UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 2, 1994
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 1-3215
JOHNSON & JOHNSON
(Exact name of registrant as specified in its charter)
NEW JERSEY 22-1024240
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
New Brunswick, New Jersey 08933
(Address of principal executive offices, including zip code)
908-524-0400
Registrant's telephone number, including area code
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date.
On October 28, 1994, 642,622,815 shares of Common Stock, $1.00
par value, were outstanding.
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JOHNSON & JOHNSON AND SUBSIDIARIES
TABLE OF CONTENTS
Part I - Financial Information Page No.
Consolidated Balance Sheet -
October 2, 1994 and January 2, 1994 3
Consolidated Statement of Earnings for the
Nine Months Ended October 2, 1994 and
October 3, 1993 5
Consolidated Statement of Cash Flows
for the Nine Months Ended October 2, 1994
and October 3, 1993 7
Notes to Consolidated Financial Statements 8
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 12
Signatures 17
Part II - Other Information
Items 1 through 5 are not applicable
Item 6 - Exhibits and Reports on Form 8-K 16
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Part I - FINANCIAL INFORMATION
Item 1 - FINANCIAL STATEMENTS
JOHNSON & JOHNSON AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Unaudited; Dollars in Millions)
ASSETS
Oct. 2, January 2,
1994 1994
Current Assets:
Cash and cash equivalents $ 866 372
Marketable securities 67 104
Accounts receivable, trade, less
allowances $201 (1993 - $170) 2,546 2,107
Inventories (Note 4) 2,038 1,717
Deferred taxes on income 458 399
Prepaid expenses and other
receivables 685 518
Total current assets 6,660 5,217
Marketable securities, non-current,
at cost, which approximates market
value 445 437
Property, plant and equipment, at cost 7,437 6,783
Less accumulated depreciation and
amortization 2,837 2,377
4,600 4,406
Intangible assets, net (Note 5) 1,591 925
Deferred taxes on income 518 484
Other assets 1,019 773
Total Assets $ 14,833 12,242
See Notes to Consolidated Financial Statements
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JOHNSON & JOHNSON AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Unaudited; Dollars in Millions)
LIABILITIES AND STOCKHOLDERS' EQUITY
Oct. 2, January 2,
1994 1994
Current Liabilities:
Loans and notes payable $ 1,142 915
Accounts payable 858 901
Accrued liabilities 2,054 1,283
Taxes on income 353 113
Total current liabilities 4,407 3,212
Long-term debt 1,258 1,493
Deferred tax liability 160 122
Certificates of extra compensation 81 91
Other liabilities 1,934 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 (73) (84)
Cumulative currency translation
adjustments 32 (338)
Retained earnings (Note 2) 8,771 7,727
9,497 8,072
Less common stock held in treasury,
at cost (124,389,000 & 124,391,000
shares) 2,504 2,504
Total stockholders' equity 6,993 5,568
Total liabilities and stockholders'
equity $14,833 12,242
See Notes to Consolidated Financial Statements
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JOHNSON & JOHNSON AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EARNINGS
(Unaudited; dollars & shares in millions
except per share figures)
Fiscal Quarter Ended
Oct. 2, Percent Oct. 3, Percent
1994 to Sales 1993 to Sales
Sales to customers (Note 6) $4,038 100.0 3,506 100.0
Cost of products sold 1,364 33.8 1,188 33.9
Selling, marketing and
administrative expenses 1,601 39.6 1,445 41.2
Research expense 316 7.8 277 7.9
Other income 32 .8 3 .1
3,313 82.0 2,913 83.1
Earnings before interest and
taxes on income 725 18.0 593 16.9
Interest income 20 .5 18 .5
Interest expense, net of
portion capitalized (32) (.8) (29) (.8)
Earnings before provision
for taxes on income 713 17.7 582 16.6
Provision for taxes on
income (Note 3) 188 4.7 128 3.7
NET EARNINGS $ 525 13.0 454 12.9
NET EARNINGS PER SHARE $ .82 .70
CASH DIVIDENDS PER SHARE $ .29 .26
AVG. SHARES OUTSTANDING 643.3 651.7
See Notes to Consolidated Financial Statements
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JOHNSON & JOHNSON AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EARNINGS
