EXHIBIT 99.2O
JOHNSON & JOHNSON AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED BALANCE SHEET
(Unaudited; Dollars in Millions)
ASSETS
April 1, December 31,
2001 2000
Current Assets:
Cash and cash equivalents $ 4,340 4,278
Marketable securities, at cost 2,372 2,479
Accounts receivable, trade, less
allowances $438 (2000 - $439) 4,755 4,601
Inventories (Note 4) 2,878 2,905
Deferred taxes on income 1,110 1,174
Prepaid expenses and other
receivables 2,045 1,254
Total current assets 17,500 16,691
Marketable securities, non-current 872 717
Property, plant and equipment,
at cost 11,748 11,866
Less accumulated depreciation and
amortization 4,563 4,457
7,185 7,409
Intangible assets, net (Note 5) 7,462 7,535
Deferred taxes on income 136 240
Other assets 1,746 1,653
Total assets $34,901 34,245
See Notes to Supplemental Consolidated Financial Statements
Amounts have been restated under the pooling of interests
method of accounting to include the financial results of
ALZA Corporation effective on June 22, 2001, see Note 1.
JOHNSON & JOHNSON AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED BALANCE SHEET
(Unaudited; Dollars in Millions)
LIABILITIES AND SHAREOWNERS' EQUITY
April 1, December 31,
2001 2000
Current Liabilities:
Loans and notes payable $ 911 1,489
Accounts payable 1,976 2,122
Accrued liabilities 2,758 2,793
Accrued salaries, wages and
commissions 530 529
Taxes on income 754 322
Total current liabilities 6,929 7,255
Long-term debt 2,698 3,163
Deferred tax liability 246 255
Employee related obligations 1,915 1,804
Other liabilities 1,351 1,373
Shareowners' equity:
Preferred stock - without par
value (authorized and unissued
2,000,000 shares) - -
Common stock - par value $1.00
per share (authorized
4,320,000,000 shares; issued
3,119,842,000 shares) 3,120 3,120
Note receivable from employee
stock ownership plan (30) (35)
Accumulated other comprehensive
income (Note 9) (559) (461)
Retained earnings 19,453 18,113
21,984 20,737
Less common stock held in treasury,
at cost (92,082,000 & 105,218,000
shares) 222 342
Total shareowners' equity 21,762 20,395
Total liabilities and shareowners'
equity $34,901 34,245
See Notes to Supplemental Consolidated Financial Statements
Amounts have been restated under the pooling of interests
method of accounting to include the financial results of
ALZA Corporation effective on June 22, 2001, see Note 1.
JOHNSON & JOHNSON AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENT OF EARNINGS
(Unaudited; dollars & shares in millions
except per share figures)
Fiscal Quarter Ended
April 1, Percent April 2, Percent
2001 to Sales 2000 to Sales
Sales to customers
(Note 6) $8,021 100.0 7,440 100.0
Cost of products sold 2,300 28.7 2,242 30.1
Gross Profit 5,721 71.3 5,198 69.9
Selling, marketing and
administrative expenses 2,843 35.4 2,679 36.0
Research expense 759 9.5 677 9.1
Interest income (125) (1.5) (83) (1.1)
Interest expense, net of
portion capitalized 33 .4 61 .8
Other (income)expense, net (6) (.1) (50) (.7)
3,504 43.7 3,284 44.1
Earnings before provision
for taxes on income 2,217 27.6 1,914 25.7
Provision for taxes on
income (Note 3) 665 8.3 583 7.8
NET EARNINGS $1,552 19.3 1,331 17.9
NET EARNINGS PER SHARE
(Note 8)
Basic $ .51 .45
Diluted $ .50 .44
CASH DIVIDENDS PER SHARE $ .16 .14
AVG. SHARES OUTSTANDING
Basic 3,020.4 2,979.5
Diluted 3,106.9 3,087.1
See Notes to Supplemental Consolidated Financial Statements
Amounts have been restated under the pooling of interests
method of accounting to include the financial results of
ALZA Corporation effective on June 22, 2001, see Note 1.
