(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. (X) Yes ( )No
Indicate by
check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted
and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post
such files). ( ) Yes ( ) No
Indicate by
check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See definitions
of “large accelerated filer”, “accelerated filer” and “smaller reporting
company” in Rule 12b-2 of the Exchange Act. Large accelerated filer
(X)Accelerated filer ( ) Non-accelerated filer ( ) Smaller
reporting company ( )
Indicate by
check mark whether the registrant is a shell company (as defined in Rule 12b-2
of the Exchange
Act). ( )
Yes(X) No
Indicate the
number of shares outstanding of each of the issuer's classes of common stock, as
of the latest practicable date.
On April 26,
2009 2,755,565,766 shares of Common Stock, $1.00 par value, were
outstanding.
JOHNSON
& JOHNSON AND SUBSIDIARIES
TABLE
OF CONTENTS
Part
I - Financial Information
|
Page
No.
|
|
|
Item
1. Financial Statements (unaudited)
|
|
|
|
Consolidated
Balance Sheets - March 29, 2009 and December 28,
2008
|
4
|
|
|
Consolidated
Statements of Earnings for the Fiscal First Quarters Ended March
29, 2009 and March 30, 2008
|
6
|
|
|
Consolidated
Statements of Cash Flows for the Fiscal First Quarters
Ended March 29, 2009 and March 30, 2008
|
7
|
|
|
Notes
to Consolidated Financial Statements
|
9
|
|
|
Item
2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
|
32
|
|
|
Item
3. Quantitative and Qualitative Disclosures About Market
Risk
|
42
|
|
|
Item
4. Controls and Procedures
|
42
|
|
|
Part
II - Other Information
|
|
|
|
Item
1 - Legal Proceedings
|
43
|
|
|
Item
2 – Unregistered Sales of Equity Securities and Use
of Proceeds
|
43
|
|
|
Item
4 - Submission of Matters to a Vote of Security Holders |
44
|
|
|
Item
6 - Exhibits
|
44
|
|
|
Signatures
|
45
|
Part I -
FINANCIAL INFORMATION
Item 1 –
FINANCIAL STATEMENTS
JOHNSON
& JOHNSON AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
(Unaudited;
Dollars in Millions)
ASSETS
|
|
March
29, 2009
|
|
|
December
28, 2008
|
|
Current
assets:
|
|
|
|
|
|
|
Cash
& cash equivalents
|
|
$ |
12,589 |
|
|
$ |
10,768 |
|
Marketable
securities
|
|
|
1,344 |
|
|
|
2,041 |
|
Accounts
receivable, trade, less allowances for doubtful accounts
$286
(2008,$268)
|
|
|
9,831 |
|
|
|
9,719 |
|
Inventories
(Note 4)
|
|
|
5,359 |
|
|
|
5,052 |
|
Deferred
taxes on income
|
|
|
2,342 |
|
|
|
3,430 |
|
Prepaid
expenses and other receivables
|
|
|
3,374 |
|
|
|
3,367 |
|
Total
current assets
|
|
|
34,839 |
|
|
|
34,377 |
|
Marketable
securities, non-current
|
|
|
17 |
|
|
|
4 |
|
Property,
plant and equipment at cost
|
|
|
27,521 |
|
|
|
27,392 |
|
Less:
accumulated depreciation
|
|
|
(13,268 |
) |
|
|
(13,027 |
) |
Property,
plant and equipment, net
|
|
|
14,253 |
|
|
|
14,365 |
|
Intangible
assets, net (Note 5)
|
|
|
14,840 |
|
|
|
13,976 |
|
Goodwill,
net (Note 5)
|
|
|
14,083 |
|
|
|
13,719 |
|
Deferred
taxes on income
|
|
|
5,479 |
|
|
|
5,841 |
|
Other
assets
|
|
|
2,589 |
|
|
|
2,630 |
|
Total
assets
|
|
$ |
86,100 |
|
|
$ |
84,912 |
|
See Notes
to Consolidated Financial Statements
JOHNSON
& JOHNSON AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
(Unaudited;
Dollars in Millions)
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
|
March
29, 2009
|
|
|
December
28, 2008
|
|
Current
liabilities:
|
|
|
|
|
|
|
Loans
and notes payable
|
|
$ |
6,022 |
|
|
$ |
3,732 |
|
Accounts
payable
|
|
|
6,395 |
|
|
|
7,503 |
|
Accrued
liabilities
|
|
|
4,561 |
|
|
|
5,531 |
|
Accrued
rebates, returns and promotions
|
|
|
2,489 |
|
|
|
2,237 |
|
Accrued
salaries, wages and commissions
|
|
|
1,153 |
|
|
|
1,432 |
|
Accrued
taxes on income
|
|
|
705 |
|
|
|
417 |
|
Total
current liabilities
|
|
|
21,325 |
|
|
|
20,852 |
|
Long-term
debt
|
|
|
8,052 |
|
|
|
8,120 |
|
Deferred
taxes on income
|
|
|
1,487 |
|
|
|
1,432 |
|
Employee
related obligations
|
|
|
7,297 |
|
|
|
7,791 |
|
Other
liabilities
|
|
|
4,148 |
|
|
|
4,206 |
|
Total
liabilities
|
|
|
42,309 |
|
|
|
42,401 |
|
Shareholders’
equity:
|
|
|
|
|
|
|
|
|
Common
stock – par value $1.00 per share (authorized 4,320,000,000 shares; issued
3,119,843,000 shares)
|
|
|
3,120 |
|
|
|
3,120 |
|
Accumulated
other comprehensive income (Note 8)
|
|
|
(5,169 |
) |
|
|
(4,955 |
) |
Retained
earnings
|
|
|
65,398 |
|
|
|
63,379 |
|
Less:
common stock held in treasury, at cost (360,892,000 and 350,665,000
shares)
|
|
|
19,558 |
|
|
|
19,033 |
|
Total
shareholders’ equity
|
|
|
43,791 |
|
|
|
42,511 |
|
Total
liabilities and shareholders’ equity
|
|
$ |
86,100 |
|
|
$ |
84,912 |
|
See Notes
to Consolidated Financial Statements
JOHNSON
& JOHNSON AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF EARNINGS
(Unaudited;
dollars & shares in millions
except
per share amounts)
|
|
Fiscal
Quarters Ended
|
|
|
|
March
29, 2009
|
|
|
Percent
to Sales
|
|
|
March
30, 2008
|
|
|
Percent
to Sales
|
|
Sales
to customers (Note 6)
|
|
$ |
15,026 |
|
|
|
100.0 |
% |
|
$ |
16,194 |
|
|
|
100.0 |
% |
Cost
of products sold
|
|
|
4,251 |
|
|
|
28.3 |
|
|
|
4,614 |
|
|
|
28.5 |
|
Gross
profit
|
|
|
10,775 |
|
|
|
71.7 |
|
|
|
11,580 |
|
|
|
71.5 |
|
Selling,
marketing and
administrative
expenses
|
|
|
4,608 |
|
|
|
30.7 |
|
|
|
5,123 |
|
|
|
31.6 |
|
Research
expense
|
|
|
1,518 |
|
|
|
10.1 |
|
|
|
1,712 |
|
|
|
10.6 |
|
Interest
income
|
|
|
(25 |
) |
|
|
(0.2 |
) |
|
|
(82 |
) |
|
|
(0.5 |
) |
Interest
expense, net of portion capitalized
|
|
|
106 |
|
|
|
0.7 |
|
|
|
98 |
|
|
|
0.6 |
|
Other
(income) expense, net
|
|
|
(75 |
) |
|
|
(0.5 |
) |
|
|
(18 |
) |
|
|
(0.1 |
) |
Earnings
before provision for taxes on income
|
|
|
4,643 |
|
|
|
30.9 |
|
|
|
4,747 |
|
|
|
29.3 |
|
Provision
for taxes on income (Note 3)
|
|
|
1,136 |
|
|
|
7.6 |
|
|
|
1,149 |
|
|
|
7.1 |
|
NET
EARNINGS
|
|
$ |
3,507 |
|
|
|
23.3 |
% |
|
$ |
3,598 |
|
|
|
22.2 |
% |
`
NET
EARNINGS PER SHARE (Note 7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
1.27 |
|
|
|
|
|
|
$ |
1.27 |
|
|
|
|
|
Diluted
|
|
$ |
1.26 |
|
|
|
|
|
|
$ |
1.26 |
|
|
|
|
|
CASH
DIVIDENDS PER SHARE
|
|
$ |
0.460 |
|
|
|
|
|
|
$ |
0.415 |
|
|
|
|
|
AVG.
SHARES OUTSTANDING
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
2,765.9 |
|
|
|
|
|
|
|
2,832.3 |
|
|
|
|
|
Diluted
|
|
|
2,789.8 |
|
|
|
|
|
|
|
2,866.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes
to Consolidated Financial Statements
JOHNSON
& JOHNSON AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Unaudited;
Dollars in Millions)
|
|
Fiscal
Quarters Ended
|
|
|
|
March
29, 2009
|
|
|
March
30, 2008
|
|
CASH
FLOW FROM OPERATING ACTIVITIES |
|
|
|
|
|
|
|
|
Net
earnings
|
|
$ |
3,507 |
|
|
$ |
3,598 |
|
Adjustment
to reconcile net earnings to cash flows from operating
activities:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization of property and intangibles
|
|
|
676 |
|
|
|
666 |
|
Stock
based compensation
|
|
|
159 |
|
|
|
163 |
|
Decrease/(Increase)
in deferred tax provision
|
|
|
1,212 |
|
|
|
(27 |
) |
Accounts
receivable allowances
|
|
|
22 |
|
|
|
12 |
|
Changes
in assets and liabilities, net of effects from
acquisitions:
|
|
|
|
|
|
|
|
|
Increase
in accounts receivable
|
|
|
(86 |
) |
|
|
(517 |
) |
Increase
in inventories
|
|
|
(336 |
) |
|
|
(259 |
) |
Decrease
in accounts payable and
accrued liabilities
|
|
|
(2,155 |
) |
|
|
(273 |
) |
Increase
in other current and non-current assets
|
|
|
(39 |
) |
|
|
(1,112 |
) |
(Decrease)/Increase
in other current and non-current liabilities
|
|
|
(133 |
) |
|
|
985 |
|
NET
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
2,827 |
|
|
|
3,236 |
|
CASH
FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
Additions
to property, plant and equipment
|
|
|
(435 |
) |
|
|
(479 |
) |
Proceeds
from the disposal of assets
|
|
|
6 |
|
|
|
34 |
|
Acquisitions,
net of cash acquired
|
|
|
(1,291 |
) |
|
|
(8 |
) |
Purchases
of investments
|
|
|
(1,440 |
) |
|
|
(436 |
) |
Sales
of investments
|
|
|
2,150 |
|
|
|
1,363 |
|
Other
|
|
|
(66 |
) |
|
|
(22 |
) |
NET
CASH (USED BY) FROM INVESTING ACTIVITIES
|
|
|
(1,076 |
) |
|
|
452 |
|
CASH
FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Dividends
to shareholders
|
|
|
(1,273 |
) |
|
|
(1,174 |
) |
Repurchase
of common stock
|
|
|
(834 |
) |
|
|
(1,779 |
) |
Proceeds
from short-term debt
|
|
|
3,276 |
|
|
|
2,037 |
|
Retirement
of short-term debt
|
|
|
(1,057 |
) |
|
|
(448 |
) |
Proceeds
from long-term debt
|
|
|
2 |
|
|
|
- |
|
Retirement
of long-term debt
|
|
|
(9 |
) |
|
|
(2 |
) |
Proceeds
from the exercise of stock
options/excess
tax benefits
|
|
|
27 |
|
|
|
256 |
|
|
|
|
|
|
|
|
|
|
NET
CASH FROM (USED BY) FINANCING ACTIVITIES
|
|
|
132 |
|
|
|
(1,110 |
) |
Effect
of exchange rate changes on cash and cash equivalents
|
|
|
(62 |
) |
|
|
191 |
|
Increase
in cash and cash equivalents
|
|
|
1,821 |
|
|
|
2,769 |
|
Cash
and Cash equivalents, beginning of period
|
|
|
10,768 |
|
|
|
7,770 |
|
CASH
AND CASH EQUIVALENTS, END OF PERIOD
|
|
$ |
12,589 |
|
|
$ |
10,539 |
|
|
|
|
|
|
|
|
|
|
Acquisitions
|
|
|
|
|
|
|
|
|
Fair
value of assets acquired
|
|
$ |
1,519 |
|
|
$ |
10 |
|
Fair
value of liabilities assumed
|
|
|
(228 |
) |
|
|
(2 |
) |
Net
cash paid for acquisitions
|
|
$ |
1,291 |
|
|
$ |
8 |
|
See Notes
to Consolidated Financial Statements
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -
The accompanying unaudited interim consolidated financial statements and related
notes should be read in conjunction with the audited Consolidated Financial
Statements of Johnson & Johnson and its Subsidiaries (the "Company") and
related notes as contained in the Company’s Annual Report on Form 10-K for the
fiscal year ended December 28, 2008. 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 statement of the
results for the periods presented.
