-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, JnKedpQlpPYX0dZka3FrVQxcV5uE6hdYAPTkOcEd4kScKZr2KZOXeAWbgUIeQRs2 Wdp3LTa60YIjV9KIUDoNsw== 0000950123-95-000901.txt : 19950414 0000950123-95-000901.hdr.sgml : 19950411 ACCESSION NUMBER: 0000950123-95-000901 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19950101 FILED AS OF DATE: 19950403 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: 95526554 BUSINESS ADDRESS: STREET 1: ONE JOHNSON & JOHNSON PLZ CITY: NEW BRUNSWICK STATE: NJ ZIP: 08933 BUSINESS PHONE: 9085240400 10-K405 1 JOHNSON & JOHNSON 1 =============================================================================== SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED JANUARY 1, 1995 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 28, 1995 was approximately $36.0 billion. On February 28, 1995 there were 643,101,424 shares of Common Stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE Parts I and II: Portions of registrant's annual report to stockholders for fiscal year 1994. Part III: Portions of registrant's proxy statement for its 1995 annual meeting of stockholders.
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.................................................................. 2 Research..................................................................... 3 Environment.................................................................. 3 Regulation................................................................... 3 2. Properties..................................................................... 4 3. Legal Proceedings.............................................................. 5 4. Submission of Matters to a Vote of Security Holders............................ 5 Executive Officers of the Registrant........................................... 5 PART II 5. Market for Registrant's Common Equity and Related Stockholder 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 stockholder 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 81,500 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 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, professional and diagnostic 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 stockholders for fiscal year 1994 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 incontinence products. Major brands include ACT Fluoride Rinse; BAND-AID Brand Adhesive Bandages; CAREFREE Panty Shields; o.b. Tampons; CLEAN & CLEAR skin care products; RoC skin care products, SHOWER TO SHOWER personal care powder products; STAYFREE and SURE & NATURAL sanitary protection products; IMODIUM A-D, an antidiarrheal; JOHNSON'S Baby line of products; MONISTAT 7, an over-the-counter remedy for vaginal yeast infections; MYLANTA gastrointestinal products from the Johnson & Johnson and Merck & Co., Inc. joint venture; NEUTROGENA skin and hair products; PEDIACARE children's cold and allergy medications; PENATEN and NATUSAN baby care products; PIZ BUIN and SUNDOWN sun care products; REACH toothbrushes; SERENITY incontinence 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, 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; 4 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; and RISPERDAL, an antipsychotic drug. PROFESSIONAL The Professional segment includes suture and mechanical wound closure products, less-invasive surgical instruments, diagnostic products, medical equipment and devices, ophthalmic products, 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. INTERNATIONAL The international business of Johnson & Johnson is conducted by subsidiaries manufacturing in 40 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 major trademarks are protected by registration in the United States and other countries where its products are marketed. Johnson & Johnson considers these trademarks in the aggregate to be of material importance in the operation of its business. SEASONALITY Worldwide sales do not reflect any significant degree of seasonality; however spending has been heavier in the fourth quarter of each year than in other quarters. This reflects increased spending decisions, principally for advertising and research grants. COMPETITION In each of its segments, Johnson & Johnson companies compete with companies both large and small, located in the United States and abroad. Competition is strong in all segments 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 2 5 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, Switzerland, the United Kingdom and Germany. 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 $1,278, $1,182 and $1,127 million for fiscal years 1994, 1993 and 1992, 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 time, 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; most recently in the United States by the Administration's health reform task force. 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 and appropriate drug utilization. For example, the 1990 Omnibus Budget Reconciliation Act included a provision requiring pharmaceutical companies to rebate to states a portion of the revenues from pharmaceutical products dispensed to state Medicaid recipients. The Veterans Health Care Act of 1992 granted state and local facilities receiving Public Health Service Funds the right to purchase drugs at Medicaid prices. The same Act mandated discount prices for drug sales to the Department of Veterans Affairs and other Federal Supply Schedule purchasers. Further, the Federal government has established a diagnosis related group ("DRG") payment system for certain institutional services provided under Medicare or Medicaid. The DRG system entitles an institution to a fixed amount (based on discharge diagnosis) for operating costs incurred in treatment of each Medicare or Medicaid beneficiary. Under prior law, payments for such services had been predicated almost entirely on reimbursement of the allowable historical costs of the individual hospital or health care facility providing the 3 6 services. The DRG payment system has resulted in increased incentives for health care facilities to limit or control expenditures for many of the products sold by Johnson & Johnson. Johnson & Johnson encounters regulations and legislation similar to the foregoing in most of the countries where it does business. The regulatory agencies under whose purview Johnson & Johnson operates have administrative powers that may subject Johnson & Johnson to such actions as product recalls, seizure of products and other civil and criminal sanctions. In some cases Johnson & Johnson may deem it advisable to initiate product recalls voluntarily. ITEM 2. PROPERTIES Johnson & Johnson and its worldwide subsidiaries operate 154 manufacturing facilities occupying approximately 16 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............................................................... 6,703 Pharmaceutical......................................................... 2,765 Professional........................................................... 6,819 ------ Worldwide total.............................................. 16,287 ======
Within the United States, 12 facilities are used by the Consumer segment, 7 by the Pharmaceutical segment and 35 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................................................ 54 7,980 Europe....................................................... 42 3,829 Western Hemisphere excluding U.S.A........................... 19 2,428 Africa, Asia and Pacific..................................... 39 2,050 --- ------ Worldwide total.................................... 154 16,287 === ======
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 under "Johnson & Johnson and Subsidiaries -- Notes to Consolidated Financial Statements" on page 34 of Johnson & Johnson's Annual Report to Stockholders for fiscal year 1994. Segment information on additions to Johnson & Johnson's property, plant and equipment is contained on page 41 of Johnson & Johnson's Annual Report to Stockholders for fiscal year 1994. 4 7 ITEM 3. LEGAL PROCEEDINGS The information set forth in Note 19 "Pending Legal Proceedings" on page 39 of Johnson & Johnson's Annual Report to Stockholders for fiscal year 1994 is incorporated herein by reference. The Company or its subsidiaries are parties to a number of administrative and judicial environmental proceedings, including proceedings brought under the Comprehensive Environmental Response, Compensation, and Liability Act, commonly known as Superfund, and comparable state laws. The primary relief sought in these proceedings 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 should not ultimately result in any liability which would have a material adverse effect on its results of operations, cash flows or financial position. 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 15, 1995, each of whom has been an employee of the Company or its affiliates during the past five years, except as otherwise noted. 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 Stockholders 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 by reference to pages 2 through 7 of Johnson & Johnson's Proxy Statement dated March 9, 1995.
NAME AGE POSITION ---- --- -------- Roger S. Fine.................... 52 Member, Executive Committee; Vice President, Administration(a) George S. Frazza................. 61 Member, Executive Committee; Vice President, General Counsel Ronald G. Gelbman................ 47 Member, Executive Committee; Worldwide Chairman, Pharmaceutical and Diagnostics Group(b) Clark H. Johnson................. 59 Member, Executive Committee; Vice President, Finance Ralph S. Larsen.................. 56 Chairman, Board of Directors and Chief Executive Officer; Chairman, Executive Committee Peter N. Larson.................. 55 Member, Executive Committee; Worldwide Chairman, Consumer and Personal Care Group James T. Lenehan................. 46 Member, Executive Committee; Worldwide Chairman, Consumer Pharmaceuticals and Professional Group(c) Robert N. Wilson................. 54 Vice-Chairman, Board of Directors; Vice-Chairman Executive Committee
- --------------- (a) 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. (b) 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. (c) 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 STOCK- HOLDER 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 Stockholders for fiscal year 1994. 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 1984-1994" on page 42 of Johnson & Johnson's Annual Report to Stockholders for fiscal year 1994. 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 Stockholders for fiscal year 1994. 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 Stockholders for fiscal year 1994. ITEM 9. DISAGREEMENTS 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 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 9, 1995. 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 9, 1995. 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 Stockholder" and "Election of Directors--Stock Ownership/Control" on pages 2 and 8 of Johnson & Johnson's Proxy Statement dated March 9, 1995. 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 Stockholders for fiscal year 1994. 2. Financial Statement Schedules II Reserves 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 The following reports on Form 8-K were filed during the last quarter of the period covered by this report: (1) A report on Form 8-K was filed on October 5, 1994, which included the following pro forma financial information prepared to reflect the two acquisitions by the Company referred to in Note 18 under "Johnson & Johnson and Subsidiaries -- Notes to Consolidated Financial Statements" on page 38 of Johnson & Johnson's Annual Report to Stockholders for the fiscal year 1994: (i) Unaudited Pro Forma Condensed Consolidated Statements of Income for the six months ended July 3, 1994 and the year ended January 2, 1994, (ii) Unaudited Pro Forma Condensed Consolidated Balance Sheet as of July 3, 1994 and (iii) the Notes thereto. (2) A report on Form 8-K was filed on December 2, 1994, which included the following pro forma financial information prepared to reflect the two acquisitions by the Company referred to in (1) above: (i) Unaudited Pro Forma Condensed Consolidated Statements of Income for the nine months ended October 2, 1994 and the year ended January 2, 1994, (ii) Unaudited Pro Forma Condensed Consolidated Balance Sheet as of October 2, 1994 and (iii) the Notes thereto. 7 10 JOHNSON & JOHNSON AND SUBSIDIARIES SCHEDULE II -- RESERVES FISCAL YEARS ENDED JANUARY 1, 1995, JANUARY 2, 1994 AND JANUARY 3, 1993 (DOLLARS IN MILLIONS)
DEDUCTIONS FROM RESERVES ADDITIONS ------------------------------------------- BALANCE AT CHARGED BALANCE BEGINNING TO COSTS AND AT END OF PERIOD EXPENSES(1) DESCRIPTION AMOUNT OF PERIOD ----------- ------------- ----------- ------ --------- 1994 Reserves deducted from accounts receivable, trade Reserve for doubtful Write-offs less accounts............... $ 56 35 recoveries.............. 17 77 Currency adjustments...... (3) 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 ==== === === === 1993 Reserves deducted from accounts receivable, trade Reserve for doubtful Write-offs less accounts............... $ 57 26 recoveries.............. 24 Currency adjustments...... 3 56 Reserve for customer Customer rebates rebates................ 60 406 allowed................. 379 87 Reserve for cash discounts.............. 26 245 Cash discounts allowed.... 244 27 ---- --- --- --- $143 677 650 170 ==== === === === 1992 Reserves deducted from accounts receivable, trade Reserve for doubtful Write-offs less accounts............... $ 58 23 recoveries.............. 20 Currency adjustments...... 4 57 Reserve for customer Customer rebates rebates................ 51 343 allowed................... 334 60 Reserve for cash discounts.............. 27 232 Cash discounts allowed.... 233 26 ---- --- --- --- $136 598 591 143 ==== === === ===
- --------------- (1) 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 31, 1995 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 31, 1995 ------------------ Chief Executive Officer, and R. S. Larsen Director (Principal Executive Officer) /s/ C. H. JOHNSON Vice President -- Finance and March 31, 1995 ------------------ Director (Principal Financial C. H. Johnson Officer) /s/ A. W. ROULSTON Controller March 21, 1995 ------------------ A. W. Roulston /s/ J. W. BLACK Director March 31, 1995 ------------------ J. W. Black /s/ G. N. BURROW Director March 31, 1995 ------------------ G. N. Burrow /s/ J. G. COONEY Director March 31, 1995 ------------------ J. G. Cooney /s/ P. M. HAWLEY Director March 31, 1995 ------------------ P. M. Hawley /s/ A. D. JORDAN Director March 23, 1995 ------------------ A. D. Jordan /s/ A. G. LANGBO Director March 30, 1995 ------------------ A. G. Langbo /s/ P. N. LARSON Director March 31, 1995 ------------------ P. N. Larson
9 12
SIGNATURE TITLE DATE --------- ----- ---- /s/ J. S. MAYO Director March 23, 1995 ------------------------------ J. S. Mayo /s/ T. S. MURPHY Director March 23, 1995 ------------------------------ T. S. Murphy /s/ P. J. RIZZO Director March 24, 1995 ------------------------------ P. J. Rizzo /s/ M. F. SINGER Director March 23, 1995 ------------------------------ M. F. Singer /s/ R. B. SMITH Director March 31, 1995 ------------------------------ R. B. Smith /s/ R. N. WILSON Director March 31, 1995 ------------------------------ R. N. Wilson
10 13 REPORT OF INDEPENDENT AUDITORS To the Stockholders 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 1994 Annual Report to Stockholders 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, present 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 23, 1995 11 14 CONSENT OF INDEPENDENT AUDITORS We hereby consent to the incorporation by reference in Registration Statements No. 33-52252, 33-40294, 33-40295, 33-32875, 2-67443 and 33-7634 on Form S-8, No. 33-55977 and 33-47424 on Form S-3 and No. 33-57583 on Form S-4 and related Prospectuses of our report dated January 23, 1995 on our audits of the consolidated financial statements and financial statement schedule of Johnson & Johnson and subsidiaries as of January 1, 1995 and January 2, 1994, and for each of the three years in the period ended January 1, 1995, 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 January 23, 1995 12 15 EXHIBIT INDEX
REG. S-K EXHIBIT TABLE DESCRIPTION ITEM NO. OF EXHIBIT - ------------- ----------- 3(a) Certificate of Amendment to the Restated Certificate of Incorporation of the Company and Restated Certificate of Incorporation, 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(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. 10(a) 1991 Stock Option Plan -- Incorporated by reference to Registration Statement No. 33-40294, Exhibit 4(a).* 10(b) 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(c) 1980 Stock Option Plan (as amended) -- Incorporated herein by reference to Exhibit 10(d) of the Registrant's Form 10-K Annual Report for the year ended January 3, 1993.* 10(d) 1991 Stock Compensation Plan -- Incorporated herein by reference to Exhibit 10(e) of the Registrant's Form 10-K Annual Report for the year ended January 3, 1993.* 10(e) Domestic Deferred Compensation Plan -- Incorporated herein by reference to Exhibit 10(g) of the Registrant's Form 10-K Annual Report for the year ended January 3, 1993.* 10(f) 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(g) 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 -- Annual report to stockholders for fiscal year 1994 (only those portions 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 January 1, 1995 -- Filed with this document. 28 -- Form 11-K for the Johnson & Johnson Savings Plan to be filed on or before June 30, 1995.
