01—Abstract
Summary
Summary of the 10-K filed March 18, 2003. Cited figures are marked; the original filing is the authoritative source.
Johnson & Johnson closed fiscal 2002 with record sales of $36.3 billiona, up 12.3% from $32.3 billion in 2001, extending its streak to 70 consecutive years of positive sales growth.
Net earnings rose 16.4% to $6.6 billionb, and diluted EPS reached $2.16, up 17.4%. Excluding in-process R&D charges (2002) and merger and IPR&D costs (2001), diluted EPS was $2.23, up 16.8%. Growth was led by the Pharmaceutical segment (sales up 15.5% to $17.2 billion, driven by PROCRIT/EPREX, REMICADE, RISPERDAL, DURAGESIC and TOPAMAX) and Medical Devices & Diagnostics (up 12.9% to $12.6 billion).
The Consumer segment grew more modestly, 3.9% to $6.6 billionc. Operating cash flow was $8.2 billion, slightly below 2001 mainly because of a roughly $750 million funding of the U.S. pension plan. Balance sheet and capital allocation were central to the year.
J&J completed a $5 billiond share repurchase program in August 2002, retiring 83.6 million shares, and raised its dividend 13.6% to $0.795 per share, its 40th consecutive annual increase. Total borrowings rose to $4.1 billion, leaving net cash of $3.3 billion, down from $5.2 billion.
Shareholders' equity fell to $22.7 billion from $24.2 billion, and the company said it still held a Triple A credit rating. Risks flagged in the filing include the PROPULSID product-liability litigation, the Amgen PROCRIT arbitration (a $150 million award plus $85 million in fees), the Cordis stent patent appeals, competition for PROCRIT, and a pending $2.4 billion acquisition of Scios (NATRECOR), which is expected to bring an approximately $700 million IPR&D charge in 2003.
02—Key points
Key Highlights
- Record 2002 sales of $36.3 billion, up 12.3%, marking 70 consecutive years of positive sales growth
- Net earnings of $6.6 billion, up 16.4%; diluted EPS of $2.16, up 17.4% ($2.23 excluding IPR&D, up 16.8%)
- Pharmaceutical segment sales rose 15.5% to $17.2 billion; PROCRIT/EPREX alone represented 11.8% of total company revenues
- Medical Devices & Diagnostics grew 12.9% to $12.6 billion, with the CYPHER sirolimus-eluting stent awaiting FDA approval
- Completed a $5 billion share repurchase program (83.6 million shares) and raised the dividend 13.6% to $0.795 per share, the 40th straight annual increase
- Net cash fell to $3.3 billion from $5.2 billion as borrowings rose to $4.1 billion; the company retained a Triple A credit rating
- Key risks include PROPULSID product-liability suits, the Amgen arbitration award, and the pending $2.4 billion Scios acquisition with an expected ~$700 million IPR&D charge
03—Questions
Frequently Asked Questions
How fast did Johnson & Johnson grow in 2002, and what drove it?
Sales grew 12.3% to $36.3 billion, and diluted EPS grew 17.4% to $2.16. Pharmaceutical sales (up 15.5%) and Medical Devices & Diagnostics sales (up 12.9%) led growth, while Consumer sales rose 3.9%. Gross margin improved to 71.2% from 70.4%.
Why did operating cash flow decline and how did the balance sheet change?
Operating cash flow fell to $8.2 billion from $8.9 billion, mainly due to about $750 million of U.S. pension plan funding. The company repurchased $5 billion of stock, which pushed total debt up to $4.1 billion and reduced net cash to $3.3 billion. Shareholders' equity declined to $22.7 billion from $24.2 billion.
What are the main legal and business risks disclosed?
The filing cites large PROPULSID product-liability suits (about 753 cases with 5,556 plaintiffs), a $150 million Amgen arbitration award plus $85 million in fees over PROCRIT, Cordis stent patent appeals, and patent challenges to LEVAQUIN, ORTHO TRI-CYCLEN and DURAGESIC. It also notes competition for PROCRIT and rare PRCA reports with EPREX. Management says none is expected to be materially adverse to the company's overall financial position.
What is the Scios acquisition and how will it affect results?
J&J agreed on February 10, 2003 to acquire Scios Inc. for $45.00 per share, about $2.4 billion net of cash. Scios markets NATRECOR for congestive heart failure. The deal is expected to close in Q2 2003 and will bring an IPR&D charge of about $700 million, which will reduce reported earnings in that period.
What is the company's dividend and capital return policy?
Cash dividends were $0.795 per share in 2002, up from $0.70 in 2001, and the company said it expects to keep paying regular dividends. Beyond dividends, the $5 billion 2002 buyback program was completed in August 2002, and the company runs a separate annual program to repurchase shares for employee stock plans.
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