-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MD1mIDS5C4F8ZxqNR+l/vCSwZsNlLZaqjeCRUJXkEfmI/qUZzVyYaaW3VCv0BOT+ kxg3bMm9pODYKh/e2x1Pdg== 0000950123-00-003132.txt : 20000403 0000950123-00-003132.hdr.sgml : 20000403 ACCESSION NUMBER: 0000950123-00-003132 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 20000102 FILED AS OF DATE: 20000331 FILER: COMPANY DATA: COMPANY CONFORMED NAME: JOHNSON & JOHNSON CENTRAL INDEX KEY: 0000200406 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 221024240 STATE OF INCORPORATION: NJ FISCAL YEAR END: 0103 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-03215 FILM NUMBER: 590508 BUSINESS ADDRESS: STREET 1: ONE JOHNSON & JOHNSON PLZ CITY: NEW BRUNSWICK STATE: NJ ZIP: 08933 BUSINESS PHONE: 9085240400 10-K405 1 JOHNSON & JOHNSON 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED JANUARY 2, 2000 COMMISSION FILE NUMBER 1-3215 JOHNSON & JOHNSON (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) NEW JERSEY 22-1024240 (State of (I.R.S. Employer Incorporation) Identification No.) ONE JOHNSON & JOHNSON PLAZA NEW BRUNSWICK, NEW JERSEY 08933 (Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (732) 524-0400 SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED ------------------- ----------------------------------------- Common Stock, Par Value $1.00 New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K [X] The aggregate market value of the voting stock held by non-affiliates of the registrant on February 22, 2000 was approximately $108.1 billion. On February 22, 2000 there were 1,389,935,650 shares of Common Stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE Parts I and Portions of registrant's annual report to shareowners for II: fiscal year 1999. Part III: Portions of registrant's proxy statement for its 2000 annual meeting of shareowners.
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ITEM PAGE - ---- ---- 1. Business.................................................... 1 General..................................................... 1 Segments of Business; Geographic Areas...................... 1 Consumer.................................................... 1 Pharmaceutical.............................................. 1 Professional................................................ 2 International............................................... 2 Raw Materials............................................... 2 Patents and Trademarks...................................... 2 Seasonality................................................. 3 Competition................................................. 3 Research.................................................... 3 Environment................................................. 3 Regulation.................................................. 3 2. Properties.................................................. 4 3. Legal Proceedings........................................... 5 4. Submission of Matters to a Vote of Security Holders......... 5 Executive Officers of the Registrant........................ 5 PART II 5. Market for the Registrant's Common Equity and Related Shareowner Matters.......................................... 6 6. Selected Financial Data..................................... 6 7. Management's Discussion and Analysis of Financial Condition and Results of Operations................................... 6 7A. Quantitative and Qualitative Disclosures About Market Risk........................................................ 7 8. Financial Statements and Supplementary Data................. 7 9. Changes in and Disagreements on Accounting and Financial Disclosure.................................................. 7 PART III 10. Directors and Executive Officers of the Registrant.......... 7 11. Executive Compensation...................................... 7 12. Security Ownership of Certain Beneficial Owners and Management.................................................. 7 13. Certain Relationships and Related Transactions.............. 7 PART IV 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K......................................................... 8 Signatures.................................................. 10 Report of Independent Accountants........................... 12 Exhibit Index............................................... 13
Form 10-Q Quarterly Reports Available. A copy of Johnson & Johnson's Quarterly Report on Form 10-Q for any of the first three quarters of the current fiscal year, without exhibits, will be provided without charge to any shareowner submitting a written request to the Secretary at the principal executive offices of the Company or by calling 800-328-9033. Each report will be available about 45 days after the end of the quarter to which it relates. 3 PART I ITEM 1. BUSINESS GENERAL Johnson & Johnson, employing approximately 97,800 people worldwide, is engaged in the manufacture and sale of a broad range of products in the health care field in many countries of the world. Johnson & Johnson's primary interest, both historically and currently, has been in products related to health and well-being. Johnson & Johnson was organized in the State of New Jersey in 1887. Johnson & Johnson is organized on the principles of decentralized management. The Executive Committee of Johnson & Johnson is the principal management group responsible for the operations of Johnson & Johnson. In addition, certain Executive Committee members serve as Worldwide Chairmen of Group Operating Committees, which are comprised of managers who represent key operations within the group, as well as management expertise in other specialized functions. These Committees oversee and coordinate the activities of domestic and international companies related to each of the Consumer, Pharmaceutical and Professional segments of business. Operating management of each company is headed by a Chairman, President, General Manager or Managing Director who reports directly to, or through a line executive to, a Group Operating Committee. In line with this policy of decentralization, each international subsidiary is, with some exceptions, managed by citizens of the country where it is located. SEGMENTS OF BUSINESS; GEOGRAPHIC AREAS Johnson & Johnson's worldwide business is divided into three segments: Consumer, Pharmaceutical and Professional. Johnson & Johnson further categorizes its sales and operating profit by major geographic areas of the world. Additional information required by this item is incorporated herein by reference to the narrative and tabular (but not the graphic) descriptions of segments and geographic areas captioned "Management's Discussion and Analysis of Results of Operations and Financial Condition -- Segments of Business, Consumer, Pharmaceutical, Professional and Geographic Areas" on pages 26 through 29 and 45 of Johnson & Johnson's Annual Report to Shareowners for fiscal year 1999. CONSUMER The Consumer segment's principal products are personal care and hygienic products, including nonprescription drugs, adult skin and hair care products, baby care products, oral care products, first aid products and sanitary protection products. Major brands include AVEENO skin care products; BAND-AID Brand Adhesive Bandages; BENECOL food products; CAREFREE Panty Shields; CLEAN & CLEAR teen skin care products; IMODIUM A-D, an antidiarrheal; JOHNSON'S Baby line of products; JOHNSON'S pH 5.5 skin and hair care products; LACTAID lactose-intolerance products; MONISTAT, a remedy for vaginal yeast infections; adult and children's MOTRIN IB ibuprofen products; MYLANTA gastrointestinal products and PEPCID AC Acid Controller from the Johnson & Johnson - Merck Consumer Pharmaceuticals Co.; NEUTROGENA skin and hair care products; o.b. Tampons; PENATEN and NATUSAN baby care products; PIZ BUIN and SUNDOWN sun care products; REACH toothbrushes; RoC skin care products; SHOWER TO SHOWER personal care products; STAYFREE sanitary protection products; and the broad family of TYLENOL acetaminophen products. These products are marketed principally to the general public and distributed both to wholesalers and directly to independent and chain retail outlets. PHARMACEUTICAL The Pharmaceutical segment's principal worldwide franchises are in the antifungal, anti-infective, cardiovascular, contraceptive, dermatology, gastrointestinal, hematology, immunology, neurology, oncology, pain management and psychotropic fields. These products are distributed both directly and through wholesalers for use by health care professionals and the general public. Prescription drugs in the antifungal field include NIZORAL (ketoconazole), SPORANOX (itraconazole), TERAZOL (terconazole) and DAKTARIN (miconazole nitrate) antifungal products. Prescription drugs in the anti-infective field include 4 FLOXIN (ofloxacin) and LEVAQUIN (levofloxacin). Prescription drugs in the cardiovascular field include RETAVASE (reteplase), a recombinant biologic cardiology care product for the treatment of acute myocardial infarction to improve blood flow to the heart, and REOPRO (abciximab) for the treatment of acute cardiac disease. Prescription drugs in the contraceptive field include ORTHO-NOVUM (norethindrone/ethinyl estradiol) and TRICILEST (norgestimate/ethinyl estradiol, sold in the U.S. as ORTHO TRI-CYCLEN) group of oral contraceptives. Prescriptions drugs in the dermatology field include RETIN-A MICRO (tretinoin), a dermatological cream for acne. Prescription drugs in the gastrointestinal field include ACIPHEX (rabeprazole sodium), a proton pump inhibitor for treating erosive gastroesophageal reflux disease (GERD) and duodenal ulcers; IMODIUM (loperamide HCl), an antidiarrheal; MOTILIUM (domperidone), a gastrointestinal mobilizer; PREPULSID (cisapride, sold in the U.S. as PROPULSID), a gastrointestinal prokinetic; and REMICADE (infliximab), a novel monoclonal antibody for treatment of certain Crohn's disease patients. Prescription drugs in the hematology field include EPREX (epoetin alfa, sold in the U.S. as PROCRIT), a biotechnology derived version of the human hormone erythropoietin that stimulates red blood cell production. Prescription drugs in the immunology field include ORTHOCLONE OKT-3 (muromonab-CD3), for reversing the rejection of kidney, heart and liver transplants. Prescription drugs in the neurology field include REMINYL (galantamine), TOPAMAX (topiramate) and STUGERON (cinnarizine). Prescription drugs in the oncology field include ERGAMISOL (levamisole hydrochloride), a colon cancer drug, and LEUSTATIN (cladribine), for hairy cell leukemia. Prescription drugs in the pain management field include DURAGESIC (fentanyl transdermal system, sold abroad as DUROGESIC), a transdermal patch for chronic pain; and ULTRAM (tramadol hydrochloride), an analgesic for moderate to moderately severe pain. Prescription drugs in the psychotropics field include RISPERDAL (risperidone), an antipsychotic drug, and HALDOL (haloperidol). PROFESSIONAL The Professional segment includes a broad range of products used by or under the direction of health care professionals, including, suture and mechanical wound closure products, surgical equipment and devices, wound management and infection prevention products, interventional and diagnostic cardiology products, diagnostic equipment and supplies, joint replacements and disposable contact lenses. These products are used principally in the professional fields by physicians, nurses, therapists, hospitals, diagnostic laboratories and clinics. Distribution to these markets is done both directly and through surgical supply and other dealers. INTERNATIONAL The international business of Johnson & Johnson is conducted by subsidiaries manufacturing in 35 countries outside the United States and selling in over 175 countries throughout the world. The products made and sold in the international business include many of those described above under "Business -- Consumer, Pharmaceutical and Professional." However, the principal markets, products and methods of distribution in the international business vary with the country and the culture. The products sold in the international business include not only those which were developed in the United States but also those which were developed by subsidiaries abroad. Investments and activities in some countries outside the United States are subject to higher risks than comparable domestic activities because the investment and commercial climate is influenced by restrictive economic policies and political uncertainties. RAW MATERIALS Raw materials essential to Johnson & Johnson's business are generally readily available from multiple sources. PATENTS AND TRADEMARKS Johnson & Johnson has made a practice of obtaining patent protection on its products and processes where possible. Johnson & Johnson owns or is licensed under a number of patents relating to its products and manufacturing processes, which in the aggregate are believed to be of material importance in the operation of 2 5 its business. However, it is believed that no single patent or related group of patents is material in relation to Johnson & Johnson as a whole. Johnson & Johnson has made a practice of selling its products under trademarks and of obtaining protection for these trademarks by all available means. Johnson & Johnson's trademarks are protected by registration in the United States and other countries where its products are marketed. Johnson & Johnson considers these trademarks in the aggregate to be of material importance in the operation of its business. SEASONALITY Worldwide sales do not reflect any significant degree of seasonality; however spending has been heavier in the fourth quarter of each year than in other quarters. This reflects increased spending decisions, principally for advertising and research grants. COMPETITION In all its product lines, Johnson & Johnson companies compete with companies both large and small, located in the United States and abroad. Competition is strong in all lines without regard to the number and size of the competing companies involved. Competition in research, involving the development of new products and processes and the improvement of existing products and processes, is particularly significant and results from time to time in product and process obsolescence. The development of new and improved products is important to Johnson & Johnson's success in all areas of its business. This competitive environment requires substantial investments in continuing research and in multiple sales forces. In addition, the winning and retention of customer acceptance of Johnson & Johnson's consumer products involve heavy expenditures for advertising, promotion and selling. RESEARCH Research activities are important to all segments of Johnson & Johnson's business. Major research facilities are located not only in the United States but also in Australia, Belgium, Brazil, Canada, Germany, Switzerland and the United Kingdom. The costs of Johnson & Johnson's worldwide research activities relating to the development of new products, the improvement of existing products, technical support of products and compliance with governmental regulations for the protection of the consumer amounted to $2,600, $2,336 and $2,209 million for fiscal years 1999, 1998 and 1997, respectively. These costs are charged directly to income in the year in which incurred. All research was sponsored by Johnson & Johnson. ENVIRONMENT During the past year Johnson & Johnson was subject to a variety of federal, state and local environmental protection measures. Johnson & Johnson believes that its operations comply in all material respects with applicable environmental laws and regulations. Johnson & Johnson's compliance with these requirements did not and is not expected to have a material effect upon its capital expenditures, earnings or competitive position. REGULATION Most of Johnson & Johnson's business is subject to varying degrees of governmental regulation in the countries in which operations are conducted, and the general trend is toward regulation of increasing stringency. In the United States, the drug, device, diagnostics and cosmetic industries have long been subject to regulation by various federal, state and local agencies, primarily as to product safety, efficacy, advertising and labeling. The exercise of broad regulatory powers by the Food and Drug Administration (the "FDA") continues to result in increases in the amounts of testing and documentation required for FDA clearance of new drugs and devices and a corresponding increase in the expense of product introduction. Similar trends toward product and process regulation are also evident in a number of major countries outside of the United States, especially in the European Economic Community where efforts are continuing to harmonize the internal regulatory systems. 3 6 The costs of human health care have been and continue to be a subject of study, investigation and regulation by governmental agencies and legislative bodies in the United States and other countries. In the United States, attention has been focused on drug prices and profits and programs that encourage doctors to write prescriptions for particular drugs or recommend particular medical devices. Even in the absence of new government regulation, managed care has become a more potent force in the market place and it is likely that increased attention will be paid to drug pricing, appropriate drug utilization and the quality of health care. The regulatory agencies under whose purview Johnson & Johnson operates have administrative powers that may subject Johnson & Johnson to such actions as product recalls, seizure of products and other civil and criminal sanctions. In some cases Johnson & Johnson may deem it advisable to initiate product recalls voluntarily. ITEM 2. PROPERTIES Johnson & Johnson and its worldwide subsidiaries operate 169 manufacturing facilities occupying approximately 17.6 million square feet of floor space. The manufacturing facilities are used by the industry segments of Johnson & Johnson's business approximately as follows:
SQUARE FEET SEGMENT (IN THOUSANDS) ------- -------------- Consumer.................................................... 5,744 Pharmaceutical.............................................. 4,506 Professional................................................ 7,344 ------ Worldwide total................................... 17,594 ======
Within the United States, 11 facilities are used by the Consumer segment, 8 by the Pharmaceutical segment and 45 by the Professional segment. Johnson & Johnson's manufacturing operations outside the United States are often conducted in facilities which serve more than one segment of the business. The locations of the manufacturing facilities by major geographic areas of the world are as follows:
NUMBER OF SQUARE FEET GEOGRAPHIC AREA FACILITIES (IN THOUSANDS) --------------- ---------- -------------- United States............................................... 64 7,515 Europe...................................................... 47 5,420 Western Hemisphere excluding U.S.A.......................... 19 2,373 Africa, Asia and Pacific.................................... 39 2,286 --- ------ Worldwide total................................... 169 17,594 === ======
In addition to the manufacturing facilities discussed above, Johnson & Johnson maintains numerous office and warehouse facilities throughout the world. Research facilities are also discussed in Item 1 under "Business -- Research." Johnson & Johnson generally seeks to own its manufacturing facilities, although some, principally in locations abroad, are leased. Office and warehouse facilities are often leased. Johnson & Johnson's properties are maintained in good operating condition and repair and are well utilized. For information regarding lease obligations see Note 4 "Rental Expense and Lease Commitments" under "Notes to Consolidated Financial Statements" on page 35 of Johnson & Johnson's Annual Report to Shareowners for fiscal year 1999. Segment information on additions to Johnson & Johnson's property, plant and equipment is contained on page 45 of Johnson & Johnson's Annual Report to Shareowners for fiscal year 1999. For information regarding plans to close certain manufacturing facilities, see Note 14 "Restructuring 4 7 and In-Process Research and Development Charges" under "Notes to Consolidated Financial Statements" on page 40 of Johnson & Johnson's Annual Report to Shareowners for fiscal year 1999. ITEM 3. LEGAL PROCEEDINGS The information set forth in Note 18 "Legal Proceedings" under "Notes to Consolidated Financial Statements" on page 42 of Johnson & Johnson's Annual Report to Shareowners for fiscal year 1999 is incorporated herein by reference. The Company or its subsidiaries are parties to a number of proceedings brought under the Comprehensive Environmental Response, Compensation, and Liability Act, commonly known as Superfund, and comparable state laws, in which the primary relief sought is the cost of past and future remediation. While it is not feasible to predict or determine the outcome of these proceedings, in the opinion of the Company, such proceedings would not have a material adverse effect on the results of operations, cash flows or financial position of the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. EXECUTIVE OFFICERS OF THE REGISTRANT Listed below are the executive officers of Johnson & Johnson as of March 24, 2000, each of whom, unless otherwise indicated below, has been an employee of the Company or its affiliates and held the position indicated during the past five years. There are no family relationships between any of the executive officers, and there is no arrangement or understanding between any executive officer and any other person pursuant to which the executive officer was selected. At the annual meeting of the Board of Directors which follows the Annual Meeting of Shareowners executive officers are elected by the Board to hold office for one year and until their respective successors are elected and qualified, or until earlier resignation or removal. Information with regard to the directors of the Company, including those of the following executive officers who are directors, is incorporated herein by reference to pages 4 through 7 of Johnson & Johnson's Proxy Statement dated March 8, 2000.
NAME AGE POSITION ---- --- -------- Robert J. Darretta..................... 53 Member, Executive Committee; Vice President, Finance(a) Russell C. Deyo........................ 50 Member, Executive Committee; Vice President, Administration(b) Roger S. Fine.......................... 57 Member, Executive Committee; Vice President, General Counsel(c) JoAnn Heffernan Heisen................. 50 Member, Executive Committee; Vice President, Chief Information Officer(d) Christian A. Koffmann.................. 59 Member, Executive Committee; Worldwide Chairman, Consumer & Personal Care Group(e) Ralph S. Larsen........................ 61 Chairman, Board of Directors and Chief Executive Officer; Chairman, Executive Committee James T. Lenehan....................... 51 Member, Executive Committee; Worldwide Chairman, Medical Devices & Diagnostics Group(f) Brian D. Perkins....................... 46 Member, Executive Committee; Worldwide Chairman, Consumer Pharmaceuticals & Nutritionals Group(g) William C. Weldon...................... 51 Member, Executive Committee; Worldwide Chairman, Pharmaceuticals Group(h) Robert N. Wilson....................... 59 Vice-Chairman, Board of Directors; Vice-Chairman Executive Committee
- --------------- (a) Mr. R. J. Darretta joined the Company in 1968 and held various positions before becoming President of Iolab Corporation in 1988 and Treasurer of the Company in 1995. He became a Member of the Executive Committee and Vice President, Finance in 1997. 5 8 (b) Mr. R. C. Deyo joined the Company in 1985 and became Associate General Counsel in 1991. He became a Member of the Executive Committee and Vice President, Administration in 1996. (c) Mr. R. S. Fine joined the Company in 1974 and became a Member of the Executive Committee and Vice President, Administration in 1991 and Vice President, General Counsel in 1996. (d) Ms. J. H. Heisen joined the Company in 1989 and became Treasurer in 1991 and Controller in 1995. She became a Member of the Executive Committee and Vice President, Chief Information Officer in 1997. (e) Mr. C. A. Koffmann joined the Company in 1989 as a Company Group Chairman. He became a Member of the Executive Committee and Worldwide Chairman, Consumer & Personal Care Group in 1995. (f) Mr. J. T. Lenehan joined the Company in 1976 and became a Company Group Chairman in 1993. He has been a Member of the Executive Committee since 1994 and became Worldwide Chairman, Consumer Pharmaceuticals and Professional Group in 1994 and Worldwide Chairman, Medical Devices & Diagnostics Group in September 1999. (g) Mr. B. D. Perkins joined the Company in 1980 and held various positions before becoming President of McNeil Consumer Products Company in 1994 and Company Group Chairman for OTC Pharmaceuticals in 1999. He became a Member of the Executive Committee and Worldwide Chairman, Consumer Pharmaceuticals & Nutritionals Group in September 1999. (h) Mr. W. C. Weldon joined the Company in 1971 and held various positions before becoming President of Ethicon Endo-Surgery in 1992 and Company Group Chairman of Ethicon Endo-Surgery in 1995. He became a Member of the Executive Committee and Worldwide Chairman, Pharmaceuticals Group in 1998. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREOWNER MATTERS The information called for by this item is incorporated herein by reference to the material captioned "Management's Discussion and Analysis of Results of Operations and Financial Condition -- Common Stock Market Prices and Cash Dividends Paid" on page 23 of Johnson & Johnson's Annual Report to Shareowners for fiscal year 1999. ITEM 6. SELECTED FINANCIAL DATA The information called for by this item is incorporated herein by reference to the material captioned "Summary of Operations and Statistical Data 1989-1999" on page 46 of Johnson & Johnson's Annual Report to Shareowners for fiscal year 1999. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information called for by this item is incorporated herein by reference to the narrative and tabular (but not the graphic) material included in the material captioned "Management's Discussion and Analysis of Results of Operations and Financial Condition" on pages 22 through 29 of Johnson & Johnson's Annual Report to Shareowners for fiscal year 1999. On March 23, 2000, the Company's Janssen Pharmaceutica U.S. subsidiary announced that a limited-access program would be initiated in the U.S. for PROPULSID (cisapride) tablets and suspension, a medication for the treatment of adults with nighttime heartburn due to gastroesophageal reflux disease, and the medication would no longer be marketed in the United States. Under the new program, the medication will remain available to appropriate patients for whom other therapies are not effective and who meet clearly defined eligibility criteria. These criteria are being established in close collaboration with the FDA. Enrollment in the limited access program is expected to begin May 1. To assure that the medication is available to patients during the transition, distribution will continue until July 14, and the product is scheduled to remain in pharmacies until mid-August. 6 9 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The information called for by this item is incorporated herein by reference to the material captioned "Management's Discussion and Analysis of Results of Operations and Financial Condition -- Financial Instruments" on page 24 of Johnson & Johnson's Annual Report to Shareowners for fiscal year 1999. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information called for by this item is incorporated herein by reference to the Consolidated Financial Statements and the Notes thereto and the material captioned "Independent Auditor's Report" on pages 30 through 44 of Johnson & Johnson's Annual Report to Shareowners for fiscal year 1999. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information called for by this item is incorporated herein by reference to (a) the material under the caption "Election of Directors -- Nominees" on pages 3 through 7 of Johnson & Johnson's Proxy Statement dated March 8, 2000, (b) the material in Part I hereof under the caption "Executive Officers of the Registrant" and (c) the material under the caption "Section 16(a) Beneficial Ownership Reporting Compliance" on page 10 of Johnson & Johnson's Proxy Statement dated March 8, 2000. ITEM 11. EXECUTIVE COMPENSATION The information called for by this item is incorporated herein by reference to the following sections of Johnson & Johnson's Proxy Statement dated March 8, 2000: "Election of Directors -- Directors' Fees, Committees and Meetings" on pages 9 through 10; "Compensation Committee Report on Executive Compensation" on pages 10 through 13; "Shareowner Return Performance Graphs" on pages 14 through 15; and "Executive Compensation" on pages 16 through 19. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information called for by this item is incorporated herein by reference to the material captioned "Election of Directors--Stock Ownership/Control" on page 8 of Johnson & Johnson's Proxy Statement dated March 8, 2000. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Not applicable. 7 10 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) The following documents are filed as part of this report 1. Financial Statements The following Consolidated Financial Statements and the Notes thereto and the Independent Auditor's Report on pages 30 through 44 of Johnson & Johnson's Annual Report to Shareowners for fiscal year 1999 are incorporated herein by reference: Consolidated Balance Sheets at end of Fiscal Years 1999 and 1998 Consolidated Statements of Earnings for Fiscal Years 1999, 1998 and 1997 Consolidated Statements of Equity for Fiscal Years 1999, 1998 and 1997 Consolidated Statements of Cash Flows for Fiscal Years 1999, 1998 and 1997 Notes to Consolidated Financial Statements Independent Auditor's Report 2. Financial Statement Schedules Schedule II -- Valuation and Qualifying Accounts Schedules other than those listed above are omitted because they are not required or are not applicable. 3. Exhibits Required to be Filed by Item 60l of Regulation S-K The information called for by this item is incorporated herein by reference to the Exhibit Index in this report. (b) Reports on Form 8-K A Report on Form 8-K was filed on December 14, 1999, which included supplemental combined financial statements prepared to reflect the merger of Johnson & Johnson with Centocor, Inc., which was accounted for by the pooling-of-interests method of accounting. The Report included Form 10-K for the period ended January 3, 1999; Financial Data Schedule as of January 3, 1999; Form 10-Q for the period ended October 3, 1999; and Financial Data Schedule as of October 3, 1999. 8 11 JOHNSON & JOHNSON AND SUBSIDIARIES SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS FISCAL YEARS ENDED JANUARY 2, 2000, JANUARY 3, 1999 AND DECEMBER 28, 1997(A) (DOLLARS IN MILLIONS)
