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November 16, 1999

JOHNSON & JOHNSON FORM 10-Q 10/3/1999
Game Order Book Career Print

Filed under: SEC Filing — Tags: , — admin @ 12:00 am — Font size: A A
JOHNSON & JOHNSON (Form: 10-Q, Received: 11/16/1999 13:58:18)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q

X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended October 3, 1999

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to


Commission file number 1-3215

JOHNSON & JOHNSON
(Exact name of registrant as specified in its charter)

 NEW JERSEY 22-1024240 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) One Johnson & Johnson Plaza 08933 New Brunswick, New Jersey (Zip code) (Address of principal executive offices) 

732-524-0400
Registrant's telephone number, including area code

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes X No

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

On October 29, 1999, 1,390,555,974 shares of Common Stock, $1.00 par value, were outstanding.

- 1 -

JOHNSON & JOHNSON AND SUBSIDIARIES

 TABLE OF CONTENTS Part I - Financial Information Page No. Item 1. Financial Statements Consolidated Balance Sheet - October 3, 1999 and January 3, 1999 3 Consolidated Statement of Earnings for the Fiscal Quarter Ended October 3, 1999 and September 27, 1998 5 Consolidated Statement of Earnings for the Fiscal Nine Months Ended October 3, 1999 and September 27, 1998 6 Consolidated Statement of Cash Flows for the Fiscal Nine Months Ended October 3, 1999 and September 27, 1998 7 Notes to Consolidated Financial Statements 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 16 Item 3. Quantitative and Qualitative Disclosures About Market Risk 25 Part II - Other Information Item 1 - Legal Proceedings 25 Item 5 - Other Information 26 Item 6 - Exhibits and Reports on Form 8-K 26 Signatures 27 

- 2 -

Part I - FINANCIAL INFORMATION

Item 1 - FINANCIAL STATEMENTS

JOHNSON & JOHNSON AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

(Unaudited; Dollars in Millions)

ASSETS

 October 3, January 3, 1999 1999 Current Assets: Cash and cash equivalents $ 2,617 1,927 Marketable securities, at cost 976 651 Accounts receivable, trade, less allowances $331 (1998 - $385) 4,187 3,661 Inventories (Note 3) 3,091 2,853 Deferred taxes on income 1,065 1,180 Prepaid expenses and other receivables 921 860 Total current assets 12,857 11,132 Marketable securities, non-current 399 416 Property, plant and equipment, at cost 10,754 10,024 Less accumulated depreciation and amortization 4,543 3,784 6,211 6,240 Intangible assets, net (Note 4) 7,295 7,209 Deferred taxes on income 289 102 Other assets 1,057 1,112 Total assets $ 28,108 26,211 

See Notes to Consolidated Financial Statements

- 3 -

JOHNSON & JOHNSON AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Unaudited; Dollars in Millions)

LIABILITIES AND SHAREOWNERS' EQUITY

 October 3, January 3, 1999 1999 Current Liabilities: Loans and notes payable $ 1,456 2,747 Accounts payable 1,576 1,861 Accrued liabilities 2,701 2,920 Accrued salaries, wages and commissions621 428 Taxes on income 626 206 Total current liabilities 6,980 8,162 Long-term debt 1,992 1,269 Deferred tax liability 594 578 Employee related obligations 1,912 1,738 Other liabilities 1,246 874 

Shareowners' equity:
Preferred stock - without par value
(authorized and unissued 2,000,000
shares) - -

Common stock - par value $1.00 per share (authorized 2,160,000,000 shares;
issued 1,534,865,000 shares and
1,534,824,000 shares) 1,535 1,535

Note receivable from employee stock

 ownership plan (41) (44) Accumulated other comprehensive income (Note 7) (481) (328) Retained earnings 15,892 13,928 16,905 15,091 

Less common stock held in treasury, at cost (190,631,000 & 190,773,000
shares) 1,521 1,501

Total shareowners' equity 15,384 13,590

Total liabilities and shareowners' equity $28,108 26,211

See Notes to Consolidated Financial Statements

- 4 -

JOHNSON & JOHNSON AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF EARNINGS

(Unaudited; dollars & shares in millions

except per share figures)

Fiscal Quarter Ended
Oct 3, Percent Sept 27,

Percent
1999 to Sales 1998 to Sales

Sales to customers (Note 5) $6,749 100.0 5,724 100.0 Cost of products sold 2,030 30.1 1,758 30.7 Gross profit 4,719 69.9 3,966 69.3 Selling, marketing and administrative expenses 2,564 38.0 2,151 37.6 Research expense 613 9.1 511 8.9 Interest income (61) (.9) (67) (1.2) Interest expense, net of portion capitalized 42 .6 26 .5 Other (income)expense, net 50 .7 28 .5 3,208 47.5 2,649 46.3 Earnings before provision for taxes on income 1,511 22.4 1,317 23.0 Provision for taxes on income (Note 2) 412 6.1 356 6.2 NET EARNINGS $1,099 16.3 961 16.8 NET EARNINGS PER SHARE (Note 6) Basic $ .82 .71 Diluted $ .80 .70 CASH DIVIDENDS PER SHARE $ .28 .25 AVG. SHARES OUTSTANDING Basic 1,344.5 1,344.9 Diluted 1,373.6 1,373.0 

