H FC BC IBC (Page 3)
Total Page:16
File Type:pdf, Size:1020Kb
1998 Annual Report Platforms for Growth Anti-infectives Biotechnology Cardiology & Circulatory Diseases Central Nervous System Diagnostics Gastrointestinals Minimally Invasive Therapies Nutraceuticals Orthopaedics Pain Management Skin Care Urology Vision Care Women’s Health Wound Care Letter to Shareowners 1998 was one of the more difficult years that Johnson & Johnson has encountered in a long time. The good news is that our people responded to the challenges in a remarkable manner … allowing us to once again achieve solid financial performance. Sales of $23.7 bil- lion represented an increase of 4.5% over 1997. Prior to a special charge described below, our net income of $3.7 billion was up 11.1% and earnings per share, at $2.67, increased 10.8% over the previous year. These financial results were achieved despite our weathering a series of problems during the year. The continued strengthening of the U.S. dollar for the third year in a row resulted in negative currency adjust- ments that decreased our sales by about 2.5%. We faced economic turmoil in more parts of the world at Ralph S. Larsen the same time than we can ever remember… most Chairman and Chief Executive Officer notably in the important emerging markets of Asia as well as Russia. We also wrestled with several research disappointments in our pharmaceutical business where a number of promising new compounds for the treatment of serious diseases failed to meet clinical endpoints and we made the decision to discontinue further work on them. This once again dramatized for us all the high-risk nature of pharmaceutical research, and we are taking steps to implement a more rigorous program review and selection process with the objective of improving our batting average in this critical area. And finally, we experienced a flood of new competi- tors in our coronary stent business and suffered a loss of significant market share – not a happy situation. So all in all it was a difficult year. Having said that … we managed our way through the storms, turned in solid financial results and emerged from the year older, wiser and stronger than ever. Importantly, we undertook two major strategic initiatives during 1998 that are expected to be of great significance to our future growth. The first was the acquisition of DePuy, Inc., a leading manufacturer of orthopaedic products headquartered in Warsaw, Indiana. This $3.7 billion cash acquisition was the largest in our history. The second was to fundamentally implant market segment. This was an important busi- reconfigure our worldwide manufacturing operations, ness-building initiative that will serve us well in the moving from local to regional production facilities. years to come. We took a special charge of $610 million against Our strong cash flow enabled us to consummate the fourth quarter earnings for the costs of the reconfigura- DePuy transaction while maintaining our Triple A tion of our global manufacturing network, including credit rating and we remain among only six U.S. write-downs and write-offs of assets no longer provid- industrial companies with this top tier rating. ing economic benefit to the Company, as well as for The second major strategic decision made in 1998 purchased in-process research and development costs was the fundamental reconfiguration of our worldwide primarily associated with the acquisition of DePuy. manufacturing network to meet the global require- The charges reduced earnings per share for the year to ments of the 21st century. Over the next 18 months, this $2.23 and consolidated net earnings for the full year will involve reducing the number of our manufactur- were reduced to $3.1 billion. ing facilities around the world by approximately 36, Before acquiring DePuy, we had a good but mod- from 159 to 123 plants, with a decrease of about 4% in estly sized orthopaedics business. By combining our our global work force. This is the most significant existing business with the newly acquired DePuy orga- reconfiguration of facilities in the Company’s history. nization, we transformed Johnson & Johnson into a As painful as actions like this are, they are absolutely leading player in the $9 billion growing orthopaedics essential to the continued health and competitiveness market. DePuy is a premier company and provides us of our business and will be implemented with the not only with the critical mass and leadership we utmost sensitivity to the people who will be affected. sought in joint reconstruction, but also vaults us into As Johnson & Johnson built its business around the the number two position in the fast-growing spinal world over the past one hundred years, we typically Three Years in Brief–Worldwide % Change (Dollars in Millions Except Per Share Figures) 1998 1997 1996 1998 1997 