During
the fiscal first quarter of 2009, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 141(R), Business
Combinations, and No. 160, Noncontrolling Interests in
Consolidated Financial Statements. These statements aim to improve,
simplify, and converge internationally, the accounting for business combinations
and the reporting of noncontrolling interests in consolidated financial
statements. These statements have a significant impact on the
manner in which the Company accounts for acquisitions beginning in the fiscal
year 2009. Significant changes include the capitalization of in process research
and development (IPR&D), expensing of acquisition related restructuring
actions and transaction related costs and the recognition of contingent purchase
price consideration at fair value at the acquisition date. In addition, changes
in accounting for deferred tax asset valuation allowances and acquired income
tax uncertainties after the measurement period will be recognized in earnings
rather than as an adjustment to the cost of acquisition. This accounting
treatment for taxes is applicable to acquisitions that occurred both prior and
subsequent to the adoption of SFAS No. 141(R). Noncontrolling interests as
related to Johnson & Johnson's financial statements are insignificant
therefore, the adoption of SFAS No. 141(R) and SFAS No. 160 did not have a
material impact on the Company’s results of operations, cash flows or financial
position.
During
the fiscal first quarter of 2009, the Company adopted SFAS Statement No. 161,
Disclosures About Derivative
Instruments and Hedging Activities, to enhance the disclosure regarding
the Company’s derivative and hedging activities to improve the transparency of
financial reporting. The adoption of SFAS No. 161 did not have a significant
impact on the Company’s results of operations, cash flows or financial position.
See Note 2 for enhanced disclosures.
EITF
Issue 07-1: Accounting for Collaborative
Arrangements Related to the Development and Commercialization of Intellectual
Property. This issue is effective for financial statements issued for
fiscal years beginning after December 15, 2008 and was adopted by the Company in
the fiscal first quarter of 2009. This issue addresses
the income statement classification of payments made between parties in a
collaborative arrangement.
The
Company enters into collaborative arrangements, typically with other
pharmaceutical or biotechnology companies, to develop and commercialize drug
candidates or intellectual property. These arrangements typically
involve two (or more) parties who are active participants in the collaboration
and are exposed to significant risks and rewards dependent on the commercial
success of the activities. These collaborations usually involve various
activities by one or more parties, including research and development, marketing
and selling and distribution. Often, these collaborations require upfront,
milestone and royalty or profit share payments, contingent upon the occurrence
of certain future events linked to the success of the asset in development.
Amounts due from our collaborative partners related to development activities
are generally reflected as a reduction of research and development expense
because the performance of contract development services is not central to our
operations. In general, the income statement presentation for these
collaborations is as follows:
Nature
/ Type of Collaboration
|
Statement
of Earnings Presentation
|
|
|
Third
party sale of product
|
Sales
to customers
|
|
|
Royalties
/ milestones paid to collaborative partner (post-regulatory
approval)*
|
Cost
of goods sold
|
|
|
Royalties
received from collaborative partner
|
Other
income (expense), net
|
|
|
Upfront
payments & milestones paid to collaborative partner (pre-regulatory
approval)
|
Research
expense
|
|
|
Research
and development payments to collaborative partner
|
Research
expense
|
|
|
Research
and development payments received from collaborative
partner
|
Reduction
of Research expense
|
*Capitalized
as intangible assets and amortized to cost of goods sold over the useful
life.
The
impact of the adoption of EITF Issue 07-1 related to all collaboration
agreements that existed as of March 29, 2009 and December 28, 2008 are
immaterial to the Company's results of operations, cash flows or financial
position.
EITF
Issue 08-7: Accounting for
Defensive Intangible Assets. This issue is effective for financial
statements issued for fiscal years beginning after December 15, 2008 and was
adopted by the Company in the fiscal first quarter of 2009.This issue applies to
acquired intangible assets in situations in which an entity does not intend to
actively use the asset but intends to hold the asset to prevent others from
obtaining access to the asset, except for intangible assets that are used in
research and development activities. The adoption of EITF 08-7 did not have a
significant impact on the Company’s results of operations, cash flows or
financial position.
NOTE 2 -
FINANCIAL INSTRUMENTS
During
the fiscal first quarter of 2009, the Company adopted SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities, an amendment of SFAS Statement No.
133. SFAS No. 161 requires enhanced disclosures about the Company's derivative
and hedging activities. SFAS No. 161 requires qualitative disclosures about
objectives and strategies for using derivatives, quantitative disclosures about
fair value amounts of gain and losses on derivative instruments, and disclosures
about credit-risk-related contingent features in derivative
agreements.
The
Company uses forward exchange contracts to manage its exposure to the
variability of cash flows, primarily related to the foreign exchange rate
changes of future intercompany product and third- party purchases of raw
materials denominated in foreign currency. The Company also uses
cross currency interest rate swaps to manage currency risk primarily related to
borrowings. Both types of derivatives are designated as cash flow
hedges. The Company also uses forward exchange contracts to manage
its exposure to the variability of cash flows for repatriation of foreign
dividends. These contracts are designated as net investment
hedges. Additionally, the Company uses forward exchange contracts to
offset its exposure to certain foreign currency assets and
liabilities. These forward exchange contracts are not designated as
hedges and therefore, changes in the fair values of these derivatives are
recognized in earnings, thereby offsetting current earnings effect of the
related foreign currency assets and liabilities. The Company does not
enter into derivative financial instruments for trading or speculative purposes,
or contain credit risk related contingent features or requirements to post
collateral. On an ongoing basis the Company monitors counterparty credit
ratings. The Company considers credit non-performance risk to be low, because
the Company enters into agreements with commercial institutions that have at
least an A (or equivalent) credit rating. As of March 29, 2009, the Company had
notional amounts outstanding for forward foreign exchange contracts and cross
currency interest rate swaps of $18 billion and $4 billion,
respectively.
The
Company follows the provisions of SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, as amended. SFAS No. 133
requires that all derivative instruments be recorded on the balance sheet at
fair value. Changes in the fair value of derivatives are recorded
each period in current earnings or other comprehensive income, depending on
whether the derivative is designated as part of a hedge transaction, and if so,
the type of hedged transaction.
The
designation as a cash flow hedge is made at the entrance date into the
derivative contract. At inception, all derivatives are expected to be
highly effective. Changes in the fair value of a derivative that is
designated as a cash flow hedge and is highly effective are recorded in
accumulated other comprehensive income until the underlying transaction affects
earnings, and are then reclassified to earnings in the same account as the
hedged transaction. Gains/losses on net investment hedges are
accounted for through the currency translation account and are insignificant. On
an ongoing basis, the Company assesses whether each derivative continues to be
highly effective in offsetting
changes
in the cash flows of hedged items. If and when a derivative is no
longer expected to be highly effective, hedge accounting is
discontinued. Hedge ineffectiveness, if any, is included in current
period earnings in other (income) and expense, net, and was insignificant for
the fiscal first quarters ended March 29, 2009 and March 30,
2008. Refer to Note 8 for disclosures of movements in Accumulated
Other Comprehensive Income.
As of
March 29, 2009, the balance of deferred net gains on derivatives included in
accumulated other comprehensive income was $268 million
after-tax. For additional information, see Note 8. The
Company expects that substantially all of this amount will be reclassified into
earnings over the next 12 months as a result of transactions that are expected
to occur over that period. The maximum length of time over which the
Company is hedging transaction exposure is 18 months. The amount
ultimately realized in earnings will differ as foreign exchange rates
change. Realized gains and losses are ultimately determined by actual
exchange rates at maturity of the derivative.
The
following table is a summary of the activity for the fiscal first quarter ended
March 29, 2009 related to designated derivatives as defined in SFAS No.
133:
(Dollars
in Millions)
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Flow Hedges
|
|
Gain/(Loss)
recognized in Accumulated OCI(1)
|
|
|
Gain/(Loss) reclassed
from Accumulated OCI into income(1)
|
|
|
|
Gain/(Loss) recognized in
income(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
exchange contracts
|
|
$ |
(8 |
) |
|
$ |
5 |
|
(a)
|
|
$ |
(2 |
) |
(e)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
exchange contracts
|
|
|
52 |
|
|
|
19 |
|
(b)
|
|
|
5 |
|
(e)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
exchange contracts
|
|
|
13 |
|
|
|
10 |
|
(c)
|
|
|
- |
|
(e)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cross
currency interest rate swaps
|
|
|
109 |
|
|
|
(6 |
) |
(d)
|
|
|
- |
|
(e)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
exchange contracts
|
|
|
5 |
|
|
|
(3 |
) |
(e)
|
|
|
1 |
|
(e)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
171 |
|
|
$ |
25 |
|
|
|
$ |
4 |
|
|
(1)Effective
portion
(2)Ineffective
portion
(a)Included
in Sales to customer
(b)Included
in Cost of products sold
(c)Included
in Research expense
(d)Included
in Interest (Income)/Interest Expense, net
(e)Included
in Other (Income)/Expense, net
As of
March 29, 2009, a loss of $6 million was recognized in Other (income)/expense,
net, relating to foreign exchange contracts not designated as hedging
instruments under SFAS No. 133.
During
the fiscal first quarter of 2008, the Company adopted SFAS No. 157, Fair Value Measurements
except for non-financial assets and liabilities recognized or disclosed at fair
value on a non-recurring basis, which became effective during the first fiscal
quarter of 2009. SFAS No. 157 defines fair value, establishes a framework for
measuring fair value and expands disclosures about fair value measurements.
During the fiscal first quarter of 2008, the Company adopted SFAS No. 159, Fair Value Option for Financial
Assets and Financial Liabilities. SFAS No. 159 permits the
Company to measure certain financial assets and financial liabilities at fair
value. The Company assessed the fair value option made available upon
adopting SFAS No. 159, and has elected not to apply the fair value option to any
financial instruments that were not already recognized at fair
value.
SFAS No.
157 defines fair value as the exit price that would be received to sell an asset
or paid to transfer a liability. Fair value is a market-based
measurement that should be determined using assumptions that market participants
would use in pricing an asset or liability. The statement establishes
a three-level hierarchy to prioritize the inputs used in measuring fair
value. The levels within the hierarchy are described in the table
below with level 1 having the highest priority and level 3 having the
lowest.
The fair
value of a derivative financial instrument (i.e. forward exchange contract,
currency swap) is the aggregation by currency of all future cash flows
discounted to its present value at the prevailing market interest rates and
subsequently converted to the U.S. dollar at the current spot foreign exchange
rate. The Company does not believe that fair values of these
derivative instruments materially differ from the amounts that could be realized
upon settlement or maturity, or that the changes in fair value will have a
material effect on the Company's results of operations, cash flows or financial
position. The Company did not have any other significant financial
assets or liabilities which would require revised valuations under SFAS No. 157
that are recognized at fair value.
The fair
value of the Company's financial assets and liabilities as of March 29, 2009
were as follows:
(Dollars
in Millions)
|
|
Quoted
prices in active markets for identical assets
|
|
|
Significant
other observable inputs
|
|
|
Significant
unobservable inputs
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Derivatives
designated as hedging
instruments
under SFAS 133:
|
|
|
|
|
|
|
|
|
|
Other
Assets:
|
|
|
|
|
|
|
|
|
|
Foreign
exchange contracts
|
|
|
- |
|
|
$ |
1,052 |
|
|
|
- |
|
Cross
currency interest rate swaps
|
|
|
- |
|
|
|
59 |
|
|
|
- |
|
Total
|
|
|
|
|
|
|
1,111 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
exchange contracts
|
|
|
- |
|
|
|
924 |
|
|
|
- |
|
Cross
currency interest rate swaps
|
|
|
- |
|
|
|
770 |
|
|
|
- |
|
Total
|
|
|
|
|
|
|
1,694 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
not designated as
hedging
instruments under SFAS 133:
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
exchange contracts
|
|
|
- |
|
|
|
85 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
exchange contracts
|
|
|
- |
|
|
$ |
61 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 3 -
INCOME TAXES
The
worldwide effective income tax rates for the fiscal first quarters of 2009 and
2008 were 24.5% and 24.2%, respectively. The increase in the effective tax rate
was primarily due to increases in taxable income in higher tax jurisdictions
relative to taxable income in lower tax jurisdictions partially offset by the
U.S. Research and Development tax credit that was not in effect in the fiscal
first quarter of 2008.
