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 September 29, 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 October 25, 2002, 2,970,581,455 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 -
September 29, 2002 and December 30, 2001 3
Consolidated Statement of Earnings for the
Fiscal Quarter Ended September 29, 2002 and
September 30, 2001 5
Consolidated Statement of Earnings for the
Fiscal Nine Months Ended September 29, 2002 and
September 30, 2001 6
Consolidated Statement of Cash Flows for the
Fiscal Nine Months Ended September 29, 2002 and
September 30, 2001 7
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results
of Operations 14
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 18
Item 4. Controls and Procedures 18
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings 19
Item 5 - Exhibits and Reports on Form 8-K 22
Signatures 23
Certifications Pursuant to Rule 13a-14 Under the
Securities Exchange Act of 1934 24
Certifications Pursuant to 18 U.S.C.
Section 1350 26
2
PART I - FINANCIAL INFORMATION
Item 1 - FINANCIAL STATEMENTS
JOHNSON & JOHNSON AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Unaudited; Dollars in Millions)
ASSETS
September 29, December 30,
2002 2001
Current Assets:
Cash and cash equivalents $ 3,161 3,758
Marketable securities 4,084 4,214
Accounts receivable, trade, less
allowances for doubtful accounts
$194(2001 - $197) 5,395 4,630
Inventories (Note 4) 3,255 2,992
Deferred taxes on income 1,390 1,192
Prepaid expenses and other
receivables 1,716 1,687
Total current assets 19,001 18,473
Marketable securities, non-current 183 969
Property, plant and equipment,
at cost 13,698 12,458
Less accumulated
depreciation 5,523 4,739
8,175 7,719
Intangible assets, gross (Note 5) 11,305 10,910
Less accumulated amortization 2,032 1,833
Intangible assets, net 9,273 9,077
Deferred taxes on income 93 288
Other assets 1,938 1,962
Total assets $38,663 38,488
See Notes to Consolidated Financial Statements
3
JOHNSON & JOHNSON AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Unaudited; Dollars in Millions)
LIABILITIES AND SHAREOWNERS' EQUITY
September 29, December 30,
2002 2001
Current Liabilities:
Loans and notes payable $ 2,381 565
Accounts payable 2,503 2,838
Accrued liabilities 3,892 3,135
Accrued salaries, wages and
commissions 929 969
Taxes on income 996 537
Total current liabilities 10,701 8,044
Long-term debt 2,102 2,217
Deferred tax liability 267 493
Employee related obligations 1,712 1,870
Other liabilities 1,796 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) (714) (530)
Retained earnings 25,804 23,066
28,185 25,626
Less common stock held in treasury,
at cost (151,082,000 & 72,627,000
shares) 6,100 1,393
Total shareowners' equity 22,085 24,233
Total liabilities and shareowners'
equity $38,663 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
Sept. 29, Percent Sept. 30, Percent
2002 to Sales 2001 to Sales
Sales to customers
(Note 6) $9,079 100.0% 8,058 100.0%
Cost of products sold 2,611 28.7 2,396 29.7
Gross Profit 6,468 71.3 5,662 70.3
Selling, marketing and
administrative expenses 3,006 33.1 2,703 33.5
Research expense 952 10.5 899 11.2
Interest income (51) (.5) (106) (1.3)
Interest expense, net of
portion capitalized 39 .4 39 .5
Other expense, net 129 1.4 19 .2
4,075 44.9 3,554 44.1
Earnings before provision
for taxes on income 2,393 26.4 2,108 26.2
Provision for taxes on
income (Note 3) 668 7.4 579 7.2
NET EARNINGS $1,725 19.0 1,529 19.0
NET EARNINGS PER SHARE (Note 7)
Basic $ .58 .50
Diluted $ .57 .49
CASH DIVIDENDS PER SHARE $ .205 .18
AVG. SHARES OUTSTANDING
Basic 2,974.4 3,039.2
Diluted 3,026.7 3,110.9
See Notes to Consolidated Financial Statements
5
JOHNSON & JOHNSON AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EARNINGS
(Unaudited; dollars & shares in millions
except per share figures)
Fiscal Nine Months
Sept. 29, Percent Sept. 30, Percent
2002 to Sales 2001 to Sales
Sales to customers
(Note 6) $26,895 100.0% 24,092 100.0%
Cost of products sold 7,650 28.4 7,079 29.4
Gross Profit 19,245 71.6 17,013 70.6
Selling, marketing and
administrative expenses 8,866 33.0 8,171 33.9
Research expense 2,715 10.1 2,487 10.3
Purchased in-process
research and
development 189 .7 - -
Interest income (201) (.7) (351) (1.4)
Interest expense, net of
portion capitalized 117 .4 122 .5
Other expense, net 117 .4 130 .5
11,803 43.9 10,559 43.8
Earnings before provision
for taxes on income 7,442 27.7 6,454 26.8
Provision for taxes on
income (Note 3) 2,229 8.3 1,891 7.9
NET EARNINGS $ 5,213 19.4 4,563 18.9
NET EARNINGS PER SHARE (Note 7)
Basic $ 1.73 1.51
Diluted $ 1.70 1.48
CASH DIVIDENDS PER SHARE $ .59 .52
AVG. SHARES OUTSTANDING
Basic 3,006.9 3,029.7
Diluted 3,066.0 3,096.5
See Notes to Consolidated Financial Statements
6