- --------------- * 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 stockholder submitting a written request specifying the desired exhibit(s) to the Secretary at the principal executive offices of the Company. 13 EX-11 2 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 -------------------------------------------------------------------- JANUARY 1, JANUARY 2, JANUARY 3, DECEMBER 29, DECEMBER 30, 1995 1994 1993 1991 1990 ---------- ---------- ------------ ------------ ------------ 1. Net Earnings........................ $2,006 1,787 1,030 1,461 1,143 ------ ----- ----- ----- ----- 2. Average number of shares outstanding during the year..................... 643.1 651.7 659.5 666.1 666.1 ------ ----- ----- ----- ----- 3. Earnings per share based upon average outstanding shares (1 / 2)............................. $ 3.12 2.74 1.56 2.19 1.72 ====== ===== ===== ===== ===== 4. Fully diluted earnings per share: a. Average number of shares outstanding during the year.... 643.1 651.7 659.5 666.1 666.1 b. Shares issuable under stock compensation agreements at year-end....................... .1 .3 .7 .8 .8 c. Shares reserved under the stock option plans for which the market price at fiscal year-end exceeds the option price....... 35.9 29.0 26.9 29.0 25.8 d. Aggregate proceeds to the Company from the exercise of options in 4c.................. 1,499 998 894 902 546 e. Market price of the Company's common stock at fiscal year-end....................... 54.75 44.88 50.50 57.25 35.88 f. Shares which could be repurchased under the treasury stock method (4d / 4e)......... 27.4 22.2 17.7 15.8 15.2 g. Addition to average outstanding shares(4b + 4c - 4f)........... 8.6 7.1 9.9 14.0 11.4 h. Shares for fully diluted earnings per share calculation(4a + 4g)........... 651.7 658.8 669.4 680.1 677.5 ====== ===== ===== ===== ===== i. Fully diluted earnings per share (1 / 4h)................. $ 3.08 2.71 1.54 2.15 1.69 ====== ===== ===== ===== =====
- --------------- (A) All share and per share amounts have been adjusted for the two-for-one stock split in 1992. 14 EX-12 3 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 ---------------------------------------------------------------------------- JANUARY 1, JANUARY 2, JANUARY 3, DECEMBER 29, DECEMBER 30, 1995 1994 1993 1991 1990(2) ---------- ---------- ------------ ------------ ------------ Determination of Earnings: Earnings Before Provision for Taxes on Income and Cumulative Effect of Accounting Changes........ $2,681 2,332 2,207 2,038 1,623 Fixed Charges................ 234 211 210 209 275 ------ ----- ----- ----- ----- Total Earnings as Defined............ $2,915 2,543 2,417 2,247 1,898 ====== ===== ===== ===== ===== Fixed Charges and Other: Rents........................ $ 92 85 86 80 74 Interests.................... 142 126 124 129 201 ------ ----- ----- ----- ----- Fixed Charges........ 234 211 210 209 275 Capitalized Interest......... 44 48 53 46 41 ------ ----- ----- ----- ----- Total Fixed Charges.. $ 278 259 263 255 316 ====== ===== ===== ===== ===== Ratio of Earnings to Fixed Charges...................... 10.49 9.82 9.19 8.81 6.01 ====== ===== ===== ===== =====
- --------------- (1) The ratio of earnings to fixed charges represents the historical ratio of the Company and is calculated on a total enterprise basis. The ratio is computed by dividing the sum of earnings before provision for taxes and fixed charges (excluding capitalized interest) by fixed charges. Fixed charges represent interest (including capitalized interest) and amortization of debt discount and expense and the interest factor of all rentals, consisting of an appropriate interest factor on operating leases. (2) 1990 earnings include Latin America non-recurring charges of $140 million. Excluding the effect of these charges, the ratio of earnings to fixed charges would have been 7.15. 15 EX-13 4 ANNUAL REPORT 1 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION OVERVIEW Record sales of $15.73 billion reinforced the Company's position as the largest and most comprehensive health care company in the world. Despite continued cost containment measures by our customers and government agencies in international markets and the growth of managed health care organizations in the U.S., sales growth was solid. Worldwide sales increased 11.3% over 1993 primarily due to volume, with price changes less than the rate of inflation. During 1994, the Company invested $1.28 billion in research and development, 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, new products were obtained through two significant acquisitions during the year, Neutrogena, a producer of high quality skin and hair care products, and Eastman Kodak's Clinical Diagnostics Division. The acquisition of Neutrogena was an important addition to the Company's worldwide skin and hair care business, while the Clinical Diagnostics Division purchase allows the Company to participate in a much larger segment of the laboratory diagnostics market. As a result of the acquisition of Clinical Diagnostics, Johnson & Johnson is now the third largest laboratory diagnostics company in the world. Throughout 1994, the Company continued several initiatives to streamline its businesses worldwide to make the organization more cost effective. These initiatives include the creation of programs to share administrative, financial and information services among companies and locations; the merging of operating companies; the consolidation of manufacturing locations and others. In the U.S. and in countries around the world, health care systems continue to be transformed. The Company feels that it is well positioned to take advantage of these changes due to its diversification in health care, global reach, extensive research and development, decentralized management, dedicated employees and strong Credo values. SALES AND EARNINGS In 1994, worldwide sales increased 11.3% to $15.73 billion compared to increases of 2.8% and 10.5% in 1993 and 1992, respectively. Excluding the impact of the relatively weaker dollar in 1994 and 1992, and the stronger dollar in 1993, relative to international currencies, worldwide sales increased 10.7%, 7.0% and 10.0% in 1994, 1993 and 1992, respectively. Chart 1: Bar graph showing Sales to Customers for the years 1985 through 1994. See appendix for a complete description. Worldwide net earnings exceeded $2 billion for the first time in 1994, totaling $2.01 billion, or $3.12 per share, reflecting increases of 12.3% and 13.9% over 1993, respectively. The income margin for 1994 was 12.7%, a slight improvement over last year despite an increase of almost two percentage points in the effective tax rate. The Company elected early adoption of Statement of Financial Accounting Standard (SFAS) No. 116, "Accounting for Contributions Received and Contributions Made." This standard requires that an unconditional promise of a contribution be recognized as an expense in the period made. The cumulative effect and impact on the current year's financial statements of adopting SFAS No. 116 was not significant. Worldwide net earnings for 1993 were $1.79 billion, or $2.74 per share. In 1992, the Company recorded a one-time after-tax charge of $595 million, or $.90 per share, due to the Company's adoption of three new accounting standards for postretirement benefits, postemployment benefits and income taxes, resulting in 1992 worldwide net earnings of $1.03 billion, or $1.56 per share. Worldwide net earnings for 1992, before these one-time charges, were $1.63 billion, or $2.46 per share. Excluding the effect of these one-time charges, worldwide F-1 2 net earnings and earnings per share for 1993 increased 10.0% and 11.4% over 1992, respectively, while 1992 worldwide net earnings and earnings per share increased 11.2% and 12.3% over 1991, respectively. Average shares of common stock outstanding in 1994 were 643.1 million compared with 651.7 million and 659.5 million in 1993 and 1992, respectively. Chart 2: Bar graph showing Net Earnings for the years 1985 through 1994. See appendix for a complete description. Sales by domestic companies were $7.81, $7.20 and $6.90 billion in 1994, 1993 and 1992, representing increases of 8.5%, 4.3% and 10.5%, respectively. The increase in domestic sales in 1994 was the result of new product launches as well as continued growth of existing products. Sales by international companies were $7.92, $6.94 and $6.85 billion in 1994, 1993 and 1992, representing increases of 14.2%, 1.2% and 10.5%, respectively. All geographic areas throughout the world posted strong gains during 1994. Sales in the Africa, Asia-Pacific region increased 20.2%, while revenues in the Western Hemisphere, (excluding the U.S.) and Europe grew 14.0% and 11.9%, respectively. Excluding the impact of the relatively weaker dollar in 1994 and 1992 and the stronger dollar in 1993, relative to international currencies, international company sales increased 13.0%, 9.6% and 9.5% in 1994, 1993 and 1992, respectively. The Company achieved an annual compound growth rate of 9.9% for worldwide sales for the ten-year period since 1984 with domestic and international sales growing at rates of 7.7% and 12.7%, respectively. For the same ten-year period, worldwide net earnings achieved an annual growth rate of 14.6%, while earnings per share grew at a rate of 16.3%. For the last five years, annual compound growth rates for sales, net earnings and earnings per share were 10.0%, 13.1% and 14.0%, 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 stockholders of record at year-end 1994 was 104,700. The composite market price ranges for Johnson & Johnson common stock during 1994 and 1993 were:
1994 1993 -------------- ------------- HIGH LOW HIGH LOW ----- ---- ---- ---- First quarter.................................... $45 3/4 36 50 3/8 37 5/8 Second quarter................................... 44 5/8 36 1/4 45 3/4 38 3/8 Third quarter.................................... 52 3/8 42 1/4 41 3/4 35 5/8 Fourth quarter................................... 56 1/2 49 1/2 45 5/8 38 1/2 Year-end close................................... 54 3/4 44 7/8
CASH DIVIDENDS PAID Cash dividends paid were $1.13 per share in 1994 and $1.01 per share in 1993, an increase of 11.9% and 13.5% over 1993 and 1992, respectively. The dividends were distributed as follows:
1994 1993 1992 ----- ----- ---- First quarter................................................ $ .26 .23 .20 Second quarter............................................... .29 .26 .23 Third quarter................................................ .29 .26 .23 Fourth quarter............................................... .29 .26 .23 ----- ----- ---- Total................................................... $1.13 1.01 .89 ===== ===== ====
On January 3, 1995, the Board of Directors declared a regular cash dividend of $.29 per share, paid on March 7, 1995 to stockholders of record on February 14, 1995. The Company expects to continue the practice of paying regular cash dividends. F-2 3 Chart 3: Bar graph showing Net Earnings Per Share and Cash Dividends Paid Per Share for the years 1985 through 1994. See appendix for a complete description. COSTS AND EXPENSES The percentage relationships of costs and expenses to sales for 1994, 1993 and 1992 were:
1994 1993 1992 ---- ---- ---- Employment costs...................................................... 27.2% 28.8% 29.4% Cost of materials and services........................................ 50.6 49.7 49.9 Depreciation and amortization of property and intangibles............. 4.6 4.4 4.1 Taxes other than payroll.............................................. 4.9 4.5 4.8 Cumulative effect of accounting changes............................... -- -- 4.3
Chart 4: Pie chart showing Distribution of Sales Revenues for 1994. See appendix for a complete description. 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:
1994 1993 1992 ------ ------ ------ (DOLLARS IN MILLIONS) Research expense................................................ $1,278 1,182 1,127 Percent increase over prior year................................ 8.1% 4.9% 15.0% Percent of sales................................................ 8.1 8.4 8.2
Research expense as a percent of sales for the Pharmaceutical segment was 14.9%, 15.2% and 14.8% in 1994, 1993 and 1992, respectively, while averaging 4.8%, 5.2% and 5.1% in the other segments. Chart 5: Bar graph showing Research Expense for the years 1985 through 1994. See appendix for a complete description. Advertising expenses worldwide, which are comprised of television, radio and print media, were $800 million in 1994, $753 million in 1993 and $694 million in 1992. Additionally, significant expenditures were incurred for promotional activities such as couponing and performance allowances. In December, 1993, the American Institute of Certified Public Accountants issued Statement of Position (SOP) No. 93-7, "Reporting on Advertising Costs", which provides guidance on the financial reporting of advertising costs. The new statement, which will be adopted in the first quarter of 1995, will not have an effect on the Company's results of operations, cash flows or financial position. 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. 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 25.2% in 1994, 23.4% in 1993 and 26.4% in 1992. See page 33 for additional information. F-3 4 For 1994, the Company has subsidiaries operating in Puerto Rico under a grant for tax relief expiring December 31, 2007. The Omnibus Budget Reconciliation Act of 1993 included 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. In addition, the Company has subsidiaries manufacturing in Ireland under an incentive tax rate expiring on December 31, 2010. A summary of operations and related statistical data for the years 1984-1994 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 $704 million at the end of 1994 as compared with $476 million at the end of 1993. Effective January 3, 1994, the Company adopted Statement of Financial Accounting Standard (SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity Securities." Investments subject to this standard are required to be carried at fair value, unless they are held to maturity. There was no effect on income as a result of adopting SFAS No. 115. See page 37 for additional information on the fair value of investment securities. Total unused credit available to the Company approximates $3.0 billion, including $1,175 million of credit commitments with various worldwide banks, $900 million of which expires on October 6, 1995 and $275 million on December 31, 1995. During 1994, the Company issued $300 million of 8.72% Debentures due 2024 from a $2.59 billion shelf registration filed with the Securities and Exchange Commission on October 18, 1994. At January 1, 1995, the Company had $2.29 billion remaining on its shelf registration, which included $585 million from a prior shelf registration. A summary of additional debt issued during 1994 can be found on page 33. Total borrowings at the end of 1994 and 1993 were $3.1 billion and $2.4 billion, respectively. In 1994 and 1993, net debt (debt net of cash and current marketable securities) was 25.2% and 25.8% of net capital (stockholders' equity and net debt), respectively. Total debt represented 30.3% and 30.2% of total capital (stockholders' equity and total borrowings) in 1994 and 1993, respectively. Stockholders' equity per share at the end of 1994 was $11.08 compared with $8.66 at year-end 1993, an increase of 27.9%. 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 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 $937, $975 and $1,103 million in 1994, 1993 and 1992, 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 1994. During 1994, 1993 and 1992, certain businesses were acquired amounting to $1,932, $266 and $47 million, respectively. 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 1994, the Company repurchased 3.8 million shares of its common stock at a total cost of $185 million for use in the Company's employee benefit plans; 1993 and 1992 repurchases for this purpose totaled 3.0 million and 4.8 million shares at a cost of $132 million and $240 million, respectively. In 1993 and 1992, the Company also repurchased 12.4 million and 10.6 million shares of its common stock for general corporate purposes at a cost of $500 million each year. F-4 5 CHANGING PRICES AND INFLATION Johnson & Johnson is aware that its products are used in a setting where, for more than a decade, policy makers, 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 1980-1993, 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 1994. Inflation rates, even though moderate in many parts of the world during 1994, 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 timely 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. Chart 6: Bar graph showing Sales by Segment of Business for the years 1992 through 1994. See appendix for a complete description.
