-----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, IpDVOLCE5gurrMo2Hv7gEHle1Lqx0Sxo2VIW7B6TGWs04KJMXZO88/RKS5my3bCh kNPL/kHKOk6vD8SS4eCQDA== 0000950123-97-002843.txt : 19970401 0000950123-97-002843.hdr.sgml : 19970401 ACCESSION NUMBER: 0000950123-97-002843 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 13 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970331 SROS: NYSE 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: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-03215 FILM NUMBER: 97570528 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 DECEMBER 29, 1996 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 (908) 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 [ ] The aggregate market value of the voting stock held by non-affiliates of the registrant on February 25, 1997 was approximately $75.1 billion. On February 25, 1997 there were 1,333,553,480 shares of Common Stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE Parts I and II: Portions of registrant's annual report to shareowners for fiscal year 1996. Part III: Portions of registrant's proxy statement for its 1997 annual meeting of shareowners.
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] ================================================================================ 2 PART I
ITEM PAGE - ---- ---- l. 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.................................................................... 2 Competition.................................................................... 3 Research....................................................................... 3 Environment.................................................................... 3 Regulation..................................................................... 3 2. Properties..................................................................... 4 3. Legal Proceedings.............................................................. 4 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 8. Financial Statements and Supplementary Data.................................... 6 9. Disagreements on Accounting and Financial Disclosure........................... 6 PART III 10. Directors and Executive Officers of the Registrant............................. 6 11. Executive Compensation......................................................... 6 12. Security Ownership of Certain Beneficial Owners and Management................. 6 13. Certain Relationships and Related Transactions................................. 6 PART IV 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K............... 7 Signatures..................................................................... 9 Report of Independent Auditors................................................. 11 Consent of Independent Auditors................................................ 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 89,300 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, three Executive Committee members are 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 businesses. Operating management of each company is headed by a Chairman, President, General Manager or Managing Director who reports directly to or through a Company Group Chairman. 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. The narrative and tabular (but not the graphic) descriptions of segments and geographic categories 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 28 and 41 of Johnson & Johnson's Annual Report to Shareowners for fiscal year 1996 are incorporated herein by reference thereto. CONSUMER The Consumer segment's principal products are personal care and hygienic products, including oral and baby care products, first aid products, nonprescription drugs, sanitary protection products and adult skin and hair products. Major brands include ACT Fluoride Rinse; BAND-AID Brand Adhesive Bandages; CAREFREE Panty Shields; JOHNSON'S CLEAN & CLEAR Skin Care Products; IMODIUM A-D Antidiarrheal; JOHNSON'S Baby line of products; MONISTAT, a remedy for vaginal yeast infections; MYLANTA gastrointestinal products and PEPCID AC Acid Controller from Johnson & Johnson - Merck Consumer Pharmaceuticals Co.; NEUTROGENA skin and hair products; NICOTROL smoking cessation products; 'o.b.' Tampons; PEDIACARE children's cold and allergy medications; 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 and SURE & NATURAL 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 allergy, antibacterial, antifungal, biotech, central nervous system, contraceptive, dermatology, gastrointestinal and immunobiology fields. These products are distributed both directly and through wholesalers for use by health care professionals and the general public. Prescription drugs include DURAGESIC, a transdermal patch for chronic pain; EPREX (sold in the U.S. under the trademark PROCRIT), a biotechnology derived version of the human hormone erythropoietin, which stimulates red blood cell production; ERGAMISOL, a colon cancer drug; FLOXIN, an 4 antibacterial; HISMANAL, the once-a-day less sedating antihistamine; IMODIUM, an antidiarrheal; LEUSTATIN, for hairy cell leukemia; MOTILIUM, a gastrointestinal mobilizer; NIZORAL, SPORANOX and TERAZOL, antifungals; ORTHOCLONE OKT-3, for reversing the rejection of kidney, heart and liver transplants; ORTHO-NOVUM group of oral contraceptives; PREPULSID (sold in the U.S. under the trademark PROPULSID), a gastrointestinal prokinetic; RETIN-A, a dermatological cream for acne; RISPERDAL, an antipsychotic drug; and ULTRAM, a centrally acting prescription analgesic for moderate to moderately severe pain. PROFESSIONAL The Professional segment includes suture and mechanical wound closure products, minimally-invasive surgical instruments, diagnostic products, medical equipment and devices, disposable contact lenses, surgical instruments, joint replacements and products for wound management and infection prevention. These products are used principally in the professional fields by physicians, dentists, nurses, therapists, hospitals, diagnostic laboratories and clinics. Distribution to these markets is done both directly and through surgical supply and other dealers. In February 1996, Johnson & Johnson acquired Cordis Corporation which provides devices and systems for markets that include cardiology, electrophysiology, radiology and interventional neuroradiology. INTERNATIONAL The international business of Johnson & Johnson is conducted by subsidiaries manufacturing in 39 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 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. 2 5 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 $1,905, $1,634 and $1,278 million for fiscal years 1996, 1995 and 1994, 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. The costs of human health care have been and continue to be a subject of study and investigation 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. 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. 3 6 ITEM 2. PROPERTIES Johnson & Johnson and its worldwide subsidiaries operate 173 manufacturing facilities occupying approximately 16.5 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............................................................... 5,931 Pharmaceutical......................................................... 3,980 Professional........................................................... 6,586 ------ Worldwide total.............................................. 16,497 ======
Within the United States, 12 facilities are used by the Consumer segment, 9 by the Pharmaceutical segment and 41 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................................................ 62 7,296 Europe....................................................... 44 4,474 Western Hemisphere excluding U.S.A........................... 23 2,441 Africa, Asia and Pacific..................................... 44 2,286 --- ------ Worldwide total.................................... 173 16,497 === ======
In addition to the manufacturing facilities discussed above, Johnson & Johnson maintains numerous office and warehouse facilities throughout the world. Research facilities are also discussed 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 9 "Rental Expense and Lease Commitments" under "Johnson & Johnson and Subsidiaries -- Notes to Consolidated Financial Statements" on page 34 of Johnson & Johnson's Annual Report to Shareowners for fiscal year 1996. Segment information on additions to Johnson & Johnson's property, plant and equipment is contained on page 41 of Johnson & Johnson's Annual Report to Shareowners for fiscal year 1996. ITEM 3. LEGAL PROCEEDINGS The information set forth in Note 18 "Pending Legal Proceedings" under "Johnson & Johnson and Subsidiaries -- Notes to Consolidated Financial Statements" on page 39 of Johnson & Johnson's Annual Report to Shareowners for fiscal year 1996 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. 4 7 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 25, 1997, 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 3 through 7 of Johnson & Johnson's Proxy Statement dated March 12, 1997. Mr. Clark H. Johnson, a director referred to in such Proxy Statement, passed away on March 13, 1997.
NAME AGE POSITION - --------------------------------- --- --------------------------------------------------- Robert J. Darretta............... 50 Member, Executive Committee; Vice President, Finance(a) Russell C. Deyo.................. 47 Member, Executive Committee; Vice President, Administration(b) Roger S. Fine.................... 54 Member, Executive Committee; Vice President, General Counsel(c) Ronald G. Gelbman................ 49 Member, Executive Committee; Worldwide Chairman, Pharmaceutical and Diagnostics Group(d) JoAnn H. Heisen.................. 47 Member, Executive Committee; Vice President, Chief Information Officer(e) Christian A. Koffmann............ 56 Member, Executive Committee; Worldwide Chairman, Consumer and Personal Care Group(f) Ralph S. Larsen.................. 58 Chairman, Board of Directors and Chief Executive Officer; Chairman, Executive Committee James T. Lenehan................. 48 Member, Executive Committee; Worldwide Chairman, Consumer, Pharmaceuticals and Professional Group(g) Robert N. Wilson................. 56 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. He became Treasurer of the Company in 1995 and on March 24, 1997, became Vice President, Finance and a Member of the Executive Committee. (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 October 1996. (c) Mr. R. S. Fine joined the Company in 1974 and became Assistant General Counsel in 1978 and Associate General Counsel in 1984. He became a Member of the Executive Committee and Vice President, Administration in 1991 and became Vice President, General Counsel in October 1996. (d) Mr. R. G. Gelbman joined the Company in 1972 and became a Company Group Chairman in 1987. He became a Member of the Executive Committee and Worldwide Chairman, Pharmaceutical and Diagnostics Group in 1994. (e) Ms. J. H. Heisen joined the Company in 1989 as Assistant Treasurer and became Vice President, Investor Relations in 1990, Treasurer in 1991 and Controller in 1995. She became a Member of the Executive Committee and Vice President, Chief Information Officer in January 1997. (f) 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 and Personal Care Group in 1995. (g) Mr. J. T. Lenehan joined the Company in 1976 and became a Company Group Chairman in 1993. He became a Member of the Executive Committee and Worldwide Chairman, Consumer, Pharmaceuticals and Professional Group in 1994. 5 8 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 24 of Johnson & Johnson's Annual Report to Shareowners for fiscal year 1996. 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 1986-1996" on page 42 of Johnson & Johnson's Annual Report to Shareowners for fiscal year 1996. 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 material captioned "Management's Discussion and Analysis of Results of Operations and Financial Condition--Overview, Sales and Earnings, Costs and Expenses, Liquidity and Capital Resources and Changing Prices and Inflation" on pages 23 through 26 of Johnson & Johnson's Annual Report to Shareowners for fiscal year 1996. 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 29 through 40 of Johnson & Johnson's Annual Report to Shareowners for fiscal year 1996. ITEM 9. CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information with respect to executive officers is presented at the end of Part I hereof. Information with respect to directors (except as noted in Item 4 above) is incorporated herein by reference to the material captioned "Election of Directors--Nominees" on pages 2 through 7 of Johnson & Johnson's Proxy Statement dated March 12, 1997. ITEM 11. EXECUTIVE COMPENSATION The information called for by this item is incorporated herein by reference to the material captioned "Election of Directors--Directors' Fees, Committees and Meetings" and "Executive Compensation" on pages 8 and 9, and 14 through 17 of Johnson & Johnson's Proxy Statement dated March 12, 1997. 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 "General Information--Principal Shareowner" and "Election of Directors--Stock Ownership/Control" on pages 2 and 8 of Johnson & Johnson's Proxy Statement dated March 12, 1997. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Not applicable. 6 9 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) 1. Financial Statements The financial statements to be included in this report are incorporated in Part II, Item 8 hereof by reference to Johnson & Johnson's Annual Report to Shareowners for fiscal year 1996. 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 paragraph is incorporated herein by reference to the Exhibit Index of this report. (b) Reports on Form 8-K No reports on Form 8-K were filed during the last quarter of 1996. 2 10 JOHNSON & JOHNSON AND SUBSIDIARIES SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS FISCAL YEARS ENDED DECEMBER 29, 1996, DECEMBER 31, 1995 AND JANUARY 1, 1995 (DOLLARS IN MILLIONS)
DEDUCTIONS FROM RESERVES ADDITIONS -------------------------------------------- BALANCE AT CHARGED BALANCE BEGINNING TO COSTS AND AT END OF PERIOD EXPENSES(A) DESCRIPTION AMOUNT OF PERIOD ----------- ------------- ------------------------- ------ --------- 1996 Reserves deducted from accounts receivable, trade Reserve for doubtful Write-offs less accounts............... $ 109 60 recoveries............... 27 Currency adjustments..... 1 141 Reserve for customer Customer rebates rebates................ 115 686 allowed.................. 671 Currency adjustments..... 1 129 Reserve for cash discounts.............. 34 388 Cash discounts allowed... 383 39 ---- ----- --- --- $ 258 1,134 1,083 309 ==== ===== ===== ==== 1995 Reserves deducted from accounts receivable, trade Reserve for doubtful Write-offs less accounts............... $ 77 46 recoveries............... 15 Currency adjustments..... (1) 109 Reserve for customer Customer rebates rebates................ 93 575 allowed.................. 553 115 Reserve for cash discounts.............. 30 355 Cash discounts allowed... 351 34 ---- ----- --- --- $ 200 976 918 258 ==== ===== === === 1994 Reserves deducted from accounts receivable, trade Reserve for doubtful Write-offs less accounts............... $ 56 35 recoveries............... 17 Currency adjustments..... (3) 77 Reserve for customer Customer rebates rebates................ 87 452 allowed.................. 447 Currency adjustments..... (1) 93 Reserve for cash discounts.............. 27 276 Cash discounts allowed... 274 Currency adjustments..... (1) 30 ---- ----- --- --- $ 170 763 733 200 ==== ===== === ===
- --------------- (A) Charges related to customer rebates and cash discounts are reflected as reductions of sales to customers. 8 11 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 25, 1997 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 duly signed 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 25, 1997 - ----------------------------------- Chief Executive Officer, and R. S. Larsen Director (Principal Executive Officer) /s/ R. J. DARRETTA Vice President -- Finance March 25, 1997 - ----------------------------------- (Principal Financial Officer) R. J. Darretta /s/ C. E. LOCKETT Controller March 26, 1997 - ----------------------------------- C. E. Lockett /s/ J. W. BLACK Director March 27, 1997 - ----------------------------------- J. W. Black /s/ G. N. BURROW Director March 27, 1997 - ----------------------------------- G. N. Burrow /s/ J. G. COONEY Director March 27, 1997 - ----------------------------------- J. G. Cooney /s/ J. G. CULLEN Director March 28, 1997 - ----------------------------------- J. G. Cullen /s/ P. M. HAWLEY Director March 26, 1997 - ----------------------------------- P. M. Hawley /s/ A. D. JORDAN Director March 28, 1997 - ----------------------------------- A. D. Jordan /s/ A. G. LANGBO Director March 28, 1997 - ----------------------------------- A. G. Langbo
9 12
SIGNATURE TITLE DATE - ----------------------------------- ------------------------------------ --------------- - ----------------------------------- Director March , 1997 J. S. Mayo /s/ T. S. MURPHY Director March 28, 1997 - ----------------------------------- T. S. Murphy /s/ P. J. RIZZO Director March 25, 1997 - ----------------------------------- P. J. Rizzo /s/ M. F. SINGER Director March 25, 1997 - ----------------------------------- M. F. Singer /s/ R. B. SMITH Director March 26, 1997 - ----------------------------------- R. B. Smith /s/ R. N. WILSON Vice Chairman, Board of Directors March 25, 1997 - ----------------------------------- and Director R. N. Wilson
10 13 REPORT OF INDEPENDENT AUDITORS To the Shareowners and Board of Directors of Johnson & Johnson: Our report on the consolidated financial statements of Johnson & Johnson and subsidiaries has been incorporated by reference in this Form 10-K from the Johnson & Johnson 1996 Annual Report to Shareowners and appears on page 40 therein. In connection with our audits of such financial statements, we have also audited the related financial statement schedule listed in the index in Item 14 of this Form 10-K. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein. /s/ COOPERS & LYBRAND L.L.P. COOPERS & LYBRAND L.L.P. New York, New York January 20, 1997 6 14 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in Registration Statements No. 33-52252, 33-40294, 33-40295, 33-32875, 33-7634 and 033-59009 on Form S-8, No. 33-55977 and 33-47424 on Form S-3 and No. 33-57583 and 333-00391 on Form S-4 and related Prospectuses of our reports dated January 20, 1997, on our audits of the consolidated financial statements and financial statement schedule of Johnson & Johnson and subsidiaries as of December 29, 1996 and December 31, 1995, and for each of the three years in the period ended December 29, 1996, which reports are included or incorporated by reference in this Annual Report on Form 10-K. /s/ COOPERS & LYBRAND L.L.P. COOPERS & LYBRAND L.L.P. New York, New York March 28, 1997 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 -- Filed with this document. 3(b) By-Laws of the Company, as amended April 26, 1990 -- Incorporated herein by reference to Exhibit 3(b) of the Registrant's Form 10-K Annual Report for the year ended January 3, 1993. 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 -- Filed with this document.* 10(b) 1995 Stock Option Plan (as amended) -- Incorporated herein by reference to Exhibit 10(a) of the Registrant's Form 10-K Annual Report for the year ended December 31, 1995.* 10(c) 1991 Stock Option Plan -- Incorporated by reference to Registration Statement No. 33-40294, Exhibit 4(a).* 10(d) 1986 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, 1993.* 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 -- Filed with this document.* 10(g) Domestic Deferred Compensation Plan (as amended) -- Filed with this document.* 10(h) Deferred Fee Plan for Directors (as amended) -- Filed with this document.* 10(i) Executive Income Deferral Plan -- Filed with this document.* 10(j) Excess Savings Plan -- Filed with this document.* 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.* 11 -- Calculation of Earnings Per Share -- Filed with this document. 12 -- Statement of Computation of Ratio of Earnings to Fixed Charges -- Filed with this document. 13 -- Pages 23-42 of the Company's Annual Report to Shareowners for fiscal year 1996 (only those portions of the Annual Report incorporated by reference in this document are deemed "filed") -- Filed with this document. 21 -- Subsidiaries -- Filed with this document. 27 -- Financial Data Schedule for Year Ended December 29, 1996 -- Filed with this document. 99 -- Annual Reports on Form 11-K for the Johnson & Johnson Savings Plans, to be filed on or before June 30, 1997.