JOHNSON & JOHNSON AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited; Dollars in Millions)
Fiscal Nine Months
Sept. 29, Sept. 30,
2002 2001
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 5,213 4,563
Adjustments to reconcile net earnings to cash flows:
Depreciation and amortization of
property and intangibles 1,274 1,241
Purchased in-process R&D 189 -
Accounts receivable reserves (4) 46
Changes in assets and liabilities, net
of effects from acquisition of businesses:
Increase in accounts receivable (632) (466)
Increase in inventories (149) (142)
Changes in other assets and
liabilities 158 826
NET CASH FLOWS FROM OPERATING
ACTIVITIES 6,049 6,068
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant
and equipment (1,299) (978)
Proceeds from the disposal of assets 139 154
Acquisition of businesses, net of cash
acquired (466) (44)
Purchases of investments (4,423) (6,453)
Sales of investments 5,338 5,288
Other (129) (54)
NET CASH USED BY INVESTING
ACTIVITIES (840) (2,087)
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends to shareowners (1,772) (1,498)
Repurchase of common stock (6,181) (1,031)
Proceeds from short-term debt 2,441 235
Retirement of short-term debt (461) (1,033)
Proceeds from long-term debt 20 13
Retirement of long-term debt (221) (275)
Proceeds from the exercise of
stock options 283 399
NET CASH USED BY FINANCING
ACTIVITIES (5,891) (3,190)
EFFECT OF EXCHANGE RATE CHANGES ON CASH
AND CASH EQUIVALENTS 85 (3)
(DECREASE)INCREASE IN CASH AND CASH
EQUIVALENTS (597) 788
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD 3,758 4,278
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 3,161 5,066
SUPPLEMENTAL SCHEDULE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES:
ACQUISITION OF BUSINESSES
Fair value of assets acquired $ 535 186
Fair value of liabilities assumed (69) (66)
Net Cash Payment 466 120
Treasury stock issued
at fair value - (76)
Net cash paid for acquisitions $ 466 44
See Notes to Consolidated Financial Statements
7
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 third quarter and fiscal nine months of 2001
were reduced by $180 million and $509 million, respectively. 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 No. 133
requiring that all derivative instruments be recorded on the balance
sheet at fair value.
As of September 29, 2002 the balance of deferred net gains on
derivatives included in accumulated other comprehensive income was
$5 million (after tax). Of this amount, the Company expects that $3
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. Transactions with third parties will cause the
amount in accumulated other comprehensive income to affect net
earnings. The maximum length of time over which the Company is
hedging its exposure to the variability in future cash flows for
forecasted transactions is 18 months.
For the fiscal quarter ended September 29, 2002 the net impact of
the hedges' ineffectiveness to the Company's financial statements
was insignificant. For the fiscal quarter ended September 29, 2002,
the Company has recorded a net gain of $3 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 rates for the first nine months of fiscal
year 2002 and 2001 are 30.0% and 29.3%, respectively, as compared to
the U.S. federal statutory rate of 35.0%. 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.
8
NOTE 4 - INVENTORIES
(Dollars in Millions)
Sept. 29, 2002 Dec. 30, 2001
Raw materials and supplies $ 1,036 842
Goods in process 644 605
Finished goods 1,575 1,545
$ 3,255 2,992
NOTE 5 - INTANGIBLE ASSETS
In accordance with SFAS No. 142, no amortization was recorded for
acquisitions completed after June 30, 2001 that generated goodwill
and/or intangible assets deemed to have indefinite lives. Further,
effective the beginning of fiscal year 2002 in accordance with SFAS
No. 142, the Company discontinued the amortization relating to all
existing goodwill and indefinite lived intangible assets. The
effect of non-amortization of this goodwill and these intangible
assets was $30 million after tax or $0.01 per diluted share for the
third quarter of 2002 and $90 million after tax or $0.03 per diluted
share for the nine months ended September 29, 2002. Intangible
assets that have finite useful lives will continue to be amortized
over their useful lives. SFAS No. 142 requires that goodwill and
non-amortizable intangible assets be assessed annually for
impairment. The required initial assessment was completed at June
30, 2002 and no impairment was determined. The amortization expense
of amortizable intangible assets for the fiscal nine months ended
September 29, 2002, is $283 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)
Sept. 29, 2002
Goodwill-gross $ 5,290
Less accumulated amortization 659
Goodwill - net 4,631
