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 March 31, 2002
or
( ) Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the for the transition
period from to
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.)
One Johnson & Johnson Plaza
New Brunswick, New Jersey 08933
(Address of principal executive offices)
Registrant's telephone number, including area code (732) 524-0400
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 April 26, 2002, 3,011,205,232 shares of Common Stock, $1.00
par value, were outstanding.
1
JOHNSON & JOHNSON AND SUBSIDIARIES
TABLE OF CONTENTS
Part I - Financial Information Page No.
Item 1. Financial Statements
Consolidated Balance Sheet -
March 31, 2002 and December 30, 2001 3
Consolidated Statement of Earnings for the Fiscal
Three Months Ended March 31, 2002 and
April 1, 2001 5
Consolidated Statement of Cash Flows for the Fiscal
Three Months Ended March 31, 2002 and
April 1, 2001 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results
of Operations 11
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 13
Part II - Other Information
Item 1 - Legal Proceedings 13
Item 5 - Exhibits and Reports on Form 8-K 15
Signatures 16
2
Part I - FINANCIAL INFORMATION
Item 1 - Financial Statements
JOHNSON & JOHNSON AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Unaudited; Dollars in Millions)
ASSETS
March 31, December 30,
2002 2001
Current Assets:
Cash and cash equivalents $ 3,437 3,758
Marketable securities 3,976 4,214
Accounts receivable, trade, less
allowances for doubtful accounts
$203(2001 - $197) 4,740 4,630
Inventories (Note 4) 3,103 2,992
Deferred taxes on income 1,246 1,192
Prepaid expenses and other
receivables 1,913 1,687
Total current assets 18,415 18,473
Marketable securities, non-current 937 969
Property, plant and equipment,
at cost 12,561 12,458
Less accumulated
depreciation 4,906 4,739
7,655 7,719
Intangible assets, gross (Note 5) 10,905 10,910
Less accumulated amortization 1,844 1,833
Intangible assets, net 9,061 9,077
Deferred taxes on income 316 288
Other assets 1,912 1,962
Total assets $38,296 38,488
See Notes to Consolidated Financial Statements
3
JOHNSON & JOHNSON AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Unaudited; Dollars in Millions)
LIABILITIES AND SHAREOWNERS' EQUITY
March 31, December 30,
2002 2001
Current Liabilities:
Loans and notes payable $ 669 565
Accounts payable 2,358 2,838
Accrued liabilities 3,447 3,135
Accrued salaries, wages and
commissions 647 969
Taxes on income 1,180 537
Total current liabilities 8,301 8,044
Long-term debt 2,225 2,217
Deferred tax liability 500 493
Employee related obligations 1,869 1,870
Other liabilities 1,678 1,631
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 (25) (30)
Accumulated other comprehensive
income (Note 8) (643) (530)
Retained earnings 24,059 23,066
26,511 25,626
Less common stock held in treasury,
at cost (94,280,000 & 72,627,000
shares) 2,788 1,393
Total shareowners' equity 23,723 24,233
Total liabilities and shareowners'
equity $38,296 38,488
See Notes to Consolidated Financial Statements
4
JOHNSON & JOHNSON AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EARNINGS
(Unaudited; dollars & shares in millions
except per share figures)
Fiscal Quarter Ended
March 31, Percent April 1, Percent
2002 to Sales 2001 to Sales
Sales to customers
(Note 6) $8,743 100.0 7,855 100.0
Cost of products sold 2,457 28.1 2,311 29.4
Gross Profit 6,286 71.9 5,544 70.6
Selling, marketing and
administrative expenses 2,843 32.5 2,666 34.0
Research expense 831 9.5 759 9.7
Interest income (76) (.9) (125) (1.6)
Interest expense, net of
portion capitalized 34 .4 33 .4
Other (income)expense, net 33 .4 (6) (.1)
3,665 41.9 3,327 42.4
Earnings before provision
for taxes on income 2,621 30.0 2,217 28.2
Provision for taxes on
income (Note 3) 787 9.0 665 8.4
NET EARNINGS $1,834 21.0 1,552 19.8
NET EARNINGS PER SHARE (Note 7)
Basic $ .60 .51
Diluted $ .59 .50
CASH DIVIDENDS PER SHARE $ .18 .16
AVG. SHARES OUTSTANDING
Basic 3,042.0 3,020.4
Diluted 3,115.4 3,106.9
See Notes to Consolidated Financial Statements
5
JOHNSON & JOHNSON AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited; Dollars in Millions)
Fiscal Quarter Ended
March 31, April 1,
