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 30, 2003
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 25, 2003, 2,968,820,767 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 Sheets -
March 30, 2003 and December 29, 2002 3
Consolidated Statements of Earnings for the Fiscal
Three Months Ended March 30, 2003 and
March 31, 2002 5
Consolidated Statements of Cash Flows for the Fiscal
Three Months Ended March 30, 2003 and
March 31, 2002 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results
of Operations 12
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 17
Item 4. Controls and Procedures 17
Part II - Other Information
Item 1 - Legal Proceedings 18
Item 5 - Exhibits and Reports on Form 8-K 21
Signatures 22
2
Part I - FINANCIAL INFORMATION
Item 1 - Financial Statements
JOHNSON & JOHNSON AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited; Dollars in Millions)
ASSETS
March 30, December 29,
2003 2002
Current Assets:
Cash and cash equivalents $ 3,061 2,894
Marketable securities 4,786 4,581
Accounts receivable, trade, less
allowances for doubtful accounts
$188(2002 - $191) 5,836 5,399
Inventories (Note 4) 3,541 3,303
Deferred taxes on income 1,388 1,419
Prepaid expenses and other
receivables 1,859 1,670
Total current assets 20,471 19,266
Marketable securities, non-current 121 121
Property, plant and equipment,
at cost 14,899 14,314
Less accumulated
depreciation 6,100 5,604
8,799 8,710
Intangible assets, gross (Note 5) 11,647 11,355
Less accumulated amortization 2,222 2,109
Intangible assets, net 9,425 9,246
Deferred taxes on income 286 236
Other assets 2,892 2,977
Total assets $41,994 40,556
See Notes to Consolidated Financial Statements
3
JOHNSON & JOHNSON AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited; Dollars in Millions)
LIABILITIES AND SHAREHOLDERS' EQUITY
March 30, December 29,
2003 2002
Current Liabilities:
Loans and notes payable $ 2,103 2,117
Accounts payable 3,077 3,621
Accrued liabilities 4,248 3,820
Accrued salaries, wages and
commissions 691 1,181
Taxes on income 1,338 710
Total current liabilities 11,457 11,449
Long-term debt 2,004 2,022
Deferred tax liability 573 643
Employee related obligations 2,005 1,967
Other liabilities 1,919 1,778
Shareholders' 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 (18) (25)
Accumulated other comprehensive
income (Note 8) (818) (842)
Retained earnings 27,852 26,571
30,136 28,824
Less common stock held in treasury,
at cost (150,951,000 & 151,547,000
shares) 6,100 6,127
Total shareholders' equity 24,036 22,697
Total liabilities and shareholders'
equity $41,994 40,556
See Notes to Consolidated Financial Statements
4
JOHNSON & JOHNSON AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited; dollars & shares in millions
except per share figures)
Fiscal Quarter Ended
March 30, Percent March 31, Percent
2003 to Sales 2002 to Sales
Sales to customers
(Note 6) $9,821 100.0 8,743 100.0
Cost of products sold 2,722 27.7 2,457 28.1
Gross Profit 7,099 72.3 6,286 71.9
Selling, marketing and
administrative expenses 3,253 33.1 2,843 32.5
Research expense 936 9.5 831 9.5
Purchased in-process
research and
development 18 .2 - -
Interest income (38) (.4) (76) (.9)
Interest expense, net of
portion capitalized 38 .4 34 .4
Other (income)expense, net (37) (.3) 33 .4
4,170 42.5 3,665 41.9
Earnings before provision
for taxes on income 2,929 29.8 2,621 30.0
Provision for taxes on
income (Note 3) 859 8.7 787 9.0
NET EARNINGS $2,070 21.1 1,834 21.0
NET EARNINGS PER SHARE (Note 7)
Basic $ .70 .60
Diluted $ .69 .59
CASH DIVIDENDS PER SHARE $ .205 .18
AVG. SHARES OUTSTANDING
Basic 2,968.4 3,042.0
Diluted 3,018.5 3,115.4
See Notes to Consolidated Financial Statements
5
JOHNSON & JOHNSON AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; Dollars in Millions)
Fiscal Quarter Ended
March 30, March 31,
2003 2002
CASH FLOWS FROM OPERATIONS
Net earnings $ 2,070 1,834
Adj. to reconcile net earnings to cash flows:
Depreciation and amortization of
property and intangibles 446 412
Purchased in-process research and
development 18 -
Accounts receivable reserves (5) (13)
Changes in assets and liabilities, net
of effects from acquisition of businesses:
Increase in accounts receivable (366) (139)
Increase in inventories (181) (128)
Changes in other assets and
liabilities (176) (31)
NET CASH FLOWS FROM OPERATING
ACTIVITIES 1,806 1,935
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant
and equipment (408) (350)
Proceeds from the disposal of assets 3 18
Acquisition of businesses, net of cash
acquired (258) (28)
Purchases of investments (1,634) (1,689)
Sales of investments 1,417 2,023
Other (17) (58)
NET CASH USED BY INVESTING
ACTIVITIES (897) (84)
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends to shareholders (609) (549)
Repurchase of common stock (339) (1,899)
Proceeds from short-term debt 221 272
Retirement of short-term debt (124) (156)
Proceeds from long-term debt 2 17
Retirement of long-term debt (20) (12)
Proceeds from the exercise of
stock options 90 164
NET CASH USED BY FINANCING
ACTIVITIES (779) (2,163)
EFFECT OF EXCHANGE RATE CHANGES ON CASH
AND CASH EQUIVALENTS 37 (9)
INCREASE(DECREASE) IN CASH AND CASH
EQUIVALENTS 167 (321)
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD 2,894 3,758
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 3,061 3,437
ACQUISITION OF BUSINESSES
Fair value of assets acquired 285 39
Fair value of liabilities assumed (27) (11)
Net cash paid for acquisitions $ 258 28
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 29, 2002. 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.