See Notes to Consolidated Financial Statements

- 5 -

JOHNSON & JOHNSON AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF EARNINGS

(Unaudited; dollars & shares in millions

except per share figures)

 Fiscal Nine Months Ended ______ Oct 3, Percent Sept 27, Percent 1999 to Sales 1998 to Sales Sales to customers (Note 5)$20,241 100.0 17,290 100.0 Cost of products sold 6,154 30.4 5,338 30.9 Gross profit 14,087 69.6 11,952 69.1 Selling, marketing and administrative expenses 7,516 37.1 6,365 36.8 Research expense 1,723 8.5 1,537 8.9 Interest income (164) (.8) (192) (1.1) Interest expense, net of portion capitalized 139 .7 80 .5 Other (income)expense, net 143 .7 40 .2 9,357 46.2 7,830 45.3 Earnings before provision for taxes on income 4,730 23.4 4,122 23.8 Provision for taxes on income (Note 2) 1,348 6.7 1,146 6.6 NET EARNINGS $ 3,382 16.7 2,976 17.2 NET EARNINGS PER SHARE (Note 6) Basic $ 2.52 2.21 Diluted $ 2.46 2.17 CASH DIVIDENDS PER SHARE $ .81 .72 AVG. SHARES OUTSTANDING Basic 1,344.7 1,345.0 Diluted 1,372.8 1,371.4 

See Notes to Consolidated Financial Statements

- 6 -

JOHNSON & JOHNSON AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited; Dollars in Millions)

Fiscal Nine Months

Ended
Oct 3, Sept 27,
1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES

 Net earnings $3,382 2,976 Adjustments to reconcile net earnings to cash flows: Depreciation and amortization of property and intangibles 1,099 906 Increase in accounts receivable, trade, less allowances (641) (345) Increase in inventories (321) (358) Changes in other assets and liabilities 850 350 NET CASH FLOWS FROM OPERATING ACTIVITIES 4,369 3,529 CASH FLOWS FROM INVESTING ACTIVITIES Additions to property, plant and equipment(1,007) (848) Proceeds from the disposal of assets 18 20 Acquisition of businesses, net of cash acquired (228) (78) Other, principally marketable securities (380) (96) NET CASH USED BY INVESTING ACTIVITIES (1,597) (1,002) CASH FLOWS FROM FINANCING ACTIVITIES Dividends to shareowners (1,090) (969) Repurchase of common stock (547) (653) Proceeds from short-term debt 7,253 174 Retirement of short-term debt (8,468) (193) Proceeds from long-term debt 776 Retirement of long-term debt (145) (142) Proceeds from the exercise of stock options 183 223 NET CASH USED BY FINANCING ACTIVITIES (2,038) (1,560) EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS (44) 22 INCREASE IN CASH AND CASH EQUIVALENTS 690 989 

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,927 2,753

CASH AND CASH EQUIVALENTS, END OF PERIOD $ 2,617 3,742

See Notes to Consolidated Financial Statements

- 7 -

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - The accompanying interim financial statements and

related notes should be read in conjunction with the Consolidated

Financial Statements of Johnson & Johnson and Subsidiaries (the

"Company") and related notes as contained in the Annual Report on

Form 10-K for the fiscal year ended January 3, 1999. The interim

financial statements include all adjustments (consisting only of

normal recurring adjustments) and accruals necessary in the

judgment of management for a fair presentation of such

statements.

NOTE 2 - INCOME TAXES

The effective income tax rates for 1999 and 1998 are as follows:

 1999 1998 First Quarter 29.7% 29.6% First Half 29.1 28.2 Nine Months 28.5 27.8 

The effective income tax rates for the first nine months of 1999

and 1998 are 28.5% and 27.8%, respectively, as compared to the

U.S. federal statutory rate of 35%. The difference from the

statutory rate is primarily the result of domestic subsidiaries

operating in Puerto Rico under a grant for tax relief expiring on

December 31, 2007 and the result of subsidiaries manufacturing in

Ireland under an incentive tax rate expiring on December 21,

2010.