2002 2001
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 1,834 1,552
Adj. to reconcile net earnings to cash flows:
Depreciation and amortization of
property and intangibles 412 412
Accounts receivable reserves (13) 6
Changes in assets and liabilities, net
of effects from acquisition of businesses:
Increase in accounts receivable (139) (246)
Increase in inventories (128) (59)
Changes in other assets and
liabilities ( 31) (5)
NET CASH FLOWS FROM OPERATING
ACTIVITIES 1,935 1,660
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant
and equip (350) (271)
Proceeds from the disposal of assets 18 29
Acquisition of businesses, net of cash
acquired (28) (17)
Purchases of investments (1,689) (1,631)
Sales of investments 2,023 1,553
Other (58) (77)
NET CASH USED BY INVESTING
ACTIVITIES (84) (414)
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends to shareowners (549) (447)
Repurchase of common stock (1,899) (257)
Proceeds from short-term debt 272 116
Retirement of short-term debt (156) (645)
Proceeds from long-term debt 17 4
Retirement of long-term debt (12) (19)
Proceeds from the exercise of
stock options 164 96
NET CASH USED BY FINANCING
ACTIVITIES (2,163) (1,152)
EFFECT OF EXCHANGE RATE CHANGES ON CASH
AND CASH EQUIVALENTS (9) (32)
INCREASE(DECREASE) IN CASH AND CASH
EQUIVALENTS (321) 62
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD 3,758 4,278
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 3,437 4,340
SUPPLEMENTAL SCHEDULE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES:
CONVERSION OF DEBT - 460
ACQUISITION OF BUSINESSES
Fair value of assets acquired 39 22
Fair value of liabilities assumed (11) (5)
Net Cash Payment $ 28 17
See Notes to Consolidated Financial Statements
6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - The accompanying unaudited interim financial
statements and related notes should be read in conjunction with
the Consolidated Financial Statements of Johnson & Johnson and
Subsidiaries (the "Company") and related notes as contained in
the Annual Report on Form 10-K for the fiscal year ended
December 30, 2001. The Company has adopted EITF Issue No. 01-09
"Accounting for Consideration given by a Vendor to a Customer or
Reseller of the Vendor's Products" effective December 31, 2001.
All periods have been restated primarily to reclassify sales
incentives and trade promotional allowances from expense to a
reduction of sales as such, sales for the first quarter of 2001
were reduced by $166 million. The unaudited 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. Certain
other prior year amounts have been reclassified to conform with
the current year presentation.
NOTE 2 - FINANCIAL INSTRUMENTS
Effective January 1, 2001, the Company adopted SFAS 133
requiring that all derivative instruments be recorded on the
balance sheet at fair value.
As of March 31, 2002 the balance of deferred net gains on
derivatives included in accumulated other comprehensive income was
$74 million (after tax). Of this amount, the Company expects that
$74 million 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 primary types of underlying
transactions which will cause the amount in accumulated other
comprehensive income to affect net earnings primarily consist of
sales to third parties. 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 fiscal quarter ended March 31, 2002 the net impact of
the hedges' ineffectiveness to the Company's financial statements
was insignificant. For the fiscal quarter ended March 31, 2002
the Company has recorded a net gain of $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 originally
forecasted transactions will not occur by the end of the
originally specified time period.
Refer to Note 8 for disclosures of movements in Accumulated
Other Comprehensive Income.
NOTE 3 - INCOME TAXES
The effective income tax rate for the first fiscal three months of
2002 and 2001 is 30.0% as compared to the U.S. federal statutory
rate of 35%. The difference from the statutory rate is primarily
the result of subsidiaries manufacturing in Ireland under an
incentive tax rate effective through the year 2010 and domestic
subsidiaries operating in Puerto Rico under a tax incentive grant
expiring in 2014.