JOHNSON & JOHNSON AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited; Dollars in Millions)
Fiscal Quarter Ended
April 1, April 2,
2001 2000
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $1,552 1,331
Adjustments to reconcile net earnings
to cash flows:
Depreciation and amortization of
property and intangibles 412 450
Accounts receivable reserves 6 (12)
Changes in assets and liabilities, net
of effects from acquisition of
businesses:
Increase in accounts receivable (246) (180)
Increase in inventories (59) (4)
Changes in other assets and
liabilities (5) 158
NET CASH FLOWS FROM OPERATING
ACTIVITIES 1,660 1,743
CASH FLOWS FROM INVESTING
ACTIVITIES
Additions to property, plant
and equip (271) (322)
Proceeds from the disposal of assets 29 18
Acquisition of businesses, net of cash
acquired (17) (7)
Purchases of investments (1,631) (824)
Sales of investments 1,553 775
Other (77) 12
NET CASH USED BY INVESTING
ACTIVITIES (414) (348)
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends to shareowners (447) (381)
Repurchase of common stock (257) (208)
Proceeds from short-term debt 116 280
Retirement of short-term debt (645) (865)
Proceeds from long-term debt 4 8
Retirement of long-term debt (19) (22)
Proceeds from the exercise of stock
options 96 67
NET CASH USED BY FINANCING
ACTIVITIES (1,152) (1,121)
EFFECT OF EXCHANGE RATE CHANGES ON CASH
AND CASH EQUIVALENTS (32) (20)
INCREASE(DECREASE) IN CASH AND CASH
EQUIVALENTS 62 254
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD 4,278 2,512
CASH AND CASH EQUIVALENTS,
END OF PERIOD 4,340 2,766
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
CONVERSION OF DEBT 460 -
ACQUISITION OF BUSINESSES
Fair value of assets acquired 22 83
Fair value of liabilities assumed (5) (1)
17 82
Treasury stock issued at fair value - (75)
Net cash payments $ 17 7
See Notes to Supplemental Consolidated Financial Statements
Amounts have been restated under the pooling of interests
method of accounting to include the financial results of
ALZA Corporation effective on June 22, 2001, see Note 1.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - The supplemental unaudited condensed consolidated
financial statements of Johnson & Johnson have been prepared to
give retroactive effect to the merger with ALZA Corporation
(ALZA) on June 22, 2001. Under the terms of the merger
agreement, ALZA shareholders received approximately 234 million
shares of Johnson & Johnson common stock. On a diluted basis
when adjusted for stock options outstanding and convertible debt,
the total number of Johnson & Johnson shares to be issued total
approximately 280 million shares. Generally accepted accounting
principles require giving effect to a consummated business
combination accounted for under a pooling-of-interests method in
financial statements that do not include the date of the
consummation. These financial statements do not extend through
the date of consummation; however, they will become the
historical consolidated financial statements of Johnson & Johnson
after the financial statements covering the date of consummation
of the business combination are issued. Additionally, these
unaudited condensed financial statements have been prepared to
give retroactive effect to 2-for-1 stock split effective June 12,
2001.
The preparation of financial statements during the interim
periods requires management to make numerous estimates and
assumptions that impact the reported amounts of assets,
liabilities, revenues and expenses. Estimates and assumptions
are reviewed periodically and the effect of revisions is
reflected in the results of operations of the interim periods in
which changes are determined to be necessary.
The financial statement results for the interim periods are not
necessarily indicative of financial results for the full year.
These unaudited consolidated financial statements should be read
in conjunction with the audited consolidated financial statements
and notes thereto included in Exhibit 99.15 of this filing.
NOTE 2 - ACCOUNTING FOR DERIVATIVES AND HEDGING ACTIVITIES
Effective January 1, 2001, the Company adopted SFAS 133
"Accounting for Derivative Instruments and Hedging Activities",
as amended by SFAS 138 "Accounting for Certain Derivative
Instruments and Certain Hedging Activities, an amendment of FASB
Statement No 133", collectively referred to as SFAS 133.
SFAS 133 requires that all derivative instruments be
recorded on the balance sheet at fair value. Changes in the fair
value of derivatives are recorded each period in current earnings
or other comprehensive income (OCI), depending on whether the
derivative is designated as part of a hedge transaction, and, if
it is depending on the type of hedge transaction.
The Company uses forward exchange contracts to manage its
exposure to the variability of cash flows, primarily related to
the foreign exchange rate changes of future product purchases
designated in foreign currency. The Company also uses currency
swaps to manage currency risk primarily related to borrowings.
Both of these types of derivatives are designated as cash flow
hedges. Additionally, the Company uses forward exchange
contracts to offset its exposure to certain foreign currency
assets and liabilities. These forward exchange contracts are not
designated as hedges and, therefore, changes in the fair values
of these derivatives are recognized in earnings, thereby
offsetting the current earnings effect of the related foreign
currency assets and liabilities.
