Johnson and Johnson 2010 Annual Report Download - page 73

In addition, McNeil Consumer Healthcare, and certain affiliates
including Johnson & Johnson (“the Companies”), received grand
jury subpoenas from the United States Attorney’s Office for the
Eastern District of Pennsylvania requesting documents broadly
relating to recent recalls of various products of McNeil Consumer
Healthcare, and the FDA inspections of the Fort Washington,
Pennsylvania and Lancaster, Pennsylvania manufacturing facilities.
In addition, the government has served McNEIL-PPC Inc. with a Civil
Investigative Demand seeking records relevant to its investigation
to determine if there was a violation of the False Claims Act. The
Companies are cooperating with the United States Attorney’s Office
in responding to these subpoenas.
The Companies have also received Civil Investigative Demands
(CIDs) from multiple State Attorneys General Offices broadly relat-
ing to the McNeil recall issues. The Companies continue to produce
documents in response to these CIDs and otherwise cooperate with
these inquiries. On January 12, 2011, the Oregon Attorney General
filed a civil complaint against Johnson & Johnson, McNEIL-PPC, Inc,
and McNeil Healthcare LLC in state court alleging civil violations of
the Oregon unlawful trade practices act relating to an earlier recall
of a McNeil OTC product. The defendants intend to seek dismissal
of this civil complaint.
Furthermore, a lawsuit was filed in September 2010 by a share-
holder in the United States District Court for the District of New
Jersey: Monk v. Johnson & Johnson. The complaint seeks class
certification based upon the anti-fraud provisions of the federal
securities laws related to the McNeil manufacturing facilities. More
specifically, this complaint alleges that the Companies and certain
individuals, including officers and employees, failed to disclose that
a number of manufacturing facilities were failing to maintain current
good manufacturing practices (cGMPs) and, that as a result, the
price of the Company’s stock has declined significantly.
Multiple complaints seeking class action certification related to
the McNeil recalls have been filed in the United States District Court
for the Eastern District of Pennsylvania, the Northern District of Illi-
nois, the Central District of California, and the Southern District of
Ohio. These consumer complaints allege generally that purchasers of
various McNeil medicines are owed monetary damages and penal-
ties because they paid premium prices for defective medications
rather than less expensive alternative medications. Each complaint
seeks certification of a nation-wide class of purchasers of these med-
icines. On October 8, 2010, the Judicial Panel on Multidistrict Litiga-
tion consolidated these consumer complaints: Haviland v. McNeil
(E.D. Pa.); Smith v. McNeil (N.D. Ill.); Burrell v. McNeil (N.D. Ill.);
DeGroot v. McNeil (N.D. Ill.); Michaud v. McNeil, (N.D. Ill.); Nguyen
v. McNeil (N.D. Ill.); Roberson v. McNeil (N.D. Ill.); Rivera v. Johnson
& Johnson (C.D.Cal.), and Coleman v. McNeil (S.D. Ohio) for pretrial
proceedings in the United States District Court for the Eastern Dis-
trict of Pennsylvania. Plaintiffs filed a “Consolidated Amended Civil
Consumer Class Action Complaint” (CAC) naming additional parties
and claims on January 12, 2011. Defendants currently intend to file a
motion to dismiss the CAC, which motion will be filed on March 2,
2011, and is scheduled to be heard on May10, 2011.
In recent years the Company has received numerous requests
from a variety of United States Congressional Committees to
produce information relevant to ongoing congressional inquiries.
It is the Company’s policy to cooperate with these inquiries by
producing the requested information.
With respect to all the above matters, the Company and its
subsidiaries are vigorously contesting the allegations asserted
against them and otherwise pursuing defenses to maximize the
prospect of success. The Company and its subsidiaries involved in
these matters continually evaluate their strategies in managing
these matters and, where appropriate, pursue settlements and other
resolutions where those are in the best interest of the Company.
The Company is also involved in a number of 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 can-
not be reasonably estimated. 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 finan-
cial position, although the resolution in any reporting period of one
or more of these matters could have a material impact on the
Company’s results of operations and cash flows for that period.
22. Restructuring
In the fourth quarter of 2009, the Company announced global
restructuring initiatives designed to strengthen the Company’s posi-
tion as one of the world’s leading global health care companies. This
program will allow the Company to invest in new growth platforms;
ensure the successful launch of its many new products and contin-
ued growth of its core businesses; and provide flexibility to adjust to
the changed and evolving global environment.
During the fiscal fourth quarter of 2009, the Company recorded
$1.2 billion in related pre-tax charges, of which approximately
$830 million of the pre-tax restructuring charges are expected to
require cash payments. The $1.2 billion of restructuring charges con-
sists of severance costs of $748 million, asset write-offs of $362 mil-
lion and $76 million related to leasehold and contract obligations.
The $362 million of asset write-offs relate to inventory of $113 million
(recorded in cost of products sold), property, plant and equipment of
$107 million, intangible assets of $81 million and other assets of
$61million. Additionally, as part of this program the Company plans
to eliminate approximately 7,500 positions, of which approximately
5,000 have been eliminated since the restructuring was announced.
The following table summarizes the severance charges and the
associated spending for the fiscal year ended 2010:
(Dollars in Millions) Severance
2009 restructuring charge$748
Cash outlays(62)
Reserve balance, January 3, 2010 686
Cash outlays(341)
Reserve balance, January 2, 2011* $345
*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.
For additional information on the restructuring as it relates to the
segments, see Note 18.
NOTES TO CONSOLIDATED FINANCIAL ST A TEMENTS71