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Annual Report 2013

Table of contents

  • Page 1
    Annual Report 2013

  • Page 2
    ... 20 years, Johnson & Johnson has partnered with SOS Children's Village, the largest organization dedicated to orphaned and abandoned children with villages around the world. SOS Children's Villages provides much needed medical services, financial resources and other programs that strengthen families...

  • Page 3
    ... sales come from products with the number one or number two global market share position. With these strong sales results, we delivered adjusted earnings per share* growth of 8.2 percent and strong free cash flow** of nearly $14 billion. I am pleased with the progress we have made in the two years...

  • Page 4
    ... segment, we continue to expand globally with the acquisition of Shanghai Elsker Mother & Baby Co., Ltd, a leading baby care products company for the Chinese market and by launching LISTERINE® ADVANCED DEFENCE® Gum Treatment in the United Kingdom and Ireland. JOHNSON & JOHNSON 2013 ANNUAL REPORT

  • Page 5
    ... and new business models that truly connect with the way our customers live. Today, 55 percent of Johnson & Johnson's business comes from outside the United States, and that number is growing-as 22 percent of our sales come from fast growing emerging markets such as Brazil, Russia, India and China...

  • Page 6
    ... of Directors, and Chief Executive Officer March 12, 2014 * Excludes special items. See "Reconciliation of Non-GAAP Financial Measures" on page 72 of this Annual Report. ** Free cash flow is defined as operating cash flow less capital spending. *** Including dividends. JOHNSON & JOHNSON 2013 ANNUAL...

  • Page 7
    ...28.1 billion in worldwide sales in 2013, we are the seventh-largest pharmaceuticals business* in the world and the sixth-largest biotech business*. We're the fastest-growing top 10 Pharmaceutical Company in the United States, Europe and Japan and recorded 15 consecutive quarters of operational sales...

  • Page 8
    ... made good progress. DePuy Synthes Companies is the world's largest and most comprehensive orthopaedics company within a $44 billion market with strong fundamentals, and is primed to offer new, value-added solutions that will help transform health care delivery. JOHNSON & JOHNSON 2013 ANNUAL REPORT

  • Page 9
    ... product development, regulatory filings and the sale of the Ortho-Clinical Diagnostics business. You should review the section "Cautionary Factors That May Affect Future Results" on page 19 of this Annual Report for important information about these statements including the risks, uncertainties...

  • Page 10
    ... Chief Financial Officer Member, Executive Committee DOUGLAS K. CHIA Corporate Secretary Assistant General Counsel STEPHEN J. COSGROVE Corporate Controller Chief Accounting Officer JOAQUIN DUATO Worldwide Chairman, Pharmaceuticals Group PETER M. FASOLO Vice President, Global Human Resources Member...

  • Page 11
    ... Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements Report of Independent Registered Public Accounting Firm Management's Report on Internal Control Over Financial Reporting SUPPORTING SCHEDULES Summary of Operations and Statistical Data 2003 - 2013 Shareholder Return...

  • Page 12
    ... focus on products related to human health and well-being. The Company is organized into three business segments: Consumer, Pharmaceutical and Medical Devices and Diagnostics. The Consumer segment includes a broad range of products used in the baby care, skin care, oral care, wound care and women...

  • Page 13
    ...health care industry. Results of Operations Analysis of Consolidated Sales In 2013, worldwide sales increased 6.1% to $71.3 billion, compared to increases of 3.4% in 2012 and 5.6% in 2011. These sales changes consisted of the following: Sales increase/(decrease) due to: 2013 2012 2011 Volume Price...

  • Page 14
    ...billion, an increase of 1.8% from 2012. Growth was primarily due to sales of haircare and baby cleansers outside the U.S. and newly acquired products from the acquisition of Shanghai Elsker Mother & Baby Co., Ltd. The Oral Care franchise sales were flat as compared to the prior year. Increased sales...

