Johnson & Johnson — FY2021 Form 10-K
Reporting period: Fiscal year ended January 2, 2022, compared primarily with the fiscal year ended January 3, 2021. This is an annual filing, not a standalone fourth-quarter report; the supplied text does not provide a complete Q4 income statement or cash-flow statement.
Business context
Johnson & Johnson operates in Consumer Health, Pharmaceutical and Medical Devices (to be called MedTech beginning in fiscal 2022). It reported approximately 141,700 full-time-equivalent positions and worldwide operations. In November 2021, it announced plans to separate Consumer Health into a new publicly traded company, targeting completion 18–24 months after announcement.
Financial performance
| Metric | FY2021 | FY2020 |
|---|---|---|
| Sales | $93.8 billion | $82.6 billion |
| Gross profit | $63.9 billion | $54.2 billion |
| Earnings before tax | $22.8 billion | $16.5 billion |
| Net earnings | $20.9 billion | $14.7 billion |
| Diluted EPS | $7.81 | $5.51 |
| Cash from operations | $23.4 billion | $23.5 billion |
| Capital expenditures | $3.7 billion | $3.3 billion |
Sales rose 13.6%: volume contributed 12.9%, currency 1.4%, and price detracted 0.7%. Management estimated the extra week in FY2020 reduced comparative FY2021 sales growth by about 1 percentage point. Acquisitions and divestitures had a net negative 0.6% impact on sales growth.
Calculated from reported figures, gross margin was approximately 68.2% versus 65.6%, net margin approximately 22.3% versus 17.8%, and pre-tax margin 24.3% versus 20.0%. Reported effective tax rates were 8.3% and 10.8%, respectively. Operating cash flow less capital expenditures was approximately $19.8 billion in FY2021, versus $20.2 billion in FY2020; this is a derived measure.
Segment sales and pre-tax performance
| Segment | FY2021 sales | Change | FY2021 pre-tax margin |
|---|---|---|---|
| Consumer Health | $14.6 billion | +4.1% | 8.8% (FY2020: loss of 7.6%) |
| Pharmaceutical | $52.1 billion | +14.3% | 34.9% (FY2020: 33.9%) |
| Medical Devices | $27.1 billion | +17.9% | 16.2% (FY2020: 13.3%) |
Pharmaceutical growth included $2.4 billion of COVID-19 vaccine sales, strong growth in STELARA, DARZALEX and TREMFYA, and continued REMICADE biosimilar pressure. Medical Devices benefited from recovery in procedure volumes after pandemic-related declines. Consumer Health growth was modest and included supply constraints and increased marketing spending.
Liquidity, debt and capital allocation
- Cash and cash equivalents were $14.5 billion; current marketable securities were $17.1 billion, totaling $31.6 billion.
- Total debt was $33.8 billion, down from $35.3 billion. The company reported net debt of $2.1 billion, using cash and current marketable securities in its calculation.
- Current assets were $61.0 billion and current liabilities $45.2 billion. The derived current ratio was approximately 1.35.
- Financing activities used $14.0 billion, including $11.0 billion of dividends, $3.5 billion of share repurchases for employee programs, and net debt repayment.
- Cash dividends were $4.19 per share, up from $3.98. The company reported its 59th consecutive annual dividend increase and declared a subsequent quarterly dividend of $1.06 per share.
- A new 364-day credit facility provided approximately $10 billion of credit through September 8, 2022. Management said operating cash flows and access to funding were expected to be sufficient for operating needs and disclosed no significant incremental liquidity risk.
Material changes, outlook and unusual items
- R&D expense increased 21% to $14.7 billion, or 15.7% of sales, reflecting pharmaceutical portfolio investment and COVID-19 vaccine costs net of government reimbursements.
- Other income and expense improved by $2.4 billion year over year, principally because litigation expense was lower than in FY2020. FY2021 included $2.3 billion of litigation expense, primarily talc and Risperdal; FY2020 included $5.1 billion, primarily talc and opioid matters.
- The company recorded a $0.9 billion partial impairment of the Ottava digital-robotics R&D asset due primarily to development delays. After year-end, it decided to discontinue bermekimab development for atopic dermatitis and expects a $0.6 billion impairment in Q1 2022.
- The global supply-chain restructuring had recorded approximately $1.8 billion of cumulative costs. Management expected $2.1–$2.3 billion of total pre-tax charges and $0.6–$0.8 billion of annual pre-tax savings, substantially delivered by the end of 2022.
- Management did not provide a full-year FY2022 revenue or earnings forecast in the supplied filing text. It expected incremental annual U.S. cash tax payments of $1.0–$1.5 billion beginning in FY2022 due to tax rules requiring R&D costs to be amortized for tax purposes.
- The planned Consumer Health separation is subject to board approval, regulatory and tax clearances, and other conditions; timing, completion and expected benefits are uncertain, and separation costs are expected to rise.
Risks and contingencies
- Litigation: The company accrued approximately $2 billion for a trust related to talc liabilities after transferring those liabilities to LTL Management, which filed for Chapter 11 bankruptcy protection. The bankruptcy stay and case dismissal were under court consideration; the company said it could not estimate possible talc losses beyond amounts accrued.
- Opioids: The company had accrued $5 billion for a proposed all-in settlement with states and subdivisions. Participation and opt-in processes were underway, and the company retained an option to withdraw if participation proved insufficient.
- Product and regulatory matters: Significant product-liability matters include talc, opioids, pelvic mesh, Risperdal and other products. The filing states that outcomes and additional losses may be difficult to estimate and could materially affect results or cash flows in a reporting period.
- Patent and competitive pressure: Biosimilar competition is reducing REMICADE sales; STELARA’s latest U.S. composition-of-matter patent expires in September 2023. Patent challenges, generic entry and pricing pressure could affect pharmaceutical revenue.
- Other exposures: The filing cites COVID-19, manufacturing and supply-chain disruptions, inflation, foreign exchange, cybersecurity, regulatory changes and healthcare pricing pressure as risks. A 1% U.S. dollar movement against relevant currencies was estimated to change translated sales by about $0.5 billion and net income by about $0.2 billion.
Most important facts for investors to verify
- Progress, conditions, costs and tax treatment of the Consumer Health separation.
- Final outcomes and cash-payment timing for talc and opioid proceedings, including the LTL bankruptcy and settlement participation.
- FY2022 sales and earnings outlook, including COVID-19 vaccine demand and the expected incremental cash-tax burden.
- Sales trends and patent/generic exposure for major pharmaceutical products, especially STELARA and REMICADE.
- Whether procedure-volume recovery, supply availability and restructuring savings support sustained MedTech and Consumer Health performance.
- The timing and financial impact of the Ottava delay and bermekimab discontinuation-related impairment.