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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 3, 1993
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 29, 1993, 646,314,175 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 3, 1993 and January 3, 1993 3
Consolidated Statement of Earnings for the
Nine Months Ended October 3, 1993 and
September 27, 1992 5
Consolidated Statement of Cash Flows
for the Nine Months Ended October 3, 1993
and September 27, 1992 7
Notes to Consolidated Financial Statements 8
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 12
Signatures 16
Part II - Other Information
Items 1 through 6 are not applicable
Exhibit Index 17
- 2 -
Part I - FINANCIAL INFORMATION
Item 1 - FINANCIAL STATEMENTS
JOHNSON & JOHNSON AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Unaudited; Dollars in Millions)
ASSETS
Oct. 3, January 3,
1993 1993
Current Assets:
Cash and cash equivalents $ 644 745
Marketable securities, at cost which
approximates market value 137 133
Accounts receivable, trade, less
allowances $160 (1992 - $143) 2,135 1,855
Inventories (Note 4) 1,844 1,742
Deferred taxes on income 266 327
Prepaid expenses and other
receivables 609 621
Total current assets 5,635 5,423
Marketable securities, non-current,
at cost, which approximates market
value 423 355
Property, plant and equipment, at cost 6,732 6,303
Less accumulated depreciation and
amortization 2,469 2,188
4,263 4,115
Intangible assets, net (Note 5) 673 716
Deferred taxes on income 596 506
Other assets 811 769
Total Assets $ 12,401 11,884
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. 3, January 3,
1993 1993
Current Liabilities:
Loans and notes payable $ 1,044 1,032
Accounts payable 778 910
Accrued liabilities 1,287 1,302
Taxes on income 228 183
Total current liabilities 3,337 3,427
Long-term debt 1,276 1,365
Deferred tax liability 87 91
Certificates of extra compensation 97 94
Other liabilities 1,909 1,736
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 767,370,000 and
767,366,000 shares) 767 767
Note receivable from employee stock
ownership plan (84) (92)
Cumulative currency translation
adjustments (260) (146)
Retained earnings 7,581 6,648
8,004 7,177
Less common stock held in treasury,
at cost (119,870,000 & 111,970,000
shares) 2,309 2,006
Total stockholders' equity 5,695 5,171
Total liabilities and stockholders'
equity $ 12,401 11,884
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. 3, Percent Sept 27, Percent
1993 to Sales 1992 to Sales
Sales to customers (Note 6) $3,506 100.0 3,480 100.0
Cost of products sold 1,188 33.9 1,198 34.4
Selling, marketing and
administrative expenses 1,445 41.2 1,431 41.1
Research expense 277 7.9 277 8.0
Interest income (18) (.5) (15) (.4)
Interest expense, net of
portion capitalized 29 .8 35 1.0
Other expense (income) 3 .1 (14) (.4)
2,924 83.4 2,912 83.7
Earnings before provision
for taxes on income 582 16.6 568 16.3
Provision for taxes on
income (Note 3) 128 3.7 154 4.4
NET EARNINGS $ 454 12.9 414 11.9
NET EARNINGS PER SHARE $ .70 .63
CASH DIVIDENDS PER SHARE $ .26 .23
AVG. SHARES OUTSTANDING 651.7 655.5
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. 3, Percent Sept 27, Percent
1993 to Sales 1992 to Sales
Sales to customers (Note 6) $10,607 100.0 10,250 100.0
Cost of products sold 3,499 33.0 3,444 33.6
Selling, marketing and
administrative expenses 4,313 40.7 4,175 40.7
Research expense 844 8.0 807 7.9
Interest income (53) (.5) (69) (.7)
Interest expense, net of
portion capitalized 93 .8 83 .8
Other income (41) (.4) (38) (.3)
8,655 81.6 8,402 82.0
Earnings before provision for
taxes on income and
cumulative effect of
accounting changes 1,952 18.4 1,848 18.0
Provision for taxes on
income (Note 3) 500 4.7 530 5.1
Earnings before cumulative
effect of acctg changes 1,452 13.7 1,318 12.9
Cumulative effect of
accounting changes, net
of taxes (Note 2) - - (595) N.M.
NET EARNINGS $ 1,452 13.7 723 N.M.