  • Page 15
    ... Other Total Pharmaceutical Sales * Prior year amounts have been reclassified to conform to current year presentation. ** Percentage greater than 100% Immunology products achieved sales of $9.2 billion in 2013, representing an increase of 16.7% as compared to the prior year. The increased sales of...

  • Page 16
    ...Transdermal (fentanyl transdermal system) and RISPERDAL® (risperidone) was due to continued generic competition. Oncology products achieved sales of $3.8 billion in 2013, representing an increase of 43.5% as compared to the prior year. This growth was primarily due to sales of ZYTIGA® (abiraterone...

  • Page 17
    ... Ortho-Clinical Diagnostics business. For more details see Note 20 to the Consolidated Financial Statements. The Infection Prevention/Other franchise sales were $0.9 billion in 2013, a decrease of 4.2% versus the prior year primarily due to a negative currency impact. Johnson & Johnson 2013 Annual...

  • Page 18
    ... in cost of products sold, related to the Cardiovascular Care business. Additionally, 2011 included higher gains from divestitures and other items of $0.3 billion, recorded in other (income) expense, net. As a percent to sales, consolidated earnings before provision for taxes on income in 2013 was...

  • Page 19
    ... and marketable securities totaled $29.2 billion at the end of 2013, and averaged $25.2 billion as compared to the $26.7 billion average cash balance in 2012. The increase in the year end cash balance was due to cash generated from operating activities. Johnson & Johnson 2013 Annual Report • 9

  • Page 20
    ... Financial Statements for more details. Amounts not allocated to segments include interest (income) expense, noncontrolling interests, and general corporate (income) expense. A $0.2 billion currency related expense for the acquisition of Synthes, Inc. was not allocated to segments in 2012. Consumer...

  • Page 21
    ... related to the Company's Belgian foreign affiliate. The above items had no net impact on the effective income tax rate for the fiscal year ended 2013. The increase in the 2012 effective tax rate of 1.9% as compared to 2011 was due to lower tax benefits on the impairment of in-process research...

  • Page 22
    ... 29, 2013 and approximately $1.2 billion as of December 30, 2012 of the Southern European Region net trade accounts receivable balance related to the Company's Consumer, Vision Care and Diabetes Care businesses as well as certain Pharmaceutical and Medical Devices and Diagnostics customers which are...

  • Page 23
    ... Note 8 to the Consolidated Financial Statements. Dividends The Company increased its dividend in 2013 for the 51st consecutive year. Cash dividends paid were $2.59 per share in 2013 compared with dividends of $2.40 per share in 2012, and $2.25 per share in 2011. The dividends were distributed as...

  • Page 24
    ...fiscal reporting years 2013, 2012 and 2011. Promotional programs, such as product listing allowances and cooperative advertising arrangements, are recorded in the year incurred. Continuing promotional programs include coupons and volume-based sales incentive programs. The redemption cost of consumer...

  • Page 25
    ... 2012, recorded as a contra asset. Pharmaceutical Segment (Dollars in Millions) Balance at Beginning of Period Accruals Payments/ Credits Balance at End of Period 2013 Accrued rebates(1) Accrued returns Accrued promotions Subtotal Reserve for doubtful accounts Reserve for cash discounts Total 2012...

  • Page 26
    ... the Company's results of operations, cash flows or financial position. At December 29, 2013 and December 30, 2012, the cumulative amounts of undistributed international earnings were approximately $50.9 billion and $49.0 billion, respectively. At December 29, 2013 and December 30, 2012, the Company...

  • Page 27
    ... discount rate, expected return on plan assets, expected salary increases and health care cost trend rates. See Note 10 to the Consolidated Financial Statements for further details on these rates and the effect a rate change would have on the Company's results of operations. Stock Based Compensation...

  • Page 28
    ... adverse effect on the Company's results of operations and cash flows for that period. See Note 21 to the Consolidated Financial Statements for further information regarding legal proceedings. Common Stock Market Prices The Company's Common Stock is listed on the New York Stock Exchange under...