NOTE 2 - FINANCIAL INSTRUMENTS
As of March 30, 2003 the balance of deferred net losses on
derivatives included in accumulated other comprehensive income was
$89 million after-tax. For additional information, see Note 8.
The Company expects that $89 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 is 15 months.
For the fiscal quarter ended March 30, 2003 the net impact of
the hedges' ineffectiveness to the Company's financial statements
was insignificant. For the fiscal quarter ended March 30, 2003
the Company recorded a net gain of $5 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 fiscal three months
of 2003 and 2002 were 29.3% and 30.0%, respectively, as compared
to the U.S. federal statutory rate of 35%. The difference from
the statutory rate was 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.
NOTE 4 - INVENTORIES
(Dollars in Millions)
March 30, 2003 Dec. 29, 2002
Raw materials and supplies $ 896 835
Goods in process 860 803
Finished goods 1,785 1,665
$ 3,541 3,303
7
NOTE 5 - INTANGIBLE ASSETS
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.
Intangible assets that have finite useful lives continued 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. This
initial impairment assessment was updated in the fourth quarter of
2002 and no impairment was determined. Future impairment tests
will be performed in the fourth quarter, annually.
(Dollars in Millions)
March 30, 2003
Goodwill-gross $ 5,451
Less accumulated amortization 668
Goodwill - net 4,783
Trademarks (non-amortizable)- gross 1,027
Less accumulated amortization 132
Trademarks (non-amortizable)- net 895
Patents and trademarks 2,105
Less accumulated amortization 589
Patents and trademarks - net 1,516
Other amortizable intangibles -
gross 3,064
Less accumulated amortization 833
Other intangibles - net 2,231
Total intangible assets - gross 11,647
Less accumulated amortization 2,222
Total intangibles - net $ 9,425
Goodwill as of March 30, 2003 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 29, 2002 821 244 3,588 4,653
Acquisitions - 76 34 110
Translation & Other 18 7 (5) 20
Goodwill at Mar. 30, 2003 839 327 3,617 4,783
The weighted average amortization periods for patents and
trademarks and other intangible assets were 16 years and 18 years,
respectively. The amortization expense of amortizable intangible
assets for the fiscal year ended December 29, 2002 was $405
million pre-tax and the estimated amortization expense for the
five succeeding years approximates $425 million pre-tax, per year,
respectively.
8
NOTE 6 - SEGMENTS OF BUSINESS AND GEOGRAPHIC AREAS
(Dollars in Millions)
SALES BY SEGMENT OF BUSINESS
Fiscal First Quarter
Percent
2003 2002 Change
Consumer
Domestic $ 1,000 900 11.1
International 791 704 12.4
1,791 1,604 11.7%
Pharmaceutical
Domestic $ 3,263 2,958 10.3
International 1,403 1,223 14.7
4,666 4,181 11.6%
Med Dev & Diag
Domestic $ 1,748 1,663 5.1
International 1,616 1,295 24.8
3,364 2,958 13.7%
Domestic $ 6,011 5,521 8.9
International 3,810 3,222 18.2
Worldwide $ 9,821 8,743 12.3%
OPERATING PROFIT BY SEGMENT OF BUSINESS
Fiscal First Quarter
Percent
2003 2002 Change
Consumer $ 413 315 31.1
Pharmaceutical 1,859 1,664 11.7
Med. Dev. & Diag. 731 662 10.4
Segments total 3,003 2,641 13.7
Expenses not allocated
to segments (74) (20)
Worldwide total $ 2,929 2,621 11.8%
SALES BY GEOGRAPHIC AREA
Fiscal First Quarter
Percent
2003 2002 Change
U.S. $ 6,011 5,521 8.9
Europe 2,218 1,765 25.7
Western Hemisphere
Excluding U.S. 472 481 (1.9)
Asia-Pacific, Africa 1,120 976 14.8
Total $ 9,821 8,743 12.3%
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 30, 2003 and March 31, 2002.