DEDUCTIONS FROM RESERVES ADDITIONS --------------------------------------------------- BALANCE AT CHARGED BALANCE BEGINNING TO COSTS AND AT END OF PERIOD EXPENSES(B) DESCRIPTION AMOUNT OF PERIOD ---------- ------------ ----------- ------ --------- 1999 Reserves deducted from accounts receivable, trade Reserve for doubtful accounts............... $184 53 Write-offs less recoveries..... 63 Currency adjustments........... (19) 193 Reserve for customer rebates................ 157 1,028 Customer rebates allowed....... 1,056 Currency adjustments........... (6) 135 Reserve for cash discounts.............. 47 520 Cash discounts allowed......... 506 61 ---- ----- ----- --- $388 1,601 1,600 389 ==== ===== ===== === 1998 Reserves deducted from accounts receivable, trade Reserve for doubtful accounts............... $152 42 Write-offs less recoveries..... 15 Currency adjustments........... (5) 184 Reserve for customer rebates................ 164 978 Customer rebates allowed....... 993 Currency adjustments........... (8) 157 Cash discounts allowed......... 429 Reserve for cash discounts.............. 42 431 Currency adjustments........... (3) 47 ---- ----- ----- --- $358 1,451 1,421 388 ==== ===== ===== === 1997 Reserves deducted from accounts receivable, trade Reserve for doubtful accounts............... $141 49 Write-offs less recoveries..... 29 Currency adjustments........... 9 152 Reserve for customer rebates................ 129 855 Customer rebates allowed....... 813 Currency adjustments........... 7 164 Cash discounts allowed......... 341 Reserve for cash discounts.............. 39 352 Currency adjustments........... 8 42 ---- ----- ----- --- $309 1,256 1,207 358 ==== ===== ===== ===
- --------------- (A) This Schedule has been prepared to give retroactive effect to the merger between Johnson & Johnson and Centocor on October 6, 1999. (B) Charges related to customer rebates and cash discounts are reflected as reductions of sales to customers. 9 12 SIGNATURES Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: March 22, 2000 JOHNSON & JOHNSON -------------------------------------- (Registrant) By /s/ R. S. LARSEN ------------------------------------ R. S. Larsen, Chairman, Board of Directors and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ R. S. LARSEN Chairman, Board of Directors and March 26, 2000 - ------------------------------------------ Chief Executive Officer, and R. S. Larsen Director (Principal Executive Officer) /s/ R. J. DARRETTA Vice President -- Finance March 22, 2000 - ------------------------------------------ (Principal Financial Officer) R. J. Darretta /s/ C. E. LOCKETT Controller March 24, 2000 - ------------------------------------------ C. E. Lockett /s/ G. N. BURROW Director March 22, 2000 - ------------------------------------------ G. N. Burrow /s/ J. G. COONEY Director March 22, 2000 - ------------------------------------------ J. G. Cooney /s/ J. G. CULLEN Director March 23, 2000 - ------------------------------------------ J. G. Cullen /s/ M. J. FOLKMAN Director March 24, 2000 - ------------------------------------------ M. J. Folkman /s/ A. D. JORDAN Director March 23, 2000 - ------------------------------------------ A. D. Jordan /s/ A. G. LANGBO Director March 24, 2000 - ------------------------------------------ A. G. Langbo /s/ J. S. MAYO Director March 22, 2000 - ------------------------------------------ J. S. Mayo
10 13
SIGNATURE TITLE DATE --------- ----- ---- /s/ L.F. MULLIN Director March 23, 2000 - ------------------------------------------ L.F. Mullin Director March , 2000 - ------------------------------------------ P. J. Rizzo /s/ H. B. SCHACHT Director March 24, 2000 - ------------------------------------------ H. B. Schacht /s/ M. F. SINGER Director March 22, 2000 - ------------------------------------------ M. F. Singer /s/ J. W. SNOW Director March 23, 2000 - ------------------------------------------ J. W. Snow /s/ R. N. WILSON Vice Chairman, Board of Directors March 23, 2000 - ------------------------------------------ and Director R. N. Wilson
11 14 REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE To the Shareowners and Board of Directors of Johnson & Johnson: Our audits of the consolidated financial statements of Johnson & Johnson referred to in our report dated January 24, 2000 appearing in the Johnson & Johnson 1999 Annual Report to Shareowners (which report and consolidated financial statements are incorporated by reference in this Annual Report on Form 10-K) also included an audit of the financial statement schedule listed in Item 14 of this Form 10-K. In our opinion, this financial statement schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. /s/ PricewaterhouseCoopers LLP PRICEWATERHOUSECOOPERS LLP New York, New York January 24, 2000 12 15 EXHIBIT INDEX
REG. S-K EXHIBIT TABLE DESCRIPTION ITEM NO. OF EXHIBIT - ------------- ----------- 3(a)(i) Restated Certificate of Incorporation dated April 26, 1990 -- Incorporated herein by reference to Exhibit 3(a) of the Registrant's Form 10-K Annual Report for the year ended December 30, 1990. 3(a)(ii) Certificate of Amendment to the Restated Certificate of Incorporation of the Company dated May 20, 1992 -- Incorporated herein by reference to Exhibit 3(a) of the Registrant's Form 10-K Annual Report for the year ended January 3, 1993. 3(a)(iii) Certificate of Amendment to the Restated Certificate of Incorporation of the Company dated May 21, 1996 -- Incorporated herein by reference to Exhibit 3(a)(iii) of the Registrant's Form 10-K Annual Report for the year ended December 29, 1996. 3(b) By-Laws of the Company, as amended effective April 23, 1999 -- Incorporated herein by reference to Exhibit 3 of the Registrant's Form 10-Q Quarterly Report for the quarter ended July 4, 1999. 4(a) Upon the request of the Securities and Exchange Commission, the Registrant will furnish a copy of all instruments defining the rights of holders of long term debt of the Registrant. 10(a) Stock Option Plan for Non-Employee Directors -- Incorporated herein by reference to Exhibit 10(a) of the Registrant's Form 10-K Annual Report for the year ended December 29, 1996.* 10(b) 1995 Stock Option Plan (as amended) -- Incorporated herein by reference to Exhibit 10(b) of the Registrant's Form 10-K Annual Report for the year ended January 3, 1999.* 10(c) 1991 Stock Option Plan (as amended) -- Incorporated herein by reference to Exhibit 10(c) of the Registrant's Form 10-K Annual Report for the year ended December 28, 1997.* 10(d) 1986 Stock Option Plan (as amended) -- Incorporated herein by reference to Exhibit 10(d) of the Registrant's Form 10-K Annual Report for the year ended December 28, 1997.* 10(e) 1995 Stock Compensation Plan -- Incorporated herein by reference to Exhibit 10(e) of the Registrant's Form 10-K Annual Report for the year ended December 31, 1995.* 10(f) Executive Incentive Plan -- Incorporated herein by reference to Exhibit 10(f) of the Registrant's Form 10-K Annual Report for the year ended December 29, 1996.* 10(g) Domestic Deferred Compensation Plan (as amended) -- Incorporated herein by reference to Exhibit 10(g) of the Registrant's Form 10-K Annual Report for the year ended December 29, 1996.* 10(h) Deferred Fee Plan for Directors (as amended) -- Incorporated herein by reference to Exhibit 10(h) of the Registrant's Form 10-K Annual Report for the year ended December 29, 1996.* 10(i) Executive Income Deferral Plan (as amended) -- Filed with this document.* 10(j) Excess Savings Plan -- Incorporated herein by reference to Exhibit 10(j) of the Registrant's Form 10-K Annual Report for the year ended December 29, 1996.* 10(k) Supplemental Retirement Plan -- Incorporated herein by reference to Exhibit 10(h) of the Registrant's Form 10-K Annual Report for the year ended January 3, 1993.* 10(l) Executive Life Insurance Plan -- Incorporated herein by reference to Exhibit 10(i) of the Registrant's Form 10-K Annual Report for the year ended January 3, 1993.* 10(m) Stock Option Gain Deferral Plan -- Filed with this document.* 10(n) Estate Preservation Plan -- Filed with this document.* 12 -- Statement of Computation of Ratio of Earnings to Fixed Charges -- Filed with this document.
13 16
REG. S-K EXHIBIT TABLE DESCRIPTION ITEM NO. OF EXHIBIT - ------------- ----------- 13 -- Pages 22 through 46 of the Company's Annual Report to Shareowners for fiscal year 1999 (only those portions of the Annual Report incorporated by reference in this report are deemed "filed") -- Filed with this document. 21 -- Subsidiaries -- Filed with this document. 23 -- Consent of Independent Accountants -- Filed with this document. 27 -- Financial Data Schedule for Year Ended January 2, 2000 -- Filed with this document. 99(a) -- Annual Reports on Form 11-K for the Johnson & Johnson Savings Plans, to be filed on or before June 30, 2000. 99(b) -- Cautionary Statement pursuant to Private Securities Litigation Reform Act of 1995: "Safe Harbor" for Forward-Looking Statements -- Filed with this document.
- --------------- * Management contracts and compensatory plans and arrangements required to be filed as Exhibits to this form pursuant to Item 14(c) of the report. A copy of any of the Exhibits listed above will be provided without charge to any shareowner submitting a written request specifying the desired exhibit(s) to the Secretary at the principal executive offices of the Company. 14 EX-10.I 2 EXECUTIVE INCOME DEFERRAL PLAN 1 EXHIBIT 10(I) JOHNSON & JOHNSON EXECUTIVE INCOME DEFERRAL PLAN The Johnson & Johnson Executive Income Deferral Plan (the "Plan") is intended to permit a select group of executives to defer income which would otherwise be immediately payable to them under various compensation and/or incentive plans of Johnson & Johnson (the "Company"). 1. Administration. The Plan is administered by the Compensation Committee of the Company's Board of Directors. The Committee shall have responsibility for determining which investments will from time to time be available under the Plan and shall review the investment options at least once every three years. The Committee shall make all decisions affecting the timing, price or amount of any and all of the Deferred Awards (as hereinafter defined) of participants subject to Section 16 of the Securities Exchange Act of 1934, as amended, but may otherwise delegate any of its authority under the Plan. 2. Eligibility. Eligibility to defer income and other amounts under the Plan will be initially limited to members of the Executive Committee of the Company. The Committee may from time to time expand eligibility to defer compensation under the Plan to other executives of the Company. The Committee, however, has the authority to refuse to permit any executive to participate in the Plan or elect to defer payments, if the Committee determines that such participation would jeopardize the Plan's compliance with applicable law or the Plan's status as a top hat plan under ERISA. 3. Deferral into an Income Deferral Account or Estate Preservation Plan. Participants may elect to defer up to (i) fifty percent (50%) of annual salary, (ii) one hundred percent (100%) of cash and/or stock awards under the Company's Executive Incentive Plan, (iii) one hundred percent (100%) of dividend equivalents paid under the Company's Certificate of Extra Compensation ("CEC") Plan and (iv) one hundred percent (100%) of dividend equivalents paid on deferred "gain" shares under the Company's Stock Option Gain Deferral Plan. Amounts so deferred are known as "Deferred Awards" and will be directed, at the election of a participant, to either an "Income Deferral Account" or the Estate Preservation Plan (as described below). A participant's decision to defer under the Plan must be made on or before September 30 of the year prior to the commencement of the fiscal year as to which the compensation, bonus, incentive payment or dividend equivalent monies to be deferred will be earned. Notwithstanding the foregoing, the required notice period for elections made in respect of amounts to be deferred under (iv) above shall be governed by the notice and election provisions of the Stock Option Gain Deferral Plan. Any election to defer pursuant to this Section 3 shall be effective only when timely filed with Extra Compensation Services on the form utilized for such purpose. A participant shall designate, in multiples of 1% of the Deferred Award, the portion to be allocated to each investment option available under the Plan. A participant may change the investment options for Deferred Awards not yet credited to his or her Income Deferral Account not more than once each month, such change to be effective as of the first day of the month following the month in which a participant's request to change such allocation is filed with Extra Compensation Services. In determining the maximum amounts which can be deferred by any participant under the Plan, the Committee shall take into account (and include) any commitment made by such participant under the Estate Preservation Plan. To the extent that the amount of salary and/or cash award under the Company's Executive Incentive Plan is insufficient to meet the prior deferral commitment made by a participant under the Plan and the Estate Preservation Plan, then the deferral commitment under the Plan shall be reduced accordingly so that the deferral commitment under the Estate Preservation Plan is funded in full. Any elections to defer dividend equivalents under the Company's CEC Plan will be applied such that elections will apply to the CEC contracts in the reverse order of their issuance. Deferred Awards shall be held in one account regardless of the form of compensation or plan under which they were earned. Upon ceasing to be an employee of the Company, each participant (or in the event of a participant's death, the named beneficiary or his/her estate) shall be entitled to receive in cash in lump sum the value of 2 his/her Income Deferral Account as of the date of such termination, unless such participant has elected, pursuant to the provisions of Section 7 below, to further defer payment of his/her Income Deferral Account beyond retirement. Notwithstanding the above, if a participant is in any fiscal year a "named executive officer" for proxy statement reporting purposes by reason of his/her being the chief executive officer of the Company or one of the four highest compensated officers (other than the chief executive officer), any payment from an Income Deferral Account otherwise due to be made in such year shall be postponed to a date which is on or about the 15th day of January of the following fiscal year. 4. Investment of Income Deferral Accounts. At the election of each participant, amounts in an Income Deferral Account may be invested utilizing the investment options set forth below. Amounts to be deferred in any month (including any stock award) will be valued and credited to a participant's Income Deferral Account on the last day of each month. Amounts to be deferred into the Estate Preservation Plan are separate and distinct from the amounts deferred into Income Deferral Accounts. (a) Common Stock Equivalent Units. All amounts elected to be deferred under this investment option shall be converted into equivalent units of the Company's Common Stock ("Common Stock") as if the compensation deferred had been invested in Common Stock ("Common Stock Equivalent Units"). The number of Common Stock Equivalent Units shall be determined by dividing the amount of compensation or dividend equivalents to be deferred by the average of the high and low prices of the Common Stock on the last trading day of each month as reported in The Wall Street Journal. The Company shall credit the participant's Income Deferral Account with the number of full and partial shares of the Company's Common Stock so determined. However, at no time shall any shares of the Company's Common Stock actually be purchased or earmarked for such Income Deferral Account. No participant shall have any of the rights of a shareowner with respect to any shares credited to his or her Income Deferral Account. The number of Common Stock Equivalent Units included in a participant's Income Deferral Account shall be adjusted to reflect payment of dividends and increases or decreases in market value which would have resulted had funds equal to such deferred amount actually been invested in Common Stock. The value of the Company's Common Stock for purposes of investment redesignation (as described in Section 5) shall be the closing price of the Company's Common Stock on the last trading day of the month in which the participant's redesignation request is received by Extra Compensation Services, as reported in The Wall Street Journal. Distributions in cash of the value of equivalent shares of the Company's Common Stock will be valued at the closing price of the Company's Common Stock on the last trading date preceding the distribution date, as reported in The Wall Street Journal. In the event of a reorganization, stock split, stock dividend, combination of shares, merger, consolidation, rights offering or any other change in the corporate structure or shares of the Company the Committee shall make such adjustment, if any, as it may deem appropriate in the number and kind of shares of the Company's Common Stock credited to participants' Income Deferral Accounts. (b) Balanced Fund. All amounts elected to be deferred under this option shall be deemed to be invested in and credited with the investment rate of return earned under the Balanced Fund option under the Company's Savings Plan or any such successor fund. However, no Balanced Fund shares shall be purchased or earmarked for a participant's Account. (c) One Year Treasury Bill Rate. All amounts elected to be deferred under this option shall be deemed to be invested in an interest bearing account which bears interest at the One Year Treasury Bill Rate, compounded monthly. For purposes of the Plan, the One Year Treasury Bill Rate shall be the interest rate for One Year Treasury Bills quoted in the Wall Street Journal on the last trading day of the preceding calendar year. Such rate shall be adjusted annually. No Treasury Bills will be actually purchased or earmarked for a participant's Account. 5. Redesignation of Investment Options Within an Income Deferral Account. A participant may redesignate amounts previously credited to an Income Deferral Account among the investment options available under the Plan. Participants who wish to redesignate out of a particular investment option may not at 3 the same time redesignate into the same investment option. No redesignation of investments may take place during the 30 days prior to a scheduled distribution under the Plan. The following additional rules shall apply with respect to the redesignation of any such previously credited amounts: (a) Permitted Frequency -- Redesignation by a participant may be made not more than once during any consecutive twelve month period. (b) Amount and Extent of Redesignation -- Redesignation for any participant must be in 1% multiples of the investment from which redesignation is being made. (c) Timing -- Redesignation shall take place as of the first day of the month following the month in which a participant's written redesignation is received by Extra Compensation Services. The value of the Company's Common Stock for purposes of investment redesignation shall be the average of the high and low trading price of the Common Stock as reported in The Wall Street Journal for the last trading day of such prior month. (d) Special rules for Redesignation Into or Out of Common Stock Equivalent Units previously credited to an Income Deferral Account: (i) Material, Nonpublic Information -- The Committee in its sole discretion and with advice of counsel at any time may rescind a redesignation into or out of Common Stock Equivalent Units if such redesignation was made by a participant who, a) at the time of the redesignation was in the possession of material, nonpublic information with respect to the Company; and b) in the Committee's estimation benefited from such information in the timing of his or her redesignation. The Committee's determination shall be final and binding. In the event of such rescission, the participant's Income Deferral Account shall be returned to a status as though such redesignation had not occurred. Notwithstanding the above, the Committee shall not rescind a redesignation if the facts were reviewed by the participant with the General Counsel of the Company or a designee prior to the redesignation and if the General Counsel or designee had concluded that such participant was not in possession of material, nonpublic information. (ii) A participant subject to Section 16(b) of the Securities Exchange Act of 1934 may redesignate his or her Income Deferral Account into or out of Common Stock Equivalent Units only during the applicable "window period" with respect to the release of any quarterly or annual statements of sales and earnings by the Company. (iii) No redesignation of amounts in an Income Deferral Account shall be made into or out of Common Stock Equivalent Units within six (6) months of a discretionary "opposite way transaction" into or out of Common Stock held by the participant in the Company's Savings Plan. (e) Estate Preservation Plan -- Participants may transfer amounts from their Income Deferral Account balance to the Estate Preservation Plan, in accordance with the terms of the Estate Preservation Plan. However, once transferred into the Estate Preservation Plan, such amounts may not be transferred back into an Income Deferral Account. 6. Distribution of Income Deferral Accounts. If a participant's employment is terminated for any reason (including death or disability), and such participant is not eligible to retire from active service under the Company's pension plan, then his or her Income Deferral Account will be automatically paid in a lump sum as soon as administratively feasible in the month following his or her termination of employment. Distributions in cash of the value of equivalent shares of the Company's Common Stock will be valued at the average of the high and low trading prices of the Common Stock as reported in The Wall Street Journal for the last trading day of the month in which employment was terminated. 7. Post Retirement Deferrals. At the further election of each participant, to be made as provided for below, the payment of any sum otherwise due to a participant upon his/her retirement may be further deferred and paid in either a single lump sum or in installments. A lump sum payment may be deferred for up to ten taxable years following the participant's retirement date. If installment payments are elected, the first installment payment may be made immediately upon retirement or be deferred for up to ten taxable years. 4 Installment payments will be made annually (in the manner described below) and in approximately equal installment amounts (i.e., the value of the balance of the Income Deferral Account, plus accrued interest, divided by the number of remaining installments). The minimum number of annual installments is two (2) and the maximum number is fifteen (15). An participant may elect to defer up to 100% of the value of his/her total Income Deferral Account at retirement; or, any percentage increment less than that. The payment of any amounts from an Income Deferral Account pursuant to this Section 7 shall be subject to the provisions of the last sentence of Section 3 above. The following additional rules shall apply with respect to all payments: (a) Immediate Lump Sum Payment -- The participant will receive the full value of his or her Income Deferral Account in the calendar month of his or her retirement effective date. Participants retiring prior to the determination of a prior years incentive plan award will receive 75% of the estimated value with the remainder paid shortly after the final value is determined. (b) Deferred Lump Sum Payment -- The participant will receive the full value of his or her Income Deferral Account, plus any accrued interest, on or about January 15 of the year he or she elects to receive payment in. (c) Immediate Commencement of Installments -- The participant will receive the first installment in the calendar month of his/her retirement effective date, subject to the provisions of the last sentence of Section 3 above. All subsequent installments, plus any accrued interest, will be paid on or about January 15 of each year. (d) Deferred Commencement of Installments -- The participant will receive the first and all subsequent installments, plus any accrued interest, on or about January 15 of each year. With respect to any amounts which are deferred and/or paid in installments, interest shall be paid by the Company from the effective date of retirement to the date of any such payment. The interest rate for all deferred and/or installment payments to an participant shall be fixed at the date of retirement and shall be the rate (rounded to 1 decimal place) offered, as reported in the Wall Street Journal on the effective retirement date, on a United States Treasury Instrument for the period comparable to the length of the period of the deferral and/or installment payments. The interest shall be compounded semi-annually on the last calendar day of June and December of each year. If more than one instrument is quoted, the average of such rates shall be utilized. By way of example, if an election is made to receive installments over eight (8) years, the comparable eight (8) year U.S. Treasury Rate shall be utilized; if an election is made to defer the commencement of installments for two (2) years with installments paid out over ten (10) years, the comparable twelve (12) year U.S. Treasury Rate shall be utilized. Once established, the interest rate shall remain fixed for the period of the deferral and/or installments. In the event of death of a participant following retirement, the Company will make payment in full of the balance of his/her Income Deferral Account, plus any accrued interest, as soon as administratively practical in a single lump sum payment to the designated beneficiary, subject to the provisions of the last sentence of Section 3 above. In the event no deferral or installment election is made under this Section 7, the total amount of the Income Deferral Account will be paid in accordance with the provisions of Section 3 in a lump sum payment as soon as practical following an participant's retirement effective date. An election by a participant to defer payment or elect installments of all or a part of his/her Account beyond his/her effective retirement date must be made a minimum of twelve (12) months prior to the date of such retirement date. Any such election may be revised or revoked up to twelve (12) months prior to such retirement date. For the twelve month period prior to such retirement date, any election is irrevocable and thus may not be revoked or otherwise revised. Notwithstanding the above, at the Plan's inception, an exception has been made for participants who have a retirement effective date between January 1, 1997 and December 31, 1997. For participants having a retirement effective date prior to June 30, 1997, the deferral and/or installment election must be made a minimum of three (3) months and in the calendar year prior to the retirement date. For such participants having a retirement date between July 1, 1997 and December 31, 1997, such election must be made at least 5 six (6) months prior to the retirement date. For example, a participant who retires on April 1, 1997, must make the deferral and/or installment election no later than December 31, 1996; if the retirement date is August 1, 1997, such election must be made not later than January 31, 1997. Any such election to defer and/or receive installment payments may only be revised or revoked prior to the last permissible date for making such election. After such time the election may not be revoked or otherwise revised. An election to defer payment and/or be paid in installments is effective only when timely filed with Extra Compensation Services on the form utilized for such purpose. Any election made after the required deadline shall be disregarded. 8. Estate Preservation Plan. (a) As described in Section 5 above, a participant may elect to transfer all or any portion of the balance of his or her Income Deferral Account to the Estate Preservation Plan, in accordance with the terms of the Estate Preservation Plan. In the event of such election, the participant's Income Deferral Account shall be reduced, as directed by the participant, as of December 31 of the year in which the transfer is to occur. Transfers from an Income Deferral Account to the Estate Preservation Plan shall only be made effective as of December 31 in any year. Any such transfer shall be irrevocable when made, pursuant to the terms of a split dollar life insurance agreement, as designated by the Compensation Committee, and otherwise upon the terms and conditions set by the Compensation Committee. Upon the election of any participant to so transfer amounts from his or her Income Deferral Account to the Estate Preservation Plan, such participant shall be deemed to have waived irrevocably any and all rights to benefits which might be due under the Plan with respect to those amounts so transferred. (b) In addition to the terms set forth in paragraph (a) above, amounts from a participant's Income Deferral Account may have to be transferred to the Estate Preservation Plan in order to satisfy a prior obligation of such participant in connection with the Estate Preservation Plan. Any such transfer shall be made solely upon the direction of the Compensation Committee, upon the determination of the Compensation Committee that such transfer is necessary, and shall be effected under the same terms and conditions as a voluntary transfer under paragraph (a) above. If it is determined by the Committee that such a transfer is necessary, the participant's Income Deferral Account shall be reduced by the requisite amount as of December 31st in the year as directed by the Compensation Committee. Upon the determination of the Compensation Committee and the subsequent transfer of amounts into the Estate Preservation Plan, such participant shall be deemed to have waived irrevocably any and all rights to benefits which might be due under the Plan with respect to those amounts so transferred. 