10-QPeriod: Q3 FY2012

JOHNSON & JOHNSON Quarterly Report for Q3 Ended Sep 30, 2012

Filed November 9, 2012For Securities:JNJ

Summary

Johnson & Johnson reported strong performance in the third quarter of fiscal year 2012, with worldwide sales increasing by 6.5% to $17.1 billion compared to the prior year period. This growth was driven by significant operational improvements across all segments, particularly in Medical Devices and Diagnostics (up 12.5%) and Pharmaceuticals (up 7.0%). The company also saw a robust increase in U.S. sales across segments. Net earnings attributable to Johnson & Johnson for the quarter were $2.97 billion, a decrease from the prior year's $3.20 billion, primarily due to an $700 million in-process research and development charge related to the discontinuation of bapineuzumab IV. Despite this charge, the company demonstrated solid operational execution and strategic progress. The nine-month period ending September 30, 2012, showed worldwide sales of $49.7 billion, a 1.8% increase. Net earnings attributable to Johnson & Johnson for this period were $8.29 billion, a decrease from $9.45 billion in the prior year, also impacted by significant charges including $1.1 billion for in-process R&D and intangible asset write-downs. The acquisition of Synthes, Inc. for $20.2 billion in cash and stock, completed in the second quarter, is a significant strategic move expected to bolster the Medical Devices and Diagnostics segment. Management remains focused on cost containment and strategic investments despite ongoing litigation and regulatory scrutiny.

Key Highlights

  • 1Worldwide sales increased by 6.5% to $17.1 billion in Q3 2012, driven by strong operational growth across all segments.
  • 2The Medical Devices and Diagnostics segment showed robust growth of 12.5%, significantly boosted by the Synthes acquisition.
  • 3Pharmaceutical segment sales grew by 7.0%, with strong performance in Immunology and Oncology therapeutic areas.
  • 4Net earnings attributable to Johnson & Johnson for Q3 2012 were $2.97 billion, impacted by a $700 million in-process R&D charge.
  • 5The company completed the significant acquisition of Synthes, Inc. for $20.2 billion in cash and stock during the second quarter.
  • 6Operating profit margins showed resilience across segments, with Medical Devices and Diagnostics showing improved profitability compared to the prior year.
  • 7Johnson & Johnson continues to manage its liquidity effectively, with operating cash flows remaining strong despite significant investments and debt retirement.

Frequently Asked Questions

The primary driver of sales growth in the third quarter was strong operational performance across all segments, particularly in Medical Devices & Diagnostics and Pharmaceuticals, along with a significant contribution from the acquisition of Synthes, Inc.

The acquisition of Synthes, Inc. for $20.2 billion in cash and stock, completed in the second quarter, significantly boosted sales, especially within the Medical Devices and Diagnostics segment. It also resulted in substantial goodwill and intangible assets on the balance sheet and incurred integration costs.

The decrease in net earnings for the third quarter was primarily due to a significant $700 million charge for in-process research and development related to the discontinuation of bapineuzumab IV clinical development. Similar charges also impacted the nine-month results.

The company generated $12.0 billion in cash from operations during the first nine months of 2012. Financing activities showed significant outflows for stock repurchases and dividends, partially offset by proceeds from debt. The company maintains access to substantial credit facilities and anticipates sufficient resources to fund its operations.

Johnson & Johnson is involved in numerous legal proceedings, including product liability claims related to hip implants (DePuy ASR and Pinnacle), pelvic mesh, and pharmaceuticals like LEVAQUIN® and RISPERDAL®. The company has accrued liabilities for probable and estimable losses but notes that litigation outcomes can materially impact results in any given period. Investigations by government agencies are also ongoing.