INCREASE ------------------ SALES 1994 1993 AMOUNT PERCENT - ----- ------- ------- ------ ------- (DOLLARS IN MILLIONS) Consumer............................................. $ 5,251 4,824 427 8.9% Pharmaceutical....................................... 5,158 4,490 668 14.9 Professional......................................... 5,325 4,824 501 10.4 ------- ------- ------ Worldwide total................................. $15,734 14,138 1,596 11.3% ======= ======= ======
Chart 7: Bar graph showing Operating Profit by Segment of Business for the years 1992 through 1994. See appendix for a complete description.
PERCENT OF SALES --------------- OPERATING PROFIT 1994 1993 1994 1993 - ---------------- ------ ------ ---- ---- (DOLLARS IN MILLIONS) Consumer................................................. $ 443 521 8.4% 10.8% Pharmaceutical........................................... 1,669 1,406 32.4 31.3 Professional............................................. 843 655 15.8 13.6 ------ ------ Segments total...................................... 2,955 2,582 18.8 18.3 Expenses not allocated to segments....................... (274) (250) (1.8) (1.8) ------ ------ Earnings before taxes on income.......................... $2,681 2,332 17.0% 16.5% ====== ======
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 incontinence products. Major brands include ACT Fluoride Rinse; BAND-AID Brand Adhesive Bandages; CAREFREE Panty Shields; o.b. Tampons; CLEAN & CLEAR skin care products; RoC skin care products; SHOWER TO SHOWER personal care powder products; STAYFREE and SURE & NATURAL sanitary protection products; IMODIUM A-D, an antidiarrheal; JOHNSON'S Baby line of products; MONISTAT 7, an over-the-counter remedy for vaginal yeast infections; MYLANTA gastrointestinal products from the Johnson & Johnson and Merck & Co., Inc. joint venture; NEUTROGENA skin and hair care products; PEDIACARE children's cold and allergy medications; PENATEN and NATUSAN baby care products; PIZ BUIN and SUNDOWN sun care products; REACH toothbrushes; SERENITY incontinence products; F-5 6 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 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 includes the acquisitions of RoC S.A. in late 1993 and Neutrogena, a producer of high quality skin and hair care products, at the end of the third quarter of 1994. Additionally, new products such as TYLENOL Extended Relief, MYLANTA Soothing Lozenges, the ARTHRITIS FOUNDATION line of pain relievers and JOHNSON'S HEALTHFLOW Infant Feeding System were introduced during the year. Consumer segment sales were $4.82 billion in 1993. Sales by domestic companies accounted for 54.5% of the total segment and international subsidiaries accounted for 45.5%. Domestic Consumer sales growth was slowed by a sluggish retail environment and fierce competition faced by MONISTAT 7. International Consumer sales reflected improvements in Latin America, Asia and Africa, which offset a substantial decline in the U.S. dollar value of sales from European operations. Consumer segment sales in 1992 were $4.78 billion, an increase of 4.3% over 1991. Domestic sales improved 6.0% in 1992, led by higher sales of MONISTAT 7 and strong sales gains by the SERENITY and TYLENOL product lines. International Consumer sales increased 2.3% in 1992, despite the adverse impact of sluggish international economies. Acquisition and divestitures during 1994 and 1993 are described in more detail on page 38. PHARMACEUTICAL The Pharmaceutical segment represents over 50% of total operating profit. The Pharmaceutical segment's principal worldwide franchises are in the allergy, 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; and RISPERDAL, an antipsychotic drug. Johnson & Johnson markets more than 80 prescription drugs around the world, with 58.5% of the sales generated outside the United States. Twenty-four drugs sold by the Company had 1994 sales in excess of $50 million, with 18 of them in excess of $100 million. 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 11.0%. The worldwide sales increase is attributed to the outstanding February, 1994 launch of RISPERDAL, an antipsychotic drug, and the continued strong growth of PROPULSID first introduced in late 1993. The sales increase was also led by the strong growth of EPREX, PROCRIT, SPORANOX, DURAGESIC and FLOXIN. In 1993, Pharmaceutical segment sales increased 3.5% over 1992, to $4.49 billion. This growth was led by sales gains from PREPULSID, PROPULSID, SPORANOX, EPREX, PROCRIT, FLOXIN, LEUSTATIN and DURAGESIC. Domestic Pharmaceutical sales advanced 7.4%, due to higher sales by Janssen and Ortho Biotech. International sales, through Janssen Pharmaceutica, headquartered in Belgium, and Cilag, were negatively impacted by the strength of the U.S. dollar relative to international currencies as well as the pressure on pharmaceutical prices in Germany and Italy. F-6 7 In 1992, Pharmaceutical segment sales increased 14.4% over 1991, to $4.34 billion. This growth reflected the continued market penetration of key pharmaceuticals such as PREPULSID, EPREX, PROCRIT, FLOXIN, SPORANOX, DURAGESIC and ORTHO-CYCLEN, an oral contraceptive introduced in 1992. Domestic Pharmaceutical sales advanced 7.8%, due to higher sales by Janssen and Ortho Biotech. International sales increased 18.8%, led by strong performances for EPREX, PREPULSID and SPORANOX. Significant research activities continued in Pharmaceutical segment companies, increasing to $767 million in 1994, or $84 million over 1993. This represents 14.9% of 1994 Pharmaceutical sales and a compound growth rate of 15% for the ten-year period since 1984. 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. Other research involves collaborations with the Scripps Clinic and Research Foundation in La Jolla, California and the James Black Foundation in London, England. PROFESSIONAL The Professional segment includes suture and mechanical wound closure products, less-invasive surgical instruments, diagnostic products, medical equipment and devices, ophthalmic products, 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 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 is attributed to the continued growth of ACUVUE disposable contact lenses; ONE TOUCH II blood glucose self monitoring systems; the PALMAZ-SCHATZ Stent, a balloon-expandable device for narrowed or blocked arteries and various Ethicon Endo-Surgery devices for less invasive surgery. Base businesses, such as Ethicon sutures, also contributed significantly to the increase. The acquisition of Eastman Kodak's Clinical Diagnostics business was completed on November 30, 1994; however, the increase in sales resulting from the acquisition was offset by the divestitures of the "A" Company and the ophthalmic pharmaceutical business of IOLAB. Of the 1994 Professional segment sales, domestic and international companies accounted for 55.9% and 44.1% of the total, respectively. In 1993, Professional segment sales increased 4.1% over 1992, to $4.82 billion. Worldwide sales gains were led by LifeScan, Ethicon Endo-Surgery and Vistakon. Domestic sales posted a 5.8% gain, aided by strong sales of PROTECTIV catheter safety system products, the DINAMAP Plus vital signs monitor and P.F.C. Hip and Knee orthopaedic joint reconstruction products. These gains offset a decline in sales at Johnson & Johnson Medical, Inc., due to the continued reduction in inventories at hospitals and distributors. International sales rose 1.9%, despite the adverse impact of the stronger U.S. dollar relative to international currencies. In 1992, Professional segment sales increased 13.9% over 1991, to $4.63 billion. Domestic sales posted a 17.2% gain, and international sales improved 9.8%. Ethicon Endo-Surgery, Vistakon, LifeScan, Ortho Diagnostic Systems and Johnson & Johnson Professional led the segment with higher sales volume gains in the U.S. and abroad. The acquisition of the Clinical Diagnostics Division is further described on page 38. F-7 8 GEOGRAPHIC AREAS The Company further categorizes its sales and operating profit by major geographic area as presented for the years 1994 and 1993:
INCREASE ---------------- SALES 1994 1993 AMOUNT PERCENT - ------------------------------------------------------------ ------- ------- ------ ------- (DOLLARS IN MILLIONS) United States............................................... $ 7,812 7,203 609 8.5% Europe...................................................... 4,504 4,024 480 11.9 Western Hemisphere excluding U.S............................ 1,511 1,325 186 14.0 Africa, Asia and Pacific.................................... 1,907 1,586 321 20.2 ------- ------- ------ Worldwide total........................................ $15,734 14,138 1,596 11.3% ======= ======= ======
PERCENT OF SALES ------------- OPERATING PROFIT 1994 1993 1994 1993 - ------------------------------------------------------------ ------ ------ ---- ---- (DOLLARS IN MILLIONS) United States............................................... $1,534 1,209 19.6% 16.8% Europe...................................................... 1,050 1,036 23.3 25.7 Western Hemisphere excluding U.S. .......................... 173 156 11.4 11.8 Africa, Asia and Pacific.................................... 198 181 10.4 11.4 ------ ------ Segments total......................................... $2,955 2,582 18.8% 18.3% ====== ======
International sales and operating profit were favorably impacted by the translation of local currency operating results into U.S. dollars at higher average exchange rates in 1994 than in 1993. International sales and operating profit were unfavorably impacted by the translation of local currency operating results into U.S. dollars at lower average exchange rates in 1993 than in 1992. 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. Chart 8: Bar graph showing Sales by Geographic Area of Business for the years 1992 through 1994. See appendix for a complete description. Chart 9: Bar graph showing Operating Profit by Geographic Area of Business for the years 1992 through 1994. See appendix for a complete description. DESCRIPTION OF BUSINESS The Company, employing 81,500 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. 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, Professional and Diagnostic 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. F-8 9 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 40 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. F-9 10 JOHNSON & JOHNSON AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET AT JANUARY 1, 1995 AND JANUARY 2, 1994 (DOLLARS IN MILLIONS) (NOTE 1)
1994 1993 ------- ------- ASSETS Current assets Cash and cash equivalents (Notes 1 and 17)............................. $ 636 372 Marketable securities at cost (Note 17)................................ 68 104 Accounts receivable trade, less allowances $200 (1993, $170)........... 2,601 2,107 Inventories (Notes 1 and 2)............................................ 2,161 1,717 Deferred taxes on income (Note 6)...................................... 582 399 Prepaid expenses and other receivables................................. 632 518 ------- ------- Total current assets................................................ 6,680 5,217 ======= ======= Marketable securities, non-current (Note 17)........................... 354 437 Property, plant and equipment, net (Notes 1 and 3)..................... 4,910 4,406 Intangible assets, net (Notes 1 and 4)................................. 2,403 925 Deferred taxes on income (Note 6)...................................... 262 484 Other assets........................................................... 1,059 773 ------- ------- Total assets........................................................ $15,668 12,242 ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Loans and notes payable (Note 5)....................................... $ 899 915 Accounts payable....................................................... 1,192 901 Accrued liabilities.................................................... 1,602 1,079 Accrued salaries, wages and commissions................................ 257 204 Taxes on income........................................................ 316 113 ------- ------- Total current liabilities........................................... 4,266 3,212 ======= ======= Long-term debt (Note 5)................................................ 2,199 1,493 Deferred tax liability (Note 6)........................................ 130 122 Certificates of extra compensation (Note 11)........................... 85 91 Other liabilities...................................................... 1,866 1,756 Stockholders' equity Preferred stock-without par value (authorized and unissued 2,000,000 shares)............................................................. -- -- Common stock-par value $1.00 per share (authorized 1,080,000,000 shares; issued 767,392,000 and 767,372,000 shares).................. 767 767 Note receivable from employee stock ownership plan (Note 14)........... (73) (84) Cumulative currency translation adjustments (Note 7)................... (35) (338) Retained earnings...................................................... 8,966 7,727 ------- ------- 9,625 8,072 Less common stock held in treasury, at cost (124,382,000 and 124,391,000 shares).................................................... 2,503 2,504 ------- ------- Total stockholders' equity.......................................... 7,122 5,568 ======= ======= Total liabilities and stockholders' equity.......................... $15,668 12,242 ======= =======
See Notes to Consolidated Financial Statements F-10 11 JOHNSON & JOHNSON AND SUBSIDIARIES CONSOLIDATED STATEMENT OF EARNINGS (DOLLARS IN MILLIONS EXCEPT PER SHARE FIGURES) (NOTE 1)
1994 1993 1992 ------- ------- ------- Sales to customers............................................ $15,734 14,138 13,753 ======= ======= ======= Cost of products sold......................................... 5,299 4,791 4,678 Selling, marketing and administrative expenses................ 6,350 5,771 5,671 Research expense.............................................. 1,278 1,182 1,127 Interest income............................................... (60) (80) (93) Interest expense, net of portion capitalized (Note 3)......... 142 126 124 Other expense, net............................................ 44 16 39 ------- ------- ------- 13,053 11,806 11,546 ------- ------- ------- Earnings before provision for taxes on income and cumulative effect of accounting changes................................ 2,681 2,332 2,207 Provision for taxes on income (Note 6)........................ 675 545 582 ------- ------- ------- Earnings before cumulative effect of accounting changes....... 2,006 1,787 1,625 Cumulative effect of accounting changes, net of tax (Notes 6, 15 and 16)........................................ -- -- (595) ------- ------- ------- Net earnings.................................................. $ 2,006 1,787 1,030 ======= ======= ======= Net earnings per share (Note 1): Before cumulative effect of accounting changes.............. $ 3.12 $ 2.74 $ 2.46 Cumulative effect of accounting changes, net of tax (Notes 6, 15 and 16)..................................... -- -- (.90) ------- ------- ------- Net earnings per share........................................ $ 3.12 2.74 1.56 ======= ======= =======
