JOHNSON & JOHNSON RESULTS OF OPERATIONS
Sales to Customers
Analysis of Consolidated Sales
For the fiscal first quarter of 2022, worldwide sales were$23.4 billion , a total increase of 5.0%, which included operational growth of 7.7% and a negative currency impact of 2.7% as compared to 2021 fiscal first quarter sales of$22.3 billion . In the fiscal first quarter of 2022, the net impact of acquisitions and divestitures on worldwide operational sales growth was a negative 0.2%. Sales byU.S. companies were$11.4 billion in the fiscal first quarter of 2022, which represented an increase of 2.7% as compared to the prior year. In the fiscal first quarter of 2022, the net impact of acquisitions and divestitures on theU.S. operational sales growth was a negative 0.1%. Sales by international companies were$12.0 billion , a total increase of 7.2%, which included operational growth of 12.6% and a negative currency impact of 5.4%. In the fiscal first quarter of 2022, the net impact of acquisitions and divestitures on the international operational sales growth was a negative 0.3%. In the fiscal first quarter of 2022, sales by companies inEurope achieved growth of 11.3%, which included operational growth of 19.5% and a negative currency impact of 8.2%. Sales by companies in the Western Hemisphere, excluding theU.S. , achieved growth of 4.1%, including operational growth of 5.1% and a negative currency impact of 1.0%. Sales by companies in theAsia-Pacific ,Africa region achieved growth 3.1%, including operational growth of 6.6% and a negative currency impact of 3.5%. [[Image Removed: jnj-20220403_g1.jpg]][[Image Removed: jnj-20220403_g2.jpg]] Note: values may have been rounded 42
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Analysis of Sales by Business Segments
Consumer Health segment sales in the fiscal first quarter of 2022 were$3.6 billion , a decrease of 1.5% as compared to the same period a year ago, including operational growth of 0.8% offset by a negative currency impact of 2.3%.U.S. Consumer Health segment sales decreased by 3.4%.International Consumer Health segment sales were flat including operational growth of 4.1% and a negative currency impact of 4.1%. In the fiscal first quarter of 2022, the net impact of acquisitions and divestitures on theConsumer Health segment operational sales growth was a negative 0.8% primarily due to the DR. CI:LABO - Sedona divestiture inAsia Pacific .
Major Consumer Health Franchise Sales* - Fiscal First Quarter Ended
Total Operations Currency
(Dollars in Millions) April 3, 2022 April 4, 2021 Change Change Change
OTC(1) $ 1,461 $ 1,273 14.8 % 17.1 % (2.3) %
Skin Health/Beauty 1,012 1,163 (13.0) (11.0) (2.0)
Oral Care 366 417 (12.2) (10.2) (2.0)
Baby Care 355 389 (8.6) (6.4) (2.2)
Women's Health 228 222 2.6 8.3 (5.7)
Wound Care/Other 164 177 (7.4) (7.2) (0.2)
Total Consumer Health Sales $ 3,586 $ 3,641 (1.5) % 0.8 % (2.3) %
*Certain prior year amounts have been reclassified to conform to current year presentation (1)In the fiscal first quarter of 2021, approximately$0.1 billion of certain international OTC products, primarily inChina , were reclassified from the Pharmaceutical segment to theConsumer Health segment based on operational changes
The OTC franchise achieved operational growth of 17.1% as compared to the prior year fiscal first quarter. Growth was driven by upper respiratory products, TYLENOL and MOTRIN and IMODIUM and PEPCID products in digestive health.