Trademarks (non-amortizable)- gross 727
Less accumulated amortization 112
Trademarks (non-amortizable)- net 615
Patents 2,265
Less accumulated amortization 522
Patents - net 1,743
Other amortizable intangibles- gross 3,023
Less accumulated amortization 739
Other intangibles - net 2,284
Total intangible assets - gross 11,305
Less accumulated amortization 2,032
Total intangibles - net $ 9,273
Goodwill as of September 29, 2002 as allocated by segment of
business is as follows (Dollars in Millions):
Med. Dev
Consumer Pharm & Diag Total
Goodwill, net of
accumulated amortization
at December 30, 2001 845 232 3,494 4,571
Reclassification of
intangibles, net
of accumulated
amortization - (109) - (109)
Acquisitions - 150 50 200
Translation & Other 6 (36) (1) (31)
Goodwill at Sept. 29, 2002 851 237 3,543 4,631
9
NOTE 6 - SEGMENTS OF BUSINESS AND GEOGRAPHIC AREAS
(Dollars in Millions)
SALES BY SEGMENT OF BUSINESS
Fiscal Third Quarter
Percent
2002 2001 Change
Consumer
Domestic $ 910 896 1.6
International 751 713 5.3
1,661 1,609 3.2%
Pharmaceutical
Domestic $ 2,939 2,511 17.0
International 1,338 1,166 14.8
4,277 3,677 16.3%
Med Dev & Diag
Domestic $ 1,740 1,569 10.9
International 1,401 1,203 16.5
3,141 2,772 13.3%
Domestic $ 5,589 4,976 12.3
International 3,490 3,082 13.2
Worldwide $ 9,079 8,058 12.7%
Fiscal Nine Months
Percent
2002 2001 Change
Consumer
Domestic $ 2,717 2,599 4.5
International 2,196 2,171 1.2
4,913 4,770 3.0%
Pharmaceutical
Domestic $ 8,831 7,589 16.4
International 3,885 3,441 12.9
12,716 11,030 15.3%
Med Dev & Diag
Domestic $ 5,161 4,562 13.1
International 4,105 3,730 10.1
9,266 8,292 11.7%
Domestic $16,709 14,750 13.3
International 10,186 9,342 9.0
Worldwide $ 26,895 24,092 11.6%
10
OPERATING PROFIT BY SEGMENT OF BUSINESS
Fiscal Third Quarter
Percent
2002 2001 Change
Consumer $ 337 279 20.8
Pharmaceutical 1,455 1,216 19.7
Med. Dev. & Diag. 677 586 15.5
Segments total 2,469 2,081 18.6
(Expense)/Income not allocated
to segments (76) 27
Worldwide total $ 2,393 2,108 13.5%
Fiscal Nine Months
Percent
2002 2001 Change
Consumer $ 990 819 20.9
Pharmaceutical 4,696 3,913 20.0
Med. Dev. & Diag. 1,902 1,658 14.7
Segments total 7,588 6,390 18.7
(Expense)/Income not allocated
to segments (146) 64
Worldwide total $ 7,442 6,454 15.3%
SALES BY GEOGRAPHIC AREA
Fiscal Third Quarter
Percent
2002 2001 Change
U.S. $ 5,589 4,976 12.3
Europe 1,901 1,614 17.8
Western Hemisphere
Excluding U.S. 505 512 (1.4)
Asia-Pacific, Africa 1,084 956 13.4
Total $ 9,079 8,058 12.7%
Fiscal Nine Months
Percent
2002 2001 Change
U.S. $ 16,709 14,750 13.3
Europe 5,589 5,000 11.8
Western Hemisphere
Excluding U.S. 1,506 1,540 (2.2)
Asia-Pacific, Africa 3,091 2,802 10.3
Total $ 26,895 24,092 11.6%
11
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 and nine
months ended September 29, 2002 and September 30, 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 Third Quarter
Sept. 29, Sept. 30,
2002 2001
Basic net earnings per share $ .58 .50
Average shares outstanding - basic 2,974.4 3,039.2
Potential shares exercisable under
stock option plans 148.4 175.8
Less: shares which could be repurchased
under the treasury stock method (110.5) (126.7)
Convertible debt shares 14.4 22.6
Adjusted average shares
outstanding - diluted 3,026.7 3,110.9
Diluted earnings per share $ .57 .49
(Shares in Millions)
Fiscal Nine Months
Sept. 29, Sept. 30,
2002 2001
Basic net earnings per share $ 1.73 1.51
Average shares outstanding - basic 3,006.9 3,029.7
Potential shares exercisable under
stock option plans 194.2 116.9
Less: shares which could be repurchased
under the treasury stock method (149.5) (72.3)
Convertible debt shares 14.4 22.2
Adjusted average shares
outstanding - diluted 3,066.0 3,096.5
Diluted earnings per share $ 1.70 1.48
Diluted earnings per share calculation includes the dilution
effect of convertible debt that is offset by the related decrease in
interest expense of $9 million and $21 million after tax for the
fiscal nine month period ended September 29, 2002 and September 30,
2001, respectively. The amount of the decrease in interest expense
was $3 million and $6 million after tax for the fiscal quarter ended
September 29, 2002 and September 30, 2001, respectively.
Diluted earnings per share excludes 1.2 million and 59.0 million
shares related to options for the fiscal nine months ended September
29, 2002 and September 30, 2001, respectively as the exercise price
per share of these options was greater than the average market
value, resulting in an anti-dilutive effect on diluted earnings per
share. The shares related to options excluded from the diluted
earnings per share calculations for the fiscal quarter ended,
September 29, 2002 and September 30, 2001 were 47.1 million and .1
million shares, respectively.