- --------------- * 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. 13 EX-3.A.III 2 CERTIFICATE OF AMENDMENT 1 Exhibit 3(a)(iii) CERTIFICATE OF AMENDMENT TO THE RESTATED CERTIFICATE OF INCORPORATION OF JOHNSON & JOHNSON To: The Secretary of State State of New Jersey Pursuant to the provisions of Section 14A:7-15.1(3), 14A:9-2(2) and 14A:9-4(2) of the New Jersey Business Corporation Act, Johnson & Johnson, a corporation organized under the laws of the State of New Jersey (the "Corporation"), executes the following Certificate of Amendment to its Restated Certificate of Incorporation: 1. The name of the corporation is Johnson & Johnson. 2. The following amendment to the Restated Certificate of Incorporation of the Corporation (the "Amendment") was approved and duly adopted by the Board of Directors of the Corporation effective on the 25th day of April, 1996 to be effective as provided therein. "The authorized Common Stock of the Company shall be increased from 1,080,000,000 to 2,160,000,000 and, in connection therewith, the Restated Certificate of Incorporation of the Company, first sentence of Article Fourth, is hereby amended, effective at the close of business on May 21, 1996, to read as follows: The aggregate number of shares of all classes of stock which the Corporation has authority to issue is Two Billion One Hundred Sixty Two Million (2,162,000,000), divided into Two Million (2,000,000) shares of Preferred Stock without par value and Two Billion One Hundred Sixty Million (2,160,000,000) shares of Common Stock of the par value of One Dollar ($1.00) each." 3. The Amendment will not adversely affect the rights or preferences of the holders of outstanding shares of Common Stock of the Corporation and will not result in the percentage of authorized shares of Common Stock that remains unissued after the share division exceeding the percentage of authorized shares of Common Stock that were unissued before the share division. 4. On the effective date of the Amendment, (i) each share of Common Stock of the Corporation which was issued and outstanding or held in Treasury shall be divided into two fully-paid and non-assessable shares of Common Stock, par value of $1.00 per share, and (ii) each share of Common Stock allocated to the Corporation's reserves for issuance under its stock compensation and stock option plans or otherwise shall be divided into two shares of Common Stock, par value $1.00 per share. 5. The Amendment and the division of shares of Common Stock of the Corporation shall become effective at the close of business on the 21st day of May, 1996. IN WITNESS WHEREOF, the Corporation has caused this Certificate to be signed by its President and by its Secretary, and its Corporate Seal to be hereto affixed on the first day of May, 1996. JOHNSON & JOHNSON 2 By: /s/ Ralph S. Larsen --------------------- Ralph S. Larsen President By: /s/ Peter S. Galloway --------------------- Peter S. Galloway Secretary [Seal] EX-10.A 3 1995 STOCK OPTION PLAN 1 Exhibit 10(a) JOHNSON & JOHNSON STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS (Effective as of January 1, 1997) 1. Purpose. The purpose of the Stock Option Plan for Non-Employee Directors of Johnson & Johnson (the "Plan") is to provide certain compensation to eligible directors of Johnson & Johnson (the "Company") and to encourage the highest level of director performance by providing such directors with an interest in the Company's success and progress by granting them non-qualified options ("Options") to purchase shares of the Company's Common Stock ("Common Stock"). 2. Administration. The Plan shall be administered by the Compensation Committee or any successor thereto (the "Committee") of the Company's Board of Directors (the "Board"). Questions involving eligibility for grants of Options, entitlement to Options or the operation of the Plan shall be referred to the Committee. All determinations of the Committee shall be conclusive. The Committee may obtain such advice or assistance as it deems appropriate from persons not serving on the Committee. 3. Eligibility and Grants. To be eligible to participate in the Plan, a director must not be an officer or employee of the Company or any of its subsidiaries or affiliates. On the first trading day of each calendar year, each eligible director shall automatically be granted an Option to purchase 1,100 shares of Common Stock. Such amount may be increased or decreased by the Committee in November or December of each year to reflect the competitive environment with respect to director compensation. Each eligible director to whom Options are granted is hereinafter referred to as a "Participant." Each grant of Options shall be evidenced by a written agreement duly executed and delivered by or on behalf of the Company and the Participant. 4. Shares Available. Subject to adjustment as provided in Section 10, the maximum aggregate number of shares of Common Stock which shall be available under the Plan for the issuance upon the exercise of Options is 150,000 shares. 5. Term of Options. Each Option granted under the Plan shall have a term of ten years from the date of grant, subject to earlier termination as provided in Section 8(b). 6. Option Price. Options are priced at 100% of the fair market value of the Common Stock on the date of grant. Such price shall be subject to adjustment as provided in Section 10. The fair market value of a share of Common Stock shall be the average of the highest and lowest sales prices of the Common Stock as reported on the New York Stock Exchange Composite Tape ("Fair Market Value"). 7. Exercise of Options. (a) Each Option shall become 100% exercisable at the earliest of the completion of a Participant's Board service or on a date which is one year after the date of grant. (b) An Option may be exercised at any time or from time to time, as to any or all full shares of Common Stock as to which the Option is then exercisable; provided, however, that any such exercise shall be for at least 100 shares of Common Stock or, if less, the total number of shares of Common Stock as to which the Option is then exercisable. (c) The purchase price of the Common Stock as to which an Option is exercised shall be paid in full at the time of exercise; payment may be made in cash or in shares of Common Stock valued at Fair Market Value. 2 8. Completion of Directorship. (a) Completion. If a Participant completes his/her service as a non-employee director of the Company for any reason (other than death), the Participant's Options may be exercised at any time during the remainder of the Option term. (b) Death. In the event of Participant's death, regardless of whether Participant is still serving as a director, the Option may be exercised, subject to the provisions of Section 5, within three (3) years after death by Participant's estate or by any person who acquires such option inheritance or devices. Thereafter, such rights shall lapse. 9. Regulatory Compliance and Listing. The issuance or delivery of any shares of Common Stock upon the exercise of Options may be postponed by the Company for such period as may be required to comply with any applicable requirements under the Federal securities laws, any applicable listing requirements of any national securities exchange and requirements under any other law or regulation applicable to the issuance or delivery of such shares, and the Company shall not be obligated to issue or deliver any shares of Common Stock if the issuance or delivery of such shares shall constitute a violation of any provision of any law or of any regulation of any governmental authority or any national securities exchange. 10. Adjustment in Event of Changes in Capitalization. In the event of a recapitalization, stock split, stock dividend, combination or exchange of shares, merger, consolidation, rights offering, separation, reorganization or liquidation, or any other change in the corporate structure or shares of the Company, the number of shares of Common Stock that may be awarded as Options or that are subject to outstanding Option grants, and the option price per share under outstanding Options, shall be adjusted automatically to prevent dilution or enlargement of rights. 11. Termination or Amendment of the Plan. The Board may at any time terminate the Plan and may from time to time alter or amend the Plan or any part thereof (including any amendment deemed necessary to ensure that the Company may comply with any regulatory requirement referred to in Section 9), provided that, unless otherwise required by law, the rights of a Participant with respect to Options granted prior to such termination, alteration or amendment may not be impaired without the consent of such Participant. 12. Miscellaneous. (a) Nothing in the Plan shall be deemed to create any obligation on the part of the Board to nominate any director for reelection by the Company's shareholders. (b) The Company shall have the right to require, prior to the issuance or delivery of any Common Stock upon the exercise of Options, payment by the Participant of any taxes required by law with respect to the issuance or delivery of such shares. Such amount may be paid in cash, in shares of Common Stock previously owned by the Participant (based on the Fair Market Value), or a combination of cash and shares of Common Stock. (c) The shares of Common Stock to be issued upon the exercise of Options under the Plan shall, unless otherwise determined by the Committee, be shares which have been or may be reacquired by the Company. * * * * * * EX-10.F 4 EXECUTIVE INCENTIVE PLAN 1 Exhibit 10(f) JOHNSON & JOHNSON EXECUTIVE INCENTIVE PLAN (EFFECTIVE JANUARY 1, 1996) I. PURPOSE The purpose of the Johnson & Johnson Executive Incentive Plan (the "Plan") is to attract and retain highly qualified individuals as executive officers; to obtain from each the best possible performance; to underscore the importance to them of achieving particular business objectives established for Johnson & Johnson; and to include in their compensation package a bonus component which is intended to qualify as performance-based compensation under Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Internal Revenue Code"), which compensation would be deductible by Johnson & Johnson under the Internal Revenue Code. II. DEFINITIONS For the purposes of the Plan, the following terms shall have the following meanings: A. AWARDS. The cash and/or stock bonus awards made pursuant to the Plan. B. BOARD OF DIRECTORS. The Board of Directors of Johnson & Johnson. C. COMMITTEE. The Compensation Committee of the Board of Directors or any successor thereto. D. COMMON STOCK. The common stock of the Corporation, par value $1.00 per share. E. CONSOLIDATED EARNINGS. Consolidated net income for the year for which an Award is made, adjusted to omit the effects of extraordinary items, discontinued operations and the cumulative effects of changes in accounting principles, all as shown on the audited consolidated 2 statement of income of the Corporation and its subsidiaries and as determined in accordance with generally accepted accounting principles. F. CORPORATION. Johnson & Johnson. G. ELIGIBLE EMPLOYEE. An Employee who is an Executive Officer of the Corporation. H. EMPLOYEE. An individual who is on the active payroll of the Corporation or a subsidiary of the Corporation at any time during the period for which an Award is made. I. EXECUTIVE OFFICER. The Chairman and any Vice Chairman of the Board of Directors and any other officer of the Corporation who has been designated a part of the Office of the Chairman or elected a Member of the Executive Committee of the Corporation. J. FAIR MARKET VALUE. The average between the highest and lowest quoted selling price per share of Common Stock on the New York Stock Exchange Composite Transactions Tape on the grant date, provided that if there shall be no sales of shares of Common Stock on such date, the Fair Market Value shall be deemed equal to the average between the highest and lowest sales price of a share of Common Stock on such Composite Tape for the last preceding date on which sales of shares of Common Stock were reported. III. EFFECTIVE DATE; TERM The Plan is effective as of January 1, 1996, subject to approval by the Corporation's stockholders at the Corporation's 1996 Annual Meeting of Stockholders, and shall remain in effect until such time as it shall be terminated by the Board of Directors. IV. AMOUNTS AVAILABLE FOR AWARDS; SHARES SUBJECT TO THE PLAN A. Awards with respect to any taxable year of the Corporation shall not exceed the limitations specified in Section VI of the Plan. B. Awards that are granted under the Plan in the form of stock, in whole or in part, may be made in the aggregate of not more than 4 million shares of Common Stock less the aggregate number of shares of Common Stock awarded under the 1995 Stock Compensation Plan of the Corporation, subject in each case, to adjustment as hereinafter provided. These shares may, in the discretion of the 3 Committee, consist either in whole or in part of authorized but unissued shares of Common Stock or shares of Common Stock held in the treasury of the Corporation. C. In the event of a reorganization, recapitalization, stock split, stock dividend, combination of shares, merger, consolidation, any separation (including a spinoff or other distribution of stock or property), any partial or complete liquidation or any other change in the corporate structure or shares of the Corporation, the Committee shall make such adjustment as is equitably required in the number and kind of shares authorized by and for the Plan or in the number of shares of Common Stock covered by any outstanding deferred Award. V. ELIGIBILITY FOR AWARDS Awards for any period may be granted to those Eligible Employees who are selected by the Committee. Such selections, except in the case of the Corporation's Chairman, shall be made after considering the recommendations of the Chairman. The Committee shall also give consideration to the contribution made by the Eligible Employee to achievement of the Corporation's established objectives and such other matters as it shall deem relevant. In the discretion of the Committee, Awards may be made to Eligible Employees who have retired or whose employment has terminated after the beginning of the year for which an Award is made, or to the designee or estate of an Eligible Employee who died during such period. VI. DETERMINATION OF AMOUNTS OF AWARDS The maximum Award payable with respect to any taxable year of the Corporation to any Eligible Employee who is the Chairman or a Vice Chairman of the Board of Directors or any other officer who has been designated a part of the Corporation's Office of the Chairman during all or any portion of such taxable year shall not exceed .08% of Consolidated Earnings for such year. The maximum Award payable with respect to any taxable year of the Corporation to any other Eligible Employee shall not exceed .04% of Consolidated Earnings for such year. The amounts of Awards to Eligible Employees shall be determined by the Committee acting in its discretion subject to the maximum amounts set forth above. Such determinations, except in the case of the Award for the Chairman, shall be made after 4 considering the recommendations of the Chairman and such other matters as the Committee shall deem relevant. The Committee, acting in its discretion, may determine to pay a lesser award than the maximum specified herein. Awards may be made at any time following the end of the taxable year; provided, however, that no Awards shall be made until the Committee receives assurances from both the Corporation's Chief Financial Officer and its independent accountants that the amount of such Award does not exceed the applicable limitation under this Section VI and the Committee certifies in writing that such limitation has not been exceeded. For purposes of making these determinations, the value of the Common Stock component of any Award shall be its Fair Market Value. VII. FORM OF AWARDS Awards under the Plan shall be made in cash or Common Stock, as the Committee shall determine, subject to the limitations set forth in Section IV. VIII. PAYMENT OF AWARDS A. Awards under the Plan shall be paid currently, unless the Committee shall determine that any Award in cash or Common Stock or any portion thereof shall be deferred. Deferred Awards may be made in one lump sum or in installments and may bear interest in the case of any deferred cash Award or dividend equivalents in the case of any deferred Common Stock Award, all as the Committee shall determine. B. When an Award is made, the Corporation shall cause the cash or Common Stock to be paid or issued to the Eligible Employee at the time or times specified by the Committee or, if no time or times is specified, as soon as practicable after the Award is made. IX. SPECIAL AWARDS AND OTHER PLANS 5 A. Nothing contained in the Plan shall prohibit the Corporation or any of its subsidiaries from establishing other special awards or incentive compensation plans providing for the payment of incentive compensation to Employees (including Eligible Employees). B. Payments or benefits provided to an Eligible Employee under any stock, deferred compensation, savings, retirement or other employee benefit plan are governed solely by the terms of such plan. X. ADMINISTRATION, AMENDMENT AND INTERPRETATION OF THE PLAN A. Except as otherwise provided in the Plan, the Committee shall administer the Plan. The Committee shall consist of not less than three members of the Board of Directors. No director shall be eligible to serve as a member of such Committee unless such person is a "disinterested person" within the meaning of Rule 16b-3 of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended, and an "outside director" within the meaning of Section 162(m) of the Internal Revenue Code. Committee members shall not be eligible to participate in the Plan while members of the Committee. The Committee shall have full power to construe and interpret the Plan, establish and amend rules and regulations for its administration, and perform all other acts relating to the Plan, including the delegation of administrative responsibilities, that it believes reasonable and proper and in conformity with the purposes of the Plan. B. The Committee shall have the right to amend the Plan from time to time or to repeal it entirely or to direct the discontinuance of Awards either temporarily or permanently; provided, however, that (i) no amendment of the Plan shall operate to annul, without the consent of the Eligible Employee, an Award already made hereunder, and (ii) no amendment of the Plan that (x) changes the maximum Award payable to any Eligible Employee, as set forth in Section VI, (y) materially amends the definition of Consolidated Earnings or (z) increases the amount of shares available for awards under the Plan (except as contemplated by Section IV.C.) shall be effective before approval by the affirmative vote of a majority of shares voting at a meeting of the stockholders of the Corporation. 6 C. Any decision made, or action taken, by the Committee arising out of or in connection with the interpretation and/or administration of the Plan shall be final, conclusive and binding on all persons affected thereby. XI. RIGHTS OF ELIGIBLE EMPLOYEES A. Neither the Plan, nor the adoption or operation of the Plan, nor any documents describing or referring to the Plan (or any part hereof) shall confer upon any Employee any right to continue in the employ of the Corporation or a subsidiary of the Corporation. B. No individual to whom an Award has been made or any other party shall have any interest in the cash or Common Stock, or any other asset of the Corporation until such amount has been paid or issued. To the extent that any party acquires a right to receive payments of cash and/or share certificates under the Plan, such party shall have the status of unsecured creditor of the Corporation with respect to such right. C. No right or interest of any Eligible Employee in the Plan shall be assignable or transferable, or subject to any claims of any creditor or subject to any lien. XII. MISCELLANEOUS A. All expenses and costs incurred in connection with the operation of the Plan shall be borne by the Corporation, and no part therefor (other than the amounts of Awards under the Plan) shall be charged against the maximum limitation of Section VI. B. All Awards under the Plan are subject to withholding, where applicable, for federal, state and local taxes. C. Any provision of the Plan that is prohibited or unenforceable shall be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of the Plan. D. The Plan and the rights and obligations of the parties to the Plan shall be governed by, and construed and interpreted in accordance with, the law of the State of New Jersey (without regard to principles of conflicts of law). EX-10.G 5 DEFERRED FEE PLAN FOR DIRECTORS 1 Exhibit 10(g) JOHNSON & JOHNSON CERTIFICATE OF EXTRA COMPENSATION PLAN WITNESSETH - WHEREAS, Johnson & Johnson (the "Employer") wishes to reward its employees, as well as employees of its subsidiaries (an "Employee") for faithful service in the past and more particularly to encourage Employees in their future work by permitting Employees to share in the growth and success of the Employer's enterprises by issuing to them Shares of Certificates of Extra Compensation (the "CEC Shares"), and to that end to receive as extra compensation sums based upon and measured by (a) the amount of cash dividends from time to time declared upon an equal number of shares of common stock of the Employer (the "Common Stock") and (b) the formula value of such CEC Shares as established pursuant to Article "NINTH" of this Plan (the "Formula Value") at the time of termination of employment or death while in such employment: NOW, THEREFORE, in consideration of the premises and the promises herein contained, and so long as the Employee shall remain an Employee, it is agreed that: FIRST: The number of CEC Shares designated upon which the Employee's extra compensation shall be based is the aggregate number of CEC Shares awarded to such Employee in accordance with the Plan as evidenced by the written records of Employer. SECOND: While the Employee remains an Employee, the Employer shall pay to the Employee on the same date on which is paid any cash dividend on the Employer's Common Stock, a sum equivalent to such cash dividend multiplied by the total number of CEC Shares designated for such Employee. THIRD: In the event of the Employee's death while an Employee, the Employer shall pay to the Employee's beneficiary (as last recorded over the Employee's signature on the records of the Employer) a sum of money which shall be determined as a percentage of the Formula Value of such CEC Shares. This percentage shall be based upon the period elapsing between the date a CEC Share has been awarded and death, as follows: In the event of death within eighteen (18) months of the date of an award...................... 30% 2 In the event of death after eighteen (18) months but within forty-two (42) months of the date of an award........................... 70% In the event of death after forty-two (42) months of the date of an award...................... 100% In the event of the termination of the Employee's employment because of retirement, physical or mental disability, or otherwise (except by reason of death), the Employer shall pay to the Employee a sum of money which shall be determined as a percentage of the Formula Value of such CEC Shares. For the purposes of this Plan, an Employee placed on long-term disability is not considered to be an Employee. This percentage shall be based upon the period elapsing between the date a CEC Share has been awarded and such termination of employment, as follows: In the event of such termination within twelve (12) months of the date of an award................ 0% In the event of such termination after twelve (12) months but within twenty-four (24) months of the date of an award...................... 20% In the event of such termination after twenty-four (24) months but within thirty-six (36) months of the date of an award...................... 40% In the event of such termination after thirty-six (36) months but within forty-eight (48) months of the date of an award...................... 60% In the event of such termination after forty-eight (48) months but within sixty (60) months of the date of an award...................... 80% In the event of such termination after sixty (60) months from the date of an award............. 