See Notes to Consolidated Financial Statements F-11 12 JOHNSON & JOHNSON AND SUBSIDIARIES CONSOLIDATED STATEMENT OF COMMON STOCK, RETAINED EARNINGS AND TREASURY STOCK (DOLLARS IN MILLIONS; SHARES IN THOUSANDS) (NOTES 1 & 10)
COMMON STOCK ISSUED TREASURY STOCK ---------------- RETAINED ---------------- SHARES AMOUNT EARNINGS SHARES AMOUNT -------- ------ -------- ------- ------ Balance, December 29, 1991.......................... 767,356 $767 $6,313 101,025 $1,488 ======= ====== ====== ======= ====== Net earnings........................................ -- -- 1,030 -- -- Cash dividends paid (per share: $.89)............... -- -- (587) -- -- Employee compensation and stock option plans........ -- -- (108) (4,417) (222) Repurchase of common stock.......................... -- -- -- 15,362 740 Other............................................... 10 -- -- -- -- -------- ------ -------- ------- ------ Balance, January 3, 1993............................ 767,366 767 6,648 111,970 2,006 ======= ====== ====== ======= ====== Net earnings........................................ -- -- 1,787 -- -- Cash dividends paid (per share: $1.01).............. -- -- (659) -- -- Employee compensation and stock option plans........ -- -- (49) (3,066) (134) Repurchase of common stock.......................... -- -- -- 15,487 632 Other............................................... 6 -- -- -- -- -------- ------ -------- ------- ------ Balance, January 2, 1994............................ 767,372 767 7,727 124,391 2,504 ======= ====== ====== ======= ====== Net earnings........................................ -- -- 2,006 -- -- Cash dividends paid (per share: $1.13).............. -- -- (727) -- -- Employee compensation and stock option plans........ -- -- (78) (3,855) (186) Repurchase of common stock.......................... -- -- -- 3,846 185 Other............................................... 20 -- 38 -- -- -------- ------ -------- ------- ------ Balance, January 1, 1995............................ 767,392 $767 $8,966 124,382 $2,503 ======= ====== ====== ======= ======
See Notes to Consolidated Financial Statements F-12 13 JOHNSON & JOHNSON AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (DOLLARS IN MILLIONS) (NOTE 1)
1994 1993 1992 ------- ------- ------- Cash flows from operating activities Net earnings................................................ $ 2,006 1,787 1,030 Adjustments to reconcile net earnings to cash flows: Cumulative effect of accounting changes.................. -- -- 595 Depreciation and amortization of property and intangibles............................................ 724 617 560 Tax deferrals............................................ (66) (19) (8) Changes in assets and liabilities, net of effects from acquisition of businesses: Increase in accounts receivable, less allowances....... (239) (310) (211) Increase in inventories................................ (162) (29) (142) Increase (decrease) in accounts payable and accrued liabilities......................................... 462 (3) 345 (Increase) decrease in other current and non-current assets.............................................. (112) 102 (199) Increase in other current and non-current liabilities......................................... 362 23 179 ------- ------- ------- Net cash flows from operating activities............ 2,975 2,168 2,149 ======= ======= ======= Cash flows from investing activities Additions to property, plant and equipment.................. (937) (975) (1,103) Proceeds from the disposal of assets........................ 332 66 91 Acquisition of businesses, net of cash acquired (Note 18)... (1,932) (266) (47) Other, principally marketable securities.................... (19) (86) (114) ------- ------- ------- Net cash used by investing activities............... (2,556) (1,261) (1,173) ======= ======= ======= Cash flows from financing activities Dividends to stockholders................................... (727) (659) (587) Repurchase of common stock.................................. (185) (632) (740) Proceeds from short-term debt............................... 328 297 409 Retirement of short-term debt............................... (263) (336) (237) Proceeds from long-term debt................................ 960 511 560 Retirement of long-term debt................................ (363) (468) (264) Proceeds from the exercise of stock options................. 62 43 74 ------- ------- ------- Net cash used by financing activities............... (188) (1,244) (785) ======= ======= ======= Effect of exchange rate changes on cash and cash equivalents................................................. 33 (36) (35) ------- ------- ------- Increase (decrease) in cash and cash equivalents.............. 264 (373) 156 Cash and cash equivalents, beginning of year (Note 1)......... 372 745 589 ------- ------- ------- Cash and cash equivalents, end of year (Note 1)............... $ 636 372 745 ======= ======= ======= Supplemental cash flow data Cash paid during the year for: Interest, net of portion capitalized..................... $ 133 118 124 Income taxes............................................. 612 665 561 Supplemental schedule of noncash investing and financing activities Treasury stock issued for employee compensation and stock option plans, net of cash proceeds....................... $ 133 95 163 Acquisitions of businesses Fair value of assets acquired............................... $ 2,279 339 47 Fair value of liabilities assumed........................... (347) (73) -- ------- ------- ------- Net cash payments................................... $ 1,932 266 47 ======= ======= =======
See Notes to Consolidated Financial Statements F-13 14 JOHNSON & JOHNSON AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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. 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. Income Taxes The Company intends to continue to reinvest its undistributed international earnings to expand its international operations; therefore, no tax has been provided to cover the repatriation of such undistributed earnings. At January 1, 1995 and January 2, 1994, the cumulative amount of undistributed international earnings was approximately $3.7 billion and $3.0 billion, respectively. Net Earnings Per Share Net earnings per share are 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 prior year stock splits. F-14 15 JOHNSON & JOHNSON AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Annual Closing Date The Company follows the concept of a fiscal year which ends on the Sunday nearest to the end of the month of December. Normally each fiscal year consists of 52 weeks, but every five or six years, as was the case in 1992, 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 1994 and 1993, inventories comprised:
1994 1993 ------ ------ (DOLLARS IN MILLIONS) Raw materials and supplies....................................... $ 477 448 Goods in process................................................. 640 485 Finished goods................................................... 1,044 784 ------ ------ $2,161 1,717 ====== ======
3. PROPERTY, PLANT AND EQUIPMENT At the end of 1994 and 1993, property, plant and equipment at cost and accumulated depreciation comprised:
1994 1993 ------ ------ (DOLLARS IN MILLIONS) Land and land improvements....................................... $ 300 276 Buildings and building equipment................................. 2,521 2,389 Machinery and equipment.......................................... 4,102 3,454 Construction in progress......................................... 732 664 ------ ------ 7,655 6,783 Less accumulated depreciation.................................... 2,745 2,377 ------ ------ $4,910 4,406 ====== ======
The Company capitalizes interest expense as part of the cost of construction of facilities and equipment. Interest expense capitalized in 1994, 1993 and 1992 was $44, $48 and $53 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 1994 and 1993, intangible assets, consisting primarily of patents and goodwill, comprised:
1994 1993 ------ ------ (DOLLARS IN MILLIONS) Intangible assets................................................ $2,667 1,255 Less accumulated amortization.................................... 264 330 ------ ------ $2,403 925 ====== ======
F-15 16 JOHNSON & JOHNSON AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The increase in intangible assets is due primarily to the acquisition of businesses during 1994. See page 38 for additional information. 5. BORROWINGS The Company has access to substantial sources of funds at numerous banks worldwide. Total unused credit available to the Company approximates $3.0 billion, including $1,175 million of credit commitments with various worldwide banks, $900 million of which expire on October 6, 1995 and $275 million on December 31, 1995. Borrowings under the credit line agreements will bear interest based on either bids provided by the banks or the prime rate, London Interbank Offered Rates (LIBOR) or Certificate of Deposit rates, plus applicable margins. Commitment fees under the agreements are not material. Long-term debt comprised:
EFF. EFF. 1994 RATE 1993 RATE ------ ---- ------ ----- (DOLLARS IN MILLIONS) 8.72% Debentures due 2024............................... $ 300 8.72% -- -- 8 1/2% Notes due 1995................................... 250 8.50 250 8.50 6.73% Debentures due 2023............................... 250 6.73 250 6.73 7 3/8% Eurodollar Notes due 1997........................ 200 7.40 -- -- 8% Notes due 1998....................................... 200 7.97 200 7.97 7 3/8% Notes due 2002................................... 198 7.46 198 7.46 8.25% Eurodollar Notes due 2004......................... 198 8.24 -- -- 9% European Currency Unit Notes due 1997(1)............. 185 6.80 167 6.82 7.38% to 8.38% Medium Term Notes due 1993 -- 8.......... 160 8.23 250 7.89 11 1/4% Italian Lire Notes due 1998(1).................. 125 5.53 -- -- 5 3/8% Swiss Franc Notes due 1997(1).................... 117 5.31 -- -- 8.82% Italian Lire Notes due 2003(1).................... 94 4.07 89 2.86 Industrial Revenue Bonds................................ 73 4.87 81 4.18 4 1/2% Currency Indexed Notes due 1998(1)............... 66 4.08 73 2.82 Floating Rate Medium Term Notes due 1994................ -- -- 150 2.87 7% Swiss Franc Notes due 1994(1)........................ -- -- 101 2.46 Other, principally international........................ 44 -- 37 -- ------ ------ 2,460 1,846 Less current portion.................................... 261 353 ------ ------ $2,199 1,493 ====== ======
- --------------- (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 gains (losses) on the 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 17. 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 $2,585 million of unsecured debt securities and warrants to purchase debt securities. No MTN's were issued during 1994, while $150 million of MTN's were issued in 1993. In addition, in 1994, the Company issued $300 million of 8.72% Debentures due 2024 from the F-16 17 JOHNSON & JOHNSON AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) shelf registration and $127.5 million equivalent of 11.25% Italian Lire Notes due 1998, $116.4 million equivalent of 5.375% Swiss Franc Bonds due 1997, $200 million 7.375% Eurodollar Notes due 1997 and $200 million 8.25% Eurodollar Notes due 2004. The proceeds were used for general corporate purposes, including the retirement of commercial paper and financing acquisitions. At January 1, 1995, the Company had $2,285 million remaining on its shelf registration. Short-term borrowings amounted to $899 million at the end of 1994. These borrowings are composed of $295 million of U.S. commercial paper, $250 million equivalent 8.5% Notes due 1995, $354 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 16% according to local conditions. Aggregate maturities of long-term obligations for each of the next five years commencing in 1995 are:
1995 1996 1997 1998 1999 ---- ---- ---- ---- --- (DOLLARS IN MILLIONS) $261 116 509 466 15
6. INCOME TAXES The provision for taxes on income consist of:
1994 1993 1992 ---- ---- ---- (DOLLARS IN MILLIONS) Currently payable: U.S. taxes on domestic income............................... $318 190 179 U.S. taxes on international income.......................... (30) (1) (14) International taxes......................................... 404 345 403 U.S. state and local taxes.................................. 49 30 22 ---- ---- ---- 741 564 590 ---- ---- ---- Deferred: U.S. taxes.................................................. (36) (26) (29) International taxes......................................... (30) 7 21 ---- ---- ---- (66) (19) (8) ---- ---- ---- $675 545 582 ==== ==== ====
Deferred taxes result from the effect of transactions which are recognized in different periods for financial and tax reporting purposes and relate primarily to employee benefits, depreciation and other valuation allowances. Effective December 30, 1991, the Company adopted the provisions of Statement of Financial Accounting Standard (SFAS) No. 109, "Accounting for Income Taxes." The cumulative effect of $35 million, or $.05 per share, is reported as a one-time charge in the 1992 Consolidated Statement of Earnings. Prior years' financial statements have not been restated to apply the provisions of SFAS No. 109. The standard required a change from the deferred to the liability method of computing deferred income taxes. 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. F-17 18 JOHNSON & JOHNSON AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Temporary differences and carryforwards for 1994 are as follows:
DEFERRED TAX -------------------- ASSET LIABILITY ------ --------- (DOLLARS IN MILLIONS) Postretirement benefits................................................... $ 255 -- Postemployment benefits................................................... 104 -- Employee benefit plans.................................................... 93 -- Depreciation.............................................................. -- 214 Non-deductible intangibles................................................ -- 157 Alternative minimum tax credits........................................... 101 -- International R&D capitalized for tax..................................... 81 -- Reserves & liabilities.................................................... 286 -- Income reported for tax purposes.......................................... 112 -- Miscellaneous international............................................... 65 157 Miscellaneous U.S......................................................... 237 126 ------ ------ Total deferred income taxes.......................................... $1,334 654 ====== ======