The Oral Care franchise experienced an operational decline of 10.2% as compared
to the prior year fiscal first quarter. The decline was primarily driven by
strategic SKU rationalization in the
The Baby Care franchise experienced an operational decline of 6.4% as compared
to the prior year fiscal first quarter. The decline was driven by supply
constraints in the
The Women's Health franchise achieved operational growth of 8.3% as compared to the prior year fiscal first quarter primarily driven by growth in EMEA due to increased stocking and LATAM due to price increases. The Wound Care/Other franchise experienced an operational decline of 7.2% as compared to the prior year fiscal first quarter primarily driven by the professional tape divestiture along with comparison to prior year COVID-19 recovery for NEOSPORIN in theU.S. and BAND-AID® Brand Adhesive Bandages outside theU.S. This decline was partially offset by growth ofU.S. BAND-AID® Brand Adhesive Bandages. InNovember 2021 , the Company announced its intention to separate the Company'sConsumer Health business, with the intention to create a new, publicly traded company. The Company is targeting completion of the planned separation in 18 to 24 months after the initial announcement. 43
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Table of Content Pharmaceutical Pharmaceutical segment sales in the fiscal first quarter of 2022 were$12.9 billion , an increase of 6.3% as compared to the same period a year ago, including an operational increase of 9.3% and a negative currency impact of 3.0%.U.S. Pharmaceutical sales increased 2.9% as compared to the same period a year ago. International Pharmaceutical sales increased by 10.3%, including operational growth of 16.7% and a negative currency impact of 6.4%. In the fiscal first quarter of 2022, the net impact of acquisitions and divestitures on the Pharmaceutical segment operational sales growth was negligible. Adjustments to previous sales reserve estimates were negligible in the fiscal first quarter of 2022 and approximately$0.2 billion in the fiscal first quarter of 2021.
Major Pharmaceutical Therapeutic Area Sales** - Fiscal First Quarter Ended
Total Operations Currency
(Dollars in Millions) April 3, 2022 April 4, 2021 Change Change Change
Immunology $ 4,119 $ 3,914 5.2 % 7.5 % (2.3) %
REMICADE 663 777 (14.7) (14.2) (0.5)
SIMPONI/ SIMPONI ARIA 571 562 1.5 4.7 (3.2)
STELARA 2,288 2,148 6.5 9.0 (2.5)
TREMFYA 590 418 41.3 44.5 (3.2)
Other Immunology 6 8 (22.0) (22.0) 0.0
Infectious Diseases 1,297 998 30.0 33.1 (3.1)
COVID-19 VACCINE 457 100 * * *
EDURANT/rilpivirine 248 243 1.8 9.6 (7.8)
PREZISTA/ PREZCOBIX/ REZOLSTA/ SYMTUZA 501 546 (8.3) (6.9) (1.4)
Other Infectious Diseases(2) 91 108 (15.3) (11.0) (4.3)
Neuroscience 1,741 1,715 1.5 5.0 (3.5)
CONCERTA/ methylphenidate 157 171 (8.3) (4.8) (3.5)
INVEGA SUSTENNA/ XEPLION/ INVEGA TRINZA/
TREVICTA 1,048 965 8.6 11.3 (2.7)
RISPERDAL CONSTA 129 157 (17.6) (13.9) (3.7)
Other Neuroscience(2) 408 422 (3.5) 1.7 (5.2)
Oncology 3,950 3,570 10.6 14.9 (4.3)
DARZALEX 1,856 1,365 36.0 40.3 (4.3)
ERLEADA 400 261 53.0 57.5 (4.5)
IMBRUVICA 1,038 1,125 (7.7) (3.9) (3.8)
ZYTIGA/ abiraterone acetate 539 638 (15.6) (10.1) (5.5)
Other Oncology 118 182 (35.1) (32.3) (2.8)
Pulmonary Hypertension 852 861 (1.1) 1.2 (2.3)
OPSUMIT 443 450 (1.6) 1.1 (2.7)
UPTRAVI 325 305 6.5 7.7 (1.2)
Other Pulmonary Hypertension 83 105 (20.8) (16.8) (4.0)
Cardiovascular / Metabolism / Other 910 1,044 (12.8) (11.9) (0.9) XARELTO 508 589 (13.8) (13.8) - INVOKANA/ INVOKAMET 128 150 (14.6) (13.1) (1.5) Other(1,2) 274 305 (10.0) (7.5) (2.5) Total Pharmaceutical Sales$ 12,869 $ 12,101 6.3 % 9.3 % (3.0) % * Percentage greater than 100% or not meaningful **Certain prior year amounts have been reclassified to conform to current year presentation (1) Inclusive of PROCRIT / EPREX which was previously disclosed separately (2)In the fiscal first quarter of 2021, approximately$0.1 billion of certain international OTC products, primarily inChina , were reclassified from the Pharmaceutical segment to theConsumer Health segment based on operational changes 44