(Unaudited; dollars & shares in millions
except per share figures)
Fiscal Nine Months Ended
Oct. 2, Percent Oct. 3, Percent
1994 to Sales 1993 to Sales
Sales to customers (Note 6)$11,644 100.0 10,607 100.0
Cost of products sold 3,832 32.9 3,499 33.0
Selling, marketing and
administrative expenses 4,639 39.8 4,313 40.7
Research expense 918 7.9 844 7.9
Other income (18) (.1) (41) (.4)
9,371 80.5 8,615 81.2
Earnings before interest and
taxes on income 2,273 19.5 1,992 18.8
Interest income 39 .3 53 .5
Interest expense, net of
portion capitalized (101) (.8) (93) (.9)
Earnings before provision
for taxes on income 2,211 19.0 1,952 18.4
Provision for taxes on
income (Note 3) 583 5.0 500 4.7
NET EARNINGS $1,628 14.0 1,452 13.7
NET EARNINGS PER SHARE $ 2.53 2.22
CASH DIVIDENDS PER SHARE $ .84 .75
AVG. SHARES OUTSTANDING 643.2 653.9
See Notes to Consolidated Financial Statements
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JOHNSON & JOHNSON AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited; Dollars in Millions)
Fiscal Nine Months Ended
Oct. 2, Oct. 3,
1994 1993
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $1,628 1,452
Adjustments to reconcile net earnings to
cash flows from operating activities:
Depreciation and amortization of
property and intangibles 532 468
Increase in accounts receivable, trade,
less allowances (289) (313)
Increase in inventories (160) (142)
Changes in other assets and liabilities 621 87
NET CASH FLOWS FROM OPERATING ACTIVITIES 2,332 1,552
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment (532) (631)
Proceeds from the disposal of assets 286 27
Acquisition of businesses, net of cash
acquired (924) (24)
Other, principally marketable securities (87) (117)
NET CASH USED BY INVESTING ACTIVITIES (1,257) (745)
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends to stockholders (541) (491)
Repurchase of common stock (99) (361)
Proceeds from short-term debt 515 261
Retirement of short-term debt (311) (162)
Proceeds from long-term debt 9 165
Retirement of long-term debt (245) (313)
Proceeds from the exercise of stock
options 42 24
NET CASH USED BY FINANCING
ACTIVITIES (630) (877)
EFFECT OF EXCHANGE RATE CHANGES ON CASH
AND CASH EQUIVALENTS 49 (31)
INCREASE/(DECREASE) IN CASH AND CASH
EQUIVALENTS 494 (101)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 372 745
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 866 644
Supplemental disclosures of noncash investing and financing
activities
Fair value of assets acquired $ 972
Liabilities assumed (48)
Net cash payments made $ 924
See Notes to Consolidated Financial Statements
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - The accompanying interim financial statements and related
notes should be read in conjunction with the Consolidated Financial
Statements of Johnson & Johnson and Subsidiaries and related notes
as contained in the Annual Report on Form 10-K for the fiscal year
ended January 2, 1994. The interim financial statements include all
adjustments (consisting only of normal recurring adjustments) and
accruals necessary in the judgment of management for a fair
presentation of such statements. Earnings per share were
calculated on the basis of the average number of shares of common
stock outstanding during the applicable period.
NOTE 2 - ADOPTION OF SFAS NO. 116 - Johnson & Johnson (the
"Company"), has elected early adoption of Statement of Financial
Accounting Standards (SFAS) No. 116, "Accounting for Contributions
Received and Contributions Made." This standard requires that an
unconditional promise of a contribution shall 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.
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NOTE 3 - INCOME TAXES
The effective income tax rates for 1994 and 1993 are as follows:
1994 1993
First Quarter 26.1% 28.1%
First Half 26.4 27.2
Nine Months 26.4 25.6
The effective income tax rates for the first nine months of 1994
and 1993 are 26.4% and 25.6%, respectively, as compared to the U.S.
federal statutory rate of 35%. The major reason for this
difference is the result of domestic subsidiaries operating in
Puerto Rico under a grant providing for tax relief.