9. Deductions From Distributions. The Company will deduct from each distribution amounts required to be withheld for income, Social Security and other tax purposes. Such withholding will be done on a pro rata basis per investment. The Company may also deduct any amounts the participant owes the Company for any reason. 10. Beneficiary Designations. A participant may designate one or more beneficiaries to receive the value of his/her Income Deferral Account upon death. Should a beneficiary predecease the participant, or should a beneficiary not be named, the amount designated for such beneficiary or the participant's balance, as the case may be, will be distributed to the participant's estate. Beneficiary designations may be made or revised at any time by submitting a Beneficiary Designation Form to Extra Compensation Services. 11. Amendments. The Committee may amend the Plan at any time. However, such amendment shall not without the consent of a participant, materially adversely affect any right or obligation with respect to any Deferred Award made theretofore. 12. Miscellaneous. The Company does not fund the obligations created by the participant's participation in the Plan. Rather, the Company makes an unsecured promise to pay these obligations out of general corporate assets. This applies to obligations for both active and retired participants. In the first quarter of each calendar year, statements will be sent to active participants participating in the Plan as well as to retirees with Deferral Accounts. The statement will also include previously made deferral 6 elections and beneficiary designations. The report for retirees will provide the deferred payout balance plus interest, as well as the deferred and/or installment election and beneficiary designations. The Plan shall be administered by the Extra Compensation Services Department at the Corporate Headquarters of Company. Questions in regard to the administration of the Plan should be addressed to it. AN ELECTION TO DEFER AND/OR BE PAID IN INSTALLMENTS SHOULD ONLY BE MADE IN CONSULTATION WITH A PARTICIPANT'S TAX AND/OR FINANCIAL ADVISOR. EX-10.M 3 STOCK OPTION GAIN DEFERRAL PLAN 1 EXHIBIT 10(M) JOHNSON & JOHNSON STOCK OPTION GAIN DEFERRAL PLAN The Johnson & Johnson Stock Option Gain Deferral Plan (the "Plan") is intended to permit a select group of executives to defer tax recognition on gains from non-qualified stock options (NQSOs) granted by Johnson & Johnson (the "Company") through the delayed receipt of exercised option "gain shares". 1. Administration. This Plan is administered by the Compensation Committee of the Company's Board of Directors. The Committee shall have responsibility for determining terms and conditions of the plan and eligibility criteria for participation. The Committee may otherwise delegate any of its authority under this Plan. 2. Eligibility. Eligibility to defer under this Plan will be initially limited to members of the Executive Committee of the Company. The Committee may from time to time expand eligibility to defer receipt of option "gain shares" under this Plan to other executives of the Company. The Committee, however, has the authority to refuse to permit an participant to participate in this Plan or elect to defer receipt of "gain shares", if the Committee determines that such participation would jeopardize the Plan's compliance with applicable law or the Plan's status as a top hat plan under ERISA. 3. Deferral of Option "Gain Shares". Participants may elect to defer receipt of the "gain shares" that would otherwise be due upon exercise of a non-qualified stock option (NQSO). The election must be made a minimum of ninety days prior to the exercise of a non-qualified stock option (NQSO) and no later than six months prior to the last date on which the option can be exercised by the executive. Any election to defer pursuant to this Section 3 shall be effective only when timely filed with Extra Compensation Services on the form utilized for such purpose. Each election must specify a.) option grant(s) and number of shares to be exercised; b.) deferral period (from one tax year to post-retirement); and, c.) Form of distribution (lump sum or installments). The participant elects the period of deferral from the date of exercise. The distribution of the deferred "gain shares" will be made as of the last trading day of the month so determined. The exercise date is not elected at the time of the deferral election. In addition, in order to be able to defer the "gain shares", the option must be exercised while the participant is actively employed. A participant may extend the "deferred-to" date specified in election form, provided such election is made at least 12 months prior to the date on which the shares would otherwise have been distributed. Only one such extension shall be permitted, per deferral election. Upon ceasing to be an employee of the Company, each participant (or in the event of a participant's death, the named beneficiary or his/her estate) shall be entitled to receive the "gain shares" that have deferred. Participants must use a "stock-for-stock" exercise, and must tender mature shares (owned for more than six months) for the option grant price. Options can be exercised on any date that is at least ninety days after the election to defer has been made (and prior to option expiration) and at least one year before the distribution date which has been elected. FICA and Medicare taxes are due on exercise of option and will be paid for with a portion of the "gain shares" resulting from the exercise. Participants are responsible for any additional tax liability generated by the use of "gain shares" to cover FICA and Medicare taxes. In the process of reducing the option gain for FICA and Medicare taxes, if a fractional share amount results, the number of deferred "gain shares" will be rounded down to the nearest whole share amount. The Company will credit the participant with the number of deferred "gain shares" (the option gain, reduced for FICA and Medicare taxes, divided by the market price at exercise). 2 4. Dividend Equivalents. Upon the introduction of this deferred gain plan, the Company will require that dividend equivalents on the deferred shares be deferred under the "Executive Income Deferral Plan", and subject to the provisions of that Plan. The Company may, at a future point, choose to permit participants to make an election to receive dividend equivalents from deferred "gain shares" currently as a cash payment or to defer them to a future date. 5. Distribution of Option "Gain Shares". Distributions of "gain shares" from a Stock Option Gain Deferral will be made in J&J stock. Distribution of deferred "gain shares" may be made as follows: While Actively Employed: The deferred "gain shares" from an exercise may be distributed to an participant while he/she is actively employed. The distribution will be for the full number of shares attributed to the exercise that resulted in their deferral (as reduced for FICA and Medicare taxes), adjusted for stock splits. Upon Retirement: At retirement, the deferred "gain shares" may either be distributed in a single lump sum or in installments, pursuant to the election made by the participant. A lump sum distribution or the first installment distribution may be deferred for up to ten taxable years following the participant's retirement date. Installment payments will be made annually and in approximately equal shares amounts (i.e., number of shares comprising the balance due divided by the number of years payment is to be made). Minimum number of annual installments is two (2) and the maximum number is fifteen (15). Upon Termination of Employment (other than retirement): If an participant's employment is terminated for any reason (including death or disability), and such participant is not eligible to retire from active service under the Company's pension plan, all of his/her deferred "gain shares" will immediately be distributed, as soon as administratively feasible, following termination of employment, regardless of any previously made election. In the event of death of a participant following retirement, the Company will immediately distribute the full balance of deferred "gain shares" due as soon as administratively feasible to the designated beneficiary. The beneficiary designations elected by an participant under the "Participant Income Deferral Plan" shall be the beneficiary designations under this plan, unless the participant had notified the Extra Compensation Services department in writing to the contrary. As an Early Withdrawal: In the event an participant wishes to withdraw his/her deferred option "gain shares" prior to the deferred payment date, an early withdrawal will be allowed, subject to an assessment of a penalty equal to 10% of the shares being withdrawn. The following additional rules shall apply with respect to all payments: (a) Immediate Lump Sum Distribution -- The participant will receive the number of deferred "gain shares" in the calendar month of his/her retirement effective date. (b) Deferred Lump Sum Distribution -- The participant will receive the full value of his/her Income Deferral Account, plus any accrued interest, on or about January 15 of the year he/she elects to receive payment in. (c) Immediate Commencement of Installments -- The participant will receive the first installment in the calendar month of his/her retirement effective date, subject to the provisions of the last sentence of Section 3 above. All subsequent installments, plus any accrued interest, will be paid on or about January 15 of each year. (d) Deferred Commencement of Installments -- The participant will receive the first and all subsequent installments on or about January 15 of each year. 6. Deductions from Distributions. The Company will deduct from each distribution amounts required to be withheld for income, Social Security and other tax purposes. Such withholding will be done on a pro rata basis per investment. The Company may also deduct any amounts the participant owes the Company for any reason. 3 7. Beneficiary Designations. A participant may designate one or more beneficiaries to receive the Deferred "Gain Shares" upon death. Should a beneficiary predecease the participant, or should a beneficiary not be named, the amount designated for such beneficiary or the participant's balance, as the case may be, will be distributed to the participant's Estate. Beneficiary designations may be made or revised at any time by submitting a Beneficiary Designation Form to Extra Compensation Services. 8. Amendments. The Committee may amend this Plan at any time. However, such amendment shall not without the consent of a participant, materially adversely affect any right or obligation with respect to any Deferred "Gain Shares" elected theretofore. 9. Miscellaneous. The Employer does not fund the obligations created by the participant's participation in the Plan. Rather, the Employer makes an unsecured promise to pay these obligations out of general corporate assets. This applies to obligations for both active and retired participants. In the first quarter of each calendar year, statements will be sent to active participants participating in this Plan as well as to retirees with Deferral Accounts. The statement will also include previously made deferral elections and beneficiary designations. The report for retirees will provide the deferred "gain share" balance, as well as the payout/installment election and beneficiary designations. This Plan is administered by the Extra Compensation Services Department at the Corporate Headquarters of Employer. Questions in regard to the administration of the Plan should be addressed to it. AN ELECTION TO DEFER AND/OR BE PAID IN INSTALLMENTS SHOULD ONLY BE MADE IN CONSULTATION WITH AN PARTICIPANT'S TAX AND/OR FINANCIAL ADVISOR. EX-10.N 4 ESTATE PRESERVATION PLAN 1 EXHIBIT 10(N) JOHNSON & JOHNSON ESTATE PRESERVATION PLAN SUMMARY DESCRIPTION Johnson & Johnson (the "Company") has established the Estate Preservation Plan (the "EPP") to assist selected key employees of the Company to better plan for their retirement and estate needs. The EPP provides for the Company and the participant, or a trust created by the participant, to purchase a life insurance policy on the life of the participant or the joint life of the participant and spouse. The Split Dollar Agreement (the "Agreement," annexed to this Summary Description as Annex 1) represents the controlling document regarding the respective rights, benefits and obligations of the parties under the EPP and the life insurance policy. The following is a description of the operative provisions of the Agreement and the coordination of the EPP with the Executive Income Deferral Plan. The EPP is separate and distinct from the Executive Income Deferral Plan. ELIGIBILITY TO PARTICIPATE 1. Selected key executives who are also participants in the Executive Income Deferral Program will be notified of their eligibility to participate in the EPP. 2. The Compensation Committee (the "Committee") may decide that a participant is no longer eligible for participation due to a change in employment status. If this happens, any Agreement(s) entered into prior to that date will remain intact, however, the participant will no longer be eligible to make future deferral commitments into the EPP, as described below. ELECTION TO PARTICIPATE 1. The participant may elect to participate in the EPP by agreeing to defer receipt of some portion of current compensation, either salary, bonus or both. The amounts deferred can be either a stated dollar amount or a percentage and will be made on a form approved by the Committee. 2. The participant can choose to have the amounts deferred only for the next calendar year or for a period of up to 5 years. The elections are irrevocable after a ninety day period. 3. If the participant elects to defer a percentage of salary or bonus, the amount which will be contributed to the EPP will be fixed as of the initial election -- in other words, the amount to be deferred will not be increased as a result of increasing salary or bonus. 4. The participant may also choose to waive the right to receive all or a portion of current account balances under the Executive Income Deferral Program in favor of participation in the EPP. 5. The amount that the participant chooses to defer (or waive) will be contributed to the EPP in the form of premiums on a life insurance contract. POLICY OWNERSHIP AND PROVISIONS 1. The participant will indicate at the time of the deferral election whether the insurance contract is on the joint life of the participant and spouse, or on the participant's life alone. The participant (or a trust created by the participant to accomplish estate planning objectives) will be the owner of the policy (the "Owner"). 2. The participant will enter into a split dollar agreement giving certain rights to the Company, as security for the amount of the premiums that it has paid into the policy. 3. The Company's interest in the policy cash values or death benefit will be limited to the lesser of the cash value or cumulative premiums paid. 4. The Owner's interest in the policy will be anything in excess of the Company's interest. 2 5. In the event of the Company's insolvency, all of the cash value in the policy will be subject to creditors. 6. The Company will recover its interest in the policy upon the death of the insured(s) or the termination of the split dollar agreement. 7. The Owner (participant or trust) will have the right to choose the funds in which the policy cash values are invested. 8. Both the participant and the Company can assign their respective interests in the policy to an individual or a trust. 9. The Owner (participant or trust) will not be permitted to withdraw or borrow any portion of the cash value without the written consent of the Company. 10. The split dollar agreement will terminate at the death of the insured(s), agreement of both parties, failure of the Company to pay premiums due, or the insured's failure to complete the underwriting or policy issuance process. 11. The participant will be provided with a financial projection based on the amount of compensation that the participant elects to defer (or waive). This projection is not a guarantee of policy performance, but only a projection based on certain assumptions. TAXATION TO PARTICIPANT 1. The participant will recognize "imputed income" annually on the value of the death benefit provided under the agreement. 2. The value will be determined based on the insurance carriers one-year term rates for either the participant alone or on the joint lives of participant and spouse. 3 ANNEX 1 TO JOHNSON & JOHNSON ESTATE PRESERVATION PLAN SPLIT DOLLAR AGREEMENT This Split Dollar Agreement is entered into as of -----------------------------------------, --------------, by and between JOHNSON & JOHNSON, a New Jersey corporation (the "Employer"), and - ------------ - ------------ - ------------------------, an individual (the "Employee"), or - ------------------------ - ------------------------, a trust created by the Employee (hereinafter, the Employee or this trust shall be referred to as the "Owner" when referred to in that capacity). RECITALS Whereas, the Employee performs specified tasks for the Employer and is eligible to participate in the Estate Preservation Plan; and Whereas, the Employee wishes to provide protection to his family in the event of death under a policy of insurance, and the Employer is willing to pay the premiums due on such life insurance as an additional benefit to the Employee; and Whereas, Owner will be the sole owner and possessor of the Policy and assign an interest in the Policy's death benefit and cash value to the Employer as collateral to secure repayment of Employer's premium payments with respect to the Policy; and Whereas, it is the intent of the Employer and Owner to define the limited extent of the Employer's security interest in the Policy; Now, therefore, Employer and Owner mutually agree that: (1) INTERESTS IN THE POLICY The Policy, which is the subject of this Split Dollar Agreement, is issued by - ------------------------ - ------------------------ (the "Insurer") Policy Number - ------------------------ insuring the life of the Employee, or the joint lives of the Employee and the Employee's spouse (hereafter, referred to as the Insured or Insureds as appropriate). The Employer's interest in the cash value of the Policy (the "Employer's Interest") shall be equal to the total amount of the premium payments made on the Policy, however, if this Agreement remains in force for more than fifteen years from the date of execution of this Agreement, then in that event only, the Employer's Interest shall be accumulated at interest equal to a rate of 6.4575% per annum from that date forward. The Owner's interest in the cash value of the Policy (the "Owner's Interest") shall be equal to the remaining cash value of the Policy, if any, in excess of the Employer's Interest, reduced by any distributions made to the Owner. (2) PREMIUM PAYMENTS On or before the due date of each premium payment on the Policies, or within the grace period provided therein, Employer will pay the entire premium due on the Policy. The Employer will make premium payments consistent with the projection attached to this Agreement as Exhibit A, but in no event beyond the termination of Employee's service with the Employer. The Employer reserves the right to make additional premium payments in its sole discretion. The Employee shall have imputed income each year in an amount equal to the annual cost of current death benefit protection on the life of the Employee, measured by the lower of (a) the PS 58 rate, as set forth in Revenue Ruling 55-747 (or the corresponding applicable provision of any future Revenue Ruling), or (b) the Insurer's current published premium rate for annually renewable term insurance for standard risks. However, if the Policy was initially issued covering the joint lives of the Employee and the Employee's spouse, then while both Insureds are alive, the Employee shall have imputed income each year in an amount equal to the annual cost of current death benefit protection on the life of the Insureds, 4 measured by the lower of (a) the rate designated as the PS 38 rate (or the corresponding applicable provision of any future Revenue Ruling), or (b) the Insurer's current published premium rate for annually renewable term insurance for standard risks on the joint lives of the Insureds. Upon the first death of one of the Insureds, the remaining Insured shall have imputed income each year, in an amount equal to the annual cost of current death benefit protection on the life of the remaining Insured, measured by the lower of (a) the PS 58 rate, as set forth in Revenue Ruling 55-747 (or the corresponding applicable provision of any future Revenue Ruling), or (b) the Insurer's current published premium rate for annually renewable term insurance for standard risks. (3) DEATH BENEFIT AMOUNTS In the event of Employee's death prior to the termination of this Agreement, the death benefit payable to the Employer (or the Employer's designated beneficiaries) under this Agreement shall be equal to the Employer's Interest in the Policy at the time of Employee's death. In the event of the Employee's death prior to the termination of this Agreement, the death benefit payable to the Owner (or the Owner's designated beneficiaries) shall be the excess of the total death proceeds under the Policy less the amount payable to the Employer (or the Employer's designated beneficiaries). Following the termination of this Agreement and upon the satisfaction of the Employer's Interest in the Policy, the Owner's death benefit will be equal to the total death benefit provided by the Policy. Owner understands that sufficiency of cash value in the Policy to provide expected amounts of death benefit under this Agreement may vary as a result of Policy performance and duration of premium payments and this is in no event guaranteed by the Employer or the Insurer. (4) OWNERSHIP AND RIGHTS IN THE POLICY The Policy will be owned exclusively by the Owner or the Owner's Assignee (for purposes of this Agreement, Owner's Assignee shall be included in the definition of Owner). While this Agreement is in effect, the Employer has a security interest in the Policy limited exclusively to: (a) that portion of the cash value of the Policy equal to the Employer's Interest in the Policy; or (b) an amount of the death benefit equal to the Employer's Interest in the Policy. In addition, the Owner shall have the right to make any investment choices permitted by the Policy with respect to the cash value of the Policy, and Employer shall agree to waive this right as long as this Agreement remains in force in accordance with the established procedures of the Insurer. The Owner's rights include the right to irrevocably assign any of their rights under the Policy, with the consent of the Employer and the Insurer and to select and change beneficiaries to receive Owner's death benefits. The Owner will not be permitted to withdraw all or any portion of the cash value of the Policy, borrow against, or partially or totally surrender the Policy as long as the Collateral Assignment remains in force, unless the Employer consents in writing to such distribution. Any other rights in the Policy other than those specifically mentioned in this Agreement must be exercised with the written consent of both the Owner and the Employer. (5) ASSIGNMENT OF POLICY TO SECURE EMPLOYER'S PAYMENTS To secure Employer's Interest in the Policy under this Agreement, Owner will collaterally assign the Policy to the Employer by signing the separate Collateral Assignment. The Collateral Assignment cannot be altered without the Employer's, Owner's, and Insurer's consent. (6) TERMINATION OF SPLIT DOLLAR AGREEMENT This Split Dollar Agreement, and all obligations of the Employer to pay premiums under it, will terminate upon the earliest to occur of the following: - Death of the Insured(s); - Written agreement of both the Owner and the Employer to terminate this Agreement; - Failure of the Employer to pay any premiums due as set forth in this Agreement, in which event the Employer shall forfeit any and all Interest in the Policy; and, 5 - Failure of the Insured(s) or Owner to complete all necessary requirements for the Insurer to issue a policy. Upon Termination of this Agreement, the Employer shall receive the Employer's Interest, if any, in the Policy as soon as is practical, but in no event shall receipt be later than sixty (60) days from the earliest of the dates listed above. In the event of termination of this Agreement for reason other than the death of the Employee, the Employer's Interest in the Policy and under this Agreement shall be satisfied either directly from the cash value of the Policy or by direct payment by the Owner, at the discretion of the Owner. In this event, the recovery of the Employer's Interest shall be limited to the cash surrender value of the Policy at that time. In the event of Termination of this Agreement by reason of the death of the Employee, the Employer's Interest in the Policy and under this Agreement shall be satisfied through direct payment from the Insurer from the Policy proceeds. (7) PAYMENT OF PROCEEDS OR CASH VALUE TO EMPLOYER Upon receipt of the Employer's Interest in the Policy, as provided above, either from the Policy, or from the Owner, the Employer will release the Collateral Assignment. Upon satisfaction of the Employer's Interest in the Policy, or in the event of termination of this Agreement pursuant to section 6(c) above, the Owner shall have unrestricted ownership to the Policy. Upon termination of this Split Dollar Agreement by reason of the death of the Insured (or in the event of a Policy initially issued covering the lives of the Employee and the Employee's spouse, upon the death of both Insureds), the Insurer in satisfaction of the Owner's obligations, will issue a check directly to the Employer as collateral assignee in an amount equal to the Employer's Interest in the Policy. (8) MISCELLANEOUS Not an Employment Agreement. This Split Dollar Agreement does not in any way constitute an employment agreement, and the Employer reserves the right to terminate Employee's relationship with the Employer to the same extent as though the Split Dollar Agreement did not exist. This Split Dollar Agreement may be amended at any time by written agreement signed on behalf of the Employer and by the Owner. Binding Effect. This Agreement shall be binding upon and inure to the benefit of the Employer and its successors and assigns, and to the Owner and the Owner's successors, assigns, heirs, executor or personal representative, and beneficiaries. Notices. Any notice, consent or demand required or permitted under this Agreement shall be made in writing and shall be signed by the party making the notice, consent, or demand. Such notice shall be sent by United States certified mail, postage pre-paid and shall be sent to the other party's last known address as shown on the records of the Employer. The date of such mailing shall be deemed to be the date of such notice, consent or demand. Governing Law. This Agreement shall be governed by and be construed in accordance with the laws of the State of New Jersey. (9) CLAIMS PROCEDURES Any person or entity claiming a benefit, requesting an interpretation or ruling under the Plan, or requesting information under the Plan (hereinafter referred to as "Claimant") shall present the request in writing to the Employer, which shall respond in writing as soon as practicable. If the claim or request is denied, the written notice of denial shall state the reason for denial, with specific reference to the provisions on which the denial is based, a description of any additional material or information required and an explanation of why it is necessary, and an explanation of the program's claims review procedure. Any Claimant whose claim or request is denied or who has not received a response within sixty (60) days may request a review by notice given in writing to the Employer. Such request must be made within sixty (60) days after receipt by the Claimant of the written notice of denial, or in the event Claimant has not 6 received a response sixty (60) days after receipt by the Employer of Claimant's claim or request. The claim or request shall be reviewed by the Employer which may, but shall not be required to, grant the Claimant a hearing. On review, the Claimant may have representation, examine pertinent documents, and submit issues and comments in writing. The decision on review shall normally be made within sixty (60) days after the Employer's receipt of Claimant's claim or request. If an extension of time is required for a hearing or other special circumstances, the Claimant shall be notified and the time limit shall be one hundred twenty (120) days. The decision shall be in writing and shall state the reason and the relevant provisions. All decisions on review shall be final and bind all parties concerned. IN WITNESS WHEREOF, the Employer and the Owner (or the Owner's Assignee) have signed this Split Dollar Agreement, which is effective as of the effective date of the Policy described herein. JOHNSON & JOHNSON By: ---------------------------------------------------- -------------------------------------------------------- Name and Title - --------------------------------------------------- -------------------------------------------------------- Witness Owner(1) ------------------------------ Date - --------------------------------------------------- -------------------------------------------------------- Witness Owner(2) ------------------------------ Date
EX-12 5 COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES 1 EXHIBIT 12 JOHNSON & JOHNSON AND SUBSIDIARIES STATEMENT OF COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES(1)(2) (DOLLARS IN MILLIONS)