12
NOTE 8 - ACCUMULATED OTHER COMPREHENSIVE INCOME
Total comprehensive income for the fiscal nine months ended
September 29, 2002 is $5,011 million, compared with $4,517 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 that qualify for and are 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 Nine Months changes
Net change associated
to current period hedging
transactions - - - (199)
Net amount reclassed to
net earnings - - - 106*
Net Nine Months
changes 14 (105) - (93) (184)
September 29, 2002 $ (683) (21) (15) 5 (714)
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 9 - MERGERS & ACQUISITIONS
On March 14, 2002, Johnson & Johnson acquired Micro Typing
Systems, Inc. for approximately $30 million in cash. 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 April 18, 2002, Johnson & Johnson announced the completion of
the acquisition 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. The transaction is
valued at approximately $320 million in cash and debt. Johnson &
Johnson incurred an after-tax charge of approximately $150 million,
or $0.05 per share, in the second quarter associated with in-process
research and development costs relating to this acquisition.
On June 27, 2002, Johnson & Johnson acquired Obtech Medical AG, a
privately held Swiss company that markets an adjustable gastric band
for approximately $110 million in cash. Johnson & Johnson incurred
an after-tax charge of approximately $39 million, or $0.01 per
share, in the second quarter associated with in-process research and
development costs relating to this acquisition. The adjustable
gastric band is used in Europe during laparoscopic surgery for the
treatment of morbid obesity.
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.
13
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
that will become effective for 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 was
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. In June 2002, the
FASB issued SFAS No. 146 "Accounting for Costs Associated with Exit
or Disposal Activities" which is effective for exit or disposal
activities that are initiated after December 31, 2002. The
Company's adoption of SFAS No. 146 has not and is not expected to
have a material effect on the Company's results of operations, cash
flows or financial position.
Item 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SALES AND EARNINGS
Consolidated sales for the fiscal first nine months of 2002 were
$26.90 billion, which exceeded sales of $24.09 billion for the
fiscal first nine months of 2001 by 11.6%. Excluding the impact of
the stronger value of the dollar, worldwide sales increased 11.8%.
Consolidated net earnings for the first nine months of fiscal year
2002 were $5.21 billion, compared with $4.56 billion for the same
period a year ago, an increase of 14.2%. Earnings for the fiscal
nine months of 2002 included special charges related to in-process
research and development (IPR&D) costs associated with the
acquisitions of Tibotec-Virco N.V. and Obtech Medical AG which in
total were $189 million after-tax. Other income and expense items
for the period included the gain on the sale of ORTHO PREFEST, the
costs associated with the finalization of the AMGEN arbitration
losses (see Part II Item 1 Legal Proceedings), losses on certain
equity securities, other corporate expenses and litigation accruals.
In 2001, other income and expense included special charges of $147
million pre-tax ($126 million after tax) related to the
restructuring and deal costs for the ALZA merger and the
amortization of goodwill, that was discontinued in 2002 in
connection with the adoption of SFAS No. 142.
Worldwide basic net earnings per share for the fiscal nine months
of 2002 were $1.73 compared with the $1.51 for the same period in
2001, an increase of 14.6%. Excluding special charges relating to
IPR&D in 2002 and the ALZA restructuring and deal costs in 2001,
basic net earnings per share were $1.80 an increase of 16.1%
compared to $1.55 for the same period in 2001.
Worldwide diluted net earnings per share for the fiscal nine
months of 2002 were $1.70, compared with $1.48 for the same period
in 2001, an increase of 14.9%. Excluding special charges for IPR&D
and ALZA merger costs as noted above, diluted earnings per share
were $1.76 compared with $1.52 for the same period in 2001, an
increase of 15.8%.
Consolidated sales for the fiscal third quarter of 2002 were $9.08
billion, an increase of 12.7% over 2001 fiscal quarter sales of
$8.06 billion. Consolidated earnings for the fiscal third quarter
of 2002 were $1.73 billion, compared with $1.53 billion for the same
period a year ago, an increase of 12.8%. Worldwide basic net
earnings per share for the fiscal third quarter of 2002 rose 16.0%
to $.58, compared with $.50 in the 2001 period. Excluding special
charges for IPR&D and ALZA merger costs as noted above, worldwide
basic net earnings per share for the fiscal third quarter were $.58
compared with $.51 for the same period a year ago, an increase of
13.7%. Worldwide diluted net earnings per share for the fiscal
third quarter of 2002 rose 16.3% to $.57 compared with $.49 in 2001.
Excluding special charges for IPR&D and ALZA merger costs as noted
above, worldwide diluted net earnings per share for the fiscal third
quarter were $.57, compared to $.50 for the same period a year ago,
an increase of 14.0%.
14
Domestic sales for the fiscal nine months of 2002 were $16.71
billion, an increase of 13.3% over 2001 domestic sales of $14.75
billion for the same period a year ago. Sales of international
subsidiaries were $10.19 billion for the fiscal nine months of 2002
compared with $9.34 billion for the same period a year ago, an
increase of 9.0%. Excluding the impact of the stronger value of the
dollar, international sales increased by 9.6%.
Worldwide Consumer sales for the third quarter of 2002 were $1.66
billion, an increase of 3.2% versus the same period a year ago.
Domestic sales increased by 1.6%, while international sales gains
were 5.3%. Consumer sales achieved strong growth in skin care
products (NEUTROGENA, CLEAN & CLEAR and AVEENO), as well as McNeil
Nutritional's SPLENDA sweetener products and VIACTIV calcium chews.
