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JNJ > SEC Filings for JNJ > Form 10-Q on 9-Nov-2012All Recent SEC Filings

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Form 10-Q for JOHNSON & JOHNSON


9-Nov-2012

Quarterly Report


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

RESULTS OF OPERATIONS

Analysis of Consolidated Sales

For the fiscal nine months of 2012, worldwide sales were $49.7 billion, a total increase of 1.8%, including operational growth of 5.0% as compared to 2011 fiscal nine months sales of $48.8 billion. Currency fluctuations had a negative impact of 3.2% for the fiscal nine months of 2012. The acquisition of Synthes, Inc., net of the related trauma business divestiture, increased both total sales growth and operational growth by 2.2%.

Sales by U.S. companies were $22.4 billion in the fiscal nine months of 2012, which represented an increase of 2.0% as compared to the prior year. Sales by international companies were $27.3 billion, which represented a total increase of 1.7%, including an operational increase of 7.5%, and a negative currency impact of 5.8% as compared to the fiscal nine months sales of 2011.

Sales by companies in Europe experienced a decline of 4.0%, including operational growth of 4.2%, and a negative currency impact of 8.2%. Sales by companies in the Western Hemisphere, excluding the U.S., achieved growth of 11.3%, including operational growth of 19.1%, and a negative currency impact of 7.8%. Sales by companies in the Asia-Pacific, Africa region achieved sales growth of 4.5%, including operational growth of 6.1%, and a negative currency impact of 1.6%.

For the fiscal third quarter of 2012, worldwide sales were $17.1 billion, a total increase of 6.5%, including operational growth of 10.8% as compared to 2011 fiscal third quarter sales of $16.0 billion. Currency fluctuations had a negative impact of 4.3% for the fiscal third quarter of 2012. The acquisition of Synthes, Inc., net of the related trauma business divestiture, increased both total sales growth and operational growth by 5.8%.

Sales by U.S. companies were $7.8 billion in the fiscal third quarter of 2012, which represented an increase of 13.4% as compared to the prior year. Sales by international companies were $9.3 billion, which represented a total increase of 1.4%, including an operational increase of 8.9%, and a negative currency impact of 7.5% as compared to the fiscal third quarter sales of 2011.

Sales by companies in Europe experienced a decline of 3.4%, including operational growth of 7.1%, and a negative currency impact of 10.5%. Sales by companies in the Western Hemisphere, excluding the U.S., achieved growth of 4.2%, including operational growth of 12.8%, and a negative currency impact of 8.6%. Sales by companies in the Asia-Pacific, Africa region achieved sales growth of 5.9%, including operational growth of 9.0%, and a negative currency impact of 3.1%.

U.S. Health Care Reform

Under the provisions of the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010, beginning in 2011, companies that sold branded prescription drugs to specified U.S. Government programs paid an annual non-tax deductible fee based on an allocation of each company's market share of total branded prescription drug sales from the prior year. The 2012 full year impact to selling, marketing and administrative expenses is approximately $125 million. The 2011 full year impact to selling, marketing and administrative expenses was approximately $140 million. Under the current law, beginning in 2013, the Company will be required to pay a tax deductible 2.3% excise tax imposed on the sale of certain medical devices. The 2013 excise tax is estimated to be between $200 - $300 million and depending on the final implementation of guidance, the Company will record the excise tax either in cost of products sold or selling, marketing and administrative expenses.


Table of Contents

ANALYSIS OF SALES BY BUSINESS SEGMENTS

Consumer

Consumer segment sales in the fiscal nine months of 2012 were $10.8 billion, a decrease of 3.7% as compared to the same period a year ago, including operational growth of 0.4% and a negative currency impact of 4.1%. U.S. Consumer segment sales declined by 1.5%. International Consumer segment sales declined by 4.9%, including operational growth of 1.4% and a negative currency impact of 6.3%.