NOTE 4 - INVENTORIES
(Dollars in Millions) Oct. 2, 1994 Jan. 2, 1994
Raw materials and supplies $ 592 448
Goods in process 512 485
Finished goods 934 784
$ 2,038 1,717
NOTE 5 - INTANGIBLE ASSETS
(Dollars in Millions) Oct. 2, 1994 Jan. 2, 1994
Intangible assets $ 1,926 1,255
Less accumulated amortization 335 330
$ 1,591 925
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 increase in intangible
assets is primarily due to the acquisition of Neutrogena
Corporation, partially offset by the divestiture of the ophthalmic
pharmaceutical product line of Iolab Corporation (see Note 7 for
additional information).
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NOTE 6 - SALES TO CUSTOMERS BY SEGMENT OF BUSINESS AND GEOGRAPHIC
AREAS
(Dollars in Millions)
SALES BY SEGMENT OF BUSINESS
Third Quarter Nine Months
Percent Percent
1994 1993 Increase 1994 1993 Increase
Consumer
Domestic $ 714 682 4.7 2,008 1,992 .8
International 660 533 23.8 1,915 1,684 13.7
1,374 1,215 13.1% 3,923 3,676 6.7%
Pharmaceutical
Domestic 554 458 21.0 1,591 1,315 21.0
International 793 653 21.4 2,254 2,027 11.2
1,347 1,111 21.2% 3,845 3,342 15.1%
Professional
Domestic 734 698 5.2 2,159 2,079 3.8
International 583 482 21.0 1,717 1,510 13.7
1,317 1,180 11.6% 3,876 3,589 8.0%
Domestic 2,002 1,838 8.9 5,758 5,386 6.9
International 2,036 1,668 22.1 5,886 5,221 12.7
Worldwide $4,038 3,506 15.2% 11,644 10,607 9.8%
SALES BY GEOGRAPHIC AREAS
Third Quarter Nine Months
Percent Percent
1994 1993 Increase 1994 1993 Increase
U.S. $2,002 1,838 8.9 5,758 5,386 6.9
Europe 1,126 932 20.8 3,375 3,062 10.2
Western Hemisphere
excluding U.S. 412 328 25.6 1,099 988 11.2
Africa, Asia and
Pacific 498 408 22.1 1,412 1,171 20.6
Total $4,038 3,506 15.2% 11,644 10,607 9.8%
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NOTE 7 - ACQUISITIONS AND DIVESTITURES
On August 22, 1994, the Company announced that it had entered
into an agreement with Neutrogena Corporation pursuant to which it
would acquire for a net price of approximately $924 million all of
the outstanding shares of common stock and options to purchase
shares of common stock of Neutrogena through a tender offer and
subsequent merger. During the week of September 26, 1994, the
Company acquired and made payment for the Neutrogena common stock
tendered in the tender offer, which represented approximately 98.6%
of the Neutrogena common stock outstanding. On October 3, 1994,
the Company consummated a short form merger pursuant to which the
remaining shares of Neutrogena common stock were acquired at the
same price per share paid pursuant to the tender offer. The
acquisition was accounted for as a purchase, with the results of
Neutrogena included from the date of acquisition. The allocation
of the purchase price to the assets acquired and liabilities
assumed has been based upon preliminary estimates and will be
revised when additional information concerning asset and liability
valuations is obtained. The excess of the cost over the
preliminary valuation of the net assets acquired of $819 million
has been allocated to goodwill and is being amortized over 40 years
on a straight-line basis. Pro forma results of the acquisition,
assuming that the transaction was consummated at the beginning of
each year presented would not be materially different from the
results reported.
On September 6, 1994, the Company announced that it had entered
into an agreement with Eastman Kodak Company to purchase Kodak's
clinical diagnostics division for $1,008 million. It is
anticipated that the closing of such acquisition will occur during
the fourth quarter of 1994.
On September 1, 1994, the Company completed the sale of the
ophthalmic pharmaceutical product line of Iolab Corporation for
approximately $300 million to Ciba Vision. The gain on the sale of
the divestiture was reinvested in the reengineering of certain base
businesses.