NET EARNINGS PER SHARE (Note 2)
Before cumulative effect of
accounting changes $ 2.22 1.99
Cumulative effect of accounting
changes, net of taxes
(Note 2) - (.90)
NET EARNINGS PER SHARE $ 2.22 1.09
CASH DIVIDENDS PER SHARE $ .75 .66
AVG. SHARES OUTSTANDING 653.9 660.8
N.M. - not meaningful
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. 3, Sept 27,
1993 1992
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $1,452 723
Cumulative effect of accounting changes - 595
Earnings before cumulative effect of
accounting changes 1,452 1,318
Adjustments to reconcile net earnings to
cash flows from operating activities:
Depreciation and amortization of
property and intangibles 468 427
Increase in accounts receivable, trade,
less allowances (313) (378)
Increase in inventories (142) (230)
Changes in other assets and liabilities 79 234
NET CASH FLOWS FROM OPERATING ACTIVITIES 1,544 1,371
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment (631) (687)
Proceeds from the disposal of assets 27 31
Acquisition of businesses, net of cash
acquired (24) (47)
Other, principally marketable securities (117) (245)
NET CASH USED BY INVESTING ACTIVITIES (745) (948)
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends to stockholders (491) (436)
Repurchase of common stock (361) (603)
Employee stock ownership plan note
repayment 8 8
Proceeds from short-term debt 261 644
Retirement of short-term debt (162) (216)
Proceeds from long-term debt 165 557
Retirement of long-term debt (313) (335)
Proceeds from the exercise of stock
options 24 35
NET CASH USED BY FINANCING
ACTIVITIES (869) (346)
EFFECT OF EXCHANGE RATE CHANGES ON CASH
AND CASH EQUIVALENTS (31) 15
DECREASE (INCREASE) IN CASH & CASH EQUIVALENTS (101) 92
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 745 589
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 644 681
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 3, 1993. 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. However,
the information contained therein is subject to year-end
adjustments and audit by independent public accountants.
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. 106, SFAS NO. 109 & SFAS NO. 112
The Company adopted the provisions of Statement of Financial
Accounting Standards SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions," in 1992. SFAS No.
106 requires accrual accounting for these benefits rather than
accounting for them on a cash basis. Upon adoption, the Company
elected to record the accumulated obligation of $549 million
pretax ($340 million after-tax or $.52 per share) as a one-time
charge against earnings in the form of a cumulative effect of an
accounting change.
In 1992, the Company also elected early adoption of Statement of
Financial Accounting Standard SFAS No. 109, "Accounting for
Income Taxes." The cumulative effect of $35 million, or $.05 per
share, is reported as a one-time charge in the 1992 Consolidated
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Statements of Earnings. The standard requires a change from the
deferred to the liability method of computing deferred income
taxes. Deferred income taxes are recognized for tax consequences
of "temporary differences" by applying enacted statutory tax
rates, applicable to future years, to differences between the
financial reporting and the tax basis of existing assets and
liabilities.
In 1992, the Company adopted the provisions of Statement of
Financial Accounting Standards SFAS No. 112, "Employers'
Accounting for Postemployment Benefits." SFAS No. 112 requires
accrual accounting for these benefits rather than the cash method
of accounting. Upon adoption, the Company elected to record the
accumulated obligation of $343 million ($220 million after-tax or
$.33 per share) as a one-time charge against earnings in the form
of a cumulative effect of an accounting change.
The 1992 results have been restated to reflect a one-time
after-tax charge of $595 million or $.90 a share, due to the
company's early adoption of accounting changes for postretirement
benefits, income taxes and postemployment benefits. In addition,
third quarter and nine months results have been restated to
include incremental after-tax charges, attributable to these
accounting changes, of $11 million and $35 million, respectively.
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NOTE 3 - INCOME TAXES
The effective income tax rates for 1993 and 1992 are as
follows:
1993 1992
First Quarter 28.1% 29.8%
First Half 27.2 29.4
Nine Months 25.6 28.7
The effective income tax rates for the first nine months of
1993 and 1992 are 25.6% and 28.7%, 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. The 1993 tax rate was also favorably impacted by the
1993 Tax Act which extended the Research Tax Credit retroactive
from July, 1992. In addition, the increase in the Corporate
tax rate to 35%, created a gain associated with the write-up of
net U.S. deferred tax receivables.
NOTE 4 - INVENTORIES
(Dollars in Millions) Oct. 3, 1993 Jan. 3, 1993
Raw materials and supplies $ 487 415
Goods in process 425 457
Finished goods 932 870
$ 1,844 1,742
NOTE 5 - INTANGIBLE ASSETS
(Dollars in Millions) Oct. 3, 1993 Jan. 3, 1993
Intangible assets $ 1,002 1,012
Less accumulated amortization 329 296
$ 673 716
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.
