tenq2ndqtr2008.htm
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
(X) Quarterly
Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended
June 29, 2008
or
( )
Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period
from to
Commission
file number 1-3215
(Exact
name of registrant as specified in its charter)
NEW
JERSEY
(State or
other jurisdiction of
incorporation
or organization)
|
22-1024240
|
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 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 July
27, 2008 2,794,495,628 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 - June
29, 2008 and December 30, 2007
Consolidated
Statements of Earnings for the Fiscal Second
Quarters Ended June 29, 2008 and July
1, 2007
Consolidated
Statements of Earnings for the Fiscal Six
Months Ended June 29, 2008 and July
1, 2007
Consolidated
Statements of Cash Flows for the Fiscal Six
Months Ended June 29, 2008 and July
1, 2007
Notes
to Consolidated Financial Statements
Item
2. Management's Discussion and Analysis of Financial
Condition and Results of
Operations
Item
3. Quantitative and Qualitative Disclosures About
Market Risk
Item
4. Controls and Procedures
Part
II - Other Information
Item
1 - Legal Proceedings
Item
2 – Unregistered Sales of Equity Securities and
Use of Proceeds
Item
4 – Submission of Matters to a Vote of Security Holders
Item
6 - Exhibits
Signatures
|
3
5
6
7
9
31
44
45
45
45
46
47
48
|
Part I -
FINANCIAL INFORMATION
Item 1 –
FINANCIAL STATEMENTS
JOHNSON
& JOHNSON AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
(Unaudited;
Dollars in Millions)
ASSETS
|
|
June
29, 2008
|
|
|
December
30, 2007
|
|
Current
assets:
|
|
|
|
|
|
|
Cash
& cash equivalents
|
|
$ |
12,646 |
|
|
$ |
7,770 |
|
Marketable
securities
|
|
|
412 |
|
|
|
1,545 |
|
Accounts
receivable, trade, less allowances for doubtful accounts $216
(2007,$193)
|
|
|
10,539 |
|
|
|
9,444 |
|
Inventories
(Note 4)
|
|
|
5,700 |
|
|
|
5,110 |
|
Deferred
taxes on income
|
|
|
2,612 |
|
|
|
2,609 |
|
Prepaid
expenses and other receivables
|
|
|
3,908 |
|
|
|
3,467 |
|
Total
current assets
|
|
|
35,817 |
|
|
|
29,945 |
|
Marketable
securities, non-current
|
|
|
3 |
|
|
|
2 |
|
Property,
plant and equipment at cost
|
|
|
27,989 |
|
|
|
26,466 |
|
Less:
accumulated depreciation
|
|
|
(13,362 |
) |
|
|
(12,281 |
) |
Property,
plant and equipment, net
|
|
|
14,627 |
|
|
|
14,185 |
|
Intangible
assets, net (Note 5)
|
|
|
14,675 |
|
|
|
14,640 |
|
Goodwill,
net (Note 5)
|
|
|
14,526 |
|
|
|
14,123 |
|
Deferred
taxes on income
|
|
|
5,422 |
|
|
|
4,889 |
|
Other
assets
|
|
|
3,043 |
|
|
|
3,170 |
|
Total
assets
|
|
$ |
88,113 |
|
|
$ |
80,954 |
|
See Notes
to Consolidated Financial Statements
JOHNSON
& JOHNSON AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
(Unaudited;
Dollars in Millions)
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
|
June
29, 2008
|
|
|
December
30, 2007
|
|
Current
liabilities:
|
|
|
|
|
|
|
Loans
and notes payable
|
|
$ |
5,156 |
|
|
$ |
2,463 |
|
Accounts
payable
|
|
|
6,623 |
|
|
|
6,909 |
|
Accrued
liabilities
|
|
|
5,631 |
|
|
|
6,412 |
|
Accrued
rebates, returns and promotions
|
|
|
2,693 |
|
|
|
2,318 |
|
Accrued
salaries, wages and commissions
|
|
|
1,292 |
|
|
|
1,512 |
|
Accrued
taxes on income
|
|
|
385 |
|
|
|
223 |
|
Total
current liabilities
|
|
|
21,780 |
|
|
|
19,837 |
|
Long-term
debt
|
|
|
8,770 |
|
|
|
7,074 |
|
Deferred
taxes on income
|
|
|
1,454 |
|
|
|
1,493 |
|
Employee
related obligations
|
|
|
5,572 |
|
|
|
5,402 |
|
Other
liabilities
|
|
|
4,102 |
|
|
|
3,829 |
|
Total
liabilities
|
|
|
41,678 |
|
|
|
37,635 |
|
Shareholders’
equity:
|
|
|
|
|
|
|
|
|
Common
stock – par value $1.00 per share (authorized 4,320,000,000 shares; issued
3,119,842,548 shares)
|
|
|
3,120 |
|
|
|
3,120 |
|
Accumulated
other comprehensive income (Note 8)
|
|
|
561 |
|
|
|
(693 |
) |
Retained
earnings
|
|
|
59,960 |
|
|
|
55,280 |
|
Less:
common stock held in treasury, at cost (323,420,000 and 279,620,000
shares)
|
|
|
17,206 |
|
|
|
14,388 |
|
Total
shareholders’ equity
|
|
|
46,435 |
|
|
|
43,319 |
|
Total
liabilities and shareholders’ equity
|
|
$ |
88,113 |
|
|
$ |
80,954 |
|
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
|
|
|
|
June
29, 2008
|
|
|
Percent
to Sales
|
|
|
July
1, 2007
|
|
|
Percent
to Sales
|
|
Sales
to customers (Note 6)
|
|
$ |
16,450 |
|
|
|
100.0 |
% |
|
$ |
15,131 |
|
|
|
100.0 |
% |
Cost
of products sold
|
|
|
4,751 |
|
|
|
28.9 |
|
|
|
4,358 |
|
|
|
28.8 |
|
Gross
profit
|
|
|
11,699 |
|
|
|
71.1 |
|
|
|
10,773 |
|
|
|
71.2 |
|
Selling,
marketing and
administrative
expenses
|
|
|
5,507 |
|
|
|
33.5 |
|
|
|
5,029 |
|
|
|
33.3 |
|
Research
expense
|
|
|
1,896 |
|
|
|
11.5 |
|
|
|
1,866 |
|
|
|
12.3 |
|
In-process
research & development (IPR&D)
|
|
|
40 |
|
|
|
0.2 |
|
|
|
- |
|
|
|
- |
|
Interest
income
|
|
|
(89 |
) |
|
|
(0.5 |
) |
|
|
(95 |
) |
|
|
(0.6 |
) |
Interest
expense, net of portion capitalized
|
|
|
105 |
|
|
|
0.6 |
|
|
|
59 |
|
|
|
0.4 |
|
Other
income, net
|
|
|
(135 |
) |
|
|
(0.8 |
) |
|
|
(117 |
) |
|
|
(0.8 |
) |
Earnings
before provision for taxes on income
|
|
|
4,375 |
|
|
|
26.6 |
|
|
|
4,031 |
|
|
|
26.6 |
|
Provision
for taxes on income (Note 3)
|
|
|
1,048 |
|
|
|
6.4 |
|
|
|
950 |
|
|
|
6.2 |
|
NET
EARNINGS
|
|
$ |
3,327 |
|
|
|
20.2 |
% |
|
$ |
3,081 |
|
|
|
20.4 |
% |
`
NET
EARNINGS PER SHARE (Note 7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
1.18 |
|
|
|
|
|
|
$ |
1.06 |
|
|
|
|
|
Diluted
|
|
$ |
1.17 |
|
|
|
|
|
|
$ |
1.05 |
|
|
|
|
|
CASH
DIVIDENDS PER SHARE
|
|
$ |
0.460 |
|
|
|
|
|
|
$ |
0.415 |
|
|
|
|
|
AVG.
SHARES OUTSTANDING
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
2,809.8 |
|
|
|
|
|
|
|
2,895.1 |
|
|
|
|
|
Diluted
|
|
|
2,844.8 |
|
|
|
|
|
|
|
2,922.5 |
|
|
|
|
|
See
Notes to Consolidated Financial Statements
JOHNSON
& JOHNSON AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF EARNINGS
(Unaudited;
dollars & shares in millions
except
per share amounts)
|
|
Fiscal
Six Months Ended
|
|
|
|
June
29, 2008
|
|
|
Percent
to Sales
|
|
|
July
1, 2007
|
|
|
Percent
to Sales
|
|
Sales
to customers (Note 6)
|
|
$ |
32,644 |
|
|
|
100.0 |
% |
|
$ |
30,168 |
|
|
|
100.0 |
% |
Cost
of products sold
|
|
|
9,365 |
|
|
|
28.7 |
|
|
|
8,743 |
|
|
|
29.0 |
|
Gross
profit
|
|
|
23,279 |
|
|
|
71.3 |
|
|
|
21,425 |
|
|
|
71.0 |
|
Selling,
marketing and
administrative
expenses
|
|
|
10,630 |
|
|
|
32.6 |
|
|
|
9,831 |
|
|
|
32.5 |
|
Research
expense
|
|
|
3,608 |
|
|
|
11.1 |
|
|
|
3,518 |
|
|
|
11.7 |
|
In-process
research & development (IPR&D)
|
|
|
40 |
|
|
|
0.1 |
|
|
|
807 |
|
|
|
2.7 |
|
Interest
income
|
|
|
(171 |
) |
|
|
(0.5 |
) |
|
|
(190 |
) |
|
|
(0.6 |
) |
Interest
expense, net of portion capitalized
|
|
|
203 |
|
|
|
0.6 |
|
|
|
121 |
|
|
|
0.4 |
|
Other
income, net
|
|
|
(153 |
) |
|
|
(0.5 |
) |
|
|
(345 |
) |
|
|
(1.1 |
) |
Earnings
before provision for taxes on income
|
|
|
9,122 |
|
|
|
27.9 |
|
|
|
7,683 |
|
|
|
25.4 |
|
Provision
for taxes on income (Note 3)
|
|
|
2,197 |
|
|
|
6.7 |
|
|
|
2,029 |
|
|
|
6.7 |
|
NET
EARNINGS
|
|
$ |
6,925 |
|
|
|
21.2 |
% |
|
$ |
5,654 |
|
|
|
18.7 |
% |
`
NET
EARNINGS PER SHARE (Note 7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
2.45 |
|
|
|
|
|
|
$ |
1.95 |
|
|
|
|
|
Diluted
|
|
$ |
2.43 |
|
|
|
|
|
|
$ |
1.93 |
|
|
|
|
|
CASH
DIVIDENDS PER SHARE
|
|
$ |
0.875 |
|
|
|
|
|
|
$ |
0.790 |
|
|
|
|
|
AVG.