7
NOTE 4 - INVENTORIES
(Dollars in Millions)
March 31, 2002 Dec. 30, 2001
Raw materials and supplies $ 973 842
Goods in process 635 605
Finished goods 1,495 1,545
$ 3,103 2,992
NOTE 5 - INTANGIBLE ASSETS
In accordance with SFAS No. 142, effective July 1, 2002, the
Company discontinued the amortization of goodwill and identifiable
assets that have been determined by the Company to have indefinite
useful lives. Goodwill and non-amortizable trademarks will be
assessed annually for impairment. Intangible assets that have
finite useful lives will continue to be amortized over their
useful lives. The impact of discontinuing amortization of
goodwill and indefinite lived intangible assets will be a
reduction from the prior year of amortization expense of
approximately $30 million after tax or $0.01 per share and $120
million after tax or $0.04 per share for the quarter and the year,
respectively. The amortization of intangible assets for the
fiscal three months ended March 31, 2002, is $93 million pre-tax
and the estimated amortization expense for the full year 2002 and
for each of the five succeeding years approximates $375 million
pre tax, per year respectively.
(Dollars in Millions)
March 31, 2002
Goodwill-gross $ 5,048
Less accumulated amortization 629
Goodwill - net 4,419
Trademarks (non-amortizable)- gross 656
Less accumulated amortization 110
Trademarks (non-amortizable)- net 546
Patents 2,271
Less accumulated amortization 437
Patents - net 1,834
Other intangible - gross 2,930
Less accumulated amortization 668
Other intangibles - net 2,262
Total intangible assets - gross 10,905
Less accumulated amortization 1,844
Total intangibles - net $ 9,061
8
NOTE 6 - SEGMENTS OF BUSINESS AND GEOGRAPHIC AREAS
(Dollars in Millions)
SALES BY SEGMENT OF BUSINESS
Fiscal First Quarter
Percent
2002 2001 Change
Consumer
Domestic $ 900 896 .4
International 704 735 (4.2)
1,604 1,631 (1.7)%
Pharmaceutical
Domestic $ 2,958 2,356 25.6
International 1,223 1,133 7.9
4,181 3,489 19.8%
Med Dev & Diag
Domestic $ 1,663 1,463 13.7
International 1,295 1,272 1.8
2,958 2,735 8.2%
Domestic $ 5,521 4,715 17.1
International 3,222 3,140 2.6
Worldwide $ 8,743 7,855 11.3%
OPERATING PROFIT BY SEGMENT OF BUSINESS
Fiscal First Quarter
Percent
2002 2001 Change
Consumer $ 315 286 10.1
Pharmaceutical 1,664 1,366 21.8
Med. Dev. & Diag. 662 553 19.7
Segments total 2,641 2,205 19.8
Expenses not allocated
to segments (20) 12
Worldwide total $ 2,621 2,217 18.2%
SALES BY GEOGRAPHIC AREA
Fiscal First Quarter
Percent
2002 2001 Change
U.S. $ 5,521 4,715 17.1
Europe 1,765 1,697 4.0
Western Hemisphere
Excluding U.S. 481 506 (4.9)
Asia-Pacific, Africa 976 937 4.2
Total $ 8,743 7,855 11.3%
9
NOTE 7 - EARNINGS PER SHARE
The following is a reconciliation of basic net earnings per share
to diluted net earnings per share for the fiscal three months
ended March 31, 2002 and April 1, 2001. Earnings per share
figures and shares outstanding reflect the two-for-one stock split
effective during the second quarter of 2001.
(Shares in Millions)
Fiscal Quarter Ended
March 31, April 1,
2002 2001
Basic net earnings per share $ .60 .51
Average shares outstanding - basic 3,042.0 3,020.4
Potential shares exercisable under
stock option plans 204.1 115.1
Less: shares which could be repurchased
under treasury stock method (150.9) (67.4)
Convertible debt shares 20.2 38.8
Adjusted average shares
outstanding - diluted 3,115.4 3,106.9
Diluted earnings per share $ .59 .50
NOTE 8 - ACCUMULATED OTHER COMPREHENSIVE INCOME
The total comprehensive income for the fiscal three months ended
March 31, 2002 is $1,719 million, compared with $1,456 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 sets forth the components of
accumulated other comprehensive income.