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Item 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SALES AND EARNINGS
Consolidated sales for the first nine months of 1994 of $11,644
million exceeded sales of $10,607 million for the first nine months
of 1993 by 9.8%. The strength of the U.S. dollar relative to
foreign currencies decreased sales for the first nine months of
1994 by .4%. Excluding currency, sales increased 10.2% on an
operational basis for the first nine months of 1994. Consolidated
net earnings for the first nine months of 1994 were $1,628 million,
compared with net earnings of $1,452 million for the first nine
months of 1993. Earnings per share for the first nine months of
1994 were $2.53 compared with $2.22 for the same period a year ago.
Net earnings and earnings per share rose 12.1% and 14.0%,
respectively.
Consolidated sales for the third quarter of 1994 were $4,038
million, an increase of 15.2% over 1993 third quarter sales of
$3,506 million. The effect of the stronger foreign currencies
relative to the U.S. dollar increased third quarter sales by 2.1%.
Excluding the effect of currency exchange rates, sales would have
increased 13.1%. Consolidated net earnings for the third quarter
of 1994 were $525 million, compared with $454 million for the same
period a year ago, an increase of 15.6%. Earnings per share for
the third quarter of 1994 rose 17.1% to $.82 compared with $.70 in
the 1993 period.
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Domestic sales for the first nine months of 1994 were $5,758
million, an increase of 6.9% over 1993 domestic sales of $5,386
million for the same period a year ago. Sales by international
subsidiaries were $5,886 million for the first nine months of 1994
compared with $5,221 million for the same period a year ago, an
increase of 12.7%. Excluding the impact of the stronger value of
the dollar, international sales increased by 13.4%.
Domestic consumer sales increased 4.7% for the quarter. Growth
was led by the introduction of JOHNSON'S Baby Healthflow, a feeding
bottle for infants, by Johnson & Johnson Consumer Products, Inc. as
well as the launch of a home cholesterol test kit by Advanced Care
Products. Sales of MONISTAT 7, an over-the-counter remedy for
vaginal yeast infections, have stabilized and shown progress versus
the same period last year. International sales increased 23.8%,
primarily attributable to the strong performance of our business in
Brazil, where the local economy is recovering. Our Asia-Pacific
consumer operations continued to perform well. The addition of
RoC, the French-based adult skin care business acquired in
December, 1993, also helped fuel international growth.
Pharmaceutical sales for the third quarter increased 21.2%
worldwide. Domestic pharmaceutical sales increased 21%, due to the
strong performances of RISPERDAL, an anti-psychotic medication for
schizophrenia; PROPULSID, a gastrointestinal product introduced
during the third quarter of 1993; SPORANOX, an anti-fungal;
PROCRIT, an anti-anemia drug and FLOXIN, an anti-bacterial.
International pharmaceutical sales were up 21.4%, led by strong
sales increases registered by EPREX (sold in the U.S. as PROCRIT),
PREPULSID (sold in the U.S. as PROPULSID), SPORANOX and RISPERDAL.
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Domestic professional sales for the third quarter increased
5.2%, despite the negative impact from our divestitures of the "A"
Company (orthodontic appliances) and the ophthalmic pharmaceutical
business of IOLAB. The domestic sales increase was led by the
further expansion of Ethicon Endo-Surgery's less invasive
instruments; solid performances by Johnson & Johnson Medical;
LifeScan's blood glucose monitoring systems; Vistakon's disposable
contact lenses; and rapid expansion of the stent business for
narrowed or blocked arteries. Ethicon Endo-Surgery continued to
gain market share and is now the leader in the disposable
endoscopic instruments market in the U.S.
Johnson & Johnson Medical's PROTECTIV catheter, which offers
a unique system of safety for the health care practitioner by
minimizing needle sticks, is experiencing solid growth. Sales of
the PALMAZ-SCHATZ Balloon-Expandable Stent have been growing
swiftly since the Food and Drug Administration approved the device
for use in coronary arteries in August, 1994. All international
markets are performing well on the strength of their base
businesses and recorded a solid growth of 21%.
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 a material
effect on the Company's results of operations or its financial
position.
Average shares of common stock outstanding in the first nine
months of 1994 were 643.2 million, compared with 653.9 million for
the same period a year ago, as a result of a $500 million share
repurchase program in 1993.
