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 June 29, 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 July 25, 2003, 2,968,017,528 shares of Common Stock, $1.00
par value, were outstanding.
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JOHNSON & JOHNSON AND SUBSIDIARIES
TABLE OF CONTENTS
Part I - Financial Information Page No.
Item 1. Financial Statements
Consolidated Balance Sheets
June 29, 2003 and December 29, 2002 3
Consolidated Statements of Earnings for the Fiscal
Quarter Ended June 29, 2003 and June 30, 2002 5
Consolidated Statements of Earnings for the Fiscal
Six Months Ended June 29, 2003 and June 30, 2002 6
Consolidated Statements of Cash Flows for the Fiscal
Six Months Ended June 29, 2003 and June 30, 2002 7
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 24
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 30
Item 4. Controls and Procedures 30
Part II - Other Information
Item 1 - Legal Proceedings 31
Item 4 - Submission of Matter to a Vote of
Security Holders 35
Item 5 - Other Items 35
Item 6 - Exhibits and Reports on Form 8-K 36
Signatures 37
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PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
JOHNSON & JOHNSON AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited; Dollars in Millions)
ASSETS
June 29, December 29,
2003 2002
Current Assets:
Cash and cash equivalents $ 2,968 2,894
Marketable securities 4,894 4,581
Accounts receivable, trade, less
allowances for doubtful accounts
$188(2002 - $191) 6,426 5,399
Inventories (Note 4) 3,680 3,303
Deferred taxes on income 1,453 1,419
Prepaid expenses and other
receivables 1,954 1,670
Total Current Assets 21,375 19,266
Marketable securities, non-current 124 121
Property, plant and equipment,
at cost 15,565 14,314
Less accumulated
depreciation 6,501 5,604
9,064 8,710
Intangible assets, gross (Note 5) 14,029 11,355
Less accumulated amortization 2,319 2,109
Intangible assets, net 11,710 9,246
Deferred taxes on income 381 236
Other assets 2,999 2,977
Total Assets $45,653 40,556
See Notes to Consolidated Financial Statements
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JOHNSON & JOHNSON AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited; Dollars in Millions)
LIABILITIES AND SHAREHOLDERS' EQUITY
June 29, December 29,
2003 2002
Current Liabilities:
Loans and notes payable $ 3,254 2,117
Accounts payable 3,589 3,621
Accrued liabilities 4,494 3,820
Accrued salaries, wages and
commissions 838 1,181
Taxes on income 661 710
Total Current Liabilities 12,836 11,449
Long-term debt 3,164 2,022
Deferred tax liability 1,208 643
Employee related obligations 2,248 1,967
Other liabilities 1,760 1,778
Total Liabilities 21,216 17,859
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
3,119,842,548 shares) 3,120 3,120
Note receivable from employee
stock ownership plan (18) (25)
Accumulated other comprehensive
income (Note 8) (690) (842)
Retained earnings 28,200 26,571
30,612 28,824
Less common stock held in treasury,
at cost (150,951,000 & 151,547,000
shares) 6,175 6,127
Total Shareholders' Equity 24,437 22,697
Total Liabilities and
Shareholders' Equity $45,653 40,556
See Notes to Consolidated Financial Statements
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JOHNSON & JOHNSON AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited; Dollars & Shares in Millions
Except per Share Figures)
Fiscal Second Quarter Ended
June 29, Percent June 30, Percent
2003 to Sales 2002 to Sales
Sales to customers
(Note 6) $10,332 100.0 9,073 100.0
Cost of products sold 2,966 28.7 2,582 28.4
Gross profit 7,366 71.3 6,491 71.6
Selling, marketing and
administrative expenses 3,396 32.9 3,017 33.3
Research and development 1,082 10.5 932 10.3
Purchased in-process
research and
development 900 8.7 189 2.1
Interest income (43) (.4) (74) (.8)
Interest expense, net of
portion capitalized 50 .4 44 .5
Other (income)expense, net (75) (.7) (45) (.5)
5,310 51.4 4,063 44.9
Earnings before provision
for taxes on income 2,056 19.9 2,428 26.7
Provision for taxes on
income (Note 3) 846 8.2 774 8.5
NET EARNINGS $1,210 11.7 1,654 18.2
NET EARNINGS PER SHARE (Note 7)
Basic $ .41 .55
Diluted $ .40 .54
CASH DIVIDENDS PER SHARE $ .24 .205
AVG. SHARES OUTSTANDING
Basic 2,967.7 3,003.4
Diluted 3,015.9 3,069.3
See Notes to Consolidated Financial Statements
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JOHNSON & JOHNSON AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited; Dollars & Shares in Millions
Except per Share Figures)
Fiscal Six Months Ended
June 29, Percent June 30, Percent
2003 to Sales 2002 to Sales
Sales to customers
(Note 6) $20,154 100.0 17,816 100.0
Cost of products sold 5,688 28.2 5,039 28.3
Gross profit 14,466 71.8 12,777 71.7
Selling, marketing and
administrative expenses 6,649 33.0 5,860 32.9
Research and development 2,018 10.0 1,763 9.9
Purchased in-process
research and
development 918 4.6 189 1.1
Interest income (81) (.4) (150) (.8)
Interest expense, net of
portion capitalized 88 .4 78 .4
Other(income)expense, net (112) (.5) (12) (.1)
9,480 47.1 7,728 43.4
Earnings before provision
for taxes on income 4,986 24.7 5,049 28.3
Provision for taxes on
income (Note 3) 1,705 8.4 1,561 8.7
NET EARNINGS $3,281 16.3 3,488 19.6
NET EARNINGS PER SHARE (Note 7)
Basic $ 1.11 1.15
Diluted $ 1.09 1.13
CASH DIVIDENDS PER SHARE $ .445 .385
AVG. SHARES OUTSTANDING
Basic 2,967.9 3,022.2
Diluted 3,015.2 3,086.9
See Notes to Consolidated Financial Statements
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JOHNSON & JOHNSON AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; Dollars in Millions)
Fiscal Six Months Ended
June 29, June 30,
2003 2002
Cash Flows from Operations
Net earnings $ 3,281 $ 3,488
Adj. to reconcile net earnings to cash flows:
Depreciation and amortization of
property and intangibles 868 832
Purchased in-process research and
development 918 189
Accounts receivable reserves (9) (36)
Changes in assets and liabilities, net
of effects from acquisition of businesses:
Increase in accounts receivable (756) (549)
Increase in inventories (186) (207)
Changes in other assets and
liabilities (423) (224)
Net Cash Flows from Operating
Activities 3,693 3,493
Cash Flows from Investing Activities
Additions to property, plant
and equipment (914) (802)
Proceeds from the disposal of assets 333 128
Acquisition of businesses, net of cash
acquired (2,781) (466)
Purchases of investments (2,868) (3,126)
Sales of investments 2,580 3,942
Other (96) (213)
Net Cash Used by Investing
Activities (3,746) (537)
Cash Flows from Financing Activities
Dividends to shareholders (1,321) (1,163)
Repurchase of common stock (842) (5,255)
Proceeds from short-term debt 1,441 2,189
Retirement of short-term debt (436) (219)
Proceeds from long-term debt 1,009 20
Retirement of long-term debt (43) (16)
Proceeds from the exercise of
stock options 195 227
Net Cash Provided/(Used) by Financing
Activities 3 (4,127)
Effect of Exchange Rate Changes on
Cash and Cash Equivalents 124 109
Increase/(Decrease) in Cash and Cash
Equivalents 74 (1,152)
Cash and Cash Equivalents, Beginning
of Period 2,894 3,758
Cash and Cash Equivalents,
End of Period $ 2,968 $ 2,606
Acquisition of Businesses
Fair value of assets acquired 3,096 535
Fair value of liabilities assumed (315) (69)
Net cash paid for acquisitions $ 2,781 $ 466
See Notes to Consolidated Financial Statements
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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 June 29, 2003 the balance of deferred net losses on
derivatives included in accumulated other comprehensive income was
$158 million after tax. For additional information, see Note 8.