FISCAL YEAR ENDED -------------------------------------------------------------------- JANUARY 2, JANUARY 3, DECEMBER 28, DECEMBER 29, DECEMBER 31, 2000 1999(3) 1997 1996 1995 ---------- ---------- ------------ ------------ ------------ Determination of Earnings: Earnings Before Provision for Taxes on Income......................... $5,753 4,182 4,587 4,020 3,260 Fixed Charges........................ 275 210 203 213 237 ------ ----- ----- ----- ----- Total Earnings as Defined.... $6,028 4,392 4,790 4,233 3,497 ====== ===== ===== ===== ===== Fixed Charges and Other: Rents................................ 78 81 79 80 77 Interests............................ 197 129 124 133 160 ------ ----- ----- ----- ----- Fixed Charges................ 275 210 203 213 237 Capitalized Interest................. 81 72 40 55 70 ------ ----- ----- ----- ----- Total Fixed Charges.......... $ 356 282 243 268 307 ====== ===== ===== ===== ===== Ratio of Earnings to Fixed Charges..... 16.93 15.57 19.71 15.79 11.39 ====== ===== ===== ===== =====
- --------------- (1) This Statement has been prepared to give retroactive effect to the merger between Johnson & Johnson and Centocor on October 6, 1999. (2) The ratio of earnings to fixed charges represents the historical ratio of the Company and is calculated on a total enterprise basis. The ratio is computed by dividing the sum of earnings before provision for taxes and fixed charges (excluding capitalized interest) by fixed charges. Fixed charges represent interest (including capitalized interest) and amortization of debt discount and expense and the interest factor of all rentals, consisting of an appropriate interest factor on operating leases. (3) Earnings for the year ended January 3, 1999 include charges related to restructuring of $613 million and in-process research and development charges of $298 million. Excluding the effect of these charges, the ratio of earnings to fixed charges would have been 18.80. EX-13 6 PAGES 22-46 OF THE COMPANY'S ANNUAL REPORT - 1999 1 EXHIBIT 13 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION OVERVIEW Worldwide sales in 1999 were a record $27.5 billion, an increase of 14.5% and marked the 67th consecutive year of positive sales growth. The Company achieved sales growth of 16.4% on an operational basis before the effect of the stronger U.S. dollar that depressed sales growth by 1.9%. During 1999, the Company completed its merger with Centocor, Inc., which was accounted for by the pooling-of-interests method of accounting. As a result, this Annual Report reflects the combination of financial information for all periods. For detailed discussion of acquisitions, see Note 17. Reported net earnings increased by 38.8% to $4.2 billion. Prior to the effect of special charges for both 1999 and 1998, net earnings increased by 13.8%. For detailed discussions on special charges, see Note 14 and Note 17. In 1999, $2.6 billion or 9.5% of sales was invested in research and development. This investment, the highest in the Company's history, reflects the Company's continued commitment to achieving significant advances in health care through the discovery and development of innovative, knowledge-based, cost effective products that prolong and enhance the quality of life. Cash generated from operations in 1999 was $5.68 billion and served as the primary source of funding to finance the capital investments of $1.73 billion, dividend distribution of $1.48 billion and the purchase of treasury stock of $0.84 billion for employee benefit plans. Cash dividends paid to shareowners in 1999 increased by 13.3% over 1998 and represented the 37th consecutive year of dividend increases. Total equity market capitalization at year-end 1999 was $129.6 billion or an increase of 11.2% over 1998 while the percentage return on average shareowners' equity was 27.5% in 1999. The worldwide health care market continues to be transformed as customers have become more knowledgeable and demand even greater value. Simultaneously, the marketplace has become increasingly more competitive. The Company believes that it is well positioned to meet these challenges by providing innovative products as demonstrated by the Company's commitment to research and development. In addition, dedicated employees along with strong Credo values and a decentralized management structure enable the Company to provide its customers with value-creating, innovative products and services. SALES AND EARNINGS In 1999, worldwide sales increased 14.5% to $27.5 billion compared to increases of 5.1% in 1998 and 4.9% in 1997. Excluding the impact of foreign currencies, worldwide sales increased 16.4% in 1999, 7.6% in 1998 and 8.9% in 1997. The strong performance of products introduced in the past few years and the continued expansion of base businesses resulted in the sales increase in 1999. Additionally, the full year impact of the DePuy acquisition contributed to this sales growth. 2 SALES TO CUSTOMERS Millions of Dollars [SALES TO CUSTOMERS BAR GRAPH]
DOMESTIC INTERNATIONAL -------- ------------- 90 5485.00 5812.00 6293.00 6207.00 7011.00 6868.00 7270.00 6944.00 7871.00 7930.00 9225.00 9696.00 10986.00 10769.00 11895.00 10935.00 12848.00 11147.00 99 15385.00 12086.00
Worldwide net earnings for 1999 were $4.2 billion, reflecting a 38.8% increase over 1998. Worldwide net earnings per share for 1999 equaled $2.94 per share, an increase of 38.7% from the $2.12 net earnings per share in 1998. Excluding the impact of special charges, both worldwide net earnings and net earnings per share increased 13.8% over 1998. The special charges included costs associated with the Centocor merger in 1999 and the reconfiguration of the worldwide manufacturing network and in-process research and development (IPR&D) charges in 1998. Worldwide net earnings for 1998 including the impact of the Restructuring and IPR&D charges were $3.0 billion, reflecting a 9.3% decrease from 1997. Worldwide net earnings per share for 1998 equaled $2.12 per share, a decrease of 9.4% from the $2.34 net earnings per share in 1997. Excluding the impact of the Restructuring and IPR&D charges, worldwide net earnings for 1998 were $3.7 billion, reflecting an 11.7% increase over 1997. Excluding the impact of these charges, worldwide net earnings per share for 1998 equaled $2.61 per share, an increase of 11.5% over the $2.34 net earnings per share in 1997. Worldwide net earnings for 1997 were $3.31 billion, or net earnings per share of $2.34, representing an increase over 1996 of 14.9% and 14.1%, respectively. Average diluted shares of common stock outstanding were 1.42 billion in 1999, 1998 and 1997. NET EARNINGS Millions of Dollars [NET EARNINGS BAR GRAPH]
NET EARNINGS ------------ 90 1055.00 91 1332.00 92 904.00 93 1740.00 94 1923.00 95 2367.00 96 2882.00 97 3311.00 98 3003.00 98* 3700.00 99 4167.00
*1998 results excluding Restructuring and In-Process Research and Development charges Sales by domestic companies were $15.39 billion in 1999, $12.85 billion in 1998 and $11.90 billion in 1997. This represents an increase of 19.7% in 1999, 8.0% in 1998 and 8.3% in 1997. Sales by international companies were $12.09 billion in 1999, $11.15 billion in 1998 and $10.93 billion in 1997. This represents an increase of 8.4% in 1999, 1.9% in 1998 and 1.5% in 1997. Excluding the impact of the foreign currency fluctuations over the past three years, international company sales increased 12.4% in 1999, 7.1% in 1998 and 9.6% in 1997. 3 All geographic areas throughout the world posted solid operational gains during 1999. Excluding the effect of exchange rate fluctuations of the U.S. dollar on foreign currencies, sales increased 10.1% in Europe, 12.3% in the Western Hemisphere (excluding the U.S.) and 18.6% in the Asia-Pacific, Africa regions. The Company achieved an annual compound growth rate of 10.8% for worldwide sales for the 10 year period since 1989 with domestic sales growing at a rate of 12.1% and international sales growing at a rate of 9.5%. Worldwide net earnings achieved a 10 year annual growth rate of 14.4%, while earnings per share grew at a rate of 14.0%. For the last five years, the annual compound growth rate for sales was 11.7%. The annual compound growth rate for net earnings was 16.7% and the annual compound growth rate for earnings per share was 15.2%. COMMON STOCK MARKET PRICES The Company's common stock is listed on the New York Stock Exchange under the symbol JNJ. The approximate number of shareowners of record at year-end 1999 was 169,384. The composite market price ranges for Johnson & Johnson common stock during 1999 and 1998 were:
1999 1998 ------------- ------------- HIGH LOW HIGH LOW ---- --- ---- --- First quarter........................................... $ 94 77 76 1/2 63 3/8 Second quarter.......................................... 103 87 13/16 77 7/8 67 Third quarter........................................... 105 7/8 90 80 3/4 68 1/4 Fourth quarter.......................................... 106 7/8 90 1/8 89 3/4 72 5/8 Year-end close.......................................... 93 1/4 83 7/8
CASH DIVIDENDS PAID The Company increased its dividends in 1999 for the 37th consecutive year. Cash dividends paid were $1.09 per share in 1999 compared with dividends of $.97 per share in 1998 and $.85 per share in 1997. The dividends were distributed as follows:
1999 1998 1997 ----- ---- ---- First quarter............................................... $ .25 .22 .19 Second quarter.............................................. .28 .25 .22 Third quarter............................................... .28 .25 .22 Fourth quarter.............................................. .28 .25 .22 ----- --- --- Total....................................................... $1.09 .97 .85 ===== === ===
On January 3, 2000, the Board of Directors declared a regular cash dividend of $.28 per share, paid on March 7, 2000 to shareowners of record on February 15, 2000. The Company expects to continue the practice of paying regular cash dividends. COSTS AND EXPENSES Research activities represent a significant part of the Company's business. These expenditures relate to the development of new products, improvement of existing products, technical support of products and compliance with governmental regulations for the protection of the consumer. Worldwide costs of research activities, excluding the special charges of IPR&D, were as follows:
1999 1998 1997 ------ ----- ----- (MILLIONS OF DOLLARS) Research expense........................................... $2,600 2,336 2,209 Percent increase over prior year........................... 11.3% 5.7% 12.6% Percent of sales........................................... 9.5 9.7 9.7
Research expense as a percent of sales for the Pharmaceutical segment was 15.0% for 1999, 15.9% for 1998 and 17.1% for 1997 while averaging 6.0%, 6.1% and 5.7% in the other two segments. 4 RESEARCH EXPENSES Millions of Dollars [RESEARCH EXPENSE BAR GRAPH]
RESEARCH EXPENSE ---------------- 90 880.00 1052.00 1233.00 1248.00 1348.00 1700.00 1962.00 2209.00 2336.00 99 2600.00
Advertising expenses, which are comprised of television, radio, print media as well as Internet advertising, were $1.39 billion in 1999, $1.19 billion in 1998 and $1.26 in 1997. Additionally, significant expenditures were incurred for promotional activities such as couponing and performance allowances. The Company believes that its operations comply in all material respects with applicable environmental laws and regulations. The Company or its subsidiaries are parties to a number of proceedings brought under the Comprehensive Environmental Response, Compensation and Liability Act, commonly known as Superfund, and comparable state laws, in which primary relief sought is the cost of past and future remediation. While it is not feasible to predict or determine the outcome of these proceedings, in the opinion of the Company, such proceedings would not have a material adverse effect on the results of operations, cash flows or financial position of the Company. Worldwide sales do not reflect any significant degree of seasonality; however, spending has been heavier in the fourth quarter of each year than in other quarters. This reflects increased spending decisions, principally for advertising and research grants. The worldwide effective income tax rate was 27.6% in 1999, 28.2% in 1998 and 27.8% in 1997. The reduction in the 1999 worldwide effective tax rate as compared to 1998 is primarily due to the Company's non-deductible IPR&D charge taken in connection with the acquisition of DePuy in 1998. Refer to Note 8 for additional information. DISTRIBUTION OF SALES REVENUES The distribution of sales revenues for 1999, 1998 and 1997 were:
1999 1998 1997 ---- ---- ---- Employment costs............................................ 23.1% 24.0% 23.9% Costs of materials and services............................. 50.1 48.9 50.8 Depreciation and amortization of property and intangibles... 5.3 5.4 4.7 Taxes other than payroll.................................... 6.3 6.3 6.1 Earnings reinvested in business............................. 9.8 7.1 9.5 Cash dividends paid......................................... 5.4 5.4 5.0 Restructuring/IPR&D......................................... -- 2.9 --
LIQUIDITY AND CAPITAL RESOURCES Cash generated from operations and selected borrowings provide the major sources of funds for the growth of the business, including working capital, additions to property, plant and equipment and acquisitions. Cash and current marketable securities totaled $3.88 billion at the end of 1999 as compared with $2.78 billion at the end of 1998. Total unused credit available to the Company approximates $3.0 billion, including $1.2 billion of credit commitments with various banks worldwide, $800 million of which expire on September 29, 2000 and $400 million on October 6, 2004. 5 The Company's shelf registration filed with the Securities and Exchange Commission enables the Company to issue up to $2.59 billion of unsecured debt securities, and warrants to purchase debt securities, under its medium term note (MTN) program. In 1999, the Company issued a total of $500 million notes from the shelf registration: $200 million of 6.625% notes due 2009 and $300 million of 6.95% notes due 2029. At January 2, 2000, the Company had $1.79 billion remaining on its shelf registration. In addition to the notes issued under the shelf registration, the Company issued $250 million, 6.0% Eurodollar notes due in 2001. A summary of borrowings can be found in Note 6. Total borrowings at the end of 1999 and 1998 were $4.26 billion and $4.48 billion, respectively. In 1999 and 1998, net debt (debt net of cash and current marketable securities) was 2.3% and 10.8%, respectively of net capital (shareowners' equity and net debt). Total debt represented 20.8% of total capital (shareowners' equity and total debt) in 1999 and 24.2% of total capital in 1998. Shareowners' equity per share at the end of 1999 was $11.67 compared with $10.13 at year-end 1998, an increase of 15.2%. For the period ended January 2, 2000, there were no material cash commitments. FINANCIAL INSTRUMENTS The Company uses financial instruments to manage the impact of interest rate and foreign exchange rate changes on earnings and cash flows. Accordingly, the Company enters into forward foreign exchange contracts to protect the value of existing foreign currency assets and liabilities and to hedge future foreign currency product costs. Gains or losses on these contracts are offset by the gains or losses on the underlying transactions. A 10% appreciation of the U.S. Dollar from January 2, 2000 market rates would increase the unrealized value of the Company's forward contracts by $271 million. Conversely, a 10% depreciation of the U.S. Dollar from January 2, 2000 market rates would decrease the unrealized value of the Company's forward contracts by $251 million. In either scenario, the gain or loss on the forward contract would be offset by the gain or loss on the underlying transaction and therefore would have no impact on future earnings and cash flows. The Company enters into interest rate and currency swap contracts to manage the Company's exposure to interest rate changes and hedge foreign currency denominated debt. The impact of a 1% change in interest rates on the Company's interest rate sensitive financial instruments would be immaterial. The Company does not enter into financial instruments for trading or speculative purposes. Further, the Company has a policy of only entering into contracts with parties that have at least an "A" (or equivalent) credit rating. The counterparties to these contracts are major financial institutions and the Company does not have significant exposure to any one counterparty. Management believes the risk of loss is remote. CHANGING PRICES AND INFLATION Johnson & Johnson is aware that its products are used in a setting where, for more than a decade, policymakers, consumers, and businesses have expressed concern about the rising cost of health care. In response to these concerns, Johnson & Johnson has a long-standing policy of pricing products responsibly. For the period 1980-1999, in the United States, the weighted average compound annual growth rate of Johnson & Johnson price increases for health care products (prescription and over-the-counter drugs, hospital and professional products) was below the U.S. Consumer Price Index (CPI) for the period. Inflation rates, even though moderate in many parts of the world during 1999, continue to have an effect on worldwide economies and, consequently, on the way companies operate. In the face of increasing costs, the Company strives to maintain its profit margins through cost reduction programs, productivity improvements and periodic price increases. YEAR 2000 The "Year 2000" issue relates to potential problems resulting from a practice by computer programmers. For some time, calendar years had frequently been represented in computer programs by their last two digits. Thus, "1998" would be rendered "98." The logic of the programs frequently assumed that the first two digits 6 of a year given in this format are "19." It was unclear what would happen with respect to such computer programs upon the change in calendar year from 1999 to 2000. The program or device might interpret "00" as "2000," "1900," an error, or some other input. In such a case, the computer program or device might cease to function, function improperly, provide an erroneous result or act in some unpredictable manner. The Company has had a program in place since the fourth quarter of 1996 to address Year 2000 issues in critical business areas related to its products, information management systems, non-information systems with embedded technology, suppliers and customers. A report on the progress of this program was provided to the Audit Committee of the Company's Board of Directors. The Company completed its review of its critical auto-mated information systems and the related remediation of these systems prior to December 31, 1999. The Company also reviewed and adjusted, where necessary, its other automated systems prior to December 31, 1999. The Company had a plan for assessment and testing of all of its products and determined that all current products offered for sale on and after January 1, 2000 are Year 2000 ready. The Company engaged additional outside consultants to examine selected critical areas in certain of its major franchises. In addition, during 1999, these consultants assessed critical sites worldwide to evaluate our programs, processes and progress and to identify any remaining areas of effort required to achieve compliance. The total costs of addressing the Company's Year 2000 readiness issues were not material to the Company's financial condition or results of operations. Since initiation of its program in 1996, the Company expensed $210 million, on a worldwide basis, in internal and external costs on a pre-tax basis to address its Year 2000 readiness issues. These expenditures include information system replacement and embedded technology upgrade costs of $120 million, supplier and customer compliance costs of $16 million and all other costs of $74 million. The Company currently estimates that the total of such costs for addressing its internal Year 2000 readiness, on a worldwide basis, will not be materially more than the amounts currently expended. These costs have been expensed as they were incurred and have been funded through operating cash flows. No projects material to the financial condition or results of operations of the Company were deferred or delayed as a result of this project. The ability of the Company to implement and effect its Year 2000 readiness program and the related costs or the costs of non-implementation, cannot be precisely determined at this time. The Company's automated systems (both information technology and non-information systems) are generally complex but are decentralized. Although a failure to complete remediation of one system may adversely affect other systems, the Company does not currently believe that such effects are likely. If, however, a significant number of such failures should occur, some of such systems might be rendered inoperable and would require manual back-up methods or other alternatives, where available. In such a case, the speed of processing business transactions, manufacturing and otherwise conducting business would likely decrease significantly and the cost of such activities would increase, if they could be carried on at all. This situation could have a material adverse effect on the financial condition and results of operations of the business. The Company has highly integrated relationships with certain of its suppliers and customers. These include among others: providers of energy, telecommunications, raw materials and components, financial institutions, managed care organizations and large retail establishments. The Company reviewed with its critical suppliers and major customers the status of their Year 2000 readiness. The Company has requested assurances of Year 2000 readiness from such suppliers. However, many critical suppliers have either declined to provide the requested assurances or have limited the scope of assurances to which they are willing to commit. The Company has completed its plan for monitoring of critical suppliers. The Company contacted major customers to assess their readiness to deal with Year 2000 issues. If a significant number of such suppliers and customers were to experience business disruptions as a result of their lack of Year 2000 readiness, their problems could have a material adverse effect on the financial position and results of operations of the Company. This analysis of potential exposures includes both the domestic and international operations of the Company. During the period from December 31, 1999 through January 31, 7 2000 the Company did not experience any Year 2000 issues with critical suppliers or major customers that had a material adverse effect on the business or operations of the Company. The Company believes that its most reasonably likely "worst case scenario" would occur if a significant number of its key suppliers or customers were not fully Year 2000 functional, in which case the Company estimates that up to a 10 business day disruption in business operations could occur. In order to address this situation, the Company has formulated contingency plans intended to deal with the impact on the Company of Year 2000 problems that may be experienced by such critical suppliers and major customers. With respect to critical suppliers, these plans may include, among others, arranging availability of substitute sources of utilities, closely managing appropriate levels of inventory and identifying alternate sources of supply of raw materials. The Company is also alerting customers to their need to address these problems, but the Company has few alternatives available, other than reversion to manual methods, for avoiding or mitigating the effects of lack of Year 2000 readiness by major customers. In any event, even where the Company has contingency plans, there can be no assurance that such plans will address all the problems that may arise, or that such plans, even if implemented, will be successful. Notwithstanding the foregoing, the Company has no reason to believe that its exposure to the risks of supplier and customer Year 2000 readiness is any greater than the exposure to such risk that affects its competitors generally. Further, the Company believes that its programs for Year 2000 readiness will significantly improve its ability to deal with its own Year 2000 readiness issues and those of suppliers and customers over what would have occurred in the absence of such a program. That does not, however, guarantee that some material adverse effects will not occur. During the period from December 31, 1999 through January 31, 2000, the Company's worldwide operations continued to function in the ordinary course in all material respects. There were no material business interruptions or material problems with the Company's products related to Year 2000 readiness and no material customer or supplier issues arising from Year 2000 readiness issues were noted. The descriptions of Year 2000 issues set forth in this section are subject to the qualifications set forth herein under the heading "Cautionary Factors that May Affect Future Results." NEW ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board issued statement of Financial Accounting Standards No. 133 "Accounting for Derivative Instruments and Hedging Activities" (SFAS 133). This standard was amended by Statement of Financial Accounting Standards No. 137 "Accounting for Derivative Instruments and Hedging Activities-Deferral of the Effective Date of FASB Statement No. 133" and changed the effective date for SFAS 133 to all fiscal quarters of fiscal years beginning after June 15, 2000. SFAS 133 requires that all derivative instruments be recorded on the balance sheet at their respective fair values. Changes in the fair value of derivatives are recorded each period in current earnings or other comprehensive income, depending on the designation of the hedge transaction. For fair-value hedge transactions in which the Company is hedging changes in the fair value of assets, liabilities or firm commitments, changes in the fair value of the derivative instrument will generally be offset by changes in the hedged item's fair value. For cash flow hedge transactions in which the Company is hedging the variability of cash flows related to a variable rate asset, liability or forecasted transaction, changes in the fair value of the derivative instrument will be reported in other comprehensive income. The gains and losses on the derivative instrument that are reported in other comprehensive income will be recognized in earnings in the periods in which earnings are impacted by the variability of the cash flows of the hedged item. The Company will adopt SFAS 133 in the first quarter of 2001 and does not expect it to have a material effect on the Company's results of operations, cash flows or financial position. SEGMENTS OF BUSINESS Financial information for the Company's three worldwide business segments is summarized below. See Note 12 for additional information on segments of business. 8 SALES BY SEGMENT OF BUSINESS Millions of Dollars [SALES BY SEGMENT BAR GRAPH]
CONSUMER PHARMACEUTICAL PROFESSIONAL -------- -------------- ------------ 97 28.50 34.60 36.90 22,830.00 98 27.20 37.10 35.70 23,995.00 99 25.00 38.90 36.10 27,471.00
SALES
INCREASE ----------------- 1999 1998 AMOUNT PERCENT ------- ------ ------ ------- (MILLIONS OF DOLLARS) Consumer............................................... $ 6,864 6,526 338 5.2% Pharmaceutical......................................... 10,694 8,900 1,794 20.2 Professional........................................... 9,913 8,569 1,344 15.7 ------- ------ ----- Worldwide total........................................ $27,471 23,995 3,476 14.5% ======= ====== =====
OPERATING PROFIT BY SEGMENT OF BUSINESS Millions of Dollars [OPERATING PROFIT BY SEGMENTS BAR GRAPH]
CONSUMER PHARMACEUTICAL PROFESSIONAL -------- -------------- ------------ 97 11.80 55.10 33.10 4,666.00 98* 9.70 68.40 21.90 4,288.00 99 11.60 60.80 27.60 5,910.00
*1998 results including Restructuring and In-Process Research and Development charges. Excluding these charges, operating profit by segment of business was: Consumer 12.7%, Pharmaceutical 60.2%, and Professional 27.1% OPERATING PROFIT
PERCENT OF SALES ------------ 1999(1) 1998 1998(2) 1999 1998 ------- ----- ------- ---- ---- (MILLIONS OF DOLLARS) Consumer........................................... $ 683 414 658 10.0% 6.3% Pharmaceutical..................................... 3,595 2,933 3,132 33.6 33.0 Professional....................................... 1,632 941 1,409 16.5 11.0 ------ ----- ----- Worldwide total.................................... 5,910 4,288 5,199 21.5 17.9 Expenses not allocated to segments................. (157) (106) (106) ------ ----- ----- Earnings before taxes on income.................... $5,753 4,182 5,093 20.9% 17.4% ====== ===== =====