100% The Employer shall pay any such sum of money due under this Article "THIRD", in a single lump sum, unless Employee has duly elected, pursuant to the provisions of Article "SEVENTH" to defer receipt of such sum upon his/her retirement. FOURTH: At the election of each Employee, to be made as provided for below, the payment of any sum due to an Employee upon his/her retirement may be 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 Employee'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. Installment payments will be made annually (in the manner described below) and in approximately equal installment amounts (i.e., the value of the CEC payout balance, 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 Employee may elect to defer up to 100% of the value of his/her total CEC holdings at retirement; or, any percentage increment less than that. The following rules shall apply with respect to all payments: 3 a) Immediate Lump Sum Payment - The Employee will receive the full value of his/her CEC holdings in the calendar month of his/her retirement effective date. Employees retiring prior to the determination of the prior years CEC value will receive 97% of the estimated value with the remainder paid shortly after the final value is determined. b) Deferred Lump Sum Payment - The Employee will receive the full value of his/her CEC holdings, 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 Employee will receive the first installment in the calendar month of his/her retirement effective date. All subsequent installments, plus any accrued interest, will be paid on or about January 15 of each year. d) Deferred Commencement of Installments - The Employee will receive the first and all subsequent installments, plus any accrued interest, on or about January 15 of each year. FIFTH: With respect to any payments which are deferred and/or paid in installments, interest shall be paid by the Employer 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 Employee 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. SIXTH: In the event of death of an Employee (whether or not prior to the termination of his/her employment) the Employer will make payment in full of the balance, plus any accrued interest, as soon as administratively practical in a single lump sum payment to the designated beneficiary. In the event no deferral or installment election is made, the total amount of the CEC holdings will be paid in accordance with the provisions of paragraph (a) of Article "FOURTH" in a lump sum payment as soon as practical following an Employee's retirement effective date. SEVENTH: An election by an Employee to defer payment or elect installments of all or a part of his/her CEC holdings 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. The Employer may disallow an Employee's desire to defer payments and/or elect installments if it 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. Notwithstanding the above, an exception has been made for Employees who have a retirement effective date between January 1, 1997 and June 30, 1997. For such Employees, 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 example, an Employee who retires on January 1, 1997, must make the deferral and/or installment election no later than September 30, 1996; if the retirement date is May 1, 1997, such election must be made not later than December 31, 1996. With respect to any retirement occurring between July 1, 1997, and December 1, 1997, an election must be made prior to December 31, 1996. Any such election to defer and/or receive installment payments may only be 4 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 filed with the administrator referred to in Article "FIFTEENTH" on the form utilized for such purpose. Any election made after the required deadline shall be disregarded. AN ELECTION TO DEFER AND/OR BE PAID IN INSTALLMENTS SHOULD ONLY BE MADE IN CONSULTATION WITH AN EMPLOYEE'S TAX AND/OR FINANCIAL ADVISOR. EIGHTH: The number of CEC Shares designated and upon which is based and by which is measured the extra compensation of the Employee shall be increased proportionately from time to time to the extent that a stock split or a dividend in Common Stock is declared and paid upon the issued and outstanding Common Stock of the Employer. Likewise, the number of CEC Shares shall be reduced proportionately from time to time to the extent that the number of CEC Shares of issued and outstanding Common Stock of the Employer is reduced by reorganization, reduction of capital, or otherwise. NINTH: For the purposes of Article "THIRD" of this agreement, the Formula Value of the CEC Shares shall be determined by the Employer's Board of Directors which shall, except in the event mentioned below, determine such Formula Value as the sum of one-half of the asset value per share of Common Stock plus one-half of the earning-power value per share of Common Stock calculated as follows: The sum of one-half of the consolidated net asset value per share of Common Stock (being assets per share, less liabilities (including reserves, other than surplus reserve) per share, as such assets and liabilities appear on the books of the Employer and its subsidiaries as of the fiscal year end immediately preceding the date of valuation) plus one-half of the consolidated earning-power value per share of Common Stock (determined as the average of annual net earnings per share of Common Stock after all taxes as such net earnings appear on the books of the Employer and its subsidiaries for five (5) fiscal years preceding the date of valuation, capitalized as a return on capital invested at eight percent (8%), i.e., a multiple of twelve and one-half (12-1/2) times such average earnings per share). For the purpose of the foregoing calculation, the books of the Employer and its subsidiaries shall be conclusive. The method of consolidation shall be that adopted by the Employer in preparing the last previous annual report to its stockholders, including appropriate provision for taxes both foreign and domestic which might be incurred in remitting income of the subsidiaries to the Employer. The decisions of the Employer's Treasurer at all times, and from time to time, as to procedures to be adopted in maintaining the books of the Employer and its subsidiaries, preparation of balance sheets and income statements, method of and adjustments made in consolidation, and all matters of accounting practice and procedures shall be conclusive. In the event that it shall be the opinion of the Board of Directors of the Employer that the calculation made as provided above does not result in a true value, as of any date at which under Article "THIRD" such determination is necessary, the Board may but shall not be obligated to vary the formula to the extent of modifying the multiple by which the average earnings per share shall be multiplied. The Board of Directors shall, on or before May fifteenth of each year, determine and announce the Formula Value of the Employer's common stock as of the immediately preceding fiscal year end for the purposes of this Plan. TENTH: Dividends and share values are used herein only as measures of the extra compensation to be paid hereunder. Nothing herein contained shall be construed as an agreement to transfer to the Employee, or to his/her beneficiary, nor shall either acquire, by virtue of his/her being awarded CEC Shares, any right, title, or interest whatsoever in or to, any of the Employer's Common Stock. 5 ELEVENTH: No right of benefit to CEC Shares awarded under the Plan is assignable. The Employer does not fund the obligations created by the Employee participation in the CEC 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. Commencing with awards made at year end 1996, certificates representing CEC shares will no longer be issued. Instead the number of CEC shares awarded shall be recorded on the books of the Employer. TWELFTH: Regular part-time employees (those working 20 hours or more a week) shall be considered Employees under this Plan. Any change to part-time status of less than 20 hours a week shall be considered a termination, provided, however, that in the event such employee is over the age of 55, such employee shall, for purposes of this Plan only, be deemed to have retired. Nothing contained in the Plan shall be construed to alter the present employment for an indefinite term, which is terminable by either Employee or Employer without prior advance notice to the other. THIRTEENTH: An Employee may designate one or more beneficiaries to receive the value of his/her payout upon death. Should a beneficiary predecease the Employee, or should a beneficiary not be named, the amount designated for such beneficiary or the Employee's payout balance, as the case may be, will be distributed to the Employee's Estate. Beneficiary designations may be made or revised at any time by submitting a Beneficiary Designation Form to the Employer. The beneficiary or beneficiaries indicated in such Form shall supersede any prior designation, including designations appearing on any certificates representing CEC Shares. FOURTEENTH: In the first quarter of each calendar year, statements will be sent to active Employees participating in the CEC Plan as well as to retirees with deferred CEC holdings. The report for active Employees will provide the value of CEC holdings based on the prior years' final CEC value. The statement will also include previously made deferral elections and beneficiary designations. The report for retirees will provide the deferred CEC payout balance plus interest, as well as the deferred and/or installment election and beneficiary designations. FIFTEENTH: The CEC Plan is administered by the Extra Compensation Services Department at the Corporate Headquarters of Employer. Questions in regard to the administration of the CEC Plan should be addressed to it. * * * * * * * * * * EX-10.H 6 DEFERRED FEE PLAN 1 Exhibit 10(h) Amended as of December 5, 1996 JOHNSON & JOHNSON DEFERRED FEE PLAN FOR DIRECTORS 1. Purpose. The purpose of the Johnson & Johnson Deferred Fee Plan for Directors (the "Plan") is to provide outside Directors of Johnson & Johnson (the "Company") the opportunity to defer receipt of compensation earned as a Director to a date following termination of such service. The provision of such an opportunity is designed to aid the Company in attracting and retaining as members of its Board of Directors persons whose abilities, experience and judgment can contribute to the well being of the Company. 2. Effective Date. The original effective date of the Plan was January 1, 1983. The Plan was amended in its entirety, effective as of January 1, 1995 and again as of December 5, 1996. 3. Eligibility. Any Director of the Company who is not also an Employee of the Company or any related company shall participate in the Plan. 4. Deferred Compensation Account. A deferred compensation account shall be established for each Director. 5. Amount of Deferral. Each participant shall (effective January 1, 1997) be required to defer receipt of Twenty Thousand Dollars ($20,000.) of his/her annual fee for serving on the Board of Directors (the "Required Deferral"). In addition, a participant may elect to defer receipt of all or a specified part of any remaining compensation payable to the participant for serving on the Board of Directors or for serving on committees of the Board of Directors of the Company. An amount equal to all deferred compensation will be credited to the participant's deferred compensation account as of the 15th day of the month in which such compensation is payable (the "Payment Date"). 6. Deferred Compensation Account - Hypothetical Investment Options. (a) All Required Deferrals and, unless otherwise specified by the participant pursuant to the terms of paragraph (b) of this Section 6, all amounts elected to be deferred under this Plan for any calendar year shall be credited to the participant's deferred compensation account, converted into equivalent units of 2 Johnson & Johnson Common Stock ("Company Stock") and adjusted as if the compensation deferred had been invested in Company Stock as of the Payment Date, until the date of final payment pursuant to Section 9 hereof ("Company Stock Equivalent Units"). The number of Company Stock Equivalent Units shall be determined by dividing the amount of compensation payable by the average of the high and low price of the Company Stock on the Payment Date, as reported by the Wall Street Journal. The number of Company Stock Equivalent Units included in a participant's deferred compensation account shall be adjusted to reflect dividends and the value of such account shall be adjusted to reflect increases or decreases in market value which would have resulted had funds equal to the balance of the participant's deferred compensation account been invested in Company Stock. Nothing herein obligates the Company to purchase any such Company Stock; and if such Company Stock is purchased, it shall remain the sole property of the Company. (b) Except with respect to the Required Deferral amount, at the election of each participant, to be made as provided for in Section 7, each deferred compensation account will be credited with interest from the Payment Date, until the date of final payment pursuant to Section 9 hereof, at a rate equal to the annual rate of growth of investment in the Johnson & Johnson Certificate of Extra Compensation Plan (the "CEC Plan"), for the prior year provided, however, that the computation of said growth rate shall not include dividend equivalents paid under the CEC Plan. The election permitted under this Section 6(b) shall not be available to any participant who becomes a participant in the Plan after December 31, 1995. (c) With respect to Company Stock Equivalent Units in a deferred compensation account, the Company shall credit such account on each dividend payment date declared with respect to the Company's Stock, a number of Company Stock Equivalent Units equal to: (i) the product of (y) the dividend per share of the Company's Stock which is payable as of the dividend payment date, multiplied by (z) the number of Company Stock Equivalent Units credited to such account as of the applicable dividend record date, divided by (ii) the average of the high and low price of the Company Stock on the dividend payment date as reported by the Wall Street Journal. Fractional Company Stock Equivalent Units shall be carried forward and fractional dividend equivalent units shall be payable thereon. (d) All account balances in Company Stock Equivalent Units from the Company's Retirement Plan for Nonemployee Directors which have been transferred to his/her deferred compensation account under this Plan, as of January 1, 1995, by reason of the termination of such Retirement Plan, shall be treated for purposes of this Plan as Required Deferrals. 7. Time of Election of Deferral. Except as to Required Deferrals, which shall at all times be held in Company Stock Equivalent Units, a participant may change (i) the amount of compensation deferred and/or (ii) the option elected under Section 6 with respect to his/her account and deferrals for subsequent years, once annually in 3 December by completing forms provided by the Company for that purpose. Any such change shall become effective on January 1 of the following year. If a participant elects to change his/her investment option available under Section 6, the participant's account shall be valued as of December 31 with that value being entered into his/her account under the new investment option as of the following January 1 (except if such change is to Company Stock Equivalent Units, the first trading day following such January 1 shall be used). 8. Value of Deferred Compensation Account. The value of each participant's deferred compensation account shall, as the case may be, include compensation deferred, interest credited thereon, if any, and any adjustments for dividends, and increases or decreases in the market value of Company Stock, pursuant to the option selected under Section 6 or as otherwise required under the Plan. If the Company Stock does not trade on any date a calculation of Common Stock Equivalent Units is to be made under the Plan, the next preceding date on which such stock was traded shall be utilized. 9. Payment of Deferred Compensation. Upon a participant's completion of service as a member of the Board of Directors (the "Completion Date"), each participant (or in the event of the participant's death, the named beneficiary or his/her estate) shall be entitled to receive in cash in a lump sum the value of his/her deferred compensation account as of the Completion Date, unless such participant has elected, pursuant to the provisions of Section 10 below, to further defer payment of his/her deferred compensation account beyond such Completion Date. Company Stock Equivalent Units shall be valued at the average of the high and low price of the Company's Stock on such date as reported by the Wall Street Journal. No withdrawal may be made from the participant's deferred compensation account prior to the Completion Date. The value of a participant's deferred compensation account shall, subject to any further election made pursuant to Section 10 below, be paid as soon as practicable following the Completion Date or death. 10. Further Deferral Election. In addition to the deferral elections referred to above, a participant may also elect (in the manner provided for below) to continue to defer the receipt of his/her deferred compensation account beyond his/her Completion Date. The value of a participant's account on his/her Completion Date may be deferred for up to 10 taxable years following such Completion Date. If installments are elected, the first installment payment may be made immediately at the Completion Date or be deferred for up to 10 taxable years. Installment payments will be made annually (in the manner described below) in approximately equal amounts (i.e. the balance of the account). The minimum number of installments is two and the maximum number is 10 provided, however, that all payments shall be made within ten (10) years of the Completion Date. A participant may elect to defer up to 100% of the value of his/her account at the Completion Date; or any percentage increment less than that. All deferred or installment payments shall be made in cash. The following additional rules shall apply: 4 a) Immediate Lump Sum Payment. The participant will receive the full value of his/her account in the calendar month of his/her Completion Date. b) Deferred Lump Sum Payment. The participant will receive the full value of his/her account 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 Completion Date. All subsequent installments 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. e) In the event of death of a participant, the Company will make payment in full of the balance of an account, as soon as administratively practical in a single lump sum payment to the designated beneficiary or his/her estate. f) In making any payment due on or about January 15, the value of a participant's account on the first trading day of such month shall be utilized. Any and all deferrals following a Completion Date shall be invested in Company Stock Equivalent Units described in Section 6(a) above. To the extent a participant's account was credited with the annual growth rate of an investment in the CEC Plan (as described in Section 6(b) above), such account shall be converted to Common Stock Equivalent units as of the Completion Date. An election by a participant to defer payment or elect installments of all or a part of his/her deferred compensation account beyond the Completion Date must be made a minimum of twelve (12) months prior to such Completion Date. Any such election may be revised or revoked up to twelve (12) months prior to such Completion Date; after such time any election may not be revoked or otherwise revised. Notwithstanding the above and upon implementation of the Plan, an exception has been made for participants having a Completion Date during 1997. For such participants, the deferral and or installment election must be made a minimum of three (3) months and in the calendar year prior to the Completion Date. For example, a participant having a Completion Date of April 1, 1997, must make the deferral and/or installment election no later than December 31, 1996. 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 beyond a Completion Date is effective only when filed with Extra Compensation Services on the 5 form utilized for such purposes. Any election made after the required deadline shall be disregarded. 11. Designation of Beneficiary. Each participant may, from time to time, by writing filed with the Secretary of the Company, designate any legal or natural person or persons (who may be designated contingently or successively) to whom payments of a participant's deferred compensation account are to be made if a participant dies prior to the receipt of payment of such account. A beneficiary designation will be effective only if the signed form is filed with the Secretary of the Company while the participant is alive and will cancel all beneficiary designation forms filed earlier. If a participant fails to designate a beneficiary as provided above, or if all designated beneficiaries die before the participant or before complete payment of the deferred compensation account, such account shall be paid to the estate of the last to die of the participant and designated beneficiaries as soon as practicable after such death. 12. Participant's Rights Unsecured. The right of any participant to receive payment under the provisions of the Plan shall be an unsecured claim against the general assets of the Company, and no provisions contained in the Plan shall be construed to give any participant or beneficiary at any time a security interest in any deferred compensation account or any other asset in trust with the Company for the benefit of any participant or beneficiary. 13. Statement of Account. A statement will be sent to participants as soon as practical following the end of each year as to the value of his/her deferred compensation account as of December 31 of such year. 14. Assignability. No right to receive payments hereunder shall be transferable or assignable by a participant or a beneficiary, except by will or by the laws of descent and distribution. 15. Administration of the Plan. The Plan shall be administered by a Committee appointed by and responsible to the Board of Directors. The Committee shall consist of three officers of the Company. The Committee shall act by vote or written consent of a majority of its members. 16. Amendment or Termination of Plan. This Plan may at any time or from time to time be amended, modified or terminated by the Board of Directors of the Company. No amendment, modification or termination shall, without the consent of a participant, adversely affect such participant's accruals in his deferred compensation accounts. 17. Governing Law. This Agreement shall be governed by and construed in accordance with the Laws of the State of New Jersey. EX-10.I 7 EXECUTIVE INCOME DEFERRAL PLAN 1 Exhibit 10(i) JOHNSON & JOHNSON EXECUTIVE INCOME DEFERRAL PLAN The 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. This 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 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 compensation 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 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. participants may elect to defer up to (i) fifty percent (50%) of annual salary, (ii) fifty percent (50%) of cash payments under the Company's Executive Incentive Plan and (iii) one hundred percent (100%) of dividend equivalents paid under the Company's Certificate of Extra Compensation ("CEC") Plan. Amounts so deferred are known as "Deferred Awards" and will be credited to a participant's "Income Deferral Account". 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, incentive payment or dividend equivalent monies to be deferred will be earned. At the Plan's inception, amounts otherwise payable in 1997 (regardless of the year in which earned) may be deferred under this Plan by elections made on or before December 15, 1996. 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 this Plan. A participant may change the investment options for Deferred Awards not yet credited to his/her Income Deferred 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 received by Extra Compensation Services. 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 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 2 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 options set forth below. Amounts to be deferred in any month will be credited to a participant's Income Deferral Account on the last day of each month. (a) Common Stock Equivalent Units. All amounts elected to be deferred under this 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 to be deferred by the average of the high and low prices of the Common Stock as reported in the Wall Street Journal for the last trading day of each month. 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 be purchased or earmarked for such Account and the participant shall not have any of the rights of a shareholder with respect to shares credited to his/her Income Deferral Account. The number of Common Stock Equivalent Units included in a participant's Account shall be adjusted to reflect dividends and increases or decreases in market value which would have resulted had funds equal to such deferred amount been invested in Common Stock. 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 investments available under this Plan. Participants who wish to redesignate out of a particular investment vehicle may not at the same time redesignate into such investment vehicle. No redesignation of investment may take place during the 30 days prior to a scheduled distribution under this Plan. The following additional rules shall apply with respect to redesignations of 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 3 prices of the Common Stock as reported in the Wall Street Journal for the last trading day of the applicable month. (d) Special rules for Redesignation Into or Out of Common Stock Equivalent Units previously credited to an Income Deferred 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/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 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) A redesignation into or out of Common Stock Equivalent Units may not be made within 6 months of a discretionary "opposite way transaction" into or out of Common Stock held by the participant in the Company's Savings Plan. 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/her Income Deferral Account will be automatically paid in a lump sum as soon as administratively feasible in the month following his/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 high and low market prices of the Common Stock as reported in the Wall Street Journal on the last trading day of the month of his/her termination of employment. 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. 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/her Income Deferral Account in the calendar month of his/her retirement effective date. b) Deferred Lump Sum Payment - 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. 4 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 Employer from the effective date of retirement to the date of any such payment. The interest rate for all deferred and/or installment payments to a 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 Employer 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 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. DEDUCTIONS FROM DISTRIBUTIONS. The Company will deduct from each distribution amounts required to be withheld for income, Social Security and other tax purposes. The Company may also deduct any amounts the participant owes the Company for any reason. 5 9. 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. 10. 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 Award made theretofore. 11. 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 payout balance plus interest, as well as the deferred and/or 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.J 8 EXCESS SAVINGS PLAN 1 Exhibit 10(j) THE JOHNSON & JOHNSON EXCESS SAVINGS PLAN 2 Effective as of January 1, 1996 THE JOHNSON & JOHNSON EXCESS SAVINGS PLAN TABLE OF CONTENTS