NOTE 3 - INVENTORIES

(Dollars in Millions) Oct. 3, 1999 Jan. 3, 1999 Raw materials and supplies $ 863 770 Goods in process 494 489 Finished goods 1,734 1,594 $ 3,091 2,853 

- 8 -

NOTE 4 - INTANGIBLE ASSETS

(Dollars in Millions) Oct. 3, 1999 January 3, 1999 Intangible assets $ 8,373 8,042 Less accumulated amortization 1,078 833 $ 7,295 7,209 

The excess of the cost over the fair value of net assets of

purchased businesses is recorded as goodwill and is amortized on

a straight-line basis over periods of up to 40 years.

The cost of other acquired intangibles is amortized on a

straight-line basis over their estimated useful lives.

NOTE 5 - SEGMENTS OF BUSINESS AND GEOGRAPHIC AREAS

(Dollars in Millions)

SALES BY SEGMENT OF BUSINESS

 Third Quarter Nine Months Percent Percent 1999 1998 Increase 1999 1998 Increase Consumer Domestic $ 921 806 14.3 2,722 2,398 13.5 International 783 781 .3 2,398 2,398 - 1,704 1,587 7.4% 5,120 4,796 6.8% Pharmaceutical Domestic 1,565 1,153 35.7 4,622 3,500 32.1 International 1,035 945 9.5 3,167 2,852 11.0 2,600 2,098 23.9% 7,789 6,352 22.6% Professional Domestic 1,331 1,117 19.2 3,935 3,275 20.2 International 1,114 922 20.8 3,397 2,867 18.5 2,445 2,039 19.9% 7,332 6,142 19.4% Domestic 3,817 3,076 24.1 11,279 9,173 23.0 International 2,932 2,648 10.7 8,962 8,117 10.4 Worldwide $6,749 5,724 17.9% 20,241 17,290 17.1% 

- 9 -

NOTE 5 - SEGMENTS OF BUSINESS AND GEOGRAPHIC AREAS

(Dollars in Millions)

OPERATING PROFIT BY SEGMENT OF BUSINESS

 Third Quarter Nine Months Percent Percent 1999 1998 Increase 1999 1998 Increase Consumer 206 155 32.9 583 526 10.8 Pharmaceutical 954 843 13.2 3,003 2,567 17.0 Professional 385 338 13.9 1,268 1,078 17.6 Segments total 1,545 1,336 15.6 4,854 4,171 16.4 Expenses not allocated to segments (34) (19) (124) (49) Worldwide total$1,5111,317 14.7 4,730 4,122 14.8 

SALES BY GEOGRAPHIC AREA

 Third Quarter Nine Months Percent Percent Increase/ Increase/ 1999 1998(Decrease) 1999 1998 (Decrease) 

U.S. $3,817 3,076 24.1 11,279 9,173 23.0 Europe 1,564 1,482 5.5 4,992 4,607 8.4 Western Hemisphere

 excluding U.S. 510 520 (1.9) 1,491 1,560 (4.4) Asia-Pacific, Africa 858 646 32.8 2,479 1,950 27.1 Worldwide $6,749 5,724 17.9% 20,241 17,290 17.1% 

NOTE 6 - EARNINGS PER SHARE
The following is a reconciliation of basic net earnings per share to diluted net earnings per share for the nine months ended October 3, 1999 and September 27, 1998:

 Fiscal Fiscal Quarter Ended Nine Months Ended Oct 3, Sept 27, Oct 3, Sept 27, 1999 1998 1999 1998 Basic net earnings per share$ .82 .71 2.52 2.21 Average shares outstanding - basic 1,344.5 1,344.9 1,344.7 1,345.0 Potential shares exercisable under stock option plans 67.9 68.3 67.9 68.0 Less: shares which could be repurchased under treasury stock method (38.8) (40.2) (39.8) (41.6) Adjusted averages shares outstanding - diluted 1,373.6 1,373.0 1,372.8 1,371.4 

Diluted earnings per share $ .80 .70 2.46 2.17

- 10 -

NOTE 7 - ACCUMULATED OTHER COMPREHENSIVE INCOME

During 1998, the Company adopted Statement of Financial

Accounting Standards No. 130 "Reporting Comprehensive Income"

("SFAS 130"). SFAS 130 establishes standards for reporting and

display of an alternative income statement and its components

(revenue, expenses, gains and losses) in a full set of general

purpose financial statements. The total comprehensive income for

the nine months ended October 3, 1999 is $3,247 million, compared

with $2,957 million for the same period a year ago. Total

comprehensive income includes net earnings, net unrealized

currency gains and losses on translation and net unrealized gains

and losses on available for sale securities.

NOTE 8 - ACQUISITIONS

During the first quarter, the Company completed the acquisition

of the dermatological skin care business of S.C. Johnson & Son,

Inc. The S.C. Johnson dermatological business is composed of

specialty brands marketed in the U.S., Canada and Western Europe.