SHARES OUTSTANDING
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
2,821.6 |
|
|
|
|
|
|
|
2,894.8 |
|
|
|
|
|
Diluted
|
|
|
2,856.1 |
|
|
|
|
|
|
|
2,924.9 |
|
|
|
|
|
See
Notes to Consolidated Financial Statements
JOHNSON
& JOHNSON AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Unaudited;
Dollars in Millions)
|
|
Fiscal
Six Months Ended
|
|
|
|
June
29, 2008
|
|
|
July
1, 2007
|
|
CASH
FLOW FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
Net
earnings
|
|
$ |
6,925 |
|
|
$ |
5,654 |
|
Adjustment
to reconcile net earnings to cash flows from operating
activities:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization of property and intangibles
|
|
|
1,349 |
|
|
|
1,305 |
|
Stock
based compensation
|
|
|
356 |
|
|
|
360 |
|
Purchased
in-process research and development
|
|
|
40 |
|
|
|
807 |
|
Deferred
tax provision
|
|
|
(322 |
) |
|
|
(405 |
) |
Accounts
receivable allowances
|
|
|
15 |
|
|
|
1 |
|
Changes
in assets and liabilities, net of effects from
acquisitions:
|
|
|
|
|
|
|
|
|
Increase
in accounts receivable
|
|
|
(732 |
) |
|
|
(659 |
) |
Increase
in inventories
|
|
|
(379 |
) |
|
|
(190 |
) |
Decrease
in accounts payable and accrued liabilities
|
|
|
(1,160 |
) |
|
|
(306 |
) |
Increase
in other current and non-current assets
|
|
|
(756 |
) |
|
|
(424 |
) |
Increase
in other current and non-current liabilities
|
|
|
742 |
|
|
|
591 |
|
NET
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
6,078 |
|
|
|
6,734 |
|
CASH
FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
Additions
to property, plant and equipment
|
|
|
(1,166 |
) |
|
|
(1,045 |
) |
Proceeds
from the disposal of assets
|
|
|
47 |
|
|
|
214 |
|
Acquisitions,
net of cash acquired
|
|
|
(46 |
) |
|
|
(1,368 |
) |
Purchases
of investments
|
|
|
(687 |
) |
|
|
(566 |
) |
Sales
of investments
|
|
|
1,786 |
|
|
|
103 |
|
Other
(primarily intangibles)
|
|
|
(46 |
) |
|
|
(49 |
) |
NET
CASH USED BY INVESTING ACTIVITIES
|
|
|
(112 |
) |
|
|
(2,711 |
) |
CASH
FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Dividends
to shareholders
|
|
|
(2,466 |
) |
|
|
(2,287 |
) |
Repurchase
of common stock
|
|
|
(3,617 |
) |
|
|
(739 |
) |
Proceeds
from short-term debt
|
|
|
3,376 |
|
|
|
15,296 |
|
Retirement
of short-term debt
|
|
|
(837 |
) |
|
|
(15,449 |
) |
Proceeds
from long-term debt
|
|
|
1,641 |
|
|
|
1 |
|
Retirement
of long-term debt
|
|
|
(5 |
) |
|
|
(6 |
) |
Proceeds
from the exercise of stock
options/excess
tax benefits
|
|
|
610 |
|
|
|
564 |
|
|
|
|
|
|
|
|
|
|
NET
CASH USED BY FINANCING ACTIVITIES
|
|
|
(1,298 |
) |
|
|
(2,620 |
) |
|
|
|
|
|
|
|
|
|
Effect
of exchange rate changes on cash and cash
equivalents
|
|
|
208
|
|
|
|
85 |
|
Increase/(decrease)
in cash and cash equivalents |
|
|
4,876 |
|
|
|
1,488 |
|
Cash
and Cash equivalents, beginning of period |
|
|
7,770 |
|
|
|
4,083 |
|
|
|
|
|
|
|
|
|
|
CASH
AND CASH EQUIVALENTS, END OF PERIOD |
|
|
$12,646 |
|
|
|
$5,571 |
|
Acquisitions
|
|
|
Fair
value of assets acquired
|
$51
|
$1,599
|
Fair
value of liabilities assumed
|
(5)
|
(231)
|
Net
cash paid for acquisitions
|
$46
|
$1,368
|
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 30, 2007. 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 2008, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 157, Fair Value Measurements. This
statement defines fair value, establishes a framework for measuring fair value
in generally accepted accounting principles, and expands disclosures about fair
value measurements. This statement was adopted in the fiscal first quarter of
2008 except for non-financial assets and liabilities recognized or disclosed at
fair value on a non-recurring basis, for which the effective date is fiscal
years beginning after November 15, 2008. See Note 13 for more
details.
During
the fiscal first quarter of 2008, the Company adopted SFAS No.159, Fair Value Option for Financial
Assets and Financial Liabilities, which permits an entity to measure
financial assets and financial liabilities at fair value. See Note 13 for more
details.
During
the fiscal first quarter of 2008, the Company adopted EITF Issue 07-03 Accounting for Nonrefundable Advance
Payments for Goods or Services Received for Use in Future Research and
Development Activities. This issue requires nonrefundable advance
payments for research and development to be capitalized and recognized as an
expense as related goods are delivered or services are performed. The adoption
of EITF Issue 07-03 did not have a significant impact on the Company’s results
of operation, cash flows or financial position.
NOTE 2 -
FINANCIAL INSTRUMENTS
The
Company follows the provisions of Statement of Financial Accounting Standards
(SFAS) 133, SFAS 138 and SFAS 149 requiring that all derivative instruments be
recorded on the balance sheet at fair value.
As of
June 29, 2008, the balance of deferred net gains on derivatives included in
accumulated other comprehensive income was $50 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 amount ultimately
realized in earnings will differ as foreign exchange rates change. Realized
gains and losses are ultimately determined by actual exchange rates at maturity
of the derivative. Transactions with third parties will cause the amount in
accumulated other comprehensive income to affect net earnings. The length of
time over which the Company is hedging typically does not exceed 18
months. The Company also uses currency swaps to manage currency risk
primarily related to borrowings, which may exceed 18 months.
For the
fiscal second quarters ended June 29, 2008 and July 1, 2007, the net impact of
the hedges' ineffectiveness, transactions not qualifying for hedge accounting
and discontinuance of hedges, to the Company's financial statements was
insignificant. Refer to Note 8 for disclosures of movements in Accumulated Other
Comprehensive Income.
NOTE 3 -
INCOME TAXES
The
worldwide effective income tax rates for the first fiscal six months of 2008 and
2007 were 24.1% and 26.4%, respectively. The decrease in the effective tax rate
of 2.3% was primarily due to the lower in-process research and development
(IPR&D) charge of $40 million with no tax benefit recorded in the first
fiscal six months of 2008 versus the IPR&D charge of $807 million with no
tax benefit recorded in the first fiscal six months of 2007.
NOTE 4 -
INVENTORIES
(Dollars
in Millions)
|
|
June
29, 2008
|
|
|
December
30, 2007
|
|
Raw
materials and supplies
|
|
$ |
1,137 |
|
|
$ |
905 |
|
Goods
in process
|
|
|
1,764 |
|
|
|
1,384 |
|
Finished
goods
|
|
|
2,799 |
|
|
|
2,821 |
|
Total
|
|
$ |
5,700 |
|
|
$ |
5,110 |
|
NOTE 5 -
INTANGIBLE ASSETS AND GOODWILL
Intangible
assets that have finite useful lives are amortized over their estimated useful
lives. Goodwill and indefinite lived intangible assets are assessed annually for
impairment. The latest impairment assessment of goodwill and
indefinite lived intangible assets was completed in the fiscal fourth quarter of
2007. Future impairment tests will be performed annually in the
fiscal fourth quarter, or sooner if warranted.
(Dollars
in Millions)
|
|
June
29, 2008
|
|
|
December
30, 2007
|
|
Trademarks
(non-amortizable)
|
|
$ |
6,400 |
|
|
$ |
6,457 |
|
Less
accumulated amortization
|
|
|
143 |
|
|
|
144 |
|
Trademarks
(non-amortizable)- net
|
|
|
6,257 |
|
|
|
6,313 |
|
Patents
and trademarks
|
|
|
4,775 |
|
|
|
4,597 |
|
Less
accumulated amortization
|
|
|
1,716 |
|
|
|
1,615 |
|
Patents
and trademarks – net
|
|
|
3,059 |
|
|
|
2,982 |
|
Other
amortizable intangibles
|
|
|
7,636 |
|
|
|
7,399 |
|
Less
accumulated amortization
|
|
|
2,277 |
|
|
|
2,054 |
|
Other
intangibles – net
|
|
|
5,359 |
|
|
|
5,345 |
|
Total
intangible assets - gross
|
|
|
18,811 |
|
|
|
18,453 |
|
Less
accumulated amortization
|
|
|
4,136 |
|
|
|
3,813 |
|
Total
intangible assets - net
|
|
|
14,675 |
|
|
|
14,640 |
|
Goodwill
– gross
|
|
|
15,280 |
|
|
|
14,866 |
|
Less
accumulated amortization
|
|
|
754 |
|
|
|
743 |
|
Goodwill
– net
|
|
$ |
14,526 |
|
|
$ |
14,123 |
|
Goodwill
as of June 29, 2008 as allocated by segment of business is as
follows:
(Dollars
in Millions)
|
|
Consumer
|
|
|
Pharm
|
|
|
Med
Dev & Diag
|
|
|
Total
|
|
Goodwill,
net of accumulated amortization at December 30, 2007
|
|
$ |
8,125 |
|
|
$ |
964 |
|
|
$ |
5,034 |
|
|
$ |
14,123 |
|
Acquisitions
|
|
|
- |
|
|
|
- |
|
|
|
6 |
|
|
|
6 |
|
Translation
& Other
|
|
|
347 |
|
|
|
29 |
|
|
|
21 |
|
|
|
397 |
|
Goodwill,
net as of
June
29, 2008
|
|
$ |
8,472 |
|
|
$ |
993 |
|
|
$ |
5,061 |
|
|
$ |
14,526 |
|
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 six months
ended June 29, 2008 was $376 million and the estimated amortization expense for
the five succeeding years approximates $750 million, per year.