(Shares in Millions)
Fiscal Quarter Ended
March 30, March 31,
2003 2002
Basic net earnings per share $ .70 .60
Average shares outstanding - basic 2,968.4 3,042.0
Potential shares exercisable under
stock option plans 179.6 204.1
Less: shares which could be repurchased
under treasury stock method (144.4) (150.9)
Convertible debt shares 14.9 20.2
Adjusted average shares
outstanding - diluted 3,018.5 3,115.4
Diluted earnings per share $ .69 .59
Diluted earnings per share calculation included the dilution
effect of convertible debt that was offset by the related decrease
in interest expense of $4 million each for the first fiscal
quarter ended March 30, 2003 and March 31, 2002, respectively.
Diluted earnings per share excluded 46.6 million and .2 million
shares related to options for the first fiscal quarter ended March
30, 2003 and March 31, 2002, 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.
NOTE 8 - ACCUMULATED OTHER COMPREHENSIVE INCOME
The total comprehensive income for the fiscal three months ended
March 30, 2003 was $2,094 million, compared with $1,719 million
for the same period a year ago. Total comprehensive income
included 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 29, 2002 $ (707) (2) (33) (100) (842)
2003 Three Months changes
Net change associated
to current period hedging
transactions - - - (6)
Net amount reclassed to
net earnings - - - 17*
Net Three Months
changes 18 (5) - 11 24
March 30, 2003 $ (689) (7) (33) (89) (818)
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 January 29, 2003, Johnson & Johnson acquired the assets of
Orquest, Inc., a privately held biotechnology company focused on
developing biologically-based implants for orthopaedics spine
surgery. Orquest's principal product, HEALOS Bone Graft Material,
is designed to reduce the time and pain associated with standard
bone graft harvesting and represents a therapeutic advance for
patients requiring bone graft material for spine fusion or other
surgery.
On February 10, 2003, Johnson & Johnson acquired Orapharma,
Inc., a specialty pharmaceutical company focused on the
development and commercialization of unique therapeutics.
Orapharma's initial product, ARESTIN, is the first locally
administered, time-released antibiotic encapsulated in
microspheres that controls the germs that can cause periodontal
disease. The transaction was valued at approximately $85 million,
net of cash. On March 28, 2003, Johnson & Johnson acquired 3-
Dimensional Pharmaceuticals, Inc., a company with a technology
platform focused on the discovery and development of potential new
drugs in early stage development for the treatment of
cardiovascular disorders, oncology and inflammation. The
transaction was valued at approximately $88 million, net of cash.
The Company incurred a pre-tax charge for in-process research and
development (IPR&D) of approximately $7 million.
The disclosure requirements of SFAS No. 141, "Business
Combinations" and SFAS No. 142, "Goodwill and Other Intangible
Assets" are not provided as the impact of these acquisitions did
not have a material effect on the Company's results of operations,
cash flows or financial position.
During the first quarter, Johnson & Johnson also announced a
definitive agreement to acquire Scios, Inc., a biopharmaceutical
company with a marketed product for cardiovascular disease and
research projects focused on auto-immune diseases. Scios' product
NATRECOR is a novel agent approved for congestive heart failure
and has several significant advantages over existing therapies.
The transaction, valued at approximately $2.4 billion, net of
cash, was completed on April 29, 2003. The purchase price
allocation is still in process and is not yet available. The
Company expects to incur a pre-tax charge for In-Process Research
& Development in the second quarter of 2003 in the range of
between $700 and $800 million.
On May 6, 2003, the Company announced a definitive agreement to
acquire Link Spine Group, Inc., a privately owned corporation that
will provide the Company with exclusive worldwide rights to the SB
Charite Artificial Disc for the treatment of spine disorders.
Under the terms of the agreement, the Company will pay a $325
million upfront payment with further contingent payments due upon
achievement of regulatory and other milestones. The transaction
is expected to close in the second quarter of 2003 and the Company
anticipates an IPR&D charge of approximately $175 million to be
incurred in connection with this acquisition.
NOTE 10 - PRO FORMA STOCK BASED COMPENSATION
At March 30, 2003, the Company had 24 stock-based employee
compensation plans. The Company accounted for those plans under
the recognition and measurement principles of Accounting Principle
Board Opinion No. 25 "Accounting for Stock Issued to Employees"
and its related Interpretations. Compensation costs were not
recorded in net income for stock options, as all options granted
under those plans had an exercise price equal to the market value
of the underlying common stock on the date of grant.
As required by SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure - an amendment of FASB
Statement No. 123," the following table shows the estimated effect
on net income and earnings per share if the Company had applied
the fair value recognition provision of SFAS No. 123, "Accounting
for Stock-Based Compensation," to stock-based employee
compensation.
(Dollars in Millions
Except Per Share Data) March 30, 2003 March 31, 2002
Net income,
as reported 2,070 1,834
Less:
Compensation
expense(1) 85 73
Pro forma 1,985 1,761
Earnings per share:
Basic - as reported $.70 $.60
- pro forma .67 .58
Diluted - as reported $.69 $.59
- pro forma .66 .57
(1) Determined under fair value based method for all awards, net
of tax.