Major Consumer Franchise Sales - Fiscal Nine Months Ended

                                                                                       Total     Operations    Currency
(Dollars in Millions)                   September 30, 2012       October 2, 2011      Change       Change       Change
OTC Pharm. & Nutritionals             $              3,196     $           3,266       (2.1 )%        2.0 %      (4.1 )%
Skin Care                                            2,724                 2,771       (1.7 )         1.5        (3.2 )
Baby Care                                            1,682                 1,772       (5.1 )        (0.1 )      (5.0 )
Women's Health                                       1,218                 1,394      (12.6 )        (6.7 )      (5.9 )
Oral Care                                            1,208                 1,212       (0.3 )         3.7        (4.0 )
Wound Care/Other                                       767                   800       (4.1 )        (1.5 )      (2.6 )
Total Consumer Sales                  $             10,795     $          11,215       (3.7 )%       0.4%        (4.1 )%

Consumer segment sales in the fiscal third quarter of 2012 were $3.6 billion, a decrease of 4.3% as compared to the same period a year ago, including operational growth of 1.0% and a negative currency impact of 5.3%. U.S. Consumer segment sales declined by 0.4%. International Consumer segment sales declined by 6.1%, including operational growth of 1.8% and a negative currency impact of 7.9%.

Major Consumer Franchise Sales - Fiscal Third Quarters Ended

                                                                                     Total     Operations    Currency
(Dollars in Millions)                 September 30, 2012       October 2, 2011      Change       Change       Change
OTC Pharm. & Nutritionals            $             1,060     $           1,054        0.6  %        5.9 %      (5.3 )%
Skin Care                                            904                   943       (4.1 )         0.2        (4.3 )
Baby Care                                            564                   613       (8.0 )        (1.9 )      (6.1 )
Oral Care                                            413                   422       (2.1 )         3.0        (5.1 )
Women's Health                                       407                   458      (11.1 )        (3.2 )      (7.9 )
Wound Care/Other                                     233                   250       (6.8 )        (3.6 )      (3.2 )
Total Consumer Sales                 $             3,581     $           3,740       (4.3 )%        1.0 %      (5.3 )%

The OTC Pharmaceuticals and Nutritionals franchise achieved operational growth of 5.9% as compared to the prior year fiscal third quarter. Sales in the U.S. increased due to the relaunch of selected key products and the impact of the acquisition of full ownership rights of PEPCID® products partially offset by supply constraints on other products. McNEIL-PPC, Inc. continues to operate under a consent decree signed with the U.S. Food and Drug Administration (FDA), which governs certain McNeil Consumer Healthcare manufacturing operations. McNeil continues to operate the manufacturing facilities in Las Piedras, Puerto Rico and Lancaster, Pennsylvania; however, production volumes from these facilities continue to be impacted by additional review and approval processes required under the consent decree. The Company expects this to continue throughout 2012 and most of 2013. Plants operating under the consent decree will produce a simplified portfolio focused on key brands. The Fort Washington, Pennsylvania manufacturing site is not in operation at this time. McNeil continues to work on the re-siting of the products previously produced at the Fort Washington facility to other facilities.

The Skin Care franchise achieved operational growth of 0.2% as compared to the prior year, attributable to increased sales of NEUTROGENA® in the U.S. partially offset by competition and economic conditions outside the U.S.


Table of Contents

The Baby Care franchise experienced an operational decline of 1.9% as compared to the prior year, primarily due to competitive pressures.

The Oral Care franchise achieved operational growth of 3.0% as compared to the prior year, primarily due to increased sales outside the U.S. from newly launched LISTERINE® products.

The Women's Health Franchise experienced an operational decline of 3.2% as compared to the prior year, primarily due to the impact of the divestiture of MONISTAT® in the fiscal third quarter of 2011.

The Wound Care/Other franchise experienced an operational decline of 3.6% as compared to the prior year, due to competitive pressures.