NOTE 6 -
SEGMENTS OF BUSINESS AND GEOGRAPHIC AREAS
(Dollars
in Millions)
SALES BY
SEGMENT OF BUSINESS (1)
|
|
Fiscal
Quarters Ended
|
|
(Dollars
in Millions)
|
|
June
29, 2008
|
|
|
July
1, 2007
|
|
|
Percent
Change
|
|
Consumer
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
$ |
1,694 |
|
|
$ |
1,562 |
|
|
|
8.5 |
% |
International
|
|
|
2,342 |
|
|
|
2,002 |
|
|
|
17.0 |
|
Total
|
|
|
4,036 |
|
|
|
3,564 |
|
|
|
13.2 |
|
Pharmaceutical
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
3,793 |
|
|
|
3,860 |
|
|
|
(1.7 |
) |
International
|
|
|
2,547 |
|
|
|
2,289 |
|
|
|
11.3 |
|
Total
|
|
|
6,340 |
|
|
|
6,149 |
|
|
|
3.1 |
|
Medical
Devices & Diagnostics
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
2,723 |
|
|
|
2,619 |
|
|
|
4.0 |
|
International
|
|
|
3,351 |
|
|
|
2,799 |
|
|
|
19.7 |
|
Total
|
|
|
6,074 |
|
|
|
5,418 |
|
|
|
12.1 |
|
Worldwide
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
8,210 |
|
|
|
8,041 |
|
|
|
2.1 |
|
International
|
|
|
8,240 |
|
|
|
7,090 |
|
|
|
16.2 |
|
Total
|
|
$ |
16,450 |
|
|
$ |
15,131 |
|
|
|
8.7 |
% |
|
|
Fiscal
Six Months Ended
|
|
(Dollars
in Millions)
|
|
June
29, 2008
|
|
|
July
1, 2007
|
|
|
Percent
Change
|
|
Consumer
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
$ |
3,513 |
|
|
$ |
3,191 |
|
|
|
10.1 |
% |
International
|
|
|
4,587 |
|
|
|
3,869 |
|
|
|
18.6 |
|
Total
|
|
|
8,100 |
|
|
|
7,060 |
|
|
|
14.7 |
|
Pharmaceutical
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
7,863 |
|
|
|
7,894 |
|
|
|
(0.4 |
) |
International
|
|
|
4,906 |
|
|
|
4,476 |
|
|
|
9.6 |
|
Total
|
|
|
12,769 |
|
|
|
12,370 |
|
|
|
3.2 |
|
Medical
Devices & Diagnostics
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
5,311 |
|
|
|
5,203 |
|
|
|
2.1 |
|
International
|
|
|
6,464 |
|
|
|
5,535 |
|
|
|
16.8 |
|
Total
|
|
|
11,775 |
|
|
|
10,738 |
|
|
|
9.7 |
|
Worldwide
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
16,687 |
|
|
|
16,288 |
|
|
|
2.4 |
|
International
|
|
|
15,957 |
|
|
|
13,880 |
|
|
|
15.0 |
|
Total
|
|
$ |
32,644 |
|
|
$ |
30,168 |
|
|
|
8.2 |
% |
(1)
Export sales are not significant.
OPERATING
PROFIT BY SEGMENT OF BUSINESS
|
|
Fiscal
Quarters Ended
|
|
(Dollars in
Millions)
|
|
June
29, 2008
|
|
|
July
1, 2007
|
|
|
Percent
Change
|
|
Consumer
|
|
$ |
683 |
|
|
$ |
482 |
|
|
|
41.7 |
% |
Pharmaceutical
|
|
|
2,143 |
|
|
|
2,131 |
|
|
|
0.6 |
|
Medical
Devices & Diagnostics (1)
|
|
|
1,702 |
|
|
|
1,523 |
|
|
|
11.8 |
|
Segments
total
|
|
|
4,528 |
|
|
|
4,136 |
|
|
|
9.5 |
|
Income/(expense)
not allocated to segments
|
|
|
(153 |
) |
|
|
(105 |
) |
|
|
|
|
Worldwide
total
|
|
$ |
4,375 |
|
|
$ |
4,031 |
|
|
|
8.5 |
% |
|
|
Fiscal
Six Months Ended
|
|
(Dollars in
Millions)
|
|
June
29, 2008
|
|
|
July
1, 2007
|
|
|
Percent
Change
|
|
Consumer
|
|
$ |
1,411 |
|
|
$ |
1,242 |
|
|
|
13.6 |
% |
Pharmaceutical
|
|
|
4,510 |
|
|
|
4,412 |
|
|
|
2.2 |
|
Medical
Devices & Diagnostics(2)
|
|
|
3,502 |
|
|
|
2,238 |
|
|
|
56.5 |
|
Segments
total
|
|
|
9,423 |
|
|
|
7,892 |
|
|
|
19.4 |
|
Income/(expense)
not allocated to segments
|
|
|
(301 |
) |
|
|
(209 |
) |
|
|
|
|
Worldwide
total
|
|
$ |
9,122 |
|
|
$ |
7,683 |
|
|
|
18.7 |
% |
(1)Includes
$40 million of in-process research and development (IPR&D) charges related
to the acquisition of Amic AB completed in the fiscal second quarter of
2008.
(2)Includes
$40 million and $807 million of IPR&D charges related to
acquisitions completed in the first fiscal six months of 2008 and first fiscal
six months of 2007, respectively.
SALES BY
GEOGRAPHIC AREA
(Dollars
in Millions)
|
|
Fiscal
Quarters Ended
|
|
(Dollars
in Millions)
|
|
June
29, 2008
|
|
|
July
1, 2007
|
|
|
Percent
Change
|
|
U.S.
|
|
$ |
8,210 |
|
|
$ |
8,041 |
|
|
|
2.1 |
% |
Europe
|
|
|
4,547 |
|
|
|
3,907 |
|
|
|
16.4 |
|
Western
Hemisphere, excluding U.S.
|
|
|
1,280 |
|
|
|
1,131 |
|
|
|
13.2 |
|
Asia-Pacific,
Africa
|
|
|
2,413 |
|
|
|
2,052 |
|
|
|
17.6 |
|
Total
|
|
$ |
16,450 |
|
|
$ |
15,131 |
|
|
|
8.7 |
% |
|
|
Fiscal
Six Months Ended
|
|
(Dollars
in Millions)
|
|
June
29, 2008
|
|
|
July
1, 2007
|
|
|
Percent
Change
|
|
U.S.
|
|
$ |
16,687 |
|
|
$ |
16,288 |
|
|
|
2.4 |
% |
Europe
|
|
|
8,855 |
|
|
|
7,720 |
|
|
|
14.7 |
|
Western
Hemisphere, excluding U.S.
|
|
|
2,525 |
|
|
|
2,177 |
|
|
|
16.0 |
|
Asia-Pacific,
Africa
|
|
|
4,577 |
|
|
|
3,983 |
|
|
|
14.9 |
|
Total
|
|
$ |
32,644 |
|
|
$ |
30,168 |
|
|
|
8.2 |
% |
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 second quarters ended June 29, 2008 and July
1, 2007.
(Shares
in Millions)
|
|
Fiscal
Quarters Ended
|
|
|
|
June
29, 2008
|
|
|
July
1, 2007
|
|
Basic
net earnings per share
|
|
$ |
1.18 |
|
|
$ |
1.06 |
|
Average
shares outstanding – basic
|
|
|
2,809.8 |
|
|
|
2,895.1 |
|
Potential
shares exercisable under stock option plans
|
|
|
197.4 |
|
|
|
201.2 |
|
Less:
shares which could be repurchased under treasury stock
method
|
|
|
(166.1 |
) |
|
|
(177.7 |
) |
Convertible
debt shares
|
|
|
3.7 |
|
|
|
3.9 |
|
Average
shares outstanding – diluted
|
|
|
2,844.8 |
|
|
|
2,922.5 |
|
Diluted
earnings per share
|
|
$ |
1.17 |
|
|
$ |
1.05 |
|
The
diluted earnings per share calculation included the dilutive effect of
convertible debt that was offset by the related reduction in interest expense of
$1 million for both the fiscal second quarters ended June 29, 2008 and July 1,
2007.
The
diluted earnings per share calculation for the fiscal second quarters ended June
29, 2008 and July 1, 2007, excluded 61 million and 67 million shares,
respectively, related to stock options 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.
The
following is a reconciliation of basic net earnings per share to
diluted net earnings per share for the fiscal six months ended June
29, 2008 and July 1, 2007.
(Shares
in Millions)
|
|
Fiscal
Six Months Ended
|
|
|
|
June
29, 2008
|
|
|
July
1, 2007
|
|
Basic
net earnings per share
|
|
$ |
2.45 |
|
|
$ |
1.95 |
|
Average
shares outstanding – basic
|
|
|
2,821.6 |
|
|
|
2,894.8 |
|
Potential
shares exercisable under stock option plans
|
|
|
197.4 |
|
|
|
201.4 |
|
Less:
shares which could be repurchased under treasury stock
method
|
|
|
(166.6 |
) |
|
|
(175.2 |
) |
Convertible
debt shares
|
|
|
3.7 |
|
|
|
3.9 |
|
Average
shares outstanding – diluted
|
|
|
2,856.1 |
|
|
|
2,924.9 |
|
Diluted
earnings per share
|
|
$ |
2.43 |
|
|
$ |
1.93 |
|
The
diluted earnings per share calculation included the dilutive effect of
convertible debt that was offset by the related reduction in interest expense of
$2 million for both the fiscal six months ended June 29, 2008 and July 1,
2007.
The
diluted earnings per share calculation for the first fiscal six months ended
June 29, 2008 and July 1, 2007, excluded 61 million and 66 million shares,
respectively, related to stock options 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 first fiscal six months ended June 29, 2008 was
$8.2 billion, compared with $5.9 billion for the same period a year ago. Total
comprehensive income for the fiscal second quarter ended June 29, 2008 was $3.4
billion, compared with $3.3 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
30, 2007
|
|
$ |
628 |
|
|
|
84 |
|
|
|
(1,360 |
) |
(45
|
) |
|
(693 |
) |
2008
six months changes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
change associated
with
current period
hedging
transactions
|
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
) |
|
|
|
Net
amount reclassed to
net
earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
96
|
* |
|
|
|
Net
six months changes
|
|
|
1,120 |
|
|
|
(46 |
) |
|
|
85 |
|
95
|
|
|
1,254 |
|
June
29, 2008
|
|
$ |
1,748 |
|
|
|
38 |
|
|
|
(1,275 |
) |
50
|
|
|
561 |
|
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.
*Substantially
offset in net earnings by changes in value of the underlying
transactions.
NOTE 9 –
MERGERS, ACQUISITIONS AND DIVESTITURES
During
the fiscal second quarter of 2008 the Company acquired Amic AB for a purchase
price of $44 million in cash and debt. Amic AB, is a Swedish developer of in
vitro diagnostic technologies for use in point-of-care and near-patient settings
(outside the physical facilities of the clinical laboratory). An in-process
research & development (IPR&D) charge of $40 million before and after
tax was recorded related to the acquisition of Amic AB.
During the fiscal first quarter of
2007, the Company acquired Conor Medsystems, Inc. for a purchase price of $1.4
billion in cash. Conor Medsystems, Inc., is a cardiovascular device company,
with new drug delivery technology. An IPR&D charge of $807 million
before and after tax was recorded related to the acquisition of Conor
Medsystems, Inc.
During
the fiscal first quarter of 2007, the Company completed the divestiture of the
KAOPECTATEâ,
UNISOMâ,
CORTIZONEâ,
BALMEXâ and ACTâ consumer products to
Chattem, Inc. for $410 million in cash.