  • Page 29
    ... patterns of purchasers of health care products and services; financial instability of international economies and sovereign risk; disruptions due to natural disasters; manufacturing difficulties or delays; complex global supply chains with increasing regulatory requirements; and product efficacy or...

  • Page 30
    ... & JOHNSON AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS At December 29, 2013 and December 30, 2012 (Dollars in Millions Except Share and Per Share Amounts) (Note 1) 2013 2012 Assets Current assets Cash and cash equivalents (Notes 1 and 2) Marketable securities (Notes 1 and 2) Accounts receivable...

  • Page 31
    ... & JOHNSON AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (Dollars and Shares in Millions Except Per Share Amounts) (Note 1) 2013 2012 2011 Sales to customers Cost of products sold Gross profit Selling, marketing and administrative expenses Research and development expense In-process research...

  • Page 32
    ...loss) arising during period Reclassifications to earnings Net change Employee benefit plans: Prior service cost amortization during period Prior service cost - current year Gain amortization during period Gain (loss) - current year Effect of exchange rates Net change Derivatives & hedges: Unrealized...

  • Page 33
    ... CONSOLIDATED STATEMENTS OF EQUITY (Dollars in Millions) (Note 1) Accumulated Other Comprehensive Income Treasury Stock Amount Total Retained Earnings Common Stock Issued Amount Balance, January 2, 2011 Net earnings attributable to Johnson & Johnson Cash dividends paid Employee compensation...

  • Page 34
    ... flow data Cash paid during the year for: Interest Interest, net of amount capitalized Income taxes Supplemental schedule of non-cash investing and financing activities Issuance of common stock associated with the acquisition of Synthes, Inc. Treasury stock issued for employee compensation and stock...

  • Page 35
    ... focus is on products related to human health and well-being. The Company is organized into three business segments: Consumer, Pharmaceutical and Medical Devices and Diagnostics. The Consumer segment includes a broad range of products used in the baby care, skin care, oral care, wound care and women...

  • Page 36
    ...all annual periods and interim reporting periods beginning after December 15, 2013, with early adoption permitted. The adoption of this standard is not expected to have a material impact on the Company's results of operations, cash flows or financial position. During the fiscal third quarter of 2013...

  • Page 37
    ... for returned products. The sales returns reserve for the total Company has been approximately 1.0% of annual sales to customers during the fiscal reporting years 2013, 2012 and 2011. Promotional programs, such as product listing allowances and cooperative advertising arrangements, are recorded in...

  • Page 38
    ... 29, 2013 and approximately $1.2 billion as of December 30, 2012 of the Southern European Region net trade accounts receivable balance related to the Company's Consumer, Vision Care and Diabetes Care businesses as well as certain Pharmaceutical and Medical Devices and Diagnostics customers which are...

  • Page 39
    ...$2.6 billion in 2013, 2012 and 2011, respectively. Income Taxes Income taxes are recorded based on amounts refundable or payable for the current year and include the results of any difference between U.S. GAAP accounting and tax reporting, recorded as deferred tax assets or liabilities. The Company...

  • Page 40
    ... excess cash in both deposits with major banks throughout the world and other high-quality money market instruments. The Company has a policy of making investments only with commercial institutions that have at least an "A" (or equivalent) credit rating. 30 • Johnson & Johnson 2013 Annual Report

  • Page 41
    ... in 2013, 2012 and 2011, was $2.7 billion, $2.5 billion and $2.3 billion, respectively. Upon retirement or other disposal of property, plant and equipment, the costs and related amounts of accumulated depreciation or amortization are eliminated from the asset and accumulated depreciation accounts...

  • Page 42
    ... year. Amortization expense is included in cost of products sold. During the fiscal year ended December 30, 2012, goodwill increased by $6.0 billion, related to the Synthes, Inc. acquisition. See Note 20 to the Consolidated Financial Statements for additional details on the Synthes, Inc. acquisition...