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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
Increase Percent
1993 1992 (Decrease) 1993 1992 Increase
Consumer
Domestic $ 682 683 (.1) $ 1,992 1,983 .5
Int'l 533 556 (4.1) 1,684 1,653 1.9
1,215 1,239 (1.9)% 3,676 3,636 1.1%
Pharmaceutical
Domestic $ 458 406 12.8 $ 1,315 1,184 11.1
Int'l 653 687 (4.9) 2,027 2,024 .1
1,111 1,093 1.6% 3,342 3,208 4.2%
Professional
Domestic $ 698 658 6.1 $ 2,079 1,915 8.6
Int'l 482 490 (1.6) 1,510 1,491 1.3
1,180 1,148 2.8% 3,589 3,406 5.4%
Domestic $ 1,838 1,747 5.2 $ 5,386 5,082 6.0
Int'l 1,668 1,733 (3.8) 5,221 5,168 1.0
Worldwide $ 3,506 3,480 .7% $10,607 10,250 3.5%
SALES BY GEOGRAPHIC AREAS
Third Quarter Nine Months
Percent Percent
Increase Increase
1993 1992 (Decrease) 1993 1992 (Decrease)
U.S. $ 1,838 1,747 5.2 $ 5,386 5,082 6.0
Europe 932 1,082 (13.9) 3,062 3,227 (5.1)
West. Hemis.
excl. U.S.A. 328 300 9.3 988 890 11.0
Africa, Asia,
& Pacific 408 351 16.2 1,171 1,051 11.4
Total $ 3,506 3,480 .7% $10,607 10,250 3.5%
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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 1993 of
$10,607 million exceeded sales of $10,250 million for the first
nine months of 1992 by 3.5%. The strength of the U.S. dollar
relative to foreign currencies decreased sales for the first nine
months of 1993 by 4.3%. Excluding currency, sales increased 7.8%
on an operational basis for the first nine months of 1993.
Consolidated net earnings for the first nine months of 1993 were
$1,452 million, compared with net earnings of $1,318 million for
the first nine months of 1992, before the cumulative effect of
1992 accounting changes. Earnings per share for the first nine
months of 1993 were $2.22 compared with $1.99 in the 1992 period,
prior to the cumulative effect of the 1992 accounting changes.
Consolidated net earnings and earnings per share in 1992
were reduced by $595 million, or $.90 per share, due to the
company's adoption of accounting changes for postretirement
benefits, income taxes, and postemployment benefits. Excluding
the one-time charge in 1992, net earnings and earnings per share
rose to 10.2% and 11.6%, respectively.
Consolidated sales for the third quarter of 1993 were $3,506
million, an increase of .7% over 1992 third quarter sales of
$3,480 million. The effect of a stronger U.S. dollar relative to
foreign currencies decreased third quarter sales by 6.4%.
Excluding the effect of currency exchange rates, sales would have
increased 7.1%. Consolidated net earnings for the third quarter
of 1993 were $454 million, compared with $414 million for the
same period a year ago, an increase of 9.7%. Earnings per share-
12 - for the third quarter of 1993 rose 11.1% to $.70 compared
with $.63 in the 1992 period.
Domestic sales for the first nine months of 1993 were $5,386
million, an increase of 6.0% over 1992 domestic sales of $5,082
million for the same period a year ago. Sales by international
subsidiaries were $5,221 million for the first nine months of
1993 compared with $5,168 million for the same period a year ago,
an increase of 1.0%. Excluding the impact of the stronger value
of the dollar, international sales increased by 9.6%.
Consumer sales decreased 1.9% worldwide for the quarter
versus the same period a year ago. Domestic consumer sales
growth was slowed by a sluggish retail environment and increased
competitive pressure from private label products. The decline in
international consumer sales was due to negative currency
translation. In local currencies, international sales increased
in the middle single-digit range.
Pharmaceutical sales for the third quarter increased 1.6%
worldwide. Domestic pharmaceutical sales increased 12.8% due to
sales gains in PROCRIT, an anti-anemia drug; LEUSTATIN, a drug
that treats hairy cell leukemia; SPORANOX, an antifungal; oral
contraceptive products; FLOXIN, an antibiotic; DURAGESIC, the
transdermal patch for chronic cancer pain; and the introduction
of PROPULSID, a gastrointestinal product. International
pharmaceutical sales declined 4.9% for the period due to a strong
U.S. dollar relative to local currencies and adjustments in
health care systems in many major international markets.
Nevertheless, in local currencies, international pharmaceutical
sales increased in the high single-digit range.
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Domestic professional sales, for the third period, increased
6.1%, while worldwide professional sales were up 2.8%. The
domestic sales growth was led by the rapid expansion of the
less-invasive surgery business, solid growth from the ACUVUE
Disposable Contact Lens business, further market penetration of
the ONE TOUCH II Blood Glucose Monitoring System, and the
orthopaedics business. Despite these sales gains, domestic
professional sales growth was slowed by a sluggish hospital
supply business for the period. The decline of 1.6% in reported
international professional sales was due, in large part, to the
strength of the U.S. dollar relative to local currencies.