Operating profit in the Consumer segment for the third quarter
increased 20.8% versus the same period a year ago and reflects an
operating profit margin improvement over the prior year of 3.0%.
The margin improvement is primarily due to planned efficiencies in
spending in selling, marketing and administrative expenses.
Worldwide Pharmaceutical sales of $4.28 billion for the quarter
resulted in an increase of 16.3% over the same period in 2001.
Domestic and international sales increased 17.0% and 14.8%,
respectively.
Sales growth reflects the strong performances of REMICADE, a
treatment for rheumatoid arthritis and Crohn's disease; RISPERDAL,
an antipsychotic medication; DURAGESIC, a transdermal patch for
chronic pain; TOPAMAX, an antiepileptic, and PROCRIT/EPREX, for the
treatment of anemia. Operating profit in the Pharmaceutical segment
for the third quarter increased 19.7% versus the same period a year
ago and reflects an operating profit margin improvement over the
prior year of .9%. Operating profit in the Pharmaceutical segment
for the third quarter of 2002 was negatively affected by the Amgen
arbitration settlement of $150 million and the third quarter of 2001
was negatively affected by additional ALZA merger costs of $38
million.
On October 18, 2002, an arbitrator in Chicago denied an effort by
Amgen, Inc., to terminate the 1985 license agreement under which
Ortho Biotech obtained exclusive U.S. Rights to Amgen-developed
erythropoetin (EPO) for all indications outside of kidney dialysis.
Amgen had filed suit in 1995, claiming that Ortho Biotech had
breached its license rights by improperly making sales of EPO into
Amgen's exclusive dialysis market. In his decision, the arbitrator
found that sales had been made into markets where Amgen had retained
exclusive rights, but that they did not warrant the extraordinary
remedy of terminating the contract. Instead, he found that Amgen
could be adequately compensated with monetary damages. The
arbitrator awarded $150 million in damages. This arbitration was
the fourth between the parties since 1989. No further disputes
remain pending before him, except for the issue of an award of
attorneys' fees connected to the arbitration. In earlier
arbitrations, Ortho Biotech was awarded $164 million for Amgen's
actions delaying the entry of Ortho Biotech into the non-dialysis
market and $187 million for sales by Amgen into Ortho Biotech's
exclusive market. Amgen obtained an earlier $90 million award in
connection with other aspects of the license agreement.
Although it is too soon to cite a trend, as of July 31, 2002 data
from the Company's ongoing investigation of rare cases of PRCA in
chronic renal failure (CRF) patients suggest that the number of
reports of antibody-mediated PRCA appear to be flattening. The
exposure-adjusted reporting rate for antibody-mediated PRCA in CRF
as of July 31, 2002 in patients who have taken EPREX only as well as
patients who have had exposures to EPREX and other erythropoietins,
is 1.32 per 10,000 patient years, as compared with 1.82 per 10,000
patient years for 2001.
Of the cumulative total of 85 reports of antibody-mediated PRCA
associated with EPREX in CRF, 84 have involved subcutaneous
administration. The other report is under review, as it is unclear
if the patient received EPREX subcutaneously or intravenously. The
Company's investigation has shown no association between IV
administration of EPREX and rare reports of PRCA in CRF, but it did
reveal a relationship between subcutaneous administration in CRF and
reports of antibody-mediated PRCA.
15
The Company has significantly reduced the subcutaneous
administration of EPREX in CRF in many key markets and has
undertaken significant educational programs for wholesalers,
hospitals, doctors, pharmacists and patients underscoring the
importance of proper shipping and handling to maintaining optimum
product quality. The Company is also involved in ongoing
discussions with regulatory authorities on measures designed to
reduce the occurrence of PRCA.
With more than 1.6 million patient-years of clinical experience in
CRF in countries outside of the U.S., EPREX continues to provide
timely, safe, and effective treatment that increases hemoglobin
levels, thereby reducing transfusion requirements and treating
anemia patients with chronic kidney disease, when used in accordance
with its label.
Suspected and Antibody-Mediated PRCA Reports to PRD
By Year of Onset
STATUS OF Year Prior 2002 Total
REPORTS Unknown to 1998 1999 2000 2001 (throu as of
1998 gh July July 31,
31) 2002
Antibody- EPREX 5** 2 0 8 12 41 17 85***
Mediated* exposure
PRCA only
Exposure 0 0 0 2 3 4 2 11
to
another
erythropo
ietin and
EPREX
Reports Under 18 2 0 3 8 20 13 64
Investigation****
Total Suspected 23 4 0 13 23 65 32 160
PRCA*****
*Antibody-mediated PRCA: Suspected PRCA cases with the presence of
anti-EPO antibodies (regardless of antibody assay method used).
** Of the 5 antibody-mediated EPREXr-only reports with year of onset
unknown, 2 were reported in 2000, 1 in 2001 and 2 in 2002.
*** 84 of the 85 reports have involved subcutaneous administration.
The other report is under review, as it is unclear if the patient
received EPREXr subcutaneously as well as intravenously.
****This category includes all reports under investigation as of
July 31, including 20 reports of antibody negative PRCA. The total
of 64 cases include those in which the patient took EPREX only as
well as cases in which the patient took EPREX as well as another
erythropoietin.