A comparison of income tax expense at the federal statutory rate of 35% in 1994 and 1993, and 34% in 1992 to the Company's effective tax rate is as follows:
1994 1993 1992 ------ ------ ------ (DOLLARS IN MILLIONS) Earnings before taxes on income: U.S........................................................... $1,317 1,006 863 International................................................. 1,364 1,326 1,344 ------ ------ ------ Worldwide..................................................... $2,681 2,332 2,207 ====== ====== ====== Statutory taxes................................................. $ 938 816 750 Tax Rates: Statutory..................................................... 35.0% 35.0% 34.0% Puerto Rico & Ireland operations.............................. (9.2) (9.7) (9.6) Research tax credits.......................................... (0.5) (0.7) (0.3) Domestic state and local...................................... 1.2 0.8 0.7 International subsidiaries excluding Ireland.................. (1.8) (2.4) 0.7 All other..................................................... 0.5 0.4 0.9 ------ ------ ------ Effective tax rate.............................................. 25.2% 23.4% 26.4% ====== ====== ======
The increase in the 1994 worldwide effective tax rate was primarily due to the increase in income subject to tax in the United States. For 1994, the Company has 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. In addition, the Company has subsidiaries manufacturing in Ireland under an incentive tax rate expiring on December 31, 2010. F-18 19 JOHNSON & JOHNSON AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 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 stockholders' 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 Brazil, which are reflected in operating results. These translation adjustments do not exist in terms of functional cash flows; such adjustments are not reported as part of operating results since realization is remote unless the international businesses were sold or liquidated. An analysis of the changes during 1994 and 1993 in the separate component of stockholders' equity for cumulative currency translation adjustments follows:
1994 1993 ----- ------ (DOLLARS IN MILLIONS) Beginning of year................................................. $(338) (146) Translation adjustments........................................... 303 (192) ----- ----- End of year....................................................... $ (35) (338) ===== =====
Net currency transaction and translation gains and losses included in other expense were after-tax losses (gains) of $4, $5 and $(12) million in 1994, 1993 and 1992, respectively, incurred principally in Latin America. 8. INTERNATIONAL SUBSIDIARIES The following amounts are included in the consolidated financial statements for international subsidiaries:
1994 1993 ------ ------ (DOLLARS IN MILLIONS) Current assets................................................... $3,702 3,049 Current liabilities.............................................. 1,970 1,693 Net property, plant and equipment................................ 1,893 1,619 Parent company equity in net assets.............................. 4,514 3,563 Excess of parent company equity over investments................. 4,030 3,093
International sales to customers were $7,922, $6,935 and $6,850 million for 1994, 1993 and 1992, 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 $276 million in 1994, $254 million in 1993 and $259 million in 1992. The approximate minimum rental payments required under operating leases that have initial or remaining noncancellable lease terms in excess of one year at January 1, 1995 are:
AFTER 1995 1996 1997 1998 1999 2000 TOTAL ---- ---- ---- ---- ---- ----- ----- (DOLLARS IN MILLIONS) $103 83 50 32 21 67 356
F-19 20 JOHNSON & JOHNSON AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Commitments under capital leases are not significant. 10. COMMON STOCK, STOCK OPTION PLANS AND STOCK COMPENSATION AGREEMENTS The Company has stock option plans which provide for the granting of options to certain officers and employees to purchase shares of its common stock within prescribed periods at prices equal to the fair market value on the date of grant. Share activity during 1994 and 1993 under the Company's stock option plans is summarized below:
1994 1993 -------- -------- (SHARES IN THOUSANDS, PRICE PER SHARE) Held at beginning of year by 3,304 employees (1993-3,002)....... 34,995 26,986 Granted to 1,850 employees (1993-2,578)......................... 5,709 11,272 -------- -------- 40,704 38,258 Exercised (1992-3,928).......................................... (3,169) (2,182) Cancelled or expired............................................ (1,263) (1,081) -------- -------- Held at end of year by 3,591 employees (1993-3,304)............. 36,272 34,995 ======== ======= Shares exercisable, end of year (1992-11,947)................... 14,566 13,880 ======== ======= Shares available for future grants, end of year (1992-19,693)... 4,125 8,883 ======== ======= Price range of options exercised (1992-$7.39 to $35.66)......... $8.85 to 8.85 to $ 50.28 35.66 ======== ======= Price range of options held, end of year........................ $8.91 to 8.85 to $ 57.75 57.75 ======== =======
At year-end, the Company was obligated to deliver, over a period of not more than two years, 115 thousand shares of common stock (1993-298) in performance of outstanding stock compensation agreements with 1,944 employees (1993-6,930). 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. F-20 21 JOHNSON & JOHNSON AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 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 pension plans which are underfunded. Net pension expense for the Company's defined benefit plans for 1994, 1993 and 1992 included the following components:
1994 1993 1992 ----- ---- ---- (DOLLARS IN MILLIONS) Service cost-benefits earned during period................... $ 120 109 110 Interest cost on projected benefit obligations............... 188 168 163 Actual return on plan assets................................. (3) (350) (163) Net amortization and deferral................................ (199) 149 (31) Curtailment losses(gains).................................... 1 (5) -- ----- ---- ---- Net periodic pension cost.................................... $ 107 71 79 ===== ==== ====
The net periodic pension cost attributable to domestic plans and included above was $49 million in 1994, $27 million in 1993 and $36 million in 1992. The following tables provide the domestic assumptions and 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 1994 1993 1992 ---------------------- ---- ---- ---- Expected long-term rate of return on plan assets................ 9.0 % 9.0% 9.5% Weighted average discount rate.................................. 8.75 7.5 8.5 Rate of increase in compensation levels......................... 5.5 5.5 7.0
INTERNATIONAL PENSION PLANS 1994 1993 1992 --------------------------- -------- ------- -------- Expected long-term rate of return on plan assets...... 5.0-10.0% 5.0-9.5% 5.0-11.0% Weighted average discount rates....................... 4.5-10.0 4.5-9.5 5.0-11.0 Rate of increase in compensation levels............... 3.0-7.0 3.0-6.5 3.5-8.0
F-21 22 JOHNSON & JOHNSON AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following table sets forth the actuarial present value of benefit obligations and funded status at year-end 1994 and 1993 for the Company's defined benefit plans:
YEAR-END 1994 ------------------------------ INTERNATIONAL ----------------- OVER- UNDER- DOMESTIC FUNDED FUNDED -------- ------ ------ (DOLLARS IN MILLIONS) Plan assets at fair value, primarily stocks and bond...... $1,540 814 22 ------ ----- ------ Actuarial present value of benefit obligations: Vested benefits......................................... 1,349 519 158 Nonvested benefits...................................... 17 33 26 Accumulated benefit obligation............................ 1,366 552 184 Effect of projected future salary increases............... 208 186 38 Projected benefit obligation.............................. 1,574 738 222 (34) 76 (200) Unrecognized prior service cost........................... 70 28 4 Unrecognized net (gain) loss.............................. (273) 17 1 Unamortized net transition (assets) liabilities........... (24) (79) 10 Additional minimum liability.............................. (12) -- (7) Net pension (liability) asset included in the balance sheet................................................... $ (273) 42 (192)
YEAR-END 1993 ------------------------------ INTERNATIONAL ----------------- OVER- UNDER- DOMESTIC FUNDED FUNDED -------- ------ ------ (DOLLARS IN MILLIONS) Plan assets at fair value, primarily stocks and bond...... $1,659 719 38 Actuarial present value of benefit obligations: Vested benefits...................................... 1,313 435 142 Nonvested benefits................................... 20 7 32 Accumulated benefit obligation............................ 1,333 442 174 Effect of projected future salary increases............... 349 153 63 Projected benefit obligation.............................. 1,682 595 237 (23) 124 (199) Unrecognized prior service cost........................... 132 22 3 Unrecognized net (gain) loss.............................. (298) 14 (1) Unamortized net transition (assets) liabilities........... (30) (92) 21 Additional minimum liability.............................. (16) -- (4) Net pension (liability) asset included in the balance sheet................................................... $ (235) 68 (180)
14. SAVINGS PLAN The Company has a voluntary 401(k) savings plan designed to enhance the existing retirement program covering eligible domestic employees. The Company matches 75% of each employee's contributions, with the match percentage applying to a maximum of 6% of base salary. 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 F-22 23 JOHNSON & JOHNSON AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 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 stockholders' equity. Company contributions to the savings plan were $41 million in 1994, $42 million in 1993 and $40 million in 1992. 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. Effective December 30, 1991, the Company adopted the provisions of Statement of Financial Accounting Standard (SFAS) No. 106 "Employers' Accounting for Postretirement Benefits Other Than Pensions." SFAS No. 106 requires accrual accounting for these benefits rather than accounting for them on a cash basis. Upon adoption, the Company elected to record the accumulated obligation of $549 million ($340 million after-tax or $.52 per share) as a one-time charge against earnings in the form of a cumulative effect of an accounting change. The net periodic postretirement benefit costs for retirees included the following components:
1994 1993 1992 ---- ---- ---- (DOLLARS IN MILLIONS) Service cost-benefits earned during the current year............. $16 18 19 Interest cost on accumulated postretirement benefit obligation... 44 57 49 Actual return on plan assets..................................... -- (4) (4) Net amortization and deferral.................................... (3) (1) -- --- --- --- Net periodic postretirement benefit cost......................... $57 70 64 === === ===
The plans' status as of year-end 1994 and 1993 was as follows:
YEAR-END ----------------- 1994 1993 ---- ---- (DOLLARS IN MILLIONS) Accumulated postretirement benefit obligation: Retirees........................................................ $344 320 Fully eligible active participants.............................. 62 148 Other active participants....................................... 100 164 ---- ---- Accumulated postretirement benefit obligation..................... 506 632 Life insurance plan assets at fair value.......................... 36 39 ---- ---- Accumulated postretirement benefit obligation in excess of plans' assets.......................................................... 470 593 ---- ---- Unrecognized net gain............................................. 188 37 Unrecognized prior service cost................................... 5 12 ---- ---- Accrued postretirement benefit cost............................... $663 642 ==== ====
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 2006 and beyond. The effect of a 1% annual increase in these assumed cost trend rates would increase the F-23 24 JOHNSON & JOHNSON AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 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 1994 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:
1994 1993 1992 ---- ---- ---- (DOLLARS IN MILLIONS) Expected long-term rate of return on plan assets................. 9.0 % 9.0% 9.5% Weighted average discount rate................................... 8.75 7.5 8.5 Rate of increase in compensation levels.......................... 5.5 5.5 7.0
16. OTHER POSTEMPLOYMENT BENEFITS The Company provides certain other 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. Effective December 30, 1991, the Company adopted the provisions of Statement of Financial Accounting Standard (SFAS) No. 112 "Employers' Accounting for Postemployment Benefits." SFAS No. 112 requires accrual accounting for these benefits rather than the cash method of accounting. Upon adoption, the Company elected to record the accumulated obligation of $343 million ($220 million after-tax or $.33 per share) as a one-time charge against earnings in the form of a cumulative effect of an accounting change. 17. 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 counter-parties to these contracts are major financial institutions and the Company does not have significant exposure to any one counter-party. 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 borrowing. 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 are used by the Company to fix the rates received on short-term floating-rate investments and mature within 1 year. 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 F-24 25 JOHNSON & JOHNSON AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) indication of the extent of the Company's involvement in such agreements but do not represent its exposure to market risk.)