  • Page 43
    ... from Accumulated OCI Into Income(1) 2013 2012 Gain/(Loss) Recognized in Other Income/Expense(2) 2013 2012 (Dollars in Millions) Cash Flow Hedges by Income Statement Caption Sales to customers(3) Cost of products sold(3) Research and development expense(3) Interest (income)/Interest expense, net...

  • Page 44
    .... The change in the fair value from December 30, 2012 was primarily due to the sale of Elan American Depositary Shares. (2) (3) (4) (5) See Notes 2 and 7 for financial assets and liabilities held at carrying amount on the Consolidated Balance Sheet. 34 • Johnson & Johnson 2013 Annual Report

  • Page 45
    ...non-current debt was estimated using market prices, which were corroborated by quoted broker prices and significant other observable inputs. The Company has access to substantial sources of funds at numerous banks worldwide. In September 2013, the Company secured a new 364-day Credit Facility. Total...

  • Page 46
    ...debt securities and warrants to purchase debt securities on a timely basis. The Company issued bonds in December 2013 for a total of $3.5 billion for general corporate purposes. Aggregate maturities of long-term obligations commencing in 2014 are: (Dollars in Millions) 2014 2015 2016 2017 2018 After...

  • Page 47
    ... provisions were enacted into law in January 2013 and were retroactive to January 1, 2012. During 2013, the Company reached a settlement agreement related to certain issues regarding the U.S. Internal Revenue Service (IRS) audit related to tax years 2006-2009. As a result of this settlement, the...

  • Page 48
    ... billion at December 29, 2013, if recognized, would affect the Company's annual effective tax rate. The Company conducts business and files tax returns in numerous countries and currently has tax audits in progress with a number of tax authorities. The IRS has completed its audit for the tax years...

  • Page 49
    ... obligation for the year listed and also the net periodic benefit cost for the following year. Retirement Plans 2013 2012 2011 Other Benefit Plans 2013 2012 2011 Worldwide Benefit Plans Discount rate Expected long-term rate of return on plan assets Rate of increase in compensation levels 4.78% 8.46...

  • Page 50
    ... Health Care Plans Total interest and service cost Post-retirement benefit obligation $45 432 $(34) (347) The following table sets forth information related to the benefit obligation and the fair value of plan assets at year-end 2013 and 2012 for the Company's defined benefit retirement plans...

  • Page 51
    ... board considers factors including, local pension rules and regulations; local tax regulations; availability of investment vehicles (separate accounts, commingled accounts, insurance funds, etc.); funded status of the plans; ratio of actives to retirees; Johnson & Johnson 2013 Annual Report • 41

  • Page 52
    ...'s pension funds are open to new entrants and are expected to be on-going plans. Permitted investments are primarily liquid and/or listed, with little reliance on illiquid and non-traditional investments such as hedge funds. The Company's retirement plan asset allocation at the end of 2013 and 2012...

  • Page 53
    ...a percentage of each employee's contributions consistent with the provisions of the plan for which he/she is eligible. Total Company matching contributions to the plans were $164 million, $160 million and $157 million in 2013, 2012 and 2011, respectively. Johnson & Johnson 2013 Annual Report • 43

  • Page 54
    ...) Shares Amount Balance at January 2, 2011 Employee compensation and stock option plans Repurchase of common stock Balance at January 1, 2012 Employee compensation and stock option plans Issuance of common stock associated with the acquisition of Synthes, Inc. Repurchase of common stock(1) Balance...

  • Page 55
    ... years ended December 29, 2013 and December 30, 2012 included the dilutive effect of 19.6 million shares and 19.3 million shares, respectively, related to the accelerated share repurchase program, associated with the acquisition of Synthes, Inc. See Note 20 to the Consolidated Financial Statements...

  • Page 56
    ...the 2012 Long-Term Incentive Plan were 583 million at the end of 2013. The compensation cost that has been charged against income for these plans was $728 million, $662 million and $621 million for 2013, 2012 and 2011, respectively. The total income tax benefit recognized in the income statement for...