*****Total Suspected PRCA: all cases in which the reporting
physician is suspicious of a possible PRCA diagnosis because the
patient's hemoglobin has not risen as expected after erythropoietin
therapy.
During the quarter, the Company received U.S. Food and Drug
Administration (FDA) approval for a new oral contraceptive, ORTHO
TRI-CYCLEN LO (norgestimate/ethinyl estradiol), for the prevention
of pregnancy. It contains a combination of hormones which provide
excellent cycle control and tolerability. In addition, the Company
received regulatory approval in the European Union and Canada for
EVRA (norelgestromin/ethinyl estradiol transdermal system), a
contraceptive patch that combines the effectiveness of a
contraceptive pill with the convenience of once-a-week dosing.
Also in the quarter, the Company received regulatory approval in
several countries for RISPERDAL CONSTA (risperidone), the only
approved long-acting injectable atypical antipyschotic for the
management of schizophrenia. RISPERDAL CONSTA is now approved in
Germany, Austria, the United Kingdom, Mexico and New Zealand.
RISPERDAL CONSTA is administered once every two weeks, rather than
daily, and combines the advantages of long-acting delivery with the
established benefits of oral risperidone.
16
The Company filed with the FDA a supplemental Biologics License
Application (sBLA) for REMICADE for an additional indication of
maintenance therapy in fistulizing Crohn's disease, a debilitating
gastrointestinal disorder. In addition, a supplemental New Drug
Application (sNDA) was filed for LEVAQUIN for the treatment of
chronic bacterial prostatitis, a recurrent or persistent infection
of the prostate gland.
In the second quarter, the Company completed the acquisition of
Tibotec-Virco NV, a privately-held biopharmaceutical company focused
on developing anti-viral treatments. The acquisition, valued at
approximately $320 million in cash and debt, will expand drug
discovery and development capabilities, particularly in the field of
anti-viral therapies. Johnson & Johnson incurred an after-tax
charge of approximately $150 million, or $0.05 per share, in the
second quarter associated with in-process research and development
costs relating to this acquisition.
Worldwide sales for the Medical Devices and Diagnostics segment
were $3.14 billion in the third quarter of 2002, an increase of
13.3% compared to the same period in 2001. Domestic and
international sales increased 10.9% and 16.5%, respectively. Strong
sales growth was achieved from all components of the segment -
Cordis' circulatory disease management products; DePuy's orthopaedic
joint reconstruction and spinal products; Ethicon's sutures,
surgical sports medicine and women's health products; LifeScan's
blood glucose monitoring products; Ethicon Endo-Surgery's minimally
invasive surgical products; Ortho-Clinical Diagnostic's professional
products, and Vistakon's disposable contact lenses. Operating
profit in the Medical Devices and Diagnostics segment for the third
quarter increased 15.5% versus the same period a year ago and
reflects an operating profit margin improvement over the prior year
of .5%. The margin improvement over prior year was achieved despite
investment spending in the Cordis and LifeScan product lines.
During the quarter, the Company announced the final results for
SIRIUS, the landmark U.S. study of the CYPHER Sirolimus-eluting
Stent. The findings confirm the stent's continued excellent
performance in significantly reducing reblockage of de novo coronary
artery lesions in patients with coronary artery disease.
Additionally, in July, the U.S. Department of Health and Human
Services (HHS) made a decision to provide accelerated incremental
reimbursement to hospitals for this technology commencing April 1,
2003 under newly established Diagnostic Related Groups (DRGs). In
order to ensure access to this technology for patients as rapidly as
possible, HHS has taken the unprecedented step of assigning it to
new DRGs prior to FDA approval. On October 22, 2002 the Circulatory
System Device Panel advisory panel voted 8-0 in favor of FDA
approval with recommended conditions, for the Company's drug-eluting
coronary stent. The Company is continuing to work with the FDA on
manufacturing and testing of the product.
Also in the quarter, the Company filed a Pre-Marketing Approval
(PMA) application with the FDA for the INDEPENDENCE 3000 IBOT
Transporter, an advanced mobility system for people with
disabilities. The advanced gyro-balanced system is designed to
operate on four wheels or two wheels, stabilizing the user by
instantly and automatically adjusting and balancing itself.
In the second quarter, Ethicon Endo-Surgery, Inc., acquired Obtech
Medical AG, a privately held Swiss company that markets an
adjustable gastric band, used in Europe during laparoscopic surgery
for the treatment of morbid obesity for approximately $110 million
in cash. Johnson & Johnson incurred an after-tax charge of
approximately $39 million, or $0.01 per share, in the second quarter
associated with in-process research and development costs relating
to this acquisition. Additionally, Ortho Clinical Diagnostics
acquired Micro Typing Systems, Inc., a manufacturer of a line of
reagents and supplies distributed instruments known as the ID-MICRO
TYPING SYSTEM (ID-MTS) for approximately $30 million. ID-MTS is
used in hospitals and donor centers to help ensure safe and
effective blood transfusions.
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 stock repurchase programs. Cash and current
marketable securities totaled $7.2 billion at September 29, 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.