NOTE 4 -
INVENTORIES
(Dollars
in Millions)
|
|
March
29, 2009
|
|
|
December
28, 2008
|
|
Raw
materials and supplies
|
|
$ |
822 |
|
|
$ |
839 |
|
Goods
in process
|
|
|
1,460 |
|
|
|
1,372 |
|
Finished
goods
|
|
|
3,077 |
|
|
|
2,841 |
|
Total
|
|
$ |
5,359 |
|
|
$ |
5,052 |
|
NOTE 5 -
INTANGIBLE ASSETS AND GOODWILL
Intangible
assets that have finite useful lives are amortized over their estimated useful
lives. The latest impairment assessment of goodwill and indefinite lived
intangible assets was completed in the fiscal fourth quarter of 2008. Future
impairment tests for goodwill and indefinite lived intangible assets will be
performed annually in the fiscal fourth quarter, or sooner if
warranted.
(Dollars
in Millions)
|
|
March
29, 2009
|
|
|
December
28, 2008
|
|
Trademarks
(non-amortizable)- gross
|
|
$ |
5,855 |
|
|
$ |
5,879 |
|
Less
accumulated amortization
|
|
|
143 |
|
|
|
145 |
|
Trademarks
(non-amortizable)- net
|
|
|
5,712 |
|
|
|
5,734 |
|
Patents
and trademarks - gross
|
|
|
5,564 |
|
|
|
5,119 |
|
Less
accumulated amortization
|
|
|
1,882 |
|
|
|
1,820 |
|
Patents
and trademarks – net
|
|
|
3,682 |
|
|
|
3,299 |
|
Other
amortizable intangibles - gross
|
|
|
7,946 |
|
|
|
7,376 |
|
Less
accumulated amortization
|
|
|
2,518 |
|
|
|
2,433 |
|
Other
intangibles – net
|
|
|
5,428 |
|
|
|
4,943 |
|
Purchased
in process research and development(non-amortizable)-
gross*
|
|
|
18 |
|
|
|
- |
|
Total
intangible assets - gross
|
|
|
19,383 |
|
|
|
18,374 |
|
Less
accumulated amortization
|
|
|
4,543 |
|
|
|
4,398 |
|
Total
intangible assets - net
|
|
$ |
14,840 |
|
|
$ |
13,976 |
|
*
Purchased in process research and development was capitalized as per the
adoption of SFAS No. 141(R).
Goodwill
as of March 29, 2009 was allocated by segment of business as
follows:
(Dollars
in Millions)
|
|
Consumer
|
|
|
Pharm
|
|
|
Med
Dev & Diag
|
|
|
Total
|
|
Goodwill,
net of accumulated amortization at December 28, 2008
|
|
$ |
7,474 |
|
|
$ |
963 |
|
|
$ |
5,282 |
|
|
$ |
13,719 |
|
Acquisitions
|
|
|
- |
|
|
|
- |
|
|
|
376 |
|
|
|
376 |
|
Translation
& Other**
|
|
|
98 |
|
|
|
(6 |
) |
|
|
(104 |
) |
|
|
(12 |
) |
Goodwill,
net of accumulated amortization at March
29, 2009
|
|
$ |
7,572 |
|
|
$ |
957 |
|
|
$ |
5,554 |
|
|
$ |
14,083 |
|
**Includes
reclassification between segments, currency translation and other
adjustments.
The
weighted average amortization periods for patents and trademarks and other
intangible assets are 16 years and 28 years, respectively. The amortization
expense of amortizable intangible assets for the fiscal first quarter ended
March 29, 2009 was $177 million, and the estimated amortization expense for the
five succeeding years approximates $775 million, per year.
NOTE 6 -
SEGMENTS OF BUSINESS AND GEOGRAPHIC AREAS
(Dollars
in Millions)
SALES BY
SEGMENT OF BUSINESS (1)
|
|
Fiscal
First Quarters
|
|
(Dollars
in Millions)
|
|
March
29, 2009
|
|
|
March
30, 2008
|
|
|
Percent
Change
|
|
Consumer
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
$ |
1,726 |
|
|
$ |
1,819 |
|
|
|
(5.1 |
)% |
International
|
|
|
1,985 |
|
|
|
2,245 |
|
|
|
(11.6 |
) |
Total
|
|
|
3,711 |
|
|
|
4,064 |
|
|
|
(8.7 |
) |
Pharmaceutical
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
3,674 |
|
|
|
4,070 |
|
|
|
(9.7 |
) |
International
|
|
|
2,106 |
|
|
|
2,359 |
|
|
|
(10.7 |
) |
Total
|
|
|
5,780 |
|
|
|
6,429 |
|
|
|
(10.1 |
) |
Medical
Devices & Diagnostics
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
2,652 |
|
|
|
2,588 |
|
|
|
2.5 |
|
International
|
|
|
2,883 |
|
|
|
3,113 |
|
|
|
(7.4 |
) |
Total
|
|
|
5,535 |
|
|
|
5,701 |
|
|
|
(2.9 |
) |
Worldwide
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
8,052 |
|
|
|
8,477 |
|
|
|
(5.0 |
) |
International
|
|
|
6,974 |
|
|
|
7,717 |
|
|
|
(9.6 |
) |
Total
|
|
$ |
15,026 |
|
|
$ |
16,194 |
|
|
|
(7.2 |
)% |
(1)
Export sales are not significant.
OPERATING
PROFIT BY SEGMENT OF BUSINESS
|
|
Fiscal
First Quarters
|
|
(Dollars in
Millions)
|
|
March
29, 2009
|
|
|
March
30, 2008
|
|
|
Percent
Change
|
|
Consumer
|
|
$ |
800 |
|
|
$ |
728 |
|
|
|
9.9 |
% |
Pharmaceutical
|
|
|
2,257 |
|
|
|
2,367 |
|
|
|
(4.6 |
) |
Medical
Devices & Diagnostics
|
|
|
1,787 |
|
|
|
1,800 |
|
|
|
(0.7 |
) |
Segments
total
|
|
|
4,844 |
|
|
|
4,895 |
|
|
|
(1.0 |
) |
Expense
not allocated to segments (2)
|
|
|
(201 |
) |
|
|
(148 |
) |
|
|
|
|
Worldwide
total
|
|
$ |
4,643 |
|
|
$ |
4,747 |
|
|
|
(2.2 |
)% |
(2)Amounts
not allocated to segments include interest income/(expense) and general
corporate income/(expense).
SALES BY
GEOGRAPHIC AREA
(Dollars
in Millions)
|
|
Fiscal
First Quarters
|
|
(Dollars
in Millions)
|
|
March
29, 2009
|
|
|
March
30, 2008
|
|
|
Percent
Change
|
|
U.S.
|
|
$ |
8,052 |
|
|
$ |
8,477 |
|
|
|
(5.0 |
)% |
Europe
|
|
|
3,671 |
|
|
|
4,308 |
|
|
|
(14.8 |
) |
Western
Hemisphere, excluding U.S.
|
|
|
1,062 |
|
|
|
1,245 |
|
|
|
(14.7 |
) |
Asia-Pacific,
Africa
|
|
|
2,241 |
|
|
|
2,164 |
|
|
|
3.6 |
|
Total
|
|
$ |
15,026 |
|
|
$ |
16,194 |
|
|
|
(7.2 |
)% |
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 first quarters ended March 29, 2009 and March
30, 2008.
(Shares
in Millions)
|
|
Fiscal
Quarters Ended
|
|
|
|
March
29, 2009
|
|
|
March
30, 2008
|
|
Basic
net earnings per share
|
|
$ |
1.27 |
|
|
$ |
1.27 |
|
Average
shares outstanding – basic
|
|
|
2,765.9 |
|
|
|
2,832.3 |
|
Potential
shares exercisable under stock option plans
|
|
|
109.8 |
|
|
|
205.0 |
|
Less:
shares which could be repurchased under treasury stock
method
|
|
|
(89.5 |
) |
|
|
(174.7 |
) |
Convertible
debt shares
|
|
|
3.6 |
|
|
|
3.7 |
|
Average
shares outstanding – diluted
|
|
|
2,789.8 |
|
|
|
2,866.3 |
|
Diluted
earnings per share
|
|
$ |
1.26 |
|
|
$ |
1.26 |
|
The
diluted earnings per share calculation for both the fiscal first quarters ended
March 29, 2009 and March 30, 2008 included the dilutive effect of convertible
debt that was offset by the related reduction in interest expense.
The
diluted earnings per share calculation excluded 153 million shares and 63
million shares related to stock options for the fiscal first quarters ended
March 29, 2009 and March 30, 2008, respectively, as the exercise price of these
options was greater than their average market value, which would result in an
anti-dilutive effect on diluted earnings per share.
NOTE 8 -
ACCUMULATED OTHER COMPREHENSIVE INCOME
Total
comprehensive income for the fiscal first quarter ended March 29, 2009 was $3.3
billion, compared with $4.8 billion for the same period a year ago. Total
comprehensive income included net earnings, net unrealized currency gains and
losses on translation, adjustments related to Employee Benefit Plans, net
unrealized gains and losses on securities available for sale 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.
(Dollars
in Millions)
|
|
For. Cur.
Trans.
|
|
|
Unrld
Gains/
(Losses)
on Sec
|
|
|
Employee
Benefit Plans
|
Gains/(Losses)
on Deriv & Hedges
|
|
Total
Accum Other Comp Inc/(Loss)
|
|
|
December
28, 2008
|
|
$
|
(1,871
|
)
|
|
|
25
|
|
|
|
(3,230
|
)
|
121
|
|
|
(4,955
|
)
|
|
2009 three
months change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
change associated
with
current period
hedging
transactions
|
|
|
|
|
|
|
|
|
|
|
|
|
178
|
|
|
|
|
|
Net
amount reclassed to
net
earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
(31
|
) *
|
|
|
|
|
Net three
months change
|
|
|
(391
|
)
|
|
|
(8
|
)
|
|
|
38
|
|
147
|
|
|
(214
|
)
|
|
March
29, 2009
|
|
$
|
(2,262
|
)
|
|
|
17
|
|
|
|
(3,192
|
)
|
268
|
|
|
(5,169
|
)
|
|
*Substantially
offset in net earnings by changes in value of the underlying
transactions.
Amounts
in accumulated other comprehensive income are presented net of the related tax
impact. Foreign currency translation adjustments are not currently adjusted for
income taxes as they relate to permanent investments in international
subsidiaries.
NOTE 9 –
MERGERS, ACQUISITIONS AND DIVESTITURES
During
the fiscal first quarter of 2009, the Company acquired Mentor Corporation, a
leading supplier of medical products for the global aesthetic market, for a net
purchase price of $1.1 billion. The purchase price for the acquisition was
allocated primarily to amortizable intangible assets for $0.9 billion and
goodwill for $0.4 billion.
During
the fiscal first quarter of 2008, there were no significant acquisitions or
divestitures.
NOTE 10 –
PENSIONS AND OTHER POSTRETIREMENT BENEFITS
Components
of Net Periodic Benefit Cost
Net
periodic benefit cost for the Company’s defined benefit retirement plans and
other benefit plans for the fiscal first quarters of 2009 and 2008 include the
following components:
|
|
Retirement
Plans
|
|
|
Other
Benefit Plans
|
|
|
|
Fiscal
Quarters Ended
|
|
(Dollars
in Millions)
|
|
March
29, 2009
|
|
|
March
30, 2008
|
|
|
March
29, 2009
|
|
|
March
30, 2008
|
|
Service
cost
|
|
$ |
118 |
|
|
|
129 |
|
|
|
34 |
|
|
|
36 |
|
Interest
cost
|
|
|
185 |
|
|
|
179 |
|
|
|
43 |
|
|
|
41 |
|
Expected
return on plan
assets
|
|
|
(228 |
) |
|
|
(224 |
) |
|
|
(1 |
) |
|
|
(1 |
) |
Amortization
of prior service cost
|
|
|
2 |
|
|
|
3 |
|
|
|
(1 |
) |
|
|
(1 |
) |
Recognized
actuarial losses
|
|
|
41 |
|
|
|
19 |
|
|
|
14 |
|
|
|
16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
periodic benefit cost
|
|
$ |
118 |
|
|
|
106 |
|
|
|
89 |
|
|
|
91 |
|
Company
Contributions
For the
fiscal three months ended March 29, 2009, the Company contributed $483 million
and $6 million to its U.S. and international retirement plans, respectively. In
2006, Congress passed the Pension Protection Act of 2006. The Act amended the
Employee Retirement Income Security Act (ERISA) for plan years beginning after
2007 and established new minimum funding standards for U.S. employer defined
benefit plans. The Company plans to continue to fund its U.S. defined benefit
plans to comply with the Pension Protection Act of 2006. International plans are
funded in accordance with local regulations.
NOTE 11 –
RESTRUCTURING
In the
third quarter of 2007, the Company announced restructuring initiatives in an
effort to improve its overall cost structure. This action was taken to offset
the anticipated negative impacts associated with generic competition in the
Pharmaceutical segment and challenges in the drug-eluting stent market. The
Company's Pharmaceuticals segment has reduced its cost base by consolidating
certain operations, while continuing to invest in recently launched products and
its late-stage pipeline of new products. The Cordis franchise has moved to a
more integrated business model to address the market changes underway with
drug-eluting stents and to better serve the broad spectrum of its patients'
cardiovascular needs, while reducing its cost base. This program allowed the
Company to accelerate steps to standardize and streamline certain aspects of its
enterprise-wide functions such as human resources, finance and information
technology to support growth across the business, while also leveraging its
scale more effectively in areas such as procurement to benefit its operating
companies. Additionally, as part of this initiative, the Company plans to
eliminate approximately 4,400 positions of which 3,800 have been eliminated
since this restructuring initiative was announced in 2007.