The primary brand involved in the transaction, AVEENO, is a line

of skin care products including specialty soaps, bath, and anti-

itch treatments.

Pro forma results of the acquisition, assuming that the

transaction was consummated at the beginning of each year

presented, would not be materially different from the results

reported.

NOTE 9 - NEW ACCOUNTING PRONOUNCEMENT

In June 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 133 "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"). This standard, as amended, is effective for all fiscal quarters of fiscal years beginning after June 15, 2000.

- 11 -

NOTE 9 - NEW ACCOUNTING PRONOUNCEMENT (Continued)

SFAS 133 requires that all derivative instruments be recorded on the balance sheet at their respective fair values. Changes in the fair value of derivatives are recorded each period in current earnings or other comprehensive income, depending on the designation of the hedge transaction. For fair-value hedge transactions in which the Company is hedging changes in the fair value of an asset, liability or firm commitment, changes in the fair value of the derivative instrument will generally be offset by changes in the fair value of the hedged item. For cash flow hedge transactions in which the Company is hedging the variability of cash flows related to a variable rate asset, liability or forecasted transaction, changes in the fair value of the derivative instrument will be reported in other comprehensive income. The gains and losses on the derivative instrument that are reported in other comprehensive income will be recognized in earnings in the periods in which earnings are impacted by the variability of the cash flows of the hedged item.
The Company will adopt SFAS 133 in the first quarter of 2001 and does not expect it to have a material effect on the Company's results of operations, cash flows or financial position.

NOTE 10 - RESTRUCTURING AND SPECIAL CHARGES

In the fourth quarter of 1998, the Company approved a plan to reconfigure its global network of manufacturing and operating facilities with the objective of enhancing operating efficiencies. It is expected that the plan will be completed over the next twelve months. Among the initiatives supporting this plan were the closures of inefficient manufacturing facilities, exiting certain businesses which were not providing an acceptable return and related employee separations.

-12-

NOTE 10 - RESTRUCTURING AND SPECIAL CHARGES (Continued)

The estimated cost of this plan is $613 million. The charge

consisted of employee separation costs of $161 million, asset

impairments of $322 million, impairments of intangibles of $52

million, and other exit costs of $78 million. Employee

separations will occur primarily in manufacturing and operations

facilities affected by the plan. The decision to exit certain

facilities and businesses decreased expected future cash flows

triggering the asset impairment. The amount of impairment of

such assets was calculated using discounted cash flows or

appraisals.

The components of the asset impairments and the impairments of

intangibles are as follows:

Value @
January 3, 1999

Assets: Machinery & equipment $215 Inventory 60* Buildings 32 Leasehold improvements 15 Total asset impairments $322 

*Included in cost of products sold at year-end 1998

Value @
January 3, 1999

Intangible assets: Menlo Care $ 26 Innotech 20 Other 6 Total intangible assets $ 52 

These intangible assets relate to products that were abandoned

due to the low margin and lack of strategic fit.

The restructuring plan consisted of the reduction of

manufacturing facilities around the world by 36, from 159 to 123

plants. None of the assets affected by this plan were held for

disposal.

- 13 -

NOTE 10 - RESTRUCTURING AND SPECIAL CHARGES (Continued)
Severance and other exit costs were accrued at year-end 1998 and payments made through nine months ended October 3, 1999 are as follows:

 Beginning Cash Remaining Accrual Outlays Accrual Employee Separations $ 158 25 133 Other exit costs: Distributor terminations 17 6 11 Dismantle/disposal costs 15 4 11 Lease termination 21 12 9 Customer compensation 11 5 6 Other 14 7 7 Total other costs 78 34 44 $ 236 59 177 

Changes in estimates to date have been immaterial. The $161 million ($3 million was paid at year-end 1998) for employee separations reflects the termination of approximately 5,100 employees of which 1,500 have been separated as of October 3, 1999.

NOTE 11 - PENDING LEGAL PROCEEDINGS

The information called for by this footnote is incorporated herein by reference to Item 1 ("Legal Proceedings") included in

Part II of this Report on Form 10-Q.

NOTE 12 - SUBSEQUENT EVENT

On October 6, 1999 Johnson & Johnson and Centocor, Inc. announced the completion of their previously announced merger, valued at approximately $5 billion. This transaction will be accounted for as a pooling of interests. The transaction was completed after Centocor shareholders voted to approve the merger agreement with Johnson & Johnson. Centocor had approximately 71 million shares outstanding on October 6th (83 million shares on a fully diluted basis) which were exchanged for approximately 45 million shares of Johnson & Johnson common stock. On a diluted basis when adjusted for stock options outstanding and convertible debt, the total number of Johnson & Johnson shares issued will be approximately 53 million. Holders of Centocor common stock received .6390 of a share of Johnson & Johnson common stock for each share of Centocor common stock that they own, valued at $95.47 per share.