- --------------- (1) 1999 results include special charges related to the Centocor merger. Excluding these charges, operating profit as a percent of sales for the Pharmaceutical segment was 34.1%. (2) 1998 results excluding Restructuring and In-Process Research and Development charges. Excluding these charges, operating profit as a percentage of sales by segment was: Consumer 10.1%, Pharmaceutical 35.2% and Professional 16.4%. 9 CONSUMER The Consumer segment's principal products are personal care and hygienic products, including nonprescription drugs, adult skin and hair care products, baby care products, oral care products, first aid products and sanitary protection products. Major brands include AVEENO skin care products; BAND-AID Brand Adhesive Bandages; BENECOL; CAREFREE Panty Shields; CLEAN & CLEAR teen skin care products; IMODIUM A-D, an antidiarrheal; JOHNSON'S Baby line of products; JOHNSON'S pH5.5 skin and hair care products; MONISTAT, a remedy for vaginal yeast infections; adult and children's MOTRIN IB analgesic products; MYLANTA gastrointestinal products and PEPCID AC Acid Controller from the Johnson & Johnson -- Merck Consumer Pharmaceuticals Co.; NEUTROGENA skin and hair care products; o.b. Tampons; PENATEN and NATUSAN baby care products; PIZ BUIN and SUNDOWN sun care products; REACH toothbrushes; RoC skin care products; SHOWER TO SHOWER personal care products; STAYFREE sanitary protection products; and the broad family of TYLENOL acetaminophen products. These products are marketed principally to the general public and distributed both to wholesalers and directly to independent and chain retail outlets. Consumer segment sales in 1999 were $6.86 billion, an increase of 5.2% over 1998. Domestic sales increased by 10.4% while international sales declined by .2%. International sales gains in local currency of 7.0% were offset by a negative currency impact of 7.2%. Consumer sales were led by continued strength in the skin care franchise that includes the NEUTROGENA, RoC, and CLEAN & CLEAR product lines, as well as strong performances from the adult and children's TYLENOL line of analgesic products. During 1999, the Company launched various products that included BENECOL, the dietary ingredient stanol ester that aids in the reduction of cholesterol and also completed the acquisition of the AVEENO brand products. Consumer segment sales in 1998 were $6.53 billion, an increase of .4% over 1997. Sales by domestic companies accounted for 51.0% of the total segment, while international companies accounted for 49.0%. During 1998, the Company announced the signing of a definitive agreement to acquire the dermatological skin care business of S.C. Johnson & Son, Inc., including the AVEENO brand specialty soaps, bath, anti-itch and moisturizing cream and lotion products. The 1998 special pre-tax charge for the Consumer segment was $244 million. See Note 14 for detailed discussion on the Restructuring charges. Consumer segment sales in 1997 were $6.50 billion, an increase of 2.1% over 1996. Sales by domestic companies accounted for 49.9% of the total segment, while international companies accounted for 50.1%. During 1997, the Company announced a licensing agreement with Raisio Group in Finland for the North American marketing rights (as well as a letter of intent for the worldwide marketing rights) to a dietary ingredient, stanol ester, which is patented for use in reducing cholesterol. The Company also established an alliance with Takeda Chemical Industries in Japan for the sale and distribution of OTC products beginning with several forms of TYLENOL brand acetaminophen products. PHARMACEUTICAL The Pharmaceutical segment's principal worldwide franchises are in the antifungal, anti-infective, cardiovascular, contraceptive, dermatology, gastrointestinal, hematology, immunology, neurology, oncology, pain management and psychotropic fields. These products are distributed both directly and through wholesalers for use by health care professionals and the general public. Prescription drugs in the antifungal field include NIZORAL (ketoconazole), SPORANOX (itraconazole), TERAZOL (terconazole) and DAKTARIN (miconazole nitrate) antifungal products. Prescription drugs in the anti-infective field include FLOXIN (ofloxacin) and LEVAQUIN (levofloxacin). 10 Prescription drugs in the cardiovascular field include RETAVASE (reteplase), a recombinant biologic cardiology care product for the treatment of acute myocardial infarction to improve blood flow to the heart and REOPRO (abciximab) for the treatment of acute cardiac disease. Prescription drugs in the contraceptive field include ORTHO-NOVUM (norethindrone/ethinyl estradiol) and TRICILEST (norgestimate/ethinyl estradiol, sold in the U.S. as ORTHO TRI-CYCLEN) group of oral contraceptives. Prescription drugs in the dermatology field include RETIN-A MICRO (tretinoin), a dermatological cream for acne. Prescription drugs in the gastrointestinal field include ACIPHEX (rabeprazole sodium), a proton pump inhibitor for treating erosive gastroesophageal reflux disease (GERD) and duodenal ulcers; IMODIUM (loperamide HCl), an antidiarrheal; MOTILIUM (domperidone), a gastrointestinal mobilizer; PREPULSID (cisapride, sold in the U.S. as PROPULSID), a gastrointestinal prokinetic; and REMICADE (infliximab), a novel monoclonal antibody for treatment of certain Crohn's disease patients. Prescription drugs in the hematology field include EPREX (Epoetin alfa, sold in the U.S. as PROCRIT), a biotechnology derived version of the human hormone erythropoietin that stimulates red blood cell production. Prescription drugs in the immunology field include ORTHOCLONE OKT-3 (muromonab-CD3), for reversing the rejection of kidney, heart and liver transplants. Prescription drugs in the neurology field include TOPAMAX (topiramate) and STUGERON (cinnarizine). Prescription drugs in the oncology field include ERGAMISOL (levamisole hydrochloride), a colon cancer drug and LEUSTATIN (cladribine), for hairy cell leukemia. Prescription drugs in the psychotropics field include RISPERDAL (risperidone), an antipsychotic drug and HALDOL (haloperidol). Prescription drugs in the pain management field include DURAGESIC (fentanyl transdermal system, sold abroad as DUROGESIC), a transdermal patch for chronic pain; and ULTRAM (tramadol hydrochloride), an analgesic for moderate to moderately severe pain. On January 24, 2000, the U.S. prescribing information for PROPULSID (cisapride) tablets and suspension, a medication for the treatment of symptoms of nighttime heartburn in adults with gastroesophageal reflux disease (GERD), was revised to include more comprehensive directions to ensure appropriate use. The primary revisions to the prescribing information included a requirement for physicians to conduct certain tests to identify patients who are not appropriate candidates for PROPULSID therapy. Included also are new contraindicated medications such as the class of protease inhibitors, which are used to treat AIDS, and new contraindicated medical conditions, such as severe dehydration. Johnson & Johnson markets over 100 prescription drugs around the world, with 40.0% of the sales generated outside the United States. Thirty-three drugs sold by the Company had 1999 sales in excess of $50 million, with 20 of them in excess of $100 million. Pharmaceutical segment sales in 1999 were $10.69 billion, an increase of 20.2% over 1998 including 28.6% growth in domestic sales. International sales increased 9.4% as sales gains in local currency of 13.5% were offset by a negative currency impact of 4.1%. Worldwide growth reflects the strong performance of PROCRIT, RISPERDAL, DURAGESIC, LEVAQUIN, and the oral contraceptive line of products. During the fourth quarter, the Company received approval from the FDA for ORTHO-PREFEST (17(beta)-estradiol/norgestimate) for hormone replacement therapy and an additional indication for REMICADE for the treatment of rheumatoid arthritis. Pharmaceutical segment sales in 1998 were $8.90 billion, an increase of 12.7% over 1997 including 24.3% growth in domestic sales. International sales increased .6% as sales gains in local currency of 5.4% were offset 11 by a negative currency impact of 4.8%. Worldwide growth reflects the strong performance of RISPERDAL, PROCRIT, DURAGESIC, LEVAQUIN, and the oral contraceptive line of products. At year-end 1998, the Company received approval from the FDA for LEVAQUIN (levofloxacin) for the indication of uncomplicated urinary tract infection. Additionally, the Company completed the acquisition of the U.S. and Canadian product rights for RETAVASE (reteplase), an acute-care cardiovascular drug, from Roche Healthcare. RETAVASE is a product administered for the treatment of acute myocardial infarction (heart attack) to improve blood flow to the heart. The 1998 special pre-tax charge for the Pharmaceutical segment was $65 million. See Note 14 for detailed discussion on the Restructuring and IPR&D charges. Pharmaceutical segment sales in 1997 were $7.90 billion, an increase of 7.8% over 1996. This growth reflects the strong performance of RISPERDAL, PROCRIT, ULTRAM, DURAGESIC, and LEVAQUIN, a new anti-infective launched in 1997. At year-end 1997, the Company received approval from the FDA for REGRANEX (becaplermin), the first biologic treatment proven to increase the incidence of healing in diabetic foot ulcers. Significant research activities continued in the Pharmaceutical segment, increasing to $1.60 billion in 1999, or a 13.0% increase over 1998. This represents 15.0% of 1999 Pharmaceutical sales and a compound annual growth rate of approximately 13.8% for the five-year period since 1994. Pharmaceutical research is led by two worldwide organizations, Janssen Research Foundation, headquartered in Belgium and the R.W. Johnson Pharmaceutical Research Institute, headquartered in the United States. Additional research is conducted through Centocor and collaboration with the James Black Foundation in London, England. PROFESSIONAL The Professional segment includes a broad range of products used by or under the direction of health care professionals. These would include suture and mechanical wound closure products, surgical equipment and devices, wound management and infection prevention products, interventional and diagnostic cardiology products, diagnostic equipment and supplies, joint replacements, and disposable contact lenses. These products are used principally in the professional fields by physicians, nurses, therapists, hospitals, diagnostic laboratories and clinics. Distribution to these markets is done both directly and through surgical supply and other dealers. Worldwide sales in 1999 of $9.91 billion in the Professional segment represented an increase of 15.7% over 1998. Domestic sales increased 16.9% while international sales gains in local currency of 15.7% were partially offset by the strength of the U.S. dollar. Strong sales growth from Ethicon Endo-Surgery's products for minimally invasive surgery, Ethicon's MITEK suture anchors and Gynecare's women's health products and the effect of the acquisition of DePuy's orthopaedic products were the primary contributors to the Professional segment growth. In the fourth quarter, Cordis launched the new BX VELOCITY coronary stent in Europe, where it has been well received by the medical community. Ethicon's new products launched included: PRONOVA Poly (hexafluoropropylene-VDF) Suture, a synthetic nonabsorbable monofilament for cardiovascular and vascular surgery and SURGIFOAM Absorbable Gelatin Sponge USP, which is proven in surgery for over 50 years in Europe and will give Ethicon a full line of hemostasis products. Ethicon also received a fourth quarter approval for Gynecare's THERMACHOICE II Uterine Balloon Therapy System, the latex-free next generation ablation technology system used for excessive uterine bleeding. 1998 worldwide sales of $8.57 billion in the Professional segment represented an increase of 1.6% over 1997. Domestic sales decreased 2.4% while international sales gains in local currency of 10.7% were partially offset by the strength of the U.S. dollar. During the fourth quarter of 1998, the Company completed the acquisition of DePuy, one of the world's leading orthopaedic products companies with products in reconstructive, spinal, trauma and sports medicine. The Company also completed the acquisition of FemRx, a leader in the development of proprietary surgical systems that enable surgeons to perform less invasive alternatives to hysterectomy. 12 At year-end 1998, two new Cordis products were approved for marketing by the FDA. The S.M.A.R.T. stent, a self-expanding, crush-recoverable nitinol stent was approved for use in treating biliary obstructions. Its nitinol alloy design allows for precise placement and flexibility in reaching lesions, even through very tortuous vessels. In addition, the NINJA balloon was approved in the U.S. for use in angioplasty procedures. The 1998 special pre-tax charge for the Professional segment for restructuring was $304 million. See Note 14 and Note 17 for detailed discussion on Restructuring and IPR&D charges and Acquisitions. Worldwide sales of $8.44 billion in 1997 in the Professional segment represented an increase of 4.5% over 1996. Sales growth continued to be fueled by the excellent performance of Ethicon Endo-Surgery's minimally invasive surgical instruments, Johnson & Johnson's orthopaedics business, Johnson & Johnson Vision Care, Inc.'s disposable contact lenses and LifeScan's blood glucose monitoring systems. The Asia-Pacific and Central Europe regions contributed significantly to the overall increase in the Professional segment. There were also several business combinations in the Professional segment during 1997. These included Biopsys Medical, Inc., a maker of products for the diagnosis and management of breast cancer; Biosense, Inc., a leader in medical sensor technology for use in diagnostic and therapeutic interventional procedures; Gynecare, Inc., a maker of minimally invasive medical devices for the treatment of uterine disorders, and Spectacle Lens Group, a manufacturer of equipment for high quality prescription eyeglass lenses. GEOGRAPHIC AREAS The Company further categorizes its sales by major geographic area as presented for the years 1999 and 1998: SALES
INCREASE ----------------- 1999 1998 AMOUNT PERCENT --------- -------- ------ ------- (MILLIONS OF DOLLARS) United States.................................. $15,385 12,848 2,537 19.7% Europe......................................... 6,711 6,354 357 5.6 Western Hemisphere excluding U.S............... 2,023 2,105 (82) (3.9) Asia-Pacific, Africa........................... 3,352 2,688 664 24.7 ------- ------ ----- Worldwide total................................ $27,471 23,995 3,476 14.5% ======= ====== =====
International sales were negatively impacted by the translation of local currency operating results into U.S. dollars in all regions except for Asia-Pacific. Average exchange rates to the dollar have declined each year since 1995. See Note 12 for additional information on geographic areas. 13 SALES BY GEOGRAPHIC AREA OF BUSINESS Millions of Dollars [SALES BY GEOGRAPHIC REGION BAR GRAPH]
UNITED STATES EUROPE WESTERN ASIA-PACIFIC, AFRICA ------------- ------ HEMISPHERE -------------------- EXCLUDING U.S. -------------- 97 52.00 26.30 9.00 12.70 22,830.00 98 53.50 26.50 8.80 11.20 23,995.00 98 56.00 24.40 7.40 12.20 27,471.00
DESCRIPTION OF BUSINESS The Company, which employs 97,800 employees worldwide, is engaged in the manufacture and sale of a broad range of products in the health care field. It conducts business in virtually all countries of the world. The Company's primary interest, both historically and currently, has been in products related to human health and well-being. The Company is organized on the principle of decentralized management. The Executive Committee of Johnson & Johnson is the principal management group responsible for the operations and allocation of the resources of the Company. In addition, several Executive Committee members serve as Chairmen of Group Operating Committees, which are comprised of managers who represent key operations within the group, as well as management expertise in other specialized functions. The composition of these Committees can change over time in response to business needs. These Committees oversee and coordinate the activities of domestic and international companies related to each of the Consumer, Pharmaceutical and Professional businesses. Operating management is headed by a Chairman, President, General Manager or Managing Director who reports directly, or through a line executive to a Group Operating Committee. In line with this policy of decentralization, each international subsidiary is, with some exceptions, managed by citizens of the country where it is located. The Company's international business is conducted by subsidiaries manufacturing in 35 countries outside the United States and selling in over 175 countries throughout the world. In all its product lines, the Company competes with companies both large and small, located in the United States and abroad. Competition is strong in all lines without regard to the number and size of the competing companies involved. Competition in research, involving the development and the improvement of new and existing products and processes, is particularly significant and results from time to time in product and process obsolescence. The development of new and improved products is important to the Company's success in all areas of its business. This competitive environment requires substantial investments in continuing research and in multiple sales forces. In addition, the winning and retention of customer acceptance of the Company's consumer products involves heavy expenditures for advertising, promotion, and selling. 14 CAUTIONARY FACTORS THAT MAY AFFECT FUTURE RESULTS This Annual Report contains forward-looking statements that anticipate results based on management's plans that are subject to uncertainty. Forward-looking statements do not relate strictly to historical or current facts and may be identified by the use of words like "plans," "expects," "will," "anticipates," "estimates" and other words of similar meaning. These statements may address, among other things, the Company's strategy for growth, product development, regulatory approval, market position, expenditures and financial results. Forward-looking statements are based on current expectations of future events. The Company cannot guarantee that any forward-looking statement will be accurate, although the Company believes that it has been reasonable in its expectations and assumptions. Investors should realize that if underlying assumptions prove inaccurate or that unknown risks or uncertainties materialize, actual results could vary materially from our projections. The Company assumes no obligation to update any forward-looking statements as a result of future events or developments. The Company's Annual Report on Form 10-K for the year ended January 2, 2000, that will be filed in April, 2000, will contain, as an Exhibit, a discussion of various factors that could cause actual results to differ from expectations. Prior to that filing of Form 10-K, investors should reference the Company's filing on Form 8-K, filed December 14, 1999, in particular, Exhibit 99(b) of the Form 10-K for fiscal year 1998. The Company notes these factors as permitted by the Private Securities Litigation Reform Act of 1995. Investors are cautioned not to place undue reliance on any forward-looking statements. Investors also should understand that it is not possible to predict or identify all such factors and should not consider this list to be a complete statement of all potential risks and uncertainties. 15 JOHNSON & JOHNSON AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS AT JANUARY 2, 2000 AND JANUARY 3, 1999
1999 1998 --------- -------- (DOLLARS IN MILLIONS) (NOTE 1) ASSETS CURRENT ASSETS Cash and cash equivalents (Notes 1 and 16).................. $ 2,363 1,994 Marketable securities (Notes 1 and 16)...................... 1,516 789 Accounts receivable trade, less allowances $389 (1998, $388)..................................................... 4,233 3,752 Inventories (Notes 1 and 2)................................. 3,095 2,898 Deferred taxes on income (Note 8)........................... 1,105 1,183 Prepaid expenses and other receivables...................... 888 870 ------- ------ TOTAL CURRENT ASSETS........................................ $13,200 11,486 ======= ====== Marketable securities, non-current (Notes 1 and 16)......... 441 437 Property, plant and equipment, net (Notes 1, 3 and 14)...... 6,719 6,395 Intangible assets, net (Notes 1, 7 and 14).................. 7,571 7,364 Deferred taxes on income (Note 8)........................... 104 411 Other assets................................................ 1,128 1,199 ------- ------ TOTAL ASSETS................................................ $29,163 27,292 ======= ====== LIABILITIES AND SHAREOWNERS' EQUITY CURRENT LIABILITIES Loans and notes payable (Note 6)............................ $ 1,806 2,753 Accounts payable............................................ 2,003 1,877 Accrued liabilities......................................... 2,972 3,012 Accrued salaries, wages and commissions..................... 467 445 Taxes on income............................................. 206 206 ------- ------ TOTAL CURRENT LIABILITIES................................... 7,454 8,293 ======= ====== Long-term debt (Note 6)..................................... 2,450 1,729 Deferred tax liability (Note 8)............................. 287 578 Employee related obligations (Note 5)....................... 1,749 1,738 Other liabilities........................................... 1,010 877 SHAREOWNERS' EQUITY Preferred stock -- without par value (authorized and unissued 2,000,000 shares)................................ -- -- Common stock -- par value $1.00 per share (Note 20) (authorized 2,160,000,000 shares; issued 1,534,916,000 and 1,534,824,000 shares)..................................... 1,535 1,535 Note receivable from employee stock ownership plan (Note 15)....................................................... (41) (44) Accumulated other comprehensive income (Note 11)............ (396) (322) Retained earnings........................................... 16,192 13,968 ------- ------ 17,290 15,137 Less: common stock held in treasury, at cost (Note 20) (145,233,000 and 145,560,000)............................. 1,077 1,060 ------- ------ TOTAL SHAREOWNERS' EQUITY................................... 16,213 14,077 ======= ====== TOTAL LIABILITIES AND SHAREOWNERS' EQUITY................... $29,163 27,292 ======= ======
See Notes to Consolidated Financial Statements 16 JOHNSON & JOHNSON AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS
1999 1998 1997 --------- -------- -------- (DOLLARS IN MILLIONS EXCEPT PER SHARE FIGURES) (NOTE 1) SALES TO CUSTOMERS.......................................... $27,471 23,995 22,830 ======= ====== ====== Cost of products sold (1998 includes $60 of inventory write-offs for restructuring)............................. 8,442 7,604 7,230 ------- ------ ------ Gross profit................................................ 19,029 16,391 15,600 Selling, marketing and administrative expenses.............. 10,503 9,027 8,756 Research expense............................................ 2,600 2,336 2,209 Purchased in-process research and development (Notes 14 and 17)....................................................... -- 298 -- Interest income............................................. (246) (277) (213) Interest expense, net of portion capitalized (Note 3)....... 197 129 124 Other expense, net.......................................... 222 143 137 Restructuring charge (Note 14).............................. -- 553 -- ------- ------ ------ 13,276 12,209 11,013 ------- ------ ------ Earnings before provision for taxes on income............... 5,753 4,182 4,587 Provision for taxes on income (Note 8)...................... 1,586 1,179 1,276 ------- ------ ------ NET EARNINGS................................................ $ 4,167 3,003 3,311 ======= ====== ====== BASIC NET EARNINGS PER SHARE (Notes 1 and 19)............... $ 3.00 2.16 2.40 ======= ====== ====== DILUTED NET EARNINGS PER SHARE (Notes 1 and 19)............. $ 2.94 2.12 2.34 ======= ====== ======
See Notes to Consolidated Financial Statements 17 JOHNSON & JOHNSON AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EQUITY
NOTE RECEIVABLE FROM EMPLOYEE ACCUMULATED COMMON STOCK OTHER STOCK TREASURY COMPREHENSIVE RETAINED OWNERSHIP COMPREHENSIVE ISSUED STOCK TOTAL INCOME EARNINGS PLAN (ESOP) INCOME AMOUNT AMOUNT ------- ------------- -------- --------------- ------------- ------ -------- (DOLLARS IN MILLIONS) (NOTE 1) BALANCE, DECEMBER 29, 1996....... $11,324 11,043 (57) (43) 1,535 (1,154) Net earnings..................... 3,311 3,311 3,311 Cash dividends paid.............. (1,137) (1,137) Employee compensation and stock option plans................... 300 (358) 658 Repurchase of common stock....... (628) (628) Business combinations............ 17 (112) 129 Other comprehensive income, net of tax: Currency translation adjustment..................... (294) (294) (294) Unrealized gains (losses) on securities..................... (33) (33) (33) ------ Total comprehensive income....... 2,984 ====== Note receivable from ESOP........ 6 6 ------- ------ --- ---- ----- ------ BALANCE, DECEMBER 28, 1997....... $12,866 12,747 (51) (370) 1,535 (995) ======= ====== === ==== ===== ====== Net earnings..................... 3,003 3,003 3,003 Cash dividends paid.............. (1,305) (1,305) Employee compensation and stock option plans................... 378 (484) 862 Repurchase of common stock....... (930) (930) Business combinations............ 10 7 3 Other comprehensive income, net of tax: Currency translation adjustment..................... 89 89 89 Unrealized gains (losses) on securities..................... (41) (41) (41) Reclassification adjustment...... 33 ------ Total comprehensive income....... 3,084 ====== Note receivable from ESOP........ 7 7 ------- ------ --- ---- ----- ------ BALANCE, JANUARY 3, 1999......... $14,077 13,968 (44) (322) 1,535 (1,060) ======= ====== === ==== ===== ====== Net earnings..................... 4,167 4,167 4,167 Cash dividends paid.............. (1,479) (1,479) Employee compensation and stock option plans................... 357 (464) 821 Repurchase of common stock....... (840) (840) Business combinations............ 2 2 Other comprehensive income, net of tax: Currency translation adjustment..................... (155) (155) (155) Unrealized gains (losses) on securities..................... 81 81 81 Reclassification adjustment...... 17 ------ Total comprehensive income....... 4,110 ====== Note receivable from ESOP........ 3 3 ------- ------ --- ---- ----- ------ BALANCE, JANUARY 2, 2000......... $16,213 16,192 (41) (396) 1,535 (1,077) ======= ====== === ==== ===== ======
See Notes to Consolidated Financial Statements 18 JOHNSON & JOHNSON AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
1999 1998 1997 --------- ------- ------- (DOLLARS IN MILLIONS) (NOTE 1) CASH FLOWS FROM OPERATING ACTIVITIES Net earnings................................................ $ 4,167 3,003 3,311 Adjustments to reconcile net earnings to cash flows: Depreciation and amortization of property and intangibles............................................ 1,444 1,285 1,082 Increase in deferred taxes................................ (7) (297) (132) Accounts receivable reserves.............................. 11 24 61 Purchased in-process research and development............. -- 298 -- Changes in assets and liabilities, net of effects from acquisition of businesses: Increase in accounts receivable........................... (671) (163) (380) Increase in inventories................................... (333) (100) (180) Increase in accounts payable and accrued liabilities...... 242 646 487 Decrease in other current and non-current assets.......... 457 142 26 Increase in other current and non-current liabilities..... 367 57 121 -------- ------ ------ NET CASH FLOWS FROM OPERATING ACTIVITIES.................... 5,677 4,895 4,396 ======== ====== ====== CASH FLOWS FROM INVESTING ACTIVITIES Additions to property, plant and equipment.................. (1,728) (1,545) (1,415) Proceeds from the disposal of assets........................ 35 108 72 Acquisition of businesses, net of cash acquired (Note 17)... (271) (3,818) (180) Purchases of investments.................................... (3,538) (1,005) (151) Sales of investments........................................ 2,817 400 215 Other....................................................... (257) (205) (186) -------- ------ ------ NET CASH USED BY INVESTING ACTIVITIES....................... (2,942) (6,065) (1,645) ======== ====== ====== CASH FLOWS FROM FINANCING ACTIVITIES Dividends to shareowners.................................... (1,479) (1,305) (1,137) Repurchase of common stock.................................. (840) (930) (628) Proceeds from short-term debt............................... 9,861 2,424 300 Retirement of short-term debt............................... (10,716) (226) (182) Proceeds from long-term debt................................ 793 535 7 Retirement of long-term debt................................ (176) (471) (504) Proceeds from the exercise of stock options................. 263 274 234 -------- ------ ------ NET CASH (USED BY) PROVIDED BY FINANCING ACTIVITIES......... (2,294) 301 (1,910) ======== ====== ====== Effect of exchange rate changes on cash and cash equivalents............................................... (72) 24 (69) -------- ------ ------ Increase (decrease) in cash and cash equivalents............ 369 (845) 772 Cash and cash equivalents, beginning of year (Note 1)....... 1,994 2,839 2,067 -------- ------ ------ CASH AND CASH EQUIVALENTS, END OF YEAR (NOTE 1)............. $ 2,363 1,994 2,839 ======== ====== ====== SUPPLEMENTAL CASH FLOW DATA Cash paid during the year for: Interest, net of portion capitalized...................... $ 185 102 95 Income taxes.............................................. 1,406 1,310 1,431 SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES Treasury stock issued for employee compensation and stock option plans, net of cash proceeds........................ $ 592 621 451 ACQUISITIONS OF BUSINESSES Fair value of assets acquired............................... $ 271 4,659 184 Fair value of liabilities assumed (including $296 of assumed debt in 1998)............................................. -- (545) (4) -------- ------ ------ Net purchase price.......................................... $ 271 4,114 180 ======== ====== ======