ARTICLE PAGE - ------- ---- ARTICLE I PURPOSE 1 ARTICLE II DEFINITIONS 1 ARTICLE III ELIGIBILITY 2 ARTICLE IV AMOUNT AND METHOD OF PAYMENT OF BENEFITS 2 ARTICLE V GENERAL PROVISIONS 6 ARTICLE VI ADMINISTRATION OF THE PLAN 7 ARTICLE VII NON-DUPLICATION OF BENEFITS 8
3 THE JOHNSON & JOHNSON EXCESS SAVINGS PLAN ARTICLE I - PURPOSE 1.1 The purpose of the Plan, which is intended to constitute an unfunded deferred compensation plan, is to provide its Members benefits arising from the limitations of Section 401(a)(17) of the Internal Revenue Code of 1986, as amended, and the impact of such limitations on the Johnson & Johnson Savings Plan. 1.2 The Johnson & Johnson Excess Savings Plan (the Plan ) is effective January 1, 1996. ARTICLE II - DEFINITIONS When used herein, the following defined terms have the following meanings: 2.1 "Code" means the Internal Revenue Code of 1986, as amended from time to time. 2.2 "Compensation" means compensation as defined in the Savings Plan, without regard to the Code Section 401(a)(17) limit. 2.3 "Effective Date" means January 1, 1996. 2.4 "Employee" means any person who is employed by the Employer. 2.5 "Employer" means Johnson & Johnson and affiliated companies eligible to participate in the Savings Plan. 2.6 "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time. 2.7 "Long Term Disability" means a physical or mental condition that renders the Member incapacitated as defined under the Johnson & Johnson Long Term Disability Plan. 2.8 "Member" means a person who is designated to participate in the Plan in the manner described in Article III. 4 2.9 "Normal Retirement Date" means the first day of the month next following a Member's attainment of age 65. 2.10 "Pension Committee" means the Committee that has been designated by the Board of Directors of the Employer. 2.11 "Plan" means the Johnson & Johnson Excess Savings Plan as set forth herein and as may be amended and restated from time to time. 2.12 "Plan Year" means the 12 month period beginning on January first. 2.13 "Savings Plan" means the Johnson & Johnson Savings Plan as may be amended and restated from time to time. ARTICLE III - ELIGIBILITY 3.1 An Employee will automatically become a Member under the Plan if he is eligible to be a member of the Savings Plan under the terms of the Savings Plan, as it may be amended from time to time, and if his Compensation exceeds the Code Section 401(a)(17) limitation on compensation. 3.2 Any change in a Member's eligibility to participate under the Plan will not affect Plan benefits previously credited to the Member's bookkeeping account. 3.3 Any Employee who is ineligible or becomes ineligible to make contributions to the Savings Plan (whether or not he continues to maintain an account balance under the Savings Plan) is ineligible to participate in this Plan. ARTICLE IV - AMOUNT AND METHOD OF PAYMENT OF BENEFITS 4.1 Plan Benefit. If the employer contributions to a Member's account under the Savings Plan are or could be reduced or limited in any year because of the limitation imposed by Section 401(a)(17) of the Code, and assuming for these purposes that the Member participates in the Savings Plan and contributes the maximum amount eligible to be matched by the Employer, then a benefit will be paid under this Plan in favor of the Member. 4.2 Amount of Benefit. The amount of the benefit payable under this Plan for each Member or, if applicable, to the Member's designated beneficiary, assuming for these purposes that the Member participated in the Savings Plan and contributed the maximum amount eligible to be matched by the Employer, will be equal to the excess of (a) over (b) where: 5 (a) is equal to the maximum matching employer contribution that would otherwise be allocated to the Member's account under the Savings Plan if the provisions of the Savings Plan were administered without regard to the limitations imposed by Section 401(a)(17) of the Code, and (b) is the maximum matching employer contribution that would have been allocated to the Member's account under the Savings Plan after giving effect to any reduction of the employer contribution required by reason of the limitations imposed by Section 401(a)(17) of the Code. 4.3 No Employee Contribution Required or Permitted. A Member will be entitled to a benefit under this Plan without regard to whether the Employee made any employee contributions (including any salary reduction contributions) under the Savings Plan. No Member contribution is required or permitted under the Plan. 4.4 Bookkeeping Account. The benefits provided under Section 4.2 will be credited each month, or as soon as administratively practicable thereafter, to a bookkeeping account established for each eligible Member. 4.5 Earnings on Bookkeeping Account. Amounts credited to a Member's bookkeeping account will be deemed to be invested in and credited with the investment rate of return earned under the Savings Plan's Balanced Fund or any such successor fund. Earnings will be credited for periods following the crediting of benefits to a Member's bookkeeping account in a manner similar to how such earnings are credited under the Savings Plan. No Member is entitled to earnings on his bookkeeping account for service prior to the date of the Member's participation in the Plan. The Pension Committee reserves the right to designate a different rate of earnings for amounts credited or to be credited under this Plan, provided that any new rate shall not apply retroactively. 4.6 Election for Payment of Benefits. (a) Each Member may elect, at the time of his or her notification of eligibility to participate in the Plan or as soon as administratively practicable thereafter, one of the following distribution methods: (1) lump sum distribution of the entire bookkeeping account balance as soon as administratively practicable following the Member's termination of employment with the Employer; or (2) annual installments over a period of at least 2 tax years but no more than 15 tax years with the first installment to begin as soon as administratively 6 practicable following the Member's termination of employment with the Employer. (i) The amount of the first installment payment under distribution method (2) will be equal to the value of the Member's bookkeeping account determined in the month preceding the month in which the installment payment is made multiplied by a fraction, the numerator of which is one and the denominator of which is the number of remaining annual installments including the one being paid, so that at the end of the installment period, the entire bookkeeping account will have been distributed; provided, however, that adjustments to future installment payments will be made at least annually to the extent necessary to reflect earnings deemed allocable to the Member's bookkeeping account. Annual installments after the first installment will be determined in accordance with the procedures specified in the preceding sentence and will be made as soon as administratively practicable following the year-end valuation of the Member's bookkeeping account. During the installment period, the value of the Member's bookkeeping account will continue to be credited with earnings as set forth in Section 4.5. If a member makes a distribution election subsequent to the administratively practicable period in which he first receives his notification of eligibility to participate in the Plan, then such election shall be effective only if it is made at least 12 months prior to his termination of employment with the Employer. (b) Each Member may also elect, either at the time of his initial participation in the Plan or at the time no later than 12 months prior to his termination of employment with the Employer, to defer the payment of benefits under this Plan for up to 10 tax years after the Member's termination of employment with the Employer. In the case of any Member who elects a deferred payment, a lump sum distribution of his benefit or the first installment of his benefit (as the member may elect) will be made as soon as administratively practicable in the year selected for the deferred payment based upon the previous year-end's valuation of the Member's bookkeeping account. Future installment 7 payments for the Member shall be made as soon as administratively practicable in accordance with the installment procedures specified above. During the deferral period, the value of the Member's bookkeeping account will continue to be credited with earnings as set forth in Section 4.5. (c) If a Member terminates employment with the Employer prior to attaining age 55, the Member's entire bookkeeping account will be distributed in a lump sum as soon as administratively practicable following the Member's termination of employment, notwithstanding a Member's election under subsections (a)(2) or (b) of this Section 4.6 to the contrary. 4.7 Revocation of Election for Payment of Benefits. Each Member may revoke and change the method of his distribution election made in accordance with Section 4.6, as long as the revocation and distribution election is made no later than 12 months prior to his termination of employment with the Employer. The last distribution election received by the Pension Committee no later than 12 months prior to the Member's termination of employment with the Employer will control. 4.8 Payment Where No Election is Made. If no election is made for the distribution of benefits under this Plan, payment will be made in a lump sum as soon as administratively practicable following the Member's termination of employment with the Employer. 4.9 Payment to Beneficiary. Notwithstanding any provision in this Article, including any election made by the Member in accordance with Section 4.6 to the contrary, if the Member dies prior to or following the commencement of payments to him under the Plan, his entire remaining bookkeeping account balance will be paid to the person designated as his beneficiary (or the person otherwise provided under Section 5.7) as soon as administratively practicable following the Member's death. 4.10 Limitation on Withdrawal. The commencement of Long Term Disability will not be an event that will entitle a Member to any distributions under the Plan. 4.11 Not "Compensation" For Other Purposes. Any benefits payable under this Plan will not be considered Compensation to the Member for purposes of the Savings Plan or any other qualified retirement plan maintained by the Employer. 4.12 Vesting of Account. The benefits provided under this Plan will vest in the same manner and at the same time as employer contributions made under the Savings Plan. 8 ARTICLE V - GENERAL PROVISIONS 5.1 Authorization. The adoption of this Plan has been duly authorized by the Pension Committee of Johnson & Johnson. 5.2 No Right to Continued Employment. This Plan is not an employment contract and neither the Plan nor any action taken hereunder will be construed as giving to a Member the right to be retained in the employ of the Employer. The Employer may terminate the Member's employment as freely and with the same effect as if this Plan were not in existence. 5.3 Binding Nature. This Plan will bind and inure to the benefit of the Employer and its successors and assigns, the Member and his beneficiary. No provision of this Plan precludes the Employer from consolidating or merging into or with, or transferring all or substantially all of its assets to another corporation that assumes this Plan and all obligations of the Employer. In the event of a consolidation, merger or transfer of assets, the term "Employer" will refer to the corporation that assumes the Plan, and this Plan will continue in full force and effect. 5.4 Non-Funded Nature. The Employer's obligations under this Plan will not be funded. Notwithstanding the establishment of a bookkeeping account by the Employer under Section 4.4 of this Plan, all payments hereunder will be made out of general assets of the Employer and no special or separate fund will be established or other segregation of assets made to assure its payments. 5.5 Non-Assignability. Benefits payable to Members and their beneficiaries may not be anticipated, assigned (either at law or in equity), alienated, pledged, encumbered or subjected to attachment, garnishment, levy, execution or other legal or equitable process. 5.6 Withholding Taxes. The Employer may withhold from any amounts deemed credited or benefits payable under this Plan all Federal, State, City or other taxes as required pursuant to any law or governmental regulation or ruling. 5.7 Beneficiary Designation. For purposes of the designation of a beneficiary under this Plan, the beneficiary will be the Member's designated beneficiary under the Savings Plan. If no designation is made or if no designated beneficiary survives the Member, the payment will be made in accordance with the procedures set forth in the Savings Plan. 9 5.8 Disputes Concerning Beneficiaries. If the Pension Committee is in doubt as to the right of any person to receive a benefit payable under this Plan, the Pension Committee may, among other alternatives, pay the disputed amount to any court of competent jurisdiction. The payment of the disputed amount to a court of competent jurisdiction shall be a complete discharge of the liability of the Employer therefor. 5.9 Amendment and Termination. This Plan may be amended, suspended or terminated, in whole or in part, subject to applicable law, by action of the Pension Committee at any time without the consent of any Employee, Member, or beneficiary. No amendment to the Plan shall reduce any benefits that any Member has been deemed to accrue under Article IV of this Plan on the date of the amendment. Upon the termination of this Plan, any benefits that have been deemed to accrue will be payable only in accordance with the time and manner of payment as provided under Article IV. ARTICLE VI - ADMINISTRATION OF THE PLAN 6.1 General Administration. (a) The operation and administration of the Plan will be controlled and managed by the Employer, acting through the Pension Committee. (b) The Pension Committee shall, from time to time, establish guidelines with respect to the administration, claims review and appeal procedures under this Plan. The Pension Committee has the sole discretion to make decisions and take any action with respect to questions arising in connection with the Plan, including the construction and interpretation of the Plan. (c) The Pension Committee shall, not less frequently than annually, provide Members with a statement reporting the Member's current bookkeeping account balance. (d) The Pension Committee shall exercise its duties hereunder, and it may designate any other person or persons to carry out its functions and responsibilities. (e) All decisions, actions or interpretations of the Pension Committee will be final, conclusive and binding on all parties. 6.2 Governing Law. The text of this Plan will control and the headings to the Articles and Sections are for reference purposes only and do not limit or extend the 10 meaning of any of the Plan's provisions. The Plan will be governed by and construed in accordance with the laws of the State of New Jersey, except to the extent New Jersey law is preempted by federal law. In the event any applicable federal law is inconsistent with New Jersey State law, but such federal law does not preempt New Jersey State law, then New Jersey State law will control. 6.3 Records. The records of the Employer will be conclusive in respect of the determination of a Member's eligibility, the calculation of benefits, and all other matters involved in the administration of this Plan. 6.4 Gender. Any reference to the masculine gender shall include the feminine. ARTICLE VII - NON-DUPLICATION OF BENEFITS 7.1 If a Member participates in another non-qualified plan, which is sponsored by the Employer, any affiliated employer or other corporations that are members of a controlled group of corporations of which the Employer is a member, within the meaning of Section 1563(a) of the Code, benefits payable under the other non-qualified plan, to the extent attributable to the Section 401(a)(17) limits affecting the Savings Plan, which are the subject of this Plan, will be reduced by the benefits otherwise payable under this Plan. The decision of the Pension Committee as to duplication of benefits otherwise payable under this Plan will be final. For this purpose, if the other plans have as their purpose the intent to recompense its eligible participants for amounts affected by the Code Section 401(a)(17) limits, it will be deemed a non-qualified plan regardless of the terminology employed. EX-11 9 CALCULATION OF EARNINGS PER SHARE 1 EXHIBIT 11 JOHNSON & JOHNSON AND SUBSIDIARIES CALCULATION OF EARNINGS PER SHARE(A) (DOLLARS AND SHARES IN MILLIONS EXCEPT PER SHARE FIGURES)
FISCAL YEAR ENDED ------------------------------------------------------------------ DECEMBER 29, DECEMBER 31, JANUARY 1, JANUARY 2, JANUARY 3, 1996 1995 1995 1994 1993 ------------ ------------ ---------- ---------- ---------- 1. Net Earnings........................... $ 2,887 2,403 2,006 1,787 1,030 -------- ------- ------- ------- ------- 2. Average number of shares outstanding during the year........................ 1,332.6 1,291.9 1,286.1 1,303.5 1,318.9 -------- ------- ------- ------- ------- 3. Earnings per share based upon average outstanding shares (1 / 2)............. $ 2.17 1.86 1.56 1.37 .78 ======== ======= ======= ======= ======= 4. Fully diluted earnings per share: a. Average number of shares outstanding during the year....... 1,332.6 1,291.9 1,286.1 1,303.5 1,318.9 b. Shares issuable under stock compensation agreements at year-end.......................... -- -- .2 .6 1.4 c. Shares reserved under the stock option plans for which the market price at fiscal year-end exceeds the option price.................. 71.9 62.8 71.8 58.0 53.8 d. Aggregate proceeds to the Company from the exercise of options in 4c................................ 2,198 1,551 1,499 998 894 e. Market price of the Company's common stock at fiscal year-end... 50.50 42.75 27.38 22.38 25.25 f. Shares which could be repurchased under the treasury stock method (4d / 4e)......................... 43.5 36.3 54.7 44.6 35.4 g. Addition to average outstanding shares (4b + 4c - 4f)............. 28.4 26.5 17.3 14.0 19.8 h. Shares for fully diluted earnings per share calculation (4a + 4g)... 1,361.0 1,318.4 1,303.4 1,317.5 1,338.7 ======== ======= ======= ======= ======= i. Fully diluted earnings per share (1 / 4h).......................... $ 2.12 1.82 1.54 1.36 .77 ======== ======= ======= ======= =======
- --------------- (A) All share and per share amounts have been adjusted for the two-for-one stock split in 1996. 15 EX-12 10 STATEMENT OF COMPUTATION OF RATIO OF EARNINGS 1 EXHIBIT 12 JOHNSON & JOHNSON AND SUBSIDIARIES STATEMENT OF COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES(1) (DOLLARS IN MILLIONS)
FISCAL YEAR ENDED -------------------------------------------------------------------------- DECEMBER 29, DECEMBER 31, JANUARY 1, JANUARY 2, JANUARY 3, 1996 1995 1995 1994 1993 ------------ ------------ ---------- ---------- ---------- Determination of Earnings: Earnings Before Provision for Taxes on Income and Cumulative Effect of Accounting Changes........... $4,033 3,317 2,681 2,332 2,207 Fixed Charges................... 204 219 234 211 210 ------ ----- ----- ----- ----- Total Earnings as Defined............... $4,237 3,536 2,915 2,543 2,417 ====== ===== ===== ===== ===== Fixed Charges and Other: Rents........................... $ 79 76 92 85 86 Interests....................... 125 143 142 126 124 ------ ----- ----- ----- ----- Fixed Charges........... 204 219 234 211 210 Capitalized Interest............ 55 70 44 48 53 ------ ----- ----- ----- ----- Total Fixed Charges..... $ 259 289 278 259 263 ====== ===== ===== ===== ===== Ratio of Earnings to Fixed Charges......................... 16.36 12.24 10.49 9.82 9.19 ====== ===== ===== ===== =====
- --------------- (1) The ratio of earnings to fixed charges represents the historical ratio of the Company and is calculated on a total enterprise basis. The ratio is computed by dividing the sum of earnings before provision for taxes and fixed charges (excluding capitalized interest) by fixed charges. Fixed charges represent interest (including capitalized interest) and amortization of debt discount and expense and the interest factor of all rentals, consisting of an appropriate interest factor on operating leases. 16 EX-13 11 ANNUAL REPORT 1 - --------------------------------------------------------------------------- MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION - --------------------------------------------------------------------------- OVERVIEW Record sales of $21.62 billion reinforced the Company's position as the largest and most comprehensive health care company in the world. Worldwide sales increased for the sixty-fourth consecutive year, growing $2.78 billion or 14.7% over 1995, primarily due to volume, with a total price increase of only .1%. The Company's volume sales growth was fueled by the solid performance of products introduced in the past few years and the continued expansion of base businesses. Growth through new products is being driven by the Company's commitment to investing in research and development. During 1996, $1.91 billion was invested in research and development, the highest level in the Company's history, emphasizing its commitment to achieving significant advances in health care through the discovery and development of innovative, cost effective products that prolong and enhance the quality of life. In addition to the research and development effort, strategic acquisitions have also enabled the Company to achieve gains in sales. The current year sales growth also includes the full-year impact of the merger of Cordis Corporation in early 1996. During 1996, the Company continued initiatives to streamline its businesses worldwide and to make the organization more cost effective. The Company views the reengineering effort as a continuous process, and one that is essential to compete effectively while constraining price increases and providing resources for investing in advertising, marketing, and research and development. These initiatives, implemented during the last few years, have increased productivity and are showing positive results. For 1996, the gross profit margin improved from 66.9% to 67.5%, while selling, marketing and administrative expenses as a percent of sales decreased from 39.6% to 38.8%. Over the past two years, the improvement in gross margins and reduced operating expenses has resulted in cost savings of nearly $600 million on an annual basis. The continued growth in sales and increased profitability during 1996 resulted in a 16.7% increase in earnings per share to $2.17. Earnings in 1996 generated $3.89 billion in cash from operations. When combined with $3.38 billion of cash generated from operations in 1995, the $7.27 billion in cash from operations financed capital investments and acquisitions during the past two years, and reduced net debt (debt net of cash and current marketable securities) by 93.9% since 1994 to $146 million. In the U.S. and in countries around the world, health care systems continue to be transformed. The Company believes that it is well positioned to take advantage of these changes due to its diversification in health care, global reach, development of cost effective unique new products, decentralized management, dedicated employees and strong Credo values. SALES AND EARNINGS In 1996, worldwide sales increased 14.7% to $21.62 billion compared to increases of 19.8% and 11.3% in 1995 and 1994, respectively. Excluding the impact of the relatively stronger dollar in 1996, and the relatively weaker dollar in 1995 and 1994, as compared to international currencies, worldwide sales increased 16.5%, 16.7% and 10.7% in 1996, 1995 and 1994, respectively. SALES TO CUSTOMERS - -------------------------------------------------------------------------------- Millions of Dollars