- 14 -

Centocor is a leading biopharmaceutical company that creates,

acquires and markets cost-effective therapies that yield long

term benefits for patients and the health care community. Its

products, developed primarily through monoclonal antibody

technology, help physicians deliver innovative treatments to

improve human health and restore patients' quality of life.

On November 8, 1999, Johnson & Johnson announced a definitive

merger agreement pursuant to which Johnson & Johnson will acquire

Innovasive Devices, Inc. The transaction will be accounted for

under the purchase method and is valued at approximately $85

million. The merger is subject to customary conditions,

including approval by a majority of the shareholders of

Innovasive Devices and Hart-Scott Rodino clearance.

Innovasive Devices manufactures and sells devices for sports

medicine surgery, an area addressing soft tissue injuries in the

knee, shoulder and other small joints.

- 15 -

Item 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

SALES AND EARNINGS
Consolidated sales for the first nine months of 1999 were

$20.24 billion, which exceeded sales of $17.29 billion for the

first nine months of 1998 by 17.1%. The strength of the U.S.

dollar relative to the foreign currencies decreased sales for the

first nine months of 1999 by 1.3%. Excluding the effect of the

stronger U.S. dollar relative to foreign currencies, sales

increased 18.4% on an operational basis for the first nine months

of 1999. Consolidated net earnings for the first nine months of

1999 were $3.38 billion, compared with net earnings of $2.98

billion for the first nine months of 1998. Worldwide basic net

earnings per share for the first nine months of 1999 were $2.52,

compared with $2.21 for the same period in 1998, an increase of

14.0%. Worldwide diluted net earnings per share for the first

nine months of 1999 were $2.46, compared with $2.17 for the same

period in 1998, an increase of 13.4%

Consolidated sales for the third quarter of 1999 were $6.75

billion, an increase of 17.9% over 1998 third quarter sales of

$5.72 billion. The effect of the stronger U.S. dollar relative

to foreign currencies decreased third quarter sales by 1.3%.

Consolidated net earnings for the third quarter of 1999 were

$1.10 billion, compared with $.96 billion for the same period a

year ago, an increase of 14.4%. Worldwide basic net earnings per

share for the third quarter of 1999 rose 15.5% to $.82, compared

with $.71 in the 1998 period. Worldwide diluted net earnings per

share for the third quarter of 1999 rose 14.3% to $.80, compared

with $.70 in 1998. Domestic sales for the first nine months of 1999 were $11.28 billion, an increase of 23.0% over 1998 domestic sales of $9.17 

billion for the same period a year ago. Sales by international

subsidiaries were $8.96 billion for the first nine months of 1999

compared with $8.12 billion for the same period a year ago, an

increase of 10.4%. Excluding the impact of the stronger value of

the dollar, international sales increased by 13.3%.

- 16 -

Worldwide Consumer segment sales for the third quarter of 1999

were $1.7 billion, an increase of 7.4% versus the same period a

year ago. Domestic sales were up 14.3% while international sales

gains in local currency of 7.0% were almost entirely offset by a

negative currency impact of 6.7%. Consumer sales were led by

continued strength in the skin care franchise, which includes the

NEUTROGENA, RoC and CLEAN & CLEAR product lines, as well as solid

results from McNeil Consumer Healthcare, which markets the

TYLENOL family of products, BENECOL and other over-the-counter

pharmaceuticals.

During the quarter, the Company launched BENECOL dressings,

margarine spread in tubs and snack bars in the United States.

BENECOL contains the dietary ingredient stanol ester, which is

patented for use in reducing cholesterol.

Worldwide pharmaceutical sales of $2.6 billion for the quarter

increased 23.9% over the same period in 1998, including 35.7%

growth in domestic sales and a 9.5% increase in international

sales. International sales gains in local currency of 12.6% were

offset by a negative currency impact of 3.1%. Sales growth

reflects the strong performance of PROCRIT/EPREX, for the

treatment of anemia; RISPERDAL, an antipsychotic medication;

DURAGESIC, a transdermal patch for chronic pain; LEVAQUIN, an

anti-infective; ULTRAM, an analgesic, and the oral contraceptive

line of products.

During the quarter, the company announced a definitive

agreement for a stock-for-stock merger with Centocor, Inc., a

leader in monoclonal antibody technology and acute vascular care

and immunology products. The merger, valued at approximately $5

billion, was completed on October 6, 1999.

- 17 -

Also in the quarter Eisai, Inc. received approval from the FDA

for ACIPHEX (rabeprazole), a proton pump inhibitor for

gastroesophageal reflux disease (GERD), GERD maintenance,

duodenal ulcers and treatment of pathological hypersecretory

conditions, including Zollinger-Ellison syndrome. Janssen

Pharmaceutica, a wholly-owned subsidiary of Johnson & Johnson,

and Eisai have entered into a strategic alliance to market

rabeprazole worldwide with the exception of Japan and certain

other territories.

