10-QPeriod: Q3 FY2012

JOHNSON & JOHNSON Quarterly Report for Q3 Ended Jul 1, 2012

Filed August 2, 2012For Securities:JNJ

Summary

Johnson & Johnson (JNJ) reported its second-quarter results for fiscal year 2012, showing a decrease in net earnings to $1.4 billion from $2.8 billion in the prior year quarter, translating to diluted EPS of $0.50 compared to $1.00. This decline was significantly impacted by a large intangible asset write-down and in-process R&D charge of $1.4 billion, primarily related to the Crucell vaccine business, as well as increased litigation expenses and acquisition costs for the Synthes acquisition. Despite the net earnings decrease, the company maintained strong operational sales growth across its segments, with Medical Devices and Diagnostics showing robust performance driven by the Synthes acquisition. The Pharmaceutical segment saw growth in Immunology and Oncology, while Consumer segment sales faced challenges, partly due to ongoing issues with McNEIL-PPC manufacturing facilities. The company generated $7.5 billion in cash from operations, though investing activities, dominated by the Synthes acquisition, resulted in a net cash outflow.

Financial Highlights

54 data points
Beta

Revenue

$16.48B

68.8% Gross Margin

Net Income

$1.41B

8.5% Net Margin

EPS (Diluted)

$0.50

Total Assets

$118.95B

Cash & Equivalents

$15.49B

Free Cash Flow

$7.95B

Financial Statements
Beta
Revenue$16.48B
Cost of Revenue$5.60B
Gross Profit$11.33B
SG&A Expenses$5.23B
Operating Income$3.83B
Interest Expense$135.00M
Net Income$1.41B
EPS (Basic)$0.51
EPS (Diluted)$0.50
Shares Outstanding (Basic)2.76B
Shares Outstanding (Diluted)2.82B

Key Highlights

  • 1Net earnings for the second quarter decreased significantly to $1.4 billion ($0.50/share) from $2.8 billion ($1.00/share) in the prior year, largely due to a $1.4 billion charge for intangible asset write-downs and in-process R&D.
  • 2Worldwide sales showed a slight total decrease of 0.7% to $16.5 billion in the second quarter, but operational growth was 3.5%, indicating underlying business resilience.
  • 3The acquisition of Synthes, Inc. for $20.2 billion was completed in June 2012, significantly impacting balance sheet items, particularly goodwill and intangible assets, and contributing to investing cash outflows.
  • 4Medical Devices and Diagnostics segment performance was strong operationally, boosted by the Synthes acquisition, with reported sales down only 0.1% operationally up 3.4%.
  • 5The Pharmaceutical segment experienced operational sales growth of 5.1% in the second quarter, driven by strong performance in Immunology and Oncology.
  • 6The Consumer segment faced operational sales decline of 4.6% in the second quarter, affected by ongoing manufacturing issues at McNEIL-PPC facilities.
  • 7Cash flow from operations remained robust at $7.5 billion for the six months ended July 1, 2012, although significant investment activities, particularly the Synthes acquisition, led to a net decrease in cash and cash equivalents.

Frequently Asked Questions

The primary driver of the decrease in net earnings was a $1.4 billion charge related to intangible asset write-downs and in-process research and development, predominantly associated with the Crucell vaccine business. This was further compounded by higher litigation expenses and acquisition-related costs for the Synthes acquisition.

The acquisition of Synthes, Inc., for $20.2 billion, significantly increased the company's assets, particularly goodwill ($5.4 billion) and intangible assets ($12.9 billion). It also resulted in a substantial outflow of cash from investing activities ($17.7 billion net of cash acquired) and contributed to operational growth in the Medical Devices and Diagnostics segment.

The Consumer segment experienced a sales decline primarily due to ongoing manufacturing issues at McNEIL-PPC facilities, which are operating under a consent decree with the FDA. This has led to production limitations and a focus on a simplified product portfolio.

Johnson & Johnson generated a strong $7.5 billion in cash from operations for the first six months of 2012. While the Synthes acquisition significantly reduced cash reserves, the company anticipates that operating cash flows, existing credit facilities, and access to commercial paper markets will provide sufficient liquidity. The company also continues to pay regular quarterly cash dividends.