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 second quarters of 2008 and 2007 include the
following components:
|
|
Retirement
Plans
|
|
|
Other
Benefit Plans
|
|
|
|
Fiscal
Quarters Ended
|
|
(Dollars
in Millions)
|
|
June
29, 2008
|
|
|
July
1, 2007
|
|
|
June
29, 2008
|
|
|
July
1, 2007
|
|
Service
cost
|
|
$ |
126 |
|
|
|
134 |
|
|
|
35 |
|
|
|
33 |
|
Interest
cost
|
|
|
178 |
|
|
|
160 |
|
|
|
42 |
|
|
|
37 |
|
Expected
return on
plan
assets
|
|
|
(222 |
) |
|
|
(198 |
) |
|
|
- |
|
|
|
- |
|
Amortization
of prior service cost
|
|
|
3 |
|
|
|
3 |
|
|
|
(2 |
) |
|
|
(1 |
) |
Amortization
of net transition asset
|
|
|
1 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Recognized
actuarial
losses
|
|
|
16 |
|
|
|
48 |
|
|
|
17 |
|
|
|
16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
periodic benefit cost
|
|
$ |
102 |
|
|
|
147 |
|
|
|
92 |
|
|
|
85 |
|
Net
periodic benefit cost for the Company’s defined benefit retirement plans and
other benefit plans for the first fiscal six months of 2008 and 2007 include the
following components:
|
|
Retirement
Plans
|
|
|
Other
Benefit Plans
|
|
|
|
Fiscal
Six Months Ended
|
|
(Dollars
in Millions)
|
|
June
29, 2008
|
|
|
July
1, 2007
|
|
|
June
29, 2008
|
|
|
July
1, 2007
|
|
Service
cost
|
|
$ |
255 |
|
|
|
269 |
|
|
|
71 |
|
|
|
70 |
|
Interest
cost
|
|
|
357 |
|
|
|
320 |
|
|
|
83 |
|
|
|
74 |
|
Expected
return on
plan
assets
|
|
|
(446 |
) |
|
|
(395 |
) |
|
|
(1 |
) |
|
|
(1 |
) |
Amortization
of prior service cost
|
|
|
6 |
|
|
|
5 |
|
|
|
(3 |
) |
|
|
(3 |
) |
Amortization
of net transition asset
|
|
|
1 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Recognized
actuarial
losses
|
|
|
35 |
|
|
|
95 |
|
|
|
33 |
|
|
|
33 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
periodic benefit cost
|
|
$ |
208 |
|
|
|
294 |
|
|
|
183 |
|
|
|
173 |
|
Company
Contributions
For the
fiscal six months ended June 29, 2008, the Company contributed $14 million and
$12 million to its U.S. and international retirement plans,
respectively. The Company does not anticipate a minimum statutory
funding requirement for its U.S. retirement plans in 2008. International plans
will be 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 will reduce 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 is moving 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. Additionally, as part of
this program the Company plans to eliminate approximately 4,400 positions of
which 2,700 have been eliminated since the plan’s inception. The Company is also
accelerating 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.
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 consists of 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 for
the program through the second quarter of 2008:
(Dollars in
Millions)
Reserve balance as of:
December 30, 2007
Cash outlays*
June 29, 2008
|
Severance
$404
(144)
$260
|
*Cash
outlays for severance are expected to be substantially paid out over the next 12
months in accordance with the Company’s plans and local laws.
NOTE 12 -
LEGAL PROCEEDINGS
PRODUCT
LIABILITY
The
Company is involved in numerous product liability cases in the United States,
many of which concern adverse reactions to drugs and medical devices. The
damages claimed are substantial, and while the Company is confident of the
adequacy of the warnings and instructions for use 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® and
the CHARITÉ™ Artificial Disc. There are approximately 2,000 claimants who have
pending lawsuits or claims regarding injuries allegedly due to ORTHO EVRA®, 570
with respect to RISPERDAL®, 280 with respect to CHARITÉ™ and 60 with respect to
DURAGESIC®. These claimants seek substantial compensatory and, where available,
punitive damages.
With
respect to RISPERDAL®, the Attorneys General of seven 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 30 other states have indicated a potential interest in pursuing similar
litigation against the company’s Janssen subsidiary, 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. The case brought by the Attorney
General of West Virginia, which also includes claims for alleged consumer fraud
as to DURAGESIC® as well as RISPERDAL®, is scheduled for trial in September
2008.
Numerous
claims and lawsuits in the United States relating to the drug PROPULSID®,
withdrawn from general sale by the Company’s Janssen 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. The cases have been returned to the District Court for further
proceedings and Cordis has moved the District Court to re-instate the original
damage verdicts.
Cordis
also has an arbitration claim against Medtronic accusing Medtronic of
infringement by sale of stent products introduced by Medtronic subsequent to its
products subject to the earlier action referenced above. Those subsequent
products were found to have been licensed to Medtronic pursuant to a 1997
license by an arbitration panel in March 2005. Further arbitration proceedings
will determine whether royalties are owed for those products.
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. Boston Scientific has appealed to the U.S. Court of
Appeals for the Federal Circuit.
Cordis
has filed several lawsuits in New Jersey Federal District Court against Guidant
Corporation, Abbott Laboratories, Inc., 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.
PATENT
LITIGATION AGAINST VARIOUS JOHNSON & JOHNSON SUBSIDIARIES
The
products of various Johnson & Johnson subsidiaries are the subject of
various patent lawsuits, the outcomes of which could potentially adversely
affect the ability of those subsidiaries to sell those products, or require the
payment of past damages and future royalties.
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 that action. The District Court denied motions by
Cordis to overturn the jury verdicts or grant a new trial. Cordis has appealed
to the Court of Appeals for the Federal Circuit. The District Court indicated it
will consider damages, willfulness and injunctive relief after the appeals have
been decided.
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 and is considering the appropriate
remedy for future infringement.
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.
The
following chart summarizes various patent lawsuits concerning products of
Johnson & Johnson subsidiaries that have yet to proceed to
trial:
J&J
|
|
|
Plaintiff/
|
|
|
|
|
|
Product
|
Company
|
Patents
|
Patent
Holder
|
Court
|
Trial
Date
|
|
Date
Filed
|
|
Two-layer
|
Cordis
|
Kasten-
|
Boston
Scientific
|
Multiple
European
|
*
|
|
|
09/07 |
|
Catheters
|
|
hofer
|
Corp.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contact
Lenses
|
Vision
Care
|
Nicolson
|
CIBA Vision
|
M.D.FL
|
02/09
|
|
|
09/03 |
|
|
|
|
|
Multiple
European
|
*
|
|
|
09/07 |
|
|
|
|
|
|
|
|
|
|
|
Stents
|
Cordis
|
Ricci
|
Medtronic
and Evysio
|
E.D.TX
|
*
|
|
|
03/07 |
|
|
|
|
|
|
|
|
|
|
|
CYPHERâ
Stent
|
Cordis
|
Wall
|
Wall
|
E.D.TX
|
*
|
|
|
11/07 |
|
|
|
|
|
|
|
|
|
|
|
CYPHERâ
Stent
|
Cordis
|
Bonutti
|
MarcTec
|
S.D.IL
|
*
|
|
|
11/07 |
|
|
|
|
|
|
|
|
|
|
|
CYPHERâ
Stent
|
Cordis
|
Saffran
|
Saffran
|
E.D.TX
|
*
|
|
|
10/07 |
|
|
|
|
|
|
|
|
|
|
|
Stent/Catheter
Delivery
Systems
|
Cordis/
Ethicon
|
Schock
|
Cardio
Access LLC
|
E.D.TX
|
*
|
|
|
06/08 |
|
|
|
|
|
|
|
|
|
|
|
LISTERINEâ 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 |
|
*
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.
As noted
in the following chart, 30-month stays expired during 2006 and 2007, and will
expire in 2008, 2009 and 2010 with respect to ANDA challenges regarding various
products:
Brand
Name Product
|
Patent/NDA
Holder
|
Generic
Challenger
|
Court
|
|
Trial
Date
|
|
|
Date
Filed
|
|
|
30-Month
Stay Expiration
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ACIPHEX®
|
Eisai
(for Janssen)
|
Teva
|
S.D.NY
|
|
|
03/07 |
|
|
|
11/03 |
|
|
|
02/07 |
|
20 mg delay release tablet |
|
Dr.
Reddy’s
|
S.D.NY
|
|
|
03/07 |
|
|
|
11/03 |
|
|
|
02/07 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONCERTA®
18,27,36
and 54 mg controlled release tablet
|
McNeil-PPC
ALZA
|
Andrx
|
D.DE
|
|
|
12/07 |
|
|
|
09/05 |
|
|
None
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LEVAQUINâ
250,
500, 750 mg tablets
|
Ortho-McNeil
|
Lupin
|
D.NJ
|
|
|
* |
|
|
|
10/06 |
|
|
|
03/09 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ORTHO
TRI CYCLEN® LO
0.18
mg/0.025 mg
0.215
mg/0.025 mg
and
0.25 mg/0.025 mg
|
Ortho-McNeil
|
Barr
|
D.NJ
|
|
|
* |
|
|
|
10/03 |
|
|
|
02/06 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MONISTAT®
1
Combination
|
McNeil-PPC
|
Perrigo
|
D.NJ
|
|
|
* |
|
|
|
04/08 |
|
|
|
09/10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RAZADYNE™
ER
|
Janssen
|
Barr
|
D.NJ
|
|
|
* |
|
|
|
06/06 |
|
|
|
11/08 |
|
|
|
Sandoz
|
D.NJ
|
|
|
* |
|
|
|
05/07 |
|
|
|
09/09 |
|
|
|
KV
Pharma
|
D.NJ
|
|
|
* |
|
|
|
12/07 |
|
|
|
05/10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ULTRACET
|
Ortho-McNeil
|
Apotex
|
N.D.IL
|
|
|
* |
|
|
|
07/07 |
|
|
|
12/09 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ULTRAM
ER®
100,
200, 300 mg tablet
|
Ortho-McNeil
|
Par
|
D.DE
|
|
|
11/08 |
|
|
|
05/07 |
|
|
|
09/09 |
|
* Trial
date to be scheduled
Trial in
the action against Teva, Dr. Reddy’s and Mylan with respect to their ANDA
challenges to the patent on ACIPHEX® of Eisai Inc., marketing partner of the
Company’s subsidiary Ortho-McNeil Pharmaceutical, Inc. (Ortho-McNeil), proceeded
before the Federal District Court in New York in March 2007. In May 2007, the
Court held that the ACIPHEX® compound patent is enforceable. The Court had
previously held that the patent is valid. Teva and Dr. Reddy’s appealed both
decisions to the Court of Appeals for the Federal Circuit. Mylan withdrew its
appeal. On July 21, 2008 the Court of Appeals affirmed the decision of the
Federal District Court.
In the
action against Barr regarding ORTHO TRICYCLEN® 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.
In the
action against Barr and AlphaPharm with respect to their ANDA challenges to the
RAZADYNE® patent that Janssen licenses from Synaptech, Inc., a four-day non-jury
trial was held in the Federal District Court in Delaware in May 2007. The Court
has yet to issue its ruling in that action. As noted in the above
chart, the 30-month stay in the RAZADYNE® cases expires in late August
2008. Absent a decision by the district court favorable to Janssen,
or the issuance of a preliminary injunction, the generic company defendants
could launch at risk. One generic company, Teva, has stated its intent to launch
a generic version of RAZADYNEâ at risk once the thirty
month stay expires in late August 2008, absent a contrary ruling from the
Federal District Court.
In the
action against 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. The Court has yet to issue its ruling in that
action.
In the
action against Sandoz with respect to its ANDA challenge to a RAZADYNE® ER
patent that Janssen licenses from Synaptech, Inc., the action has been stayed
pending the outcome in the above litigation in Delaware Federal District Court.
Sandoz originally challenged only one of two patents for RAZADYNE® ER, and
certified that it will await expiration of the second patent in 2019 before
marketing its generic version of RAZADYNE® ER. In April 2008, Sandoz notified
Janssen that it has now challenged the second patent in its ANDA and seeks to
market the product before that patent expires in 2019.