Pharmaceutical

Pharmaceutical segment sales in the fiscal nine months of 2012 were
$18.8 billion, a total increase of 3.0% as compared to the same period a year
ago with an operational increase of 6.3% and a negative currency impact of 3.3%.
U.S. Pharmaceutical sales decreased by 1.0% as compared to the same period a
year ago while international Pharmaceutical sales achieved growth of 7.3%,
including operational growth of 14.1%, and a negative currency impact of 6.8%.

Major Pharmaceutical Therapeutic Area Sales - Fiscal Nine Months Ended*
                                                                                          Total     Operations    Currency
(Dollars in Millions)                       September 30, 2012       October 2, 2011      Change      Change       Change
Total Immunology                          $              5,898     $           5,002       17.9 %        19.2 %     (1.3 )%
   REMICADE®                                             4,635                 4,064       14.1          15.1       (1.0 )
   SIMPONI®                                                426                   291       46.4          49.8       (3.4 )
   STELARA®                                                756                   531       42.4          46.1       (3.7 )
   Other Immunology                                         81                   116      (30.2 )       (27.2 )     (3.0 )
Total Infectious Diseases                                2,338                 2,473       (5.5 )        (0.7 )     (4.8 )
   INTELENCE®                                              265                   231       14.7          19.4       (4.7 )
   LEVAQUIN®/FLOXIN®                                        65                   618      (89.5 )       (89.2 )     (0.3 )
   PREZISTA®                                             1,061                   895       18.5          23.5       (5.0 )
   Other Infectious Diseases                               947                   729       29.9          38.4       (8.5 )
Total Neuroscience                                       5,029                 5,209       (3.5 )        (0.2 )     (3.3 )
   CONCERTA®/methylphenidate                               830                   994      (16.5 )       (14.5 )     (2.0 )
   INVEGA®                                                 403                   374        7.8          10.0       (2.2 )
   INVEGA® SUSTENNA®/XEPLION®                              568                   243        **          **          (2.7 )
   RISPERDAL® CONSTA®                                    1,067                 1,198      (10.9 )        (6.7 )     (4.2 )
   Other Neuroscience                                    2,161                 2,400      (10.0 )        (6.9 )     (3.1 )
Total Oncology                                           1,810                 1,485       21.9          29.0       (7.1 )
   DOXIL®/CAELYX®                                           53                   363      (85.4 )       (84.6 )     (0.8 )
   VELCADE®                                                998                   922        8.2          15.7       (7.5 )
   ZYTIGA®                                                 697                   149        **          **          (4.2 )
   Other Oncology                                           62                    51       21.6          28.1       (6.5 )
Total Other                                              3,751                 4,105       (8.6 )        (5.5 )     (3.1 )
   ACIPHEX®/PARIET®                                        649                   721      (10.0 )        (5.7 )     (4.3 )
   PROCRIT®/EPREX®                                       1,136                 1,255       (9.5 )        (6.4 )     (3.1 )
   Other                                                 1,966                 2,129       (7.7 )        (5.0 )     (2.7 )
Total Pharmaceutical Sales                $             18,826     $          18,274        3.0 %         6.3 %     (3.3 )%

* Prior year amounts have been reclassified to conform to current year presentation. ** Percentage greater than 100%


Table of Contents

Pharmaceutical segment sales in the fiscal third quarter of 2012 were $6.4 billion, a total increase of 7.0% as compared to the same period a year ago with an operational increase of 11.3% and a negative currency impact of 4.3%. U.S. Pharmaceutical sales increased by 14.6% as compared to the same period a year ago. International Pharmaceutical sales were flat and reflected an operational increase of 8.2% offset by a negative currency impact of 8.2%.