The Company expects that $155 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 18 months.
For the first fiscal six months ended June 29, 2003 the net
impact of the hedges' ineffectiveness to the Company's financial
statements was insignificant. For the first fiscal six months
ended June 29, 2003 the Company recorded a net gain of $9 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 six months of
2003 and 2002 were 34.2% and 30.9%, 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. The
increase in the effective tax rate for the first fiscal six
months of 2003 compared with the same period a year ago is due to
acquisition related In-process Research and Development charges
that are non-deductible for tax purposes. For further details on
acquisitions, see Note 9.
NOTE 4 - INVENTORIES
(Dollars in Millions)
June 29, 2003 Dec. 29, 2002
Raw materials and supplies $ 931 835
Goods in process 894 803
Finished goods 1,855 1,665
$ 3,680 3,303
-8-
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)
June 29, December 29,
2003 2002
Goodwill-gross $ 6,040 $ 5,320
Less accumulated amortization 681 667
Goodwill - net 5,359 4,653
Trademarks (non-amortizable)- gross 1,086 1,021
Less accumulated amortization 133 138
Trademarks (non-amortizable)- net 953 883
Patents and trademarks 3,713 2,016
Less accumulated amortization 621 534
Patents and trademarks - net 3,092 1,482
Other amortizable intangibles -
gross 3,190 2,998
Less accumulated amortization 884 770
Other intangibles - net 2,306 2,228
Total intangible assets - gross 14,029 11,355
Less accumulated amortization 2,319 2,109
Total intangibles - net $ 11,710 $ 9,246
Goodwill as of June 29, 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 - 528 118 646
Translation & Other 36 18 6 60
Goodwill at June 29, 2003 $ 857 790 3,712 5,359
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 first fiscal six months of 2003 was $162 million
before tax and the estimated amortization expense for the five
succeeding years approximates $551 million before tax, per year,
respectively.
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NOTE 6 - SEGMENTS OF BUSINESS AND GEOGRAPHIC AREAS
(Dollars in Millions)
SALES BY SEGMENT OF BUSINESS
Fiscal Second Quarter
Amount Percent
2003 2002 Change Change
Consumer
Domestic $ 931 907 24 2.6%
International 888 742 146 19.7
1,819 1,649 170 10.3
Pharmaceutical
Domestic $ 3,278 2,934 344 11.7
International 1,606 1,324 282 21.3
4,884 4,258 626 14.7
Med Dev & Diag
Domestic $ 1,903 1,758 145 8.3
International 1,726 1,408 318 22.6
3,629 3,166 463 14.6
Total
Domestic $ 6,112 5,599 513 9.2
International 4,220 3,474 746 21.5
Worldwide $10,332 9,073 1,259 13.9%
% OF TOTAL COMPANY
Consumer 17.6% 18.2%
Pharmaceutical 47.3 46.9
Med. Dev. & Diag. 35.1 34.9
Total 100.0% 100.0%
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(Dollars in Millions)
SALES BY SEGMENT OF BUSINESS
Fiscal Six Months
Amount Percent
2003 2002 Change Change
Consumer
Domestic $ 1,931 1,807 124 6.8%
International 1,679 1,446 233 16.2
3,610 3,253 357 11.0
Pharmaceutical
Domestic $ 6,541 5,892 649 11.0
International 3,009 2,547 462 18.1
9,550 8,439 1,111 13.2
Med Dev & Diag
Domestic $ 3,652 3,421 231 6.8
International 3,342 2,703 639 23.6
6,994 6,124 870 14.2
Total
Domestic $12,124 11,120 1,004 9.0
International 8,030 6,696 1,334 19.9
Worldwide $20,154 17,816 2,338 13.1%
% OF TOTAL COMPANY
Consumer 17.9% 18.2%
Pharmaceutical 47.4 47.4
Med. Dev. & Diag. 34.7 34.4
Total 100.0% 100.0%
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OPERATING PROFIT BY SEGMENT OF BUSINESS
Fiscal Second Quarter
Percent
2003 2002 Change
Consumer $ 372 339 9.7%
Pharmaceutical(1) 1,091 1,577 (30.8)
Med. Dev. & Diag.(2) 671 564 19.0
Segments total 2,134 2,480 (14.0)
Expenses not allocated
to segments (78) (52) -
Worldwide total $ 2,056 2,428 (15.3)%
Fiscal Six Months
Percent
2003 2002 Change
Consumer $ 784 654 19.9%
Pharmaceutical(3) 2,951 3,241 (8.9)
Med. Dev. & Diag.(4) 1,401 1,226 14.2
Segments total 5,136 5,121 .3
Expenses not allocated
to segments (150) (72) -
Worldwide total $ 4,986 5,049 (1.3)%
(1) Includes $730 million and $150 million of In-process
Research and Development (IPR&D) charges related to
acquisitions for the fiscal second quarter of 2003
and 2002, respectively.
(2) Includes $170 million and $39 million of IPR&D charges
related to acquisitions for the fiscal second quarter
of 2003 and 2002, respectively.
(3) Includes $737 million and $150 million of IPR&D charges
related to acquisitions for the first fiscal six months
of 2003 and 2002, respectively.
(4) Includes $181 million and $39 million of IPR&D charges
related to acquisitions for the first fiscal six months
of 2003 and 2002, respectively.