DOMESTIC INTERNATIONAL WORLDWIDE YEAR SALES SALES SALES - ---- -------- ------------- --------- 1987 $ 4,167 $ 3,845 $ 8,012 1988 4,576 4,424 9,000 1989 4,881 4,876 9,757 1990 5,427 5,805 11,232 1991 6,248 6,199 12,447 1992 6,903 6,850 13,753 1993 7,203 6,935 14,138 1994 7,812 7,922 15,734 1995 9,190 9,652 18,842 1996 10,899 10,721 21,620
- -------------------------------------------------------------------------------- Worldwide net earnings for 1996 were $2.89 billion, reflecting a 20.1% increase over 1995. Worldwide net earnings per share for 1996 equaled $2.17 per share, compared with $1.86 per share for 1995, adjusted to reflect the 1996 two-for-one stock split, an increase of 16.7%. The income margin for 1996 was 13.4%, the highest in the Company's history, despite an increase in the effective tax rate of nearly a full percentage point. Worldwide net earnings for 1995 were $2.4 billion, or $1.86 per share on a split-adjusted basis, representing increases over 1994 of 19.8% and 19.2%, respectively. In 1994, worldwide net earnings of $2.01 billion, or $1.56 per share on a split-adjusted basis, increased over 1993 by 12.3% and 13.9%, respectively. Average shares of common stock outstanding in 1996 were 1.33 billion compared with 1.29 billion in both 1995 and 1994 on a split-adjusted basis. NET EARNINGS - -------------------------------------------------------------------------------- Millions of Dollars
NET YEAR EARNINGS - ---- -------- 1987 $ 833 1988 974 1989 1,082 1990 1,143 1991 1,461 1992 1,030 1993 1,787 1994 2,006 1995 2,403 1996 2,887
- -------------------------------------------------------------------------------- Sales by domestic companies were $10.9, $9.19 and $7.81 billion in 1996, 1995 and 1994, representing increases of 18.6%, 17.6% and 8.5%, respectively. The increase in domestic sales in 1996 was driven by the strong performance of products introduced in the past few years and the continued expansion of base businesses. Sales by international companies were $10.72, $9.65 and $7.92 billion in 1996, 1995 and 1994, representing increases of 11.1%, 21.8% and 14.2%, respectively. All geographic areas 23 2 throughout the world posted strong gains during 1996. Sales in Europe increased 10.4%, while revenues in the Asia-Pacific, Africa region and the Western Hemisphere (excluding the U.S.) increased 13.1% and 10.6%, respectively. Excluding the impact of the relatively stronger dollar in 1996, and the relatively weaker dollar in 1995 and 1994, compared to international currencies, international company sales increased 14.6%, 15.6% and 13% in 1996, 1995 and 1994, respectively. The Company achieved an annual compound growth rate of 11.9% for worldwide sales for the ten-year period since 1986 with domestic and international sales growing at rates of 10.6% and 13.5%, respectively. For the same ten-year period, excluding non-recurring charges in 1986, worldwide net earnings achieved an annual growth rate of 15.1%, while earnings per share grew at a rate of 15.8%. For the last five years, annual compound growth rates for sales, net earnings and earnings per share were 11.7%, 14.6% and 14.6%, respectively. 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 1996 was 138,500. The composite market price ranges for Johnson & Johnson common stock during 1996 and 1995, adjusted to reflect the 1996 two-for-one stock split, were:
1996 1995 ----------------------- ------------------- HIGH LOW High Low - -------------------------------------------------------------------------------- First quarter $50 1/4 41 5/8 31 1/2 26 3/4 Second quarter 50 3/4 42 7/8 35 5/8 29 1/4 Third quarter 53 3/8 44 1/8 37 1/2 32 1/4 Fourth quarter 54 47 1/8 46 1/4 36 5/8 Year-end close 50 1/2 42 3/4
CASH DIVIDENDS PAID The Company increased its dividend in 1996 for the thirty-fourth consecutive year. Cash dividends paid were $.735 per share in 1996 compared with a split-adjusted dividend of $.64 per share in 1995 and $.565 in 1994, an increase of 14.8% and 13.3% over 1995 and 1994, respectively. The dividends were distributed as follows:
1996 1995 1994 - ----------------------------------------------------------------------------- First quarter $.165 .145 .13 Second quarter .19 .165 .145 Third quarter .19 .165 .145 Fourth quarter .19 .165 .145 ---------------------------------------- Total $.735 .64 .565 ========================================
On January 2, 1997, the Board of Directors declared a regular cash dividend of $.19 per share, paid on March 11, 1997 to shareowners of record on February 18, 1997. The Company expects to continue the practice of paying regular cash dividends. NET EARNINGS PER SHARE AND CASH DIVIDENDS PAID PER SHARE - -------------------------------------------------------------------------------- Dollars Per Share
NET EARNINGS CASH DIVIDENDS YEAR PER SHARE PAID PER SHARE - ---- ------------ -------------- 1987 .60 .20 1988 .71 .24 1989 .81 .28 1990 .86 .33 1991 1.10 .385 1992 .78 .445 1993 1.37 .505 1994 1.56 .565 1995 1.86 .64 1996 2.17 .735
- -------------------------------------------------------------------------------- COSTS AND EXPENSES The percentage relationships of costs and expenses to sales for 1996, 1995 and 1994 were:
1996 1995 1994 - -------------------------------------------------------------------------------- Employment costs 24.4% 25.0% 27.2% Cost of materials and services 51.8 52.3 50.6 Depreciation and amortization of property and intangibles 4.6 4.5 4.6 Taxes other than payroll 5.8 5.4 4.9
DISTRIBUTION OF SALES REVENUES - 1996 - -------------------------------------------------------------------------------- Employment Costs............................................ 24.4 Cost of Materials and Services.............................. 51.8 Depreciation and Amortization of Property and intangibles... 4.6 Taxes Other Then Payroll.................................... 5.8 Cash Dividend Paid.......................................... 4.5 Earnings Reinvested......................................... 8.9
- -------------------------------------------------------------------------------- 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 were as follows:
(Millions of Dollars) 1996 1995 1994 - ------------------------------------------------------------------------------- Research expense $ 1,905 1,634 1,278 Percent increase over prior year 16.6% 27.9% 8.1% Percent of sales 8.8 8.7 8.1
Research expense as a percent of sales for the Pharmaceutical segment was 15.2%, 15.3% and 14.9% in 1996, 1995 and 1994, respectively, while averaging 5.6%, 5.4% and 4.8% in the other two segments. 24 3 RESEARCH EXPENSE - -------------------------------------------------------------------------------- Millions of Dollars
RESEARCH YEAR EXPENSE ------ -------- 1987 617 1988 674 1989 719 1990 834 1991 980 1992 1,127 1993 1,182 1994 1,278 1995 1,634 1996 1,905
- -------------------------------------------------------------------------------- Advertising expenses worldwide, which are comprised of television, radio and print media, were $1.26 billion in 1996, $1.03 billion in 1995 and $800 million in 1994. 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 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. Statement of Position No. 96-1, "Environmental Remediation Liabilities," requires that environmental remediation liabilities be accrued when the criteria of Financial Accounting Standards Board Statement of Financial Accounting Standards No. 5, "Accounting for Contingencies," are met. The new standard, which will be adopted in 1997, is not expected to have a material effect on the Company's results of operations, cash flows or financial position. 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 28.4% in 1996, 27.6% in 1995 and 25.2% in 1994. The increase in the 1996 worldwide effective tax rate was primarily due to the increase in income subject to tax in the United States. See page 34 for additional information. A summary of operations and related statistical data for the years 1986-1996 can be found on page 42. 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 $2.14 billion at the end of 1996 as compared with $1.36 billion at the end of 1995. Total unused credit available to the Company approximates $3.3 billion, including $1.2 billion of credit commitments with various worldwide banks, $800 million of which expires on October 3, 1997 and $400 million on October 6, 2001. During 1996, the Company issued $119 million equivalent of 5% Euro-Deutsche Mark Notes due 2001. The proceeds were used for general corporate purposes. The Company also redeemed its $200 million 8% Notes due 1998 and Italian Lire 150 billion (U.S. $ equivalent of $95.4 million) 8.82% Notes due 2003 at par according to the call provisions of each debt issue. At December 29, 1996, the Company had $2.29 billion remaining on its shelf registration, which was filed for $2.59 billion in October, 1994. A summary of borrowings can be found on page 33. Total borrowings at the end of 1996 and 1995 were $2.28 billion and $2.43 billion, respectively. In 1996 and 1995, net debt (debt net of cash and current marketable securities) was 1.3% and 10.5% of net capital (shareowners' equity and net debt), respectively. Total debt represented 17.4% and 21.2% of total capital (shareowners' equity and total debt) in 1996 and 1995, respectively. Shareowners' equity per share at the end of 1996 was $8.13 compared with the stock split-adjusted $6.98 at year-end 1995, an increase of 16.5%. Financial instruments are used to manage interest rate and foreign exchange risks. The Company does not enter into derivative financial instruments for trading or speculative purposes. The principal financial instruments used are forward exchange contracts, and currency and interest rate swaps. Management believes that the risk of incurring losses related to these instruments is remote and that such losses, if any, would be immaterial. See page 37 for additional information. Additions to property, plant and equipment amounting to $1,373, $1,256 and $937 million in 1996, 1995 and 1994, respectively, were made primarily to increase the capacity of facilities for existing and new products. The Company intends to continue this level of investment to support the business operations. No material commitments for capital expenditures were outstanding at the end of 1996. Statement of Financial Accounting Standard No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset in question may not be recoverable. The new standard, which was adopted in 1996, did not have a material effect on the Company's results of operations, cash flows or financial position. During 1996, 1995 and 1994, certain businesses were acquired for $233, $456 and $1,932 million, respectively. In 1995, the acquisition cost consisted of $154 million in cash and 9.3 million shares, on a split-adjusted basis, of the Company's common stock issued from treasury valued at $302 million. See page 38 for additional information. The Company annually repurchases a sufficient amount of its common stock in the open market to replace shares issued under various employee stock plans. During 1996, the Company repurchased 8.7 million shares of its common stock at a total cost of $412 million for use in the Company's employee benefit plans; 1995 and 1994 repurchases for this purpose totaled 9.2 million and 7.7 million 25 4 shares, on a split-adjusted basis, at a cost of $322 million and $185 million, respectively. Statement of Financial Accounting Standard No. 123, "Accounting for Stock-Based Compensation," requires companies to measure employee stock compensation plans based on the fair value method of accounting. However, the Statement allows the alternative of continued use of Accounting Principles 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 based method had been applied in measuring compensation cost. The Company adopted the new standard in 1996 and elected the continued use of APB Opinion No. 25. Pro forma disclosure has not been provided, as the effect on 1996 net earnings was immaterial. 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 1980-1995, in the United States, the weighted average compound growth rate of Johnson & Johnson's 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. This was true again in 1996. Inflation rates, even though moderate in many parts of the world during 1996, 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. SEGMENTS OF BUSINESS Financial information for the Company's three worldwide business segments is summarized below. Refer to page 41 for additional information on segments of business. SALES BY SEGMENT OF BUSINESS - -------------------------------------------------------------------------------- Millions of Dollars
YEAR CONSUMER PHARM PROFESS TOTAL - ---- -------- ------ ------- --------- 1994 33.4% 32.8% 33.8% $ 15,734 1995 30.9 33.3 35.8 18,842 1996 29.4 33.3 37.3 21,620
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SALES Increase -------------------- (Millions of Dollars) 1996 1995 Amount Percent - -------------------------------------------------------------------------------- Consumer $ 6,364 5,831 533 9.1% Pharmaceutical 7,188 6,274 914 14.6 Professional 8,068 6,737 1,331 19.8 ------------------------------------ Worldwide total $21,620 18,842 2,778 14.7% ====================================
OPERATING PROFIT BY SEGMENT OF BUSINESS - -------------------------------------------------------------------------------- Millions of Dollars
YEAR CONSUMER PHARM PROFESS TOTAL - ---- -------- ----- ------- ------- 1994 15.0% 56.3% 28.5% $ 2,955 1995 8.3 58.0 33.7 3,376 1996 8.5 58.2 33.3 4,254
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OPERATING PROFIT Percent of Sales -------------------- (Millions of Dollars) 1996 1995 1996 1995 - -------------------------------------------------------------------------------- Consumer $ 361 298 5.7% 5.1% Pharmaceutical 2,477 2,073 34.5 33.0 Professional 1,416 1,203 17.6 17.9 ----------------------- Segments total 4,254 3,574 19.7 19.0 Expenses not allocated to segments (221) (257) (1.0) (1.4) Earnings before taxes ---------------------- on income $ 4,033 3,317 18.7% 17.6% ======================
CONSUMER The Consumer segment's principal products are personal care and hygienic products, including oral and baby care products, first aid products, nonprescription drugs, sanitary protection products and adult skin and hair care products. Major brands include ACT Fluoride Rinse; BAND-AID Brand Adhesive Bandages; CAREFREE Panty Shields; JOHNSON'S CLEAN & CLEAR skin care products; IMODIUM A-D, an antidiarrheal; JOHNSON'S Baby line of products; MONISTAT, a remedy for vaginal yeast infections; MYLANTA gastrointestinal products and PEPCID AC Acid Controller from the Johnson & Johnson o Merck Consumer Pharmaceuticals Co.; NEUTROGENA skin and hair care products; NICOTROL smoking cessation products; o.b. Tampons; PEDIACARE children's cold and allergy medications; 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 and SURE & NATURAL 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 1996 were $6.36 billion, an increase of 9.1% over 1995. Sales by domestic companies accounted for 49.7% of the total segment, while international companies accounted for 50.3%. The sales growth was led by the strong performance of the OTC pharmaceutical business. PEPCID AC, a product of the Johnson & Johnson o Merck Consumer Pharmaceuticals Co., and TYLENOL, despite heavy competition, remain the dominant brands in their respective categories. A strong performance by the adult skin and hair care franchise, which includes the Neutrogena and RoC businesses, also contributed to the growth in sales. Consumer segment sales in 1995 were $5.83 billion, an increase of 11% over 1994. Sales by domestic companies accounted 26 5 for 49% of the total segment, while international companies accounted for 51%. Growth was led by the addition of the Neutrogena line of high quality skin and hair care products, which was acquired in the third quarter of 1994; the U.S. launch of PEPCID AC Acid Controller, by Johnson & Johnson - Merck Consumer Pharmaceuticals Co., and continued growth in international markets, most notably Brazil. In addition to PEPCID AC, Children's MOTRIN, a nonprescription children's fever and pain reliever that lasts up to eight hours, was introduced as an over-the-counter product. Consumer segment sales in 1994 were $5.25 billion, an increase of 8.9% over 1993. Sales by domestic companies accounted for 51.3% of the total segment, while international companies accounted for 48.7%. The worldwide Consumer segment sales increase included the acquisitions of RoC S.A. in late 1993 and Neutrogena at the end of the third quarter of 1994. Additionally, new products such as TYLENOL Extended Relief, MYLANTA Soothing Lozenges and JOHNSON'S HEALTHFLOW Infant Feeding System were introduced during the year. Acquisitions and divestitures during 1996 and 1995 are described in more detail on page 38. PHARMACEUTICAL The Pharmaceutical segment represents over 50% of operating profit for all segments. The Pharmaceutical segment's principal worldwide franchises are in the allergy, antibacterial, antifungal, biotech, central nervous system, contraceptive, dermatology, gastrointestinal and immunobiology fields. These products are distributed both directly and through wholesalers for use by health care professionals and the general public. Prescription drugs include DURAGESIC, a transdermal patch for chronic pain; EPREX (sold in the U.S. as PROCRIT), a biotechnology derived version of the human hormone erythropoietin, which stimulates red blood cell production; ERGAMISOL, a colon cancer drug; FLOXIN, an antibacterial; HISMANAL, the once-a-day less sedating antihistamine; IMODIUM, an antidiarrheal; LEUSTATIN, for hairy cell leukemia; MOTILIUM, a gastrointestinal mobilizer; NIZORAL, SPORANOX and TERAZOL, antifungals; ORTHOCLONE OKT-3, for reversing the rejection of kidney, heart and liver transplants; ORTHO-NOVUM group of oral contraceptives; PREPULSID (sold in the U.S. as PROPULSID), a gastrointestinal prokinetic; RETIN-A, a dermatological cream for acne; RISPERDAL, an antipsychotic drug; and ULTRAM, a new centrally acting prescription analgesic for moderate to moderately severe pain. Johnson & Johnson markets more than 90 prescription drugs around the world, with 54% of the sales generated outside the United States. Twenty-six drugs sold by the Company had 1996 sales in excess of $50 million, with 19 of them in excess of $100 million. Pharmaceutical segment sales in 1996 were $7.19 billion, an increase of 14.6% over 1995. Domestic sales advanced 24.4%, while international sales advanced 7.2%. The worldwide growth was a result of the outstanding performances of PROCRIT, RISPERDAL, SPORANOX, PROPULSID, ULTRAM, and DURAGESIC. At year-end 1996, the Company received several FDA approvals for new chemical entities as well as new indications for existing compounds. The new chemical entities approved were LEVAQUIN, the first once-a-day anti-infective which is proven effective against community-acquired pneumonia, acute maxillary sinusitis and acute exacerbation of chronic bronchitis; and TOPAMAX, a new antiepileptic drug proven to reduce the frequency of seizures. Pharmaceutical segment sales in 1995 were $6.27 billion, an increase of 21.6% over 1994. Domestic sales advanced 25.9%, while international sales rose 18.6%. The worldwide sales growth reflects the outstanding performances of RISPERDAL, PROPULSID, SPORANOX, DURAGESIC and PROCRIT. Additionally, ULTRAM, launched in late March, was also an important contributor to sales growth. Pharmaceutical segment sales in 1994 were $5.16 billion, an increase of 14.9% over 1993. Domestic sales advanced 20.7%, while international sales rose 11%. The worldwide sales increase was attributed to the outstanding growth of RISPERDAL and the continued strong growth of PROPULSID. The sales increase was also led by the strong growth of EPREX, PROCRIT, SPORANOX, DURAGESIC and FLOXIN. Significant research activities continued in the Pharmaceutical segment, increasing to $1,096 million in 1996, or $135 million over 1995. This represents 15.2% of 1996 Pharmaceutical sales and a compound growth rate of 15.3% for the ten-year period since 1986. 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 a collaboration with the James Black Foundation in London, England. PROFESSIONAL The Professional segment includes suture and mechanical wound closure products, minimally invasive surgical instruments, diagnostic products, medical equipment and devices, disposable contact lenses, surgical instruments, joint replacements and products for wound management and infection prevention. These products are used principally in the professional fields by physicians, dentists, nurses, therapists, hospitals, diagnostic laboratories and clinics. Distribution to these markets is done both directly and through surgical supply and other dealers. In 1996, Professional segment sales increased 19.8% over 1995, to $8.07 billion. The sales growth includes the full year impact of the merger with Cordis Corporation in early 1996, and the continued growth of the interventional cardiology business. Strong growth in the Asia-Pacific region also contributed to the increase in the Professional segment, as did excellent performances by LifeScan's blood glucose monitors, Vistakon's disposable contact lenses, Ethicon Endo-Surgery's minimally invasive surgical instruments and Johnson & Johnson Professional's orthopaedic business. Of the 1996 Professional segment sales, domestic and international companies accounted for 54.3% and 45.7% of the total, respectively. In 1995, Professional segment sales increased 26.5% over 1994, to $6.74 billion. Strong sales growth was fueled by the rapid market acceptance of the PALMAZ-SCHATZ Coronary Stent due to its efficacy in reducing restenosis, the recurring blockage of coronary arteries following balloon angioplasty. LifeScan's blood 27 6 glucose monitoring systems, Vistakon's disposable contact lenses, Ethicon Endo-Surgery's minimally invasive surgical instruments and Ethicon sutures continued to deliver solid growth. Johnson & Johnson Clinical Diagnostics, the diagnostic business acquired from Eastman Kodak in November 1994, also contributed to significant sales growth in the Professional segment. Of the 1995 Professional segment sales, domestic and international companies accounted for 54% and 46% of the total, respectively. In 1994, Professional segment sales increased 10.4% over 1993, to $5.33 billion. Domestic sales posted a 6.4% increase, while international sales rose 15.8%. The worldwide Professional segment sales increase was attributed to the continued growth of ACUVUE disposable contact lenses; ONE TOUCH II blood glucose monitoring systems; the PALMAZ-SCHATZ Stent and various Ethicon Endo-Surgery devices for less invasive surgery. Base businesses, such as Ethicon sutures, also contributed significantly to the increase. Sales by domestic companies accounted for 55.9% of the total segment, while international companies accounted for 44.1%. Acquisitions and divestitures during 1996 and 1995 are described in more detail on page 38. GEOGRAPHIC AREAS The Company further categorizes its sales and operating profit by major geographic area as presented for the years 1996 and 1995:
SALES Increase ------------------- (Millions of Dollars) 1996 1995 Amount Percent - -------------------------------------------------------------------------------- United States $10,899 9,190 1,709 18.6% Europe 6,151 5,573 578 10.4 Western Hemisphere excluding U.S. 1,914 1,731 183 10.6 Asia-Pacific, Africa 2,656 2,348 308 13.1 -------------------- Worldwide total $21,620 18,842 2,778 14.7% ====================
OPERATING PROFIT Percent of Sales -------------------- (Millions of Dollars) 1996 1995 1996 1995 - -------------------------------------------------------------------------------- United States $2,405 1,872 22.1% 20.4% Europe 1,382 1,267 22.5 22.7 Western Hemisphere excluding U.S. 228 195 11.9 11.3 Asia-Pacific, Africa 239 240 9.0 10.2 ------------------- Segments total $4,254 3,574 19.7% 19.0% ===================
International sales and operating profit in 1996 were unfavorably impacted by the translation of local currency operating results into U.S. dollars at lower average exchange rates than in 1995. International sales and operating profit in 1995 were favorably impacted by the translation of local currency operating results into U.S. dollars at higher average exchange rates than in 1994. Operating profit reported above is before deduction of taxes on income and certain income and expense items not allocated to segments, such as interest expense, minority interests and general corporate income and expense. See page 41 for additional information on geographic areas. SALES BY GEOGRAPHIC AREA OF BUSINESS - -------------------------------------------------------------------------------- Millions of Dollars
AFRICA, UNITED WESTERN ASIA AND STATES EUROPE HEMISPHERE PACIFIC TOTAL ------ ------ ---------- -------- -------- 1994 49.7% 28.6% 9.6% 12.1% $ 15,734 1995 48.8 29.6 9.2 12.4 18,842 1996 50.4 28.4 8.9 12.3 21,620