During
the fiscal third quarter of 2007, the Company recorded $745 million in pre-tax
charges of which, approximately, $500 million of the pre-tax restructuring
charges are expected to require cash payments. The $745 million of restructuring
charges included severance costs of $450 million, asset write-offs of $272
million and $23 million related to leasehold obligations. The $272 million of
asset write-offs relate to property, plant and equipment of $166 million,
intangible assets of $48 million and other assets of $58 million.
The
following table summarizes the severance reserve and the associated spending
under this initiative through the first quarter of 2009:
(Dollars in Millions)
December
28, 2008
Cash
outlays
March
29, 2009*
|
Severance
$178
(53)
$125
|
*Substantially
all cash payments related to the remaining reserve balance for severance is
expected to be paid out over the remainder of the year in accordance with the
Company’s plans and local laws.
NOTE 12 -
LEGAL PROCEEDINGS
PRODUCT
LIABILITY
The
Company’s subsidiaries are involved in numerous product liability cases in the
United States, many of which concern alleged 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 that
accompany such products, it is not feasible to predict the ultimate outcome of
litigation. However, the Company believes that if any product liability results
from such cases, it will be substantially covered by existing amounts accrued in
the Company’s balance sheet and, where available, by third-party product
liability insurance.
Multiple
products of Johnson & Johnson subsidiaries are subject to numerous product
liability claims and lawsuits, including ORTHO EVRA®, RISPERDAL®, DURAGESIC®, the
CYPHER® Stent and the CHARITÉ™ Artificial Disc. There are approximately 700
claimants who have pending lawsuits or claims regarding injuries allegedly due
to ORTHO EVRA®, 481 with respect to RISPERDAL®, 274 with respect to CHARITÉ™, 95
with respect to CYPHER® and 107 with respect to DURAGESIC®. These claimants seek
substantial compensatory and, where available, punitive
damages.
With
respect to RISPERDAL®, the Attorneys General of eight states and the Office of
General Counsel of the Commonwealth of Pennsylvania have filed actions seeking
reimbursement of Medicaid or other public funds for RISPERDAL® prescriptions
written for off-label use, compensation for treating their citizens for alleged
adverse reactions to RISPERDAL®, civil fines or penalties, punitive damages, or
other relief. The Attorney General of Texas has joined a qui tam action in that
state seeking similar relief. Certain of these actions also seek injunctive
relief relating to the promotion of RISPERDAL®. The Attorneys General of more
than 40 other states have indicated a potential interest in pursuing similar
litigation against the Company’s Janssen subsidiary (now Ortho-McNeil-Janssen
Pharmaceuticals Inc.) (OMJPI), and have obtained a tolling agreement staying the
running of the statute of limitations while they inquire into the issues. In
addition, there are six cases filed by union health plans seeking damages for
alleged overpayments for RISPERDAL®, several of which seek certification as
class actions. In the case brought by the Attorney General of West Virginia,
based on claims for alleged consumer fraud as to DURAGESIC® as well as
RISPERDAL®, Janssen (now OMJPI) was found liable and damages were assessed at
$4.5 million. OMJPI intends to appeal.
Numerous
claims and lawsuits in the United States relating to the drug PROPULSID®,
withdrawn from general sale by the Company’s Janssen (now OMJPI) subsidiary in
2000, have been resolved or are currently enrolled in settlement programs with
an aggregate cap below $100 million. Litigation concerning PROPULSID® is
pending in Canada, where a class action of persons alleging adverse reactions to
the drug has been certified.
AFFIRMATIVE
STENT PATENT LITIGATION
In patent
infringement actions tried in Delaware Federal District Court in late 2000,
Cordis Corporation (Cordis), a subsidiary of Johnson & Johnson, obtained
verdicts of infringement and patent validity, and damage awards against Boston
Scientific Corporation (Boston Scientific) and Medtronic AVE, Inc. (Medtronic)
based on a number of Cordis vascular stent patents. In December 2000, the jury
in the damage action against Boston Scientific returned a verdict of
$324 million and the jury in the Medtronic action returned a verdict of
$271 million. The Court of Appeals for the Federal Circuit has upheld
liability in these cases, and on September 30, 2008, the district court
entered judgments, including interest, in the amounts of $702 million and
$521 million against Boston Scientific and Medtronic, respectively.
Medtronic paid $472 million in October 2008, representing the
judgment, net of amounts exchanged in settlement of a number of other
litigations between the companies. The net settlement of $472 million was
recorded as a credit to other (income) expense, net in the 2008
consolidated statement of earnings. The $702 million judgment against
Boston Scientific is not reflected in the Company’s financial statements as
Boston Scientific has appealed the judgments, and no amounts have been received
to date.
In
January 2003, Cordis filed a patent infringement action against Boston
Scientific in Delaware Federal District Court accusing its Express2™, Taxus® and
Liberte® stents of infringing the Palmaz
patent
that expired in November 2005. The Liberte® stent was also accused of
infringing Cordis’ Gray patent that expires in 2016. In June 2005, a jury
found that the Express2™, Taxus® and Liberte® stents infringed the Palmaz patent
and that the Liberte® stent also infringed the Gray patent. On March
31, 2009, the U.S. Court of Appeals for the Federal Circuit affirmed this
judgment in all respects except that they held that the district court’s
dismissal of Cordis’ claim against Taxus®
Liberte® should
have been with prejudice.
Cordis
has filed several lawsuits in New Jersey Federal District Court against Guidant
Corporation (Guidant), Abbott Laboratories, Inc. (Abbott), Boston Scientific and
Medtronic alleging that the Xience V™ (Abbott), Promus™ (Boston Scientific) and
Endeavor® (Medtronic) drug eluting stents infringe several patents owned by or
licensed to Cordis. In October 2008, Cordis filed suit against Boston
Scientific in Delaware Federal Court accusing the Taxus® Liberte®
stent of infringing the Gray patent.
PATENT
LITIGATION AGAINST VARIOUS JOHNSON & JOHNSON SUBSIDIARIES
In
July 2005, a jury in Federal District Court in Delaware found that the
Cordis CYPHER® Stent infringed Boston Scientific’s Ding ‘536 patent and that the
Cordis CYPHER® and BX VELOCITY® Stents also infringed Boston Scientific’s Jang
‘021 patent. The jury also found both of those patents valid. Boston Scientific
seeks substantial damages and an injunction in those actions. Cordis appealed.
On January 15, 2009, the Court of Appeals for the Federal Circuit held the
Ding patent invalid. In March of 2009 the Court of Appeals for the Federal
Circuit denied Boston Scientific’s motion for reconsideration. On March 31, 2009
the Court of Appeals for the Federal Circuit upheld the judgment that Cordis’
Cypher stent infringed Boston Scientific’s Jang patent. Cordis will ask the
Court of Appeals to reconsider that decision. If that is unsuccessful the case
will be remanded for a trial on the issues of damages and injunctive relief.
In
Germany, Boston Scientific has several actions based on its Ding patents pending
against the Cordis CYPHER® Stent. Cordis was successful in these actions at the
trial level, but Boston Scientific has appealed. Boston Scientific has brought
actions in Belgium, the Netherlands, Germany, France and Italy under its
Kastenhofer patent, which purports to cover two-layer catheters such as those
used to deliver the CYPHER® Stent, to enjoin the manufacture and sale of
allegedly infringing catheters in those countries, and to recover damages. A
decision by the lower court in the Netherlands in Boston Scientific’s favor was
reversed on appeal in April 2007. Boston Scientific has filed an appeal to
the Dutch Supreme Court. In October 2007, Boston Scientific prevailed in
the nullity action challenging the validity of the Kastenhofer patent filed by
Cordis in Germany. Cordis has appealed. No
substantive
hearings have been scheduled in the French or Italian actions.
Trial in
Boston Scientific’s U.S. case based on the Kastenhofer patent in Federal
District Court in California concluded in October 2007 with a jury finding
that the patent was invalid. The jury also found for Cordis on its counterclaim
that sale by Boston Scientific of its balloon catheters and stent delivery
systems infringe Cordis’ Fontirroche patent. The Court has denied Boston
Scientific’s post trial motions. On April 9, 2009, the Court ruled that Boston
Scientific will be required to pay Cordis a royalty of 5.1% of all infringing
sales of catheters and stent delivery systems from October 2007 as long as they
practice the patented invention.
In
May 2008, Centocor, Inc. (now Centocor Ortho Biotech Inc. (COBI)) filed a
lawsuit against Genentech, Inc. (Genentech) in U.S. District Court for the
Central District of California seeking to invalidate the Cabilly II patent.
Prior to filing suit, Centocor had a sublicense under this patent from Celltech
(who was licensed by Genentech) for REMICADE® and had been paying royalties to
Celltech. Centocor has terminated that sublicense and stopped paying royalties.
Genentech has filed a counterclaim alleging that REMICADE® infringes its Cabilly
II patents and that the manufacture of REMICADE®, ustekinumab, golimumab and
ReoPro infringe various of its patents relating to the purification of
antibodies made through recombinant DNA techniques.
In April
2009, a trial was held before the Federal District Court for the Middle District
of Florida on the liability phase of Ciba's patent infringement lawsuit alleging
that Johnson & Johnson Vision Care's ACUVUE® OASYS™ lenses
infringe three of their Nicholson patents. The key issues were infringement and
the validity of the patents in suit. Post trial briefs will be filed in May 2009
and closing arguments will be held in June 2009. If the court finds the patents
valid and infringed there will be another trial to determine damages and Ciba's
request for injunctive relief.
On May 1,
2009 Abbott Laboratories filed a patent infringement lawsuit against Centocor
(now COBI) in the United States District Court for the District of
Massachusetts. The suit alleges that Centocor's SIMPONI® product, a human
anti TNF alpha antibody, which was recently approved by the FDA,
infringes Abbott's 7,223,394 patent (the Salfeld patent).
The
following chart summarizes various patent lawsuits concerning products of
Johnson & Johnson subsidiaries that have yet to proceed to trial:
|
|
|
|
|
|
|
|
|
|
|
|
|
J&J
Product
|
Company
|
Patents
|
Plaintiff/
Patent
Holder
|
Court
|
|
Trial
Date
|
|
|
Date
Filed
|
|
|
|
Two-layer
Catheters
|
Cordis
|
Kastenhofer
|
Boston Scientific Corp.
|
Multiple
European
|
|
|
* |
|
|
|
09/07 |
|
|
|
CYPHER®
Stent
|
Cordis
|
Wall
|
Wall
|
E.D.
TX
|
|
|
04/11 |
|
|
|
11/07 |
|
|
|
CYPHER®
Stent
|
Cordis
|
Bonutti
|
MarcTec
|
S.D.
IL
|
|
|
06/10 |
|
|
|
11/07 |
|
|
|
CYPHER®
Stent
|
Cordis
|
Saffran
|
Saffran
|
E.D.
TX
|
|
|
06/11 |
|
|
|
10/07 |
|
|
|
LISTERINE®
Tooth Whitening Strips
|
McNeil-PPC
|
Sagel
|
Procter & Gamble
|
W.D.
WI
|
|
|
* |
|
|
|
05/08 |
|
|
|
Blood
Glucose Meters and Strips
|
Lifescan
|
Wilsey
|
Roche Diagnostics
|
D.
DE
|
|
|
* |
|
|
|
11/07 |
|
|
|
REMICADE®,
ustekinumab,
golimumab,
ReoPro
|
Centocor/COBI
|
Cabilly
II
|
Genentech
|
C.D.
CA
|
|
|
* |
|
|
|
05/08 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SIMPONI® |
Centocor/COBI |
Salfeld |
Abbott
Laboratories |
MA |
|
|
* |
|
|
|
05/09 |
|
|
|
* Trial
date to be scheduled.
LITIGATION
AGAINST FILERS OF ABBREVIATED NEW DRUG APPLICATIONS (ANDAs)
The
following chart indicates lawsuits pending 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 those products. These ANDAs typically include
allegations of non-infringement, invalidity and unenforceability of these
patents. In the event the subsidiary of the Company involved is not successful
in these actions, or the statutory 30-month stay expires before a ruling from
the district court is obtained, the firms involved will have the ability, upon
FDA approval, to introduce generic versions of the product at issue resulting in
very substantial market share and revenue losses for the product of the
Company’s subsidiary.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brand
Name Product
|
|
Patent/NDA
Holder
|
|
Generic
Challenger
|
|
Court
|
|
Trial
Date
|
|
Date
Filed
|
|
30-Month
Stay Expiration
|
|
CONCERTA®
|
|
McNeil-PPC
|
|
Andrx
|
|
D.