1994 ---------------------------------------------- WEIGHTED AVG. RATE NOTIONAL MATURITY ------------------ (Dollars in Millions) AMOUNTS DATE RECEIVE PAY --------------------------------------------------------------------------------------------- Interest rate and currency swaps Pay variable(1)........................ $116 1997 5.4% 5.8% 193 1998 9.0 5.2 95 2003 8.8 4.3 Pay fixed.............................. $188 1997 9.0 6.8 Forward rate agreements..................... $628 1995 6.8% 6.0%
- --------------- (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 and almost always acts as a buyer. The Company has forward exchange contracts outstanding at year-end in various currencies principally in U.S. Dollars, Japanese Yen and German Marks. In addition, the Company has currency swaps outstanding principally in Swiss Francs, Italian Lire and British Pounds. Deferred unrealized gains and losses, based on dealer-quoted prices, from hedging firm commitments are presented in the following table:
1994 ----------------------------- NOTIONAL AMOUNTS GAINS LOSSES -------- ----- ------ (DOLLARS IN MILLIONS) Forwards................................................... $1,605 19 30 Currency swaps............................................. 1,714 13 13
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. F-25 26 JOHNSON & JOHNSON AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The estimated fair value of the Company's financial instruments are as follows:
1994 1993 ------------------- ------------------- CARRYING FAIR CARRYING FAIR AMOUNT VALUE AMOUNT VALUE -------- ------ -------- ------ (DOLLARS IN MILLIONS) Nonderivatives Cash and cash equivalents.................... $ 636 636 372 372 Marketable securities -- current............. 68 68 104 109 Marketable securities -- non-current......... 354 354 437 440 Long-term investments(1)..................... 147 149 41 103 Long-term debt............................... 2,460 2,387 1,846 1,934 Derivatives Other assets (liabilities): Currency swaps (net)...................... -- -- -- 13 Forwards (net)............................ -- (11) -- 44 Forward rate agreements................... -- 5 -- -- Interest and currency swap agreements related to debt......................... 5 (13) 24 (3)
- --------------- (1) 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. Effective January 3, 1994, the Company adopted Statement of Financial Accounting Standard (SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity Securities." Investments subject to this standard are required to be carried at fair value, unless they are held to maturity. There was no effect on income as a result of adopting SFAS No. 115. The fair value of investment securities classified as available for sale, totaled $151 million at January 1, 1995, which exceeded the carrying amount by $58 million. This unrealized gain was credited to stockholders' equity net of deferred income taxes of $20 million. These investment securities are included in marketable securities current ($17 million) and other assets ($134 million) on the balance sheet. All other investments are classified as held to maturity and carried at amortized cost. 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. F-26 27 JOHNSON & JOHNSON AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 18. ACQUISITIONS AND DIVESTITURES During 1994 and 1993, certain businesses were acquired for $1,932 million and $266 million, respectively. These acquisitions were accounted for by the purchase method and accordingly the results of operations of the acquired businesses have been included in the accompanying consolidated financial statements from their respective dates of acquisition. On September 27, 1994, the Company acquired substantially all of the outstanding shares of the Neutrogena Corporation pursuant to a cash tender offer. On October 3, 1994 the Company consummated a short form merger pursuant to which the remaining shares were acquired. The price, net of cash acquired, was approximately $924 million. Neutrogena Corporation is a manufacturer of high quality skin and hair care products. On November 30, 1994 the Company acquired Eastman Kodak's Clinical Diagnostics business, a worldwide supplier of diagnostic products, for $1,008 million. The estimated fair market value of net assets acquired in the Neutrogena and Clinical Diagnostics acquisitions is $439 million. The excess of purchase price over the estimated fair value has been allocated to identifiable intangibles ($849 million) and goodwill ($644 million). Identifiable intangibles and goodwill are being amortized on a straight line basis over periods of 15 to 40 years. Summarized below are unaudited pro forma combined results of operations for the years ended January 1, 1995 and January 2, 1994 assuming the Neutrogena and Clinical Diagnostics acquisitions occurred at the beginning of each year presented:
1994 1993 -------- -------- (DOLLARS IN MILLIONS (EXCEPT PER SHARE FIGURES) Sales......................................................... $16,414 14,955 Net earnings.................................................. 1,980 1,770 Net earnings per share........................................ 3.08 2.72
The unaudited pro forma combined results of operations are not necessarily indicative of the results of operations that would have occurred had the businesses actually been combined during the periods presented; nor is this information indicative of future combined results of operations. The 1993 acquisitions include the purchase of the RoC S.A. group of Companies which market hypo-allergenic skin, body and beauty care products worldwide under the RoC, KEFRANE and KEOPS trademarks from LVMH, Inc. and the ORTHOXICOL line of cough and cold products from Upjohn in Australia. In 1994, the Company completed the sales of the Janssen Chimica prepak and bulk chemical supply business and the "A" Company orthodontic supplies business. In addition, the Company sold the ophthalmic pharmaceutical product line of IOLAB Corporation to Ciba Vision for approximately $300 million. In 1993, the Company completed the sale of the Sterile Design division of Johnson & Johnson Medical Products, Inc. and the CHUX disposable wiping cloth business in Australia and New Zealand. The after-tax gain on the sale of the above businesses, was reinvested in certain base businesses. 19. 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 F-27 28 JOHNSON & JOHNSON AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 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. 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. 20. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) Selected unaudited quarterly financial data for the years 1994 and 1993 is summarized below:
1994 ------------------------------------------- FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER ------- ------- ------- ------- (DOLLARS IN MILLIONS EXCEPT PER SHARE FIGURES) Segment sales to customers Consumer...................................... $1,279 1,270 1,374 1,328 Pharmaceutical................................ 1,190 1,308 1,347 1,313 Professional.................................. 1,221 1,338 1,317 1,449 Total sales..................................... 3,690 3,916 4,038 4,090 Gross margin.................................... 2,509 2,629 2,674 2,623 Earnings before provision for taxes on income... 736 762 713 470 Net earnings.................................... 544 559 525 378 Net earnings per share........................ $ .85 .86 .82 .59
1993 ------------------------------------------- FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER ------- ------- ------- ------- (DOLLARS IN MILLIONS EXCEPT PER SHARE FIGURES) Segment sales to customers Consumer...................................... $1,277 1,184 1,215 1,148 Pharmaceutical................................ 1,112 1,119 1,111 1,148 Professional.................................. 1,171 1,238 1,180 1,235 Total sales..................................... 3,560 3,541 3,506 3,531 Gross margin.................................... 2,397 2,393 2,318 2,239 Earnings before provision for taxes on income... 700 670 582 380 Net earnings.................................... 503 495 454 335 Net earnings per share........................ $ .77 .75 .70 .52
21. SUBSEQUENT EVENT In January 1995, the Company announced that it had agreed in principle to sell the Advanced Materials and Chicopee B.V., Netherlands nonwoven businesses. The decision to divest the nonwoven operations is consistent with the Company's strategy to focus its resources on its primary health care mission. The terms of the agreement have not been finalized. The disposition of Advanced Materials and Chicopee B.V. will not have a material effect on the Company's financial position or operating results. F-28 29 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. The financial statements are consistent in all material respects with standards issued to date by the International Accounting Standards Committee. 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 control structure and conducts such tests and other auditing procedures considered necessary in the circumstances to express the 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. RALPH S. LARSEN CLARK H. JOHNSON Chairman, Board of Directors Vice President, Finance and Chief Executive Officer and Chief Financial Officer
F-29 30 INDEPENDENT AUDITOR'S REPORT To the Stockholders and Board of Directors of Johnson & Johnson: We have audited the consolidated balance sheet of Johnson & Johnson and subsidiaries as of January 1, 1995 and January 2, 1994, 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 January 1, 1995. 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 January 1, 1995 and January 2, 1994, and the results of its operations and its cash flows for each of the three years in the period ended January 1, 1995, in conformity with generally accepted accounting principles. As discussed in Notes 6, 15 and 16 to the consolidated financial statements, effective December 30, 1991 the Company changed its method of accounting for income taxes, postretirement benefits other than pensions and postemployment benefits. COOPERS & LYBRAND L.L.P. New York, New York January 23, 1995 F-30 31 JOHNSON & JOHNSON AND SUBSIDIARIES SEGMENTS OF BUSINESS(1)
SALES TO CUSTOMERS(2) ------------------------------- 1994 1993 1992 ------- ------- ------- (DOLLARS IN MILLIONS) Consumer-Domestic............................................. $ 2,692 2,631 2,608 International...................................... 2,559 2,193 2,172 ------- ------- ------- Total.............................................. 5,251 4,824 4,780 ------- ------- ------- Pharmaceutical-Domestic....................................... 2,143 1,775 1,652 International...................................... 3,015 2,715 2,688 ------- ------- ------- Total.............................................. 5,158 4,490 4,340 ------- ------- ------- Professional-Domestic......................................... 2,977 2,797 2,643 International...................................... 2,348 2,027 1,990 ------- ------- ------- Total.............................................. 5,325 4,824 4,633 ------- ------- ------- Worldwide total............................................... $15,734 14,138 13,753 ======= ======= =======
OPERATING PROFIT IDENTIFIABLE ASSETS ------------------------ --------------------------- 1994 1993 1992 1994 1993 1992 ------ ------ ------ ------- ------- ------- (DOLLARS IN MILLIONS) Consumer.................................. $ 443 521 501 4,489 3,452 3,359 Pharmaceutical............................ 1,669 1,406 1,364 4,756 3,815 3,733 Professional.............................. 843 655 598 5,765 4,365 4,216 ------ ------ ------ ------- ------- ------- Segments total............................ 2,955 2,582 2,463 15,010 11,632 11,308 Expenses not allocated to segments(3)............................. (274) (250) (256) General corporate......................... 658 610 576 ------ ------ ------ ------- ------- ------- Worldwide total........................... $2,681 2,332 2,207 15,668 12,242 11,884 ====== ====== ====== ======= ======= =======
ADDITIONS TO PROPERTY, DEPRECIATION AND PLANT & EQUIPMENT AMORTIZATION ------------------------ ---------------------- 1994 1993 1992 1994 1993 1991 ---- ---- ------ ---- ---- ---- (DOLLARS IN MILLIONS) Consumer.................................... $218 260 273 241 205 191 Pharmaceutical.............................. 327 313 317 183 159 151 Professional................................ 365 368 462 268 221 191 ---- ---- ------ ---- ---- ---- Segments total.............................. 910 941 1,052 692 585 533 General corporate........................... 27 34 51 32 32 27 ---- ---- ------ ---- ---- ---- Worldwide total............................. $937 975 1,103 724 617 560 ==== ==== ====== ==== ==== ====
F-31 32 GEOGRAPHIC AREAS
SALES TO CUSTOMERS(2) OPERATING PROFIT IDENTIFIABLE ASSETS ----------------------------- -------------------------- ----------------------------- 1994 1993 1992 1994 1993 1992 1994 1993 1992 ------- ------- ------- ------ ------ ------ ------- ------- ------- (DOLLARS IN MILLIONS) United States.......... $ 7,812 7,203 6,903 1,534 1,209 1,052 8,430 6,252 6,102 Europe................. 4,504 4,024 4,246 1,050 1,036 1,125 4,271 3,625 3,430 Western Hemisphere excluding U.S........ 1,511 1,325 1,206 173 156 132 970 742 805 Africa, Asia and Pacific.............. 1,907 1,586 1,398 198 181 154 1,339 1,013 971 ------- ------- ------- ------ ------ ------ ------- ------- ------- Segments total......... 15,734 14,138 13,753 2,955 2,582 2,463 15,010 11,632 11,308 ------- ------- ------- ------ ------ ------ ------- ------- ------- Expenses not allocated to segments(3)....... (274) (250) (256) General corporate...... 658 610 576 ------- ------- ------- ------ ------ ------ ------- ------- ------- Worldwide total........ $15,734 14,138 13,753 2,681 2,332 2,207 15,668 12,242 11,884 ======= ======= ======= ====== ====== ====== ======= ======= =======
- --------------- (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. F-32 33 JOHNSON & JOHNSON AND SUBSIDIARIES SUMMARY OF OPERATIONS AND STATISTICAL DATA 1984-1994