The designation as a cash flow hedge is made at the later of
the date of entering into the derivative contract or January 1,
2001. At inception, all derivatives are expected to be highly
effective. Changes in the fair value of a derivative that is
designated as a cash flow hedge and that is highly effective, are
recorded in OCI, until the underlying transaction affects
earnings. Fair value of a forward exchange contract represents
the present value of the change in forward exchange rates times
the notional amount of the derivative. The fair value of a
currency swap contract is determined by discounting to the
present all future cash flows of the currencies to be exchanged
at interest rates prevailing in the market for the periods the
currency exchanges are due, and expressing the result in U.S.
Dollars at the current spot foreign currency exchange rate.
At inception, and on an ongoing basis, the Company assesses
whether each derivative is expected to be highly effective in
offsetting changes in the cash flows of hedged items. When a
derivative is no longer expected to be highly effective, hedge
accounting is discontinued. Hedge ineffectiveness, if any, is
included in current period earnings.
The Company documents all relationships between hedged items
and derivatives. The overall risk management strategy includes
reasons for undertaking hedge transactions and entering into
derivatives. The objectives of this strategy are to: (1)
minimize foreign currency exposure's impact on the Company's
financial performance; (2) protect the Company's cash flow from
adverse movements in foreign exchange rates; (3) ensure the
appropriateness of financial instruments; (4) manage the
enterprise risk associated with financial institutions.
On January 1, 2001 the Company recorded a $17 million net-of-
tax cumulative effect transition adjustment gain in OCI to
recognize at fair value all derivative instruments designated as
cash flow hedges. The adjustment to net earnings was immaterial.
As of April 1, 2001 the balance of deferred net gains on
derivatives accumulated in OCI was $105 million (after tax). Of
this amount, the Company expects that $102 million, which
includes the transition adjustment, will be reclassified into
earnings over the next 12 months as a result of transactions that
are expected to occur over that period. The amount ultimately
realized in earnings will differ as foreign exchange rates
change. Realized gains and losses are ultimately determined by
actual exchange rates at maturity of the derivative. The
underlying transactions which will occur and cause the amount
deferred in OCI to affect earnings primarily represent sales to
third parties and purchases of inventory. The maximum length of
time over which the Company is hedging its exposure to the
variability in future cash flows for forecasted transactions is
15 months.
For the quarter ended April 1, 2001 the net impact of the
hedges' ineffectiveness to the Company's financial statements was
insignificant.
For the quarter ended April 1, 2001 the Company has recorded a
net gain of less than $1 million (after tax) in the `Other
(income) expense, net' category of the consolidated statement of
earnings, representing the impact of discontinuance of cash flow
hedges because it is probable that the original forecasted
transactions will not occur by the end of the originally
specified time period.
Refer to Note 9 - Accumulated Other Comprehensive Income for
disclosure of movements in OCI.
NOTE 3 - INCOME TAXES
The effective income tax rates for the first three months of 2001
and 2000 are 30.0% and 30.5%, respectively, as compared to the
U.S. federal statutory rate of 35%. The difference from the
statutory rate is primarily the result of domestic subsidiaries
operating in Puerto Rico under a grant for tax relief expiring on
December 31, 2007 and the result of subsidiaries manufacturing in
Ireland under an incentive tax rate expiring on December 21,
2010.
NOTE 4 - INVENTORIES
(Dollars in Millions) April 1, 2001 Dec. 31, 2000
Raw materials and supplies $ 751 718
Goods in process 497 480
Finished goods 1,630 1,707
$ 2,878 2,905
NOTE 5 - INTANGIBLE ASSETS
(Dollars in Millions) April 1, 2001 Dec. 31, 2000
Intangible assets $ 9,133 9,076
Less accumulated amortization 1,671 1,541
$ 7,462 7,535
The excess of the cost over the fair value of net assets of
purchased businesses is recorded as goodwill and is amortized on
a straight-line basis over periods of up to 40 years.
The cost of other acquired intangibles is amortized on a
straight-line basis over their estimated useful lives.