11
NOTE 11 - LEGAL PROCEEDINGS
The information called for by this footnote is incorporated herein
by reference to Item 1 ("Legal Proceedings") included in Part II
of this Report on Form 10-Q.
Item 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Operating Results
Sales
For the first fiscal quarter of 2003, worldwide sales were $9.8
billion, an increase of 12.3% over 2002 fiscal first quarter sales
of $8.7 billion. The impact of foreign currencies accounted for
4.2% of the total reported increase of 12.3% over the same period
a year ago.
Sales by domestic companies were $6.0 billion in the first
fiscal quarter of 2003, which represented an increase of 8.9%.
Sales by international companies were $3.8 billion, which
represented an increase of 18.2% of which 11.3% was due to
currency fluctuations.
For geographic areas throughout the world, sales increased 25.7%
in Europe and 14.8% in Asia-Pacific/Africa but decreased 1.9% in
the Western Hemisphere (excluding the U.S.) for the quarter.
Consumer segment sales in the quarter were $1.8 billion, an
increase of 11.7% over the same period a year ago with 9.6% of
operational growth with a positive currency impact of 2.1%.
Domestic sales increased by 11.1% while international sales gains
of 12.4% included a positive currency impact of 4.9%. Consumer
sales achieved strong growth in skin care products (NEUTROGENA(r),
CLEAN & CLEAR(r) and AVEENO(r)) and SPLENDA(r) sweetener products
as well as broad-based growth in the Consumer Pharmaceuticals and
Wound Care franchises.
Pharmaceutical segment sales in the quarter were $4.7 billion,
an increase of 11.6% over the same period a year ago with 7.8% of
this change due to operational increases and the remaining 3.8%
increase related to the positive impact of currency. The domestic
Pharmaceutical sales increase was 10.3% and the growth in
international Pharmaceutical sales was 14.7% which included 13.0%
related to the positive impact of currency.
Sales growth reflects the strong performance of REMICADE(r), a
treatment for rheumatoid arthritis and Crohn's disease;
RISPERDAL(r), an antipsychotic medication; DURAGESIC(r), a
transdermal patch for chronic pain, and TOPAMAX(r), an anti-
epileptic medication. The rate of growth of PROCRIT, a product
for the treatment of anemia, had slowed versus recent trends due
to the entry of a new competitor. PROCRIT, while still the market
leader, has experienced a share decline. The competitive use of
discounts and extended payment dating has moved market focus from
total market development to a focus on share acquisition. The
Company's positioning on PROCRIT continues to focus on the
clinical benefits of PROCRIT.
The rate of growth of EPREX (epoetin alfa) experienced a sharp
decline versus the prior year due to rare reports of Pure Red Cell
Aplasia (PRCA) in chronic renal failure (CRF) patients when EPREX
was administered subcutaneously. The Company has implemented
steps to ensure that health care providers use the safest method
of administering EPREX. These actions included the education of
health care providers and patients in the proper handling of EPREX
to preserve product integrity and a label change recommending
intravenous versus subcutaneous dosing in chronic renal failure.
The data available through the end of the year 2002 suggested that
the incidence rate of PRCA had stabilized.
During the first quarter of 2003, the Company announced and
completed the acquisition of 3-Dimensional Pharmaceuticals, Inc.,
a company with a technology platform focused on the discovery and
development of potential new drugs in early stage development for
the treatment of cardiovascular disorders, oncology and
inflammation. The transaction was valued at $88 million, net of
cash and resulted in an in-process research and development
(IPR&D) charge of approximately $7 million. Also during the
quarter, the Company acquired Orapharma, Inc., a specialty
pharmaceutical company focused on the development and
commercialization of unique therapeutics. Orapharma's initial
product, ARESTIN, is the first locally administered, time-released
antibiotic encapsulated in microspheres that controls the germs
that can cause periodontal disease. The transaction was valued at
approximately $85 million, net of cash.
12
The Company also received U.S. Food and Drug Administration (FDA)
approval for REMICADE (infliximab) for the additional indication
of long-term treatment of fistulizing Crohn's disease, a chronic
inflammatory bowel disorder that commonly affects the lower part
of the small and large intestine, as well as FLEXERIL
(cyclobenzaprine HCI) 5 mg tablets for the treatment of muscle
spasm associated with painful musculoskeletal conditions. In
April 2003, the Company received FDA approval for RISPERDAL M-TAB
(risperidone), a fast dissolving form of the schizophrenia
medication that dissolves in seconds when placed in the mouth.
Worldwide sales in the first fiscal quarter of 2003 of $3.4
billion in the Medical Devices & Diagnostics segment represented
an increase of 13.7% over the same period a year ago with currency
accounting for 5.7% of the sales growth. Domestic sales were up
5.1% and the international sales increase of 24.8% over the same
period a year ago included a currency impact of 13.1%.