1994 1993 1992 ------- ------- ------- (DOLLARS IN MILLIONS EXCEPT PER SHARE FIGURES) Sales to customers -- Domestic................................ $ 7,812 7,203 6,903 Sales to customers -- International........................... 7,922 6,935 6,850 ------- ------- ------- Total sales................................................... 15,734 14,138 13,753 ------- ------- ------- Cost of products sold......................................... 5,299 4,791 4,678 Selling, marketing and administrative expenses................ 6,350 5,771 5,671 Research expense.............................................. 1,278 1,182 1,127 Permanent impairment of certain assets and operations in Latin America..................................................... -- -- -- Redirection charges........................................... -- -- -- Interest income............................................... (60) (80) (93) Interest expense, net of portion capitalized.................. 142 126 124 Other expense (income), net................................... 44 16 39 ------- ------- ------- 13,053 11,806 11,546 ------- ------- ------- Earnings before provision for taxes on income................. 2,681 2,332 2,207 Provision for taxes on income................................. 675 545 582 ------- ------- ------- Earnings before cumulative effect of accounting changes....... 2,006 1,787 1,625 Cumulative effect of accounting changes (net of tax).......... -- -- (595) ------- ------- ------- Net earnings.................................................. $ 2,006 1,787 1,030 ------- ------- ------- Percent of sales to customers................................. 12.7 12.6 7.5 (1) Net earnings per share of common stock........................ $ 3.12 2.74 1.56 Percent return on average stockholders' equity................ 31.6 33.3 19.1 (1) Percent increase (decrease) over previous year: Sales to customers............................................ 11.3 2.8 10.5 Net earnings per share........................................ 13.9 75.6 (1) (28.8)(1) Supplementary expense data: Cost of materials and services(5)............................. $ 7,952 7,033 6,857 Total employment costs........................................ 4,282 4,066 4,044 Depreciation and amortization................................. 724 617 560 Maintenance and repairs(6).................................... 217 202 210 Total tax expense(7).......................................... 1,142 968 1,000 Total tax expense per share(7)................................ 1.78 1.49 1.52 Supplementary balance sheet data: Property, plant and equipment, net............................ $ 4,910 4,406 4,115 Additions to property, plant and equipment.................... 937 975 1,103 Total assets.................................................. 15,668 12,242 11,884 Long-term debt................................................ 2,199 1,493 1,365 Common stock information: Dividends paid per share...................................... $ 1.13 1.01 .89 Stockholders' equity per share................................ $ 11.08 8.66 7.89 Market price per share (year-end close)....................... $54 3/4 44 7/8 50 1/2 Average shares outstanding (millions)......................... 643.1 651.7 659.5 Stockholders of record (thousands)............................ 104.7 96.1 84.1 Employees (thousands)......................................... 81.5 81.6 84.9
F-33 34 JOHNSON & JOHNSON AND SUBSIDIARIES SUMMARY OF OPERATIONS AND STATISTICAL DATA 1984-1994 -- (CONTINUED)
1991 1990 1989 ------- ------- ------- (DOLLARS IN MILLIONS EXCEPT PER SHARE FIGURES) Sales to customers -- Domestic................................ $ 6,248 5,427 4,881 Sales to customers -- International........................... 6,199 5,805 4,876 ------- ------- ------- Total sales................................................... 12,447 11,232 9,757 ------- ------- ------- Cost of products sold......................................... 4,204 3,937 3,480 Selling, marketing and administrative expenses................ 5,099 4,469 3,897 Research expense 980 834 719 Permanent impairment of certain assets and operations in Latin America..................................................... -- 104 -- Redirection charges........................................... -- -- -- Interest income............................................... (88) (98) (87) Interest expense, net of portion capitalized.................. 129 201(4) 141 Other expense (income), net................................... 85 162 93 ------- ------- ------- 10,409 9,609 8,243 ------- ------- ------- Earnings before provision for taxes on income................. 2,038 1,623 1,514 Provision for taxes on income................................. 577 480 432 ------- ------- ------- Earnings before cumulative effect of accounting changes....... 1,461 1,143 1,082 Cumulative effect of accounting changes (net of tax).......... -- -- -- ------- ------- ------- Net earnings.................................................. $ 1,461 1,143 1,082 ------- ------- ------- Percent of sales to customers................................. 11.7 10.2(2) 11.1 Net earnings per share of common stock........................ $ 2.19 1.72 1.62 Percent return on average stockholders' equity................ 27.8 25.3(2) 28.3 Percent increase (decrease) over previous year: Sales to customers............................................ 10.8 15.1 8.4 Net earnings per share........................................ 27.3(2) 6.2(2) 13.3 Supplementary expense data: Cost of materials and services(5)............................. $ 6,329 5,728 4,908 Total employment costs........................................ 3,507 3,195 2,871 Depreciation and amortization................................. 493 474 414 Maintenance and repairs(6).................................... 203 185 193 Total tax expense(7).......................................... 966 825 708 Total tax expense per share(7)................................ 1.45 1.24 1.06 Supplementary balance sheet data: Property, plant and equipment, net............................ $ 3,667 3,247 2,846 Additions to property, plant and equipment.................... 987 830 750 Total assets.................................................. 10,513 9,506 7,919 Long-term debt................................................ 1,301 1,316 1,170 Common stock information: Dividends paid per share...................................... $ .77 .66 .56 Stockholders' equity per share................................ $ 8.44 7.36 6.23 Market price per share (year-end close)....................... $57 1/4 35 7/8 29 5/8 Average shares outstanding (millions)......................... 666.1 666.1 666.2 Stockholders of record (thousands)............................ 69.9 64.6 60.5 Employees (thousands)......................................... 82.7 82.2 83.1
F-34 35 JOHNSON & JOHNSON AND SUBSIDIARIES SUMMARY OF OPERATIONS AND STATISTICAL DATA 1984-1994 -- (CONTINUED)
1988 1987 1986 ------- ------- ------- (DOLLARS IN MILLIONS EXCEPT PER SHARE FIGURES) 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........................ $ 1.43 1.21 .46 Percent return on average stockholders' 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)................................ 1.00 .86 .40 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...................................... $ .48 .40 .34 Stockholders' equity per share................................ $ 5.26 5.06 4.09 Market price per share (year-end close)....................... $21 1/4 18 3/4 16 7/8 Average shares outstanding (millions)......................... 681.2 690.3 713.6 Stockholders of record (thousands)............................ 54.5 51.2 52.1 Employees (thousands)......................................... 81.3 78.2 77.1
F-35 36 JOHNSON & JOHNSON AND SUBSIDIARIES SUMMARY OF OPERATIONS AND STATISTICAL DATA 1984-1994 -- (CONTINUED)
1985 1984 ------ ------ (DOLLARS IN MILLIONS EXCEPT PER SHARE FIGURES) Sales to customers -- Domestic........................................... $3,990 3,736 Sales to customers -- International...................................... 2,431 2,389 ------ ------ Total sales.............................................................. 6,421 6,125 ------ ------ Cost of products sold.................................................... 2,592 2,485 Selling, marketing and administrative expenses........................... 2,516 2,488 Research expense......................................................... 471 421 Permanent impairment of certain assets and operations in Latin America... -- -- Redirection charges...................................................... -- -- Interest income.......................................................... (107) (84) Interest expense, net of portion capitalized............................. 46 51 Other expense (income), net.............................................. 4 9 ------ ------ 5,522 5,370 ------ ------ Earnings before provision for taxes on income............................ 899 755 Provision for taxes on income............................................ 285 240 ------ ------ Earnings before cumulative effect of accounting changes.................. 614 515 Cumulative effect of accounting changes (net of tax)..................... -- -- ------ ------ Net earnings............................................................. $ 614 515 ------ ------ Percent of sales to customers............................................ 9.6 8.4 Net earnings per share of common stock................................... $ .84 .69 Percent return on average stockholders' equity........................... 19.5 17.3 Percent increase (decrease) over previous year: Sales to customers....................................................... 4.8 2.5 Net earnings per share................................................... 21.7 7.8 Supplementary expense data: Cost of materials and services(5)........................................ $3,274 3,155 Total employment costs................................................... 1,941 1,936 Depreciation and amortization............................................ 262 234 Maintenance and repairs(6)............................................... 133 124 Total tax expense(7)..................................................... 466 418 Total tax expense per share(7)........................................... .64 .56 Supplementary balance sheet data: Property, plant and equipment, net....................................... $1,840 1,721 Additions to property, plant and equipment............................... 366 366 Total assets............................................................. 5,095 4,541 Long-term debt........................................................... 185 225 Common stock information: Dividends paid per share................................................. $ .32 .29 Stockholders' equity per share........................................... $ 4.58 4.01 Market price per share (year-end close).................................. $13 1/8 9 Average shares outstanding (millions).................................... 731.5 749.6 Stockholders of record (thousands)....................................... 53.5 53.8 Employees (thousands).................................................... 74.9 74.2
- --------------- (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 stockholders' 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%. F-36 37 (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 stockholders' 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 stockholders' 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. F-37 38 APPENDIX PAGE 1 OF 5 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION CHART 1 GRAPH PAGE F-1 SALES TO CUSTOMERS MILLIONS OF DOLLARS 1985 THROUGH 1994 Bar graph showing ten years of sales to customers. Each bar depicts total sales for the year. Each bar is color coded to show domestic and international sales as a piece of the whole. Bar graph points:
DOMESTIC INTERNATIONAL WORLDWIDE YEAR SALES SALES SALES - ----- -------- ------------- --------- 1985 $3,990 $2,431 $ 6,421 1986 3,972 3,031 7,003 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
CHART 2 GRAPH PAGE F-2 NET EARNINGS MILLIONS OF DOLLARS 1985 THROUGH 1994 Bar graph showing ten years of net earnings. Bar graph points:
NET YEAR EARNINGS - ----- -------- 1985 $ 614 1986 330 1987 833 1988 974 1989 1,082 1990 1,143 1991 1,461 1992 1,030 1993 1,787 1994 2,006
39 APPENDIX PAGE 2 OF 5 CHART 3 GRAPH PAGE F-3 NET EARNINGS PER SHARE AND CASH DIVIDENDS PAID PER SHARE DOLLARS PER SHARE 1985 THROUGH 1994 Bar graph showing ten years of net earnings per share. Additionally, cash dividends paid per share each year is shown on each bar in a different color. Bar graph points:
NET EARNINGS CASH DIVIDENDS YEAR PER SHARE PAID PER SHARE - ----- ------------ -------------- 1985 $ .84 $ .32 1986 .46 .34 1987 1.21 .40 1988 1.43 .48 1989 1.62 .56 1990 1.72 .66 1991 2.19 .77 1992 1.56 .89 1993 2.74 1.01 1994 3.12 1.13
CHART 4 PIE CHART PAGE F-3 DISTRIBUTION OF SALES REVENUES -- 1994 A pie chart showing how 1994 sales revenues were distributed. Pie chart components: Employment Costs............................................ 27.2% Cost of Materials and Services.............................. 50.6 Depreciation and Amortization of Property and Intangibles... 4.6 Taxes Other Than Payroll.................................... 4.9 Cash Dividend Paid.......................................... 4.6 Earnings Reinvested in Business............................. 8.1
40 APPENDIX PAGE 3 OF 5 CHART 5 GRAPH PAGE F-3 RESEARCH EXPENSE MILLIONS OF DOLLARS 1985 THROUGH 1994 Bar graph showing ten years of research expense. Bar graph points:
RESEARCH YEAR EXPENSE - ----- -------- 1985 $ 471 1986 521 1987 617 1988 674 1989 719 1990 834 1991 980 1992 1,127 1993 1,182 1994 1,278
CHART 6 GRAPH PAGE F-5 SALES BY SEGMENT OF BUSINESS MILLIONS OF DOLLARS 1992 THROUGH 1994 Bar graph showing sales by segment of business. Each bar depicts total sales. The segments are shown as a percentage of total sales each year and are displayed in different colors. Bar graph points:
YEAR CONSUMER PHARM PROFESS TOTAL - ----- -------- ----- ------- -------- 1992 34.7% 31.6% 33.7% $13,753 1993 34.1 31.8 34.1 14,138 1994 33.4 32.8 33.8 15,734