NOTE 6 - SEGMENTS OF BUSINESS AND GEOGRAPHIC AREAS
(Dollars in Millions)
SALES BY SEGMENT OF BUSINESS
First Quarter
Percent
2001 2000 Increase
Consumer
Domestic $ 979 943 3.8
International 807 809 (.2)
1,786 1,752 1.9%
Pharmaceutical
Domestic $ 2,356 2,070 13.8
International 1,133 1,093 3.7
3,489 3,163 10.3%
Med Dev & Diag
Domestic $ 1,475 1,311 12.5
International 1,271 1,214 4.7
2,746 2,525 8.8%
Domestic $ 4,810 4,324 11.2
International 3,211 3,116 3.0
Worldwide $ 8,021 7,440 7.8%
OPERATING PROFIT BY SEGMENT OF BUSINESS
First Quarter
Percent
2001 2000 Increase
Consumer $ 293 227 29.1
Pharmaceutical 1,422 1,313 8.3
Med. Dev. & Diag. 571 471 21.2
Segments total 2,286 2,011 13.7
Expenses not allocated
to segments (69) (97)
Worldwide total $ 2,217 1,914 15.8%
Note: Prior year amounts have been reclassified to conform with
current year presentation.
SALES BY GEOGRAPHIC AREA
First Quarter
Percent
2001 2000 Increase
U.S. $ 4,810 4,324 11.2
Europe 1,736 1,678 3.4
Western Hemisphere
Excluding U.S. 523 516 1.4
Asia-Pacific, Africa 952 922 3.3
Total $ 8,021 7,440 7.8%
NOTE 7 - ACCOUNTING FOR SALES INCENTIVES
The Company currently recognizes the expense related to coupons
and certain sales incentives upon issuance and classifies these
expenses as selling, marketing and administrative expense. The
amount of such sales incentives were $31 million for the first
quarter of 2001 and 2000. EITF 00-14 is expected to take effect
in the first quarter of 2002 and the impact on the Company will
be the reclassification of the above mentioned amounts from
expense to a reduction of sales.
NOTE 8 - EARNINGS PER SHARE
The following is a reconciliation of basic net earnings per share
to diluted net earnings per share for the three months ended
April 1, 2001 and April 2, 2000:
(Shares in Millions) April 1, April 2,
2001 2000
Basic net earnings per share $ .51 .45
Average shares outstanding - basic 3,020.4 2,979.5
Potential shares exercisable under
stock option plans 115.1 113.1
Less: shares which could be
repurchased under treasury
stock method (67.4) (67.9)
Convertible debt shares 38.8 62.4
Adjusted average shares outstanding
- diluted 3,106.9 3,087.1
Diluted earnings per share $ .50 .44
Diluted earnings per share calculation includes the dilution
effect of convertible debt: a decrease in interest expense of $8
million and $12 million for the period ended April 1, 2001 and
April 2, 2000, respectively. Diluted earnings per share
calculation also includes the dilution effect of additional 39
million shares and 62 million shares for the period ended April
1, 2001 and April 2, 2000, respectively. Diluted earnings per
share excludes 63 million shares and 26 million shares of options
for the period ended April 1, 2001 and April 2, 2000,
respectively as the exercise price of these options were greater
than their average market value, resulting in an anti-dilutive
effect on diluted earnings per share.
NOTE 9 - ACCUMULATED OTHER COMPREHENSIVE INCOME
The total comprehensive income for the three months ended April
1, 2001 is $1,456 million, compared with $1,351 million for the
same period a year ago. Total comprehensive income includes net
earnings, net unrealized currency gains and losses on
translation, net unrealized gains and losses on available for
sale securities, pension liability adjustments and net gains and
losses on derivative instruments qualifying and designated as
cash flow hedges. The following table set forth the components
of accumulated other comprehensive income.
Total
Unrld Gains/ Accum
For. Gains/ Pens (Losses) Other
Cur. (Loss) Liab on Deriv Comp
Trans. on Sec Adj. & Hedg Inc/(Loss)
December 31, 2000 $ (522) 76 (15) - (461)
2001 First Qtr changes
Transition Adj. - - - 17
Net change associated
to current period hedging
transactions - - - 249
Net amount reclassed to
net earnings - - - (161)*
Net First Qtr changes(160) (41) (1) 105 (97)
April 1, 2001 $ (682) 35 (16) 105 (558)
Note: All amounts, other than foreign currency translation, are net
of tax. Foreign currency translation adjustments are not currently
adjusted for income taxes, as they relate to permanent investments
in non US subsidiaries.
*Primarily offset by changes in value of the underlying
transactions.