17
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 cash flows from operating
activities due to the payment of the 2001 bonus in 2002. Total
borrowings increased during the fiscal nine months of 2002 from $2.8
billion to $4.5 billion that related primarily to the stock
repurchase program described below. Net cash (cash and current
marketable securities net of debt) as of September 29, 2002 was $2.8
billion, compared with $5.2 billion at the end of 2001. Total debt
represented 16.9% of total capital (shareowners' equity and total
debt) at fiscal quarter end compared with 10.3% at the end of 2001.
Additions to property, plant and equipment were $1,299 million for
the fiscal nine months of 2002, compared with $978 million for the
same period in 2001.
On February 13, 2002, the Company announced a stock repurchase
program of up to $5 billion with no time limit on this program.
This program was completed on August 1, 2002, with 83,612,822 shares
repurchased for an aggregate price of $5.0 billion. (In association
with the stock repurchase program, the Company issued approximately
$2 billion of commercial paper during the second quarter of 2002.)
On October 16, 2002, the Board of Directors approved a regular
quarterly dividend of $.205 per share, payable on December 10, 2002
to shareowners of record as of November 19, 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.
Item 4 - CONTROLS AND PROCEDURES EVALUATION OF DISCLOSURE CONTROLS
AND PROCEDURES
Disclosure controls and procedures. Within 90 days before filing
this report, the Company evaluated the effectiveness of the design
and operation of its disclosure controls and procedures. The
Company's disclosure controls and procedures are the controls and
other procedures that the Company has designed to ensure that it
records, processes, summarizes and reports in a timely manner the
information the Company must disclose in its reports filed under the
Securities Exchange Act. William C. Weldon, Chairman and Chief
Executive Officer, and Robert J. Darretta, Executive Vice President,
Finance and Information Management and Chief Financial Officer,
reviewed and participated in this evaluation.
18
Based on this evaluation, Messrs. Weldon and Darretta concluded
that, as of the date of their evaluation, the Company's disclosure
controls and procedures were effective.
Internal controls. Since the date of the evaluation described
above, there have not been any significant changes in the Company's
internal controls or in other factors that could significantly
affect those controls, including any corrective actions with regard
to significant deficiencies and material weaknesses.
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, numerous lawsuits 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. There are approximately 794 such cases currently
pending, including the claims of approximately 3,870 plaintiffs. Of
those plaintiffs 373 are alleged to have died from the use of
PROPULSID. These actions seek substantial compensatory and punitive
damages and 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. 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 PROPULSID 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 have appealed. In the view of
Janssen and the Company, the proof at trial demonstrated that none
of these plaintiffs were injured by PROPULSID and that no basis for
liability existed.
In April 2002, a state court judge in New Jersey denied
plaintiffs' motion to certify a national class of PROPULSID users
for purposes of medical monitoring and refund of the costs of
purchasing PROPULSID. An effort to appeal that ruling has been
denied. In June 2002 the federal judge presiding over the PROPULSID
Multi-District Litigation in New Orleans, Louisiana similarly denied
plaintiffs' motion there to certify a national class of PROPULSID
users. Plaintiffs in the Multi-District Litigation have said they
are preserving their right to appeal that ruling and other
complaints filed against Janssen and the Company include class
action allegations which could be the basis for future attempts to
have classes certified.
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 and commercially available
excess insurance with respect to these cases.
19
The Company's Ortho Biotech subsidiary was 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
sought 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. On October 18, 2002, the arbitrator issued his decision
rejecting Amgen's request to terminate the license and finding no
material breach of the license. However, the arbitrator found that
conduct by Ortho Biotech in the early 1990's which was subsequently
halted by Ortho Biotech amounted to a non-material breach of the
license and awarded Amgen $150 million in damages which the Company
accrued in the third quarter of 2002. Amgen had sought $1.2 billion
in damages. Both sides are expected to seek an award of attorneys'
fees from the arbitrator and there may be motions filed for
reconsideration.
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 were unenforceable owing
to alleged inequitable conduct before the patent office. In March
and May 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.
Further, the district judge granted Boston Scientific a new trial on
liability and damages and vacated the verdict against Medtronic AVE
on legal grounds. Appeals to the Federal Circuit Court of Appeals
are underway.
The products of various Johnson & Johnson operating companies are
the subject of various patent lawsuits which could potentially
affect the ability of those operating companies to sell those
products, require the payment of past damages and future royalties
or, with respect to patent challenges by generic pharmaceutical
firms, result in the introduction of generic versions of the
products in question and the ensuing loss of market share. The
following patent lawsuits concern important products of Johnson &
Johnson operating companies. Medtronic/AVE v. Cordis Corporation:
This action, filed in April 2002 in federal court in Texas, asserts
certain patents owned by Medtronic/AVE against the Cordis BX
Velocity stent, which is also the stent structure used in the CYPHER
drug eluting product. No trial date has been set for this action.
Ortho Pharmaceutical v. Barr Laboratories, Inc.: Pending in federal
court in New Jersey, this action, filed in June 2000, involves
Barr's effort to invalidate Ortho's patents covering its TRI-CYCLEN
oral contraceptive product. Trial has not yet been scheduled in this
case. Both sides have summary judgment motions on the issue of
patent validity pending before the trial court. Ortho McNeil and
Daiichi, Inc. v. Mylan Laboratories and Ortho McNeil and Daiichi,
Inc. v. Teva Pharmaceutical: These matters, the first of which was
filed in February 2002 in federal court in West Virginia and the
second in June 2002 in federal court in New Jersey, concern the
efforts of Mylan and Teva to invalidate and establish non-
infringement of the patent covering LEVAQUIN levofloxacin tablets.