41 APPENDIX PAGE 4 OF 5 CHART 7 GRAPH PAGE F-5 OPERATING PROFIT BY SEGMENT OF BUSINESS MILLIONS OF DOLLARS 1992 THROUGH 1994 Bar graph showing operating profit by segment of business. Each bar depicts the total of segments operating profit. The segments are shown as a percentage of total segments operating profit each year and are displayed in different colors. Bar graph points:
YEAR CONSUMER PHARM PROFESS TOTAL - ----- -------- ----- ------- ------- 1992 20.3% 55.4% 24.3% $2,463 1993 20.2 54.4 25.4 2,582 1994 15.0 56.5 28.5 2,955
CHART 8 GRAPH PAGE F-8 SALES BY GEOGRAPHIC AREA OF BUSINESS MILLIONS OF DOLLARS 1992 THROUGH 1994 Bar graph showing sales by geographic area of business. Each bar depicts total sales. The geographic areas are shown as a percentage of total sales each year and are displayed in different colors. Bar graph points:
AFRICA, UNITED WESTERN ASIA AND STATES EUROPE HEMISPHERE PACIFIC TOTAL ------ ------ ---------- -------- -------- 1992 50.2% 30.9% 8.8% 10.1% $13,753 1993 50.9 28.5 9.4 11.2 14,138 1994 49.7 28.6 9.6 12.1 15,734
42 APPENDIX PAGE 5 OF 5 CHART 9 GRAPH PAGE F-8 OPERATING PROFIT BY GEOGRAPHIC AREA OF BUSINESS MILLIONS OF DOLLARS 1992 THROUGH 1994 Bar graph showing operating profit by geographic area of business. Each bar depicts the total of segments operating profit. The geographic areas are shown as a percentage of total segments operating profit each year and are displayed in different colors. Bar graph points:
AFRICA, UNITED WESTERN ASIA AND STATES EUROPE HEMISPHERE PACIFIC TOTAL ------ ------ ---------- -------- -------- 1992 42.7% 45.7% 5.4% 6.2% $2,463 1993 46.8 40.1 6.1 7.0 2,582 1994 51.9 35.5 5.9 6.7 2,955
EX-21 5 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: Ethicon Endo-Surgery, Inc............................................. Ohio Ethicon, Inc. ........................................................ Ohio Janssen Pharmaceutica Inc. ........................................... New Jersey Johnson & Johnson Clinical Diagnostics, Inc........................... New York Johnson & Johnson Consumer Products, 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 Slovakia, Ltd. ..................................... New Jersey Johnson & Johnson Vision Products, Inc. .............................. Florida Johnson & Johnson S.E., Inc. ......................................... New Jersey JJHC, Inc. ........................................................... Delaware LifeScan, Inc. ....................................................... California McNEIL-PPC, Inc. ..................................................... New Jersey McNeilab, Inc. ....................................................... Pennsylvania Neutrogena Corporation................................................ Delaware Noramco, Inc. ........................................................ Georgia Ortho Biotech Inc. ................................................... New Jersey Ortho Diagnostic Systems Inc. ........................................ New Jersey Ortho Pharmaceutical Corporation...................................... Delaware RoC USA Corporation................................................... New York Site Microsurgical Systems, Inc. ..................................... Pennsylvania Therakos, Inc. ....................................................... Florida International Subsidiaries: Cilag AB.............................................................. Sweden 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 Ges.m.b.H. ..................................................... Austria Cilag G.m.b.H. ....................................................... Germany Cilag Holding AG...................................................... Switzerland
17 2
JURISDICTION OF NAME OF SUBSIDIARY ORGANIZATION ------------------ ----------------- Dr. Molter G.m.b.H. .................................................. Germany 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 Limited........................................................ India Ethnor (Proprietary) Limited.......................................... South Africa Ethnor S.A. .......................................................... France Greiter AG............................................................ Switzerland Greiter GmbH.......................................................... Austria Greiter Distribution AG............................................... Switzerland Greiter (International) AG............................................ Switzerland Health Care Products S.A. ............................................ Greece Janssen Biotech N.V. ................................................. Belgium Janssen-Cilag AG...................................................... Switzerland Janssen-Cilag Farmaceutica, Ltda. .................................... Portugal Janssen-Cilag K.K..................................................... Japan Janssen-Cilag Limited................................................. England Janssen-Cilag N.V. ................................................... Belgium Janssen-Cilag Pharmaceutica B.V....................................... Netherlands Janssen-Cilag Pharmaceutica S.A.C.I. ................................. Greece Janssen-Cilag Pty. Limited............................................ Australia Janssen-Cilag S.A.R.L. ............................................... France Janssen-Cilag S.A. ................................................... Italy Janssen Farmaceutica Ltda............................................. Brazil Janssen Farmaceutica Limitada......................................... Chile Janssen Farmaceutica Portugal, Limitada............................... Portugal Janssen Farmaceutica C.A. ............................................ Venezuela Janssen Farmaceutica S.A ............................................. Spain Janssen Farmaceutica S.A ............................................. Colombia Janssen Farmaceutica, S.A. de C.V. ................................... Mexico Janssen G.m.b.H. ..................................................... Germany Janssen Internationaal N.V. .......................................... Belgium Janssen K.K. ......................................................... Japan Janssen Korea, Ltd. .................................................. Korea Janssen-Kyowa Co., Ltd. .............................................. Japan Janssen Pharma AB..................................................... Sweden Janssenpharma A/S..................................................... Denmark Janssen Pharmaceutica G.m.b.H. ....................................... Austria Janssen Pharmaceutica Inc. ........................................... Canada Janssen Pharmaceutica Limited......................................... Thailand Janssen Pharmaceutica N.V. ........................................... Belgium Janssen Pharmaceutica (Proprietary) Limited........................... South Africa Janssen Pharmaceutical Limited........................................ Ireland Janssen Products, Inc. ............................................... Puerto Rico Johnson & Johnson AB.................................................. Sweden
18 3
JURISDICTION OF NAME OF SUBSIDIARY ORGANIZATION ------------------ ------------------ Johnson & Johnson AG.................................................. Switzerland Johnson & Johnson AS.................................................. Denmark Johnson & Johnson S.A. de C.V. ....................................... Mexico Johnson & Johnson (Angola), Limitada.................................. Angola Johnson & Johnson de Argentina, S.A.C.e I. ........................... Argentina Johnson & Johnson China, Ltd. ........................................ China Johnson & Johnson Clinical Diagnostics (Europe) S.A. ................. France Johnson & Johnson Clinical Diagnostics GmbH........................... Germany Johnson & Johnson Clinical Diagnostics Ltd. .......................... England Johnson & Johnson Clinical Diagnostics S.A............................ France Johnson & Johnson Clinical Diagnostics SpA............................ Italy Johnson & Johnson de Chile S.A. ...................................... Chile Johnson & Johnson de Colombia S.A. ................................... Colombia Johnson & Johnson de Costa Rica S.A. ................................. Costa Rica Johnson & Johnson del Ecuador S.A. ................................... Ecuador Johnson & Johnson de Mexico S.A. de C.V. ............................. Mexico Johnson & Johnson de Uruguay S.A. .................................... Uruguay Johnson & Johnson de Venezuela, S.A. ................................. Venezuela Johnson & Johnson (Dominicana), C. por A. ............................ Dominican Republic Johnson & Johnson (Fiji) Limited...................................... Fiji Johnson & Johnson/Gaba B.V. .......................................... Netherlands Johnson & Johnson G.m.b.H. ........................................... Austria Johnson & Johnson G.m.b.H. ........................................... Germany Johnson & Johnson Guatemala, S.A. .................................... Guatemala Johnson & Johnson Hellas S.A. ........................................ Greece Johnson & Johnson Hemisferica S.A. ................................... Puerto Rico Johnson & Johnson (Hong Kong) Limited................................. Hong Kong Johnson & Johnson Inc. ............................................... Canada Johnson & Johnson Industria e Comercio Ltda........................... Brazil Johnson & Johnson (Ireland) Limited................................... Ireland Johnson & Johnson (Jamaica) Limited................................... Jamaica Johnson & Johnson Japan Diagnostics Ltd. ............................. Japan 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 Limitada............................................ Portugal Johnson & Johnson Limited............................................. England Johnson & Johnson Limited............................................. India Johnson & Johnson Ltd. ............................................... Russia Johnson & Johnson Medical B.V. ....................................... Netherlands Johnson & Johnson Medical (China) Ltd. ............................... China 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
19 4
JURISDICTION OF NAME OF SUBSIDIARY ORGANIZATION ------------------ ------------------ Johnson & Johnson Medical Ltd. ....................................... England Johnson & Johnson Medical Mfg. SDN. BHD. ............................. Malaysia Johnson & Johnson Medical Products, Inc. ............................. Canada Johnson & Johnson Medical Pty. Ltd. .................................. Australia Johnson & Johnson Medical S.A. ....................................... Argentina Johnson & Johnson Medical S.A.R.L. ................................... France 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 Panama, S.A. ....................................... Panama 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 GmbH ......................... Germany 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. ............................................... France Johnson & Johnson S.A. ............................................... Spain Johnson & Johnson Sante 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 (Thailand) Limited.................................. Thailand Johnson & Johnson (Trinidad) Limited.................................. Trinidad Johnson & Johnson Vision Products AB.................................. Sweden Johnson & Johnson Vision Products (Ireland) Limited................... Ireland Johnson & Johnson (Zambia) Limited.................................... Zambia Kodak Clinical Diagnostic (Europe) S.A. .............................. France Kodak Clinical Diagnostics Limited.................................... United Kingdom Kodak Diagnostic, S.A. ............................................... France Kodak Diagnostic S.p.A. .............................................. Italy Kodak Japan Diagnostics Limited....................................... Japan Laboratoires RoC (U.K.) Ltd. ......................................... England Laboratoires Polive S.N.C. ........................................... France Lifescan Canada Ltd. ................................................. Canada Medos S.A. ........................................................... Switzerland Nihon RoC K.K. ....................................................... Japan Neutrogena Corp. S.A.R.L. ............................................ France Neutrogena Provence S.A.R.L........................................... France Ortho Diagnostic Systems G.m.b.H. .................................... Germany Ortho Diagnostic Systems K.K. ........................................ Japan
20 5
JURISDICTION OF NAME OF SUBSIDIARY ORGANIZATION ------------------ ------------------ Ortho Diagnostic Systems Limited...................................... England Ortho Diagnostic Systems N.V. ........................................ Belgium Ortho Diagnostic Systems S.A. ........................................ France Ortho Diagnostic Systems S.p.A. ...................................... Italy Ortho-McNeil Inc. .................................................... Canada Penaten G.m.b.H. ..................................................... Germany Penaten Korea Limited................................................. Korea Pharma Argentina S.A. ................................................ Argentina P.T. Johnson & Johnson Indonesia...................................... Indonesia RoC G.m.b.H. ......................................................... Germany RoC K.K. ............................................................. Japan RoC S.A. ............................................................. France RoC S.A./N.V. ........................................................ Belgium RoC S.p.A. ........................................................... Italy RoC Laboratoires de Dermoestetica S.A. ............................... Spain The R.W. Johnson Pharmaceutical Research Institute.................... Switzerland 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 6 FINANCIAL DATA SCHEDULE
5 1,000,000 12-MOS JAN-01-1995 JAN-01-1995 636 68 2,801 200 2,161 6,680 7,655 2,745 15,668 4,266 2,460 767 0 0 6,355 15,668 15,734 15,734 5,299 12,867 44 0 142 2,681 675 2,006 0 0 0 2,006 3.12 3.08
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