 29,
2000 2000 1999(2) 1997 1996
Determination
of earnings:
Earnings before
provision for
taxes on
income $6,868 5,877 4,333 4,342 4,143
Fixed charges 292 337 269 260 258
Total earnings
as defined $7,160 6,214 4,602 4,602 4,401
Fixed charges and
other:
Rents 88 82 83 81 82
Interest 204 255 186 179 176
Fixed charges 292 337 269 260 258
Capitalized
interest 97 84 73 41 55
Total fixed
charges $ 389 421 342 301 313
Ratio of earnings
to fixed
charges 18.41 14.76 13.46 15.29 14.06
(1) The ratio of earnings to fixed charges represents the
historical ratio of the Company and is calculated on a total
enterprise basis. The ratio is computed by dividing the sum of
earnings before provision for taxes and fixed charges (excluding
capitalized interest) by fixed charges. Fixed charges represent
interest (including capitalized interest) and amortization of
debt discount and expense and the interest factor of all rentals,
consisting of an appropriate interest factor on operating leases.
(2) Earnings for the year ended January 3, 1999 include charges
related to restructuring of $613 million and in-process research
and development charges of $298 million. Excluding the effect of
these charges, the ratio of earnings to fixed charges would have
been 16.12.
EX-23
7
exhibittwentythree.txt
Exhibit 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the
Registration Statements of Johnson & Johnson on Form S-8
(File No. 333-59380, 33-52252, 33-40294, 33-40295, 33-32875,
33-7634, 033-59009, 333-38055, 333-40681, 333-26979 and 333-
86611), Form S-3 (File No. 333-67020, 33-55977 and 33-47424)
and Form S-4 (File No. 333-67370, 333-59380, 333-59110, 001-
03215, 333-56034, 33-57583, 333-00391, 333-38097, 333-30081
and 333-86611) and related Prospectuses, of our reports
dated January 22, 2001, except as to the stock split which
is as of June 12, 2001 and the pooling of interests with
ALZA Corporation which is as of June 22, 2001, relating to
the consolidated financial statements and financial
statement schedule of Johnson & Johnson and subsidiaries as
of December 31, 2000 and January 2, 2000, and for each of
the three years in the period ended December 31, 2000, which
reports appear in this Current Report on Form 8-K.
PricewaterhouseCoopers LLP
New York, New York
September 20, 2001