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SALES BY GEOGRAPHIC AREA
Fiscal Second Quarter
Percent
2003 2002 Change
U.S. $ 6,112 5,599 9.2%
Europe 2,451 1,923 27.4
Western Hemisphere
Excluding U.S. 555 521 6.5
Asia-Pacific, Africa 1,214 1,030 17.9
International Total 4,220 3,474 21.5
Worldwide Total $ 10,332 9,073 13.9%
Fiscal Six Months
Percent
2003 2002 Change
U.S. $ 12,124 11,120 9.0%
Europe 4,669 3,687 26.6
Western Hemisphere
Excluding U.S. 1,027 1,002 2.5
Asia-Pacific, Africa 2,334 2,007 16.3
International Total 8,030 6,696 19.9
Worldwide Total $ 20,154 17,816 13.1%
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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 second quarters
ended June 29, 2003 and June 30, 2002.
(Shares in Millions)
Fiscal Second Quarter Ended
June 29, June 30,
2003 2002
Basic net earnings per share $ .41 .55
Average shares outstanding - basic 2,967.7 3,003.4
Potential shares exercisable under
stock option plans 177.9 199.6
Less: shares which could be repurchased
under treasury stock method (144.6) (148.1)
Convertible debt shares 14.9 14.4
Adjusted average shares
outstanding - diluted 3,015.9 3,069.3
Diluted earnings per share $ .40 .54
Diluted earnings per share calculation included the dilution
effect of convertible debt that was offset by the related decrease
in interest expense of $3 million after tax each for the fiscal
second quarter ended June 29, 2003 and June 30, 2002,
respectively.
Diluted earnings per share excluded 46.4 million and 0.3 million
shares related to options for the fiscal second quarter ended June
29, 2003 and June 30, 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.
The following is a reconciliation of basic net earnings per share
to diluted net earnings per share for the fiscal six months ended
June 29, 2003 and June 30, 2002.
(Shares in Millions)
Fiscal Six Months Ended
June 29, June 30,
2003 2002
Basic net earnings per share $ 1.11 1.15
Average shares outstanding - basic 2,967.9 3,022.2
Potential shares exercisable under
stock option plans 177.9 199.5
Less: shares which could be repurchased
under treasury stock method (145.5) (149.2)
Convertible debt shares 14.9 14.4
Adjusted average shares
outstanding - diluted 3,015.2 3,086.9
Diluted earnings per share $ 1.09 1.13
Diluted earnings per share calculation included the dilution
effect of convertible debt that was offset by the related decrease
in interest expense of $7 million after tax each for the first
fiscal six months ended June 29, 2003 and June 30, 2002,
respectively.
Diluted earnings per share excluded 46.3 million and 0.3 million
shares related to options for the first fiscal six months ended
June 29, 2003 and June 30, 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.
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NOTE 8 - ACCUMULATED OTHER COMPREHENSIVE INCOME
The total comprehensive income for the first fiscal six months
ended June 29, 2003 was $3,433 million, compared with $3,366
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 Six Months
Gains/(Losses)
Net change associated
to current period hedging
transactions - - - (224)
Net amount reclassed to
net earnings - - - 166*
Net Six Months
Gains/(Losses) 193 17 - (58) 152
June 29, 2003 $ (514) 15 (33) (158) (690)
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.
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NOTE 9 - MERGERS & ACQUISITIONS
On January 29, 2003, Johnson & Johnson acquired certain assets of
Orquest, Inc., a privately held biotechnology company focused on
developing biologically based implants for orthopedic and spine
surgery. Orquest's principal product, HEALOST Bone Graft
Substitute, 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, ARESTINT, is the first locally
administered, time-released antibiotic encapsulated in
microspheres that effectively controls the germs that can cause
periodontal disease. The transaction was valued at approximately
$85 million, net of cash. The Company incurred a charge for In-
process Research and Development (IPR&D) of approximately $11
million before tax and $8 million after tax.
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
diseases, oncology and inflammation. The transaction was valued
at approximately $88 million, net of cash. The Company incurred
an IPR&D charge of approximately $7 million before and after tax.
On April 17, 2003, Johnson & Johnson acquired the CORTAIDr
brand business, the #3 brand in the anti-itch treatment segment of
the first aid category. The transaction was valued at
approximately $37 million.
On May 9, 2003, Johnson & Johnson acquired Inscope, an
intraluminal multiple clip applier technology. This transaction
was valued at $26 million.
On April 29, 2003, Johnson & Johnson acquired Scios Inc., a
biopharmaceutical company with a marketed product for
cardiovascular disease and research projects focused on auto-
immune diseases. Scios was acquired to strengthen the Company's
business in key therapeutic areas and technology platforms.
Scios' product NATRECORr is a novel agent approved for congestive
heart failure and has several significant advantages over existing
therapies. The transaction was valued at approximately $2.1
billion, net of cash, and the Company incurred a charge for IPR&D
of $730 million before and after tax. On a preliminary basis, the
purchase price was allocated to the tangible and identifiable
intangible assets acquired and liabilities assumed based on their
estimated fair values at the acquisition date. The excess of the
purchase price over the fair values of assets and liabilities
acquired was approximately $440 million and was allocated to
goodwill. The Company expects that substantially all of the
amount allocated to goodwill will not be deductible for tax
purposes.
On June 3, 2003, Johnson & Johnson acquired Link Spine Group,
Inc., a privately owned corporation that will provide the Company
with exclusive worldwide rights to the SB ChariteT Artificial Disc
for the treatment of spine disorders. Under the terms of the
agreement, the Company paid a $325 million upfront payment with
further contingent payments due upon achievement of regulatory and
other milestones and the Company incurred a charge for IPR&D of
$170 million before and after tax. On a preliminary basis, the
purchase price was allocated to the tangible and identifiable
intangible assets acquired and liabilities assumed based on their
estimated fair values at the acquisition date. The excess of the
purchase price over the fair values of assets and liabilities
acquired was approximately $84 million and was allocated to
goodwill. The Company expects that substantially all of the
amount allocated to goodwill will not be deductible for tax
purposes.
The supplemental pro forma information for the current interim
period and the preceeding year per SFAS No. 141, "Business
Combinations" and SFAS No. 142, "Goodwill and Other Intangible
Assets" are not provided as the impact of these aforementioned
acquisitions did not have a material effect on the Company's
results of operations, cash flows or financial position.
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NOTE 10 - PRO FORMA STOCK BASED COMPENSATION
At June 29, 2003, the Company had 26 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) Fiscal Second Quarter
2003 2002
Net income,
as reported 1,210 1,654
Less:
Compensation
expense(1) 90 84
Pro forma 1,120 1,570
Earnings per share:
Basic - as reported $.41 $.55
- pro forma .38 .52
Diluted - as reported $.40 $.54
- pro forma .37 .51
(1) Determined under fair value based method for all awards,
net of tax.