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LIQUIDITY AND CAPITAL RESOURCES
Net debt (borrowings net of cash and current marketable
securities) was 17.3% of net capital compared with 25.8% at the end
of 1993. Net debt decreased by $465 million during the first nine
months of 1994 to $1.47 billion at October 2, 1994. Total debt
represented 25.6% of total capital (stockholders' equity and total
borrowings) at quarter end, compared with 30.2% at the end of 1993.
Additions to property, plant and equipment were $532 million for
the first nine months of 1994, compared with $631 for the same
period in 1993.
On October 17, 1994, the Board of Directors approved a regular
quarterly dividend of 29 cents per share payable on December 6,
1994 to shareholders of record as of November 15, 1994.
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Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit Numbers
(1) Exhibit 11 - Calculation of Earnings Per Share
(2) Exhibit 27 - Financial Data Schedule
(b) Report on Form 8-K:
A report on Form 8-K was filed on October 5, 1994, which
included pro forma financial information prepared to
reflect the two acquisitions by the Company referred to
under Note 7 - Acquisitions and Divestitures: (a)
Unaudited Pro Forma Condensed Consolidated Statements of
Income for the six months ended July 3, 1994 and the year
ended January 2, 1994, (b) Unaudited Pro Forma Condensed
Consolidated Balance Sheet as of July 3, 1994 and (c) the
notes thereto.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
JOHNSON & JOHNSON
(Registrant)
Date: November 11, 1994 By C. H. Johnson
C. H. Johnson
(Vice President, Finance)
Date: November 11, 1994 By A. W. Roulston
A. W. Roulston
(Corporate Controller)
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EXHIBIT 11
JOHNSON & JOHNSON AND SUBSIDIARIES
CALCULATION OF EARNINGS PER SHARE
(Dollars and shares in millions except per share figures)
Fiscal Quarter Ended
Oct. 2, Oct. 3,
1994 1993
1. Net Earnings ................ $ 525 454
2. Average number of shares outstanding
during the period............ 643.3 651.7
3. Earnings per share based upon average
outstanding shares (1 / 2) $ .82 .70
4. Fully diluted earnings per share:
a. Average number of shares out-
standing during the period. 643.3 651.7
b. Shares issuable under stock
compensation agreements at
quarter-end .............. .3 .7
c. Shares reserved under the stock
option plan for which the
market price at end of quarter
exceeds the option price.. 32.0 19.0
d. Aggregate proceeds to the Company
from the exercise of
options in 4c ............ 1,244 521
e. Market price of the Company's
common stock at fiscal
quarter-end............... 51.75 39.13
f. Shares which could be repurchased
under the treasury stock method
(4d / 4e) ................ 24.0 13.3
g. Addition to average outstanding
shares (4b + 4c - 4f)..... 8.3 6.4
h. Shares for fully diluted earnings
per share calculation
(4a + 4g) ................ 651.6 658.1
i. Fully diluted earnings per share
(1 / 4h) ................. $ .81 .69
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EXHIBIT 11
JOHNSON & JOHNSON AND SUBSIDIARIES
CALCULATION OF EARNINGS PER SHARE
(Dollars and shares in millions except per share figures)
Fiscal
Nine Months Ended
Oct. 2, Oct. 3,
1994 1993
1. Net Earnings ................ $1,628 1,452
2. Average number of shares outstanding
during the period............ 643.2 653.9
3. Earnings per share based upon average
outstanding shares (1 / 2) $ 2.53 2.22
4. Fully diluted earnings per share:
a. Average number of shares out-
standing during the period. 643.2 653.9
b. Shares issuable under stock
compensation agreements at
quarter-end .............. .3 .7
c. Shares reserved under the stock
option plan for which the
market price at end of quarter
exceeds the option price.. 32.0 19.0
d. Aggregate proceeds to the Company
from the exercise of
options in 4c ............ 1,244 521
e. Market price of the Company's
common stock at fiscal
quarter-end............... 51.75 39.13
f. Shares which could be repurchased
under the treasury stock method
(4d / 4e) ................ 24.0 13.3
g. Addition to average outstanding
shares (4b + 4c - 4f)..... 8.3 6.4
h. Shares for fully diluted earnings
per share calculation
(4a + 4g) ................ 651.5 660.3
i. Fully diluted earnings per share
(1 / 4h) ................. $ 2.50 2.20
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