Additional positive news in the quarter was the FDA approval

for new indications of TOPAMAX (topiramate), an anti-epileptic

drug. Approval was received for adjunctive therapy for partial

onset seizures in pediatric patients and primary generalized

tonic-clonic seizures in adults and pediatric patients.

Worldwide sales of $2.4 billion in the Professional segment

represented an increase of 19.9% over the third quarter of 1998.

Domestic sales were up 19.2% while international sales were up

20.8%. The 1998 acquisition of DePuy Inc., a leading orthopaedic

products manufacturer, contributed to the strong sales growth in

the Professional segment. In addition, strong sales performance

was achieved by Ethicon Endo-Surgery's laparoscopy and wound

closure products; Ethicon's Mitek suture anchors and Gynecare

women's health products, and Vistakon's disposable contact lens

products.

During the quarter, the Company received FDA approval to market

its new CrossFlexTLC coronary stent, a laser-cut stainless steel

stent designed to be a true workhorse stent that combines

exceptional deliverability with excellent scaffolding and high

radial strength. The CrossFlexTLC delivery system, which

incorporates Cordis' latest balloon catheter technology, is

specifically engineered to minimize the risk of stent

embolization through the use of Cordis' proprietary NestingT

technology. This technology helps to secure the stent to the

delivery balloon until he moment of deployment.

- 18 -

Basic average shares of common stock outstanding in the first

nine months of 1999 were 1,344.7 million, compared with 1,345.0

million for the same period a year ago. Diluted average shares

of common stock outstanding in the first nine months of 1999 were

1,372.8 million, compared with 1,371.4 million for the same

period a year ago.

LIQUIDITY AND CAPITAL RESOURCES

Cash and current marketable securities increased $1,015 million

during the first nine months of 1999 to $3,593 million at October

3, 1999. Total borrowings decreased $568 million during the

first nine months of 1999 to $3,448 million. Net cash (cash and

current securities net of borrowings) was $145 million at October

3, 1999 compared with $1,438 million net debt (debt net of cash

and current securities) at the end of 1998. Total debt

represented 18.3% of total capital (shareowners' equity and total

borrowings) at quarter end compared with 22.8% at the end of

1998. For the period ended October 3, 1999, there were no

material cash commitments.

Additions to property, plant and equipment were $1,007 million

for the first nine months of 1999, compared with $848 million for

the same period in 1998.

On October 18, 1999, the Board of Directors approved a regular

quarterly dividend rate of 28 cents per share, payable on

December 7, 1999 to shareowners of record as of November 16,

1999.

YEAR 2000 COMPUTER SYSTEMS COMPLIANCE

The "Year 2000" issue relates to potential problems resulting

from a practice of computer programmers. For some time, calendar

years have frequently been represented in computer programs by

their last two digits. Thus, "1998" would be rendered "98". The

logic of the programs frequently assumes that the first two

digits of a year given in this format are "19". It is unclear

what would happen with respect to such computer programs upon the

change in calendar year from 1999 to 2000. The program or device

might interpret "00" as "2000", "1900", an error or some other

input. In such a case, the computer program or device might

cease to function, function improperly, provide an erroneous

result or act in some unpredictable manner.

- 19 -

The Company has had a program in place since the fourth quarter

of 1996 to address Year 2000 issues in critical business areas

related to its products, information management systems, non-

information systems with embedded technology, suppliers and

customers. A report on the progress of this program has been

provided to the Audit Committee of the Company's Board of

Directors. The Company has completed its review of its critical

automated information systems and the remediation phase with

respect to such critical systems is substantially complete. Full

completion is expected during the fourth quarter of 1999. The Company is also in the process of reviewing and remediating, where necessary, its other automated systems. The Company has substantially completed the assessment and remediation of all such other automated systems and full 

completion is expected during the fourth quarter of 1999.

The Company has a plan for assessment and testing of all of its

products and has made substantial progress toward completion of

such assessment and testing. All current products are Year 2000

ready. There are a few remaining units that require field

updates at customer sites. These updates will be completed

during the fourth quarter of 1999.

The Company has engaged additional outside consultants to

examine selected critical areas in certain of it major

franchises. In addition, the Company has contracted with an

independent third party to conduct audits of critical sites

worldwide to evaluate our programs, processes and progress and to

identify any remaining areas of effort required to achieve

compliance.

The total costs of addressing the Company's Year 2000 readiness

issues are not expected to be material to the Company's financial

condition or results of operations. Since initiation of its

program in 1996, the Company estimates that it has expensed

approximately $195 million, on a worldwide basis, in internal and

external costs on a pre-tax basis to address its Year 2000

readiness issues.