Major Pharmaceutical Therapeutic Area Sales - Fiscal Third Quarters Ended*

                                                                                       Total     Operations    Currency
(Dollars in Millions)                    September 30, 2012       October 2, 2011      Change      Change       Change
Total Immunology                        $             2,084     $           1,767       17.9 %        19.8 %     (1.9 )%
   REMICADE®                                          1,591                 1,408       13.0          14.3       (1.3 )
   SIMPONI®                                             185                   129       43.4          47.9       (4.5 )
   STELARA®                                             287                   189       51.9          56.4       (4.5 )
   Other Immunology                                      21                    41      (48.8 )       (46.6 )     (2.2 )
Total Infectious Diseases                               795                   714       11.3          18.6       (7.3 )
   INTELENCE®                                            94                    83       13.3          19.5       (6.2 )
   LEVAQUIN®/FLOXIN®                                     20                    25      (20.0 )       (18.1 )     (1.9 )
   PREZISTA®                                            364                   316       15.2          21.3       (6.1 )
   Other Infectious Diseases                            317                   290        9.3          18.7       (9.4 )
Total Neuroscience                                    1,668                 1,684       (1.0 )         3.3       (4.3 )
   CONCERTA®/methylphenidate                            254                   283      (10.2 )        (7.7 )     (2.5 )
   INVEGA®                                              140                   126       11.1          14.3       (3.2 )
   INVEGA® SUSTENNA®/XEPLION®                           212                   101        **          **          (3.4 )
   RISPERDAL® CONSTA®                                   351                   390      (10.0 )        (4.6 )     (5.4 )
   Other Neuroscience                                   711                   784       (9.3 )        (5.0 )     (4.3 )
Total Oncology                                          628                   494       27.1          36.2       (9.1 )
   DOXIL®/CAELYX®                                        16                    86      (81.4 )       (80.4 )     (1.0 )
   VELCADE®                                             327                   295       10.8          20.7       (9.9 )
   ZYTIGA®                                              265                    95        **          **          (5.2 )
   Other Oncology                                        20                    18       11.1          18.8       (7.7 )
Total Other                                           1,227                 1,323       (7.3 )        (3.3 )     (4.0 )
   ACIPHEX®/PARIET®                                     195                   235      (17.0 )       (11.5 )     (5.5 )
   PROCRIT®/EPREX®                                      359                   383       (6.3 )        (2.2 )     (4.1 )
   Other                                                673                   705       (4.5 )        (1.1 )     (3.4 )
Total Pharmaceutical Sales              $             6,402     $           5,982        7.0 %        11.3 %     (4.3 )%

* Prior year amounts have been reclassified to conform to current year presentation. ** Percentage greater than 100%

Immunology products achieved strong operational sales growth of 19.8% as compared to the same period a year ago. The increased sales of STELARA® (ustekinumab) and SIMPONI® (golimumab) were primarily due to market growth. The increased sales of REMICADE® (infliximab) were primarily due to market growth and customer inventory planning.

Infectious disease products achieved operational sales growth of 18.6% as compared to the same period a year ago. Major contributors were INCIVO® (telaprevir), the continued momentum in market share growth of PREZISTA® (darunavir) and INTELENCE® (etravirine), partially offset by lower sales of vaccines.

Neuroscience products achieved operational sales growth of 3.3% as compared to the same period a year ago. Contributors to the growth were the long acting injectable anti-psychotics INVEGA® SUSTENNA® (paliperidone palmitate) in the U.S., INVEGA® SUSTENNA®, known as XEPLION®, sales in Europe and INVEGA® (paliperidone palmitate) sales in Japan. This growth was partially offset by lower sales of CONCERTA®/methylphenidate, RAZADYNE® (galantamine), RISPERDAL®(risperidone) and DURAGESIC®/Fentanyl Transdermal (fentanyl transdermal system) due to continued generic competition.