  • Page 57
    ... operational earnings per share, and relative total shareholder return. The number of shares actually earned at the end of the three-year period will vary, based only on actual performance, from 0% to 200% of the target number of performance share units granted. Johnson & Johnson 2013 Annual Report...

  • Page 58
    ... model. No performance share units vested in 2013 and 2012. 18. Segments of Business and Geographic Areas Sales to Customers (Dollars in Millions) 2013 2012 2011 Consumer - United States International Total Pharmaceutical - United States International Total Medical Devices and Diagnostics - United...

  • Page 59
    ...Assets(6) 631 958 1,331 2,920 238 3,158 Sales to Customers (Dollars in Millions) 2013 2012 2011 2013 2012 2011 United States Europe Western Hemisphere excluding U.S. Asia-Pacific, Africa Segments total General corporate Other non long-lived assets Worldwide total $31,910 18,599 7,421 13,382 71...

  • Page 60
    ... financial data for the years 2013 and 2012 are summarized below: 2013 (Dollars in Millions Except Per Share Data) First Quarter(1) Second Quarter(2) Third Quarter(3) Fourth Quarter(4) First Quarter(5) 2012 Second Quarter(6) Third Quarter(7) Fourth Quarter(8) Segment sales to customers Consumer...

  • Page 61
    ... exchange rate and closing price of Johnson & Johnson common stock on that date, the total fair value of the consideration transferred was $20.2 billion. Janssen Pharmaceutical, a company organized under the laws of Ireland and a wholly-owned subsidiary of Johnson & Johnson, used cash on hand...

  • Page 62
    ...price)(B) Synthes common stock outstanding of 118.7 million shares as of the acquisition date and CHF/USD exchange rate of .95674. Johnson & Johnson closing stock price on the New York Stock Exchange as of acquisition date of $65.45 per share. During the fiscal second quarter of 2013, the Company...

  • Page 63
    ... executing the integration plans to combine businesses, sales organizations, systems and locations as a result of which the Company has and will continue to incur integration costs. The operating results of Synthes were reported in the Company's financial statements beginning on June 14, 2012. Total...

  • Page 64
    ..., 2012 and 2011 in accordance with U.S. GAAP standards related to business combinations, and goodwill and other intangible assets, is not provided, as the impact of the aforementioned acquisitions did not have a material effect on the Company's results of operations, cash flows or financial position...

  • Page 65
    .... Claims for personal injury have also been made against DePuy and Johnson & Johnson relating to DePuy's PINNACLE® Acetabular Cup System used in hip replacement surgery. The number of pending product liability lawsuits continues to increase, and the Company continues to receive information with...

  • Page 66
    ... from Howmedica and Stryker. In May 2012, Medtronic MiniMed, Inc., Medtronic Puerto Rico Operations Co. and MiniMed Distribution Corp. (collectively, Medtronic MiniMed) filed a patent infringement lawsuit against Animas Corporation in the United States 56 • Johnson & Johnson 2013 Annual Report

  • Page 67
    ..., resulting in very substantial market share and revenue losses for those products. ORTHO TRI-CYCLEN® LO A number of generic companies filed ANDAs seeking approval to market generic versions of ORTHO TRI-CYCLEN® LO. Janssen Pharmaceuticals, Inc. (JPI) filed patent infringement lawsuits against...

  • Page 68
    ... to market its generic version of ORTHO TRI-CYCLEN® LO starting December 31, 2015 (or earlier under certain circumstances). In October 2011, JPI filed a patent infringement lawsuit against Sun Pharma Global FZE and Sun Pharmaceutical Industries (collectively, Sun) in the United States District...

  • Page 69
    ... to market generic extended release oxycodone products before the expiration of certain Purdue patents. Three of the asserted patents relate to oxycodone and processes for making oxycodone, and Noramco has agreed to defend the lawsuits on behalf of Impax, Johnson & Johnson 2013 Annual Report • 59

  • Page 70
    ... 2013, Janssen Biotech, Inc. (JBI) and NYU Medical Center received an Office Action from the United States Patent Office rejecting the claims in a co-owned patent relating to REMICADE® in a reexamination proceeding instituted by a third party. Currently, the affected patent in the United States...