- 20 -

These expenditures include information system replacement and

embedded technology upgrade costs of $111 million, supplier and

customer compliance costs of $15 million and all other costs of

$69 million. The Company currently estimates that the total of

such costs for addressing its internal Year 2000 readiness, on a

worldwide basis, will approximate

$200 million in the aggregate on a pre-tax basis. These costs

are being expensed as they are incurred and are being funded

through operating cash flows. No projects material to the

financial condition or results of operations of the Company have

been deferred or delayed as a result of this project.

The ability of the Company to implement and effect its Year

2000 readiness program and the related costs or the costs of non-

implementation, cannot be accurately determined at this time.

The Company's automated systems (both information technology and

non-information systems) are generally complex but are

decentralized.

Although a failure to complete remediation of one system may

adversely affect other systems, the Company does not currently

believe that such effects are likely. If, however, a significant

number of such failures should occur, some of such systems might

be rendered inoperable and would require manual back-up methods

or other alternatives, where available. In such a case, the

speed of processing business transactions, manufacturing and

otherwise conducting business would likely decrease significantly

and the cost of such activities would increase, if they could be

carried on at all. That could have a material adverse effect on

the financial condition and results of operations of the

business.

- 21 -

The Company has highly integrated relationships with certain of

its suppliers and customers. These include among others:

providers of energy, telecommunications, and raw materials and

components, financial institutions, managed care organizations

and large retail establishments. The Company has been reviewing,

and continues to review, with its critical suppliers and major

customers the status of their Year 2000 readiness. The Company

has in place a program of requesting assurances of Year 2000

readiness from such suppliers. However, many critical suppliers

have either declined to provide the requested assurances or have

limited the scope of assurances to which they are willing to

commit. The Company has completed its plan for monitoring of

critical suppliers.

The Company has contacted major customers to assess their

readiness to deal with Year 2000 issues. If a significant number

of such suppliers and customers were to experience business

disruptions as a result of their lack of Year 2000 readiness,

their problems could have a material adverse effect on the

financial position and results of operations of the Company.

This analysis of potential exposures includes both the domestic

and international operations of the Company.

The Company believes that its most reasonably likely "worst

case scenario" would occur if a significant number of its key

suppliers or customers were not fully Year 2000 functional, in

which case the Company estimates that up to a 10 business day

disruption in business operations could occur. In order to

address this situation, the Company has formulated contingency

plans intended to deal with the impact on the Company of Year

2000 problems that may be experienced by such critical suppliers

and major customers.

- 22 -

With respect to critical suppliers, these plans may include,

among others, arranging availability of substitute sources of

utilities, closely managing appropriate levels of inventory and

identifying alternate sources of supply of raw materials. The

Company is also alerting customers to their need to address these

problems, but the Company has few alternatives available, other

than reversion to manual methods, for avoiding or mitigating the

effects of lack of Year 2000 readiness by major customers. In

any event, even where the Company has contingency plans, there

can be no assurance that such plans will address all the

problems that may arise, or that such plans, even if implemented,

will be successful.

Notwithstanding the foregoing, the Company has no reason to

believe that its exposure to the risks of supplier and customer

Year 2000 readiness is any greater than the exposure to such risk

that affects its competitors generally. Further, the Company

believes that its programs for Year 2000 readiness will

significantly improve its ability to deal with its own Year 2000

readiness issues and those of suppliers and customers over what

would have occurred in the absence of such a program. That does

not, however, guarantee that some material adverse effects will

not occur.

The descriptions of Year 2000 issues set forth in this section

is subject to the qualifications set forth herein under the

heading "Cautionary Factors that May Affect Future Results".

- 23 -

CAUTIONARY FACTORS THAT MAY AFFECT FUTURE RESULTS

This Form 10-Q contains "forward-looking statements" that

anticipate results based on management's plans that are subject

to uncertainty. Forward-looking statements do not relate

strictly to historical or current facts and may be identified by

their use of words like "plans," "expects," "will,"

"anticipates," "estimates," and other words of similar meaning.

These statements may address, among other things, the Company's

strategy for growth, product development, regulatory approvals,

market position, expenditures, financial results and the effect

of Year 2000 readiness issues.

Forward-looking statements are based on current expectations of

future events. The Company cannot guarantee that any forward-

looking statement will be accurate, although the Company believes

that it has been reasonable in its expectations and assumptions.

Investors should realize that if underlying assumptions prove

inaccurate or that unknown risks or uncertainties materialize,

actual results could differ materially from our projections. The

Company assumes no obligation to update any forward-looking

statements as a result of new information or future events or

developments.