DE
|
|
12/07
|
|
09/05
|
|
None
|
18,
27, 36 and 54 mg controlled release tablet
|
|
ALZA
|
|
|
|
|
|
|
|
|
|
|
|
LEVAQUIN®
250, 500, 750 mg
tablet
|
|
Ortho-McNeil
|
|
Lupin
|
|
D.
NJ
|
|
*
|
|
10/06
|
|
03/09
|
|
ORTHO
TRI-CYCLEN® LO
|
|
Ortho-McNeil
|
|
Barr
|
|
D.
NJ
|
|
*
|
|
10/03
|
|
02/06
|
0.18
mg/0.025 mg, 0.215 mg/
0.025
mg and 0.25 mg/
0.025
mg
|
|
|
|
Watson
|
|
D.
NJ
|
|
*
|
|
10/08
|
|
03/11
|
|
RAZADYNE
®
|
|
Janssen
|
|
Teva
|
|
D.
DE
|
|
05/07
|
|
07/05
|
|
08/08
|
|
|
|
|
Mylan
|
|
D.
DE
|
|
05/07
|
|
07/05
|
|
08/08
|
|
|
|
|
Dr.
Reddy’s
|
|
D.
DE
|
|
05/07
|
|
07/05
|
|
08/08
|
|
|
|
|
Purepac
|
|
D.
DE
|
|
05/07
|
|
07/05
|
|
08/08
|
|
|
|
|
Barr
|
|
D.
DE
|
|
05/07
|
|
07/05
|
|
08/08
|
|
|
|
|
AlphaPharm
|
|
D.
DE
|
|
05/07
|
|
07/05
|
|
08/08
|
|
ULTRAM®
ER 100, 200, 300 mg
tablet
|
|
Ortho-McNeil
|
|
Par
|
|
D.
DE
|
|
04/09
|
|
05/07
|
|
09/09
|
|
ULTRAM®
ER 100 mg tablet
|
|
Ortho-McNeil-
Janssen
|
|
Impax
|
|
D.
DE
|
|
06/10
|
|
08/08
|
|
09/09
|
|
|
* Trial
date to be scheduled.
In the
action against Barr Pharmaceuticals, Inc. (Barr) regarding ORTHO TRI-CYCLEN® LO,
on January 22, 2008, the Company’s subsidiary Ortho Women’s Health &
Urology, a Division of Ortho-McNeil-Janssen Pharmaceuticals, Inc., and Barr
agreed to a non-binding term sheet to settle the litigation, which settlement
discussions are still underway. The trial court postponed the January 22,
2008 trial without setting a new trial date. The court has ordered the parties
to mediation.
On
October 16, 2008, the Company’s subsidiary Ortho-McNeil-Janssen
Pharmaceuticals, Inc. (OMJPI) filed suit in Federal District Court in New
Jersey against Watson Laboratories, Inc. (Watson) in response to Watson’s ANDA
regarding ORTHO TRI-CYCLEN® LO.
In the
action against Barr and AlphaPharm with respect to their ANDA challenges to the
RAZADYNE® patent that Janssen (now OMJPI)licenses from Synaptech, Inc.
(Synaptech), a four-day non-jury trial was held in the Federal District Court in
Delaware in May 2007. On August 27, 2008, the court held that the
patent was invalid because it was not enabled. Janssen (OMJPI) and Synaptech
have appealed the decision. Since the court’s decision, three generic companies
have received final approvals for their products and have launched “at risk”
pending appeal. Additional generic approvals and launches could occur at any
time.
In the
action by McNEIL-PPC, Inc. (McNeil-PPC) and ALZA Corporation (ALZA) against
Andrx Corporation (Andrx) with respect to its ANDA challenge to the CONCERTA®
patents, a five-day non-jury trial was held in the Federal District Court in
Delaware in
December 2007.
On March 30, 2009, the court ruled that one CONCERTA® patent
would not be infringed by Andrx’s proposed generic product and that the patent
was invalid because it was not enabled. The court dismissed without prejudice
Andrx’s declaratory judgment suit on a second patent for lack of
jurisdiction. McNeil-PPC and ALZA expect to appeal the court’s
decision.
In the
RAZADYNE®ER cases, a lawsuit was filed against Barr on the RAZADYNE® use patent
that Janssen (now OMJPI) licenses from Synaptech in June 2006. In
September 2008, the above-discussed Delaware decision invalidating the
RAZADYNE® use patent resulted in entry of judgment for Barr on that patent, but
the case will be reopened if Janssen (now OMJPI) and Synaptech win on appeal.
Barr has received FDA approval of its product and has launched “at
risk.”
In the
action against Lupin Pharmaceuticals, Inc. (Lupin) regarding its ANDA concerning
LEVAQUIN®, Lupin contends that the United States Patent and Trademark Office
improperly granted a patent term extension to the patent that Ortho-McNeil (now
Ortho-McNeil-Janssen Pharmaceuticals, Inc. (OMJPI)) licenses from Daiichi
Pharmaceuticals, Inc. (Daiichi). Lupin alleges that the active ingredient in
LEVAQUIN® was the subject of prior marketing, and therefore was not eligible for
the patent term extension. Lupin concedes validity and that its product would
violate the patent if marketed prior to the expiration of the original patent
term.
In the
ULTRAM®ER actions, Ortho-McNeil (now OMJPI), filed lawsuits (each for different
dosages) against Par Pharmaceuticals, Inc. and Par Pharmaceuticals Companies,
Inc. (Par) in May, June and October 2007 on two Tramadol ER formulation
patents owned by Purdue Pharma Products L.P. (Purdue) and Napp Pharmaceutical
Group Ltd. (Napp). OMJPI also filed lawsuits (each for different dosages)
against Impax Laboratories, Inc. (Impax) on a Tramadol ER formulation patent
owned by Purdue and Napp in August and November 2008. Purdue, Napp and
Biovail Laboratories International SRL (Biovail)(the NDA holder) joined as
co-plaintiffs in the lawsuits against Par and Impax, but Biovail and OMJPI were
subsequently dismissed for lack of standing. The trial against Par took place on
April 16-22, 2009 and
is awaiting a decision from the Court. The trial against Impax is scheduled for
June 2010.
AVERAGE
WHOLESALE PRICE (AWP) LITIGATION
Johnson
& Johnson and several of its pharmaceutical subsidiaries, along with
numerous other pharmaceutical companies, are defendants in a series of lawsuits
in state and federal courts involving allegations that the pricing and marketing
of certain pharmaceutical products amounted to fraudulent and otherwise
actionable conduct because, among other things, the companies allegedly reported
an inflated Average Wholesale Price (AWP) for the drugs at issue. Many of these
cases, both federal actions and state actions removed to federal court, have
been consolidated for pre-trial purposes in a Multi-District Litigation (MDL) in
Federal District Court in Boston, Massachusetts. The plaintiffs in these cases
include classes of private persons or entities that paid for any portion of
the purchase of the drugs at issue based on AWP,
and state
government entities that made Medicaid payments for the drugs at issue based on
AWP.
The MDL
Court identified classes of Massachusetts-only private insurers providing
“Medi-gap” insurance coverage and private payers for physician-administered
drugs where payments were based on AWP (“Class 2” and “Class 3”), and a national
class of individuals who made co-payments for physician-administered drugs
covered by Medicare (“Class 1”). A trial of the two Massachusetts-only class
actions concluded before the MDL Court in December 2006. In June 2007, the MDL
Court issued post-trial rulings, dismissing the Johnson & Johnson defendants
from the case regarding all claims of Classes 2 and 3, and subsequently of Class
1 as well. The ruling is the subject of a pending appeal. AWP cases brought by
various Attorneys General have proceeded to trial against other manufacturers.
Cases including Johnson & Johnson subsidiaries are expected to be set for
trial in 2010 and thereafter.
OTHER
In
July 2003, Centocor (now COBI), a Johnson & Johnson subsidiary,
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.
Subsequent requests for documents have been received from the U.S. Attorney’s
Office. Both the Company and Centocor have responded to these requests for
documents and information.
In
December 2003, Ortho-McNeil (now OMJPI) received a subpoena from the U.S.
Attorney’s Office in Boston, Massachusetts seeking documents relating to the
marketing, including alleged off-label marketing, of the drug TOPAMAX®
(topiramate). Additional subpoenas for documents have been received, and current
and former employees have testified before a grand jury. Discussions are
underway in an effort to resolve this matter, but whether agreement can be
reached and on what terms are uncertain.
In
January 2004, Janssen (now OMJPI) received a subpoena from the Office of
the Inspector General of the U.S. Office of Personnel Management seeking
documents concerning sales and marketing of, any and all payments to physicians
in connection with sales and marketing of, and clinical trials for, RISPERDAL®
(risperidone) from 1997 to 2002. Documents subsequent to 2002 have also
been requested. An additional subpoena seeking information about marketing of
and adverse reactions to RISPERDAL® was received from the U.S. Attorney’s Office
for the Eastern District of Pennsylvania in November 2005. Subpoenas
seeking testimony from various witnesses before a grand jury have also been
received. Janssen is cooperating in responding to ongoing requests for documents
and witnesses.
In
September 2004, Ortho Biotech Inc. (now COBI), received a subpoena from the
U.S. Office of Inspector General’s Denver, Colorado field office seeking
documents directed to the sales and marketing of PROCRIT® (Epoetin alfa) from
1997 to the present, as well as to dealings with U.S. Oncology Inc., a
healthcare services network for oncologists. Ortho Biotech (now COBI) has
responded to the subpoena.
In
September 2004, plaintiffs in an employment discrimination litigation
initiated against the Company in 2001 in Federal District Court in New Jersey
moved to certify a class of all African American and Hispanic salaried employees
of the Company and its affiliates in the U.S., who were employed at any time
from November 1997 to the present. Plaintiffs seek monetary damages for the
period 1997 through the present (including punitive damages) and equitable
relief. The Court denied plaintiffs’ class certification motion in
December 2006 and their motion for reconsideration in April 2007.
Plaintiffs sought to appeal these decisions and, in April 2008, the Court
of Appeals ruled that plaintiffs’ appeal of the denial of class certification
was untimely. Plaintiffs are now engaged in further discovery of individual
plaintiffs’ claims.
In
March 2005, DePuy Orthopaedics, Inc. (DePuy), a Johnson & Johnson
subsidiary, received a subpoena from the U.S. Attorney’s Office, District of New
Jersey, seeking records concerning contractual relationships between DePuy and
surgeons or surgeons-in-training involved in hip and knee replacement and
reconstructive surgery. This investigation was resolved by DePuy and the four
other leading suppliers of hip and knee implants in late September 2007 by
agreements with the U.S. Attorney’s Office for the District of New Jersey. The
settlements included an 18-month Deferred Prosecution Agreement (DPA),
acceptance by each company of a monitor to assure compliance with the DPA and,
with respect to four of the five companies, payment of settlement monies and
entry into five year Corporate Integrity Agreements. DePuy paid $85 million
as its settlement. The term of the Monitorship under the Deferred Prosecution
Agreement concluded on March 27, 2009, and an order dismissing all charges was
entered on March 30, 2009. In November 2007, the Attorney General of the
Commonwealth of Massachusetts issued a civil investigative demand to DePuy
seeking information regarding financial relationships between a number of
Massachusetts-based orthopedic surgeons and providers and DePuy, which
relationships had been publicly disclosed by DePuy pursuant to the DPA. In
February 2008, DePuy received a written request for information from the
U.S. Senate Special Committee on Aging, as a follow-up to earlier inquiries,
concerning a number of aspects of the DPA.
In
July 2005, Scios Inc. (Scios), a Johnson & Johnson subsidiary, received
a subpoena from the U.S. Attorney’s Office, District of Massachusetts, seeking
documents related to the sales and marketing of NATRECOR®. Scios is responding
to the subpoena. In early August 2005, Scios was advised that the
investigation would be handled by the U.S. Attorney’s Office for the Northern
District of California in San Francisco. Additional requests for documents have
been received and responded to and former Scios employees have testified before
a grand jury in San Francisco. The Qui Tam complaints were unsealed
on February 19, 2009. The U.S. government has indicated that it
intends to intervene and has until June 11, 2009 to file its
complaints.
In
September 2005, Johnson & Johnson received a subpoena from the U.S.
Attorney’s Office, District of Massachusetts, seeking documents related to sales
and marketing of eight drugs to Omni-care, Inc., a manager of pharmaceutical
benefits for long-term care facilities. The Johnson & Johnson subsidiaries
involved responded to the subpoena. Several employees of the Company’s
pharmaceutical subsidiaries have been subpoenaed to testify before a grand jury
in connection with this investigation.