See Notes to Consolidated Financial Statements 19 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1 SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES Basis of Presentation The consolidated financial statements of Johnson & Johnson have been prepared to give retroactive effect to the merger with Centocor on October 6, 1999. Principles of Consolidation The financial statements include the accounts of Johnson & Johnson and subsidiaries. Intercompany accounts and transactions are eliminated. Cash Equivalents The Company considers securities with maturities of three months or less, when purchased, to be cash equivalents. Investments Short-term marketable securities are carried at cost, which approximates fair value. Long-term debt securities that the Company has the ability and intent to hold until maturity are carried at amortized cost which also approximates fair value. Equity investments classified as available for sale are carried at estimated fair value with unrealized gains and losses recorded as a component of shareowners' equity. Additionally, gross unrealized holding gains and losses are not material. Management determines the appropriate classification of its investments in debt and equity securities at the time of purchase and re-evaluates such determination at each balance sheet date. Property, Plant and Equipment and Depreciation Property, plant and equipment are stated at cost. The Company utilizes the straight-line method of depreciation over the estimated useful lives of the assets: Buildings 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. 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. 20 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Financial Instruments Gains and losses on foreign currency hedges of existing assets or liabilities, or hedges of firm commitments, are deferred and recognized in income as part of the related transaction. Unrealized gains and losses on currency swaps which hedge third party debt are classified in the balance sheet as other assets or liabilities. Interest expense under these agreements, and the respective debt instrument that they hedge, are recorded at the net effective interest rate of the hedge transaction. In the event of early termination of a currency swap contract that hedges third party debt, the gain or loss on the swap contract is amortized over the remaining life of the related transaction. If the underlying transaction associated with a swap, or other derivative contract, is accounted for as a hedge and is terminated early, the related derivative contract is terminated simultaneously and any gains or losses would be included in income immediately. Advertising Costs associated with advertising are expensed in the year incurred. Advertising expenses worldwide, which are comprised of television, radio, print media as well as Internet advertising were $1.39 billion in 1999, $1.19 billion in 1998 and $1.26 billion in 1997. Income Taxes The Company intends to continue to reinvest its undistributed international earnings to expand its international operations; therefore no tax has been provided to cover the repatriation of such undistributed earnings. At January 2, 2000, and January 3, 1999 the cumulative amount of undistributed international earnings was approximately $8.3 billion and $7.0 billion, respectively. Net Earnings Per Share Basic earnings per share is computed by dividing net income available to common shareowners by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. Risks and Uncertainties The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported. Actual results are not expected to differ materially from those estimates. Annual Closing Date The Company follows the concept of a fiscal year which endson the Sunday nearest to the end of the month of December. Normally each fiscal year consists of 52 weeks, but every five or six years, as was the case in 1998, the fiscal year consists of 53 weeks. Reclassification Certain prior year amounts have been reclassified to conform with current year presentation. 21 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 2 INVENTORIES At the end of 1999 and 1998, inventories were comprised of:
1999 1998 -------- ------- (DOLLARS IN MILLIONS) Raw materials and supplies.................................. $ 663 776 Goods in process............................................ 416 510 Finished goods.............................................. 2,016 1,612 ------ ----- $3,095 2,898 ====== =====
3 PROPERTY, PLANT AND EQUIPMENT At the end of 1999 and 1998, property, plant and equipment at cost and accumulated depreciation were:
1999 1998 --------- -------- (DOLLARS IN MILLIONS) Land and land improvements.................................. $ 586 466 Buildings and building equipment............................ 3,087 2,991 Machinery and equipment..................................... 5,936 5,686 Construction in progress.................................... 1,437 1,126 ------- ------ 11,046 10,269 Less accumulated depreciation............................... 4,327 3,874 ------- ------ $ 6,719 6,395 ======= ======
The Company capitalizes interest expense as part of the cost of construction of facilities and equipment. Interest expense capitalized in 1999, 1998 and 1997 was $81, $72 and $40 million, respectively. Upon retirement or other disposal of fixed assets, the cost and related amount of accumulated depreciation or amortization are eliminated from the asset and reserve accounts, respectively. The difference, if any, between the net asset value and the proceeds is adjusted to income. For additional discussion on property, plant and equipment, see Note 14. 4 RENTAL EXPENSE AND LEASE COMMITMENTS Rentals of space, vehicles, manufacturing equipment and office and data processing equipment under operating leases amounted to approximately $233 million in 1999, $243 million in 1998 and $238 million in 1997. The approximate minimum rental payments required under operating leases that have initial or remaining noncancellable lease terms in excess of one year at January 2, 2000 are:
AFTER 2000 2001 2002 2003 2004 2004 TOTAL ---- ---- ---- ---- ----- ----- ----- (DOLLARS IN MILLIONS) $85 71 56 46 30 62 350
Commitments under capital leases are not significant. 22 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 5 EMPLOYEE RELATED OBLIGATIONS At the end of 1999 and 1998, employee related obligations were:
1999 1998 -------- ------- (DOLLARS IN MILLIONS) Post retirement benefits.................................... $ 805 767 Post employment benefits.................................... 111 144 Unfunded pension liabilities................................ 647 677 Certificates of extra compensation.......................... 186 150 ------ ----- Employee related obligations................................ $1,749 1,738 ====== =====
6 BORROWINGS The components of long-term debt are as follows:
EFF. EFF. 1999 RATE 1998 RATE ------ ---- ----- ---- (DOLLARS IN MILLIONS) 4.75% Convertible Subordinated Debentures due 2005(2)............................................ $ 460 4.75% 460 4.75% 8.72% Debentures due 2024............................ 300 8.72 300 8.72 6.95% Notes due 2029................................. 293 7.14 -- -- 6.73% Debentures due 2023............................ 250 6.73 250 6.73 6% Eurodollar due 2001............................... 250 6.02 -- -- 7.375% Notes due 2002................................ 199 7.49 199 7.49 8.25% Eurodollar Notes due 2004...................... 199 8.37 199 8.37 6.625% Notes due 2009................................ 197 6.80 -- -- 5% Deutsche Mark Notes due 2001(3)................... 93 1.98 107 1.98 5.12% Notes due 2003(4).............................. 60 0.82 60 0.82 Industrial Revenue Bonds............................. 47 5.78 50 5.28 Other, principally international..................... 128 -- 139 -- ------ ---- ----- ---- 2,476 6.42(1) 1,764 6.25(1) Less current portion................................. 26 35 ------ ----- $2,450 1,729 ====== =====
- --------------- (1) Weighted average effective rate. (2) Represents 4.75% convertible subordinated debt issued by Centocor prior to the merger with Johnson & Johnson. The debentures are convertible by the holders into approximately 5,987,000 shares of Johnson & Johnson stock at a conversion price of $77.091 per share. After February 21, 2001 the debentures will be redeemable at the option of the Company. These bonds are due February 2005. (3) Represents 5% Deutsche Mark notes due 2001 issued by a Japanese subsidiary and converted to a 1.98% fixed rate yen note via an interest rate and currency swap. (4) Represents 5.12% U.S. Dollar notes due 2003 issued by a Japanese subsidiary and converted to a 0.82% fixed rate yen note via an interest rate and currency swap. The Company has access to substantial sources of funds at numerous banks worldwide. Total unused credit available to the Company approximates $3.0 billion, including $1.2 billion of credit commitments with various worldwide banks, $800 million of which expire on September 29, 2000 and $400 million on October 6, 2004. Interest charged on borrowings under the credit line agreements is based on either bids provided by the 23 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) banks, the prime rate or London Interbank Offered Rates (LIBOR), plus applicable margins. Commitment fees under the agreement are not material. The Company's shelf registration filed with the Securities and Exchange Commission enables the Company to issue up to $2.59 billion of unsecured debt securities, and warrants to purchase debt securities, under its medium term note (MTN) program. In 1999, the Company issued a total of $500 million notes from the shelf registration: $200 million of 6.625% notes due 2009 and $300 million of 6.95% notes due 2029. At January 2, 2000 the Company had $1.79 billion remaining on its shelf registration. In addition to the notes issued under the shelf registration, the Company issued $250 million, 6.0% Eurodollar notes due in 2001. The proceeds of all new borrowings were used for general corporate purposes. Short-term borrowings and current portion of long-term debt amounted to $1.8 billion at the end of 1999. These borrowings are composed of $1.4 billion U.S. commercial paper, at an average rate of 5.7% and $0.4 billion of local borrowings, principally by international subsidiaries. Aggregate maturities of long-term obligations for each of the next five years commencing in 2000 are:
2000 2001 2002 2003 2004 - ---- ---- ---- ---- ---- (DOLLARS IN MILLIONS) $26 403 216 72 215
7 INTANGIBLE ASSETS At the end of 1999 and 1998, the gross and net amounts of intangible assets were:
1999 1998 -------- ------- (DOLLARS IN MILLIONS) Goodwill -- gross........................................... $4,270 4,151 Less accumulated amortization............................... 424 331 ------ ----- Goodwill -- net............................................. $3,846 3,820 ====== ===== Patents and trademarks -- gross............................. $2,014 1,760 Less accumulated amortization............................... 399 351 ------ ----- Patents & trademarks -- net................................. $1,615 1,409 ====== ===== Other intangibles -- gross.................................. $2,471 2,296 Less accumulated amortization............................... 361 161 ------ ----- Other intangibles -- net.................................... $2,110 2,135 ====== ===== Total intangible assets -- gross............................ $8,755 8,207 Less accumulated amortization............................... 1,184 843 ------ ----- Total intangible assets -- net.............................. $7,571 7,364 ====== =====
The weighted average amortization periods for goodwill, patents and trademarks and other intangibles are 32 years, 21 years and 18 years, respectively. For additional discussion on intangible assets, see Note 14. 24 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 8 INCOME TAXES The provision for taxes on income consists of:
1999 1998 1997 ------ ----- ----- (DOLLARS IN MILLIONS) Currently payable: U.S. taxes............................................... $ 994 991 953 International taxes...................................... 599 485 455 ------ ----- ----- 1,593 1,476 1,408 ------ ----- ----- Deferred: U.S. taxes............................................... 94 (180) (126) International taxes...................................... (101) (117) (6) ------ ----- ----- (7) (297) (132) ------ ----- ----- $1,586 1,179 1,276 ====== ===== =====
Deferred income taxes are recognized for tax consequences of "temporary differences" by applying enacted statutory tax rates, rates, applicable to future years, to differences between the financial reporting and the tax basis of existing assets and liabilities. Temporary differences and carryforwards for 1999 are as follows:
DEFERRED TAX --------------------- ASSET LIABILITY ------- ---------- (DOLLARS IN MILLIONS) Employee benefit obligations................................ $ 449 Depreciation................................................ (327) Non-deductible intangibles.................................. (694) International R&D capitalized for tax....................... 45 Reserves & liabilities...................................... 587 Income reported for tax purposes............................ 156 Miscellaneous international................................. 266 (155) Loss carryforwards.......................................... 209 Miscellaneous U.S. ......................................... 317 ------ ------ Total deferred income taxes................................. $2,029 (1,176) ====== ======
The difference between the net deferred tax on income per the balance sheet and the net deferred tax is reflected in Taxes on Income. A comparison of income tax expense at the federal statutory rate of 35% in 1999, 1998 and 1997, to the Company's effective tax rate is as follows:
1999 1998 1997 ------ ----- ----- (DOLLARS IN MILLIONS) U.S. ...................................................... $3,241 2,522 2,853 International.............................................. 2,512 1,660 1,734 ------ ----- ----- Earnings before taxes on income............................ $5,753 4,182 4,587 ------ ----- ----- Statutory taxes............................................ $2,014 1,464 1,605
25 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1999 1998 1997 ------ ----- ----- (DOLLARS IN MILLIONS) Tax rates: Statutory.................................................. 35.0% 35.0% 35.0% Puerto Rico and Ireland operations......................... (5.5) (5.5) (5.7) Research tax credits....................................... (0.6) (0.3) (0.3) Domestic state and local................................... 0.9 1.0 1.0 International subsidiaries excluding Ireland............... (2.4) (3.3) (2.7) IPR&D...................................................... -- 1.3 -- All other.................................................. 0.2 -- 0.5 ------ ----- ----- Effective tax rate......................................... 27.6% 28.2% 27.8% ====== ===== =====
The reduction in the 1999 worldwide effective tax rate is primarily due to the Company's non-deductible IPR&D charge taken in connection with the acquisition of DePuy in 1998. During 1999, the Company had subsidiaries operating in Puerto Rico under a tax incentive grant expiring December 31, 2007. In addition, the Company has subsidiaries manufacturing in Ireland under an incentive tax rate effective through the year 2010. 9 INTERNATIONAL CURRENCY TRANSLATION For translation of its international currencies, the Company has determined that the local currencies of its international subsidiaries are the functional currencies except those in highly inflationary economies, which are defined as those which have had compound cumulative rates of inflation of 100% or more during the past three years. In consolidating international subsidiaries, balance sheet currency effects are recorded as a separate component of shareowners' equity. This equity account includes the results of translating all balance sheet assets and liabilities at current exchange rates, except for those located in highly inflationary economies which are reflected in operating results. An analysis of the changes during 1999 and 1998 for foreign currency translation adjustments is included in Note 11. Net currency transaction and translation gains and losses were after-tax losses of $48 million in 1999, after-tax losses of $15 million in 1998 and after-tax losses of $27 million in 1997. 10 COMMON STOCK, STOCK OPTION PLANS AND STOCK COMPENSATION AGREEMENTS At January 2, 2000 the Company had 12 stock-based compensation plans. Under the 1995 Employee Stock Option Plan, the Company may grant options to its employees for up to 56 million shares of common stock. The shares outstanding are for contracts under the Company's 1986, 1991 and 1995 Employee Stock Option Plans, the 1997 Non-Employee Directors' Plan and the Mitek, Cordis, Biosense, Gynecare and Centocor Stock Option plans. Stock options expire 10 years from the date they are granted and vest over service periods that range from one to six years. All options granted are valued at current market price. Shares available for future grants amounted to 3.0 million, 15.0 million and 22.7 million at the end of 1999, 1998 and 1997, respectively. 26 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) A summary of the status of the Company's stock option plans as of January 2, 2000, January 3, 1999 and December 28, 1997 and changes during the years ending on those dates, is presented below:
WEIGHTED OPTIONS AVERAGE OUTSTANDING EXERCISE PRICE ----------- -------------- (SHARES IN THOUSANDS) Balance at December 29, 1996................................ 81,605 27.99 Options granted............................................. 13,053 60.40 Options exercised........................................... (11,157) 16.76 Options cancelled/forfeited................................. (2,240) 36.44 ------- ----- Balance at December 28, 1997................................ 81,261 34.51 Options granted............................................. 10,852 78.20 Options exercised........................................... (11,414) 18.65 Options cancelled/forfeited................................. (2,304) 44.92 ------- ----- Balance at January 3, 1999.................................. 78,395 42.55 Options granted............................................. 13,113 97.87 Options exercised........................................... (9,235) 23.84 Options cancelled/forfeited................................. (1,722) 55.53 ------- ----- Balance at January 2, 2000.................................. 80,551 53.40 ======= =====
The Company applies the provision of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," that calls for companies to measure employee stock compensation expense based on the fair value method of accounting. However, as allowed by the Statement, the Company elected continued use of Accounting Principle Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees," with pro forma disclosure of net income and earnings per share determined as if the fair value method had been applied in measuring compensation cost. Had the fair value method been applied, net income would have been reduced by $116 million or $.08 per share in 1999 and $77 million or $.05 per share in 1998. In 1997, net income would have been reduced by $35 million or $.02 per share. These calculations only take into account the options issued since January 1, 1995. The average fair value of options granted was $30.00 in 1999, $19.62 in 1998 and $17.50 in 1997. The fair value was estimated using the Black-Scholes option pricing model based on the weighted average assumptions of:
1999 1998 1997 ---- ---- ---- Risk-free rate.............................................. 6.32% 4.52% 5.89% Volatility.................................................. 24.0% 22.0% 21.5% Expected life............................................... 5.0yrs 5.0yrs 5.3yrs Dividend yield.............................................. 1.13% 1.30% 1.43%
27 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following table summarizes stock options outstanding and exercisable at January 2, 2000:
OUTSTANDING EXERCISABLE ------------------------------ ------------------- AVERAGE AVERAGE EXERCISE AVERAGE EXERCISE EXERCISE PRICE RANGE OPTIONS LIFE(A) PRICE OPTIONS PRICE - ----------- ------- ------- -------- ------- -------- (SHARES IN THOUSANDS) $ 8.00-$ 25.99...................... 20,256 3.0 $22.05 20,198 $22.06 $26.02-$ 50.94...................... 19,858 5.5 37.42 12,649 36.16 $51.22-$75.53....................... 18,583 7.6 60.07 4,131 55.90 $76.09-$104.41...................... 21,854 9.4 91.29 294 83.06 ------ --- ------ ------ ------ $ 8.00-$104.41...................... 80,551 6.4 $53.40 37,272 $31.07 ====== === ====== ====== ======
- --------------- (a) Average contractual life remaining in years. 11 ACCUMULATED OTHER COMPREHENSIVE INCOME Components of other comprehensive income/(loss) consist of the following:
ACCUMULATED FOREIGN UNREALIZED OTHER CURRENCY GAINS/(LOSSES) COMPREHENSIVE TRANSLATION ON SECURITIES INCOME/(LOSS) ----------- -------------- ------------- (DOLLARS IN MILLIONS) December 29, 1996............................ $(117) 74 (43) 1997 change.................................. (294) (33) (327) ----- --- ---- December 28, 1997............................ (411) 41 (370) 1998 change.................................. 89 (41) 48 ----- --- ---- January 3, 1999.............................. (322) -- (322) 1999 change.................................. (155) 81 (74) ----- --- ---- January 2, 2000.............................. $(477) 81 (396) ===== === ====
The change in unrealized gains/(losses) on marketable securities during 1999 and 1998 includes reclassification adjustments of $27 million and $48 million of losses realized from the write-down of marketable securities and the associated tax benefits of $10 million and $15 million. The tax effect on these unrealized gains/(losses) on marketable securities is an expense of $50 million in 1999 and benefits of $19 million and $21 million in 1998 and 1997, respectively. The currency translation adjustments are not currently adjusted for income taxes as they relate to indefinite investments in non-US subsidiaries. 12 SEGMENTS OF BUSINESS AND GEOGRAPHIC AREAS See page 45 for information on segments of business and geographic areas. 13 RETIREMENT AND PENSION PLANS The Company sponsors various retirement and pension plans, including defined benefit, defined contribution and termination indemnity plans, which cover most employees worldwide. The Company also provides postretirement benefits, primarily health care to all domestic retired employees and their dependents. Most international employees are covered by government-sponsored programs and the cost to the Company is not significant. 28 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Retirement plan benefits are primarily based on the employee's compensation during the last three to five years before retirement and the number of years of service. The Company's objective in funding its domestic plans is to accumulate funds sufficient to provide for all accrued benefits. International subsidiaries have plans under which funds are deposited with trustees, annuities are purchased under group contracts, or reserves are provided. In certain countries other than the United States, the funding of pension plans is not a common practice as funding provides no economic benefit. Consequently, the Company has several pension plans which are not funded. The Company does not fund retiree health care benefits in advance and has the right to modify these plans in the future. Effective December 29, 1997, the Company adopted Statement of Financial Accounting Standards SFAS No. 132, "Employers' Disclosures about Pensions and Postretirement Benefits" (SFAS 132) which standardizes the disclosure requirements for pensions and other postretirement benefits. The Statement addresses disclosure only. It does not address liability measurement or expense recognition. There was no effect on financial position or net income as a result of adopting SFAS 132. Net periodic benefit costs for the Company's defined benefit retirement plans and other benefit plans for 1999, 1998 and 1997 include the following components:
RETIREMENT PLANS OTHER BENEFIT PLANS --------------------- -------------------- 1999 1998 1997 1999 1998 1997 ----- ---- ---- ---- ---- ---- (DOLLARS IN MILLIONS) Service cost........................... $ 208 185 166 24 20 17 Interest cost.......................... 270 254 239 50 50 46 Expected return on plan assets......... (330) (291) (256) (5) (14) (3) Amortization of prior service cost..... 17 17 16 (1) 2 1 Amortization of net transition asset... (12) (14) (13) -- -- -- Recognized actuarial (gain)/loss....... (17) (24) (19) (2) 8 (6) Curtailments and settlements........... 2 2 1 -- -- -- ----- ---- ---- -- --- -- Net periodic benefit cost.............. $ 138 129 134 66 66 55 ===== ==== ==== == === ==
The net periodic cost attributable to domestic retirement plans included above was $56 million in 1999, $40 million in 1998, and $50 million in 1997. The following tables provide the weighted-average assumptions used to develop net periodic benefit cost and the actuarial present value of projected benefit obligations:
RETIREMENT PLANS OTHER BENEFIT PLANS -------------------- -------------------- 1999 1998 1997 1999 1998 1997 ---- ---- ---- ---- ---- ---- DOMESTIC BENEFIT PLANS Weighted average discount rate........... 7.75% 6.75% 7.25% 7.75% 6.75% 7.25% Expected long-term rate of return on plan assets................................. 9.00 9.00 9.00 9.00 9.00 9.00 Rate of increase in compensation levels................................. 5.00 5.00 5.00 5.00 5.00 5.00 INTERNATIONAL BENEFIT PLANS Weighted average discount rate........... 5.75% 5.50% 6.25% 6.75% 6.00% 7.00% Expected long-term rate of return on plan assets................................. 7.50 7.75 7.75 -- -- -- Rate of increase in compensation levels................................. 3.50 3.50 4.25 4.50 4.25 5.00
29 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Health care cost trends are projected at annual rates grading from 10% for employees under age 65 and 7% for employees over age 65 down to 5% for both groups by the year 2008 and beyond. The effect of a 1% change in these assumed cost trends on the accumulated postretirement benefit obligation at the end of 1999 would be an $83 million increase or a $75 million decrease and the effect on the service and interest cost components of the net periodic postretirement benefit cost for 1999 would be an $11 million increase or a $10 million decrease. The following tables set forth the change in benefit obligations and change in plan assets at year-end 1999 and 1998 for the Company's defined benefit retirement plans and other postretirement plans:
OTHER BENEFIT RETIREMENT PLANS PLANS ----------------- -------------- 1999 1998 1999 1998 ------- ------ ----- ----- (DOLLARS IN MILLIONS) CHANGE IN BENEFIT OBLIGATION Benefit obligation -- beginning of year.............. $4,315 3,704 726 691 Service cost......................................... 208 185 24 20 Interest cost........................................ 270 254 50 50 Plan participant contributions....................... 11 11 -- -- Amendments........................................... 81 13 -- -- Actuarial (gain) loss................................ (346) 325 (81) -- Acquisitions......................................... 51 -- 11 -- Curtailments & settlements........................... (7) (7) -- -- Total benefits paid.................................. (210) (203) (36) (33) Effect of exchange rates............................. (167) 33 -- (2) ------ ----- --- --- Benefit obligation -- end of year.................... $4,206 4,315 694 726 ====== ===== === === CHANGE IN PLAN ASSETS Plan assets at fair value -- beginning of year....... $4,173 3,694 57 46 Actual return on plan assets......................... 1,301 606 8 14 Company contributions................................ 46 45 32 29 Plan participant contributions....................... 11 11 -- -- Acquisitions......................................... 41 (4) -- -- Benefits paid from plan assets....................... (198) (193) (35) (32) Effect of exchange rates............................. (120) 14 -- -- ------ ----- --- --- Plan assets at fair value -- end of year............. $5,254 4,173 62 57 ====== ===== === ===
30 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Amounts recognized in the Company's balance sheet consist of the following:
OTHER BENEFIT RETIREMENT PLANS PLANS ----------------- -------------- 1999 1998 1999 1998 -------- ----- ----- ----- (DOLLARS IN MILLIONS) Plan assets in excess of (less than) projected benefit obligation............................... $ 1,048 (142) (632) (668) Unrecognized actuarial gains....................... (1,801) (511) (200) (117) Unrecognized prior service cost.................... 156 98 (9) (11) Unrecognized net transition asset.................. (29) (37) -- -- ------- ---- ---- ---- Total recognized in the consolidated balance sheet............................................ $ (626) (592) (841) (796) ------- ---- ---- ---- Book reserves...................................... $ (775) (726) (841) (796) Prepaid benefits................................... 120 109 -- -- Other assets....................................... 29 25 -- -- ------- ---- ---- ---- Total recognized in consolidated balance sheet..... $ (626) (592) (841) (796) ======= ==== ==== ====
Plans with accumulated benefit obligations in excess of plan assets consist of the following:
RETIREMENT PLANS OTHER BENEFIT PLANS ---------------- -------------------- 1999 1998 1999 1998 ------ ------ -------- -------- (DOLLARS IN MILLIONS) Accumulated benefit obligation.................... $(411) (558) (696) (696) Projected benefit obligation...................... $(528) (723) -- -- Plan assets at fair value......................... $ 53 162 62 57
14 RESTRUCTURING AND IN-PROCESS RESEARCH AND DEVELOPMENT CHARGES In the fourth quarter of 1998, the Company approved a plan to reconfigure its global network of manufacturing and operating facilities with the objective of enhancing operating efficiencies. It was originally expected that the plan would be completed over the following 18 months. This plan is currently underway and is targeted for completion in 2000. Among the initiatives supporting this plan were the closure of inefficient manufacturing facilities, exiting certain businesses which were not providing an acceptable return and related employee separations. The closure of these facilities represented approximately 10% of the Company's manufacturing capacity. The estimated cost of this plan is $613 million which has been reflected in cost of sales ($60 million) and restructuring charge ($553 million). The charge consisted of employee separation costs of $161 million, asset impairments of $322 million, impairments of intangibles of $52 million, and other exit costs of $78 million. Employee separations will occur primarily in manufacturing and operations facilities affected by the plan. The decision to exit certain facilities and businesses decreased cash flows triggering the asset impairment. The amount of impairment of such assets was calculated using discounted cash flows or appraisals. The asset impairments that amounted to $322 million consisted of the following: machinery & equipment of $215 million, inventory of $60 million, buildings of $32 million and leasehold improvements of $15 million. Intangible assets of $52 million included Menlo Care of $26 million, Innotech of $20 million and other intangible assets of $6 million. The Menlo Care intangible asset was related to the Aquavene biomaterial technology that was no longer in use with all other intangible assets related to products that were abandoned by the Company due to low margin and/or lack of strategic fit. 31 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Of the separation costs of $161 million, $3 million were paid at year-end 1998. These charges as well as the other exit costs consisted of the following:
1999 BEGINNING 1999 REMAINING ACCRUAL CASH OUTLAYS ACCRUAL --------- ------------ --------- (DOLLARS IN MILLIONS) Restructuring charges: Employee separations.............................. $158 58 100 Other exit costs: Distributor terminations.......................... 17 6 11 Disposal costs.................................... 15 5 10 Lease terminations................................ 21 14 7 Customer compensation............................. 11 10 1 Other costs..................................... 14 3 11 ---- -- --- Total other exit costs.................. 78 38 40 ---- -- --- $236 96 140 ==== == ===
The restructuring plan consisted of the reduction of manufacturing facilities around the world by 36, from 159 to 123 plants. None of the assets affected by this plan were held for disposal. The headcount reduction for the years ended January 2, 2000 and January 3, 1999 was approximately 1,600 and 225 employees, respectively. In connection with the businesses acquired in 1998, the Company recognized charges for in-process research and development (IPR&D) in the amount of $298 million related primarily to the DePuy and RETAVASE acquisitions. The value of the IPR&D projects was calculated with the assistance of third party appraisers and was based on the estimated percentage completion of the various research and development projects being pursued using cash flow projections discounted for the risk inherent in such projects. For additional discussion on acquisitions, see Note 17. The 1998 special charges impacted the business segments as follows: the special pre-tax charge for the Consumer segment was $244 million. This charge reflects $85 million for severance costs associated with the termination of approximately 2,550 employees; $133 million for the write-down of impaired assets and $26 million for other exit costs. Acquisitions within the Pharmaceutical business segment resulted in a $134 million write-off of purchased IPR&D. Additionally, the Pharmaceutical business segment recorded $65 million of the special charge representing $18 million for severance costs associated with the termination of approximately 250 employees and $47 million for the write-down of impaired assets. Acquisitions within the Professional business segment resulted in a $164 million write-off of purchased IPR&D. Additionally, the Professional business segment recorded other special charges of $304 million. This charge included $58 million for severance costs associated with the termination of approximately 2,300 employees; $194 million for the write-down of impaired assets and $52 million for other exit costs. 15 SAVINGS PLAN The Company has voluntary 401(k) savings plans designed to enhance the existing retirement programs covering eligible employees. The Company matches a percentage of each employee's contributions consistent with the provisions of the plan for which he/she is eligible. In the U.S. salaried plan, one-third of the Company match is paid in Company stock under an employee stock ownership plan (ESOP). In 1990, to establish the ESOP, the Company loaned $100 million to the ESOP Trust to purchase shares of the Company stock on the open market. In exchange, the Company received a note, the balance of which is recorded as a reduction of shareowners' equity. 32 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Total contributions to the plans were $70 million in 1999, $65 million in 1998, and $59 million in 1997. 16 FINANCIAL INSTRUMENTS Derivative Financial Instrument Risk The Company uses derivative financial instruments to manage the impact of interest rate and foreign exchange rate changes on earnings and cash flows. The Company does not enter into financial instruments for trading or speculative purposes. The Company has a policy of only entering into contracts with parties that have at least an "A" (or equivalent) credit rating. The counterparties to these contracts are major financial institutions and the Company does not have significant exposure to any one counterparty. Management believes the risk of loss is remote. Interest Rate and Foreign Exchange Risk Management The Company uses interest rate and currency swaps to manage interest rate and currency risk primarily related to borrowings. Interest rate and currency swap agreements that hedge third party debt mature with these borrowings and are described in Note 6. The Company enters into forward foreign exchange contracts maturing within five years to protect the value of existing foreign currency assets and liabilities and to hedge future foreign currency product costs. The Company has forward exchange contracts outstanding at year-end in various currencies, principally in U.S. Dollars, Euros and Swiss Francs. In addition, the Company has currency swaps outstanding, principally in U.S. Dollars and Euros. Unrealized gains and losses, based on dealer quoted market prices, are presented in the following table:
1999 --------------------------- NOTIONAL AMOUNTS GAINS LOSSES -------- ----- ------ (DOLLARS IN MILLIONS) Forwards................................................... $5,941 104 170 Currency swaps............................................. 3,465 161 66
Fair Value of Financial Instruments The carrying amount of cash and cash equivalents and current and non-current marketable securities approximates fair value of these instruments. In addition, the carrying amount of long-term investments, long-term debt, interest rate and currency swaps (used to hedge third party debt) approximates fair value of these instruments for 1999 and 1998. The fair value of current and non-current marketable securities, long-term debt and interest rate and currency swap agreements was estimated based on quotes obtained from brokers for those or similar instruments. The fair value of long-term investments was estimated based on quoted market prices at year-end. Concentration of Credit Risk The Company invests its excess cash in both deposits with major banks throughout the world and other high quality short-term liquid money market instruments (commercial paper, government and government agency notes and bills, etc.). The Company has a policy of making investments only with commercial institutions that have at least an "A" (or equivalent) credit rating. These investments generally mature within six months and the Company has not incurred any related losses. 33 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The Company sells a broad range of products in the health care field in most countries of the world. Concentrations of credit risk with respect to trade receivables are limited due to the large number of customers comprising the Company's customer base. Ongoing credit evaluations of customers' financial condition are performed and, generally, no collateral is required. The Company maintains reserves for potential credit losses and such losses, in the aggregate, have not exceeded management's expectations. 17 MERGERS & ACQUISITIONS On October 6, 1999, Johnson & Johnson and Centocor, Inc. completed a merger between the two companies. This transaction was accounted for by the pooling-of-interests method of accounting. Centocor had approximately 71 million shares outstanding (83 million shares on a fully diluted basis) which were exchanged for approximately 45 million shares of Johnson & Johnson common stock. On a diluted basis when adjusted for stock options outstanding and convertible debt, the total number of Johnson & Johnson shares issued total approximately 53 million shares. Holders of Centocor common stock received 0.6390 of a share of Johnson & Johnson common stock for each share of Centocor common stock, valued at $95.47 per share. Centocor is a leading biopharmaceutical company that creates, acquires and markets cost-effective therapies that yield long term benefits for patients and the health care community. Its products, developed primarily through monoclonal antibody technology, help physicians deliver innovative treatments to improve human health and restore patients' quality of life. As described in Note 1, these financial statements have been restated to give effect to Johnson & Johnson's merger with Centocor. The only adjustment to Centocor's historical financial statements has been the inclusion of the effect of income taxes as if the companies had been combined for all periods presented. For 1999, 1998 and 1997, the revenue and net earnings/(losses) of Centocor combined with Johnson & Johnson are $462, $338 and $201 million, respectively, for revenue and $9, ($57) and $8 million, respectively, of earnings/(losses). During 1999 and 1998 certain businesses were acquired for $271 million and $4.1 billion respectively. These acquisitions were accounted for by the purchase method and accordingly the results of operations of the acquired businesses have been included in the accompanying consolidated financial statements from their respective dates of acquisition. The 1999 acquisitions included AVEENO, the dermatological skin care business from S.C. Johnson, ANGIOGUARD, Inc., a developer of an embolic containment device used during interventional procedures, certain assets of Cygnus' drug delivery business, certain assets of Medscand related to the TVT incontinence product and the stock of Horizon Health Services, Inc., a company specializing in the management of ambulatory surgery centers. The excess of purchase price over the estimated fair market value of 1999 acquisitions amounted to $266 million. This amount has been allocated to identifiable intangibles and goodwill. Pro forma information is not provided for 1999, as the impact of the acquisitions does not have a material effect on the Company's results of operations, cash flows or financial position. During 1999, the plan to integrate the DePuy business acquired in 1998 into the Company's operations was completed and resulted in additional liabilities of $81 million to address costs relating to distributor terminations, employee separations and plant consolidations. At year-end 1999, $37 million of these liabilities remained. The 1998 acquisitions included DePuy, Inc., a leading orthopaedics company. DePuy's product lines include reconstructive products (implants for hips, knees and extremities), spinal implants, trauma repair and sports-related injury products. Additionally, the Company completed the acquisition of the U.S. and Canadian product rights for RETAVASE (reteplase), an acute-care cardiovascular drug, from Roche Healthcare. RETAVASE is a recombinant biologic cardiology care product administered for the treatment of acute myocardial infarction (heart attack) to improve blood flow to the heart. It is among the class of fibrinolytic 34 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) drugs known as "clot busters." RETAVASE received marketing authorization from the FDA in October 1996 and was launched in January 1997. The excess of purchase price over the estimated fair value amounted to $3.3 billion. This amount has been allocated to identifiable intangibles and goodwill. Approximately $298 million has been identified as the value of IPR&D associated with the acquisitions. This IPR&D charge of $298 million is associated with DePuy and RETAVASE projects. The IPR&D charge related to DePuy projects consisted of the following: the Hip Cup System which is an Acetabular Cup system that will incorporate a next generation outer shell with alternate bearing surfaces with a fair value of $55 million on the acquisition date and was 60% complete; the Spine Products which include a cervical cage to better restore the alignment of the cervical spine following fusion procedures and development of a user friendly, efficient set of instruments for the implantation of the anterior and posterior lumbar cage with a fair value at acquisition of $70 million and was approximately 50% complete; the remaining $39 million consists of 30 projects with fair values under $3 million each that at acquisition ranged from 20% to 80% complete. At January 2, 2000, these projects were 75%, 80% and 25% to 85% complete, respectively. The IPR&D charge of $134 million associated with the Centocor merger was related to the valuation of Centocor's acquisition of RETAVASE from Roche. The RETAVASE project represents planned development of a combination cardiovascular therapy employing the fibrinolytic drug RETAVASE in combination with REOPRO (abciximab). This project was 75% complete at acquisition and 85% completed at January 2, 2000. The remaining effort to complete these projects is not expected to be material. The value of the IPR&D projects was calculated with the assistance of third party appraisers and was based on the estimated percentage completion of the various research and development projects being pursued using cash flow projections discounted for the risk inherent in such projects. The discount rates used ranged between 13% and 20%. Divestitures in 1999 and 1998 did not have a material effect on the Company's results of operations, cash flows or financial position. 18 LEGAL PROCEEDINGS The Company is involved in numerous product liability cases in the United States, many of which concern adverse reactions to drugs and medical devices. The damages claimed are substantial, and while the Company is confident of the adequacy of the warnings and instructions for use which accompany such products, it is not feasible to predict the ultimate outcome of litigation. However, the Company believes that if any liability results from such cases, it will be substantially covered by reserves established under its self-insurance program and by commercially available excess liability insurance. The Company, along with numerous other pharmaceutical manufacturers and distributors, is a defendant in a large number of individual and class actions brought by retail pharmacies in state and federal courts under the antitrust laws. These cases assert price discrimination and price-fixing violations resulting from an alleged industry-wide agreement to deny retail pharmacists price discounts on sales of brand name prescription drugs. The Company believes the claims against the Company in these actions are without merit and is defending them vigorously. The Company's subsidiary, Johnson & Johnson Vision Care Inc. (Vision Care), together with another contact lens manufacturer, a trade association and various individual defendants, is a defendant in several consumer class actions and an action brought by multiple State Attorneys General on behalf of consumers alleging violations of federal and state antitrust laws. These cases, which were filed between July 1994 and December 1996 and are consolidated before the United States District Court for the Middle District of Florida, assert that enforcement of Vision Care's long-standing policy of selling contact lenses only to licensed eye care professionals is a result of an unlawful conspiracy to eliminate alternative distribution channels from 35 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) the disposable contact lens market. The Company believes that these actions are without merit and is defending them vigorously. Johnson & Johnson Vision Care is also a defendant in a nationwide consumer class action brought on behalf of purchasers of its ACUVUE brand contact lenses. The plaintiffs in that action, which was filed in 1996 in New Jersey State Court, allege that Vision Care sold its 1-DAY ACUVUE lens at a substantially cheaper price than ACUVUE and misled consumers into believing these were different lenses when, in fact, they were allegedly "the same lenses." Plaintiffs are seeking substantial damages and an injunction against supposed improper conduct. The Company believes these claims are without merit and is defending the action vigorously. The Company's Ortho Biotech subsidiary is party to an arbitration proceeding filed against it in 1995 by Amgen, Ortho's licensor of U.S. non-dialysis rights to EPO, in which Amgen seeks to terminate Ortho's U.S. license rights and collect substantial damages based on alleged deliberate EPO sales by Ortho during the early 1990's into Amgen's reserved dialysis market. The Company believes no basis exists for terminating Ortho's U.S. license rights or for obtaining damages and is vigorously contesting Amgen's claims. However, Ortho's U.S. license rights to EPO are material to the Company; thus, an unfavorable outcome could have a material adverse effect on the Company's consolidated financial position, liquidity or results of operations. The Company is also involved in a number of patent, trademark and other lawsuits incidental to its business. The Company believes that the above proceedings, except as noted above, would not have a material adverse effect on its results of operations, cash flows or financial position. 19 EARNINGS PER SHARE The following is a reconciliation of basic net earnings per share to diluted net earnings per share for the years ended January 2, 2000, January 3, 1999 and December 28, 1997:
1999(1) 1998(2) 1997 -------- ------- ------- (SHARES IN MILLIONS) Basic earnings per share............................... $ 3.00 2.16 2.40 Average shares outstanding -- basic.................... 1,390.1 1,389.8 1,380.6 Potential shares exercisable under stock option plans................................................ 68.7 68.8 70.5 Less: shares repurchased under treasury stock method... (40.6) (41.4) (35.7) Adjusted average shares outstanding -- diluted......... 1,418.2 1,417.2 1,415.4 -------- ------- ------- Diluted earnings per share............................. $ 2.94 2.12 2.34 ======== ======= =======
The diluted earnings per share calculation does not include approximately 6 million shares related to convertible debt and 11 million shares of options whose exercise price is greater than average market value as the effect would be anti-dilutive. - --------------- (1) 1999 results excluding special charges related to the Centocor merger are: Basic EPS at $3.03 and diluted EPS at $2.97 (unaudited). (2) 1998 results excluding Restructuring and In-Process Research & Development charges are: Basic EPS at $2.66 and diluted EPS at $2.61 (unaudited). 36 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 20 CAPITAL AND TREASURY STOCK Changes in treasury stock were:
TREASURY STOCK --------------------------- SHARES AMOUNT ---------- --------- (DOLLARS IN MILLIONS EXCEPT NUMBER OF SHARES IN THOUSANDS) Balance at December 29, 1996................................ 158,136 $1,154 Employee compensation and stock option plans................ (11,794) (658) Repurchase of common stock.................................. 10,520 628 Business combinations....................................... (11,998) (129) ------- ------ Balance at December 28, 1997................................ 144,864 995 Employee compensation and stock option plans................ (11,906) (862) Repurchase of common stock.................................. 12,602 930 Business combinations....................................... -- (3) ------- ------ Balance at January 3, 1999.................................. 145,560 1,060 Employee compensation and stock option plans................ (9,255) (821) Repurchase of common stock.................................. 8,928 840 Business combinations....................................... -- (2) ------- ------ Balance at January 2, 2000.................................. 145,233 $1,077 ======= ======
Shares of common stock authorized and issued were 1,534,916,000 shares at the end of 1999 and 1,534,824,000 shares at the end of 1998, 1997 and 1996. 21 SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) Selected unaudited quarterly financial data for the years 1999 and 1998 are summarized below:
1999 1998 ---------------------------------------- ------------------------------------------- FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER(1) QUARTER(2) QUARTER QUARTER QUARTER(3) ------- ------- ------- ---------- ---------- ------- ------- ---------- (DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS) Segment sales to customers Consumer........................ $1,728 1,687 1,704 1,744 1,639 1,571 1,587 1,731 Pharmaceutical.................. 2,577 2,829 2,735 2,552 2,149 2,253 2,185 2,313 Professional.................... 2,434 2,455 2,445 2,581 2,052 2,050 2,039 2,426 ------ ----- ----- ----- ----- ----- ----- ----- Total sales..................... $6,739 6,971 6,884 6,877 5,840 5,874 5,811 6,470 ====== ===== ===== ===== ===== ===== ===== ===== Gross profit.................... 4,669 4,848 4,816 4,696 4,042 4,047 4,021 4,281 Earnings before provision for taxes on income............... 1,622 1,629 1,531 971 1,294 1,391 1,321 176 Net earnings.................... 1,138 1,164 1,111 754 919 1,018 964 102 ====== ===== ===== ===== ===== ===== ===== ===== Basic net earnings per share.... $ .82 .84 .80 .54 .66 .73 .69 .07 ====== ===== ===== ===== ===== ===== ===== ===== Diluted net earnings per share......................... $ .80 .82 .78 .53 .65 .72 .68 .07 ====== ===== ===== ===== ===== ===== ===== =====
- --------------- (1) 1999 results excluding special charges related to the Centocor merger: Earnings before taxes $1,020; Net earnings $796; Basic EPS $.57 and Diluted EPS $.56. 37 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (2) 1998 Q1 results excluding In-Process Research & Development charges: Earnings before taxes $1,428; Net earnings $1,006; Basic EPS $.72 and Diluted EPS $.71. (3) 1998 Q4 results excluding Restructuring and In-Process Research & Development charges: Earnings before taxes $953; Net earnings $712; Basic EPS $.51 and Diluted EPS $.50. 38 REPORT OF MANAGEMENT The management of Johnson & Johnson is responsible for the integrity and objectivity of the accompanying financial statements and related information. The statements have been prepared in conformity with accounting principles generally accepted in the United States, and include amounts that are based on our best judgments with due consideration given to materiality. Management maintains a system of internal accounting controls monitored by a corporate staff of professionally trained internal auditors who travel worldwide. This system is designed to provide reasonable assurance, at reasonable cost, that assets are safeguarded and that transactions and events are recorded properly. While the Company is organized on the principle of decentralized management, appropriate control measures are also evidenced by well-defined organizational responsibilities, management selection, development and evaluation processes, communicative techniques, financial planning and reporting systems and formalized procedures. It has always been the policy and practice of the Company to conduct its affairs ethically and in a socially responsible manner. This responsibility is characterized and reflected in the Company's Credo and Policy on Business Conduct that are distributed throughout the Company. Management maintains a systematic program to ensure compliance with these policies. PricewaterhouseCoopers LLP, independent auditors,is engaged to audit our financial statements. PricewaterhouseCoopers LLP maintains an understanding of our internal controls and conducts such tests and other auditing procedures considered necessary in the circumstances to express their opinion in the report that follows. The Audit Committee of the Board of Directors, composed solely of outside directors, meets periodically with the independent auditors, management and internal auditors to review their work and confirm that they are properly discharging their responsibilities. In addition, the independent auditors, the General Counsel and the Vice President, Internal Audit are free to meet with the Audit Committee without the presence of management to discuss the results of their work and observations on the adequacy of internal financial controls, the quality of financial reporting and other relevant matters. /s/ RALPH S. LARSEN /s/ ROBERT J. DARRETTA Ralph S. Larsen Robert J. Darretta Chairman, Board of Directors Vice President, Finance and Chief Executive Officer and Chief Financial Officer
39 INDEPENDENT AUDITOR'S REPORT To the Shareowners and Board of Directors of Johnson & Johnson: In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of earnings, consolidated statements of equity and consolidated statements of cash flows present fairly, in all material respects, the financial position of Johnson & Johnson and its subsidiaries at January 2, 2000 and January 3, 1999, and the results of their operations and their cash flows for each of the three years in the period ended January 2, 2000, in conformity with accounting principles generally accepted in the United States. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. [PricewaterhouseCooper LLP] New York, New York January 24, 2000 40 JOHNSON & JOHNSON AND SUBSIDIARIES SEGMENTS OF BUSINESS(1)
SALES TO CUSTOMERS(2) --------------------------- 1999 1998 1997 ------- ------ ------ (DOLLARS IN MILLIONS) Consumer -- Domestic........................................ $ 3,670 3,325 3,240 International................................... 3,194 3,201 3,258 ------- ------ ------ Total............................................... 6,864 6,526 6,498 ------- ------ ------ Pharmaceutical -- Domestic.................................. 6,419 4,993 4,015 International............................... 4,275 3,907 3,882 ------- ------ ------ Total............................................... 10,694 8,900 7,897 ------- ------ ------ Professional -- Domestic.................................... 5,296 4,530 4,640 International.................................. 4,617 4,039 3,795 ------- ------ ------ Total............................................... 9,913 8,569 8,435 ------- ------ ------ Worldwide total............................................. $27,471 23,995 22,830 ======= ====== ======
OPERATING PROFIT IDENTIFIABLE ASSETS --------------------------- -------------------------- 1999(4) 1998(5) 1997 1999 1998 1997 ------- ------- ----- ------ ------ ------ (DOLLARS IN MILLIONS) Consumer................................................. $ 683 414 551 4,901 4,904 4,745 Pharmaceutical........................................... 3,595 2,933 2,572 7,483 5,918 6,324 Professional............................................. 1,632 941 1,543 12,458 13,244 7,773 ------ ----- ----- ------ ------ ------ Segments total........................................... 5,910 4,288 4,666 24,842 24,066 18,842 Expenses not allocated to segments(3).................... (157) (106) (79) General corporate........................................ 4,321 3,226 3,266 ------ ----- ----- ------ ------ ------ Worldwide total.......................................... $5,753 4,182 4,587 29,163 27,292 22,108 ====== ===== ===== ====== ====== ======
ADDITIONS TO PROPERTY, DEPRECIATION AND PLANT & EQUIPMENT AMORTIZATION ------------------------ ----------------------- 1999 1998 1997 1999 1998 1997 ------ ----- ----- ----- ----- ----- (DOLLARS IN MILLIONS) Consumer.................................................... $ 412 268 267 277 273 265 Pharmaceutical.............................................. 666 600 484 341 352 282 Professional................................................ 576 627 573 786 629 495 ------ ----- ----- ----- ----- ----- Segments total.............................................. 1,654 1,495 1,324 1,404 1,254 1,042 General corporate........................................... 74 50 91 40 31 40 ------ ----- ----- ----- ----- ----- Worldwide total............................................. $1,728 1,545 1,415 1,444 1,285 1,082 ====== ===== ===== ===== ===== =====
GEOGRAPHIC AREAS(2)
SALES TO CUSTOMERS(2) LONG-LIVED ASSETS --------------------------- -------------------------- 1999 1998 1997 1999 1998 1997 ------- ------ ------ ------ ------ ------ (DOLLARS IN MILLIONS) United States............................................. $15,385 12,848 11,895 9,321 8,531 5,728 Europe.................................................... 6,711 6,354 5,995 3,698 4,135 2,390 Western Hemisphere excluding U.S. ........................ 2,023 2,105 2,044 550 429 457 Asia-Pacific, Africa...................................... 3,352 2,688 2,896 439 402 384 ------- ------ ------ ------ ------ ------ Segments total............................................ 27,471 23,995 22,830 14,008 13,497 8,959 General corporate......................................... 282 262 250 Other non long-lived assets............................... 14,873 13,533 12,899 ------- ------ ------ ------ ------ ------ Worldwide total........................................... $27,471 23,995 22,830 29,163 27,292 22,108 ======= ====== ====== ====== ====== ======
- --------------- (1) See Management's Discussion and Analysis, pages 26 to 28, for a description of the segments in which the Company does business. (2) Export sales and intersegment sales are not significant. No single customer or country represents 10% or more of total sales. 41 (3) Amounts not allocated to segments include interest income/expense, minority interests and general corporate income and expense. (4) 1999 Pharmaceutical results excluding special charges related to the Centocor merger is $3,644. (5) 1998 results excluding Restructuring and In-Process Research and Development charges: Consumer $658, Pharmaceutical $3,132, and Professional $1,409. See Note 14 for details of Restructuring and IPR&D charges by segment. 42 JOHNSON & JOHNSON AND SUBSIDIARIES SUMMARY OF OPERATIONS AND STATISTICAL DATA 1989-1999(8)