The Company's Annual Report on Form 10-K for the fiscal year

ended January 3, 1999 contains, in Exhibit 99(b), a discussion of

various factors that could cause actual results to differ from

expectations. That Exhibit from the Form 10-K is incorporated in

this filing by reference. The Company notes these factors as

permitted by the Private Securities Litigation Reform Act of

1995. Investors are cautioned not to place undue reliance on any

forward-looking statements. Investors also should understand

that it is not possible to predict or identify all such factors

and should not consider this list to be a complete statement of

all potential risks and uncertainties.

- 24 -

Item 3. Quantitative and Qualitative Disclosures About Market Risk
There has been no material change in the Company's assessment of its sensitivity to market risk since its presentation set forth in Item 7A, "Quantitative and Qualitative Disclosures About Market Risk," in its Annual Report on Form 10-K for the fiscal year ended January 3, 1999.

Part II - OTHER INFORMATION

Item 1. Legal Proceedings
The Company is involved in numerous product liability cases in the United States, many of which concern adverse reactions to drugs and medical devices. The damages claimed are substantial, and while the Company is confident of the adequacy of the warnings which accompany such products, it is not feasible to predict the ultimate outcome of litigation. However, the Company believes that if any liability results from such cases, it will be substantially covered by reserves established under its self- insurance program and by commercially available excess liability insurance.
The Company, along with numerous other pharmaceutical manufacturers and distributors, is a defendant in large number of individual and class actions brought by retail pharmacies in state and federal courts under the antitrust laws. These cases assert price discrimination and price-fixing violations resulting from an alleged industry-wide agreement to deny retail pharmacists price discounts on sales of brand name prescription drugs. The Company believes the claims against the Company in these actions are without merit and is defending them vigorously.
The Company, together with another contact lens manufacturer, a trade association and various individual defendants, is a defendant in several consumer class actions and an action brought by multiple State Attorneys General on behalf of consumers alleging violations of federal and state antitrust laws. These cases assert that enforcement of the Company's long-standing policy of selling contact lenses only to licensed eye care professionals is a result of an unlawful conspiracy to eliminate alternative distribution channels from the disposable contact lens market. The Company believes that these actions are without merit and is defending them vigorously.

- 25 -

The Company's Ortho Biotech subsidiary is party to an

arbitration proceeding filed against it by Amgen, Ortho's

licensor of U.S. non-dialysis rights to EPO, in which Amgen seeks

to terminate Ortho's U.S. license rights based on alleged

deliberate EPO sales by Ortho during the early 1990's into

Amgen's reserved dialysis market. The Company believes no basis

exists for terminating Ortho's U.S. license rights and is

vigorously contesting Amgen's claims. However, Ortho's U.S.

license rights to EPO are material to the Company; thus, an

unfavorable outcome could have a material adverse effect on the

Company's consolidated financial position, liquidity or results

of operations.

The Company is also involved in a number of patent, trademark

and other lawsuits incidental to its business.

The Company believes that the above proceedings, except as

noted above, would not have a material adverse effect on its

results of operations, cash flows or financial position.

Item 5. Other Information

On July 19, 1999, Leo F. Mullin was elected to the Board of

Directors of Johnson & Johnson. Mr. Mullin is president, chief

executive officer and a director of Delta Air lLines.

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibit Numbers

(1) Exhibit 27 - Financial Data Schedule

 (b) Reports on Form 8-K The Company did not file any reports on Form 8-K during the three month period ended October 3, 1999. 

- 26 -

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

JOHNSON & JOHNSON
(Registrant)

Date: November 12, 1999 By R. J. DARRETTA R. J. DARRETTA Vice President, Finance 

Date: November 12, 1999 By C. E. LOCKETT C. E. LOCKETT Controller (Chief Accounting Officer) 

- 27 -

ARTICLE 5


PERIOD TYPE 9 MOS
FISCAL YEAR END JAN 02 2000
PERIOD END OCT 03 1999
CASH 2,617
SECURITIES 976
RECEIVABLES 4,518
ALLOWANCES 331
INVENTORY 3,091
CURRENT ASSETS 12,857
PP&E 10,754
DEPRECIATION 4,543
TOTAL ASSETS 28,108
CURRENT LIABILITIES 6,980
BONDS 2,029
PREFERRED MANDATORY 0
PREFERRED 0
COMMON 1,535
OTHER SE 13,849
TOTAL LIABILITY AND EQUITY 28,108
SALES 20,241
TOTAL REVENUES 20,241
CGS 6,154
TOTAL COSTS 6,154
OTHER EXPENSES 1,723
LOSS PROVISION 30
INTEREST EXPENSE 139
INCOME PRETAX 4,730
INCOME TAX 1,348
INCOME CONTINUING 3,382
DISCONTINUED 0
EXTRAORDINARY 0
CHANGES 0
NET INCOME 3,382
EPS BASIC 2.52
EPS DILUTED 2.46
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