Total
Unrld Gains/ Accum
For. Gains/ Pens (Losses) Other
Cur. (Losses) Liab on Deriv Comp
Trans. on Sec Adj. & Hedg
Inc/(Loss)
December 30, 2001 $ (697) 84 (15) 98 (530)
2002 Three Months changes
Net change associated
to current period hedging
transactions - - - (3)
Net amount reclassed to
net earnings - - - (21)*
Net Three Months
changes (46) (43) - (24) (113)
March 31, 2002 $ (743) 41 (15) 74 (643)
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.
10
NOTE 9 - MERGERS & ACQUISITIONS
On March 12, 2002, Johnson & Johnson acquired Micro Typing
Systems, Inc. Micro Typing Systems manufactures a line of
reagents and supplies distributed instruments known as the ID-
MICRO TYPING SYSTEM (ID-MTS). ID-MTS is used in hospitals and
donor centers to help to ensure safe and effective blood
transfusions.
On March 22, 2002, Johnson & Johnson announced it had signed a
definitive agreement to acquire all of the assets of Tibotec-Virco
NV, a privately held biopharmaceutical company focused on
developing anti-viral treatments, with several promising compounds
in development for the treatment of infectious diseases including
HIV.
On April 18, 2002, Johnson & Johnson announced the completion of
the acquisition of Tibotec-Virco NV. The transaction is valued at
approximately $320 million in cash and debt. Johnson & Johnson
will incur an after-tax charge of approximately $145 million, or
$0.05 per share, in the second quarter associated with in-process
research and development costs relating to this acquisition.
NOTE 10 - 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 Form 10-Q.
NOTE 11 - NEW ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board (FASB)
issued SFAS No. 143, "Accounting for Asset Retirement
Obligations." The Company is currently assessing the impact of
this new standard and it will become effective for the fiscal
years beginning after June 15, 2002. In August 2001, the FASB
issued SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets," which is effective for the first quarter of
2002. The Company's adoption of SFAS No. 144 did not have a
material effect on the Company's results of operations, cash flows
or financial position.
NOTE 12 - SUBSEQUENT EVENT
On April 25, 2002, as previously announced, Mr. William C.
Weldon became Chairman of the Board, Chief Executive Officer and
Chairman of the Executive Committee, and Mr. James T. Lenehan
assumed additional responsibilities as President of the Company,
in addition to serving as Vice Chairman.
Item 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SALES AND EARNINGS
Consolidated sales for the fiscal first quarter of 2002 were $8.74
billion, an increase of 11.3% over 2001 fiscal first quarter sales
of $7.86 billion. The effect of the stronger dollar relative to
foreign currencies decreased first quarter sales by 2.1%.
Consolidated net earnings for the fiscal first quarter of 2002
were $1.83 billion, compared with $1.55 billion for the same
period a year ago, an increase of 18.2%. Earnings for the quarter
included the write down of certain equity investments and an
increase of $30 million over the first quarter of 2001 due to the
non-amortization of goodwill and certain other intangible assets.
Worldwide basic net earnings per share for the period were $.60,
compared with $.51 for the same period in 2001, an increase of
17.6%. Worldwide diluted net earnings per share for the period
were $.59 compared with $.50 for the same period in 2001, an
increase of 18.0%
Domestic sales for the first fiscal three months of 2002 were
$5.52 billion, an increase of 17.1% over 2001 domestic sales of
$4.72 billion for the same period. Sales by international
subsidiaries were $3.22 billion for the fiscal first quarter of
2002 compared with $3.14 billion for the same period a year ago,
an increase of 2.6%. Excluding the impact of the higher value of
the dollar, international sales increased by 8.0% for the quarter.
11
Worldwide Consumer sales for the fiscal first quarter of 2002 were
$1.6 billion, an operational increase of .6% versus the same
period a year ago. Domestic sales increased by .4%.
International sales gains in local currency of .9% were offset by
negative currency, resulting in a reported worldwide sales decline
of 1.7%. Consumer sales experienced solid growth in NEUTROGENA
and AVEENO skin care products, the JOHNSON'S line of baby skin
care products and McNeil Nutritional's SPLENDA sweetener products.