(Dollars in Millions
Except Per Share Data) Fiscal Six Months
2003 2002
Net income,
as reported 3,281 3,488
Less:
Compensation
expense(1) 174 157
Pro forma 3,107 3,331
Earnings per share:
Basic - as reported $1.11 $1.15
- pro forma 1.05 1.10
Diluted - as reported $1.09 $1.13
- pro forma 1.04 1.08
(1) Determined under fair value based method for all awards,
net of tax.
-17-
NOTE 11 - SCIOS DEBT GUARANTEE
In August 2002, Scios Inc. issued $150 million of 5.5% convertible
subordinated notes due August 15, 2009 through a private placement
to qualified institutional buyers. This debt became publicly
traded on January 10, 2002. Upon completion of the
acquisition of Scios Inc. on April 29, 2003, Johnson & Johnson
fully and unconditionally guaranteed these convertible
subordinated notes. In accordance with SEC rules, the
following presents condensed consolidating financial
information for Johnson & Johnson, Scios Inc. (from the date of
acquisition) and all other Johnson & Johnson subsidiaries.
Consolidating Statement of Income
Quarter Ended June 29, 2003
(Dollars in Millions)
Scios Johnson All Other Consolidating
Inc. & Johnson Subsidiaries Adjustments Worldwide
Sales to customers $ 32 - 10,300 - $10,332
Cost of products sold 21 - 2,945 - 2,966
Gross Profit 11 - 7,355 - 7,366
Selling, marketing and
administration expenses 18 199 3,179 - 3,396
Research and development 15 2 1,065 - 1,082
Purchased in-process
research and development 730 - 170 - 900
Interest (income)
expense, net 1 9 (3) - 7
Equity in net
income of subsidiaries - (1,163) - 1,163 -
Other (income)
expense, net (2) (18) (55) - (75)
Corp. allocation - (260) 260 - -
Earnings before provision
for taxes on income (751) 1,231 2,739 (1,163) 2,056
Provision for taxes
on income 1 (21) (826) - (846)
Net earnings (loss) $(750) 1,210 1,913 (1,163) $ 1,210
Consolidating Statement of Income
Quarter Ended June 30, 2002
(Dollars in Millions)
Scios Johnson All Other Consolidating
Inc. & Johnson Subsidiaries Adjustments Worldwide
Sales to customers $ - - 9,073 - $ 9,073
Cost of products sold - - 2,582 - 2,582
Gross Profit - - 6,491 - 6,491
Selling, marketing and
administration expenses - 177 2,840 - 3,017
Research and development - 2 930 - 932
Purchased in-process
research and development - - 189 - 189
Interest (income)
expense, net - (6) (24) - (30)
Equity in net
income of subsidiaries - (1,688) - 1,688 -
Other (income)
expense, net - 5 (50) - (45)
Corp. allocation - (178) 178 - -
Earnings before provision
for taxes on income - 1,688 2,428 (1,688) 2,428
Provision for taxes
on income - (34) (740) - (774)
Net earnings (loss) $ - 1,654 1,688 (1,688) $ 1,654
-18-
Consolidating Statement of Income
Six Months Ended June 29, 2003
(Dollars in Millions)
Scios Johnson All Other Consolidating
Inc. & Johnson Subsidiaries Adjustments Worldwide
Sales to customers $ 32 - 20,122 - $20,154
Cost of products sold 21 - 5,667 - 5,688
Gross Profit 11 - 14,455 - 14,466
Selling, marketing and
administration expenses 18 392 6,239 - 6,649
Research and development 15 4 1,999 - 2,018
Purchased in-process
research and development 730 - 188 - 918
Interest (income)
expense, net 1 11 (5) - 7
Equity in net
income of subsidiaries - (3,278) - 3,278 -
Other (income)
expense, net (2) (22) (88) - (112)
Corp. allocation - (441) 441 - -
Earnings before provision
for taxes on income (751) 3,334 5,681 (3,278) 4,986
Provision for taxes
on income 1 (53) (1,653) - (1,705)
Net earnings (loss) $(750) 3,281 4,028 (3,278) $ 3,281
Consolidating Statement of Income
Six Months Ended June 30, 2002
(Dollars in Millions)
Scios Johnson All Other Consolidating
Inc. & Johnson Subsidiaries Adjustments Worldwide
Sales to customers $ - - 17,816 - $17,816
Cost of products sold - - 5,039 - 5,039
Gross Profit - - 12,777 - 12,777
Selling, marketing and
administration expenses - 356 5,504 - 5,860
Research and development - 3 1,760 - 1,763
Purchased in-process
research and development - - 189 - 189
Interest (income)
expense, net - (12) (60) - (72)
Equity in net
income of subsidiaries - (3,557) - 3,557 -
Other (income)
expense, net - 1 (13) - (12)
Corp. allocation - (353) 353 - -
Earnings before provision
for taxes on income - 3,562 5,044 (3,557) 5,049
Provision for taxes
on income - (74) (1,487) - (1,561)
Net earnings (loss) $ - 3,488 3,557 (3,557) $ 3,488
-19-
Consolidating Balance Sheet
June 29, 2003
(Dollars in Millions)
Scios Johnson All Other Consolidating
Assets Inc. & Johnson Subsidiaries Adjustments Worldwide
Current Assets
Cash and cash equiv. $ 9 80 2,879 - $ 2,968
Marketable securities - - 4,894 - 4,894
Accounts receivable, trade,
less allowances for
doubtful accounts 22 - 6,404 - 6,426
Inventories 13 - 3,667 - 3,680
Other current assets 20 - 3,387 - 3,407
Total Current Assets 64 80 21,231 - 21,375
Property, plant and
equipment, net 20 395 8,649 - 9,064
Intangible assets, net 1,958 16 9,736 - 11,710
Invest. in subsidiaries - 32,522 - (32,522) -
Intercompany loans
receivable 101 - 3,674 (3,775) -
Other assets 232 564 2,708 - 3,504
Total Assets $ 2,375 33,577 45,998 (36,297) $ 45,653
Liabilities and Shareholders' Equity
Current Liabilities
Loans and notes payable 21 2,865 368 - 3,254
Accounts payable 10 260 3,319 - 3,589
Accrued liabilities 51 354 4,089 - 4,494
Accrued salaries, wages,
and commissions 11 15 812 - 838
Taxes on income - 315 346 - 661
Total Current Liabilities 93 3,809 8,934 - 12,836
Intercompany payables - 2,032 1,743 (3,775) -
Other liabilities 731 3,299 4,350 - 8,380
Total Liabilities 824 9,140 15,027 (3,775) 21,216
Shareholders' Equity
Common stock - 3,120 - - 3,120
Other shareholders'
Equity 1,551 21,317 30,971 (32,522) 21,317
Total Shareholders'