1999 1998 1997 1996 1995 1994 -------- ------- ------- ------- ------- ------- (DOLLARS IN MILLIONS EXCEPT PER SHARE FIGURES) Sales to customers -- Domestic.... $ 15,385 12,848 11,895 10,986 9,225 7,871 Sales to customers -- International....... 12,086 11,147 10,935 10,769 9,696 7,930 -------- ------- ------- ------- ------- ------- TOTAL SALES................. 27,471 23,995 22,830 21,755 18,921 15,801 ======== ======= ======= ======= ======= ======= Cost of products sold............. 8,442 7,604 7,230 7,079 6,264 5,315 Selling, marketing and administrative expenses.......... 10,503 9,027 8,756 8,427 7,491 6,375 Research expense.................. 2,600 2,336 2,209 1,962 1,700 1,348 Purchased in-process research and development...................... -- 298 -- -- -- 37 Interest income................... (246) (277) (213) (149) (125) (66) Interest expense, net of portion capitalized...................... 197 129 124 133 160 162 Other expense, net................ 222 143 137 283 171 76 Restructuring charge.............. -- 553 -- -- -- -- -------- ------- ------- ------- ------- ------- 21,718 19,813 18,243 17,735 15,661 13,247 -------- ------- ------- ------- ------- ------- Earnings before provision for taxes on income.................. 5,753 4,182 4,587 4,020 3,260 2,554 Provision for taxes on income..... 1,586 1,179 1,276 1,138 893 631 -------- ------- ------- ------- ------- ------- Earnings before cumulative effect of accounting changes............ 4,167 3,003 3,311 2,882 2,367 1,923 Cumulative effect of accounting changes (net of tax)............. -- -- -- -- -- -- -------- ------- ------- ------- ------- ------- NET EARNINGS...................... $ 4,167 3,003 3,311 2,882 2,367 1,923 ======== ======= ======= ======= ======= ======= PERCENT OF SALES TO CUSTOMERS..... 15.2 12.5(3) 14.5 13.2 12.5 12.2 Basic net earnings per share of common stock*.................... $ 3.00 2.16 2.40 2.10 1.78 1.46 ======== ======= ======= ======= ======= ======= Diluted net earnings per share of common stock*.................... $ 2.94 2.12 2.34 2.05 1.75 1.45 ======== ======= ======= ======= ======= ======= Percent return on average shareowners' equity.............. 27.5 22.3(3) 27.4 28.0 28.5 29.4 ======== ======= ======= ======= ======= ======= PERCENT INCREASE (DECREASE) OVER PREVIOUS YEAR: Sales to customers................ 14.5 5.1 4.9 15.0 19.7 11.2 Basic net earnings per share...... 38.9(3) (10.0)(3) 14.3 18.0 21.9 11.5 ======== ======= ======= ======= ======= ======= Diluted net earnings per share.... 38.7(3) (9.4)(3) 14.1 17.1 20.7 11.5 ======== ======= ======= ======= ======= ======= SUPPLEMENTARY EXPENSE DATA: Cost of materials and services(5)...................... $ 13,789 11,736 11,600 11,278 9,903 7,983 Total employment costs............ 6,350 5,755 5,446 5,324 4,750 4,318 Depreciation and amortization..... 1,444 1,285 1,082 1,023 869 738 Maintenance and repairs(6)........ 317 296 266 282 254 219 Total tax expense(7).............. 2,237 1,821 1,850 1,694 1,415 1,101 TOTAL TAX EXPENSE PER SHARE(7)*... 1.61 1.31 1.34 1.23 1.06 .84 ======== ======= ======= ======= ======= ======= SUPPLEMENTARY BALANCE SHEET DATA: Property, plant and equipment, net.............................. $ 6,719 6,395 5,887 5,713 5,264 4,980 Additions to property, plant and equipment........................ 1,728 1,545 1,415 1,378 1,261 942 Total assets...................... 29,163 27,292 22,108 20,603 18,379 16,203 Long-term debt.................... 2,450 1,729 1,181 1,465 2,339 2,431 ======== ======= ======= ======= ======= ======= COMMON STOCK INFORMATION* Dividends paid per share.......... $ 1.09 .97 .85 .735 .64 .565 Shareowners' equity per share..... $ 11.67 10.13 9.26 8.23 6.95 5.56 Market price per share (year-end close)........................... $ 93 1/4 83 7/8 64 7/8 50 1/2 42 3/4 27 3/8 Average shares outstanding (millions) -- basic.............. 1,390.1 1,389.8 1,380.6 1,375.1 1,329.1 1,317.8 -- diluted... 1,418.2 1,417.2 1,415.4 1,402.7 1,349.8 1,329.0 SHAREOWNERS OF RECORD (THOUSANDS)...................... 169.4 168.9 160.0 142.0 117.7 109.7 ======== ======= ======= ======= ======= ======= EMPLOYEES (THOUSANDS)............. 97.8 94.3 91.1 89.8 82.8 82.1 ======== ======= ======= ======= ======= ======= 1993 1992 1991 1990 1989 ------- ------- ------- ------- ------- (DOLLARS IN MILLIONS EXCEPT PER SHARE FIGURES) Sales to customers -- Domestic.... 7,270 7,011 6,293 5,485 4,931 Sales to customers -- International....... 6,944 6,868 6,207 5,812 4,898 ------- ------- ------- ------- ------- TOTAL SALES................. 14,214 13,879 12,500 11,297 9,829 ======= ======= ======= ======= ======= Cost of products sold............. 4,807 4,700 4,221 3,947 3,488 Selling, marketing and administrative expenses.......... 5,807 5,758 5,188 4,508 3,918 Research expense.................. 1,248 1,233 1,052 880 764 Purchased in-process research and development...................... -- -- 70 115 -- Interest income................... (84) (101) (100) (105) (92) Interest expense, net of portion capitalized...................... 146 144 140 203(4) 143 Other expense, net................ 32 132 87 260(4) 94 Restructuring charge.............. -- -- -- -- -- ------- ------- ------- ------- ------- 11,956 11,866 10,658 9,808 8,315 ------- ------- ------- ------- ------- Earnings before provision for taxes on income.................. 2,258 2,013 1,842 1,489 1,514 Provision for taxes on income..... 518 514 510 434 432 ------- ------- ------- ------- ------- Earnings before cumulative effect of accounting changes............ 1,740 1,499 1,332 1,055 1,082 Cumulative effect of accounting changes (net of tax)............. -- (595) -- -- -- ------- ------- ------- ------- ------- NET EARNINGS...................... 1,740 904 1,332 1,055 1,082 ======= ======= ======= ======= ======= PERCENT OF SALES TO CUSTOMERS..... 12.2 6.5(1) 10.7 9.3(2) 11.0 Basic net earnings per share of common stock*.................... 1.31 .67 .98 .78 .80 ======= ======= ======= ======= ======= Diluted net earnings per share of common stock*.................... 1.30 .66 .97 .77 .79 ======= ======= ======= ======= ======= Percent return on average shareowners' equity.............. 31.4 16.1(1) 24.3 22.6(2) 27.5 ======= ======= ======= ======= ======= PERCENT INCREASE (DECREASE) OVER PREVIOUS YEAR: Sales to customers................ 2.4 11.0 10.6 14.9 8.5 Basic net earnings per share...... 95.5(1) (31.6)(1) 25.6(2) (2.5)(2) 12.7 ======= ======= ======= ======= ======= Diluted net earnings per share.... 97.0(1) (32.0)(1) 26.0(2) (2.5)(2) 12.9 ======= ======= ======= ======= ======= SUPPLEMENTARY EXPENSE DATA: Cost of materials and services(5)...................... 7,060 6,875 6,342 5,757 4,915 Total employment costs............ 4,114 4,109 3,561 3,229 2,891 Depreciation and amortization..... 635 565 497 477 417 Maintenance and repairs(6)........ 203 211 204 186 193 Total tax expense(7).............. 945 936 904 782 710 TOTAL TAX EXPENSE PER SHARE(7)*... .71 .70 .67 .58 .53 ======= ======= ======= ======= ======= SUPPLEMENTARY BALANCE SHEET DATA: Property, plant and equipment, net.............................. 4,491 4,233 3,784 3,346 2,904 Additions to property, plant and equipment........................ 977 1,121 1,018 878 765 Total assets...................... 12,706 12,389 11,073 9,798 8,075 Long-term debt.................... 1,731 1,603 1,560 1,358 1,193 ======= ======= ======= ======= ======= COMMON STOCK INFORMATION* Dividends paid per share.......... .505 .445 .385 .33 .28 Shareowners' equity per share..... 4.36 4.01 4.32 3.77 3.18 Market price per share (year-end close)........................... 22 3/8 25 1/4 28 5/8 17 7/8 14 7/8 Average shares outstanding (millions) -- basic.............. 1,330.0 1,344.2 1,354.1 1,348.8 1,347.3 -- dilu 1,342.1 1,359.5 1,379.9 1,364.3 1,365.1 SHAREOWNERS OF RECORD (THOUSANDS)...................... 101.7 90.1 74.4 66.2 62.1 ======= ======= ======= ======= ======= EMPLOYEES (THOUSANDS)............. 82.1 85.8 84.1 83.1 83.7 ======= ======= ======= ======= =======
- --------------- * Adjusted to reflect the 1996 two-for-one stock split. (1) Excluding the cumulative effect of accounting changes of $595 million. -- 1992 earnings percent of sales to customers before accounting changes is 10.8%. -- 1992 earnings percent return on average shareowners' equity before accounting changes is 25.4%. -- 1993 basic net earnings per share percent increase over prior year before accounting changes is 17.0% and 18.2% for diluted earnings per share; 1992 is 14.3% for basic earnings per share and 13.4% for diluted earnings per share. (2) Excluding Latin America non-recurring charges of $125 million. -- 1990 net earnings percent of sales to customers before non-recurring charges is 10.4%. -- 1990 percent return on average shareowners' equity before non-recurring charges is 24.9%. -- 1991 basic net earnings per share percent increase over prior year before non-recurring charges is 12.6% and 12.8% for diluted earnings per share; 1990 is 8.8% for basic earnings per share and 8.9% for diluted earnings per share. (3) Excluding Restructuring and In-Process Research and Development charges of $697 million. -- 1998 earnings percent of sales to customers before special charges is 15.4%. -- 1998 basic net earnings per share before special charges is $2.66. -- 1998 diluted net earnings per share before special charges is $2.61. -- 1998 percent return on average shareowners' equity before special charges is 26.8%. -- 1998 basic net earnings per share increase over prior year before special charges is 10.8%. -- 1998 diluted net earnings per share increase over prior year before special charges is 11.5%; -- 1998 cost of products sold includes $60 million of inventory write-offs for restructuring; -- 1999 excluding special charges, basic net earnings per share percent increase over prior year is 13.9% and 13.8% for diluted net earnings per share. (4) Includes Latin America non-recurring charge of $36 million for the liquidation of Argentine debt and $104 million write-down in other expenses for permanent impairment of certain assets and operations in Latin America. (5) Net of interest and other income. (6) Also included in cost of materials and services category. (7) Includes taxes on income, payroll, property and other business taxes. (8) All periods have been restated to include the effects of the Centocor merger. EX-21 7 SUBSIDIARIES 1 EXHIBIT 21 SUBSIDIARIES Johnson & Johnson, a New Jersey corporation, has the domestic and international subsidiaries shown below. Certain domestic subsidiaries and international subsidiaries are not named because they are not significant in the aggregate. Johnson & Johnson has no parent.
JURISDICTION OF NAME OF SUBSIDIARY ORGANIZATION ------------------ --------------- Domestic Subsidiaries: AngioGuard, Inc........................................... Delaware Biosense, Inc............................................. Delaware Biosense Webster, Inc..................................... California Centocor, Inc............................................. Pennsylvania Codman & Shurtleff, Inc................................... New Jersey Cordis Corporation........................................ Florida Cordis International Corporation.......................... Delaware DePuy, Inc................................................ Delaware DePuy ACE Medical Co...................................... California DePuy AcroMed, Inc. ...................................... Ohio DePuy Finance LLC......................................... Delaware DePuy Orthopaedics, Inc. ................................. Indiana DePuy Orthopaedic Technologies, Inc. ..................... Delaware Ethicon Endo-Surgery, Inc. ............................... Ohio Ethicon, Inc. ............................................ New Jersey Ethicon LLC............................................... Delaware GynoPharma Inc. .......................................... Delaware Indigo Medical, Incorporated ............................. Delaware Janssen Ortho LLC......................................... Delaware Janssen Pharmaceutica Inc. ............................... Pennsylvania Janssen Products, Inc. ................................... Delaware Johnson & Johnson Consumer Companies, Inc. ............... New Jersey Johnson & Johnson Development Corporation................. New Jersey Johnson & Johnson Finance Corporation..................... New Jersey Johnson & Johnson Health Care Systems Inc. ............... New Jersey Johnson & Johnson International........................... New Jersey Johnson & Johnson Japan Inc. ............................. New Jersey Johnson & Johnson - Merck Consumer Pharmaceuticals Co. ... New Jersey Johnson & Johnson (Middle East) Inc. ..................... New Jersey Johnson & Johnson (Russia), Inc. ......................... New Jersey Johnson & Johnson S.E., Inc............................... New Jersey Johnson & Johnson Services, Inc. ......................... New Jersey Johnson & Johnson Vision Care, Inc. ...................... Florida Joint Medical Products Corporation........................ Delaware JJHC, Inc. ............................................... Delaware LifeScan, Inc. ........................................... California LifeScan LLC.............................................. Delaware McNeil Consumer Brands, Inc............................... New Jersey
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JURISDICTION OF NAME OF SUBSIDIARY ORGANIZATION ------------------ --------------- McNEIL-PPC, Inc. ......................................... New Jersey NDC Investment Corporation................................ Delaware Neutrogena Corporation.................................... Delaware Nitinol Development Corporation........................... California Noramco, Inc. ............................................ Georgia OMJ Pharmaceuticals, Inc. ................................ Delaware Ortho Biologics LLC....................................... Delaware Ortho Biotech Inc. ....................................... New Jersey Ortho-Clinical Diagnostics, Inc. ......................... New York Ortho-McNeil Pharmaceutical, Inc. ........................ Delaware Raritan Advertising, Inc. ................................ New Jersey RoC USA Corporation....................................... Delaware Therakos, Inc. ........................................... Florida International Subsidiaries: Abello Farmacia SL........................................ Italy AcroMed BV................................................ Netherlands Apsis..................................................... France Bioland Pharma S.A.R.L. .................................. France Centocor B.V. ............................................ Netherlands Centra Medicamenta OTC SRL................................ Italy Cilag AG.................................................. Switzerland Cilag AG International.................................... Switzerland Cilag De Mexico, S.A. de C.V. ............................ Mexico Cilag Farmaceutica Ltda. ................................. Brazil Cilag Holding AG.......................................... Switzerland Cordis Europa N.V. ....................................... Netherlands Cordis Medizinische Apparate GmbH ........................ Germany Cordis S.A. .............................................. France Cordis S.a.r.l............................................ Switzerland DePuy Australia Pty. Ltd.................................. Australia DePuy Bioland S.A......................................... France DePuy France S.A.......................................... France DePuy International Ltd................................... United Kingdom DePuy Intl. (Holdings) Ltd................................ United Kingdom DePuy Japan Inc........................................... Japan DePuy New Zealand Limited................................. New Zealand DePuy Orthopadie GmbH..................................... Germany DePuy Orthopedie S.A...................................... France DePuy SA.................................................. Belgium DePuy UK Holdings Limited................................. United Kingdom Ethicon Endo-Surgery (Europe) GmbH ....................... Germany Ethicon GmbH.............................................. Germany Ethicon Ireland Limited................................... Ireland Ethicon Limited........................................... Scotland Ethicon SAS............................................... France Ethicon S.p.A. ........................................... Italy Ethnor (Proprietary) Limited.............................. South Africa
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JURISDICTION OF NAME OF SUBSIDIARY ORGANIZATION ------------------ --------------- Greiter AG................................................ Switzerland Greiter (International) AG................................ Switzerland Impulse Dynamics (Ireland) Limited........................ Ireland Janssen Animal Health BVBA................................ Belgium Janssen-Cilag A/S......................................... Norway Janssen-Cilag AB.......................................... Sweden Janssen-Cilag AG.......................................... Switzerland Janssen-Cilag A/S......................................... Denmark Janssen-Cilag B.V. ....................................... Netherlands Janssen-Cilag Egypt Ltd. ................................. Egypt Janssen-Cilag C.A. ....................................... Venezuela Janssen-Cilag Farmaceutica Ltda........................... Brazil Janssen-Cilag Farmaceutica, Ltda. ........................ Portugal Janssen-Cilag International N.V. ......................... Belgium Janssen-Cilag Ltd......................................... United Kingdom Janssen-Cilag Limited..................................... South Africa Janssen-Cilag N.V. ....................................... Belgium Janssen-Cilag OY.......................................... Finland Janssen-Cilag Pharmaceutical S.A.C.I. .................... Greece Janssen-Cilag Pharma GmbH................................. Austria Janssen-Cilag Pty. Limited................................ Australia Janssen-Cilag S.A. ....................................... Spain Janssen-Cilag S.A. ....................................... France Janssen-Cilag S.p.A. ..................................... Italy Janssen Farmaceutica, S.A. de C.V. ....................... Mexico Janssen-Cilag GmbH........................................ Germany Janssen-Cilag International N.V........................... Belgium Janssen International C.V. ............................... Belgium Janssen Korea, Ltd. ...................................... Korea Janssen-Kyowa Co., Ltd. .................................. Japan Janssen Ortho Inc. ....................................... Canada Janssen Pharmaceutica Limited............................. Thailand Janssen Pharmaceutica N.V. ............................... Belgium Janssen Pharmaceutical Limited............................ Ireland J-C Healthcare Ltd. ...................................... Israel JHC Nederland B.V. ....................................... Netherlands J&J/MSD Consumer Pharmaceuticals S.A.S.................... France Johnson & Johnson AB...................................... Sweden Johnson & Johnson AG...................................... Switzerland Johnson & Johnson A/S..................................... Denmark Johnson & Johnson S.A. de C.V. ........................... Mexico Johnson & Johnson de Argentina, S.A.C.e I. ............... Argentina Johnson & Johnson (China) Ltd. ........................... China Johnson & Johnson Consumer France S.A.S................... France Johnson & Johnson Consumer N.V./S.A....................... Belgium Johnson & Johnson de Colombia S.A. ....................... Colombia Johnson & Johnson del Ecuador S.A. ....................... Ecuador
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JURISDICTION OF NAME OF SUBSIDIARY ORGANIZATION ------------------ --------------- Johnson & Johnson (Egypt) S.A.E........................... Egypt Johnson & Johnson Finance Limited......................... United Kingdom Johnson & Johnson Financial Services GmbH................. Germany Johnson & Johnson/Gaba B.V. .............................. Netherlands Johnson & Johnson GmbH.................................... Germany Johnson & Johnson Gesellschaft m.b.H...................... Austria Johnson & Johnson Health Care Ltd......................... Russia Johnson & Johnson Hellas S.A. ............................ Greece Johnson & Johnson Holding AB.............................. Sweden Johnson & Johnson Holding GmbH............................ Germany Johnson & Johnson (Hong Kong) Limited..................... Hong Kong Johnson & Johnson Inc. ................................... Canada Johnson & Johnson Industria e Comercio Ltda............... Brazil Johnson & Johnson International Financial Services Ireland Company................................................ Johnson & Johnson International S.A. ..................... France Johnson & Johnson Investments Limited..................... United Kingdom Johnson & Johnson (Ireland) Limited....................... Ireland Johnson & Johnson (Kenya) Limited......................... Kenya Johnson & Johnson Kft. ................................... Hungary Johnson & Johnson K.K. ................................... Japan Johnson & Johnson Lda..................................... Portugal Johnson & Johnson Ltd..................................... United Kingdom Johnson & Johnson Ltd. ................................... India Johnson & Johnson MSD Consumer Pharmaceuticals, S.A.S..... France Johnson & Johnson Management Ltd.......................... United Kingdom Johnson & Johnson Medical B.V. ........................... Netherlands Johnson & Johnson Medical (China) Ltd. ................... China Johnson & Johnson Medical G.m.b.H. ....................... Austria Johnson & Johnson Medical K.K. ........................... Japan Johnson & Johnson Medical Korea Limited................... Korea Johnson & Johnson Medical Limited. ....................... United Kingdom Johnson & Johnson Medical Mexico, S.A. de C.V............. Mexico Johnson & Johnson Medical NV/SA........................... Belgium Johnson & Johnson Medical Pty. Ltd. ...................... Australia Johnson & Johnson Medical S.A. ........................... Argentina Johnson & Johnson Morocco S.A. ........................... Morocco Johnson & Johnson (New Zealand) Limited................... New Zealand Johnson & Johnson Pacific Pty. Ltd. ...................... Australia Johnson & Johnson Pakistan (Private) Limited.............. Pakistan Johnson & Johnson (Philippines), Inc. .................... Philippines Johnson & Johnson Poland Sp. z o.o. ...................... Poland Johnson & Johnson (Private) Limited....................... Zimbabwe Johnson & Johnson Products Inc. .......................... Canada Johnson & Johnson Produtos Profissionais Ltda............. Brazil Johnson & Johnson Professional Products (Proprietary) South Africa Ltd. .................................................. Johnson & Johnson (Proprietary) Limited................... South Africa Johnson & Johnson Pte. Ltd. .............................. Singapore
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JURISDICTION OF NAME OF SUBSIDIARY ORGANIZATION ------------------ --------------- Johnson & Johnson Pty. Limited............................ Australia Johnson & Johnson Research Pty. Limited................... Australia Johnson & Johnson, S.A. de C.V. .......................... Mexico Johnson & Johnson S.A.S. ................................. France Johnson & Johnson S.A. ................................... Spain Johnson & Johnson SDN. BHD. .............................. Malaysia Johnson & Johnson S.p.A. ................................. Italy Johnson & Johnson, Spol.s.r.o. ........................... Czech Republic Johnson & Johnson Taiwan Ltd. ............................ Taiwan Johnson & Johnson (Thailand) Ltd.......................... Thailand Johnson & Johnson Vision Products AB...................... Sweden Johnson & Johnson Vision Products (Ireland) Ltd........... Ireland Johnson & Johnson (Zambia) Limited........................ Zambia Laboratoires Martin Johnson & Johnson -- MSD S.A.S........ France Laboratoires Polive S.N.C. ............................... France Lifescan Canada Ltd. ..................................... Canada McNeil Consumer Nutritionals Ltd.......................... England Medos S.A. ............................................... Switzerland Neutrogena Limited........................................ England Neutrogena Provence S.A.R.L............................... France OMJ Ireland Limited....................................... Ireland OMJ Manufacturing Ltd..................................... Ireland Ortho-Clinical Diagnostics European Support Center........ France Ortho-Clinical Diagnostics GmbH........................... Germany Ortho-Clinical Diagnostics K.K. .......................... Japan Ortho-Clinical Diagnostics................................ United Kingdom Ortho-Clinical Diagnostics S.A. .......................... Spain Ortho-Clinical Diagnostics N.V. .......................... Belgium Ortho-Clinical Diagnostics S.A. .......................... France Ortho-Clinical Diagnostics S.p.A. ........................ Italy Pharma Argentina S.A. .................................... Argentina P.T. Johnson & Johnson Indonesia.......................... Indonesia The R.W. Johnson Pharmaceutical Research Institute........ Switzerland Shanghai Johnson & Johnson Pharmaceuticals, Ltd........... China Shanghai Johnson & Johnson Ltd. .......................... China Surgikos, S.A. de C.V. ................................... Mexico Tasmanian Alkaloids Pty. Ltd. ............................ Australia Taxandria Pharmaceutica B.V. ............................. Netherlands The R.W. Johnson Pharmaceutical Research Institute........ Switzerland Vania Expansion, S.N.C.................................... France Woelm Pharma GmbH & Co.................................... Germany Xian-Janssen Pharmaceutical Limited....................... China
EX-23 8 CONSENT OF INDEPENDENT AUDITORS 1 EXHIBIT 23 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statements of Johnson & Johnson on Form S-8 (File No. 33-52252, 33-40294, 33-40295, 33-32875, 33-7634, 033-59009, 333-38055, 333-40681 and 333-26979), Form S-3 (File No. 333-91349, 33-55977 and 33-47424) and Form S-4 (File No. 33-57583, 333-00391, 333-38097, 333-30081, 333-86611 and 333-94367) and related Prospectuses, of our reports dated January 24, 2000, on our audits of the consolidated financial statements and financial statement schedule of Johnson & Johnson and subsidiaries as of January 2, 2000 and January 3, 1999, and for each of the three years in the period ended January 2, 2000, which reports are included or incorporated by reference in this Annual Report on Form 10-K. [PricewaterhouseCooper LLP] New York, New York March 30, 2000 EX-27 9 FINANCIAL DATA SCHEDULE
5 1,000,000 YEAR JAN-02-2000 JAN-04-1999 JAN-02-2000 2,363 1,516 4,622 389 3,095 13,200 11,046 4,327 29,163 7,454 2,476 0 0 1,535 14,678 29,163 27,471 27,471 8,442 8,442 2,600 53 197 5,753 1,586 4,167 0 0 0 4,167 3.00 2.94 1999 results excluding special charges related to the Centocor merger: Earnings before Taxes $5,802; Net Earnings $4,209; Basic EPS $3.03 and Diluted EPS $2.97. This Schedule has been prepared to give retroactive effect to the merger between Johnson & Johnson and Centocor on October 6, 1999.
EX-99.B 10 CAUTIONARY STATEMENT 1 EXHIBIT 99(b) CAUTIONARY STATEMENT PURSUANT TO PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 -- "SAFE HARBOR" FOR FORWARD-LOOKING STATEMENTS The Company may from time to time make certain forward-looking statements in publicly-released materials, both written and oral. Forward-looking statements do not relate strictly to historical or current facts and anticipate results based on management's plans that are subject to uncertainty. Forward-looking statements may be identified by the use of words like "plans," "expects," "will," "anticipates," "estimates" and other words of similar meaning in conjunction with, among other things, discussions of future operations, financial performance, the Company's strategy for growth, product development, regulatory approvals, market position and expenditures. Forward-looking statements are based on current expectations of future events. The Company cannot guarantee that any forward-looking statement will be accurate, although the Company believes that it has been reasonable in its expectations and assumptions. Investors should realize that if underlying assumptions prove inaccurate or unknown risks or uncertainties materialize, actual results could vary materially from the Company's expectations and projections. Investors are therefore cautioned not to place undue reliance on any forward-looking statements. Furthermore, the Company assumes no obligation to update any forward-looking statements as a result of new information or future events or developments. Some important factors that could cause the Company's actual results to differ from the Company's expectations in any forward-looking statements are as follows: Economic factors, including inflation and fluctuations in interest rates and foreign currency exchange rates and the potential effect of such fluctuations on revenues, expenses and resulting margins; Competitive factors, including technological advances achieved and patents attained by competitors and generic competition as patents on the Company's products expire; Domestic and foreign health care changes resulting in pricing pressures, including the continued consolidation among health care providers, trends toward managed care and health care cost containment and government laws and regulations relating to sales and promotion, reimbursement and pricing generally; Government laws and regulations, affecting domestic and foreign operations, including those relating to trade, monetary and fiscal policies, taxes, price controls, regulatory approval of new products and licensing; Difficulties inherent in product development, including the potential inability to successfully continue technological innovation, complete clinical trials, obtain regulatory approvals in the United States and abroad, gain and maintain market approval of products and the possibility of encountering infringement claims by competitors with respect to patent or other intellectual property rights which can preclude or delay commercialization of a product; Significant litigation adverse to the Company including product liability claims, patent infringement claims, and antitrust claims, as well as the arbitration proceeding filed by Amgen to terminate U.S. license rights; Product efficacy or safety concerns resulting in product recalls, regulatory action on the part of the FDA (or foreign counterparts) or declining sales; The impact of business combinations, including acquisitions and divestitures, both internally for the Company and externally in the pharmaceutical and health care industries; 2 Issuance of new or revised accounting standards by the American Institute of Certified Public Accountants, the Financial Accounting Standards Board or the Securities and Exchange Commission. The foregoing list sets forth many, but not all, of the factors that could impact upon the Company's ability to achieve results described in any forward-looking statements. Investors should understand that it is not possible to predict or identify all such factors and should not consider this list to be a complete statement of all potential risks and uncertainties. The Company notes the factors on this list as permitted by the Private Securities Litigation Reform Act of 1995. -----END PRIVACY-ENHANCED MESSAGE-----