NOTE 10 - MERGERS & ACQUISITIONS
On March 2, 2001, Johnson & Johnson acquired BabyCenter, Inc.
from eToys, Inc. The purchase was an all cash transaction valued
at approximately $10 million.
BabyCenter.com is the largest and best-known online parenting
resource serving expectant and new mothers and fathers. The
BabyCenter family of websites also includes ParentCenter.com and
BabyCentre.co.uk.
NOTE 11 - LEGAL PROCEEDINGS
The information called for by this footnote is incorporated
herein by reference to Item 1 ("Legal Proceedings") included in
Part II of this Report on Exhibit 99.2O.
NOTE 12 - SUBSEQUENT EVENTS
On April 18, 2001, Johnson & Johnson completed their previously
announced merger with Heartport, valued at approximately $81
million. The transaction was completed after Heartport
shareholders voted to approve the merger agreement with Johnson &
Johnson. Holders of Heartport common stock will receive 0.0307
in Johnson & Johnson common stock for each outstanding share of
Heartport. Johnson & Johnson intends to purchase the number of
shares of Johnson & Johnson common stock equal to the number of
such shares issued in connection with this merger. Johnson &
Johnson intends to complete such purchases through open market
transactions within 90 days.
Heartport manufactures and markets less invasive cardiac
surgery products that enable surgeons to perform a wide range of
less invasive open-chest and minimally invasive heart operations,
including stopped heart and beating heart procedures.
On April 26, 2001, the Board of Directors of Johnson & Johnson
approved an increase in the authorized common stock from 2.16
billion to 4.32 billion shares and a subsequent two-for-one split
of its common stock. Par value will remain at $1.00 per common
share. One new share of common stock will be issued on or about
June 12, 2001 with respect to each existing share of common stock
held of record as of the close of business on May 22, 2001.
On May 9, 2001, the Company announced that it was in advanced
discussions regarding a definitive agreement with Inverness
Medical Technology, a developer of innovative products focused
primarily on the self-management of diabetes, whereby Johnson &
Johnson would acquire Inverness, excluding certain businesses not
related to diabetes, in a stock-for-stock exchange.
On June 22, 2001, Johnson & Johnson and ALZA Corporation
completed the merger between the two companies. This transaction
was accounted for as a pooling-of-interests. ALZA had
approximately 239 million shares outstanding (286 million on a
fully diluted basis) that were exchanged for approximately 234
million shares of Johnson & Johnson common stock. On a diluted
basis when adjusted for stock options and convertible debt, the
total number of Johnson & Johnson shares issued total
approximately 280 million shares. Holders of ALZA common stock
received 0.98 of a share of Johnson and Johnson common stock,
valued at $52.39 per share.
ALZA Corporation is research-based pharmaceutical company with
leading drug delivery technologies. The company applies its
delivery technologies to develop pharmaceutical products with
enhanced therapeutic value for its own portfolio and for many of
the world's leading pharmaceutical companies.
As indicated in Note 1, these financial statements have been
restated to give effect to Johnson & Johnson's merger with ALZA.
The only adjustments to ALZA's historical financial statements
have been the reflection of income tax expense as if the
companies had been combined with all periods presented, the
elimination of transactions with Johnson & Johnson affiliate
companies and the reclassification of certain amounts to conform
with Johnson & Johnson presentation. The revenue and net earnings
of Johnson & Johnson prior to the merger with ALZA was $7,791 and
$7,319 million, respectively for revenue and $1,500 and $1,314
million, respectively of net earnings for the period ended April
1, 2001 and April 2, 2000, respectively. The revenue and net
earnings of ALZA included in Johnson & Johnson's restated
financial results are $230 and $121 million, respectively for
revenue and $52 and $17 million, respectively of net earnings for
the period ended April 1, 2001 and April 2, 2000, respectively
Item 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The consolidated financial statements and footnotes of Johnson &
Johnson have been prepared to give retroactive effect to the
merger with ALZA Corporation (ALZA) on June 22, 2001. The
commentary in this Management's Discussion and Analysis reflects
this restatement.
SALES AND EARNINGS
Consolidated sales for the first quarter of 2001 were $8.02
billion, an increase of 7.8% over 2000 first quarter sales of
$7.44 billion. The effect of the stronger dollar relative to
foreign currencies decreased first quarter sales by 3.6%. The
operational sales increase of 11.4% included a positive price
change effect of .9%.