Equity 1,551 24,437 30,971 (32,522) 24,437
Total Liabilities and
Shareholders' Equity $ 2,375 33,577 45,998 (36,297) $ 45,653
-20-
Consolidating Balance Sheet
December 29, 2002
(Dollars in Millions)
Scios Johnson All Other Consolidating
Assets Inc. & Johnson Subsidiaries Adjustments Worldwide
Current Assets
Cash and cash equiv. $ - 98 2,796 - $ 2,894
Marketable securities - - 4,581 - 4,581
Accounts receivable, trade,
less allowances for
doubtful accounts - - 5,399 - 5,399
Inventories - - 3,303 - 3,303
Other current assets - 112 2,977 - 3,089
Total Current Assets - 210 19,056 - 19,266
Property, plant and
equipment, net - 359 8,351 - 8,710
Intangible assets, net - 16 9,230 - 9,246
Invest. in subsidiaries - 27,798 - (27,798) -
Intercompany loans
receivable - - 2,947 (2,947) -
Other assets - 525 2,809 - 3,334
Total Assets $ - 28,908 42,393 (30,745) $ 40,556
Liabilities and Shareholders' Equity
Current Liabilities
Loans and notes payable - 1,652 465 - 2,117
Accounts payable - 347 3,274 - 3,621
Accrued liabilities - 233 3,587 - 3,820
Accrued salaries, wages,
commissions - 14 1,167 - 1,181
Taxes on income - 157 553 - 710
Total Current Liabilities - 2,403 9,046 - 11,449
Intercompany payables - 1,707 1,240 (2,947) -
Other liabilities - 2,101 4,309 - 6,410
Total Liabilities - 6,211 14,595 (2,947) 17,859
Shareholders' Equity
Common stock - 3,120 - - 3,120
Other shareholders'
Equity - 19,577 27,798 (27,798) 19,577
Total Shareholders'
Equity - 22,697 27,798 (27,798) 22,697
Total Liabilities and
Shareholders' Equity $ - 28,908 42,393 (30,745) $ 40,556
-21-
Consolidating Statement of Cash Flows
Six Months Ended June 29, 2003
(Dollars in Millions)
Scios Johnson All Other Consolidating
Inc. & Johnson Subsidiaries Adjustments Worldwide
NET CASH FLOWS FROM
OPERATIONS: $ 59 (34) 3,668 - $ 3,693
CASH FLOWS FROM
INVESTING ACTIVITIES:
Additions to property,
plant and equipment (8) (67) (839) - (914)
Proceeds from the
disposal of assets - - 333 - 333
Acquisition of businesses,
net of cash acquired - (2,781) - - (2,781)
Purchases of investments (130) - (2,738) - (2,868)
Sales of investments 131 - 2,449 - 2,580
Net proceeds from
intercompany accounts - 1,410 - (1,410) -
Increase in investment
in subsidiaries - (643) - 643 -
Other - (10) (86) - (96)
NET CASH USED BY
INVESTING ACTIVITIES (7) (2,091) (881) (767) (3,746)
CASH FLOWS FROM
FINANCING ACTIVITIES:
Dividends to shareholders - (1,321) - - (1,321)
Repurchase of common stock - (842) - - (842)
Proceeds from short-
term debt - 1,214 227 - 1,441
Retirement of short-
term debt - (82) (354) - (436)
Proceeds from long-
term debt - 1,000 9 - 1,009
Retirement of long-
term debt (43) - - - (43)
Proceeds from the
exercise of stock options - 195 - - 195
Capital infusion
from subsidiary - 1,943 - (1,943) -
Net capital distributions
from parent - - (1,300) 1,300 -
Net repayments of
intercompany accounts - - (1,410) 1,410 -
NET CASH PROVIDED/(USED)
BY FINANCING ACTIVITIES (43) 2,107 (2,828) 767 3
EFFECT OF EXCHANGE RATE
CHANGES ON CASH AND
CASH EQUIVALENTS - - 124 - 124
INCREASE(DECREASE) IN
CASH AND CASH EQUIVALENTS 9 (18) 83 - 74
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD - 98 2,796 - 2,894
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 9 80 2,879 - $ 2,968
-22-
Consolidating Statement of Cash Flows
Six Months Ended June 30, 2002
(Dollars in Millions)
Scios Johnson All Other Consolidating
Inc. & Johnson Subsidiaries Adjustments Worldwide
NET CASH FLOWS FROM
OPERATIONS: $ - 161 3,332 - $ 3,493
CASH FLOWS FROM
INVESTING ACTIVITIES:
Additions to property,
plant and equipment - (61) (741) - (802)
Proceeds from the
disposal of assets - - 128 - 128
Acquisition of businesses,
net of cash acquired - (466) - - (466)
Purchases of investments - - (3,126) - (3,126)
Sales of investments - - 3,942 - 3,942
Net proceeds from
intercompany accounts - 1,876 - (1,876) -
Decrease in investment
In subsidiaries - 12 - (12) -
Other - 163 (376) - (213)
NET CASH USED BY
INVESTING ACTIVITIES - 1,524 (173) (1,888) (537)
CASH FLOWS FROM
FINANCING ACTIVITIES:
Dividends to shareholders - (1,163) - - (1,163)
Repurchase of common stock - (5,255) - - (5,255)
Proceeds from short-
term debt - 1,912 277 - 2,189
Retirement of short-
term debt - - (219) - (219)
Proceeds from long-
term debt - - 20 - 20
Retirement of long-
term debt - - (16) - (16)
Proceeds from the
exercise of stock options - 227 - - 227
Capital infusion from
Subsidiary - 1,488 - (1,488) -
Net capital distributions
to parent - - (1,500) 1,500 -
Net repayments of
intercompany accounts - - (1,876) 1,876 -
NET CASH PROVIDED/(USED)
BY FINANCING ACTIVITIES - (2,791) (3,314) 1,888 (4,217)
EFFECT OF EXCHANGE RATE
CHANGES ON CASH AND
CASH EQUIVALENTS - - 109 - 109
INCREASE(DECREASE) IN
CASH AND CASH EQUIVALENTS - (1,106) (46) - (1,152)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD - 1,183 2,575 - 3,758
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ - 77 2,529 - $ 2,606
-23-
NOTE 12 - 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
Consolidated sales for the first fiscal six months of 2003 were
$20.2 billion, exceeding sales for the first fiscal six months of
2002 of $17.8 billion by 13.1%, with 8.5% of the growth from
operations, and the remaining 4.6% due to a positive currency
impact.
Domestic sales for the first fiscal six months of 2003 were
$12.1 billion, an increase of 9.0% over 2002 domestic sales of
$11.1 billion for the same period a year ago. Sales of
international subsidiaries grew to $8.0 billion, an increase of
19.9% over the same period a year ago, with operational sales
growth accounting for 7.6% of the reported growth and 12.3% due to
the positive impact of currency.
