Johnson and Johnson 2009 Annual Report Download - page 33

M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S O F R E S U L T S O F O P E R A T I O N S A N D F I N A N C I A L C O N D I T I O N 31
Other (Income) Expense, Net: Other (income) expense, net
includes gains and losses related to the sale and write-down of cer-
tain investments in equity securities held by Johnson & Johnson
Development Corporation, gains and losses on the disposal of
property, plant and equipment, currency gains and losses, non-
controlling interests, litigation settlements and liabilities and royalty
income. The unfavorable change of $0.5 billion in other (income)
expense, net from 2009 to 2008 was primarily due to a gain of
$0.5 billion from the divestiture of the Professional Wound Care
business of Ethicon, Inc. in 2008.
In 2008, other (income) expense, net included income from
net litigation settlements and awards of $0.5 billion and a gain of
$0.5 billion from the divestiture of the Professional Wound Care
business of Ethicon, Inc. In 2007, other (income) expense, net
included a charge of $0.7 billion before tax related to the
NATRECOR® intangible asset write-down.
OPERATING PROFIT BY SEGMENT
Operating profits by segment of business were as follows:
Percent of
Segment Sales
_____________________
(Dollars in Millions) 2009 2008 2009 2008
Consumer $ 2,475 2,674 15.7% 16.7
Pharmaceutical 6,413 7,605 28.5 31.0
Med Devices and Diagnostics 7,694 7,223 32.6 31.2
Total (1) 16,582 17,502 26.8 27.4
Less: Expenses not allocated
to segments (2) 827 573
Earnings before provision
for taxes on income $15,755 16,929 25.4% 26.5
(1) See Note 18 to the Consolidated Financial Statements for more details.
(2) Amounts not allocated to segments include interest (income) expense, non-controlling
interests, and general corporate (income) expense.
Consumer Segment: In 2009, Consumer segment operating profit
decreased 7.4% from 2008. The primary reasons for the decrease in
operating profit was $369 million of restructuring charges, partially
offset by cost containment initiatives in 2009. In 2008, Consumer
segment operating profit increased 17.4% from 2007. Cost syner-
gies, lower integration costs in 2008 related to the acquisition of the
Consumer Healthcare business of Pfizer Inc., and other cost con-
tainment initiatives contributed to the increased operating profit
in 2008.
Pharmaceutical Segment: In 2009, Pharmaceutical segment oper-
ating profit decreased 15.7% from 2008. The primary reasons for
the decrease in operating profit were $496 million of restructuring
charges, $92 million of litigation expense and negative product
mix due to the loss of market exclusivity for TOPAMAX® and
RISPERDAL® oral. In 2008, Pharmaceutical segment operating
profit increased 16.3% from 2007. The primary driver of the
improved operating profit in 2008 was due to the restructuring
charges of $429 million and $678 million for the NATRECOR®
intangible asset write-down recorded in 2007.
Medical Devices and Diagnostics Segment: In 2009, the operating
profit in the Medical Devices and Diagnostics segment increased
6.5% from 2008. The improved operating profit was due to $478
million gain from net litigation settlements, favorable product mix,
manufacturing efficiencies and cost containment initiatives related
to selling, marketing and administrative expenses. This was partially
offset by $321 million in restructuring charges. In 2008, the operat-
ing profit in the Medical Devices and Diagnostics segment increased
49.1% from 2007. The improved operating profit was the result of
the $429 million gain from net litigation settlements, favorable prod-
uct mix, manufacturing efficiencies and lower IPR&D charges of
$174 million in 2008 versus $807 million in 2007. Additionally,
$301 million of restructuring charges were recorded in 2007.
Interest (Income) Expense: Interest income in 2009 decreased by
$271 million due to lower rates of interest earned despite higher
average cash balances. The cash balance, including marketable
securities, was $19.4 billion at the end of 2009, and averaged
$15.6 billion as compared to the $12.2 billion average cash balance
in 2008. The increase in the average cash balance was primarily
due to cash generated from operating activities.
Interest expense in 2009 increased by $16 million due to a higher
debt balance. The net debt balance at the end of 2009 was $14.5 bil-
lion as compared to $11.9 billion at the end of 2008. The higher aver-
age debt balance of $13.5 billion in 2009 versus $12.9 billion in 2008
was primarily related to funding acquisitions and investments and
the purchase of the Company’s Common Stock under the ongoing
Common Stock repurchase program announced on July 9, 2007.
Interest income in 2008 decreased by $91 million due to lower
rates of interest earned despite higher average cash balances. The
cash balance, including marketable securities, was $12.8 billion at
the end of 2008, and averaged $12.2 billion as compared to the
$6.6 billion average cash balance in 2007. The increase in the
average cash balance was primarily due to cash generated from
operating activities.
Interest expense in 2008 increased by $139 million due to a
higher debt balance. In the second half of 2007 the Company con-
verted some of its short-term debt to fixed long-term debt at higher
interest rates. The net debt balance at the end of 2008 was $11.9 bil-
lion as compared to $9.5 billion at the end of 2007. The higher debt
balance in 2008 was primarily due to the purchase of the Company’s
Common Stock under the ongoing Common Stock repurchase
program announced on July 9, 2007 and to fund acquisitions.
Interest income in 2007 decreased by $377 million due to
lower average cash balances. The decline in the average cash
balance was primarily due to the acquisition of the Consumer
Healthcare business of Pfizer Inc. on December 20, 2006.
Interest expense in 2007 increased by $233 million as com-
pared to prior year due to a higher average debt balance. The net
debt balance at the end of 2007 was $9.5 billion as compared to
$6.6 billion at the end of 2006. The higher debt balance in 2007
was due to the debt associated with the acquisition of the Con-
sumer Healthcare business of Pfizer Inc. and the Common Stock
repurchase program announced in 2007.
Provision for Taxes on Income: The worldwide effective income tax
rate was 22.1% in 2009, 23.5% in 2008 and 20.4% in 2007. The
2009 tax rate decreased as compared to 2008 due to increases in
taxable income in lower tax jurisdictions relative to taxable income
in higher tax jurisdictions. The 2008 tax rate increased as compared
to 2007 due to increases in taxable income in higher tax jurisdic-
tions relative to taxable income in lower jurisdictions. In addition, the