Consolidated net earnings for the first quarter of 2001 were
$1.55 billion, compared with $1.33 billion for the same period a
year ago, an increase of 16.7%. Worldwide basic net earnings per
share for the period were $.51, compared with $.45 for the same
period in 2000, an increase of 13.3%. Worldwide diluted net
earnings per share for the period were $.50, compared with $.44
for the same period in 2000, an increase of 13.6%.
Domestic sales for the first three months of 2001 were
$4.81 billion, an increase of 11.2% over 2000 domestic sales of
$4.32 billion for the same period. Sales by international
subsidiaries were $3.21 billion for the first quarter of 2001
compared with $3.12 billion for the same period a year ago, an
increase of 3.0%. Excluding the impact of the higher value of
the dollar, international sales increased by 11.5% for the
quarter.
Worldwide Consumer sales for the first quarter of 2001
were $1.8 billion, an increase of 1.9% versus the same period a
year ago. Domestic sales increased by 3.8% while international
sales gains in local currency of 7.4% were entirely offset by
negative currency. Consumer sales were led by continued strength
in the skin care franchise, which includes the NEUTROGENA, AVEENO
and CLEAN & CLEAR product lines. During the quarter, Johnson &
Johnson completed the acquisition of BabyCenter, Inc. from eToys,
Inc. BabyCenter is the largest and best-known online parenting
resource serving expectant and new mothers and fathers.
Worldwide pharmaceutical sales of $3.5 billion for the quarter
increased 10.3% over the same period in 2000. Domestic sales
increased 13.8%. Operationally, international sales increased
10.9% but were offset by a negative currency impact of 7.2%.
Worldwide sales gains in local currency of 12.9% were partially
offset by a negative currency impact of 2.6%. Excluding the
impact of negative currency and PROPULSID, a gastrointestinal
drug which was transitioned to a limited-access program in the
United States and Canada in March 2000, worldwide Pharmaceutical
sales increased 18.2% versus the same period last year.
Sales growth reflects the strong performance of PROCRIT/EPREX,
for the treatment of anemia; RISPERDAL, an antipsychotic
medication; DURAGESIC, a transdermal patch for chronic pain;
REMICADE, a treatment for rheumatoid arthritis and Crohn's
disease; TOPAMAX, an antiepileptic and ACIPHEX/PARIET, a proton
pump inhibitor for gastrointestinal disorders.
During the quarter, the Company announced that it had entered
into a definitive merger agreement with ALZA Corporation, a
research-based pharmaceutical company and leader in drug delivery
technology. The merger, valued at approximately $12.3 billion,
was completed on June 22, 2001. In accordance with the pooling-
of-interests method of accounting, the financial statements of
Johnson & Johnson have been restated to give effect to the merger
with ALZA.
The Company also received U.S. Food and Drug Administration
(FDA) approval for REMINYL (galantamine hydrobromide), a new
treatment for mild to moderate Alzheimer's disease. It has been
shown that REMINYL can have a beneficial effect on a patient's
daily function and ability to think.
Worldwide sales for the Medical Devices and Diagnostics segment
were $2.7 billion in the first quarter which represented an
increase of 8.8% over 2000. Domestic sales were up 12.5%, while
international sales increased 14.0% on an operational basis.
Worldwide sales gains in local currency of 13.3% were reduced by
4.5% due to the strength of the U.S. dollar. The primary
contributors to the segment's growth were Cordis' coronary
stents; DePuy's orthopaedic joint reconstruction and spinal
products; Ethicon's hemostasis products, Mitek suture anchors and
Gynecare's women's health products; Ethicon Endo-Surgery's
minimally invasive surgical products; LifeScan's blood glucose
monitoring products, and Vistakon's disposable contact lenses.
In the first quarter, LifeScan announced the U.S. market launch
of ONE TOUCH Ultra, a new electrochemical blood glucose meter and
strip. The ONE TOUCH Ultra meter has a five second test time, a
one microliter sample size, capillary fill and the option for
forearm testing which has been shown to be a significantly less
painful alternative to fingerstick testing.
On April 2, 2001, the Company reported approval from
the FDA to market its Bx VELOCITY Coronary Stent with a Rapid
Exchange Delivery System. The Company originally received FDA
approval of the Bx VELOCITY stent on its conventional over-the-
wire delivery system in May 2000. The Bx VELOCITY Stent with
Rapid Exchange Delivery System is indicated for treatment of
abrupt and threatened vessel closure in patients with failed
interventional therapy in lesions (greater or equal to 30 mm in
length) with reference diameters in the range of 2.25 mm to 4.00
mm.