For the fiscal second quarter of 2003, worldwide sales were $10.3
billion, an increase of 13.9% over 2002 fiscal second quarter
sales of $9.1 billion with 8.9% of the growth from operations, and
5.0% of the reported growth due to the positive impact of
currency. Sales by domestic companies were $6.1 billion in the
fiscal second quarter of 2003, which represented an increase of
9.2%. International sales were $4.2 billion, which represented a
total increase of 21.5% over the same period a year ago, with 8.4%
of the growth from operations and the remaining 13.1% due to a
positive currency impact.
For geographic areas throughout the world, sales increased 27.4%
in Europe, 17.9% in Asia-Pacific/Africa, and 6.5% in the Western
Hemisphere (excluding the U.S.) for the fiscal second quarter
2003.
Consumer segment sales in the quarter were $1.8 billion, an
increase of 10.3% over the same period a year ago with 6.4% of the
increase resulting from operational growth and a positive currency
impact of 3.9%. Domestic sales increased by 2.6% over the same
period a year ago, with international sales gains of 19.7%
consisting of an operational sales growth of 11.1% and a positive
currency impact of 8.6%.
Consumer sales achieved strong growth in skin care products led
by the AVEENOr brand. SPLENDAr, the no-calorie sweetener, had
positive growth in both the ingredient business and the tabletop
category. The Wound Care franchise continues to be a positive
contributor to the overall results in the Consumer segment.
LIQUID BANDAGET continues to show strong growth in the U.S., while
the COMPEEDr foot care line is a key growth driver outside the
U.S. During the second quarter of 2003, the Consumer Wound Care
franchise acquired the CORTAIDr anti-itch brand business from
Pharmacia. The transaction was valued at approximately $37
million.
Pharmaceutical segment sales in the quarter were $4.9 billion,
an increase of 14.7% over the same period a year ago with 10.1% of
this change due to operational growth and the remaining 4.6%
increase related to the positive impact of currency. The domestic
Pharmaceutical sales increase was 11.7%. International
Pharmaceutical sales increased 21.3% which included 6.6% growth
operationally, and 14.7% related to the positive impact of
currency. Sales growth reflects the strong performance of
RISPERDALr, an antipsychotic medication; TOPAMAXr, an anti-
epileptic medication; DURAGESICr, a transdermal patch for chronic
pain; ACIPHEX/PARIETr, a proton pump inhibitor that is co-marketed
with Eisai; REMICADEr, a treatment for rheumatoid arthritis and
Crohn's disease; LEVAQUINr, an anti-infective treatment, and ORTHO-
EVRAr, a contraceptive patch.
-24-
PROCRITr (epoetin alfa) sales have declined due to the entry of a
new competitor. The Company's positioning on PROCRIT continues to
focus on its clinical benefits. EPREXr (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 administered subcutaneously. The Company implemented steps
to ensure that health care providers use the safest method of
administering EPREX. Actions taken include a label change
recommending intravenous versus subcutaneous dosing for CRF
patients and the education of health care providers and patients
in the proper handling of EPREX to preserve product integrity..
The data suggests that the incidence rate of PRCA has stabilized.
During the second quarter of 2003, Johnson & Johnson acquired
Scios Inc., a biopharmaceutical company with a marketed product
for cardiovascular disease and research projects focused on auto-
immune diseases. Scios was acquired to strengthen the Company's
business in key therapeutic areas and technology platforms.
Scios' product NATRECORr is a novel agent approved for congestive
heart failure and has several significant advantages over existing
therapies. The transaction was valued at approximately $2.1
billion, net of cash, and the Company incurred a charge for IPR&D
of $730 million before and after tax. On a preliminary basis, the
purchase price was allocated to the tangible and identifiable
intangible assets acquired and liabilities assumed based on their
estimated fair values at the acquisition date. The excess of the
purchase price over the fair values of assets and liabilities
acquired was approximately $440 million and was allocated to
goodwill.
The Company also received U.S. Food and Drug Administration (FDA)
approval for the use of LEVAQUIN in the treatment of chronic
bacterial prostatitis.
Medical Devices & Diagnostics (MD&D) segment worldwide sales
for the fiscal second quarter of 2003 were $3.6 billion,
representing an increase of 14.6% over the same period a year ago
with operational sales growth of 8.5% and a positive currency
impact of 6.1%. Domestic sales were up 8.3% and the international
sales increase of 22.6% over the same period a year ago included a
solid 8.8% operational growth, and a positive currency impact of
13.8%.
Strong sales growth was achieved in several franchises within
the MD&D segment. The DePuy franchise had success with the joint
reconstruction product line, strong double-digit growth in the
spine category, and Mitek line of sports medicine products.
Ethicon Endo-Surgery, Inc. also reported solid growth with key
drivers from the endoscopy and mechanical business, particularly
the endocutter product line, used in performing bariatric
procedures.
During the fiscal second quarter of 2003, Cordis Corporation
received approval from the FDA to market the CYPHERT Sirolimus-
eluting Coronary Stent, making it the first U.S. approved
combination drug and device intended to help reduce restenosis or
reblockage of a treated coronary artery. Cordis shipped the
product immediately after approval with the objective of providing
access to patients and customers as quickly as possible. The
demand for the CYPHER product has exceeded supply, and the Company
is currently working to improve manufacturing yield to ensure that
all orders are filled promptly.
Also during the fiscal second quarter of 2003, Johnson & Johnson
acquired Link Spine Group, Inc., a privately owned corporation
that will provide the Company with exclusive worldwide rights to
the SB ChariteT Artificial Disc for the treatment of spine
disorders. Under the terms of the agreement, the Company paid a
$325 million upfront payment with further contingent payments due
upon achievement of regulatory and other milestones and the
Company incurred a charge for IPR&D of approximately $170 million
before and after tax. On a preliminary basis, the purchase price
was allocated to the tangible and identifiable intangible assets
acquired and liabilities assumed based on their estimated fair
values at the acquisition date. The excess of the purchase price
over the fair values of assets and liabilities acquired was
approximately $84 million and was allocated to goodwill.
On May 9, 2003, Johnson & Johnson acquired Inscope, an
intraluminal multiple clip applier technology. This transaction
was valued at $26 million.
In May of 2003, Ethicon-Endo Surgery completed the divestiture of
the Vascular Access product line to Medex Inc., to better align
its product portfolio with its principal area of focus.
-25-
Gross Profit
Gross profit margin for the fiscal second quarter of 2003 declined
0.3% to 71.3% versus the fiscal second quarter of 2002 while the
gross profit margin for the first fiscal six months of 2003
improved to 71.8%, an increase of 0.1% from the first fiscal six
months of 2002. Gross profit margin reflects the impact of
continued cost improvements and efficiencies as well as the impact
of the mix of products within the Pharmaceutical segment.