Table of Contents

The U.S. Supply and Distribution Agreement with Watson Laboratories, Inc. to distribute an authorized generic version of CONCERTA® became effective May 1, 2011. The original CONCERTA® patent expired in 2004 and parties have filed Abbreviated New Drug Applications (ANDAs) for generic versions of CONCERTA®, which are pending and may be approved at any time. An approval of another generic version of CONCERTA® is likely to result in a further reduction in CONCERTA® sales.

Oncology products achieved strong operational sales growth of 36.2% as compared to the same period a year ago. This growth was primarily due to sales of ZYTIGA®(abiraterone acetate) and VELCADE® (bortezomib). This growth was partially offset by lower sales of DOXIL®(doxorubicin HCI liposome injection)/CAELYX®(pegylated liposomal doxorubicin hydrochloride), due to supply restraints from the Company's third-party manufacturer. The Company has been working to restore a reliable supply of DOXIL®. Full access in the U.S. has commenced. In the European Union (EU), the Company expects CAELYX® to be available in the fourth quarter of 2012, and in non-EU countries the timing is projected to be the first quarter of 2013.

In the fiscal second quarter of 2012, Other Pharmaceutical sales experienced an operational decline of 3.3% as compared to the prior year fiscal third quarter primarily due to divestitures and lower sales of EPREX® (Epoetin alfa) and ACIPHEX®/PARIET®(rabeprazole sodium), primarily due to the impact of generic competition. These results were partially offset by sales growth of XARELTO®(rivaroxaban).

Medical Devices and Diagnostics

Medical Devices and Diagnostics segment sales in the fiscal nine months of 2012 were $20.0 billion, an increase of 3.9% as compared to the same period a year ago, including operational growth of 6.5% and a negative currency impact of 2.6%. U.S. Medical Devices and Diagnostics sales increased 7.0%. The international Medical Devices and Diagnostics sales increase of 1.5% included operational growth of 6.2% and a negative currency impact of 4.7%. The acquisition of Synthes, Inc., net of the related divestiture, increased operational growth for the total Medical Devices and Diagnostics segment by 5.7%.

Major Medical Devices and Diagnostics Franchise Sales - Fiscal Nine Months

Ended*
                                                                                        Total     Operations    Currency
(Dollars in Millions)                    September 30, 2012       October 2, 2011      Change       Change       Change
Orthopaedics                                          5,411                 4,356       24.2  %        26.5 %     (2.3 )%
Surgical Care**                                       4,816                 4,943       (2.6 )          0.8       (3.4 )
Vision Care                                           2,251                 2,206        2.0            3.6       (1.6 )
Diabetes Care                                         1,972                 1,982       (0.5 )          2.8       (3.3 )
Specialty Surgery                                     1,871                 1,773        5.5            8.3       (2.8 )
Diagnostics                                           1,539                 1,610       (4.4 )         (2.3 )     (2.1 )
Cardiovascular Care                                   1,479                 1,748      (15.4 )        (13.0 )     (2.4 )
Infection Prevention/Other                              706                   668        5.7            8.1       (2.4 )
Total Medical Devices and
Diagnostics Sales                      $             20,045     $          19,286        3.9  %         6.5 %     (2.6 )%

* Prior year amounts have been reclassified to conform to current year presentation. ** Previously referred to as General Surgery

Medical Devices and Diagnostics segment sales in the fiscal third quarter of 2012 were $7.1 billion, an increase of 12.5% as compared to the same period a year ago, including operational growth of 16.1% and a negative currency impact of 3.6%. U.S. Medical Devices and Diagnostics sales increased 18.3%. The international Medical Devices and Diagnostics sales increase of 7.9% included operational growth of 14.4% and a negative currency impact of 6.5%. The acquisition of Synthes, Inc., net of the related trauma business divestiture, increased operational growth for the total Medical Devices and Diagnostics segment by 14.7%.