Strong sales growth was achieved in several franchises within
this segment: DePuy's orthopaedic joint reconstruction and spinal
products; Ethicon's wound care, and women's health products; and
Ethicon Endo-Surgery's minimally invasive surgical products.
In the first quarter of 2003, Cordis sales increased by 14%
versus the same period a year ago. Sales in the U.S. however,
declined by approximately 14%, primarily attributable to a
significant decline in coronary stent sales. In preparation for
the launch of the CYPHER drug eluding stent, the Company has been
working with customers to reduce their inventories of bare metal
stents.
On April 24, 2003, the Company received approval from the FDA to
market the CYPHER Sirolimus-eluting coronary stent, making it the
first U.S. approved combination drug device intended to help
reduce restenosis or reblockage of a treated coronary artery. The
Company began shipping the product immediately after approval with
the objective to provide access to as many patients and customers
as soon as possible.
During the quarter, the Company completed the acquisition of
Orquest, Inc., a privately held biotechnology company focused on
developing biologically-based implants for orthopaedics and spine
surgery. Orquest's principal product, HEALOS Bone Graft Material,
is designed to reduce the time and pain associated with standard
bone graft harvesting and represents a therapeutic advance for
patients requiring bone graft material for spine fusion or other
surgery.
Gross Profit
Gross profit margin in the first fiscal quarter of 2003 was 72.3%,
an improvement of 0.4% over the gross profit margin in the same
period a year ago of 71.9%. The improvement in gross profit margin
was primarily related to ongoing improvement related to cost
control efforts.
Selling, General and Administrative Expenses
Consolidated selling, general and administrative expenses
increased 14.4% over the same period a year ago. Selling, general
and administrative expenses as a percent to sales were 33.1%
versus 32.5% for the same period a year ago. The increase was
primarily due to an increase in spending for a sales force
expansion in the Pharmaceutical segment and pre-launch spending in
anticipation of the CYPHER stent approval.
In-Process Research & Development
In the fiscal first quarter of 2003, the Company recorded in-
process research & development (IPR&D) charges of $15 million
after-tax ($18 million before tax) related to acquisitions. These
acquisitions included Orquest, Inc., a privately-held biotechnolgy
company focused on developing biologically-based implants for
orthopaedics spine surgery and 3-Dimensional Pharamceuticals,
Inc., a company with a technology platform focused on the
discovery and development of potential new drugs in early stage
development for the treatment of cardiovascular diseases, oncology
and inflammation.
13
Interest (Income) Expense
Interest income decreased in the first fiscal quarter of 2003 as
compared to the same period a year ago due primarily to the
continuing decline in U.S. interest rates. Interest expense in
the first fiscal quarter of 2003 remained relatively constant as
there were no significant changes in average debt balances.
Other (Income) Expense, Net
Other (income) expense included gains and losses related to the
sale and write-down of certain equity securities of the Johnson &
Johnson Development Corporation, losses on the disposal of fixed
assets, currency gains & losses, minority interests, litigation
settlement expense as well as royalty income. The favorable
change of $70 million in other (income) expense was due primarily
to a lower level of one-time expenses in 2003 as compared to the
same period a year ago. The most significant factors affecting
the year-on-year comparisons were reductions in 2003 in the write-
down of equity securities of Johnson & Johnson Development
Corporation and a current year non-recurring increase in royalty
income for the quarter.
Earnings Before Provision for Taxes on Income
Consolidated earnings before provision for taxes on income
increased 11.8% versus the same period a year ago. The increase
was due primarily to volume growth, improved gross profit margins
offset by increases in spending in selling, marketing and
administrative expenses due to sales force expansion and pre-
launch spending in anticipation of the CYPHER stent approval.
Operating profit by segment
Consumer segment operating profit increased 31.1% over the same
period a year ago and reflects an operating profit as a percent to
sales improvement of 3.5%. The improvement was due primarily to
volume growth, leveraging of selling, promotion and administrative
expenses offset by increased expenditures in advertising.
Pharmaceutical segment operating profit increased 11.7% over the
same period a year ago and its operating profit as a percent to
sales was the same percent for the same period a year ago. The
Pharmaceutical segment operating profit was negatively impacted by
the cost of IPR&D related to 3-Dimensional Pharmaceuticals, Inc.,
acquisition and an increase in spending related to a sales force
expansion.
Medical Devices & Diagnostics segment operating profit increased
10.4% over the same period a year ago and reflects an operating
profit as a percent to sales decline of .7%. The margin decline
was primarily due to pre-launch spending in anticipation of the
CYPHER stent approval. Operating profit also includes the IPR&D
associated with the acquisition of Orquest, Inc.
Provision For Taxes on Income
The effective income tax rates for the first fiscal three months
of 2003 and 2002 are 29.3% and 30.0%, respectively, as compared to
the U.S. federal statutory rate of 35%. The difference from the
statutory rate was 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.