Excluding the negative impact of currency translation,
international professional sales grew in low double digits for
the period.
Average shares of common stock outstanding for the third quarter
and nine months of 1993 were 651.7 and 653.9 million,
respectively, compared with 655.5 and 660.8 million for the same
periods a year ago.
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LIQUIDITY AND CAPITAL RESOURCES
Net debt (borrowings net of cash and current marketable
securities) was 21.3% of net capital compared with 22.7% at the
end of 1992. Net debt increased by $20 million during the first
nine months of 1993 to $1.54 billion at the end of the third
quarter. Total debt represented 28.9% of total capital
(stockholders' equity and total borrowings) at quarter end,
compared with 31.7% at the end of 1992.
Additions to property, plant and equipment were $631 million for
the first nine months of 1993, compared with $687 for the same
period in 1992.
On October 25, 1993, the Board of Directors approved a regular
quarterly dividend of 26 cents per share payable on December 7,
1993 to stockholders of record as of November 16, 1993.
OTHER
Earlier in the quarter, the Company announced plans to reduce
future annual costs through a voluntary early retirement program
and other initiatives. As previously announced, the estimated
cost of these actions is approximately $200 million pretax, and
has been primarily provided for in the previously disclosed
reserve for SFAS No. 112, "Employers' Accounting for
Post-Employment Benefits." This cost will not result in a
special charge to consolidated earnings.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
l934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
JOHNSON & JOHNSON
(Registrant)
Date: November 15, 1993 By C. H. Johnson
C. H. Johnson
(Vice President, Finance)
Date: November 15, 1993 By A. W. Roulston
A. W. Roulston
(Vice Pres., Corporate
Controller)
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EXHIBIT INDEX
Regulation S-K Description
Exhibit Table of Page
Item No. Exhibit No.
11 Calculation of Earnings 18-19
per Share
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JOHNSON & JOHNSON AND SUBSIDIARIES
CALCULATION OF EARNINGS PER SHARE
(Dollars and shares in millions except per share figures)
Fiscal
Quarter Ended
Oct. 3, Sept 27,
1993 1992
1. Net Earnings ................ $ 454 414
2. Average number of shares outstanding
during the period............ 651.7 655.5
3. Earnings per share based upon average
outstanding shares (1 / 2) $ .70 .63
4. Fully diluted earnings per share:
a. Average number of shares out-
standing during the period. 651.7 655.5
b. Shares issuable under stock
compensation agreements at
quarter-end .............. .7 .7
c. Shares reserved under the stock
option plan for which the
market price at end of quarter
exceeds the option price.. 19.0 23.2
d. Aggregate proceeds to the Company
from the exercise of
options in 4c ............ 521 633
e. Market price of the Company's
common stock at fiscal
quarter-end............... 39.13 47.63
f. Shares which could be repurchased
under the treasury stock method
(4d / 4e) ................ 13.3 13.3
g. Addition to average outstanding
shares (4b + 4c - 4f)..... 6.4 10.6
h. Shares for fully diluted earnings
per share calculation
(4a + 4g) ................ 658.1 666.1
i. Fully diluted earnings per share
(1 / 4h) ................. $ .69 .62
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JOHNSON & JOHNSON AND SUBSIDIARIES
CALCULATION OF EARNINGS PER SHARE
(Dollars and shares in millions except per share figures)
Fiscal
Nine Months Ended
Oct. 3, Sept 27,
1993 1992
1. Net Earnings ................. $1,452 723
2. Average number of shares outstanding
during the period............ 653.9 660.8
3. Earnings per share based upon average
outstanding shares (1 / 2).... 2.22 1.09
4. Fully diluted earnings per share:
a. Average number of shares out-
standing during the period. 653.9 660.8
b. Shares issuable under stock
compensation agreements at
quarter-end .............. .7 .7
c. Shares reserved under the stock
option plan for which the
market price at end of quarter
exceeds the option price.. 19.0 23.2
d. Aggregate proceeds to the Company
from the exercise of
options in 4c ............ 521 633
e. Market price of the Company's
common stock at fiscal
quarter-end............... 39.13 47.63
f. Shares which could be repurchased
under the treasury stock method
(4d / 4e)............... 13.3 13.3
g. Addition to average outstanding
shares (4b + 4c - 4f)..... 6.4 10.6
h. Shares for fully diluted earnings
per share calculation
(4a + 4g) ................ 660.3 671.4
i. Fully diluted earnings per share
(1 / 4h)................ $ 2.20 1.08
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