McNEIL-PPC,
Inc. filed suit in April 2008 in Federal District Court in New Jersey against
Perrigo Company with respect to its ANDA regarding MONISTAT® 1 Combination
Pack.
In the
Ultracet actions, Ortho-McNeil filed suit against Kali/Par in 2002, separately
against Caraco in 2004, and separately against Teva/Barr in 2004 based on
the patent then in force. In October 2005, Caraco’s motion for summary
judgment of non-infringement of the original patent was granted and subsequently
affirmed by the Federal Circuit. In August 2006, the PTO granted a reissue
patent. Ortho-McNeil thereafter amended its pending claims against Kali/Par and
Teva/Bar to assert claim 6 of the reissue patent. Ortho-McNeil also
brought a new lawsuit against Kali/Par, Caraco, and Teva/Barr based on
other claims of the reissue patent. In April 2007, certain of Kali/Par's
and Teva/Barr’s motions for summary judgment of invalidity of the original
patent were granted. In July 2007, Kali/Par settled all pending
claims, acknowledging that the asserted claims of the reissue patent are
valid, enforceable, and infringed. Also in July 2007, Ortho-McNeil filed
suit against Apotex on the reissue patent. In March 2008, Ortho-McNeil
filed suit against Mylan and AlphaPharm on the reissue patent. In April
2008, Caraco’s motion for summary judgment of invalidity of the reissue patent
was granted. The Mylan/AlphaPharm case was dismissed on collateral
estoppel grounds in light of the summary judgment finding of invalidity of
the reissue patent in the Caraco case, and Apotex has filed a motion for summary
judgment on similar grounds. Ortho-McNeil intends to appeal the summary
judgment decision invalidating the claims of the reissue patent.
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. Most 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. AWP cases brought by various Attorneys General are expected to be set
for trial in 2009.
OTHER
In July
2003, Centocor Inc., 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 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. Ortho-McNeil is cooperating in
responding to the subpoenas. In October 2004, the U.S. Attorney’s Office in
Boston asked attorneys for Ortho-McNeil to cooperate in facilitating the
subpoenaed testimony of several present and former Ortho-McNeil employees before
a federal grand jury in Boston. Cooperation in securing the testimony of
additional witnesses before the grand jury has been requested and is being
provided.
In
January 2004, Janssen 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 these subpoenas.
In August
2004, Johnson & Johnson Health Care Systems, Inc. (HCS), a Johnson &
Johnson subsidiary, received a subpoena from the Dallas, Texas U.S. Attorney’s
Office seeking documents relating to the relationships between the group
purchasing organization, Novation, and HCS and other Johnson & Johnson
subsidiaries. The Company’s subsidiaries involved have responded to the
subpoena.
In
September 2004, Ortho Biotech Inc. (Ortho Biotech), received a subpoena from the
U.S. Office of Inspector General’s Denver, Colorado field office seeking
documents directed to 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 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
seeking further discovery of class issues and 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 include
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. 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 June
2005, the U.S. Senate Committee on Finance requested the Company to produce
information regarding use by several of its pharmaceutical subsidiaries of
educational grants. A similar request was sent to other major pharmaceutical
companies. In July 2005, the Committee specifically requested information about
educational grants in connection with the drug PROPULSID®. A follow up request
was received from the Committee for additional information in January 2006. On
October 30, 2007 another letter was received from the U.S. Senate Committee on
Finance requesting information concerning payments to a list of physicians, and
specification as to whether any such payments were for continuing medical
education, honoraria, research support, etc. The Company has responded to these
requests.
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.
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 Omnicare, 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. 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 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, but said he was
considering modifying that injunction to grant Roche a compulsory license that
would allow it to launch in the U.S. if it paid a 22.5 percent
royalty. Before the judge decided whether to grant Roche the
compulsory license, however, Roche appealed the original granting of the
preliminary injunction to the U.S. Court of Appeals for the Federal
Circuit.
In late
December 2005 and early 2006, three purported class actions were filed on behalf
of purchasers of endo-mechanical instruments against the Company and its
wholly-owned subsidiaries, Ethicon, Inc., Ethicon Endo-Surgery, Inc., and
Johnson & Johnson Health Care Systems, Inc. These cases challenge suture and
endo-mechanical contracts with Group Purchasing Organizations and hospitals, in
which discounts are predicated on a hospital achieving specified market share
targets for both categories of products. These actions have been filed in the
United States District Court for the Central District of
California.
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
September 2006, Janssen received a subpoena from the Attorney General of the
State of California seeking documents regarding sales and marketing and
side-effects of RISPERDAL®, as well as interactions with State officials
regarding the State’s formulary for Medicaid-reimbursed drugs. Janssen has
responded to the subpoena.
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 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 DOJ and SEC.
In March
2007, Cordis received a letter request for documents from the Committee on
Oversight and Government Reform of the U.S. House of Representatives regarding
marketing and safety of drug-eluting stents. Cordis has responded to the
request.
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, TOPAMAX® by Ortho-McNeil 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 March
2007, the Company received a letter from the Committee on Energy and Commerce of
the U.S. House of Representatives seeking answers to several questions regarding
marketing and safety of PROCRIT®, the erythropoietin product sold by
Ortho-Biotech. In March 2008, the Committee on Energy and Commerce sent the
Company a second letter focused on direct-to-consumer advertising for
PROCRITâ. In May 2007,
Senator Grassley, the ranking member of the U.S. Senate Committee on Finance,
sent the Company a letter seeking information relating to PROCRIT®. The Company
provided its initial response in July 2007. By letter dated February
11, 2008, the Senate Finance Committee requested further rebate information for
Ortho Biotech’s five largest physicians and/or group practices in each
state. In May 2007, the New York State Attorney General issued a
subpoena seeking information relating to PROCRIT®. Like the House and Senate
requests, the subpoena asks for materials relating to PROCRIT® safety, marketing
and pricing. 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 August
2007, the Company received a request for documents and interviews of witnesses
from the Committee on Energy and Commerce of the U.S. House of Representatives
concerning GMP (Good Manufacturing Practice) issues involving the CYPHER® Stent.
The letter states that FDA inspectors in 2003 identified “numerous systemic
violations” of GMP’s in connection with CYPHER® manufacturing but nonetheless
allowed Cordis to continue marketing CYPHER® Stents. Cordis has responded to
this request.
In
October 2007, the Company received a request for documents from Senator Grassley
on behalf of the Committee on Finance of the U.S. Senate concerning continuing
medical education payments to specific physicians. The Company responded to this
request.
In
November 2007, the Company received a request from United States Senators Byron
Dorgan and Olympia Snowe seeking information relating to the Company’s oversight
of foreign manufacturing facilities. The Company responded in January
2008.
In
December 2007, the Company and its subsidiary Janssen received a request from
Senator Grassley on behalf of the Committee on Finance of the U.S. Senate for
documents and information concerning the marketing and promotion of RISPERDAL®
for use by nursing home patients. The companies responded to this
request.
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 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.
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 position, although the
resolution in any reporting period of one or more of these matters could have a
significant impact on the Company’s results of operations and cash flows for
that period.
NOTE 13
Fair Value Measurements
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, for which the effective date is fiscal years
beginning after November 15, 2008. 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
following table provides a summary of the significant assets and liabilities
that are measured at fair value as of June 29, 2008.
(Dollars
in Millions)
|
|
|
|
Quoted
prices in active markets for identical assets
|
|
Significant
other observable inputs
|
|
Significant
unobservable inputs
|
|
|
June 29, 2008
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Assets
|
|
|
|
|
|
|
|
|
Derivative
instruments
|
|
$ |
973 |
|
|
|
$ |
973 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
Derivative
instruments
|
|
$ |
1,860 |
|
|
|
$ |
1,860 |
|
|
The
Company uses forward exchange contracts to manage its exposure to the
variability of cash flows, primarily related to the foreign exchange rate
changes on future intercompany and third party purchases of raw materials
denominated in foreign currency. The Company also uses currency swaps
to manage currency risk primarily related to borrowings. The fair value of
derivative instruments is the aggregation, by currency, of all future cash flows
discounted to present value at prevailing market interest rates, and
subsequently converted to the United States dollar at the current spot foreign
exchange rate. The Company does not believe that fair values of these derivative
instruments materially differs 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.
NOTE
14 Subsequent Events
The
Company has reached a settlement with Amgen concerning litigation regarding
Amgen’s contracting practices that had an impact on the Company’s sales of
PROCRITâ in certain
markets. The settlement included a $200 million payment made by Amgen in the
third quarter of 2008.
On July
30, 2008 the Company completed the acquisition of Beijing Dabao Cosmetics Co.,
LTD, a company that sells personal care brands in China.
Item 2 -
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results
of Operations
Analysis
of Consolidated Sales
For the
first fiscal six months of 2008, worldwide sales were $32.6 billion, a total
increase of 8.2% including an operational increase of 2.8% over 2007 first
fiscal six months sales of $30.2 billion. Currency had a positive impact of 5.4%
for the period.
Sales by
U.S. companies were $16.7 billion in the first fiscal six months of 2008, which
represented an increase of 2.4% over the same period last year. Sales
by international companies were $15.9 billion, which represented a total
increase of 15.0% including an operational increase of 3.4%, and a positive
impact from currency of 11.6% over the first fiscal six months of
2007.
Sales by
companies in Europe achieved total growth of 14.7%, including an operational
growth of 1.6% and a positive impact from currency of 13.1%. Sales by
companies in the Western Hemisphere, excluding the U.S., achieved total growth
of 16.0% including operational growth of 4.7% and a positive impact from
currency of 11.3%. Sales by companies in the Asia-Pacific, Africa region posted
sales growth of 14.9%, with operational growth of 5.9% and a positive impact
from currency of 9.0%.
For the
fiscal second quarter of 2008, worldwide sales were $16.4 billion, a total
increase of 8.7% and an operational increase of 3.1%, over 2007 fiscal second
quarter sales of $15.1 billion. Currency fluctuations positively
impacted sales by 5.6% for the period.
Sales by
U.S. companies were $8.2 billion in the fiscal second quarter of 2008, which
represented an increase of 2.1%. Sales by international companies were $8.2
billion, which represented a total increase of 16.2%, including an operational
increase of 4.3%, and a positive impact from currency of 11.9% over the fiscal
second quarter of 2007.
Sales by
companies in Europe achieved total growth of 16.4%, with operational growth of
2.4% and a positive impact from currency of 14.0%. Sales by companies
in the Western Hemisphere, excluding the U.S., achieved total growth of 13.2%,
operational growth of 3.3% and a positive impact from currency of
9.9%. Sales by companies in the Asia-Pacific, Africa region posted
sales growth of 17.6%, with operational growth of 8.5% and a positive impact
from currency of 9.1%.
Analysis
of Sales by Business Segments
Consumer
Consumer
segment sales in the first fiscal six months of 2008 were $8.1
billion, an increase of 14.7% over the same period a year ago, with 8.3% of
operational growth and a positive currency impact of 6.4%. U.S. Consumer segment
sales increased by 10.1% while international sales achieved growth of 18.6%, an
operational increase of 7.0%, with a positive currency impact of
11.6%.