  • Page 71
    ...(now Janssen Pharmaceuticals, Inc. (JPI)) received subpoenas from the Office of the Inspector General of the United States Office of Personnel Management, the Department of Justice and the United States Attorney's Office for the Eastern District of Pennsylvania seeking documents concerning sales and...

  • Page 72
    ... September 2005, Johnson & Johnson received a subpoena from the United States Attorney's Office for the District of Massachusetts, seeking documents related to the sales and marketing of eight drugs to Omnicare, Inc. (Omnicare), a manager of pharmaceutical benefits for long-term care facilities. In...

  • Page 73
    ...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 recalls of various products of McNeil Consumer Healthcare...

  • Page 74
    ...Synthes, Inc. (DePuy Synthes)), and Johnson & Johnson Services, Inc. received an informal request from the United States Attorney's Office for the District of Massachusetts and the Civil Division of the United States Department of Justice for the production of materials relating to the ASRâ„¢ XL Hip...

  • Page 75
    ...is the policy of Johnson & Johnson to cooperate with these inquiries by producing the requested information. GENERAL LITIGATION In June 2009, following the public announcement that Ortho-Clinical Diagnostics, Inc. (OCD) had received a grand jury subpoena from the United States Department of Justice...

  • Page 76
    ... DERIVATIVE ACTIONS Starting in April 2010, a number of shareholder derivative lawsuits were filed in the United States District Court for the District of New Jersey against certain current and former directors and officers of Johnson & Johnson. Johnson & Johnson is named as a nominal defendant...

  • Page 77
    ... recorded a pre-tax charge of $0.7 billion, of which $0.1 billion was included in cost of products sold. The Cordis restructuring program has been substantially completed. The restructuring charge was recorded in the Medical Devices and Diagnostics segment. Johnson & Johnson 2013 Annual Report...

  • Page 78
    ... and December 30, 2012, and the results of their operations and their cash flows for each of the three years in the period ended December 29, 2013 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material...

  • Page 79
    ... LLP, an independent registered public accounting firm, as stated in their report, which appears herein. Alex Gorsky Chairman, Board of Directors Chief Executive Officer Dominic J. Caruso Vice President, Finance Chief Financial Officer Johnson & Johnson 2013 Annual Report • 69

  • Page 80
    ... increase (decrease) over previous year: Sales to customers Diluted net earnings per share Supplementary balance sheet data: Property, plant and equipment, net Additions to property, plant and equipment Total assets Long-term debt Operating cash flow Common stock information Dividends paid per share...

  • Page 81
    ...2003 in each of the Company's Common Stock, the Standard & Poor's 500 Stock Index, the Standard & Poor's Pharmaceutical Index and the Standard & Poor's Health Care Equipment Index and that all dividends were reinvested. 5-Year Cumulative Total Shareholder Return $235 Johnson & Johnson S&P 500 Index...

  • Page 82
    ... share attributable to Johnson & Johnson - as reported Litigation expenses In-process research and development Synthes integration/transaction costs and currency related Intangible asset write-downs DePuy ASRâ„¢ Hip program Restructuring expense Scios tax benefit Other Diluted Net Earnings per share...

  • Page 83
    ...Johnson & Johnson Annual Report contains many of the valuable trademarks and trade names owned and used by the Johnson & Johnson Family of Companies in the United States and internationally to distinguish products and services of outstanding quality. ©Johnson & Johnson 2014 SHAREHOLDER INFORMATION

  • Page 84
    ... responsibility is to our stockholders. Business must make a sound profit. We must experiment with new ideas. Research must be carried on, innovative programs developed and mistakes paid for. New equipment must be purchased, new facilities provided and new products launched. Reserves must be created...