Worldwide Pharmaceutical sales of $4.2 billion for the fiscal
quarter resulted in an operational increase of 21.3% over the same
period in 2001. Domestic sales increased 25.6%. International
sales increased operationally 12.6% but were partially offset by a
negative currency impact of 4.7%. Worldwide reported sales growth
including a 1.5% negative currency impact was 19.8%.
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 received U.S. Food and Drug
Administration (FDA) approval for RISPERDAL for the additional
indication of delaying relapse in the long-term treatment of
schizophrenia. Clinical trials demonstrate that RISPERDAL
significantly reduces the risk of relapse as compared to
haloperidol, a conventional antipsychotic previously considered to
be the "standard" for treatment of psychosis. The Company also
received FDA approval for REMICADE for improvement in physical
function in patients with rheumatoid arthritis.
In February, the Medicines Control Agency (MCA) in the United
Kingdom approved CONCERTA XL, a once-daily treatment for attention
deficit hyperactivity disorder. The UK will serve as the
reference member state for the mutual-recognition of CONCERTA XL
in the European Union.
In March, the Company announced a definitive agreement to
acquire Tibotec-Virco NV, a privately held biopharmaceutical
company focused on developing anti-viral treatments. The
acquisition will expand drug discovery and development
capabilities, particularly in the field of anti-viral therapies.
On April 18, 2002, Johnson & Johnson announced the completion of
the acquisition. The transaction is valued at approximately $320
million in cash and debt. In addition, Johnson & Johnson will
incur an after-tax charge of approximately $145 million, or $0.05
per share, in the second quarter associated with in-process
research and development costs.
Worldwide sales for the Medical Devices and Diagnostics segment
were $3.0 billion in the fiscal first quarter of 2002, which
represented an operational increase of 11.1% in local currency as
compared to the same period in 2001. Domestic sales were up
13.7%, while international sales increased 7.9% on an operational
basis. Worldwide sales gains including the negative impact of
currency were reported at 8.2%. Strong sales growth from Cordis'
circulatory disease management products; DePuy's orthopaedic joint
reconstruction and spinal products; LifeScan's blood glucose
monitoring products; Ethicon Endo-Surgery's minimally invasive
surgical products and Vistakon's disposable contact lenses were
the primary contributors to the Medical Devices and Diagnostics
segment growth.
During the quarter, LifeScan and Novo Nordisk A/S launched the
INDUO System, a state-of-the art combined blood glucose monitor
and insulin doser for people with diabetes. The INDUO System
offers insulin users a more convenient approach to informed dosing
decisions with the benefit of blood glucose tests.
LIQUIDITY AND CAPITAL RESOURCES
Cash generated from operations and selected borrowings provides
the major source of funds for the growth of the business,
including working capital, additions to property, plant and
equipment, acquisitions and the stock repurchase progam. Cash and
current marketable securities totaled $7.4 billion at March 31,
2002 as compared with $8.0 billion at the end of 2001. For the
year ended December 30, 2001, there was a change in the timing of
salary increases and bonuses to employees from December 2001 to
February 2002. This change was enacted to have 2001 results
finalized in order to align compensation and performance. The
result of this change was a decrease of approximately $450 million
in accrued salaries, wages and commissions in the balance sheet at
March 31, 2002
12
and results in a corresponding decrease in cash flows from
operating activities. Total borrowings increased slightly during
the first fiscal three months of 2002 to $2.9 billion. Net cash
(cash and current marketable securities net of debt) as of March
31, 2002 was $4.5 billion, compared with $5.2 billion at the end
of 2001. Total debt represented 10.9% of total capital
(shareowners' equity and total debt) at quarter end compared with
10.3% at the end of 2001.
On February 13, 2002, the Company announced a stock repurchase
program of up to $5 billion with no time limit on this program.
As of May 3, 2002, 42,845,400 shares had been repurchased for an
aggregate price of $2.7 billion.
On April 25, 2002, the Board of Directors raised the quarterly
dividend from 18 cents per share to 20.5 cents per share. The
dividend is payable on June 11, 2002 to shareowners of record as
of May 21, 2002.
CAUTIONARY FACTORS THAT MAY AFFECT FUTURE RESULTS
This Form 10-Q 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 30, 2001 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 30, 2001.