Major
Consumer Franchise Sales – First Fiscal Six Months
|
|
|
|
(Dollars
in Millions)
|
|
June
29, 2008
|
|
|
July
1, 2007
|
|
|
Total
Change
|
|
|
Operations
Change
|
|
|
Currency
Change
|
|
OTC
Pharm & Nutr
|
|
$ |
2,999 |
|
|
$ |
2,463 |
|
|
|
21.8 |
% |
|
|
15.7 |
% |
|
|
6.1 |
% |
Skin
Care
|
|
|
1,679 |
|
|
|
1,521 |
|
|
|
10.4 |
|
|
|
4.4 |
|
|
|
6.0 |
|
Baby
Care
|
|
|
1,105 |
|
|
|
934 |
|
|
|
18.3 |
|
|
|
10.1 |
|
|
|
8.2 |
|
Women’s
Health
|
|
|
965 |
|
|
|
884 |
|
|
|
9.2 |
|
|
|
1.5 |
|
|
|
7.7 |
|
Oral
Care
|
|
|
794 |
|
|
|
713 |
|
|
|
11.4 |
|
|
|
6.3 |
|
|
|
5.1 |
|
Wound
Care/Other
|
|
|
558 |
|
|
|
545 |
|
|
|
2.4 |
|
|
|
(2.3 |
) |
|
|
4.7 |
|
Total
|
|
$ |
8,100 |
|
|
$ |
7,060 |
|
|
|
14.7 |
% |
|
|
8.3 |
% |
|
|
6.4 |
% |
Consumer
segment sales in the fiscal second quarter of 2008 were $4.0 billion,
an increase of 13.2% over the same period a year ago with 6.8% of operational
growth and a positive currency impact of 6.4%. U.S. Consumer segment sales
increased by 8.5% while international sales achieved growth of 17.0%, an
operational increase of 5.6%, with a positive currency impact of
11.4%.
Major
Consumer Franchise Sales – Fiscal Second Quarter
|
|
|
|
(Dollars
in Millions)
|
|
June
29, 2008
|
|
|
July
1, 2007
|
|
|
Total
Change
|
|
|
Operations
Change
|
|
|
Currency
Change
|
|
OTC
Pharm & Nutr
|
|
$ |
1,405 |
|
|
$ |
1,206 |
|
|
|
16.5 |
% |
|
|
10.5 |
% |
|
|
6.0 |
% |
Skin
Care
|
|
|
839 |
|
|
|
757 |
|
|
|
10.8 |
|
|
|
4.7 |
|
|
|
6.1 |
|
Baby
Care
|
|
|
572 |
|
|
|
487 |
|
|
|
17.5 |
|
|
|
9.3 |
|
|
|
8.2 |
|
Women’s
Health
|
|
|
504 |
|
|
|
463 |
|
|
|
8.9 |
|
|
|
1.1 |
|
|
|
7.8 |
|
Oral
Care
|
|
|
408 |
|
|
|
354 |
|
|
|
15.3 |
|
|
|
9.7 |
|
|
|
5.6 |
|
Wound
Care/Other
|
|
|
308 |
|
|
|
297 |
|
|
|
3.7 |
|
|
|
(0.8 |
) |
|
|
4.5 |
|
Total
|
|
$ |
4,036 |
|
|
$ |
3,564 |
|
|
|
13.2 |
% |
|
|
6.8 |
% |
|
|
6.4 |
% |
The OTC
Pharmaceuticals and Nutritionals franchise achieved operational growth of 10.5%
over prior year fiscal second quarter. A major contributor was the successful
launch of over-the-counter ZYRTECâ in the U.S. during the
fiscal first quarter of 2008. Additional contributors to the growth were Adult
TYLENOLâ and
SPLENDAâ
products.
The Skin
Care franchise operational growth of 4.7% over prior year fiscal second quarter
was attributable to strong performances from the AVEENO®, CLEAN & CLEAR®,
and NEUTROGENAâ
product lines due to new product launches and strength in the core business.
This growth was partially offset by lower sales of RoCâ products and the
discontinuation of EVIANâ, a line of facial
refreshers marketed in Europe.
The Baby
Care franchise operational growth of 9.3% over prior year fiscal second quarter
was the result of strong sales performance by wipes, haircare, lotion and oil
product lines primarily in emerging markets.
The
Women’s Health franchise operational growth was 1.1% over the prior year fiscal
second quarter. International sales growth was partially offset by declines in
the U.S. due to competition in the market place.
The Oral
Care franchise operational growth of 9.7% was achieved by strong performance of
LISTERINEâ mouthwash
and dissolvable whitening strips, launched in the third quarter of 2007,
partially offset by sales declines of other products.
Pharmaceutical
Pharmaceutical
segment sales in the first fiscal six months of 2008 were $12.7 billion, a total
increase of 3.2% over the same period a year ago with an operational decline of
0.9% and an increase of 4.1% related to the positive impact of currency. The
U.S. Pharmaceutical sales decreased by 0.4% over the same period a year ago.
Total growth in international Pharmaceutical sales was 9.6%, which reflected an
operational sales decline of 1.8% and an increase of 11.4% related to the
positive impact of currency.
Major
Pharmaceutical Product Revenues* – First Fiscal Six Months
(Dollars
in Millions)
|
|
June
29, 2008
|
|
|
July
1, 2007
|
|
|
Total
Change
|
|
|
Operations
Change
|
|
|
Currency
Change
|
|
REMICADE®
|
|
$ |
1,884 |
|
|
$ |
1,600 |
|
|
|
17.8 |
% |
|
|
17.8 |
% |
|
|
- |
% |
RISPERDALâ
|
|
|
1,521 |
|
|
|
1,715 |
|
|
|
(11.3 |
) |
|
|
(14.1 |
) |
|
|
2.8 |
|
TOPAMAX®
|
|
|
1,323 |
|
|
|
1,188 |
|
|
|
11.4 |
|
|
|
9.3 |
|
|
|
2.1 |
|
PROCRIT®/EPREX®
|
|
|
1,281 |
|
|
|
1,575 |
|
|
|
(18.7 |
) |
|
|
(23.2 |
) |
|
|
4.5 |
|
LEVAQUIN®/FLOXIN®
|
|
|
847 |
|
|
|
843 |
|
|
|
0.5 |
|
|
|
0.2 |
|
|
|
0.3 |
|
RISPERDALâ CONSTAâ
|
|
|
652 |
|
|
|
539 |
|
|
|
21.0 |
|
|
|
12.0 |
|
|
|
9.0 |
|
ACIPHEXâ/PARIETâ
|
|
|
602 |
|
|
|
672 |
|
|
|
(10.4 |
) |
|
|
(15.8 |
) |
|
|
5.4 |
|
CONCERTAâ
|
|
|
569 |
|
|
|
508 |
|
|
|
12.0 |
|
|
|
9.4 |
|
|
|
2.6 |
|
DURAGESIC®/Fentanyl
Transdermal
|
|
|
505 |
|
|
|
591 |
|
|
|
(14.6 |
) |
|
|
(21.2 |
) |
|
|
6.6 |
|
Other
|
|
|
3,585 |
|
|
|
3,139 |
|
|
|
14.2 |
|
|
|
6.9 |
|
|
|
7.3 |
|
Total
|
|
$ |
12,769 |
|
|
$ |
12,370 |
|
|
|
3.2 |
% |
|
|
(0.9 |
)% |
|
|
4.1 |
% |
*Prior
year amounts have been reclassified to conform to current
presentation.
Pharmaceutical
segment sales in the fiscal second quarter of 2008 were $6.3 billion, a total
increase of 3.1% over the same period a year ago with an operational decline of
1.3% and an increase of 4.4% related to the positive impact of currency. U.S.
Pharmaceutical sales decreased by 1.7% over the same period a year ago. Total
growth in international Pharmaceutical sales was 11.3%, which reflected an
operational sales decline of 0.6% and an increase of 11.9% related to the
positive impact of currency.
Major
Pharmaceutical Product Revenues* – Fiscal Second Quarter
(Dollars
in Millions)
|
|
June
29, 2008
|
|
|
July
1, 2007
|
|
|
Total
Change
|
|
|
Operations
Change
|
|
|
Currency
Change
|
|
REMICADE®
|
|
$ |
886 |
|
|
$ |
869 |
|
|
|
2.0 |
% |
|
|
2.0 |
% |
|
|
- |
% |
RISPERDALâ
|
|
|
712 |
|
|
|
848 |
|
|
|
(16.0 |
) |
|
|
(18.9 |
) |
|
|
2.9 |
|
TOPAMAX®
|
|
|
677 |
|
|
|
578 |
|
|
|
17.1 |
|
|
|
14.8 |
|
|
|
2.3 |
|
PROCRIT®/EPREX®
|
|
|
652 |
|
|
|
758 |
|
|
|
(14.0 |
) |
|
|
(18.8 |
) |
|
|
4.8 |
|
LEVAQUIN®/FLOXIN®
|
|
|
351 |
|
|
|
364 |
|
|
|
(3.6 |
) |
|
|
(3.9 |
) |
|
|
0.3 |
|
RISPERDALâ CONSTAâ
|
|
|
343 |
|
|
|
278 |
|
|
|
23.4 |
|
|
|
14.2 |
|
|
|
9.2 |
|
ACIPHEX®/PARIETâ
|
|
|
325 |
|
|
|
336 |
|
|
|
(3.3 |
) |
|
|
(8.6 |
) |
|
|
5.3 |
|
CONCERTAâ
|
|
|
279 |
|
|
|
256 |
|
|
|
9.0 |
|
|
|
6.3 |
|
|
|
2.7 |
|
DURAGESIC®/Fentanyl
Transdermal
|
|
|
272 |
|
|
|
288 |
|
|
|
(5.6 |
) |
|
|
(13.5 |
) |
|
|
7.9 |
|
Other
|
|
|
1,843 |
|
|
|
1,574 |
|
|
|
17.1 |
|
|
|
9.9 |
|
|
|
7.2 |
|
Total
|
|
$ |
6,340 |
|
|
$ |
6,149 |
|
|
|
3.1 |
% |
|
|
(1.3 |
)% |
|
|
4.4 |
% |
*Prior
year amounts have been reclassified to conform to current
presentation.
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
2.0% over prior year fiscal second quarter. This growth was driven by market
growth partially offset by a decrease in export sales due to customer production
planning needs. Operational growth for the first fiscal six months of 2008
versus the same period a year ago was 17.8%, which the Company believes is more
reflective of actual consumption in the first two fiscal quarters of 2008.
REMICADE® is competing in a market which is experiencing increased competition
due to new entrants and the expansion of indications for existing
competitors.
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 18.9% versus the prior year. Sales outside
the U.S. declined due to generic competition in most markets. Sales in the U.S.
declined primarily due to lower inventory levels as wholesalers and retailers
prepare for the entry of the generic product. For most major markets outside the
U.S. the patent for the RISPERDAL® compound expired in December 2007. Market
exclusivity for RISPERDAL® oral in the U.S. expired on June 29, 2008 and
Janssen, a Johnson & Johnson subsidiary, launched an authorized generic
version of RISPERDAL® oral on June 30, 2008. Loss of market exclusivity for
RISPERDAL® oral patent is likely to result in a significant reduction in sales
in the U.S. In the first fiscal six months of 2008, U.S. sales of RISPERDAL®
oral were $1.1 billion.