The patent is owned by Daiichi and exclusively licensed to Ortho-
McNeil. In the Mylan case trial has been set for late 2003. No trial
date has been set in the Teva matter. Janssen and Alza v. Mylan
Laboratories: This action, filed in federal district court in
Vermont in February 2002, concerns Mylan's effort to invalidate and
assert non-infringement of Alza's patent covering the DURAGESIC
product. Trial is currently scheduled for April 2003. With respect
to all of the above matters, the J&J operating company involved is
vigorously defending the validity and asserting the infringement of
its own or its licensors' patents or, where its product is accused
of infringing patents held by others, defending against those
claims.
20
On July 19, 2002 The New York Times reported on an investigation
by the U.S. Food and Drug Administration's Office of Criminal
Investigation in Puerto Rico related to allegations made by a former
Ortho Biologics employee about supposed improprieties in completing
records concerning equipment and training at the plant where bulk
EPO sold by Ortho outside the U.S. is produced. The employee in
question worked in the boiler and utility room of the plant and not
in the manufacturing area. The New York Times reporter suggested
the allegations of the former employee, if believed, could lead to
the conclusion that the integrity of the EPO manufactured at the
plant was compromised. However, the Company's review identified no
evidence that any of the allegations could be confirmed or connected
to any question of product integrity. The Company believes that the
results of the government investigation will not have a material
adverse effect on its results of operations, cash flows or financial
position.
The Company is also involved in a number of other patent,
trademark and other lawsuits incidental to its business.
The Company believes that the resolution of the above described
proceedings would not have a material adverse effect on its results
of operations, cash flows or financial position.
21
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 August 13, 2002, which
included sworn statements, by William C. Weldon, Chairman
and Chief Executive Officer, and Robert J. Darretta,
Executive Vice President and Chief Financial Officer of
Johnson & Johnson. The sworn statements, certified
previously filed reports pursuant to Commission Order No. 4-
460.
A Report on Form 8-K was filed on October 23, 2002, which
included the press release statement of Johnson & Johnson on
the Amgen arbitration. Also filed in this Form 8-K, are the
unaudited consolidated statements of earnings of J&J for the
quarter and nine month periods ended September 29, 2002
reflecting the results of the Amgen arbitration.
22
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 8, 2002 By /s/ R. J. DARRETTA
R. J. DARRETTA
Executive Vice President,
Finance and Information Management
(Chief Financial Officer)
Date: November 8, 2002 By /s/ S. J. COSGROVE
S. J. COSGROVE
Controller
(Chief Accounting Officer)
23
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO RULE 13a-14 UNDER THE SECURITIES EXCHANGE ACT OF 1934
I, William C. Weldon, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Johnson &
Johnson (the "registrant");
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect
to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly
present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the
periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-14 and 15d-14) for the
registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data and
have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated
in this quarterly report whether or not there were significant
changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of our
most recent evaluation, including any corrective actions with regard
to significant deficiencies and material weaknesses.
Date: November 8, 2002
/s/ William C. Weldon
William C. Weldon
Chief Executive Officer
24
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO RULE 13a-14 UNDER THE SECURITIES EXCHANGE ACT OF 1934
I, Robert J. Darretta, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Johnson &
Johnson (the "registrant");
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect
to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly
present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the
periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-14 and 15d-14) for the
registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data and
have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated
in this quarterly report whether or not there were significant
changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of our
most recent evaluation, including any corrective actions with regard
to significant deficiencies and material weaknesses.
Date: November 8, 2002
/s/ Robert J. Darretta
Robert J. Darretta
Chief Financial Officer
25
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350
The undersigned, William C. Weldon, the Chief Executive Officer of
Johnson & Johnson, a New Jersey corporation (the "Company"),
pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002, hereby certifies that:
(1)the Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended September 29, 2002 (the "Report)
fully complies with the requirements of Section 13(a)
of the Securities Exchange Act of 1934; and
(2)the information contained in the Report fairly
presents, in all material respects, the financial
condition and results of operations of the Company.
/s/ William C. Weldon
William C. Weldon
Chief Executive Officer
Dated: November 8, 2002
This certification accompanies this Report on Form 10-Q pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except
to the extent required by such Act, be deemed filed by the Company
for purposes of Section 18 of the Securities Exchange Act of 1934,
as amended.
26
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350
The undersigned, Robert J. Darretta, the Chief Financial Officer of
Johnson & Johnson, a New Jersey corporation (the "Company"),
pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002, hereby certifies that:
(1) the Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended September 29, 2002 (the "Report)
fully complies with the requirements of Section 13(a)
of the Securities Exchange Act of 1934; and
(2) the information contained in the Report fairly
presents, in all material respects, the financial
condition and results of operations of the Company.
/s/ Robert J. Darretta
Robert J. Darretta
Chief Financial Officer
Dated: November 8, 2002
This certification accompanies this Report on Form 10-Q pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except
to the extent required by such Act, be deemed filed by the Company
for purposes of Section 18 of the Securities Exchange Act of 1934,
as amended.
27