Selling, Marketing and Administrative Expenses
Selling, marketing and administrative (SM&A) expenses for the
fiscal second quarter of 2003 increased 12.6% over the second
fiscal quarter of 2002 and increased 13.5% for the first fiscal
six months of 2003 over the same period a year ago. These
increases are primarily due to increases in advertising, marketing
and selling expenses. The SM&A expenses as a percent to sales
remained relatively unchanged for the fiscal second quarter and
first fiscal six months of 2003 as compared to the equivalent
periods a year ago.
In-Process Research & Development
In the fiscal second quarter of 2003, the Company recorded In-
process Research & Development (IPR&D) charges of $900 million
before and after tax related to acquisitions. These acquisitions
included Scios Inc., and the Link Spine Group, Inc. Scios Inc.,
is a biopharmaceutical company with a marketed product for
cardiovascular disease and research projects focused on auto-
immune diseases. The acquisition of Scios Inc. accounted for $730
million before and after tax of the IPR&D charges incurred in the
fiscal second quarter of 2003. Link Spine Group, Inc., was
acquired to provide the Company with exclusive worldwide rights to
the SB Charite Artificial Disc for the treatment of spine
disorders. The acquisition of Link Spine Group, Inc. accounted
for $170 million before and after tax of the IPR&D charges
incurred in the fiscal second quarter of 2003.
In the fiscal first quarter of 2003, the Company recorded IPR&D
charges of $18 million before tax and $15 million after tax
related to acquisitions. These acquisitions included Orquest,
Inc., and 3-Dimensional Pharmaceuticals, Inc. Orquest, Inc., is a
biotechnology company focused on developing biologically-based
implants for orthopedic spine surgery. The acquisition of
Orquest, Inc. accounted for $11 million before tax and $8 million
after tax of the IPR&D charges incurred in the fiscal first
quarter of 2003. 3-Dimensional Pharmaceuticals, Inc., is 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 acquisition of 3-Dimensional Pharmaceuticals,
Inc. accounted for $7 million before and after tax of the IPR&D
charges incurred in the fiscal first quarter of 2003.
Interest (Income) Expense
Interest income decreased in both the fiscal second quarter and
fiscal six months of 2003 as compared to the same periods a year
ago. The decrease is due primarily to the continuing decline in
U.S. interest rates. Interest expense remained relatively
constant for both the fiscal second quarter and first fiscal six
months of 2003 as compared to the same periods a year ago despite
the increase in debt associated with the acquisition of Scios
Inc., due to lower interest rates.
Other (Income) Expense, Net
Other (income) expense included gains and losses related to the
sale and write-down of certain equity securities of 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 $30 million for the fiscal second quarter of 2003 as
compared to the fiscal second quarter of 2002 was due primarily to
the sale of the Vascular Access product line. Additionally, the
favorable change of $100 million for the first fiscal six months
of 2003 as compared to the same period a year ago was due
primarily to a lower level of non-recurring expenses in 2003.
-26-
Earnings Before Provision for Taxes on Income
Consolidated earnings before provision for taxes on income
decreased in both the fiscal second quarter and fiscal six months
of 2003 by 15.3% and 1.2%, respectively. The $372 million
decrease in earnings before provision for taxes for the fiscal
second quarter of 2003 as compared to the same period a year ago
was due to a $711 million increase in IPR&D charges. The $63
million decrease in earnings before provision for taxes for the
first fiscal six months of 2003 as compared to the same period a
year ago was due to a $729 million increase in IPR&D charges.
Refer to Note 9 of the Notes to Consolidated Financial Statements
for further detail on these acquisitions.
Operating Profit by Segment
The Consumer segment operating profit increased in both the fiscal
second quarter and first fiscal six months of 2003 by 9.7% and
19.9%, respectively. These improvements were due primarily to
volume growth, leveraging of selling, promotion and administrative
expenses offset by increases in advertising.
The Pharmaceutical segment operating profit decreased in both
the fiscal second quarter and first fiscal six months of 2003 by
30.8% and 8.9%, respectively. The Pharmaceutical segment
operating profit was negatively impacted in both periods by the
IPR&D charges incurred in connection with the acquisition of Scios
Inc. and an increase in spending related to a sales force
expansion.
The Medical Devices and Diagnostics segment operating profit
increased in both the fiscal second quarter and first fiscal six
months of 2003 by 19.0% and 14.2%, respectively. These
improvements were due primarily to volume growth offset by IPR&D
charges incurred in connection with the acquisition of Link Spine
Group, Inc.
The increase in expenses not allocated to segments for both the
fiscal second quarter and first fiscal six months of 2003 was due
primarily to financing expenses as discussed previously in the
Interest (Income) Expense section.
Provision For Taxes on Income
The effective income tax rates for the first fiscal six months of
2003 and 2002 were 34.2% and 30.9%, 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. The
increase in the tax rate from prior year is due to the acquisition
related In-process Research and Development charges, which are
non-deductible for tax purposes.
Net Income and Earnings Per Share
Worldwide net earnings and earnings per share for the fiscal
second quarter of 2003 were $1.2 billion and $0.40 per share,
respectively, representing a decline of 26.8% and 25.9%,
respectively versus the same period a year ago. For the first
fiscal six months of 2003, worldwide net earnings and earnings per
share were $3.3 billion and $1.09 per share, respectively,
representing a decline of 5.9% and 3.5%, respectively versus the
same period a year ago. Net earnings and earnings per share
decrease in both the fiscal second quarter and first fiscal six
months is due to an increase in IPR&D charges incurred in
conjunction with acquisitions.
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 $7.9 billion at the end of the first
fiscal six months of 2003 as compared with $7.5 billion at year-
end 2002.
Capital Expenditures
Additions to property, plant and equipment were $914 million for
the first fiscal six months of 2003, compared with $802 million
for the same period in 2002.
-27-
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 $5.1 billion or 12.6% in the first fiscal
six months of 2003 versus year-end 2002. Net intangible assets in
the first six months of 2003 increased 26.6% over year-end 2002
and represented 25.7% of total assets versus 22.8% of total assets
at year-end 2002. The increase was primarily due to intangible
assets associated with acquisitions. Net property, plant and
equipment increased to $9.1 billion or 4.1% and represented 19.9%
of total assets versus 21.5% of total assets at year-end 2002.
Shareholders' equity per share at the end of the first fiscal six
months of 2003 was $8.23 compared with $7.65 at year-end 2002, an
increase of 7.6%.
Financing & Market Risk
Total borrowings at the end of the first fiscal six months of 2003
were $6.4 billion, an increase of $2.3 billion from year-end 2002.