- -------------------------------------------------------------------------------- OPERATING PROFIT BY GEOGRAPHIC AREA OF BUSINESS - -------------------------------------------------------------------------------- Millions of Dollars
AFRICA, UNITED WESTERN ASIA AND STATES EUROPE HEMISPHERE PACIFIC TOTAL ------ ------ ---------- -------- -------- 1994 51.9% 35.5% 3.9% 6.7% $ 2,955 1995 52.4 35.6 5.5 6.7 3,576 1996 56.5 32.5 5.4 5.6 4,254
- ------------------------------------------------------------------------------- DESCRIPTION OF BUSINESS The company, employing 89,300 employees worldwide, is engaged in the manufacture and sale of a broad range of products in the health care field in virtually all countries of the world. The Company's primary interest, both historically and currently, has been in products related to health and well-being. The Company is organized on the principles of decentralized management. The Executive Committee of Johnson & Johnson is the principal management group responsible for the operations of the Company. In addition, three Executive Committee members are 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 businesses. Operating management of each company is headed by a Chairman, President, General Manager or Managing Director who reports directly to or through a Company Group Chairman. 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 39 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 U.S. 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 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. 28 7
- -------------------------- CONSOLIDATED BALANCE SHEET Johnson & Johnson and Subsidiaries - -------------------------- At December 29, 1996 and December 31, 1995 (Dollars in Millions) (Note 1) 1996 1995 - --------------------------------------------------------------------------------------------------------- ASSETS - --------------------------------------------------------------------------------------------------------- CURRENT ASSETS Cash and cash equivalents (Notes 1 and 16) $ 2,011 1,201 Marketable securities at cost (Note 16) 125 163 Accounts receivable trade, less allowances $309 (1995, $258) 3,251 2,903 Inventories (Notes 1 and 2) 2,498 2,276 Deferred taxes on income (Note 6) 711 717 Prepaid expenses and other receivables 774 678 ------------------------ TOTAL CURRENT ASSETS 9,370 7,938 ======================== Marketable securities, non-current (Note 16) 351 338 Property, plant and equipment, net (Notes 1 and 3) 5,651 5,196 Intangible assets, net (Notes 1 and 4) 3,107 2,950 Deferred taxes on income (Note 6) 287 307 Other assets 1,244 1,144 ------------------------ TOTAL ASSETS $ 20,010 17,873 ======================== LIABILITIES AND SHAREOWNERS' EQUITY - --------------------------------------------------------------------------------------------------------- CURRENT LIABILITIES Loans and notes payable (Note 5) $ 872 321 Accounts payable 1,743 1,602 Accrued liabilities 2,010 1,949 Accrued salaries, wages and commissions 322 292 Taxes on income 237 224 ------------------------ TOTAL CURRENT LIABILITIES 5,184 4,388 ======================== Long-term debt (Note 5) 1,410 2,107 Deferred tax liability (Note 6) 170 156 Certificates of extra compensation (Note 11) 108 86 Other liabilities 2,302 2,091 SHAREOWNERS' EQUITY Preferred stock-without par value (authorized and unissued 2,000,000 shares) -- -- Common stock-par value $1.00 per share (authorized 2,160,000,000 shares; issued 1,534,824,000 shares) 1,535 1,535 Note receivable from employee stock ownership plan (Note 14) (57) (64) Cumulative currency translation adjustments (Note 7) (122) 148 Retained earnings 11,012 9,743 ------------------------ 12,368 11,362 Less common stock held in treasury, at cost (202,340,000 and 239,464,000 shares) 1,532 2,317 ------------------------ TOTAL SHAREOWNERS' EQUITY 10,836 9,045 ======================== TOTAL LIABILITIES AND SHAREOWNERS' EQUITY $ 20,010 17,873 ======================== See Notes to Consolidated Financial Statements 29
8
- ---------------------------------- CONSOLIDATED STATEMENT OF EARNINGS Johnson & Johnson and Subsidiaries - ---------------------------------- (Dollars in Millions Except Per Share Figures) (Note 1) 1996 1995 1994 - ----------------------------------------------------------------------------------------------------------- SALES TO CUSTOMERS $ 21,620 18,842 15,734 ============================================ Cost of products sold 7,018 6,235 5,299 Selling, marketing and administrative expenses 8,394 7,462 6,350 Research expense 1,905 1,634 1,278 Interest income (139) (115) (60) Interest expense, net of portion capitalized (Note 3) 125 143 142 Other expense, net 284 166 44 -------------------------------------------- 17,587 15,525 13,053 -------------------------------------------- Earnings before provision for taxes on income 4,033 3,317 2,681 Provision for taxes on income (Note 6) 1,146 914 675 -------------------------------------------- NET EARNINGS $ 2,887 2,403 2,006 ============================================ NET EARNINGS PER SHARE (Note 1) $ 2.17 1.86 1.56 ============================================
- ---------------------------------------------------------------------------- CONSOLIDATED STATEMENT OF COMMON STOCK, RETAINED EARNINGS AND TREASURY STOCK Johnson & Johnson and Subsidiaries - ---------------------------------------------------------------------------- Common Stock Issued Treasury Stock (Dollars in Millions; Shares in Thousands) ------------------------- Retained ----------------------- (Notes 1, 10 and 17) Shares Amount Earnings Shares Amount - --------------------------------------------------------------------------------------------------------------------------------- BALANCE, JANUARY 2, 1994 1,534,744 $ 1,535 $ 6,959 248,782 $ 2,504 Net earnings -- -- 2,006 -- -- Cash dividends paid (per share: $0.565) -- -- (727) -- -- Employee compensation and stock option plans -- -- (78) (7,710) (186) Repurchase of common stock -- -- -- 7,692 185 Other 40 -- 38 -- -- -------------------------------------------------------------------------- BALANCE, JANUARY 1, 1995 1,534,784 1,535 8,198 248,764 2,503 ========================================================================== Net earnings -- -- 2,403 -- -- Cash dividends paid (per share: $0.64) -- -- (827) -- -- Employee compensation and stock option plans -- -- (35) (9,152) (309) Repurchase of common stock -- -- -- 9,164 322 Business combinations -- -- -- (9,312) (199) Other 40 -- 4 -- -- -------------------------------------------------------------------------- BALANCE, DECEMBER 31, 1995 1,534,824 1,535 9,743 239,464 2,317 ========================================================================== Net earnings -- -- 2,887 -- -- Cash dividends paid (per share: $0.735) -- -- (974) -- -- Employee compensation and stock option plans -- -- (185) (8,510) (389) Repurchase of common stock -- -- -- 8,745 412 Business combinations -- -- (490) (37,359) (808) Other -- -- 31 -- -- -------------------------------------------------------------------------- BALANCE, DECEMBER 29, 1996 1,534,824 $ 1,535 $ 11,012 202,340 $ 1,532 ========================================================================== See Notes to Consolidated Financial Statements 30
9
- ------------------------------------ CONSOLIDATED STATEMENT OF CASH FLOWS Johnson & Johnson and Subsidiaries - ------------------------------------ (Dollars in Millions) (Note 1) 1996 1995 1994 - -------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES Net earnings $ 2,887 2,403 2,006 Adjustments to reconcile net earnings to cash flows: Depreciation and amortization of property and intangibles 1,009 857 724 Tax deferrals (3) (63) (66) Changes in assets and liabilities, net of effects from acquisition of businesses: Increase in accounts receivable, less allowances (306) (265) (239) Increase in inventories (242) (9) (162) Increase in accounts payable and accrued liabilities 245 617 462 Increase in other current and non-current assets (40) (294) (112) Increase in other current and non-current liabilities 341 136 362 ------------------------------------- NET CASH FLOWS FROM OPERATING ACTIVITIES 3,891 3,382 2,975 ===================================== CASH FLOWS FROM INVESTING ACTIVITIES Additions to property, plant and equipment (1,373) (1,256) (937) Proceeds from the disposal of assets 37 465 332 Acquisition of businesses, net of cash acquired (Note 17) (233) (154) (1,932) Other, principally marketable securities (123) (151) (19) ------------------------------------- NET CASH USED BY INVESTING ACTIVITIES (1,692) (1,096) (2,556) ===================================== CASH FLOWS FROM FINANCING ACTIVITIES Dividends to shareowners (974) (827) (727) Repurchase of common stock (412) (322) (185) Proceeds from short-term debt 282 197 328 Retirement of short-term debt (128) (634) (263) Proceeds from long-term debt 126 -- 960 Retirement of long-term debt (411) (260) (363) Proceeds from the exercise of stock options 149 112 62 ------------------------------------- NET CASH USED BY FINANCING ACTIVITIES (1,368) (1,734) (188) ===================================== Effect of exchange rate changes on cash and cash equivalents (21) 13 33 ------------------------------------- Increase in cash and cash equivalents 810 565 264 Cash and cash equivalents, beginning of year (Note 1) 1,201 636 372 ------------------------------------- CASH AND CASH EQUIVALENTS, END OF YEAR (Note 1) $ 2,011 1,201 636 =====================================
- -------------------------------------------------------------------------------------------------------------------- SUPPLEMENTAL CASH FLOW DATA Cash paid during the year for: Interest, net of portion capitalized $ 113 137 133 Income taxes 1,210 1,071 612 SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES Treasury stock issued for employee compensation and stock option plans, net of cash proceeds $ 252 212 133 ACQUISITIONS OF BUSINESSES Fair value of assets acquired $ 237 493 2,279 Fair value of liabilities assumed (4) (37) (347) ------------------------------------- 233 456 1,932 Treasury stock issued -- (302) -- ------------------------------------- Net cash payments $ 233 154 1,932 ===================================== See Notes to Consolidated Financial Statements 31
10 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Johnson & Johnson and Subsidiaries 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION The consolidated 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. REVENUE RECOGNITION The Company recognizes revenue from product sales when the goods are shipped to the customer. INVENTORIES Inventories are stated at the lower of cost (determined principally by the first-in, first-out method) or market. DEPRECIATION OF PROPERTY The Company utilizes the straight-line method of depreciation for financial statement purposes for all additions to property, plant and equipment placed in service after January 1, 1989. Property, plant and equipment placed in service prior to January 1, 1989 is generally depreciated using an accelerated 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. LONG-LIVED ASSETS Statement of Financial Accounting Standard No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset in question may not be recoverable. The new standard, which was adopted in 1996, did not have a material effect on the Company's results of operations, cash flows or financial position. FINANCIAL INSTRUMENTS Gains and losses on foreign currency hedges of existing assets or liabilities, or hedges of firm commitments are deferred and are recognized in income as part of the related transaction. ADVERTISING Costs associated with advertising are expensed in the year incurred. Advertising expenses worldwide, which are comprised of television, radio and print media, were $1.26 billion, $1.03 billion and $.8 billion in 1996, 1995 and 1994, respectively. INCOME TAXES The Company intends to continue to reinvest its undistributed international earnings to expand its international operations; therefore, no tax has been provided to cover the repatriation of such undistributed earnings. At December 29, 1996 and December 31, 1995 the cumulative amount of undistributed international earnings was approximately $5.5 billion and $4.7 billion, respectively. NET EARNINGS PER SHARE Net earnings per share were calculated using the average number of shares outstanding during each year. Shares issuable under stock option and compensation plans would not materially reduce net earnings per share. All share and per share amounts have been restated to retroactively reflect the current and prior year stock splits. RISKS AND UNCERTAINTIES The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported. Actual results are not expected to differ from those estimates. ANNUAL CLOSING DATE The Company follows the concept of a fiscal year which ends on the Sunday nearest to the end of the month of December. Normally each fiscal year consists of 52 weeks, but every five or six years, as will be 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. 2 INVENTORIES At the end of 1996 and 1995, inventories were comprised of:
(Dollars in Millions) 1996 1995 - -------------------------------------------------------------------------------- Raw materials and supplies $ 687 625 Goods in process 390 519 Finished goods 1,421 1,132 ----------------- $2,498 2,276 =================
3 PROPERTY, PLANT AND EQUIPMENT At the end of 1996 and 1995, property, plant and equipment at cost and accumulated depreciation consisted of:
(Dollars in Millions) 1996 1995 - -------------------------------------------------------------------------------- Land and land improvements $ 339 344 Buildings and building equipment 2,892 2,611 Machinery and equipment 4,875 4,217 Construction in progress 917 1,003 --------------------- 9,023 8,175 Less accumulated depreciation 3,372 2,979 --------------------- $5,651 5,196 =====================
32 11 The Company capitalizes interest expense as part of the cost of construction of facilities and equipment. Interest expense capitalized in 1996, 1995 and 1994 was $55, $70 and $44 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. 4 INTANGIBLE ASSETS At the end of 1996 and 1995, intangible assets, consisting primarily of patents, trademarks and goodwill, comprised:
(Dollars in Millions) 1996 1995 - -------------------------------------------------- Intangible assets $3,616 3,345 Less accumulated amortization 509 395 ---------------- $3,107 2,950 ================
- -------------------------------------------------- 5 BORROWINGS The components of long-term debt are as follows:
EFF. Eff. (Dollars in Millions) 1996 RATE 1995 Rate - --------------------------------------------------------------------------------------------------- 8.72% Debentures due 2024 $ 300 8.72% 300 8.72% 6.73% Debentures due 2023 250 6.73 250 6.73 7 3/8% Eurodollar Notes due 1997 200 7.43 200 7.43 8% Notes due 1998 -- -- 200 8.00 7 3/8% Notes due 2002 199 7.49 198 7.49 8.25% Eurodollar Notes due 2004 199 8.37 198 8.37 9% European Currency Unit Notes due 1997(1) 186 6.84 192 6.84 11 1/4% Italian Lire Notes due 1998(1) 132 4.84 128 5.33 5% Deutsche Mark Notes due 2001(3) 114 1.98 -- -- 5 3/8% Swiss Franc Notes due 1997(1) 112 4.64 132 5.13 4 1/2% Currency Indexed Notes due 1998(1) 67 5.12 57 5.69 8.18% to 8.25% Medium Term Notes due 1998 65 8.23 160 8.05 Industrial Revenue Bonds 61 5.62 66 4.90 8.82% Italian Lire Notes due 2003(1) -- -- 96 5.58 Other, principally international 32 -- 46 -- ------ ----- 1,917 6.80(2) 2,223 7.20(2) Less current portion 507 116 ------ ----- $1,410 2,107 ====== ===== - ---------------------------------------------------------------------------------------------------
(1) These debt issues include the effect of foreign currency movements in the principal amounts shown. Such debt was converted to fixed or floating rate U.S. dollar liabilities via interest rate and currency swaps. Unrealized currency gains (losses) on currency swaps are not included in the basis of the related debt transactions which such swaps hedge and are classified in the balance sheet as other assets (liabilities). Also, see Note 16. (2) Weighted average effective rate. (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. The Company has access to substantial sources of funds at numerous banks worldwide. Total unused credit available to the Company approximates $3.3 billion, including $1.2 billion of credit commitments with various worldwide banks, $800 million of which expire on October 3, 1997 and $400 million on October 6, 2001. Borrowings under the credit line agreements will bear interest based on either bids provided by the banks, the prime rate or London Interbank Offered Rates (LIBOR), plus applicable margins. Commitment fees under the agreements are not material. In 1994, the Company filed a shelf registration with the Securities and Exchange Commission, and in combination with $585 million remaining from a prior shelf registration, initiated a third series of its Medium Term Note Program (MTN) for the issuance of up to $2.59 billion of unsecured debt securities and warrants to purchase debt securities. No MTN's were issued during 1996 or 1995. In 1996, the Company issued $119 million equivalent of 5% Euro-Deutsche Mark notes due 2001. The proceeds were used for general corporate purposes. The Company also redeemed its $200 million 8% Notes due 1998 and Italian Lire 150 billion (U.S. equivalent $95.4 million) 8.82% Notes due 2003 at par according to the call provisions of each debt issue. At December 29, 1996, the Company had $2.29 billion remaining on its shelf registration. Short-term borrowings amounted to $872 million at the end of 1996. These borrowings are composed of $186 million of European currency notes, $200 million of Eurodollar notes, $112 million of Swiss Franc notes and $374 million of local borrowings principally by international subsidiaries. Interest rates on the Industrial Revenue Bonds vary from 5% to 6%, while rates on other long-term obligations vary from 2% to 20% according to local conditions. Aggregate maturities of long-term obligations for each of the next five years commencing in 1997 are:
(Dollars in Millions) 1997 1998 1999 2000 2001 - -------------------------------------------------------------------------------- $507 278 15 5 117 - --------------------------------------------------------------------------------
6 INCOME TAXES The provision for taxes on income consists of:
(Dollars in Millions) 1996 1995 1994 - -------------------------------------------------------------------------------- Currently payable: U.S. taxes $ 569 447 318 International taxes 487 468 374 U.S. state and local taxes 93 62 49 --------------------------- 1,149 977 741 --------------------------- Deferred: U.S. taxes 28 (42) (36) International taxes (31) (21) (30) --------------------------- (3) (63) (66) --------------------------- $ 1,146 914 675 ===========================
Deferred income taxes are recognized for tax consequences of "temporary differences" by applying enacted statutory tax rates, applicable to future years, to differences between the financial reporting and the tax basis of existing assets and liabilities. 33 12 Temporary differences and carryforwards for 1996 are as follows:
Deferred Tax ------------------------- (Dollars in Millions) Asset Liability - ----------------------------------------------------------------- Postretirement benefits $ 288 -- Postemployment benefits 108 -- Employee benefit plans 141 -- Depreciation -- 293 Non-deductible intangibles -- 147 Alternative minimum tax credits 44 -- International R&D capitalized for tax 104 -- Reserves & liabilities 371 -- Income reported for tax purposes 158 -- Miscellaneous international 69 194 Miscellaneous U.S. 267 140 ------------------------- Total deferred income taxes $1,550 774 =========================
A comparison of income tax expense at the federal statutory rate of 35% in 1996, 1995 and 1994, to the Company's effective tax rate is as follows:
(Dollars in Millions) 1996 1995 1994 - -------------------------------------------------------------------------------- Earnings before taxes on income: U.S. $ 2,245 1,642 1,317 International 1,788 1,675 1,364 ------------------------------------ Worldwide $ 4,033 3,317 2,681 ==================================== Statutory taxes $ 1,412 1,161 938 Tax rates: Statutory 35.0% 35.0% 35.0% Puerto Rico & Ireland operations (6.3) (7.3) (9.2) Research tax credits (0.3) (0.2) (0.5) Domestic state and local 1.6 1.2 1.2 International subsidiaries excluding Ireland (2.0) (1.7) (1.8) All other 0.4 0.6 0.5 ------------------------------------ Effective tax rate 28.4% 27.6% 25.2% ====================================
The increase in the 1996 worldwide effective tax rate was primarily due to the increase in income subject to tax in the United States. During 1996, the Company had subsidiaries operating in Puerto Rico under a grant for tax relief expiring December 31, 2007. The Omnibus Budget Reconciliation Act of 1993 includes a change in the tax code which will reduce the benefit the Company receives from its operations in Puerto Rico by 60% gradually over a five-year period. The Small Business Job Protection Act of 1996 repealed the Puerto Rico tax credit; however, the Company, as an existing credit claimant, may claim the credit for an additional 10 year period. In addition, the Company has subsidiaries manufacturing in Ireland under an incentive tax rate expiring on December 31, 2010. - -------------------------------------------------------------------------------- 7 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, principally Latin America, which are reflected in operating results. An analysis of the changes during 1996 and 1995 in the separate component of shareowners' equity for cumulative currency translation adjustments follows:
(Dollars in Millions) 1996 1995 - --------------------------------------------- Beginning of year $ 148 (35) Translation adjustments (270) 183 --------------- End of year $(122) 148 ===============
Net currency transaction and translation gains and losses included in other expense were after-tax gains of $2 million in 1996, and losses of $14 and $4 million in 1995 and 1994, respectively. - -------------------------------------------------------------------------------- 8 INTERNATIONAL SUBSIDIARIES The following amounts are included in the consolidated financial statements for international subsidiaries:
(Dollars in Millions) 1996 1995 - ------------------------------------------------------------------ Current assets $5,218 4,488 Current liabilities 2,470 2,234 Net property, plant and equipment 2,569 2,298 Parent company equity in net assets 6,103 5,525 Excess of parent company equity over investments 5,460 4,953
International sales to customers were $10,721, $9,652, and $7,922 million for 1996, 1995 and 1994, respectively. 9 RENTAL EXPENSE AND LEASE COMMITMENTS Rentals of space, vehicles, manufacturing equipment and office and data processing equipment under operating leases amounted to approximately $237 million in 1996, $227 million in 1995 and $207 million in 1994. The approximate minimum rental payments required under operating leases that have initial or remaining noncancellable lease terms in excess of one year at December 29, 1996 are:
After (Dollars in Millions) 1997 1998 1999 2000 2001 2001 Total - -------------------------------------------------------------------------------- $80 67 43 33 25 54 302
Commitments under capital leases are not significant. - -------------------------------------------------------------------------------- 10 COMMON STOCK, STOCK OPTION PLANS AND STOCK COMPENSATION AGREEMENTS At December 29, 1996 the Company had five 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, and the Mitek and Cordis Employee Stock Option Plans. 34 13 Stock options expire in ten years from the date they are granted and vest over service periods that range from two to six years. Shares available for future grants amounted to 32.9 million, 40.1 million and 8.3 million in 1996, 1995 and 1994, respectively. A summary of the status of the Company's stock option plans as of December 29, 1996 and December 31, 1995, and changes during the years ending on those dates, is presented below:
Options Weighted Average (Shares in Thousands) Outstanding* Exercise Price - -------------------------------------------------------------------------------- Balance at January 1, 1995 72,544 $19.50 Options granted 16,902 41.76 Options exercised (8,184) 12.43 Options cancelled/forfeited (2,638) 23.46 --------------------------- Balance at December 31,1995 78,624 24.89 Options granted 10,120 43.81 Options exercised (7,442) 16.13 Options cancelled/forfeited (2,231) 29.27 --------------------------- Balance at December 29,1996 79,071 28.01 ===========================
* Adjusted to reflect the 1996 two-for-one stock split Statement of Financial Accounting Standard No. 123, "Accounting for Stock-Based Compensation," requires companies to measure employee stock compensation plans based on the fair value method of accounting. However, the Statement allows the alternative of continued use of Accounting Principles 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 based method had been applied in measuring compensation cost. The Company adopted the new standard in 1996 and elected the continued use of APB Opinion No. 25. Pro forma disclosure has not been provided, as the effect on 1996 net earnings was immaterial. The following table summarizes stock options outstanding and exercisable at December 29, 1996.
