Johnson & Johnson — FY2015 Form 10-K
Reporting period: Fiscal year ended January 3, 2016. This is an annual filing, not a standalone fourth-quarter report; FY2015 included 53 weeks. Unless noted, amounts are U.S. dollars.
Business context and key financials
Johnson & Johnson operates globally across Consumer, Pharmaceutical, and Medical Devices, with approximately 127,100 employees. New products launched in the prior five years accounted for about 25% of 2015 sales.
| Metric | FY2015 | FY2014 | Change / context |
|---|---|---|---|
| Sales | $70.1 billion | $74.3 billion | Down 5.7%; operational growth of 1.8% was offset by a 7.5% currency impact. |
| Gross profit | $48.5 billion | $51.6 billion | Gross margin 69.3%, versus 69.4%. |
| Earnings before tax | $19.2 billion | $20.6 billion | Down 6.6%; 27.4% of sales versus 27.7%. |
| Net earnings | $15.4 billion | $16.3 billion | Down 5.6%. |
| Diluted EPS | $5.48 | $5.70 | Down 3.9%. |
| Operating cash flow | $19.3 billion | $18.5 billion | Up from prior year. |
| Cash and marketable securities | $38.4 billion | $33.1 billion | At fiscal year-end. |
| Total debt | $19.9 billion | $18.8 billion | Net cash, defined by the company as cash and current marketable securities less debt, was $18.5 billion. |
Capital spending was $3.5 billion; dividends paid were $8.2 billion, or $2.95 per share. The company repurchased $5.3 billion of shares during the year. The current ratio was approximately 2.2, based on reported current assets and current liabilities.
Material changes versus FY2014
- U.S. sales increased 2.6% to $35.7 billion, while international sales fell 13.1% to $34.4 billion, principally reflecting currency effects.
- Consumer sales declined 6.8% to $13.5 billion; Pharmaceutical sales fell 2.7% to $31.4 billion; Medical Devices sales declined 8.7% to $25.1 billion. Foreign exchange and divestitures affected the latter two segments materially.
- Pharmaceutical operational growth was 4.2%, but HCV competition materially reduced sales. OLYSIO sales fell 73% to $621 million. Immunology and oncology growth included STELARA and IMBRUVICA; XARELTO and INVOKANA also grew strongly.
- Medical Devices sales were affected by the Ortho-Clinical Diagnostics and Cordis divestitures, currency, and operational weakness in several franchises. The Cordis sale closed in October 2015.
- FY2015 earnings included a $590 million Medical Devices restructuring charge and approximately $2.6 billion of pre-tax gains on asset and business sales. Lower litigation expense and Synthes integration costs partly offset weaker sales, currency effects, and restructuring costs.
Outlook, commentary, risks and unusual items
- Management said operating cash flow, existing credit facilities and capital-market access were expected to provide sufficient resources for 2016 operating needs. The filing does not provide clear company-wide 2016 revenue or EPS guidance.
- The Medical Devices restructuring is expected to cost $2.0–$2.4 billion pre-tax, mostly by 2017, and generate $800 million–$1.0 billion in annualized savings, mostly by the end of 2018; approximately $200 million of savings were expected in 2016. Planned workforce reductions were 4%–6% of the segment workforce over two years.
- Management identified potential U.S. REMICADE biosimilar entry as a sales risk, alongside ongoing biosimilar competition abroad. Patent validity and litigation outcomes remain uncertain. The company stated a U.S. launch was not expected to materially adversely affect 2016 results and cash flows, but would reduce REMICADE sales.
- Other notable risks include foreign-exchange exposure, healthcare pricing and cost-containment pressure, competition and patent challenges, product safety and regulatory matters, complex supply chains, and litigation. The filing says potential losses for certain legal matters cannot be estimated beyond amounts accrued; adverse resolutions could materially affect results or cash flows in a period.
- The company recorded a $161 million charge related to revaluation of Venezuelan net monetary assets and impairment of non-monetary assets; further charges were possible, though not expected to materially adversely affect FY2016 results.
- McNeil consumer manufacturing facilities were reported by the FDA as in conformity with applicable requirements after 2015 inspections. They remain subject to third-party audits for at least five years under a consent decree.
- The board authorized a new $10 billion share-repurchase program in October 2015; $1.0 billion had been repurchased under it by year-end. The company cautions the program may be suspended or discontinued.
Important facts for investors to verify
- Whether reported sales weakness is primarily currency- and portfolio-related or signals persistent deterioration in underlying demand, especially internationally and in Medical Devices.
- The pace and financial impact of REMICADE biosimilar launches, patent proceedings, and continued HCV competition.
- Restructuring execution: actual charges, cash requirements, workforce reductions, and realized savings against the stated targets.
- Developments in significant product-liability, government, and intellectual-property proceedings, including whether future accruals or cash costs materially change.
- Cash availability and capital allocation, including the location of overseas cash, debt maturities, repurchases, and the company’s continued dividend practice.