The increase was due primarily to the acquisition of Scios Inc. as
the Company issued approximately $1.1 billion of short-term
commercial paper, and $1.1 billion of long-term debt during the
fiscal second quarter of 2003. For the first fiscal six months of
2003, net cash (cash and current marketable securities net of
debt) was $1.4 billion. At year-end 2002, net cash (cash and
current marketable securities net of debt) was $3.3 billion. Total
debt represented 20.8% of total capital (shareholders' equity and
total debt) for the first fiscal six months of 2003 and 15.4% of
total capital at year-end 2002. As of June 29, 2003, there were no
material cash commitments.
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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 fiscal second quarter and fiscal six
months 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. 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.
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 has not
had a material effect on the Company's results of operations, cash
flows or financial position.
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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. In furtherance of that discussion, the Company
notes that pending Federal Legislation, including Medicare drug
coverage legislation, a drug importation bill and amendments to
the Hatch-Waxman Act, 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
Disclosure Controls and Procedures. At the end of the fiscal
second quarter of 2003, 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 over financial reporting or in other
factors that could materially affect, or is reasonably likely to
materially affect, those controls, including any corrective
actions with regard to significant deficiencies and material
weaknesses.
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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 PROPULSID, in state and federal
courts across the country. There are approximately 509 such cases
currently pending, including the claims of approximately 6,100
plaintiffs. In the active cases, 456 individuals 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
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 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 was 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. 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.
-31-
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 that 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. In early June
2003, an arbitration panel in Chicago, in a preliminary ruling,
found in favor of Cordis in its arbitration against ACS/Guidant
involving infringement by ACS/Guidant of a Cordis stent patent. On
or before August 19, 2003, the panel will rule on ACS/Guidant's
further challenge to that preliminary ruling. If the panel adheres
to its ruling, ACS/Guidant is obligated 90 days thereafter to make
a one time payment of $425 million to Cordis in satisfaction if
its obligations under the arbitration agreement. No continuing
royalties and no injunction are
Involved.
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 of 2003.
Boston Scientific Corporation (BSC) v. Cordis Corporation: This
action, filed in Delaware federal court in March of 2003, asserts
that the CYPHERT drug-eluting stent infringes several patents
assigned to BSC. BSC seeks damages and a permanent injunction and
in addition has moved for a preliminary injunction, a hearing on
which was held in late July of 2003. Medinol Ltd. v. Cordis
Europa NV (Netherlands) and Medinol Ltd. v. Cordis Holding Belgium
BVBA and Janssen Pharmaceutica NV (Belgium): On July 3, 2003 the
Appeal Court of the Hague overturned a lower court and granted
Medinol, an Israeli stent manufacturer, a preliminary injunction
based on patent infringement prohibiting Cordis from making or
selling the BX Velocity and CYPHER stents in the Netherlands.
Cordis has moved to block the effect of the injunction but, even
if it were to become effective, it is not expected to
significantly affect sales outside the Netherlands, which is a
small market. In Belgium, Medinol has filed a patent infringement
suit based on the same patent it asserted in the Netherlands, and
moved for a preliminary injunction prohibiting the defendants from
making or
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selling the BX Velocity and CYPHER stents there. Cordis currently
uses a Janssen Pharmaceutica facility in Belgium to coat CYPHER
stents with SIROLIMUS principally for the ex-US market. A hearing
on Medinol's preliminary injunction motion in Belgium is currently
scheduled for October. Because of the availability of other
coating facilities outside Belgium and the likely availability of
different stent architecture for use with Sirolimus in Europe,
Medinol's actions in the Netherlands and Belgium, even if
ultimately successful, are not expected significantly to disrupt
sales in Europe of the CYPHER product.
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 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 Pharmaceutica, Inc. and ALZA Corporation 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 late 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 Corporation 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.
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On June 26, 2003, the Company received a request for records
and information from the U.S. House of Representatives' Committee
on Energy and Commerce in connection with its investigation into
pharmaceutical reimbursements and rebates under Medicaid. The
Committee's request focuses on the drug REMICADEr (infliximab),
marketed by the Company's Centocor, Inc. subsidiary. On July 2,
2003, Centocor received a request that it voluntarily provide
documents and information to the criminal division of the U.S.
Attorney's Office, District of New Jersey, in connection with its
investigation into various Centocor marketing practices. Both the
Company and Centocor are responding to these requests for
documents and information.
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.
-34-
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The annual meeting of the shareholders of the Company was
held on April 24, 2003.
(b) The shareholders elected all the Company's nominees for
director. The shareholders also approved the appointment of
PricewaterhouseCoopers LLP as the Company's independent auditors
for the fiscal year 2003.
1. Election of Directors:
Shares For Shares Withheld
G.N. Burrow 2,400,791,409 28,696,977
J.G. Cullen 2,316,670,236 112,818,150
R.J. Darretta 2,401,539,556 27,948,830
M.J. Folkman 2,269,079,196 160,409,190
A.D. Jordan 2,400,705,947 28,782,439
A.G. Langbo 2,316,480,480 113,007,906
J.T. Lenehan 2,401,471,830 28,016,556
L.F. Mullin 2,315,905,237 113,583,149
H.B. Schacht 2,313,640,140 115,848,246
W.C. Weldon 2,391,189,528 38,298,858
D. Satcher 2,401,681,903 27,806,483
2. Approval for Appointment of PricewaterhouseCoopers LLP:
For 2,262,552,403
Against 145,780,086
Abstain 21,155,897
ITEM 5 - OTHER INFORMATION
After a remand from the Federal Circuit Court of Appeals in
January 2003, a partial retrial was recently scheduled for October
in Boston, Massachusetts in the action Amgen v. Transkaryotic
Therapies, Inc. (TKT) and Aventis Pharmaceutical, Inc. TKT, the
developer of a gene-activated EPO product, and Aventis, which
holds marketing rights to the TKT product, dispute infringement
and are seeking to invalidate the Amgen patents asserted against
them, which patents are exclusively licensed to Ortho Biotech in
the U.S. for non-dialysis indications. Ortho Biotech is not a
party to the action and is not in a position to express views as
to its probable outcome.
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ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 31 - Certifications Pursuant to Rule 13a-14 Under
the Securities Exchange Act of 1934
Exhibit 32 - 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 16, 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 ended March 30, 2003.
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.
A report on Form 8-K was filed on July 18, 2003, which
included the Press Release for the period ended June 29,
2003. Also included in this filing are the unaudited
comparative supplementary sales data and condensed
consolidated statement of earnings for the fiscal second
quarter and six month period ended June 29, 2003.
-36-
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: August 11, 2003 By /s/ R. J. DARRETTA
R. J. DARRETTA
Executive Vice President and
Chief Financial Officer
Date: August 11, 2003 By /s/ S. J. COSGROVE
S. J. COSGROVE
Controller
(Chief Accounting Officer)
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