In
November 2005, Amgen filed suit against Hoffmann-LaRoche, Inc. (Roche) in
the U.S. District Court for the District of Massachusetts seeking a declaration
that the Roche product CERA, which Roche has indicated it would seek to
introduce into the United States, infringes a number of Amgen patents concerning
EPO. Amgen licenses EPO for sale in the United States to Ortho Biotech (now
COBI) for non-dialysis indications. Trial in this action concluded in
October 2007 with a verdict in Amgen’s favor, finding the patents valid and
infringed. The judge issued a preliminary injunction blocking the CERA launch,
and subsequently made the injunction permanent. Roche has appealed to
the Federal Circuit, and the Company is awaiting scheduling of the oral argument
date.
In
February 2006, Johnson & Johnson received a subpoena from the U.S.
Securities & Exchange Commission (SEC) requesting documents relating to
the participation by several Johnson & Johnson subsidiaries in the United
Nations Iraq Oil for Food Program. The subsidiaries are cooperating with the SEC
and U.S. Department of Justice (DOJ) in producing responsive documents.
In
February 2007, Johnson & Johnson voluntarily disclosed to the DOJ and
the SEC that subsidiaries outside the United States are believed to have made
improper payments in connection with the sale of medical devices in two
small-market countries, which payments may fall within the jurisdiction of the
Foreign Corrupt Practices Act (FCPA). In the course of continuing dialogues with
the agencies, other issues potentially rising to the level of FCPA violations in
additional markets have been brought to the attention of the agencies by the
Company. The Company has provided and will continue to provide additional
information to the DOJ and SEC, and will cooperate with the agencies’ reviews of
these matters. Law enforcement agencies of a number of other countries are also
pursuing investigations of matters voluntarily disclosed by the Company to the
DOJ and SEC. Discussions are underway in an effort to resolve these matters, and
the Iraq Oil for Food matter referenced above, but whether agreement can be
reached and on what terms is uncertain.
In
March 2007, the Company received separate subpoenas from the U.S.
Attorney’s Office in Philadelphia, the U.S. Attorney’s Office in Boston and the
U.S. Attorney’s Office in San Francisco. The subpoenas relate to investigations
by these three offices referenced above concerning, respectively, sales and
marketing of RISPERDAL® by Janssen (now OMJPI), TOPAMAX® by Ortho-McNeil (now
OMJPI) and NATRECOR® by Scios. The subpoenas request information regarding the
Company’s corporate supervision and oversight of these three subsidiaries,
including their sales and marketing of these drugs. The Company responded to
these requests. In addition, the U.S. Attorney’s office in Boston has issued
subpoenas for grand jury testimony to several employees of Johnson &
Johnson.
In
May 2007, the New York State Attorney General issued a subpoena seeking
information relating to the marketing and safety of PROCRIT®. The Company is
responding to these requests.
In
April 2007, the Company received two subpoenas from the Office of the
Attorney General of the State of Delaware. The subpoenas seek documents and
information relating to nominal pricing agreements. For purposes of the
subpoenas, nominal pricing agreements are defined as agreements under which the
Company agreed to provide a pharmaceutical product for less than ten percent of
the Average Manufacturer Price for the product. The Company responded to these
requests.
In
January 2008, the European Commission (“EC”) began an industry-wide
antitrust inquiry concerning competitive conditions within the pharmaceutical
sector. Because this is a sector inquiry, it is not based on any specific
allegation that the Company has violated EC competition law. The inquiry began
with unannounced raids of a substantial number of pharmaceutical companies
throughout Europe, including Johnson & Johnson affiliates. In
March 2008, the EC issued detailed questionnaires to approximately 100
companies, including Johnson & Johnson affiliates. In November 2008, the EC
issued a preliminary report summarizing its findings. The final report is
expected in June or July of 2009.
In
March 2008, the Company received a letter request from the Attorney General
of the State of Michigan. The request seeks documents and information relating
to nominal price transactions. The Company is responding to the request and will
cooperate with the inquiry.
In
June 2008, Johnson & Johnson received a subpoena from the United States
Attorneys Office for the District of Massachusetts relating to the marketing of
biliary stents by the Company’s Cordis subsidiary. Cordis is cooperating in
responding to the subpoena.
In
September 2008, Multilan AG, an indirect subsidiary of Schering-Plough
Corporation, commenced arbitration against Janssen Pharmaceutica NV for an
alleged wrongful termination of an agreement relating to payments in connection
with termination of certain marketing rights. Multilan seeks declaratory relief,
specific performance and damages. Multilan alleges that damages exceed
€700 million. The parties are in the process of selecting an arbitral
tribunal.
In
February 2009, Basilea Pharmaceutica AG brought an arbitration against Johnson
& Johnson and various affiliates alleging that the Company breached the 2005
License Agreement for ceftobiprole by, among other things, failing to secure FDA
approval of the cSSSI (skin) indication and allegedly failing to properly
develop the pneumonia indication. Basilea is seeking to recover
damages and specific performance.
In April
2009, Johnson & Johnson received a HIPPA subpoena from the U.S. Attorney’s
Office for the District of Massachusetts (Boston) seeking information regarding
the Company’s financial relationship with several doctors.
In April
2009, Ortho-Clinical Diagnostics, Inc. received a grand jury subpoena from the
U.S. Department of Justice, Antitrust Division, requesting documents and
information for the period beginning September 1, 2000 through the present,
pertaining to an investigation of alleged violations of the antitrust laws in
the blood reagents industry. The company is in the process of complying with the
subpoena.
In recent
years the Company has received numerous requests from a variety of United States
Congressional Committees to produce information relevant to ongoing
congressional inquiries. It is the Company’s policy to cooperate with these
inquiries by producing the requested information.
With
respect to all the above matters, the Company and its subsidiaries are
vigorously contesting the allegations asserted against them and otherwise
pursuing defenses to maximize the prospect of success. The Company and its
subsidiaries involved in these matters continually evaluate their strategies in
managing these matters and, where appropriate, pursue settlements and other
resolutions where those are in the best interest of the Company.
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 Company’s opinion,
based on its examination of these matters, its experience to date and
discussions with counsel, the ultimate outcome of legal proceedings, net of
liabilities accrued in the Company’s balance sheet, is not expected to have a
material adverse effect on the Company’s financial condition, 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 and cash flows for
that period.
Item 2 -
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results
of Operations
Analysis
of Consolidated Sales
For the
fiscal first quarter of 2009, worldwide sales were $15.0 billion, a decrease of
7.2% including an operational decrease of 1.2% as compared to 2008 fiscal first
quarter sales of $16.2 billion. Currency had a negative impact of 6.0% on total
reported fiscal first quarter 2009 sales.
Sales by
U.S. companies were $8.0 billion in the fiscal first quarter of 2009, which
represented a decrease of 5.0% as compared to the same period last year. Sales
by international companies were $7.0 billion, which represented a total decrease
of 9.6% including an operational increase of 3.0%, and a negative impact from
currency of 12.6% as compared to the first fiscal quarter sales of
2008.
Sales by
companies in Europe experienced a sales decline of 14.8%, including an
operational decrease of 0.2% and a negative impact from currency of 14.6%. Sales
by companies in the Western Hemisphere, excluding the U.S., experienced a sales
decline of 14.7% including operational growth of 4.5% and a negative impact from
currency of 19.2%. Sales by companies in the Asia-Pacific, Africa region
achieved sales growth of 3.6%, with operational growth of 8.5% and a negative
impact from currency of 4.9%.
Analysis
of Sales by Business Segments
Consumer
Consumer
segment sales in the fiscal first quarter of 2009 were $3.7 billion, a decrease
of 8.7% as compared to the same period a year ago, with an operational decrease
of 1.0% and a negative currency impact of 7.7%. U.S. Consumer segment sales
declined by 5.1% while international sales experienced an overall sales decline
of 11.6%, representing an operational increase of 2.4%, with a negative currency
impact of 14.0%.
Major
Consumer Franchise Sales – Fiscal Quarters Ended
|
|
|
|
(Dollars
in Millions)
|
|
March
29, 2009
|
|
|
March
30, 2008
|
|
|
Total
Change
|
|
|
Operations
Change
|
|
|
Currency
Change
|
|
OTC
Pharm & Nutr
|
|
$ |
1,348 |
|
|
$ |
1,594 |
|
|
|
(15.4 |
)% |
|
|
(8.4 |
)% |
|
|
(7.0 |
)% |
Skin
Care
|
|
|
842 |
|
|
|
840 |
|
|
|
0.2 |
|
|
|
7.8 |
|
|
|
(7.6 |
) |
Baby
Care
|
|
|
489 |
|
|
|
533 |
|
|
|
(8.3 |
) |
|
|
0.9 |
|
|
|
(9.2 |
) |
Women’s
Health
|
|
|
423 |
|
|
|
461 |
|
|
|
(8.2 |
) |
|
|
0.7 |
|
|
|
(8.9 |
) |
Oral
Care
|
|
|
365 |
|
|
|
386 |
|
|
|
(5.4 |
) |
|
|
2.8 |
|
|
|
(8.2 |
) |
Wound
Care/Other
|
|
|
244 |
|
|
|
250 |
|
|
|
(2.4 |
) |
|
|
4.0 |
|
|
|
(6.4 |
) |
Total
|
|
$ |
3,711 |
|
|
$ |
4,064 |
|
|
|
(8.7 |
)% |
|
|
(1.0 |
)% |
|
|
(7.7 |
)% |
The OTC
Pharmaceuticals and Nutritionals franchise experienced an operational
decline of 8.4% as compared to prior year fiscal first quarter. The 2008
inventory build for initial stocking related to the U.S. launch of
over-the-counter ZYRTEC®
negatively impacted year over year growth comparisons. Additionally, competition
from private label and a milder flu and fever season in the U.S. have negatively
impacted sales.
The Skin
Care franchise achieved operational growth of 7.8% over prior year fiscal first
quarter. This was attributable to growth in the Neutrogena and Aveeno product
lines in addition to sales of recently acquired products from the acquisition of
Beijing Dabao Cosmetics Co., Ltd.
The Baby
Care franchise operational growth was 0.9% over prior year fiscal first quarter.
This was due to growth in the cleanser and powder product lines primarily
outside the U.S. partially offset by the impact of BabyCenter exiting the online
retail business.
The Oral
Care franchise operational growth of 2.8% was driven by the growth of
LISTERINE®
mouthwash partially offset by lower sales of whitening strips and mouth
fresheners.
Pharmaceutical
Pharmaceutical
segment sales in the first fiscal quarter of 2009 were $5.8 billion, a total
decrease of 10.1% as compared to the same period a year ago with an operational
decline of 5.1% and a decrease of 5.0% related to the negative impact of
currency. U.S. Pharmaceutical sales declined by 9.7% as compared to the same
period a year ago. International Pharmaceutical sales experienced a sales
decline of 10.7%, representing an operational increase of 2.8%, and a decrease
of 13.5% related to the negative impact of currency.
Major
Pharmaceutical Product Revenues – Fiscal Quarters Ended
(Dollars
in Millions)
|
|
March
29, 2009
|
|
|
March
30, 2008
|
|
|
Total
Change
|
|
|
Operations
Change
|
|
|
Currency
Change
|
|
REMICADE®
|
|
$ |
1,028 |
|
|
$ |
998 |
|
|
|
3.0 |
% |
|
|
3.0 |
% |
|
|
- |
% |
TOPAMAX®
|
|
|
602 |
|
|
|
646 |
|
|
|
(6.8 |
) |
|
|
(3.8 |
) |
|
|
(3.0 |
) |
PROCRIT®/EPREX®
|
|
|
550 |
|
|
|
629 |
|
|
|
(12.6 |
) |
|
|
(6.8 |
) |
|
|
(5.8 |
) |
LEVAQUIN®/FLOXIN®
|
|
|
425 |
|
|
|
496 |
|
|
|
(14.3 |
) |
|
|
(13.4 |
) |
|
|
(0.9 |
) |
CONCERTA®
|
|
|
344 |
|
|
|
290 |
|
|
|
18.6 |
|
|
|
23.9 |
|
|
|
(5.3 |
) |
RISPERDAL®
CONSTA®
|
|
|
325 |
|
|
|
309 |
|
|
|
5.2 |
|
|
|
17.5 |
|
|
|
(12.3 |
) |
RISPERDAL®/risperidone
|
|
|
275 |
|
|
|
809 |
|
|
|
(66.0 |
) |
|
|
(64.2 |
) |
|
|
(1.8 |
) |
ACIPHEX®/PARIET®
|
|
|
263 |
|
|
|
277 |
|
|
|
(5.1 |
) |
|
|
3.0 |
|
|
|
(8.1 |
) |
DURAGESIC®/Fentanyl
Transdermal
|
|
|
231 |
|
|
|
233 |
|
|
|
(0.9 |
) |
|
|
8.5 |
|
|
|
(9.4 |
) |
Other
|
|
|
1,737 |
|
|
|
1,742 |
|
|
|
(0.3 |
) |
|
|
9.4 |
|
|
|
(9.7 |
) |
Total
|
|
$ |
5,780 |
|
|
$ |
6,429 |
|
|
|
(10.1 |
)% |
|
|
(5.1 |
)% |
|
|
(5.0 |
)% |
REMICADE® (infliximab), a
biologic approved for the treatment of Crohn’s disease, ankylosing spondylitis,
psoriasis, psoriatic arthritis, ulcerative colitis and use in the treatment of
rheumatoid arthritis, achieved operational growth of 3.0% over prior year fiscal
first quarter. Sales to the U.S. market grew 9.0% versus the prior year
primarily driven by market growth. U.S. export sales declined 10.6% versus the
prior year due to production planning needs in both fiscal first quarters 2009
and 2008. REMICADE® is competing in a
market which is experiencing increased competition due to new entrants and the
expansion of indications for existing competitors.