Table of Contents

Major Medical Devices and Diagnostics Franchise Sales - Fiscal Third Quarters

Ended*

                                                                                       Total     Operations    Currency
(Dollars in Millions)                    September 30, 2012       October 2, 2011      Change      Change       Change
Orthopaedics                                          2,290                 1,384      65.5  %       68.6 %      (3.1 )%
Surgical Care**                                       1,551                 1,622      (4.4 )         0.1        (4.5 )
Vision Care                                             764                   752       1.6           4.4        (2.8 )
Diabetes Care                                           629                   664      (5.3 )        (1.1 )      (4.2 )
Specialty Surgery                                       597                   576       3.6           7.2        (3.6 )
Diagnostics                                             513                   539      (4.8 )        (1.9 )      (2.9 )
Cardiovascular Care                                     493                   526      (6.3 )        (2.7 )      (3.6 )
Infection Prevention/Other                              232                   220       5.5           9.0        (3.5 )
Total Medical Devices and Diagnostics
Sales                                   $             7,069     $           6,283      12.5  %       16.1 %      (3.6 )%

* Prior year amounts have been reclassified to conform to current year presentation. ** Previously referred to as General Surgery

The Orthopaedics franchise achieved operational growth of 68.6% as compared to the prior year fiscal third quarter. Growth was primarily due to sales of newly acquired products from Synthes, Inc. and sales of joint reconstruction and Mitek sports medicine products. Sales were impacted by the divestitures of the surgical instruments business of Codman & Shurtleff, Inc. in the fiscal fourth quarter of 2011 and the divestiture of certain rights and assets related to the DePuy trauma business. The positive impact on the Orthopaedics franchise operational sales growth due to the newly acquired products from Synthes, Inc. net of the related trauma business divestiture was 67.2%.

The Surgical Care franchise achieved operational growth of 0.1% as compared to the prior year fiscal third quarter. Sales of new products, including SECURESTRAP™, PHYSIOMESH® and ECHELON FLEX™ powered ENDOPATH® Stapler, were offset by lower sales of mechanical products and pelvic floor products.

The Vision Care franchise achieved operational sales growth of 4.4% as compared to the prior year fiscal third quarter. The growth was driven by ACUVUE® TruEye ™, 1-DAY ACUVUE® MOIST® for Astigmatism and 1-DAY ACUVUE® MOIST®.

The Diabetes Care franchise experienced an operational sales decline 1.1% as compared to the prior year fiscal third quarter. Sales growth in Asia and Latin America was offset by sales declines in the U.S.

The Specialty Surgery franchise achieved operational growth of 7.2% as compared to the prior year fiscal third quarter. Incremental sales from the acquisition of SterilMed Inc., sales of biosurgery products and international sales of energy products were the major contributors to the growth.

The Diagnostics franchise experienced an operational sales decline of 1.9% as compared to the prior year. The decline was primarily due to lower sales in donor screening due to competitive pressures and the divestiture of the RhoGAM® business during the third quarter of 2012.

The Cardiovascular Care franchise experienced an operational sales decline of 2.7% as compared to the prior year fiscal third quarter. Sales were impacted by the Company's decision to exit the drug-eluting stent market in the second quarter of 2011 and lower sales of endovascular products, impacted by competitive launches and a disruption in supply that was resolved late in the third quarter. The decline in sales was partially offset by strong growth in Biosense Webster's electrophysiology business primarily due to the success of the new THERMOCOOL® catheter launches.

The Infection Prevention/Other franchise achieved operational sales growth of 9.0% as compared to the prior year fiscal third quarter primarily due to strong consumables sales growth.


Table of Contents

ANALYSIS OF CONSOLIDATED EARNINGS BEFORE PROVISION FOR TAXES ON INCOME Consolidated earnings before provision for taxes on income fiscal nine months of 2012 decreased to $10.7 billion as compared to $12.0 billion in the fiscal nine months of 2011, a decrease of 11.4%. The fiscal nine months of 2012 was unfavorably impacted by $2.0 billion attributed to intangible asset write-downs and in-process research and development, primarily related to the . . .

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