Net Income and Earnings Per Share
Worldwide net earnings for the first fiscal quarter of 2003 were
$2.1 billion, reflecting a 12.9% increase over 2002. Worldwide net
earnings per share for the first fiscal quarter of 2003 equaled
$.69 per share, an increase of 16.9% from the $.59 net earnings
per share in the same period a year ago.
Cash Flows and Liquidity
Cash generated from operations and selected borrowings provided
the major sources of funds for the growth of the business,
including working capital, capital expenditures, acquisitions,
share repurchases, dividends and debt repayments. Cash and current
marketable securities were $7.8 billion at the end of the first
fiscal quarter of 2003 as compared with $7.5 billion at year-end
2002.
Cash generated from operations amounted to $2.0 billion in the
first fiscal quarter of 2003 as compared to $1.9 billion for the
same period a year ago.
14
Capital Expenditures
Capital expenditures in the first fiscal quarter of 2003 increased
to $.4 billion or 16.6% over the same period a year ago. The
increase was due primarily to expansion of manufacturing
facilities to support new and existing products, investments in
support of research facilities and investments in information
systems across all business segments.
Dividends
On April 24, 2003, the Board of Directors declared a regular cash
dividend of $0.24 per share, payable on June 10, 2003 to
shareholders of record as of May 20, 2003. This represented an
increase of 17.1% and was the 41st consecutive year of cash
dividend increases. The Company expects to continue the practice
of paying regular cash dividends.
Financial Position & Capital Resources
Total Assets & Returns
Total assets increased $1.4 billion or 3.5% in the first fiscal
quarter of 2003 versus year-end 2002. Net intangible assets in the
first fiscal quarter of 2003 increased 1.9% over year-end 2002 and
represented 22.4% of total assets versus 22.8% of total assets at
year-end 2002. Net property, plant and equipment increased to $8.8
billion or 1.0% and represented 21.0% of total assets versus 21.5%
of total assets at year-end 2002. Shareholders' equity per share
at the end of the first fiscal quarter of 2003 was $8.10 compared
with $7.65 at year-end 2002, an increase of 5.9%.
Financing & Market Risk
Total borrowings at the end of the first fiscal quarter of 2003
was $4.1 billion, unchanged from year-end 2002. For the first
fiscal quarter of 2003, net cash (cash and current marketable
securities net of debt) was $3.7 billion. At year-end 2002, net
cash (cash and current marketable securities net of debt) was $3.3
billion. Total debt represented 14.6% of total capital
(shareholders' equity and total debt) for the first fiscal quarter
of 2003 and 15.4% of total capital at year-end 2002. For the
period ended March 30, 2003, there were no material cash
commitments. In association with the purchase of Scios, Inc., the
Company issued approximately $2.2 billion of commercial paper
during April of 2003.
New Accounting Standards
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations." The Company adopted this standard in 2003
that was effective for fiscal years beginning after June 15, 2002
and it has not had a material impact 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 was effective for exit or
disposal activities that are initiated after December 31, 2002.
The Company adopted SFAS No. 146 in the first quarter of 2003 and
it has not had a material effect on the Company's results of
operations, cash flows or financial position.
On November 25, 2002, the FASB issued FASB Interpretation No. 45
(FIN 45), "Guarantor's Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of
Others, an interpretation of FASB Statements No. 5, 57 and 107 and
Rescission of FASB Interpretation No. 34." FIN 45 clarified the
requirements of FASB Statement No. 5, "Accounting for
Contingencies," relating to the guarantor's accounting for, and
disclosure of, the issuance of certain types of guarantees. The
disclosure requirements of FIN 45 are effective for financial
statements of interim or annual periods that end after December
15, 2002 and have been adopted by the Company. There is no
disclosure required for the first fiscal quarter of 2003. The
provisions for initial recognition and measurement are effective
on a prospective basis for guarantees that are issued or modified
after December 31, 2002, irrespective of the guarantor's year-end.
FIN 45 required that upon issuance of a guarantee, the entity must
recognize a liability for the fair value of the obligation it
assumes under that guarantee. The Company's adoption of FIN 45 in
2003 has not had a material effect on the Company's results of
operations, cash flows or financial position.
15
In January 2003, the FASB issued FIN 46, "Consolidation of
Variable Interest Entities - an interpretation of ARB No. 51,"
which addresses consolidation of variable interest entities. FIN
46 expanded the criteria for consideration in determining whether
a variable interest entity should be consolidated by a business
entity, and requires existing unconsolidated variable interest
entities (which include, but are not limited to, Special Purpose
Entities, or SPEs) to be consolidated by their primary
beneficiaries if the entities do not effectively disperse risks
among parties involved. This interpretation applied immediately to
variable interest entities created after January 31, 2003, and to
variable interest entities in which an enterprise obtains an
interest after that date. It applies in the first fiscal year or
interim period beginning after June 15, 2003, to variable interest
entities in which an enterprise holds a variable interest that it
acquired before February 1, 2003. The adoption of FIN 46 is not
expected to have a material effect on the Company's results of
operations, cash flows or financial position.