TOPAMAX® (topiramate),
which has been approved for adjunctive and monotherapy use in epilepsy, as well
as for the prophylactic treatment of migraines, experienced an operational
decline of 3.8% as compared to prior year fiscal first quarter. Marketing
exclusivity for TOPAMAX® (topiramate) in
the U.S. expired in March 2009 and multiple generics have entered the market.
The expiration of a product patent or loss of market exclusivity will result in
a significant reduction in sales. In 2008, U.S. sales of TOPAMAX® were $2.3
billion. U.S. sales of TOPAMAX® in the fiscal
first quarter of 2009 were $0.5 billion.
PROCRIT® (Epoetin
alfa)/EPREX® (Epoetin
alfa) experienced an operational sales decline of 6.8%, as compared to prior
year fiscal first quarter. The decline in PROCRIT®
sales was due to the declining markets for Erythropoiesis
Stimulating Agents (ESAs) in the U.S. The FDA issued an order requiring a
labeling supplement making specific revisions to the label for ESAs, including
PROCRIT®. The label
for PROCRIT® was
updated July 30, 2008 based on review of emerging safety data for the use of
ESAs in patients with cancer. Outside the U.S., new competition and the emerging
safety data issues have contributed to the lower sales results for EPREX®.
LEVAQUIN®(levofloxacin)/FLOXIN®(ofloxacin),
experienced an operational decline of 13.4% primarily due to lower incidence of
respiratory illness and flu in the U.S.
CONCERTA®
(methylphenidate HCl), a product for the treatment of attention deficit
hyperactivity disorder, achieved operational sales growth of 23.9% over the
fiscal first quarter of 2008 primarily due to market growth. Although the
original CONCERTA® patent
expired in 2004, the FDA has not approved any generic version that is
substitutable for CONCERTA®. Parties
have filed Abbreviated New Drug Applications (ANDAs) for generic versions of
CONCERTA®, which are
pending and may be approved at any time.
RISPERDAL®
CONSTA® (risperidone), a long-acting injectable for the treatment of
schizophrenia, achieved operational growth of 17.5% over the fiscal first
quarter of 2008. Strong growth was due to a positive shift from daily therapies
to longer-acting RISPERDAL® CONSTA®.
RISPERDAL®(risperidone),
a medication that treats the symptoms of schizophrenia, bipolar mania and
irritability associated with autistic behavior in indicated patients,
experienced an operational decline of 64.2% versus the prior year. Market
exclusivity for RISPERDAL® oral in the U.S. expired on June 29, 2008. Loss of
market exclusivity for the RISPERDAL® oral patent has resulted in a significant
reduction in sales in the U.S. In 2008, U.S. sales of RISPERDAL® oral were $1.3
billion. U.S. sales of RISPERDAL® oral were $1.1 billion and $0.2 billion in the
first half and the second half of the 2008 fiscal year,
respectively.
ACIPHEX®/PARIET® and
DURAGESIC®/Fentanyl Transdermal (fentanyl transdermal system) achieved
operational growth of 3.0% and 8.5%, respectively, versus the prior
year.
In the
fiscal first quarter of 2009, Other Pharmaceutical sales achieved operational
growth of 9.4% versus the prior year. Contributors to the increase were sales of
VELCADE®
(bortezomib), a treatment for multiple myeloma, PREZISTA®
(darunavir), for the treatment of HIV/AIDS patients and INVEGA®
(paliperidone), a once-daily atypical antipsychotic.
Medical
Devices and Diagnostics
Medical
Devices and Diagnostics segment sales in the first fiscal quarter of 2009 were
$5.5 billion, a decrease of 2.9% as compared to the same period a year ago, with
3.1% of this change due to operational increases and a decrease of 6.0% related
to the negative impact of currency. The U.S. Medical Devices and Diagnostics
sales increase was 2.5% and the decline in international Medical Devices and
Diagnostics sales was 7.4%, which included operational increases of 3.6% and a
decrease of 11.0% related to the negative impact of currency.
Major
Medical Devices and Diagnostics Franchise Sales* – Fiscal Quarters
Ended
(Dollars
in Millions)
|
|
March
29, 2009
|
|
|
March
30, 2008
|
|
|
Total
Change
|
|
|
Operations
Change
|
|
|
Currency
Change
|
|
DEPUY®
|
|
$ |
1,292 |
|
|
$ |
1,287 |
|
|
|
0.4 |
% |
|
|
7.3 |
% |
|
|
(6.9 |
)% |
ETHICON
ENDO-SURGERY®
|
|
|
1,015 |
|
|
|
1,003 |
|
|
|
1.2 |
|
|
|
8.6 |
|
|
|
(7.4 |
) |
ETHICON®
|
|
|
953 |
|
|
|
945 |
|
|
|
0.8 |
|
|
|
9.1 |
|
|
|
(8.3 |
) |
CORDIS®
|
|
|
668 |
|
|
|
801 |
|
|
|
(16.6 |
) |
|
|
(12.9 |
) |
|
|
(3.7 |
) |
Vision
Care
|
|
|
599 |
|
|
|
607 |
|
|
|
(1.3 |
) |
|
|
0.6 |
|
|
|
(1.9 |
) |
Diabetes
Care
|
|
|
541 |
|
|
|
615 |
|
|
|
(12.0 |
) |
|
|
(6.0 |
) |
|
|
(6.0 |
) |
ORTHO-CLINICAL
DIAGNOSTICS®
|
|
|
467 |
|
|
|
443 |
|
|
|
5.4 |
|
|
|
10.3 |
|
|
|
(4.9 |
) |
Total
|
|
$ |
5,535 |
|
|
$ |
5,701 |
|
|
|
(2.9 |
)% |
|
|
3.1 |
% |
|
|
(6.0 |
)% |
*Prior
year amounts have been reclassified to conform to current
presentation.
The DePuy
franchise achieved operational growth of 7.3% over the same period a year ago.
This growth was primarily due to growth in the hip and spine product line.
Additionally, new product launches in the Mitek sports medicine product
line contributed to the growth.
The
Ethicon Endo-Surgery franchise achieved operational growth of 8.6% over prior
year fiscal first quarter. This growth was mainly driven by the HARMONIC™ technology
business due to the success of newly launched products and the underlying
strength of the technology. Additional contributors to the growth were the
REALIZE® Gastric
Band in the U.S. and endoscopy products outside the U.S.
The
Ethicon franchise achieved operational growth of 9.1% over prior year fiscal
first quarter. This was attributable to growth in the meshes and biosurgical
product lines in addition to sales of newly acquired products from the
acquisition of Mentor Corporation.
The
Cordis franchise experienced an operational sales decline of 12.9% as compared
to the fiscal first quarter of 2008. This decline was caused by lower sales of
the CYPHER® Sirolimus-eluting Coronary Stent due to increased global
competition. These results were partially offset by growth of the Biosense
Webster business.
The
Vision Care franchise achieved operational sales growth of 0.6%. ACUVUE® OASYS™,
1-DAY ACUVUE® MOIST™, and ACUVUE®
OASYS™ for Astigmatism were the major contributors to this growth offset by
slowing category growth due to declines in consumer spending.
The
Diabetes Care franchise experienced an operational sales decline of 6.0% as
compared to the fiscal first quarter of 2008. This decline reflects the overall
decrease in the market due to current economic conditions. These results were
partially offset by growth of the Animas business.
The
Ortho-Clinical Diagnostics franchise achieved operational growth of 10.3% over
the fiscal first quarter of 2008. This was attributable to sales growth in
Immunohematology and donor screening products. Additionally, the launch of new
VITROS 3600 and 5600 analyzers contributed to the growth.
Cost of
Products Sold and Selling, Marketing and Administrative Expenses
Consolidated
costs of products sold decreased to 28.3% from 28.5% of sales as compared to the
same period a year ago. The decrease was primarily due to cost containment,
primarily in the Medical Devices and Diagnostics business.
Consolidated
selling, marketing and administrative expenses decreased 0.9% of sales as
compared to the same period a year ago. Selling,
marketing and administrative expenses as a percent to sales were 30.7% versus
31.6% in the fiscal first quarter of 2008. The decreases in the percent to sales
was attributable to cost containment efforts across all the businesses,
primarily the Consumer business.
Research
& Development
Research
activities represent a significant part of the Company’s
business. These expenditures relate to the development of new
products, improvement of existing products, technical support of products and
compliance with governmental regulations for the protection of the consumer.
Worldwide costs of research activities, for the fiscal first quarter of 2009
were $1.5 billion, a decrease of 11.3% as compared to the same period a
year ago. As a percent to sales, the level of research and development spending
decreased to 10.1% in the fiscal first quarter of 2009, from 10.6% during the
same period a year ago. The decrease as a percent to sales was primarily due to
changes to the mix of businesses and increased efficiencies in the
Pharmaceutical research and development support.
Other
(Income) Expense, Net
Other (income)
expense, net is the account where the Company records gains and losses related
to the sale and write-down of certain equity securities of the Johnson &
Johnson Development Corporation, gains and losses on the disposal of fixed
assets, currency gains and losses, gains and losses relating to non-controlling
interests, litigation settlements, as well as royalty income. The favorable
change in other (income) expense, net for the fiscal first quarter of 2009 as
compared to the fiscal first quarter of 2008 was primarily due to integration
costs associated with the Consumer Healthcare business of Pfizer Inc. recorded
in the fiscal first quarter of 2008.
OPERATING
PROFIT BY SEGMENT
Consumer
Segment
Operating
profit for the Consumer segment as a percent to sales in the fiscal first
quarter of 2009 was 21.6% versus 17.9% for the same period a year ago. The
increase was primarily due to cost containment initiatives related to selling,
marketing and administrative expenses. Additionally, the fiscal first quarter of
2008 included integration costs associated with the acquisition of the Consumer
Healthcare business of Pfizer Inc.
Pharmaceutical
Segment
Operating
profit for the Pharmaceutical segment as a percent to sales in the fiscal first
quarter of 2009 was 39.0% versus 36.8% for the same period a year ago. The
primary driver of the improved operating profit was due to the savings generated
by the cost containment initiatives partially offset by the negative impact of
product mix.
Medical
Devices and Diagnostics Segment
Operating
profit for the Medical Devices and Diagnostics segment as a percent to sales in
the fiscal first quarter of 2009 was 32.3% versus 31.6% for the same period a
year ago. The primary driver of the improvement in the operating profit margin
in the Medical Devices and Diagnostics segment was due to favorable product mix,
manufacturing efficiencies and cost containment initiatives.
Interest
(Income) Expense
Interest
income in the fiscal first quarter of 2009 decreased by $57 million as compared
to the fiscal first quarter of 2008, due to lower rates of interest earned,
despite higher average cash balances. The ending balance of cash, cash
equivalents and marketable securities was $13.9 billion at the end of the fiscal
first quarter of 2009. This is an increase of $2.8 billion from the same period
a year ago. The increase was primarily due to cash generated from operating
activities.
Interest
expense in the fiscal first quarter of 2009 increased by $8 million as compared
to the fiscal first quarter of 2008, due to a higher debt position of $14.1
billion at the end of the fiscal first quarter of 2009, compared to $11.4
billion from the same period a year ago. The higher debt balance was due to
increased borrowings primarily to purchase common stock under the ongoing Common
Stock repurchase program announced on July 9, 2007 and to fund
acquisitions.
Provision
For Taxes on Income
The
worldwide effective income tax rates for the first fiscal quarters of 2009 and
2008 were 24.5% and 24.2%, respectively. The increase in the effective tax rate
was primarily due to increases in taxable income in higher tax jurisdictions
relative to taxable income in lower tax jurisdictions partially offset by the
U.S. Research and Development tax credit that was not in effect in the fiscal
first quarter of 2008.
As of
March 29, 2009 the Company had approximately $2.1 billion of liabilities from
unrecognized tax benefits. The Company does not expect that the total amount of
unrecognized tax benefits will change significantly during the next twelve
months.
See Note
8 to the Consolidated Financial Statements in the Annual Report on Form 10-K for
the fiscal year ended December 28, 2008 for more detailed information regarding
unrecognized tax benefits.