On April 18, 2001, the Company announced the completion of the
previously announced merger with Heartport, Inc. Heartport is a
pioneer in developing, manufacturing and selling less invasive
cardiac open-chest and minimally invasive heart operations,
including stopped heart and beating heart procedures.
On May 9, 2001, the Company announced that it was in
advanced discussions regarding a definitive agreement with
Inverness Medical Technology, a developer of innovative products
focused primarily on the self-management of diabetes, whereby
Johnson & Johnson would acquire Inverness, excluding certain
businesses not related to diabetes, in a stock-for-stock
exchange.
LIQUIDITY AND CAPITAL RESOURCES
Cash and current marketable securities decreased $45 million
during the first three months of 2001 to $6.71 billion at April
1, 2001. Total borrowings decreased $1.04 billion during the
first three months of 2001 to $3.61 billion. Net cash (cash and
current marketable securities net of debt) as of April 1, 2001
was $3.10 billion, compared with $2.11 billion at the end of
2000. Total debt represented 14.2% of total capital
(shareowners' equity and total debt) at quarter end compared with
18.6% at the end of 2000. Johnson & Johnson exercised its option
to redeem the $460 million convertible subordinated debentures of
Centocor due 2005 at a price equal to 102.714% of the principal
amount plus accrued interest. The debentures were subsequently
converted by the holders into approximately 11,928,000 shares of
Johnson & Johnson common stock. For the period ended April 1,
2001, there were no material cash commitments.
Additions to property, plant and equipment were $271 million
for the first three months of 2001, compared with $322 million
for the same period in 2000.
On April 26, 2001, the Board of Directors approved an increase
in the authorized common stock from 2.16 billion to 4.32 billion
shares and a subsequent two-for-one split of its common stock.
Par value will remain at $1.00 per common share. One new share
of common stock will be issued on or about June 12, 2001 with
respect to each existing share of common stock held of record as
of the close of business on May 22, 2001. In addition, the Board
of Directors raised the quarterly dividend from 32 cents to 36
cents per share on a pre-split basis (or from 16 cents to 18
cents on a post-split basis), an increase of 12.5%. The dividend
is payable on June 12, 2001 to shareowners of record as of May
22, 2001.
CAUTIONARY FACTORS THAT MAY AFFECT FUTURE RESULTS
This Exhibit 99.2O contains "forward-looking
statements." Forward-looking statements do not relate strictly
to historical or current facts and anticipate results based on
management's plans that are subject to uncertainty. Forward-
looking statements may be identified by the use of words like
"plans," "expects," "will," "anticipates," "estimates" and other
words of similar meaning in conjunction with, among other things,
discussions of future operations, financial performance, the
Company's strategy for growth, product development, regulatory
approvals, market position and expenditures.
Forward-looking statements are based on current expectations of
future events. The Company cannot guarantee that any forward-
looking statement will be accurate, although the Company believes
that it has been reasonable in its expectations and assumptions.
Investors should realize that if underlying assumptions prove
inaccurate or unknown risks or uncertainties materialize, actual
results could vary materially from the Company's expectations and
projections. Investors are therefore cautioned not to place
undue reliance on any forward-looking statements. Furthermore,
the Company assumes no obligation to update any forward-looking
statements as a result of new information or future events or
developments.
The Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 2000 contains, in Exhibit 99(b), a
discussion of various factors that could cause actual results to
differ from expectations. That Exhibit from the Form 10-K is
incorporated in this filing by reference. The Company notes
these factors as permitted by the Private Securities Litigation
Reform Act of 1995.
Item 3. Quantitative and Qualitative Disclosures About Market
Risk
There has been no material change in the Company's assessment of
its sensitivity to market risk since its presentation set forth
in Item 7A, "Quantitative and Qualitative Disclosures About
Market Risk," in its Annual Report on Form 10-K for the fiscal
year ended December 31, 2000.
Part II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company is involved in numerous product liability cases in
the United States, many of which concern adverse reactions to
drugs and medical devices. The damages claimed are substantial,
and while the Company is confident of the adequacy of the
warnings and instructions for use which accompany such products,
it is not feasible to predict the ultimate outcome of litigation.
However, the Company believes that if any liability results from
such cases, it will be substantially covered by reserves
established under its self-insurance program and by commercially
available excess liability insurance.