Subsequent Events
On April 29, 2003, Johnson & Johnson announced that it had
completed its acquisition of Scios Inc., a biopharmaceutical
company with a marketed product for cardiovascular disease and
research projects focused on auto-immune diseases. The Company
acquired Scios in a cash for stock exchange and was valued at
approximately $2.4 billion, net of cash. The purchase price
allocation is still in process and is not yet available. The
Company expects to incur a pre-tax charge for In-Process Research
& Development in the second quarter of 2003 in the range of
between $700 and $800 million.
Scios is a biopharmaceutical company developing novel treatments
for cardiovascular and inflammatory disease. The company's disease-
based technology platform integrates expertise in protein biology
with computational and medicinal chemistry to identify novel
targets and rationally design small molecule compounds for large
markets with unmet medical needs. Scios' product NATRECOR(r) is
the first novel agent approved for congestive heart failure (CHF)
in more than a decade. NATRECOR(r) is a recombinant form of a
naturally occurring protein secreted by the heart as part of the
body's response to CHF. The drug has several significant
advantages over existing therapies for CHF, the single most common
cause of hospitalization in the United States for patients over
65. The principal focus of Scios' research and development
program is small molecule inhibitors, and includes several
potential new treatments for pain and inflammatory diseases,
including an advanced p-38 kinase inhibitor program.
On May 6, 2003, the Company announced a definitive agreement to
acquire Link Spine Group, Inc., a privately owned corporation that
will provide the Company with exclusive worldwide rights to the SB
Charite Artificial Disc for the treatment of spine disorders.
Under the terms of the agreement, the Company will pay a $325
million upfront payment with further contingent payments due upon
achievement of regulatory and other milestones. The transaction
is expected to close in the second quarter of 2003 and the Company
anticipates an IPR&D charge of approximately $175 million to be
incurred in connection with this acquisition.
16
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 29, 2002 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 29, 2002.
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 and Chief Financial Officer, reviewed and participated
in this evaluation.
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.
17
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, Inc. product PROPULSIDr, 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 PROPULSIDr, in state and
federal courts across the country. There are approximately 740
such cases currently pending, including the claims of
approximately 5,428 plaintiffs. In the active cases, 425
individuals are alleged to have died from the use of PROPULSIDr.
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 overpromotion. 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 PROPULSIDr 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 was injured by PROPULSIDr 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 PROPULSIDr users
for purposes of medical monitoring and refund of the costs of
purchasing PROPULSIDr. An effort to appeal that ruling has been
denied. In June 2002 the federal judge presiding over the
PROPULSIDr Multi-District Litigation in New Orleans, Louisiana
similarly denied plaintiffs' motion there to certify a national
class of PROPULSIDr 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 PROPULSIDr 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. In communications to the Company, the excess insurance
carriers have raised certain defenses to their liability under the
policies. However, in the opinion of the Company, those defenses
are pro forma and lack substance and the carriers will honor their
obligations under the policies either voluntarily or after
litigation.
18
The Company's Ortho Biotech Inc. 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 PROCRITr, in
which Amgen sought to terminate Ortho Biotech's U.S. license
rights and collect substantial damages based on alleged deliberate
PROCRITr sales by Ortho Biotech during the early 1990s 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 1990s, 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 expensed
in the third quarter of 2002. Amgen had sought $1.2 billion in
damages. On January 24, 2003, the arbitrator ruled that Amgen was
the "prevailing party" in this arbitration, entitling it to an
award of reasonable attorneys' fees and costs. In March, Amgen
submitted its application for fees and costs in the amount of $91
million, which sum is subject to challenge by Ortho Biotech based
on the issue of reasonableness. The Company expensed $85 million
in the fourth quarter of 2002 in connection with this outstanding
claim.
In patent infringement actions tried in Delaware federal court
in late 2000, Cordis Corporation, a subsidiary of Johnson &
Johnson, 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 district court in
Texas and thereafter transferred to the federal district court in
Delaware, asserts certain patents owned by Medtronic AVE against
the Cordis BX VELOCITYT stent, which is also the stent structure
used in the CYPHERT drug eluting product. No trial date has been
set for this action. ACS/Guidant v. Cordis Corporation: This is
an arbitration in which ACS/Guidant has asserted its Lau patents
against the Cordis BX VELOCITY stent. In the event ACS/Guidant
prevails, Cordis would pay a pre-negotiated royalty with respect
to past and future BX VELOCITY sales; no injunction would be
issued. The arbitration hearings commence in the fall. Boston
Scientific Corporation (BSC) v. Cordis Corporation: This action,
filed in Delaware federal court in March, asserts that the Cypher
drug-eluting stent infringes the Ding patent assigned to BSC. BSC
seeks damages and a permanent injunction and in addition has moved
for a preliminary injunction, a hearing on which is scheduled for
late July.