TOPAMAX®
(topiramate), which has been approved for adjunctive and monotherapy use in
epilepsy, as well as for the prophylactic treatment of migraines, achieved
strong operational growth of 14.8% as compared to prior year fiscal second
quarter. The growth was primarily due to increases in the migraine category
partially offset by generic competition in certain markets outside the U.S. The
patent for TOPAMAX® (topiramate) in the U.S. will expire in September 2008. In
July 2008, the U.S. Food and Drug Administration (FDA) granted pediatric
exclusivity for TOPAMAXâ, which extends market
exclusivity in the U.S. until March 2009. The expiration of a product patent or
loss of market exclusivity is likely to result in a significant reduction in
sales. In the first fiscal six months of 2008, U.S. sales of TOPAMAX® were $1.1
billion.
PROCRITâ (Epoetin alfa)/EPREXâ (Epoetin alfa) experienced
an operational sales decline of 18.8%, as compared to prior year fiscal second
quarter. The decline in PROCRITâ sales was due to the
declining markets for Erythropoiesis Stimulating Agents (ESAs) in the U.S.
Outside the U.S., new competition and label reviews have contributed to the
lower sales results for EPREXâ. Discussions with European
regulators regarding potential changes to the label for ESAs, including
EPREXâ, are underway.
The FDA issued an order requiring a labeling supplement making specific
revisions to the label for ESAs, including PROCRITâ. The order requires this
labeling supplement to be submitted to the FDA by August 14, 2008.
LEVAQUIN®
(levofloxacin)/FLOXINâ
experienced an operational decline of 3.9% over prior year fiscal second
quarter, primarily due to the impact of generic competition in the
category.
RISPERDAL®
CONSTA® (risperidone), a long acting injectable for the treatment of
schizophrenia, achieved operational growth of 14.2% over the prior year fiscal
second quarter of 2007. Strong growth was due to a positive shift from oral to
injectable therapies outside the U.S. The U.S. sales growth was due to higher
market share and market growth.
ACIPHEXâ/PARIETâ, a
proton pump inhibitor, experienced an operational decline of 8.6% as compared to
prior year fiscal second quarter, primarily due to increased generic competition
in the category.
CONCERTAâ (methylphenidate HCl), a
product for the treatment of attention deficit hyperactivity disorder, achieved
operational sales growth of 6.3% over the fiscal second quarter of 2007. The
sales increase was due to market growth. Although the original CONCERTAâ patent expired in 2004,
the FDA has not approved any generic version that is substitutable for
CONCERTAâ. Two parties
have filed Abbreviated New Drug Applications (ANDAs) for generic versions of
CONCERTAâ, which are
pending and may be approved at any time.
DURAGESIC®/Fentanyl
Transdermal (fentanyl transdermal system) experienced an operational sales
decline of 13.5% over the fiscal second quarter of 2007 due to continued generic
erosion.
In the
fiscal second quarter of 2008, Other Pharmaceutical sales achieved operational
growth of 9.9% versus the prior year. The biggest contributor to the increase
was VELCADEâ, a
treatment for relapse multiple myeloma, which was co-developed with Millenium
Pharmaceuticals.
Medical
Devices and Diagnostics
Medical
Devices and Diagnostics segment sales in the first fiscal six months of 2008
were $11.8 billion, an increase of 9.7% over the same period a year ago, with
3.6% of this change due to operational increases and the remaining 6.1% increase
related to the positive impact of currency. The U.S. Medical Devices
and Diagnostics sales increase was 2.1% and the growth in international Medical
Devices and Diagnostics sales was 16.8%, which included operational increases of
5.0% and an increase of 11.8% related to the positive impact of
currency.
Major
Medical Devices and Diagnostics Franchise Sales* – First Fiscal Six
Months
(Dollars
in Millions)
|
|
June
29, 2008
|
|
|
July
1, 2007
|
|
|
Total
Change
|
|
|
Operations
Change
|
|
|
Currency
Change
|
|
DEPUY®
|
|
$ |
2,542 |
|
|
$ |
2,292 |
|
|
|
10.9 |
% |
|
|
6.1 |
% |
|
|
4.8 |
% |
ETHICON
ENDO-SURGERY®
|
|
|
2,127 |
|
|
|
1,848 |
|
|
|
15.1 |
|
|
|
8.3 |
|
|
|
6.8 |
|
ETHICON®
|
|
|
1,965 |
|
|
|
1,778 |
|
|
|
10.5 |
|
|
|
3.5 |
|
|
|
7.0 |
|
CORDIS®
|
|
|
1,687 |
|
|
|
1,780 |
|
|
|
(5.2 |
) |
|
|
(11.0 |
) |
|
|
5.8 |
|
Diabetes
Care
|
|
|
1,289 |
|
|
|
1,145 |
|
|
|
12.6 |
|
|
|
6.2 |
|
|
|
6.4 |
|
Vision
Care
|
|
|
1,246 |
|
|
|
1,066 |
|
|
|
16.9 |
|
|
|
10.0 |
|
|
|
6.9 |
|
ORTHO-CLINICAL
DIAGNOSTICS®
|
|
|
919 |
|
|
|
829 |
|
|
|
10.9 |
|
|
|
5.5 |
|
|
|
5.4 |
|
Total
|
|
$ |
11,775 |
|
|
$ |
10,738 |
|
|
|
9.7 |
% |
|
|
3.6 |
% |
|
|
6.1 |
% |
*Prior
year amounts have been reclassified to conform to current
presentation.
Medical
Devices and Diagnostics segment sales in the fiscal second quarter of 2008 were
$6.1 billion, an increase of 12.1% over the same period a year ago, with 5.7% of
this change due to operational growth and the remaining 6.4% increase related to
the positive impact of currency. The U.S. Medical Devices and
Diagnostics sales increase was 4.0% and the growth in international Medical
Devices and Diagnostics sales was 19.7%, which included operational growth of
7.3% and an increase of 12.4% related to the positive impact of
currency.
Major
Medical Devices and Diagnostics Franchise Sales* – Fiscal Second
Quarter
(Dollars
in Millions)
|
|
June
29, 2008
|
|
|
July
1, 2007
|
|
|
Total
Change
|
|
|
Operations
Change
|
|
|
Currency
Change
|
|
DEPUY®
|
|
$ |
1,289 |
|
|
$ |
1,135 |
|
|
|
13.6 |
% |
|
|
8.5 |
% |
|
|
5.1 |
% |
ETHICON
ENDO-SURGERY®
|
|
|
1,124 |
|
|
|
957 |
|
|
|
17.5 |
|
|
|
10.4 |
|
|
|
7.1 |
|
ETHICON®
|
|
|
1,020 |
|
|
|
904 |
|
|
|
12.8 |
|
|
|
5.7 |
|
|
|
7.1 |
|
CORDIS®
|
|
|
852 |
|
|
|
852 |
|
|
|
- |
|
|
|
(6.4 |
) |
|
|
6.4 |
|
Diabetes
Care
|
|
|
674 |
|
|
|
596 |
|
|
|
13.1 |
|
|
|
6.7 |
|
|
|
6.4 |
|
Vision
Care
|
|
|
639 |
|
|
|
553 |
|
|
|
15.6 |
|
|
|
8.4 |
|
|
|
7.2 |
|
ORTHO-CLINICAL
DIAGNOSTICS®
|
|
|
476 |
|
|
|
421 |
|
|
|
13.1 |
|
|
|
7.4 |
|
|
|
5.7 |
|
Total
|
|
$ |
6,074 |
|
|
$ |
5,418 |
|
|
|
12.1 |
% |
|
|
5.7 |
% |
|
|
6.4 |
% |
*Prior
year amounts have been reclassified to conform to current
presentation.
The DePuy
franchise’s operational growth of 8.5% over the same period a year ago was
primarily due to DePuy's orthopaedic joint reconstruction products including the
hip and knee product lines and strong performance in the Mitek sports medicine
products.
The
Ethicon Endo-Surgery franchise achieved operational growth of 10.4% over prior
year fiscal second quarter. This growth was mainly driven by the continued
success of the HARMONICâä business, and the
Endocutter, a key product used in performing bariatric procedures for the
treatment of obesity. Additional contributors to the growth were the
REALIZEâ Gastric Band
and Advanced Sterilization Products line.
The
Ethicon franchise achieved operational growth of 5.7% from the same period in
the prior year resulting from solid growth in Hemostasis, sutures, and mesh
product lines.
The
Cordis franchise experienced an operational sales decline of 6.4% over the
fiscal second quarter of 2007. This decline was caused by loss of market share
for the CYPHER® Sirolimus-eluting Coronary Stent due to market entry of a new
competitor in the U.S. These results were partially offset by strong growth of
the Biosense Webster business.
The
Diabetes Care franchise achieved operational growth of 6.7% over the fiscal
second quarter of 2007 reflecting the continued success of the ONETOUCHâ ULTRAâ product lines and the
growth of the Animas business.
The
Vision Care franchise achieved operational sales growth of 8.4%. ACUVUE® OASYS™,
1-DAY ACUVUE®MOISTTM, and
ACUVUE® ADVANCETM for
Astigmatism were the major contributors to this growth.
The
Ortho-Clinical Diagnostics franchise achieved operational growth of 7.4% with
the Immunohematology product line being the major contributor.
Cost of
Products Sold and Selling, Marketing and Administrative Expenses
Consolidated
costs of products sold for the first fiscal six months of 2008 decreased to
28.7% from 29.0% of sales as compared to the same period a year
ago. The cost of products sold for the fiscal second quarter of 2008
increased to 28.9% from 28.8% of sales in the same period a year ago. The
increase in the fiscal second quarter was primarily due to the change in the mix
of businesses, with stronger sales growth in the Consumer business and slower
sales growth in the Pharmaceutical business.
Consolidated
selling, marketing and administrative expenses for the first fiscal six months
of 2008 increased to 32.6% from 32.5% as compared to the same period a year ago.
Consolidated selling, marketing and administrative expenses for the fiscal
second quarter of 2008 increased to 33.5% from 33.3% of sales in the same period
a year ago. Increases
in the quarterly and six month periods were primarily due to the change in the
mix of businesses and increased promotional expenses associated with new product
launches in the Medical Devices and Diagnostics business. The increase was
partially offset by the impact of restructuring initiatives and cost containment
efforts primarily in the Pharmaceutical business and lower integration costs in
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 first fiscal six months of 2008
were $3.6 billion, an increase of 2.6% over the same period a year
ago. Research and development spending in the fiscal
second quarter of 2008 was $1.9 billion, an increase of 1.6% over the fiscal
second quarter of 2007. As a percent to sales, the level of research and
development spending decreased for both the fiscal second quarter and the first
fiscal six months of 2008 as compared to the same period a year ago. The
decreases as a percent to sales in the quarterly and six month periods were
primarily due to changes to the mix of businesses.
In-Process
Research & Development(IPR&D)
In the
fiscal second quarter and the first fiscal six months of 2008, the Company had
$40 million of IPR&D charges with no tax benefit associated with the
acquisition of Amic AB.