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.
One group of cases against the Company concerns the Janssen
Pharmaceutica product PROPULSID, which was withdrawn from general
sale and restricted to limited use in 2000. In the wake of
publicity about those events, more than 977 lawsuits, comprising
the claims of more than 3,900 named individuals, have been filed
against Janssen, which is a wholly owned subsidiary of the
Company, and the Company regarding PROPULSID in state and federal
courts across the country. Of those plaintiffs 338 are alleged to
have died from the use of PROPULSID.
13
A significant number of these cases also seek certification as
class actions. These actions accuse Janssen and the Company of
inadequately testing for and warning about the drug's side
effects, of promoting it for off-label use and of over-promotion.
These actions seek substantial compensatory and punitive damages.
In addition, Janssen and the Company have entered into
agreements with various plaintiffs' counsel halting the running of
the statutes of limitations with respect to the potential claims
of a significant number of individuals while those attorneys
evaluate whether or not to sue Janssen and the Company on their
behalf.
In September 2001, the first ten plaintiffs in the Rankin case,
which comprises the claims of 155 plaintiffs, went to trial in
state court in Claiborne County, Mississippi. The jury returned
compensatory damage verdicts for each plaintiff in the amount of
$10 million, for a total of $100 million. The trial judge
thereafter dismissed the claims of punitive damages. On March 4,
2002, the trial judge reduced these verdicts to a total of $48
million, and denied the motions of Janssen and the Company for a
new trial. Janssen and the Company believe these verdicts, even as
reduced, are insupportable and will appeal. In the view of Janssen
and the Company, the proof at trial demonstrated that none of
these plaintiffs was injured by PROPULSID and that no basis for
liability existed.
With respect to all the various PROPULSID actions against
them, Janssen and the Company dispute the claims in those lawsuits
and are vigorously defending against them except where, in their
judgment, settlement is appropriate. Janssen and the Company
believe they have adequate self insurance reserves commercially
available excess insurance with respect to these cases.
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 PROCRIT, in
which Amgen seeks to terminate Ortho Biotech's U.S. license rights
and collect substantial damages based on alleged deliberate
PROCRIT 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 PROCRIT are
material to the Company; thus, an unfavorable outcome on the
termination issue could have a material adverse effect on the
Company's consolidated results of operations, cash flows and
financial position. The arbitration began in January, 2002 and is
expected to conclude in May, 2002. The arbitrator's decision will
follow the submission of post-hearing briefs by both sides.
In patent infringement actions tried in Delaware Federal Court
in late 2000, 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. On March 27, 2002, the district
judge issued post trial rulings which confirmed the validity and
enforceability of the main Cordis stent patent claims but found
certain other Cordis patents unenforceable. She also confirmed
the liability for infringement of the Boston Scientific stent but
ordered a new trial on damages. She vacated the verdict against
Medtronic AVE on legal grounds. Further post trial motions and
appeals to the Federal Circuit Court of Appeals will follow.
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.
14
Item 5. Exhibits and Reports on Form 8-K
(a) Exhibit
None
(b) Reports on Form 8-K
A Report on Form 8-K was filed on April 16, 2002 and
revised by amendment on April 30, 2002, which included
certain unaudited financial information related to Johnson
& Johnson and subsidiaries for the 11-year period ended
December 30, 2001. This financial data gives retroactive
effect for Johnson & Johnson's adoption of Emerging Issues
Task Force ("EITF") Issue No. 01-09, "Accounting for
Consideration given by a Vendor to a Customer or a
Reseller of the Vendor's Products."
Filed in this form 8-K are the unaudited consolidated
statements of earnings of Johnson & Johnson and
subsidiaries for the 11-year period ended December 30,
2001, together with the related data for segments of
business for the three year period ended December 30,
2001. Also filed in the 8-K are selected unaudited
quarterly financial data for fiscal year 2001.
15
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: May 13, 2002 By /s/ R. J. DARRETTA
R. J. DARRETTA
Executive Vice President,
Finance and Information
Management
(Chief Financial Officer)
Date: May 13, 2002 By /s/ S. J. COSGROVE
S. J. COSGROVE
Controller
(Chief Accounting Officer)
16