19
The following lawsuits are against generic firms that filed
Abbreviated New Drug Applications (ANDAs) seeking to market
generic forms of products sold by various subsidiaries of the
Company prior to expiration of the applicable patents covering
these products. These ANDAs typically include allegations of non-
infringement, invalidity and unenforceability of these patents.
Ortho-McNeil Pharmaceutical, Inc. 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 ORTHO TRICYCLEN r oral contraceptive product. Trial
is scheduled to begin in July. 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 LEVAQUINr levofloxacin tablets. The patent is
owned by Daiichi and exclusively licensed to Ortho-McNeil. In the
Mylan case trial has been set for October 2003. No trial date has
been set in the Teva matter. Ortho-McNeil Pharmaceutical, Inc.
and Daiichi v. Bedford Laboratories: This matter was filed in
federal district court in New Jersey in April 2003 and involves
the effort of Bedford to invalidate and assert non-infringement of
the same Daiichi patent on LEVAQUIN involved in the above
proceedings. In this case, however, Bedford is challenging the
patent's application with respect to its products which it asserts
are equivalent to LEVAQUIN injection pre-mix and injection vials,
rather than tablets. Janssen and ALZA v. Mylan Laboratories: This
action, filed in federal district court in Vermont in January
2002, concerns Mylan's effort to invalidate and assert non-
infringement and unenforceability of ALZA's patent covering the
DURAGESICr product. Trial is scheduled for August 2003. Janssen
Pharmaceutica NV v. Eon Labs Manufacturing: This action was filed
in federal court in the Eastern District of New York in April 2001
and concerns Eon's effort to invalidate and establish non-
infringement of Janssen's patent covering SPORANOXr
(itraconozole). No trial date has yet been scheduled. Ortho-
McNeil Pharmaceutical, Inc. v. Kali Laboratories, Inc.: This
lawsuit was filed in federal court in New Jersey in November 2002
and concerns the attempt of Kali to invalidate and establish non-
infringement of Ortho-McNeil's patent covering ULTRACETr (tramadol-
acetaminophen) tablets. No trial date has been set for this case.
Alza v. Mylan Laboratories: This action was filed in federal
district court in West Virginia in May 2003 and concerns Mylan's
effort to invalidate and assert non-infringement of an Alza patent
covering the DITROPAN XLr product. No trial date has been set for
this case.
With respect to all of the above matters, the Johnson & Johnson
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.
The New York State Attorney General's office and the Federal
Trade Commission issued subpoenas in January and February 2003
seeking documents relating to the marketing of sutures and
endoscopic instruments by the Company's Ethicon, Inc. and Ethicon
Endo-Surgery, Inc. subsidiaries. The Connecticut Attorney
General's office has requested the same documents. These
subpoenas focus on the bundling of sutures and endoscopic
instruments in contracts offered to Group Purchasing Organizations
and individual hospitals in which discounts are predicated on the
hospital achieving specified market share targets for both
categories of products. The operating companies involved are
responding to the subpoenas.
The Company is also involved in a number of other patent,
trademark and other lawsuits incidental to its business.
The ultimate legal and financial liability of the Company in
respect to all claims, lawsuits and proceedings referred to above
cannot be estimated with any certainty. However, in the opinion of
management, based on its examination of these matters, its
experience to date and discussions with counsel, the ultimate
outcome of these legal proceedings, net of liabilities already
accrued in the Company's consolidated balance sheet, is not
expected to have a material adverse effect on the Company's
consolidated financial position, although the resolution in any
reporting period of one or more of these matters could have a
significant impact on the Company's results of operations for that
period.
20
Item 5. Exhibits and Reports on Form 8-K
(a) Exhibit
Exhibit 99.3 Certifications Pursuant to Rule 13a-14
Under the Securities Exchange Act of 1934
Exhibit 99.15 Certifications Pursuant to 18 U.S.C.
Section 1350
(b) Reports on Form 8-K
A report on Form 8-K was filed on January 30, 2003, which
included the Press Release on Amgen arbitration fees and
expenses. Also included in this filing are the unaudited
comparative supplementary sales data and condensed
consolidated statements of earnings for the fiscal fourth
quarter and fiscal year ended December 29, 2002.
A report on Form 8-K was filed on March 12, 2003, which
included the audited consolidated financial statements for
the three year period ended December 29, 2002.
A report on Form 8-K was filed on April 15, 2003, which
included the Press Release for the period ended March 30,
2003. Also included in this filing are the unaudited
comparative supplementary sales data and condensed
consolidated statement of earnings for the fiscal first
quarter.
A report on Form 8-K was filed on April 29, 2003, which
included a reconciliation of non-GAAP disclosures included
in Form 10-K for the fiscal year ended December 29, 2002.
21
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 12, 2003 By /s/ R. J. DARRETTA
R. J. DARRETTA
Executive Vice President and
Chief Financial Officer
Date: May 12, 2003 By /s/ S. J. COSGROVE
S. J. COSGROVE
Controller
(Chief Accounting Officer)
22