The Company's subsidiary, Johnson & Johnson Vision Care Inc.
(Vision Care), together with a trade association and various
individual defendants, is a defendant in several consumer class
actions and an action brought by multiple State Attorneys General
on behalf of consumers alleging violations of federal and state
antitrust laws. These cases, which were filed between July 1994
and December 1996 and are consolidated before the United States
District Court for the Middle District of Florida, assert that
enforcement of Vision Care's long-standing policy of selling
contact lenses only to licensed eye care professionals is a
result of an unlawful conspiracy to eliminate alternative
distribution channels from the disposable contact lens market.
In April 2001, after five weeks of trial, these cases were
concluded on terms which will be announced by the Court in late
May 2001.
Johnson & Johnson Vision Care is also a defendant in a
nationwide consumer class action brought on behalf of purchasers
of its ACUVUE brand contact lenses. The plaintiffs in that
action, which was filed in 1996 in New Jersey State Court, allege
that Vision Care sold its 1-DAY ACUVUE lens at a substantially
cheaper price than ACUVUE and misled consumers into believing
these were different lenses when, in fact, they were allegedly
"the same lenses." Plaintiffs are seeking substantial damages and
an injunction against supposed improper conduct. The Company
believes these claims are without merit and is defending the
action vigorously.
The Company's Ortho Biotech subsidiary is party to an
arbitration proceeding filed against it in 1995 by Amgen, Ortho
Biotech's licensor of U.S. non-dialysis rights to EPO, in which
Amgen seeks to terminate Ortho Biotech's U.S. license rights and
collect substantial damages based on alleged deliberate EPO sales
by Ortho Biotech during the early 1990's into Amgen's reserved
dialysis market. The Company believes no basis exists for
terminating Ortho Biotech's U.S. license rights or for obtaining
damages and is vigorously contesting Amgen's claims. However,
Ortho Biotech's U.S. license rights to EPO are material to the
Company; thus, an unfavorable outcome on the termination issue
could have a material adverse effect on the Company's
consolidated financial position, liquidity and results of
operations. The arbitration is scheduled to begin in September of
this year.
The Company and its LifeScan subsidiary are defendants in
several class actions filed in federal and state courts in
California in 1998 in which it is alleged that purchasers of
SureStep blood glucose meters and strips suffered economic harm
because those products contained undisclosed defects. In late
2000, LifeScan pleaded guilty in federal court to three
misdemeanors and paid a total of $60 million in fines and civil
costs to resolve an investigation related to those same alleged
defects. In one of the federal class actions, a nationwide class
was certified by the district court last year and trial has been
scheduled for September of this year. The Company and LifeScan
believe these claims are without merit and are vigorously
defending these actions.
In patent infringement actions tried in Delaware Federal Court
late last year, Cordis, a Johnson & Johnson company, obtained
verdicts of infringement and patent validity, and damage awards,
against Boston Scientific Corporation and Medtronic AVE, Inc.,
based on a number of Cordis coronary stent patents. On December
15, 2000, the jury in the damage action against Boston Scientific
returned a verdict of $324 million and on December 21, 2000 the
jury in the Medtronic AVE action returned a verdict of $271
million. These sums represent lost profit and reasonable royalty
damages to compensate Cordis for infringement but do not include
pre or post judgment interest. In February 2001 a hearing was
held on the claims of Boston Scientific and Medtronic AVE that
the patents at issue are unenforceable owing to alleged
inequitable conduct before the patent office. Post trial motions
and appeals to the Federal Circuit Court of Appeals will follow
and no judgments are likely to be paid, if at all, until those
proceedings have run their course. Furthermore, since the amount
of damages, if any, which the Company may receive cannot be
quantified until the legal process is complete, no gain has been
recorded in the financial statements for either of these awards.
The Company is also involved in a number of patent, trademark
and other lawsuits incidental to its business.
The Company believes that the above proceedings, except as
noted above, would not have a material adverse effect on its
results of operations, cash flows or financial position.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
A Report on Form 8-K was filed on March 14, 2001,
which included Management's Discussion and Analysis
of Results of Operations and Financial Condition,
the consolidated balance sheets of Johnson & Johnson
and subsidiaries as of December 31, 2000 and January
2, 2000 and the related consolidated statement of
earnings, shareowners' equity and cash flows for
each of the three years in the period ended December
31, 2000.