Johnson and Johnson 2006 Annual Report Download - page 76

74 JOHNSON & JOHNSON 2006 ANNUAL REPORT
United States by the Company’s Ortho Biotech Inc. subsidiary for
non-dialysis indications. The suit is in its preliminary stages.
In October 2006, Wyeth, Inc. initiated litigation in Delaware
against Cordis Corporation alleging that Cordis breached the
license and supply agreement pursuant to which Wyeth supplies
Cordis the drug Rapamycin which is used in connection with
Cordis’ CYPHER®Sirolimus-eluting Stent. Cordis has com-
menced its own action in Delaware seeking a declaration that no
breach has occurred.
The Company is also involved in a number of other patent,
trademark and other lawsuits incidental to its business. The ulti-
mate 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 opin-
ion, 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.
19. Earnings Per Share
The following is a reconciliation of basic net earnings per share to
diluted net earnings per share for the years ended December 31,
2006, January 1, 2006 and January 2, 2005:
(Shares in Millions Except Per Share Data) 2006 2005 2004
Basic net earnings per share$3.76 3.38 2.76
Average shares
outstanding —basic 2,936.4 2,973.9 2,968.4
Potential shares exercisable
under stock option plans 207.0 203.1 186.5
Less: shares repurchased
under treasury stock method (186.3) (178.6) (174.6)
Convertible debt shares 3.9 4.4 12.4
Adjusted average shares
outstanding —diluted 2,961.0 3,002.8 2,992.7
Diluted net earnings per share$3.73 3.35 2.74
The diluted net earnings per share calculation includes the dilu-
tive effect of convertible debt: a decrease in interest expense of
$4 million, $11 million and $14 million after tax for years 2006,
2005 and 2004, respectively.
Diluted net earnings per share excludes 43 million, 45 million
and 42 million shares underlying stock options for 2006, 2005 and
2004, respectively, as the exercise price of these options was greater
than their average market value, which would result in an anti-
dilutive effect on diluted earnings per share.
20. Capital and Treasury Stock
Changes in treasury stock were:
(Amounts in Millions Except Treasury Stock Treasury Stock
_______________________
Number of Shares in Thousands)Shares Amount
Balance at December 28, 2003151,869 $6,146
Employee compensation and stock option plans (25,340) (1,403)
Conversion of subordinated debentures (2,432) (123)
Repurchase of common stock 24,722 1,384
Balance at January 2, 2005 148,819 6,004
Employee compensation and stock option plans (22,708) (1,458)
Conversion of subordinated debentures (7,976) (501)
Repurchase of common stock 27,229 1,920
Balance at January 1, 2006 145,364 5,965
Employee compensation and stock option plans (26,526) (1,677)
Conversion of subordinated debentures (540) (36)
Repurchase of common stock 108,314 6,722
Balance at December 31, 2006 226,612 $10,974
Shares of common stock issued were 3,119,842,000 shares at
the end of 2006, 2005 and 2004.
Cash dividends paid were $1.455 per share in 2006, com-
pared with dividends of $1.275 per share in 2005 and $1.095 per
share in 2004.