In the
fiscal second quarter of 2007, the Company had no IPR&D charges. IPR&D
charges of $807 million before and after tax were recorded during the first
fiscal six months of 2007 related to the acquisitions of Conor Medsystems
Inc.
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, minority interests, litigation settlements,
as well as royalty income. As a percent to sales, other (income) expense, net
for the fiscal second quarter of 2008 was similar to the fiscal second quarter
of 2007. The unfavorable change in other (income) expense, net for the first
fiscal six months of 2008 as compared to the same period a year ago was $192
million. This was primarily due to the net gain of $175 million before tax
related to the divestiture of certain brands recorded in the fiscal first
quarter of 2007.
OPERATING
PROFIT BY SEGMENT
Consumer
Segment
Operating
profit for the Consumer segment as a percent to sales in the first fiscal six
months of 2008 was 17.4% versus 17.6% over the same period a year ago. This
decrease was primarily due to the net gain of $175 million before tax related to
the divestitures of certain brands recorded in the fiscal first quarter of 2007.
Operating profit as a percent to sales in the fiscal second quarter of 2008 was
16.9% versus 13.5% over the same period a year ago. The increase in the fiscal
second quarter was due to cost synergies, lower integration costs related to the
acquisition of the Consumer Healthcare Business of Pfizer Inc. and other cost
containment initiatives.
Pharmaceutical
Segment
Operating
profit for the Pharmaceutical segment as a percent to sales in the first fiscal
six months of 2008 was 35.3% versus 35.7% over the same period a year ago.
Operating profit as a percent to sales in the fiscal second quarter of 2008 was
33.8% versus 34.7% over the same period a year ago. For both periods
in 2008, operating profit margin declined, as compared to the same periods a
year ago. This was due to the change in product mix, primarily the
RISPERDALâ oral loss
of exclusivity outside the U.S. during 2008.
Medical
Devices and Diagnostics Segment
Operating
profit for the Medical Devices and Diagnostics segment as a percent to sales in
the first fiscal six months of 2008 was 29.7% versus 20.8% over the same period
a year ago. The primary driver of the improvement in the operating profit margin
in the Medical Devices and Diagnostics segment for the fiscal six months over
the same period a year ago was the acquisition related IPR&D charges of $40
million incurred during the fiscal six months of 2008 versus IPR&D charges
of $807 million incurred during the fiscal six months of 2007. Operating profit
as a percent to sales in the fiscal second quarter of 2008 was 28.0% versus
28.1% over the same period a year ago. The decrease was primarily due to the
acquisition related IPR&D charges of $40 million incurred during the fiscal
second quarter of 2008.
Interest
(Income) Expense
Interest
income decreased in both the first fiscal six months and fiscal second quarter
of 2008 as compared to the same periods a year ago, due to lower rates of
interest earned, despite higher average cash balances. The ending balance of
cash, cash equivalents and marketable securities, was $13.1 billion at the end
of the fiscal second quarter of 2008. This is an increase of $7.1
billion from the same period a year ago. The increase was primarily due to cash
generated from operating activities.
Interest
expense increased in both the first fiscal six months and fiscal second quarter
of 2008 as compared to the same periods a year ago, due to a higher debt
position of $13.9 billion at the end of the fiscal second quarter of 2008,
compared to $6.5 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.
Provision
For Taxes on Income
The
worldwide effective income tax rates for the first fiscal six months of 2008 and
2007 were 24.1% and 26.4%, respectively. The decrease in the effective tax rate
of 2.3% was primarily due to the lower in-process research and development
(IPR&D) charge of $40 million with no tax benefit recorded in the first
fiscal six months of 2008 versus the higher IPR&D charges of $807 million
with no tax benefit recorded in the first fiscal six months of
2007.
At June
29, 2008 the Company had approximately $1.8 billion of liabilities from
unrecognized tax benefits. The Company does not expect that the total amount of
unrecognized tax benefits will significantly change 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 30, 2007 for more detailed information regarding
unrecognized tax benefits.
LIQUIDITY
AND CAPITAL RESOURCES
Cash
Flows
Cash
generated from business operations provided the major sources of funds for the
growth of the business, including working capital, capital expenditures, and
acquisitions. In the first fiscal six months of 2008, cash flow from operations
was $6.1 billion, a decrease of $0.7 billion over the same period a year ago.
The decrease was primarily due to the change of $0.9 billion in accounts payable
and accrued liabilities versus the same period a year ago. Net cash used by
investing activities decreased by $2.6 billion primarily due to a decrease of
$1.3 billion in acquisition activity and an increase of $1.6 billion in the
maturity and sales of investments, net of purchases. This decrease was partially
offset by a $0.2 billion decrease in proceeds from the disposal of assets versus
the same period a year ago which included the divestitures of certain products
related to the acquisition of Consumer Healthcare business of Pfizer Inc in the
first quarter of 2007. Net cash used by financing activities decreased by $1.3
billion versus the same period a year ago. An increase of $4.3 billion in net
proceeds from short and long-term debt was partially offset by an increase of
$2.9 billion for the repurchase of common stock primarily associated with the
stock repurchase program announced on July 9, 2007. Cash and current marketable
securities were $13.1 billion at the end of the fiscal second quarter of 2008 as
compared with $6.0 billion at fiscal second quarter of 2007, an increase of $7.1
billion, primarily due to cash generated from operating activities.
On June
18, 2008 the Company issued an aggregate of $1.6 billion in long-term notes,
comprised of $0.9 billion of 5.150% Notes due in 2018 and $0.7 billion of 5.850%
Notes due in 2038. The proceeds of the notes issuances were principally used to
convert short-term debt to long-term debt as market conditions presented an
opportunity to issue long-term debt at reasonable rates.
Dividends
On April
24, 2008, the Board of Directors declared a regular quarterly cash dividend of
$0.460 per share, which was paid on June 10, 2008 to shareholders of record as
of May 27, 2008. This represented an increase of 10.8% in the quarterly dividend
rate and was the 46th consecutive year of cash dividend
increases.
On July
21, 2008, the Board of Directors declared a regular cash dividend of $0.460 per
share, payable on September 9, 2008 to shareholders of record as of August 26,
2008. The Company expects to continue the practice of paying regular quarterly
cash dividends.
OTHER
INFORMATION
New
Accounting Standards
During
the fiscal first quarter of 2008, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 157, Fair Value Measurements. This
statement defines fair value, establishes a framework for measuring fair value
in generally accepted accounting principles, and expands disclosures about fair
value measurements. This statement was adopted in the fiscal first quarter of
2008 except for non-financial assets and liabilities recognized or disclosed at
fair value on a non-recurring basis, for which the effective date is fiscal
years beginning after November 15, 2008. See Note 13 for more
details.
During
the fiscal first quarter of 2008, the Company adopted SFAS No.159, Fair Value Option for Financial
Assets and Financial Liabilities, which permits an entity to measure
financial assets and financial liabilities at fair value. See Note 13 for more
details.
During
the fiscal first quarter of 2008, the Company adopted EITF Issue 07-03 Accounting for Nonrefundable Advance
Payments for Goods or Services Received for Use in Future Research and
Development Activities. This issue requires nonrefundable advance
payments for research and development to be capitalized and recognized as an
expense as related goods are delivered or services are performed. The adoption
of EITF Issue 07-03 did not have a significant impact on the Company’s results
of operation, cash flows or financial position.
In
December 2007, the Financial Accounting Standards Board (FASB) issued 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 are effective for fiscal years beginning after
December 15, 2008. SFAS No.141(R) will have a significant impact on the manner
in which the Company accounts for future acquisitions beginning in the fiscal
year 2009. Significant changes include the capitalization of 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 is applicable to
acquisitions that occurred both prior and subsequent to the adoption of FAS
141(R). The Company believes that the adoption of SFAS No. 141R and SFAS No.160
will not have a material effect on its results of operations, cash flows or
financial position.
In March
2008, the FASB issued 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. This statement is effective for fiscal years beginning
after November 15, 2008. The adoption of SFAS No. 161 is not expected to have a
significant impact on the Company’s results of operations, cash flow or
financial position.
EITF
Issue 07-01:
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. This issue addresses the income
statement classification of payments made between parties in a collaborative
arrangement. The adoption of EITF 07-01 is not expected to 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 1997
through 2007 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 result in pricing pressures that include
health care cost containment and government legislation relating to sales,
promotions and reimbursement.
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, such as 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 30, 2007
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
30, 2007.
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 second quarter of 2008. 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)
|
|
March
31, 2008 through April 27, 2008
|
|
|
3,459,700 |
|
|
$ |
65.08 |
|
|
|
1,108,900 |
|
|
|
|
April
28, 2008 through May 25, 2008
|
|
|
10,506,700 |
|
|
$ |
66.92 |
|
|
|
7,176,000 |
|
|
|
|
May
26, 2008 through June 29, 2008
|
|
|
14,692,000 |
|
|
$ |
65.50 |
|
|
|
12,982,300 |
|
|
|
|
Total
|
|
|
28,658,400 |
|
|
|
|
|
|
|
21,267,200 |
(3) |
|
|
56,069,005 |
|
(1)
During the fiscal second quarter of 2008, the Company repurchased an aggregate
of 21,267,200 shares of Johnson & Johnson Common Stock pursuant to the
repurchase program that was publicly announced on July 9, 2007 and an aggregate
of 7,391,200 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
June 29, 2008, based on the closing price of the Company’s Common Stock on the
New York Stock Exchange on June 27, 2008 of
$63.57 per share.
(3) As of
June 29, 2008, an aggregate of 99,769,300 shares were purchased for a total of
$6.4 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 24,
2008.
(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 2008. The shareholders did not
approve the shareholder proposal on advisory vote on executive compensation
policies and disclosure.
1. Election
of Directors:
|
Shares
For*
|
Shares
Withheld
|
M.
S. Coleman
J.
G. Cullen
M.
M. E. Johns
A.
G. Langbo
S.
L. Lindquist
L.
F. Mullin
W.
D. Perez
C.
A. Poon
C.
Prince
D.
Satcher
W.
C. Weldon
|
2,200,474,488
2,270,948,301
1,756,609,243
1,914,962,811
2,356,807,292
2,370,078,331
1,836,417,795
2,353,635,674
1,828,742,981
2,356,664,992
2,353,902,507
|
229,448,405
158,974,592
673,313,650
514,960,082
73,115,601
59,844,562
593,505,098
76,287,219
601,179,912
73,257,901
76,020,386
|
*Includes
up to 464,521,944 broker non-votes
2.
Ratification of Appointment of PricewaterhouseCoopers LLP:
For*
Against
Abstain
|
|
|
2,360,642,013
38,701,570
30,579,310
|
|
*Includes
up to 464,521,944 broker non-votes
3.
Shareholder proposal on advisory vote on executive compensation policies and
disclosure:
For
Against
Abstain
Broker Non-vote
|
|
|
841,064,878
1,033,777,487 90,558,584
464,521,944
|
|
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: August
4, 2008 By /s/ D. J.
CARUSO
D. J.
CARUSO
Vice President,
Finance;
Chief Financial
Officer
|
(Principal Financial Officer)
|
Date: August
4, 2008 By
/s/ S. J. COSGROVE
S. J.
COSGROVE
Controller
|
(Principal Accounting Officer)
|