LIQUIDITY
AND CAPITAL RESOURCES
Cash
Flows
Cash and
Cash equivalents were $12.6 billion at the end of the fiscal first quarter of
2009 as compared with $10.8 billion at the fiscal year end of 2008. The primary
sources of cash that contributed to the $1.8 billion increase were $2.8 billion
generated from operating activities and $2.2 billion net proceeds from
short-term debt. The major uses of cash were acquisitions of $1.3 billion,
dividends to shareholders of $1.3 billion and the repurchase of common stock of
$0.8 billion.
Cash flow
from operations of $2.8 billion is the result of $3.5 billion of net earnings
and $0.8 billion of non cash charges related to depreciation and amortization
and stock based compensation offset by $1.5 billion related to changes in
assets, liabilities and the deferred tax provision net of effects from
acquisitions.
In the
fiscal first quarter of 2009 the Company continued to have access to liquidity
through the commercial paper market. The Company anticipates that operating cash
flows, existing credit facilities and access to the commercial paper markets
will continue to provide sufficient resources to fund operating needs in
2009.
Dividends
On
January 5, 2009, the Board of Directors declared a regular cash dividend of
$0.460 per share, which was paid on March 10, 2009 to shareholders of record as
of February 24, 2009.
On April
23, 2009, the Board of Directors declared a regular cash dividend of $0.490 per
share, payable on June 9, 2009 to shareholders of record as of May 26, 2009.
This represented an increase of 6.5% in the quarterly dividend rate and was the
47th consecutive year of cash dividend increases. The Company expects to
continue the practice of paying regular quarterly cash dividends.
OTHER
INFORMATION
New
Accounting Standards
During
the fiscal first quarter of 2009, the Company adopted, SFAS Statements No.
141(R), Business
Combinations, and No. 160, Noncontrolling Interests in
Consolidated Financial Statements. These statements aim to improve,
simplify, and converge internationally the accounting for business combinations
and the reporting of noncontrolling interests in consolidated financial
statements. These statements have a significant impact on the manner in which
the Company accounts for acquisitions beginning in the fiscal year 2009.
Significant changes include the capitalization of in process research and
development (IPR&D), expensing of acquisition related restructuring actions
and transaction related costs and the recognition of contingent purchase price
consideration at fair value at the acquisition date. In addition, changes in
accounting for deferred tax asset valuation allowances and acquired income tax
uncertainties after the measurement period will be recognized in earnings rather
than as an adjustment to the cost of acquisition. This accounting treatment for
taxes is applicable to acquisitions that occurred both prior and subsequent to
the adoption of SFAS No. 141(R). Noncontrolling interests as related to Johnson
& Johnson's financial statements are insignificant therefore, the adoption
of SFAS No. 141(R) and SFAS No. 160 did not have a material effect on the
Company’s results of operations, cash flows or financial position.
During
the fiscal first quarter of 2009, the Company adopted, SFAS Statement No. 161,
Disclosures About Derivative
Instruments and Hedging Activities, to enhance the disclosure regarding
the Company’s derivative and hedging activities to improve the transparency of
financial reporting. The adoption of SFAS No. 161 did not have a significant
impact on the Company’s results of operations, cash flows or financial position.
See Note 2 for more enhanced disclosures.
EITF
Issue 07-1: Accounting for
Collaborative Arrangements Related to the Development and Commercialization of
Intellectual Property. This issue is effective for financial statements
issued for fiscal years beginning after December 15, 2008 and was adopted by the
Company in the fiscal first quarter of 2009. This issue addresses
the income statement classification of payments made between parties in a
collaborative arrangement. The adoption of EITF 07-1 did not have a significant
impact on the Company’s results of operations, cash flows or financial
position.
EITF
Issue 08-7: Accounting for
Defensive Intangible Assets. This issue is effective for financial
statements issued for fiscal years beginning after December 15, 2008 and was
adopted by the Company in the fiscal first quarter of 2009. This issue applies
to acquired intangible assets in situations in which an entity does not intend
to actively use the asset but intends to hold the asset to prevent others from
obtaining access to the asset, except for intangible assets that are used in
research and development activities. The adoption of EITF 08-7 did not have a
significant impact on the Company’s results of operations, cash flows or
financial position.
Economic
and Market Factors
Johnson
& Johnson is aware that its products are used in an environment where, for
more than a decade, policymakers, consumers and businesses have expressed
concern about the rising cost of health care. Johnson & Johnson
has a long-standing policy of pricing products responsibly. For the period 1998
through 2008 in the United States, the weighted average compound annual growth
rate of Johnson & Johnson price increases for health care products
(prescription and over-the-counter drugs, hospital and professional products)
was below the U.S. Consumer Price Index (CPI).
Inflation
rates continue to have an effect on worldwide economies and, consequently, on
the way companies operate. In the face of increasing costs, the Company strives
to maintain its profit margins through cost reduction programs, productivity
improvements and periodic price increases. The Company faces various
worldwide health care changes that may continue to result in pricing pressures
that include health care cost containment and government legislation relating to
sales, promotions and reimbursement.
Changes
in the behavior and spending patterns of consumers of health care products and
services, including delaying medical procedures, rationing prescription
medications, reducing the frequency of physician visits and foregoing health
care insurance coverage, as a result of a prolonged global economic downturn
will continue to impact the Company’s businesses.
The
Company also operates in an environment increasingly hostile to intellectual
property rights. Generic drug firms have filed Abbreviated New Drug Applications
seeking to market generic forms of most of the Company's key pharmaceutical
products, prior to expiration of the applicable patents covering those products.
In the event the Company is not successful in defending a lawsuit resulting from
an Abbreviated New Drug Application filing, the generic firms will then
introduce generic versions of the product at issue, resulting in very
substantial market share and revenue losses. For further information see the
discussion on “Litigation Against Filers of Abbreviated New Drug Applications”
included in Item 1. Financial Statements (unaudited)- Notes to Consolidated
Financial Statements, Note 12.
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
approval, 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 that 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. The Company does not undertake to update any
forward-looking statements as a result of new information or future events
or developments.
Risks and
uncertainties include general industry conditions and competition; economic
conditions; interest rate and currency exchange rate fluctuations; technological
advances, new products and patents attained by competitors; challenges inherent
in new product development, including obtaining regulatory approvals; challenges
to patents; U.S. and foreign health care reforms and governmental laws and
regulations; trends toward health care cost containment; increased scrutiny of
the health care industry by government agencies; product efficacy or safety
concerns resulting in product recalls or regulatory action.
The
Company's Annual Report on Form 10-K for the fiscal year ended December 28, 2008
contains, as an Exhibit, a discussion of additional factors that could cause
actual results to differ from expectations. 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
28, 2008.
Item 4 -
CONTROLS AND PROCEDURES
Disclosure
controls and procedures. At the end of the period covered by 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 designed to ensure that information required to be disclosed
by the Company in the reports that it files or submits under the Securities
Exchange Act is recorded, processed, summarized and reported, within the time
periods specified in the SEC’s rules and forms. Disclosure controls and
procedures include, without limitation, controls and procedures designed to
ensure that information required to be disclosed by the Company in the reports
that it files or submits under the Securities Exchange Act is accumulated and
communicated to the Company’s management, including its principal executive and
principal financial officers, or persons performing similar functions, as
appropriate to allow timely decisions regarding required
disclosure. William C. Weldon, Chairman and Chief Executive Officer,
and Dominic J. Caruso, Vice President, Finance and Chief Financial Officer,
reviewed and participated in this evaluation. Based on this
evaluation, Messrs. Weldon and Caruso concluded that, as of the end of the
period covered by this report, the Company's disclosure controls and procedures
were effective.
Internal
control. During the period covered by this report, there were no
changes in the Company's internal control over financial reporting that have
materially affected, or are reasonably likely to materially affect, the
Company’s internal control over financial reporting.
Part II –
OTHER INFORMATION
Item 1 –
LEGAL PROCEEDINGS
The
information called for by this item is incorporated herein by reference to Note
12 included in Part I, Item 1, Financial Statements (unaudited) - Notes to
Consolidated Financial Statements.
Item 2 –
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
(c)
Purchases of Equity Securities by the Issuer and Affiliated
Purchasers.
The
following table provides information with respect to Common Stock purchases by
the Company during the fiscal first quarter of 2009. Common Stock
purchases on the open market are made as part of a systematic plan to meet the
needs of the Company’s compensation programs.
Fiscal
Month
|
|
Total
Number of Shares Purchased (1)
|
|
|
Average
Price Paid per Share
|
|
|
Total
Number of Shares Purchased as Part of Publicly Announced Plans or
Programs
|
|
|
Remaining
Maximum Number of Shares that May Be Purchased Under the Plans or Programs
(2)
|
|
December
29, 2008 through Jan. 25, 2009
|
|
|
1,968,100 |
|
|
$ |
58.58 |
|
|
|
357,700 |
|
|
|
|
Jan.
26, 2009 through February 22, 2009
|
|
|
4,038,600 |
|
|
$ |
57.13 |
|
|
|
168,200 |
|
|
|
|
February
23, 2009 through March 29, 2009
|
|
|
9,569,700 |
|
|
$ |
50.95 |
|
|
|
9,569,700 |
|
|
|
|
Total
|
|
|
15,576,400 |
|
|
|
|
|
|
|
10,095,600 |
(3) |
|
|
25,910,388 |
|
(1)
During the fiscal first quarter of 2009, the Company repurchased an aggregate of
10,095,600 shares of Johnson & Johnson Common Stock pursuant to the
repurchase program that was publicly announced on July 9, 2007 and an aggregate
of 5,480,800 shares in open-market transactions outside of the program. The
repurchase program has no time limit and may be suspended for periods or
discontinued at any time.
(2) As of
March 29, 2009, based on the closing price of the Company’s Common Stock on the
New York Stock Exchange on March 27, 2009 of $52.83 per share.
(3) As of
March 29, 2009, an aggregate of 134,946,100 shares were purchased for a total of
$8.6 billion since the inception of the repurchase program announced on July 9,
2007.
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 23,
2009.
(b) Election
of the directors is set forth in (c) below.
(c) The
shareholders elected all the Company’s nominees for director and ratified the
appointment of PricewaterhouseCoopers LLP as the Company’s independent
registered accounting firm for the fiscal year 2009. The shareholders
did not approve the shareholder proposal on advisory vote on executive
compensation policies and disclosure.
1. Election
of Directors:
|
|
Shares
For
|
|
|
Shares
Against
|
|
|
Shares
Abstain
|
|
|
|
|
|
|
|
|
|
|
|
M.
S. Coleman
|
|
|
2,006,621,700 |
|
|
|
278,304,735 |
|
|
|
9,262,645 |
|
J.
G. Cullen
|
|
|
2,184,391,596 |
|
|
|
100,227,251 |
|
|
|
9,570,234 |
|
M.
M. E. Johns
|
|
|
2,000,881,337 |
|
|
|
283,706,569 |
|
|
|
9,601,174 |
|
A.
G. Langbo
|
|
|
2,237,877,187 |
|
|
|
45,587,608 |
|
|
|
10,724,285 |
|
S.
L. Lindquist
|
|
|
2,242,706,560 |
|
|
|
42,646,713 |
|
|
|
8,835,807 |
|
L.
F. Mullin
|
|
|
2,251,383,532 |
|
|
|
33,017,031 |
|
|
|
9,788,517 |
|
W.
D. Perez
|
|
|
2,195,483,097 |
|
|
|
88,941,946 |
|
|
|
9,764,037 |
|
C.
Prince
|
|
|
1,943,973,242 |
|
|
|
338,759,442 |
|
|
|
11,456,396 |
|
D.
Satcher
|
|
|
2,239,626,695 |
|
|
|
45,189,957 |
|
|
|
9,372,429 |
|
W.
C. Weldon
|
|
|
2,223,794,439 |
|
|
|
60,786,646 |
|
|
|
9,607,995 |
|
2. Ratification
of Appointment of PricewaterhouseCoopers LLP:
For
|
|
|
2,243,215,941 |
|
Against
|
|
|
42,453,068 |
|
Abstain
|
|
|
8,520,072
|
|
3. Shareholder
proposal on advisory vote on executive compensation policies and
disclosure:
For
|
|
|
822,133,632 |
|
Against
|
|
|
951,896,313 |
|
Abstain
|
|
|
75,811,847 |
|
Non-votes
|
|
|
444,347,289
|
|
Item 6 –
EXHIBITS
Exhibit
31.1 Certifications under Rule 13a-14(a) of the Securities
Exchange Act pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 – Filed with this document.
Exhibit
32.1 Certifications pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 – Furnished with this document.
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 5, 2009
|
By
/s/ D.J. CARUSO
D.J.
CARUSO
Vice
President, Finance;
Chief
Financial Officer
(Principal
Financial Officer)
|
Date:
May 5, 2009
|
By
/s/ S.J. COSGROVE
S.J. COSGROVE
Controller
(Principal
Accounting Officer)
|