(Shares in Thousands) Outstanding Exercisable - ---------------------------------------------- ---------------------- Average Average Exercise Average Exercise Exercise Price Range Options Life(a) Price Options Price - ------------------------------------------------------------------------ $ 6.30-$17.86 18,289 2.7 $13.33 18,188 $13.36 $18.28-$36.85 37,907 6.7 24.24 16,770 23.92 $42.13-$52.00 22,875 9.2 46.01 -- -- ------------------------------------------------------ $ 6.30-$52.00 79,071 6.5 28.01 34,958 18.43 ======================================================
(a) Average contractual life remaining in years 11 CERTIFICATES OF EXTRA COMPENSATION The Company has a deferred compensation program for senior management and other key personnel. The value of units awarded under the program is related to the net asset value of the Company and historical earning power of its common stock. Amounts earned under the program are payable only after employment with the Company has ended. 12 SEGMENTS OF BUSINESS AND GEOGRAPHIC AREAS See page 41 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. 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. Net pension expense for the Company's defined benefit plans for 1996, 1995 and 1994 included the following components:
(Dollars in Millions) 1996 1995 1994 - -------------------------------------------------------------------------------- Service cost for benefits earned during period $ 159 121 120 Interest cost on projected benefit obligations 230 207 188 Actual return on plan assets (403) (555) (3) Net amortization and deferral 175 310 (199) Curtailment and settlement losses (gains) -- 25 1 ------------------------- Net periodic pension cost $ 161 108 107 =========================
The net periodic pension cost attributable to domestic plans and included above was $84 million in 1996, $43 million in 1995 and $49 million in 1994. The following tables provide the domestic assumptions and the range of international assumptions, which are based on the economic environment of each applicable country, used to develop net periodic pension cost and the actuarial present value of projected benefit obligations:
DOMESTIC PENSION PLANS 1996 1995 1994 - -------------------------------------------------------------------------------- Expected long-term rate of return on plan assets 9.0% 9.0% 9.0% Weighted average discount rate 7.75 7.25 8.75 Rate of increase in compensation levels 5.5 5.5 5.5
INTERNATIONAL PENSION PLANS - -------------------------------------------------------------------------------- Expected long-term rate of return on plan assets 5.0-10.0% 5.0-10.0% 5.0-10.0% Weighted average discount rates 4.0-8.5 4.25-9.5 4.5-10.0 Rate of increase in compensation levels 3.0-6.5 3.0-7.0 3.0-7.0
35 14 The following table sets forth the actuarial present value of benefit obligations and funded status at year-end 1996 and 1995 for the Company's defined benefit plans:
Year-end 1996 Year-end 1995 ------------------------------------------------------------------ Domestic International Domestic International ------------------------------------------------------------------ Over- Under- Over- Under- (Dollars in Millions) funded funded funded funded - --------------------------------------------------------------------------------------------------------------------------- Plan assets at fair value, primarily stocks and bonds $ 2,195 1,043 92 1,893 883 76 Book reserves (prepaids) 284 (82) 256 323 (77) 250 ------------------------------------------------------------- Total assets and reserves 2,479 961 348 2,216 806 326 ------------------------------------------------------------- Actuarial present value of benefit obligations: Vested benefits 1,723 666 254 1,670 575 224 Nonvested benefits 52 26 49 17 24 42 ------------------------------------------------------------- Accumulated benefit obligation 1,775 692 303 1,687 599 266 Effect of projected future salary increases 338 224 80 336 196 82 ------------------------------------------------------------- Projected benefit obligation 2,113 916 383 2,023 795 348 ------------------------------------------------------------- Assets and reserves in excess of (less than) projected benefit obligation $ 366 45 (35) 193 11 (22) ============================================================= Components of assets and reserves in excess of (less than) projected benefit obligation: Unrecognized prior service cost $ (45) (34) (16) (68) (27) (4) Unrecognized net gain (loss) 387 10 (6) 227 (46) -- Unamortized net transition assets (liabilities) 16 69 (17) 19 84 (23) Additional minimum liability 8 -- 4 15 -- 5 ------------------------------------------------------------- Total $ 366 45 (35) 193 11 (22) ============================================================= Assets and reserves in excess of accumulated benefit obligation $ 704 269 45 529 207 60 =============================================================
14 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 Company stock on the open market. In exchange, the Company received a note, the balance of which is recorded as a reduction of shareowners' equity. Total Company contributions to the plans were $50 million in 1996, $45 million in 1995 and $41 million in 1994. 15 OTHER POSTRETIREMENT BENEFITS The Company 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. The Company does not fund retiree health care benefits in advance and has the right to modify these plans in the future. The net periodic postretirement benefit costs for retirees included the following components:
(Dollars in Millions) 1996 1995 1994 - --------------------------------------------------------- Service cost-benefits earned during the current year $ 16 12 16 Interest cost on accumulated postretirement benefit obligation 46 44 44 Actual return on plan assets (6) (3) -- Net amortization and deferral 3 (7) (3) ---------------------- Net periodic postretirement benefit cost $ 59 46 57 ======================
The plans' status as of year-end 1996 and 1995 was as follows:
Year-end ------------------- (Dollars in Millions) 1996 1995 - -------------------------------------------------------------- Accumulated postretirement benefit obligation: Retirees $387 394 Fully eligible active participants 62 76 Other active participants 142 140 ------------------ Accumulated postretirement benefit obligation 591 610 Life insurance plan assets at fair value 41 38 ------------------ Accumulated postretirement benefit obligation in excess of plans' assets 550 572 ------------------ Unrecognized net gain 172 112 Unrecognized prior service cost 8 6 ------------------ Accrued postretirement benefit cost $730 690 ==================
36 15 The postretirement benefit obligation was determined by application of the terms of the various plans, together with relevant actuarial assumptions. Health care cost trends are projected at annual rates grading from 11% for employees under age 65 and 8% for employees over age 65 down to 5% for both groups by the year 2008 and beyond. The effect of a 1% annual increase in these assumed cost trend rates would increase the accumulated postretirement benefit obligation at year-end by $66 million and the service and interest cost components of the net periodic postretirement benefit cost for 1996 by a total of $9 million. Assumptions used to develop net periodic postretirement benefit cost and the actuarial present value of projected postretirement benefit obligations were as follows:
1996 1995 1994 - ------------------------------------------------------------------ Expected long-term rate of return on plan assets 9.0% 9.0% 9.0% Weighted average discount rate 7.75 7.25 8.75 Rate of increase in compensation levels 5.5 5.5 5.5
The Company also provides postemployment benefits to qualified former or inactive employees. The Company does not fund these benefits and has the right to modify these plans in the future. 16 FINANCIAL INSTRUMENTS DERIVATIVE FINANCIAL INSTRUMENT RISK The Company uses derivative financial instruments to reduce exposures to market risks resulting from fluctuations in interest rates and foreign exchange. 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 that risk of loss is remote and in any event would be immaterial. INTEREST RATE RISK MANAGEMENT The Company uses interest rate and currency swaps to manage interest rate risk related to borrowings. Interest rate and currency swap agreements which hedge third party debt issues mature with these borrowings and are described in Note 5. Forward rate agreements (FRA) are used by the Company to fix the rates received on short-term floating-rate investments and mature within 1 year. There were no FRA's outstanding at the end of 1996. The following table illustrates the notional amounts outstanding, maturity dates, and the weighted average receive and pay rates of interest rate hedge agreements by type. (Notional amounts provide an indication of the extent of the Company's involvement in such agreements but do not represent its exposure to market risk.)
1996 ----------------------------------------- Weighted Avg. Rate Notional Maturity ------------------ (Dollars in Millions) Amounts Date Receive Pay - ----------------------------------------------------------------- Interest rate and currency swaps Pay variable(1) $116 1997 5.4% 4.6% 193 1998 9.0 4.9 Pay fixed $188 1997 9.0 6.8 119 2001 5.0 2.0
(1) Variable rates are primarily indexed to the Federal Reserve H.15 30 day commercial paper rate. Interest expense under these agreements, and the respective debt instruments that they hedge, are recorded at the net effective interest rate of the hedged transactions. FOREIGN EXCHANGE RISK MANAGEMENT The Company enters into forward exchange contracts to hedge product costs and revenues that are denominated in foreign currencies and currency swaps to hedge foreign currency denominated debt. These hedging instruments are classified consistent with the item being hedged. The Company enters into various types of foreign exchange contracts maturing within five years. The Company has forward exchange contracts outstanding at year-end in various currencies principally in U.S. Dollars, Japanese Yen and Belgian Francs. In addition, the Company has currency swaps outstanding principally in U.S. Dollars, French Francs and Belgian Francs. Deferred unrealized gains and losses, based on dealer-quoted prices, from hedging firm commitments are presented in the following table:
1996 ----------------------------- Notional (Dollars in Millions) Amounts Gains Losses - ---------------------------------------------------- Forwards $3,155 62 38 Currency swaps 1,934 19 28
FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amount of cash and cash equivalents approximates fair value due to the short-term maturities of these instruments. The fair value of current and non-current marketable securities, long-term debt and foreign interest rate and currency swap agreements (used to hedge third party debt issues) were estimated based on quotes obtained from brokers for those or similar instruments. The fair value of foreign interest rate and currency contracts (used for hedging purposes) and long-term investments were estimated based on quoted market prices at year-end. 16 The estimated fair value of the Company's financial instruments are as follows:
1996 1995 - ----------------------------------------------------------------------------------- CARRYING FAIR Carrying Fair (Dollars in Millions AMOUNT VALUE Amount Value - ----------------------------------------------------------------------------------- NONDERIVATIVES Cash and cash equivalents $2,011 2,011 1,201 1,201 Marketable securities - current 125 125 163 164 Marketable securities - non-current 351 352 338 341 Long-term investments(1) 484 491 382 386 Long-term debt 1,917 1,987 2,223 2,345 DERIVATIVES Other assets (liabilities): Currency swaps (net) -- (9) -- 9 Forwards (net) -- 24 -- 23 Forward rate agreements -- -- -- 5 Interest and currency swap agreements related to debt (1) 7 (13) 28
(1) Primarily included in other assets on the balance sheet. The carrying amounts in the table are included in the statement of financial position under the indicated captions. CONCENTRATION OF CREDIT RISK The Company invests its excess cash in both deposits with major banks throughout the world and other high quality short-term liquid money market instruments (commercial paper, government and government agency notes and bills, etc.). The Company has a policy of making investments only with commercial institutions that have at least an "A" (or equivalent) credit rating. These investments generally mature within six months and the Company has not incurred any related losses. The Company sells a broad range of products in the health care field in most countries of the world. Concentrations of credit risk with respect to trade receivables are limited due to the large number of customers comprising the Company's customer base. Ongoing credit evaluations of customers' financial condition are performed and, generally, no collateral is required. The Company maintains reserves for potential credit losses and such losses, in the aggregate, have not exceeded management's expectations. - -------------------------------------------------------------------------------- 17 MERGER, ACQUISITIONS AND DIVESTITURES On February 23, 1996 Johnson & Johnson and Cordis Corporation completed the merger between the two companies. The merger has been accounted for as a pooling of interests; however, prior period financial statements have not been restated as the effect of reflecting data relating to this merger would not materially effect previously issued financial statements. Johnson & Johnson issued 2.2584 shares of stock, on a split-adjusted basis, for each share of Cordis stock. The exchange ratio resulted from dividing $109 (exchange value of Cordis shares) by the average of the closing prices for Johnson & Johnson shares for the 10 days prior to the merger. At the time of the merger, Cordis had approximately 17.6 million shares outstanding on a fully diluted basis, resulting in a total value, net of cash, of approximately $1.8 billion. Cordis is a leader in angiography and angioplasty (balloon catheters). The combination of Cordis and Johnson & Johnson's interventional cardiology business was an important strategic step for both companies to meet the challenge of providing for customer needs in the fast changing health care industry. During 1996 certain businesses were acquired for $233 million. The 1996 acquisitions included Indigo Medical, Inc., a pioneer in the use of advanced, low cost diode lasers for interstitial thermotherapy and the exercise of our option to purchase the trademarks of Lactaid, Inc., producer of the natural dairy digestive supplement LACTAID. The excess of purchase price over the estimated fair market value of 1996 acquisitions amounted to $205 million. This amount has been allocated to identifiable intangibles and goodwill. Pro forma information is not provided for 1996 as the impact of the acquisitions does not have a material effect on the Company's results of operations, cash flows or financial position. In 1995 certain businesses were acquired for $456 million consisting of $154 million in cash and 9,312,000 shares, on a split-adjusted basis, of the Company's stock issued from treasury valued at $302 million. These acquisitions were accounted for by the purchase method and accordingly the results of operations of the acquired businesses have been included in the accompanying consolidated financial statements from their respective dates of acquisition. The 1995 acquisitions included: Mitek Surgical Products, Inc., a manufacturer and marketer of suture anchor products for soft tissue reattachment; Menlo Care, Inc., a manufacturer and marketer of vascular access products to hospital and home health care professionals; Joint Medical Products Inc., a developer and marketer of artificial hips (S-Rom TM) and knee joints; Gyno Pharma, Inc., the exclusive licensor and marketer of the PARAGARD T380A (intrauterine device) in the United States and UltraCision, Inc., the developer and manufacturer of ultrasonic surgical instruments (Harmonic Scalpel TM). 38 17 The excess of purchase price over the estimated fair market value of 1995 acquisitions amounted to $435 million. This amount has been allocated to identifiable intangibles and goodwill. Pro forma information is not provided for 1995 as the impact of the acquisitions does not have a material effect on the Company's results of operations, cash flows or financial position. Divestitures in 1996 did not have a material effect on the Company's results of operations, cash flows or financial position. In 1995, the Company completed the sales of Johnson & Johnson Advanced Materials Company and Chicopee B.V., Netherlands, worldwide developers and marketers of non-woven materials used in a broad range of health care, consumer and industrial applications. In addition, the Company sold the IOLAB ophthalmic surgical business to Chiron Vision, a division of Chiron Corporation. The 1995 divestitures resulted in an after-tax capital gain of $103 million. The after-tax gains on the 1995 divestitures were reinvested in certain base businesses. - -------------------------------------------------------------------------------- 18 PENDING 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 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 for injuries occurring on or before December 31, 1985, it will be substantially covered by insurance. Due to the general unavailability of traditional liability insurance, including product liability insurance, the Company is substantially uninsured for injuries occurring on or after January 1, 1986. The Company has a self-insurance program which provides reserves for such injuries based on claims experience. Additionally, 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 is also involved in a number of patent, trademark and other lawsuits incidental to its business. The Company believes that the above proceedings in the aggregate would not have a material adverse effect on its results of operations, cash flows or financial position. - -------------------------------------------------------------------------------- 19 SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) Selected unaudited quarterly financial data for the years 1996 and 1995 is summarized below:
1996 1995 - ---------------------------------------------------------------------------------- ------------------------------------------ (Dollars in Millions FIRST SECOND THIRD FOURTH First Second Third Fourth Except Per Share Figures) QUARTER QUARTER QUARTER QUARTER Quarter Quarter Quarter Quarter - --------------------------------------------------------------------------------------------------------------------------------- SEGMENT SALES TO CUSTOMERS Consumer $1,619 1,544 1,583 1,618 1,436 1,469 1,461 1,465 Pharmaceutical 1,762 1,808 1,817 1,801 1,483 1,620 1,598 1,573 Professional 1,953 2,030 2,002 2,083 1,577 1,673 1,679 1,808 - --------------------------------------------------------------------------------------------------------------------------------- TOTAL SALES 5,334 5,382 5,402 5,502 4,496 4,762 4,738 4,846 ================================================================================================================================= Gross margin 3,615 3,650 3,687 3,650 3,049 3,200 3,195 3,163 Earnings before provision for taxes on income 1,124 1,119 1,059 731 921 931 872 593 NET EARNINGS 790 791 750 556 654 661 623 465 ================================================================================================================================= NET EARNINGS PER SHARE* $ .59 .60 .56 .42 .51 .51 .48 .36 =================================================================================================================================
*Adjusted to reflect the 1996 two-for-one stock split 39 18 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 generally accepted accounting principles, and include amounts that are based on our best judgements 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 principles 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 which are distributed throughout the Company. Management maintains a systematic program to ensure compliance with these policies. Coopers & Lybrand L.L.P., independent auditors, is engaged to audit our financial statements. Coopers & Lybrand L.L.P. obtains and 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/ Clark H. Johnson Ralph S. Larsen Clark H. Johnson Chairman, Board of Directors Vice President, Finance and Chief Executive Officer and Chief Financial Officer INDEPENDENT AUDITOR'S REPORT - -------------------------------------------------------------------------------- To the Shareowners and Board of Directors of Johnson & Johnson: We have audited the accompanying consolidated balance sheet of Johnson & Johnson and subsidiaries as of December 29, 1996 and December 31, 1995, and the related consolidated statement of earnings, consolidated statement of common stock, retained earnings and treasury stock, and consolidated statement of cash flows for each of the three years in the period ended December 29, 1996. 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 in accordance with generally accepted auditing standards. Those standards 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. An audit also includes assessing the accounting principles used and the significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Johnson & Johnson and subsidiaries as of December 29,1996 and December 31, 1995, and the results of its operations and its cash flows for each of the three years in the period ended December 29, 1996, in conformity with generally accepted accounting principles. /s/ Coopers & Lybrand L.L.P. New York, New York January 20, 1997 40 19 SEGMENTS OF BUSINESS(1) Johnson & Johnson and Subsidiaries
SALES TO CUSTOMERS(2) --------------------------------- (Dollars in Millions) 1996 1995 1994 - --------------------------------------------------------------- Consumer-Domestic $ 3,166 2,858 2,692 International 3,198 2,973 2,559 --------------------------------- Total 6,364 5,831 5,251 --------------------------------- Pharmaceutical-Domestic 3,355 2,697 2,143 International 3,833 3,577 3,015 --------------------------------- Total 7,188 6,274 5,158 --------------------------------- Professional-Domestic 4,378 3,635 2,977 International 3,690 3,102 2,348 --------------------------------- Total 8,068 6,737 5,325 --------------------------------- Worldwide total $21,620 18,842 15,734 =================================
OPERATING PROFIT IDENTIFIABLE ASSETS --------------------------- -------------------------- (Dollars in Millions) 1996 1995 1994 1996 1995 1994 - ------------------------------------------------------------------------------------------------------- Consumer $ 361 298 443 4,874 4,852 4,489 Pharmaceutical 2,477 2,073 1,669 6,032 5,129 4,756 Professional 1,416 1,203 843 7,505 6,679 5,765 --------------------------------------------------------- Segments total 4,254 3,574 2,955 18,411 16,660 15,010 Expenses not allocated to segments(3) (221) (257) (274) General corporate 1,599 1,213 658 --------------------------------------------------------- Worldwide total $4,033 3,317 2,681 20,010 17,873 15,668 =========================================================
ADDITIONS TO PROPERTY, DEPRECIATION AND PLANT & EQUIPMENT AMORTIZATION --------------------------- ------------------------- (Dollars in Millions) 1996 1995 1994 1996 1995 1994 - ------------------------------------------------------------------------------------------- Consumer $ 283 264 218 247 254 241 Pharmaceutical 427 427 327 254 219 183 Professional 570 472 365 430 322 268 --------------------------------------------------------- Segments total 1,280 1,163 910 931 795 692 General corporate 93 93 27 78 62 32 --------------------------------------------------------- Worldwide total $1,373 1,256 937 1,009 857 724 =========================================================
GEOGRAPHIC AREAS
SALES TO CUSTOMERS(2) OPERATING PROFIT IDENTIFIABLE ASSETS ---------------------------- -------------------------- ----------------------- (Dollars in Millions) 1996 1995 1994 1996 1995 1994 1996 1995 1994 - --------------------------------------------------------------------------------------------------------------------------------- United States $10,899 9,190 7,812 2,405 1,872 1,534 9,264 8,472 8,430 Europe 6,151 5,573 4,504 1,382 1,267 1,050 6,447 5,633 4,271 Western Hemisphere excluding U.S. 1,914 1,731 1,511 228 195 173 1,132 1,072 970 Asia-Pacific, Africa 2,656 2,348 1,907 239 240 198 1,568 1,483 1,339 ----------------------------------------------------------------------------------------- Segments total 21,620 18,842 15,734 4,254 3,574 2,955 18,411 16,660 15,010 Expenses not allocated to segments(3) (221) (257) (274) General corporate 1,599 1,213 658 ----------------------------------------------------------------------------------------- Worldwide total $21,620 18,842 15,734 4,033 3,317 2,681 20,010 17,873 15,668 =========================================================================================
(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 represents 10% or more of total sales. (3) Expenses not allocated to segments include interest expense, minority interests and general corporate income and expense. 41 20 Johnson & Johnson and Subsidiaries SUMMARY OF OPERATIONS AND STATISTICAL DATA 1986-1996