Sales to customers $23,657 22,629 21,620 4.5 4.7 Net earnings* 3,059 3,303 2,887 (7.4) 14.4 Cash dividends paid 1,305 1,137 974 14.8 16.7 Shareowners’ equity 13,590 12,359 10,836 10.0 14.1 Percent return on average shareowners’ equity* 23.6 28.5 29.0 – – Per share Net earnings – basic* $ 2.27 2.47 2.17 (8.1) 13.8 – diluted* 2.23 2.41 2.12 (7.5) 13.7 Cash dividends paid 0.97 0.85 0.735 14.1 15.6 Shareowners’ equity 10.11 9.19 8.13 10.0 13.0 7 7 1 Market price (year-end close) 83 ⁄8 64 ⁄8 50 ⁄2 29.3 28.5 Average shares outstanding (millions) – basic 1,344.8 1,336.0 1,332.6 0.7 0.3 – diluted 1,371.6 1,369.9 1,359.4 0.1 0.8 Shareowners of record (thousands) 165.9 156.8 138.5 5.8 13.2 Number of employees (thousands) 93.1 90.5 89.3 2.9 1.3 * Net earnings and earnings per share include Restructuring and In-Process Research and Development charges of $610 million or $.44 diluted earnings per share in 1998. Excluding the impact of these charges, 1998 net earnings increased 11.1% over 1997. The percent return on average shareowners’ equity in 1998 before these charges is 27.6%. For detailed discussion of these charges, refer to Note 15 and Note 17 of the Notes to Consolidated Financial Statements. 1 established small manufacturing plants in each country. First of all, health care is a wonderful business to be That made sense at the time because of the difficulty of in, both from a personal and business standpoint. transportation as well as the existence of trade barriers Medical science and technology are exploding. People in most countries. In today’s global marketplace these are living longer and not only require, but demand, reasons have largely disappeared and it is no longer more and better health care. Johnson & Johnson is economically feasible to manufacture on a country-by- uniquely positioned to meet this growing need. country basis, often in small and less efficient plants. Secondly, we have carefully and deliberately made Moving from a local to a regional manufacturing the strategic choice to be broadly based in human configuration will greatly improve our productivity in health care. Note we do not use the term “diversified,” the years ahead. The reconfiguration, combined with which suggests to us a certain “disconnectedness” of other strategic cost reductions, will reduce annual after- the parts. We have chosen to be broadly based in relat- tax costs by some $250 million, while allowing us to ed fields of health care because our view of the future decrease inventory levels and ultimately to improve the is that there will be an increasing convergence in treat- way we serve our customers. This reconfiguration of our ment modalities where pharmaceuticals, diagnostics manufacturing system is an excellent example of how and medical devices will be brought together at earlier we continuously strive to make the business stronger. stages to be used in combination for the prevention, diagnosis and treatment of disease. Productivity Improvements Continue Against this backdrop, our objective is to have Over the last several years we have been working Johnson & Johnson build ever stronger leadership especially hard at improving all aspects of our produc- positions in key high technology, knowledge-based, tivity, including the sharing of common services across growth segments of health care – pharmaceuticals, the corporation such as purchasing, information man- diagnostics, medical devices and consumer health care. agement, administration and human resources. And finally, our long-standing commitment to a Through these efforts, our SIGNATURE OF QUALITY decentralized approach to managing the business, initiative, and the elimination of unnecessary and less coupled with strong underpinning by the ethical prin- valuable activities, we have dramatically improved ciples of the Johnson & Johnson Credo, gives us an productivity and taken out about $2 billion in annual unusual ability for our more than 180 operating units operating costs. to pursue multiple opportunities for growth – and to Productivity enhancements such as this have do so simultaneously throughout the world. This is a enabled us to provide good value to our customers and great advantage in today’s competitive environment. 1998 was the fifth straight year in which we took less Because of the breadth of our business, it is some- than 1% net price increases on a worldwide basis. We times difficult to fully grasp the range of Johnson & have also reinvested a portion of the savings generated Johnson’s positions in health care today – all providing through our productivity efforts back into business- multiple sources of future growth. We have a solid expanding activities. Last year, for example, we invest- pharmaceutical business that spans a wide range of ed more than $2.3 billion in research & development, therapeutic categories.