How did Johnson & Johnson perform financially in 1993?

Sales reached a record $14.14 billion, up 2.8% in reported dollars and 7.0% excluding currency effects. Net earnings were $1.79 billion, or $2.74 per share, compared with $1.56 per share in 1992. Excluding the one-time 1992 accounting charge, EPS grew 11.4%.

Which business segment is most important to profitability?

The Pharmaceutical segment generated $1.41 billion in operating profit on $4.49 billion of sales, a 31.3% margin, and accounted for over half of total segment operating profit. Its key products include DURAGESIC, EPREX/PROCRIT, PROPULSID and SPORANOX. Consumer and Professional each produced about $4.8 billion in sales but earned lower margins of 10.8% and 13.6%.

What risks does the company face going forward?

Key risks include pricing pressure and cost containment in Europe, particularly Germany and Italy; the U.S. shift to managed care; possible federal health care reform; a stronger U.S. dollar that depresses reported international results; and the phase-down of Puerto Rico tax benefits, which will raise the effective tax rate by an estimated 2 to 3 points. The company also faces product liability litigation that is largely uninsured for post-1985 injuries.

How is the company returning capital to shareholders?

In 1993 the company paid $659 million in dividends ($1.01 per share, up 13.5%) and repurchased $632 million of common stock, including 12.4 million shares for general corporate purposes. Management stated its intention to continue paying regular cash dividends.

How strong is the balance sheet and liquidity position?

Total assets were $12.24 billion and stockholders' equity was $5.57 billion. Total borrowings were about $2.4 billion, with net debt at 25.8% of net capital. Cash and current marketable securities totaled $476 million, and the company had about $2.4 billion of unused credit available, including $735 million in committed bank facilities. Operating cash flow of $2.17 billion comfortably covered $975 million of capital expenditures.

JNJ 10-K FY1994 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed April 1, 1994. Cited figures are marked; the original filing is the authoritative source.

Johnson & Johnson's 10-K for fiscal 1993 (year ended January 2, 1994) reports record worldwide sales of $14.14 billion^a, up 2.8% reported but 7.0% excluding currency effects, with net earnings of $1.79 billion, or $2.74 per share, up sharply from $1.56 in 1992.

That 1992 figure was depressed by a one-time $595 million^b after-tax accounting charge. Excluding the charge, net earnings rose 10.0% and EPS rose 11.4%. The Pharmaceutical segment is the profit engine, generating $1.41 billion of operating profit, or about 54% of segment profit, on $4.49 billion of sales.

Consumer and Professional segments each generated roughly $4.8 billion^c in sales, with Professional posting the stronger 4.1% growth. The company's balance sheet is solid but moderately leveraged. Total assets were $12.24 billion, stockholders' equity was $5.57 billion, and total borrowings were about $2.4 billion.

Operating cash flow was $2.17 billion^d against $975 million of capital expenditures. Management continued to return cash to shareholders, paying $1.01 per share in dividends (up 13.5%) and repurchasing about $632 million of stock. The effective tax rate fell to 23.4% from 26.4%, though management warned that changes to Puerto Rico tax benefits will add 2 to 3 percentage points to the rate over time.

The filing also flags several risks. European sales declined 5.2% in dollar terms, reflecting the strong dollar and pricing pressure in Germany and Italy.

Management cited ongoing cost containment, the U.S. shift toward managed care, and possible federal health reform as headwinds. The company also disclosed that it is substantially uninsured for product liability claims for injuries occurring after January 1, 1986, which is a meaningful contingent exposure given its drug and device portfolio.

02—Key points

Key Highlights

Record 1993 sales of $14.14 billion, up 2.8% reported and 7.0% in local currency terms, with almost two-thirds of operational growth from unit volume.
Net earnings of $1.79 billion ($2.74/share), up 75.6% reported; up 10.0% excluding the 1992 one-time $595M accounting charge.
Pharmaceutical segment delivered $1.41 billion operating profit (31.3% margin) and over 50% of total segment profit; drugs such as PROCRIT, PROPULSID, SPORANOX and DURAGESIC drove growth.
Dividends rose 13.5% to $1.01/share and $500M was spent on general share repurchases in both 1993 and 1992.
Effective tax rate declined to 23.4% (from 26.4%), but the Puerto Rico tax-benefit phase-down is expected to add 2 to 3 percentage points to the rate over five years.
European sales fell 5.2% in dollar terms amid currency headwinds and price pressure in Germany and Italy; Europe's operating margin dropped to 25.7% from 26.5%.
Strong balance sheet with $2.17B operating cash flow, $372M cash and $2.4B total credit availability, but product liability exposure is largely uninsured for injuries after 1985.

03—Questions

Frequently Asked Questions

How did Johnson & Johnson perform financially in 1993?
Sales reached a record $14.14 billion, up 2.8% in reported dollars and 7.0% excluding currency effects. Net earnings were $1.79 billion, or $2.74 per share, compared with $1.56 per share in 1992. Excluding the one-time 1992 accounting charge, EPS grew 11.4%.
Which business segment is most important to profitability?
The Pharmaceutical segment generated $1.41 billion in operating profit on $4.49 billion of sales, a 31.3% margin, and accounted for over half of total segment operating profit. Its key products include DURAGESIC, EPREX/PROCRIT, PROPULSID and SPORANOX. Consumer and Professional each produced about $4.8 billion in sales but earned lower margins of 10.8% and 13.6%.
What risks does the company face going forward?
Key risks include pricing pressure and cost containment in Europe, particularly Germany and Italy; the U.S. shift to managed care; possible federal health care reform; a stronger U.S. dollar that depresses reported international results; and the phase-down of Puerto Rico tax benefits, which will raise the effective tax rate by an estimated 2 to 3 points. The company also faces product liability litigation that is largely uninsured for post-1985 injuries.
How is the company returning capital to shareholders?
In 1993 the company paid $659 million in dividends ($1.01 per share, up 13.5%) and repurchased $632 million of common stock, including 12.4 million shares for general corporate purposes. Management stated its intention to continue paying regular cash dividends.
How strong is the balance sheet and liquidity position?
Total assets were $12.24 billion and stockholders' equity was $5.57 billion. Total borrowings were about $2.4 billion, with net debt at 25.8% of net capital. Cash and current marketable securities totaled $476 million, and the company had about $2.4 billion of unused credit available, including $735 million in committed bank facilities. Operating cash flow of $2.17 billion comfortably covered $975 million of capital expenditures.

04—Continue

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