(Dollars in Millions Except Per Share Figures) 1996 1995 1994 1993 - -------------------------------------------------------------------------------------------------------------------- Sales to customers - Domestic $ 10,899 9,190 7,812 7,203 Sales to customers - International 10,721 9,652 7,922 6,935 ------------------------------------------------------ TOTAL SALES 21,620 18,842 15,734 14,138 ====================================================== Cost of products sold 7,018 6,235 5,299 4,791 Selling, marketing and administrative expenses 8,394 7,462 6,350 5,771 Research expense 1,905 1,634 1,278 1,182 Permanent impairment of certain assets and operations in Latin America -- -- -- -- Redirection charges -- -- -- -- Interest income (139) (115) (60) (80) Interest expense, net of portion capitalized 125 143 142 126 Other expense (income), net 284 166 44 16 ------------------------------------------------------ 17,587 15,525 13,053 11,806 ------------------------------------------------------ Earnings before provision for taxes on income 4,033 3,317 2,681 2,332 Provision for taxes on income 1,146 914 675 545 ------------------------------------------------------ Earnings before cumulative effect of accounting changes 2,887 2,403 2,006 1,787 Cumulative effect of accounting changes (net of tax) -- -- -- -- ------------------------------------------------------ NET EARNINGS $ 2,887 2,403 2,006 1,787 ====================================================== Percent of sales to customers 13.4 12.8 12.7 12.6 NET EARNINGS PER SHARE OF COMMON STOCK* $ 2.17 1.86 1.56 1.37 ====================================================== PERCENT RETURN ON AVERAGE SHAREOWNERS' EQUITY 29.0 29.7 31.6 33.3 ====================================================== PERCENT INCREASE (DECREASE) OVER PREVIOUS YEAR: Sales to customers 14.7 19.8 11.3 2.8 NET EARNINGS PER SHARE 16.7 19.2 13.9 75.6(1) ====================================================== SUPPLEMENTARY EXPENSE DATA: Cost of materials and services(5) $ 11,204 9,852 7,952 7,033 Total employment costs 5,275 4,707 4,282 4,066 Depreciation and amortization 1,009 857 724 617 Maintenance and repairs(6) 281 252 217 202 Total tax expense(7) 1,699 1,433 1,142 968 TOTAL TAX EXPENSE PER SHARE(7)* 1.27 1.11 .89 .74 ====================================================== SUPPLEMENTARY BALANCE SHEET DATA: Property, plant and equipment, net $ 5,651 5,196 4,910 4,406 Additions to property, plant and equipment 1,373 1,256 937 975 Total assets 20,010 17,873 15,668 12,242 Long-term debt 1,410 2,107 2,199 1,493 ====================================================== COMMON STOCK INFORMATION:* Dividends paid per share $ .735 .64 .565 .505 Shareowners' equity per share $ 8.13 6.98 5.54 4.33 Market price per share (year-end close) $ 50 1/2 42 3/4 27 3/8 22 3/8 Average shares outstanding (millions) 1,332.6 1,291.9 1,286.1 1,303.5 SHAREOWNERS OF RECORD (THOUSANDS) 138.5 113.5 104.7 96.1 ====================================================== EMPLOYEES (THOUSANDS) 89.3 82.3 81.5 81.6 ======================================================
(Dollars in Millions Except Per Share Figures) 1992 1991 1990 1989 - ------------------------------------------------------------------------------------------------------------------------- Sales to customers - Domestic 6,903 6,248 5,427 4,881 Sales to customers - International 6,850 6,199 5,805 4,876 ----------------------------------------------------------- TOTAL SALES 13,753 12,447 11,232 9,757 =========================================================== Cost of products sold 4,678 4,204 3,937 3,480 Selling, marketing and administrative expenses 5,671 5,099 4,469 3,897 Research expense 1,127 980 834 719 Permanent impairment of certain assets and operations in Latin America -- -- 104 -- Redirection charges -- -- -- -- Interest income (93) (88) (98) (87) Interest expense, net of portion capitalized 124 129 201(4) 141 Other expense (income), net 39 85 162 93 ----------------------------------------------------------- 11,546 10,409 9,609 8,243 ----------------------------------------------------------- Earnings before provision for taxes on income 2,207 2,038 1,623 1,514 Provision for taxes on income 582 577 480 432 ----------------------------------------------------------- Earnings before cumulative effect of accounting changes 1,625 1,461 1,143 1,082 Cumulative effect of accounting changes (net of tax) (595) -- -- -- ----------------------------------------------------------- NET EARNINGS 1,030 1,461 1,143 1,082 =========================================================== Percent of sales to customers 7.5(1) 11.7 10.2(2) 11.1 NET EARNINGS PER SHARE OF COMMON STOCK* .78 1.10 .86 .81 =========================================================== PERCENT RETURN ON AVERAGE SHAREOWNERS' EQUITY 19.1(1) 27.8 25.3(2) 28.3 =========================================================== PERCENT INCREASE (DECREASE) OVER PREVIOUS YEAR: Sales to customers 10.5 10.8 15.1 8.4 NET EARNINGS PER SHARE (28.8)(1) 27.3(2) 6.2(2) 13.3 =========================================================== SUPPLEMENTARY EXPENSE DATA: Cost of materials and services(5) 6,857 6,329 5,728 4,908 Total employment costs 4,044 3,507 3,195 2,871 Depreciation and amortization 560 493 474 414 Maintenance and repairs(6) 210 203 185 193 Total tax expense(7) 1,000 966 825 708 TOTAL TAX EXPENSE PER SHARE(7)* .76 .73 .62 .53 =========================================================== SUPPLEMENTARY BALANCE SHEET DATA: Property, plant and equipment, net 4,115 3,667 3,247 2,846 Additions to property, plant and equipment 1,103 987 830 750 Total assets 11,884 10,513 9,506 7,919 Long-term debt 1,365 1,301 1,316 1,170 =========================================================== COMMON STOCK INFORMATION:* Dividends paid per share .445 .385 .33 .28 Shareowners' equity per share 3.94 4.22 3.68 3.11 Market price per share (year-end close) 25 1/4 28 5/8 17 7/8 14 7/8 Average shares outstanding (millions) 1,318.9 1,332.3 1,332.2 1,332.5 SHAREOWNERS OF RECORD (THOUSANDS) 84.1 69.9 64.6 60.5 =========================================================== EMPLOYEES (THOUSANDS) 84.9 82.7 82.2 83.1 ===========================================================
(Dollars in Millions Except Per Share Figures) 1988 1987 1986 - ------------------------------------------------------------------------------------------------- Sales to customers - Domestic 4,576 4,167 3,972 Sales to customers - International 4,424 3,845 3,031 ----------------------------------- TOTAL SALES 9,000 8,012 7,003 =================================== Cost of products sold 3,292 2,958 2,632 Selling, marketing and administrative expenses 3,630 3,228 2,868 Research expense 674 617 521 Permanent impairment of certain assets and operations in Latin America -- -- -- Redirection charges -- -- 540 Interest income (72) (95) (100) Interest expense, net of portion capitalized 104 116 66 Other expense (income), net (24) (5) 85 ----------------------------------- 7,604 6,819 6,612 ----------------------------------- Earnings before provision for taxes on income 1,396 1,193 391 Provision for taxes on income 422 360 61 ----------------------------------- Earnings before cumulative effect of accounting changes 974 833 330 Cumulative effect of accounting changes (net of tax) -- -- -- ----------------------------------- NET EARNINGS 974 833 330 =================================== Percent of sales to customers 10.8 10.4 4.7(3) NET EARNINGS PER SHARE OF COMMON STOCK* .71 .60 .23 =================================== PERCENT RETURN ON AVERAGE SHAREOWNERS' EQUITY 27.9 26.4 10.7(3) =================================== PERCENT INCREASE (DECREASE) OVER PREVIOUS YEAR: Sales to customers 12.3 14.4 9.1 NET EARNINGS PER SHARE 18.2 --(3) (45.2)(3) =================================== SUPPLEMENTARY EXPENSE DATA: Cost of materials and services(5) 4,528 4,030 3,642 Total employment costs 2,639 2,388 2,091 Depreciation and amortization 391 356 291 Maintenance and repairs(6) 191 180 170 Total tax expense(7) 678 591 284 TOTAL TAX EXPENSE PER SHARE(7)* .50 .43 .20 =================================== SUPPLEMENTARY BALANCE SHEET DATA: Property, plant and equipment, net 2,493 2,250 1,916 Additions to property, plant and equipment 664 515 446 Total assets 7,119 6,546 5,877 Long-term debt 1,166 733 242 =================================== COMMON STOCK INFORMATION:* Dividends paid per share .24 .20 .17 Shareowners' equity per share 2.63 2.53 2.04 Market price per share (year-end close) 10 5/8 9 3/8 8 1/2 Average shares outstanding (millions) 1,362.4 1,380.6 1,427.3 SHAREOWNERS OF RECORD (THOUSANDS) 54.5 51.2 52.1 =================================== EMPLOYEES (THOUSANDS) 81.3 78.2 77.1 ===================================
*Adjusted to reflect the 1996 two-for-one stock split (1) After the cumulative effect of accounting changes of $595 million. - 1992 earnings percent of sales to customers before accounting changes is 11.8%. - 1992 earnings percent return on average shareowners' equity before accounting changes is 28.5%. - 1993 net earnings per share percent increase over prior year before accounting change is 11.4%; 1992 is 12.3%. (2) After Latin America non-recurring charges of $125 million. - 1990 net earnings percent of sales to customers before non-recurring charges is 11.3%. - 1990 percent return on average shareowners' equity before non-recurring charges is 27.6%. - 1991 net earnings per share percent increase over prior year before non-recurring charges is 15.3%; 1990 is 17.3%. (3) After one-time charges of $380 million. - 1986 earnings percent of sales before one-time charges is 10.1%. - 1986 percent return on average shareowners' equity before one-time charges is 21.6%. - 1987 net earnings per share percent increase over prior year before one-time charges is 22.2%; 1986 is 17.9%. (4) Includes Latin America non-recurring charge of $36 million for the liquidation of Argentine debt. (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. 42 21 THREE YEARS IN BRIEF-WORLDWIDE
% Change ---------------- (Dollars in Millions Except Per Share Figures) 1996 1995 1994 1996 1995 - --------------------------------------------------------------------------------------------------------------------- Sales to customers $ 21,620 18,842 15,734 14.7 19.8 Net earnings 2,887 2,403 2,006 20.1 19.8 Cash dividends paid 974 827 727 17.8 13.8 Shareowners' equity 10,836 9,045 7,122 19.8 27.0 ----------------------------------------------------------------- Percent return on average shareowners' equity 29.0 29.7 31.6 -- -- ----------------------------------------------------------------- Per share* Net earnings $ 2.17 1.86 1.56 16.7 19.2 Cash dividends paid .735 .64 .565 14.8 13.3 Shareowners' equity 8.13 6.98 5.54 16.5 26.0 Market price (year-end close) 50 1/2 42 3/4 27 3/8 18.1 56.2 ----------------------------------------------------------------- Average shares outstanding (millions)* 1,332.6 1,291.9 1,286.1 3.2 0.5 Shareowners of record (thousands) 138.5 113.5 104.7 22.0 8.4 Number of employees (thousands) 89.3 82.3 81.5 8.5 1.0 -----------------------------------------------------------------
*Adjusted to reflect the 1996 two-for-one stock split DESCRIPTION OF THE COMPANY Johnson & Johnson, with $21.6 billion in sales, is the world's largest and most comprehensive manufacturer of health care products serving the consumer, pharmaceutical and professional markets. Johnson & Johnson has 89,300 employees and more than 170 operating companies in 50 countries around the world, selling products in more than 175 countries. ON THE COVER Dr. Zhu Hong-Sheng typifies surgeons throughout China, who are able to better care for their patients with high quality ETHICON Silk Sutures, now that the Company has begun local manufacturing in Shanghai. CONTENTS 1 Letter to Shareowners 4 Editorial Section 23 Management's Discussion and Analysis of Results 29 Consolidated Financial Statements 32 Notes to Consolidated Financial Statements 40 Report of Management 40 Independent Auditor's Report 41 Segments of Business and Geographic Areas 42 Summary of Operations and Statistical Data 1986-1996 43 Principal Global Affiliates 46 Worldwide Family of Companies 50 Board of Directors and Committees of the Board 51 Corporate Officers, Company Group Chairmen, Corporate and Shareowner Information EX-21 12 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: Cordis Corporation....................................................... Florida Cordis International Corporation......................................... Delaware Cordis Webster, Inc. .................................................... California Ethicon Endo-Surgery, Inc. .............................................. Ohio Ethicon, Inc. ........................................................... New Jersey GynoPharma Inc. ......................................................... Delaware Indigo Medical, Inc. .................................................... Delaware Janssen Pharmaceutica Inc. .............................................. Pennsylvania Janssen Products, Inc. .................................................. Delaware Johnson & Johnson Clinical Diagnostics, Inc. ............................ New York Johnson & Johnson Consumer Products, Inc. ............................... New Jersey Johnson & Johnson (CR), 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 Medical, Inc. ......................................... New Jersey Johnson & Johnson - Merck Consumer Pharmaceuticals Co. .................. New Jersey Johnson & Johnson (Middle East) Inc. .................................... New Jersey Johnson & Johnson Professional, Inc. .................................... New Jersey Johnson & Johnson (Russia), Inc. ........................................ New Jersey Johnson & Johnson Services, Inc. ........................................ New Jersey Johnson & Johnson Slovakia, Ltd. ........................................ New Jersey Johnson & Johnson Vision Products, Inc. ................................. Florida Johnson & Johnson S.E., Inc. ............................................ New Jersey Joint Medical Products Corporation....................................... Delaware JJHC, Inc. .............................................................. Delaware LifeScan, Inc. .......................................................... California McNEIL-PPC, Inc. ........................................................ New Jersey McNeilab, Inc. .......................................................... Pennsylvania Mitek Surgical Products, Inc. ........................................... Delaware Neutrogena Corporation................................................... Delaware Nitinol Development Corporation.......................................... California Noramco, Inc. ........................................................... Georgia OMJ Pharmaceuticals, Inc. ............................................... Delaware Ortho Biotech Inc. ...................................................... New Jersey Ortho Diagnostic Systems Inc. ........................................... New Jersey Ortho Pharmaceutical Corporation......................................... Delaware
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JURISDICTION OF NAME OF SUBSIDIARY ORGANIZATION - --------------------------------------------------------------------------- --------------- Raritan Advertising, Inc. ............................................... New Jersey Therakos, Inc. .......................................................... Florida International Subsidiaries: Centra Healthcare........................................................ United Kingdom Cilag AG................................................................. Switzerland Cilag AG International................................................... Switzerland Cilag AG Pharmaceuticals................................................. Switzerland Cilag de Mexico, S.A. de C.V. ........................................... Mexico Cilag Farmaceutica Ltda. ................................................ Brazil Cilag Holding AG......................................................... Switzerland Cordis A.B. ............................................................. Sweden Cordis B.V. ............................................................. Netherlands Cordis France SARL....................................................... France Cordis Holding (B.V.).................................................... Netherlands Cordis Italia S.p.A. .................................................... Italy Cordis Med. App. G.m.b.H. ............................................... Germany Cordis S.A. ............................................................. Belgium Cordis S.A. ............................................................. France Cordis SARL.............................................................. France Cordis Sp. zoo........................................................... Poland Ethicon Endo-Surgery (Europe) G.m.b.H. .................................. Germany Ethicon G.m.b.H & Co. KG................................................. Germany Ethicon Limited.......................................................... Scotland Ethicon S.p.A. .......................................................... Italy Ethnor Del Istmo S.A. ................................................... Panama Ethnor (Proprietary) Limited............................................. South Africa Ethnor S.A. ............................................................. France Greiter AG............................................................... Switzerland Greiter Distribution AG.................................................. Switzerland Greiter (International) AG............................................... Switzerland Instrumentos Medico-Cirurgico Cordis S.A. ............................... Portugal Janssen Biotech N.V. .................................................... 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 Farmaceutica, Ltda. ....................................... Portugal J-C Healthcare Ltd. ..................................................... Israel Janssen-Cilag K.K. ...................................................... Japan Janssen-Cilag Limited.................................................... United Kingdom Janssen-Cilag Limited.................................................... South Africa Janssen-Cilag Medizinische Information G.m.b.H. ......................... Austria Janssen-Cilag N.V. ...................................................... Belgium Janssen-Cilag OY......................................................... Finland Janssen-Cilag Pharmaceutica B.V. ........................................ Netherlands Janssen-Cilag Pharmaceutica S.A.C.I. .................................... Greece
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JURISDICTION OF NAME OF SUBSIDIARY ORGANIZATION - --------------------------------------------------------------------------- --------------- Janssen-Cilag Pharma Vertrieb 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 Ltda................................................ Brazil Janssen Farmaceutica C.A. ............................................... Venezuela Janssen Farmaceutica S.A ................................................ Spain Janssen Farmaceutica S.A ................................................ Colombia Janssen Farmaceutica, S.A. de C.V. ...................................... Mexico Janssen-Cilag G.m.b.H. .................................................. Germany Janssen Internationaal N.V. ............................................. Belgium Janssen Korea, Ltd. ..................................................... Korea Janssen-Kyowa Co., Ltd. ................................................. Japan Janssen Ortho Inc. ...................................................... Canada Janssenpharma A/S........................................................ Denmark Janssen Pharmaceutica Inc. .............................................. Canada Janssen Pharma S.A.R.L. ................................................. France Janssen Pharmaceutica Limited............................................ Thailand Janssen Pharmaceutica N.V. .............................................. Belgium Janssen Pharmaceutica (Proprietary) Limited.............................. South Africa Janssen Pharmaceutical Limited........................................... Ireland JHC Nederland B.V. ...................................................... Netherlands JHC Ltd. ................................................................ Ireland 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 N.V./S.A...................................... Belgium Johnson & Johnson de Colombia S.A. ...................................... Colombia Johnson & Johnson del Ecuador S.A. ...................................... Ecuador Johnson & Johnson de Mexico, S.A. de C.V. ............................... Mexico Johnson & Johnson de Venezuela, S.A. .................................... Venezuela Johnson & Johnson Finance Limited........................................ United Kingdom Johnson & Johnson/Gaba B.V. ............................................. Netherlands Johnson & Johnson G.m.b.H. .............................................. Germany Johnson & Johnson Gesellschaft m.b.H..................................... Austria Johnson & Johnson Hellas S.A. ........................................... Greece Johnson & Johnson Hemisferica S.A. ...................................... Puerto Rico 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 S.A. .................................... France Johnson & Johnson (Ireland) Limited...................................... Ireland
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JURISDICTION OF NAME OF SUBSIDIARY ORGANIZATION - --------------------------------------------------------------------------- --------------- Johnson & Johnson (Kenya) Limited........................................ Kenya Johnson & Johnson Korea Ltd. ............................................ Korea Johnson & Johnson Kft. .................................................. Hungary Johnson & Johnson K.K. .................................................. Japan Johnson & Johnson Leasing G.m.b.H. ...................................... Germany Johnson & Johnson Lda.................................................... Portugal Johnson & Johnson Limited................................................ United Kingdom Johnson & Johnson Ltd. .................................................. India Johnson & Johnson Ltd. .................................................. Russia 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 G.m.b.H. ...................................... Germany Johnson & Johnson Medical K.K. .......................................... Japan Johnson & Johnson Medical Korea Limited.................................. Korea Johnson & Johnson Medical Mexico S.A., de C.V. .......................... Mexico Johnson & Johnson Medical Ltd. .......................................... United Kingdom Johnson & Johnson Medical Mfg. SDN. BHD. ................................ Malaysia Johnson & Johnson Medical NV/SA.......................................... Belgium Johnson & Johnson Products Inc. ......................................... Canada 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, Inc. Sp. z o.o. ............................... Poland Johnson & Johnson (Private) Limited...................................... Zimbabwe Johnson & Johnson Produtos Profissionais Ltda............................ Brazil Johnson & Johnson Professional Products (Pty.) Ltd. ..................... South Africa Johnson & Johnson (Proprietary) Limited.................................. South Africa Johnson & Johnson Pte. Ltd. ............................................. Singapore Johnson & Johnson Pty. Limited........................................... Australia Johnson & Johnson Research Pty. Limited.................................. Australia Johnson & Johnson, S.A. de C.V. ......................................... Mexico Johnson & Johnson S.A. .................................................. France Johnson & Johnson S.A. .................................................. Spain Johnson & Johnson Medical S.A. .......................................... France 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 (Trinidad) Limited..................................... Trinidad Johnson & Johnson Vision Products AB..................................... Sweden Johnson & Johnson Vision Products (Ireland) Limited...................... Ireland
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JURISDICTION OF NAME OF SUBSIDIARY ORGANIZATION - --------------------------------------------------------------------------- --------------- Johnson & Johnson (Zambia) Limited....................................... Zambia Laboratoires Polive S.N.C. .............................................. France Lifescan Canada Ltd. .................................................... Canada Medos S.A. .............................................................. Switzerland Neutrogena Corp. S.A.R.L. ............................................... France Neutrogena Provence S.A.R.L.............................................. France Ortho-Clinical Diagnostic Systems G.m.b.H. .............................. Germany Ortho-Clinical Diagnostics K.K. ......................................... Japan Ortho-Clinical Diagnostics Limited....................................... England Ortho-Clinical Diagnostics S.A. ......................................... Spain Ortho-Clinical Diagnostic N.V. .......................................... Belgium Ortho-Clinical Diagnostic S.A. .......................................... France Ortho-Clinical Diagnostic S.p.A. ........................................ Italy Ortho-McNeil Inc. ....................................................... Canada Pharma Argentina S.A. ................................................... Argentina Princeps S.A.R.L......................................................... France P.T. Johnson & Johnson Indonesia......................................... Indonesia RoC International S.A. .................................................. Germany RoC International S.A.R.L. .............................................. Luxembourg RoC S.A. ................................................................ France RoC S.A./N.V. ........................................................... Belgium The R.W. Johnson Pharmaceutical Research Institute....................... Switzerland Shanghai Johnson & Johnson Pharmaceuticals Limited....................... China Shanghai Johnson & Johnson Ltd. ......................................... China Surgikos, S.A. de C.V. .................................................. Mexico Tasmanian Alkaloids Pty. Ltd. ........................................... Australia Taxandria Pharmaceutica B.V. ............................................ Netherlands Woelm Pharma G.m.b.H. & Co. Arzneimittelvertrieb oHG..................... Germany Woelm Pharma G.m.b.H. & Co. oHG.......................................... Germany Xian-Janssen Pharmaceutical Limited...................................... China
21 EX-27 13 FINANCIAL DATA SCHEDULE
5 1,000,000 12-MOS DEC-31-1996 DEC-31-1996 2,011 125 3,560 309 2,498 9,370 9,023 3,372 20,010 5,184 1,917 1,535 0 0 9,301 20,010 21,620 21,620 7,018 7,018 1,905 60 125 4,033 1,146 2,887 0 0 0 2,887 2.17 2.12
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