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Immunology products achieved operational growth of 7.5% as compared to the same period a year ago driven by continued strong uptake of STELARA (ustekinumab) in Crohn's disease and Ulcerative Colitis partially offset by share declines in Psoriasis and Psoriatic Arthritis and strength of TREMFYA (guselkumab) in Psoriasis and uptake in Psoriatic Arthritis. This was partially offset by lower sales of REMICADE (infliximab) due to biosimilar competition. Biosimilar versions of REMICADE have been introduced inthe United States and certain markets outsidethe United States and additional competitors continue to enter the market. Continued infliximab biosimilar competition will result in a further reduction in sales of REMICADE. The latest expiringUnited States patent for STELARA (ustekinumab) will expire inSeptember 2023 . STELARA (ustekinumab)U.S. sales in fiscal 2021 were approximately$5.9 billion . The expiration of a product patent or loss of market exclusivity is likely to result in a reduction in sales. Infectious disease products achieved operational growth of 33.1% as compared to the same period a year ago. Growth was primarily driven by the contribution of the COVID-19 vaccine. This was partially offset by lower sales of PREZISTA and PREZCOBIX/REZOLSTA (darunavir/cobicistat) due to increased competition and loss of exclusivity of PREZISTA in certain countries outside theU.S. Neuroscience products achieved operational sales growth of 5.0% as compared to the same period a year ago. Growth of Paliperidone long-acting injectables INVEGA SUSTENNA/XEPLION (paliperidone palmitate) and INVEGA TRINZA/TREVICTA was due to patient mix, new patient starts and persistence of treatment as well as the launch of INVEGA HAFYERA. Oncology products achieved operational sales growth of 14.9% as compared to the same period a year ago. Contributors to the growth were strong sales of DARZALEX (daratumumab) driven by share gains in all regions, continued strong market growth, and solid uptake of the subcutaneous formulation; the continued global launch uptake of ERLEADA (apalutamide) and IMBRUVICA (ibrutinib) growth in all regions outside theU.S. In theU.S. IMBRUVICA (ibrutinib) declined due to competitive pressures from novel oral agents. Pulmonary Hypertension achieved operational sales growth of 1.2% as compared to the same period a year ago. Sales growth of OPSUMIT (macitentan) and UPTRAVI (selexipag) were due to demand and share gains partially offset by COVID-19 related market constraints as well as entrants in Other Pulmonary Hypertension. Cardiovascular / Metabolism / Other products experienced an operational decline of 11.9% as compared to the same period a year ago. The decline was primarily attributable to lower sales of XARELTO due to a one-time favorable prior period pricing adjustment in the fiscal first quarter of 2021 and INVOKANA/INVOKAMET (canagliflozin) due to continued share erosion. Starting in the second quarter of fiscal 2022, the Company updated its policy so that no end customer will be permitted to direct delivery of product to a location other than the billing location. The updated policy will impact contract pharmacy transactions involving non-grantee 340B covered entities for most of the Company's drugs, subject to multiple exceptions. Both grantee and non-grantee covered entities can maintain unlimited contract pharmacy arrangements under policy exceptions. The Company will continue to offer 340B discounts to covered entities on all of its covered outpatient drugs, and it believes its policy will improve its ability to identify inappropriate duplicate discounts and diversion prohibited by the 340B statute. The 340B Drug Pricing Program is aU.S. federal government program requiring drug manufacturers to provide significant discounts on covered outpatient drugs to covered entities. This policy update could have potential discount and volume implications going forward. 45
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Table of Content MedTech* The MedTech segment sales in the fiscal first quarter of 2022 were$7.0 billion , an increase of 5.9% as compared to the same period a year ago, which included operational growth of 8.5% and a negative currency impact of 2.6%.U.S. MedTech sales increased 5.6%. International MedTech sales increased by 6.3%, including operational growth of 11.1% and a negative currency impact of 4.8%. In the fiscal first quarter of 2022, the net impact of acquisitions and divestitures on the MedTech segment operational sales growth was a negative 0.1%.
Major MedTech Franchise Sales - Fiscal First Quarter Ended
Total Operations Currency
(Dollars in Millions) April 3, 2022 April 4, 2021 Change Change Change
Surgery $ 2,434 $ 2,372 2.6 % 5.0 % (2.4) %
Advanced 1,146 1,118 2.5 4.5 (2.0)
General 1,288 1,254 2.7 5.5 (2.8)
Orthopaedics 2,188 2,113 3.5 5.6 (2.1)
Hips 389 356 9.3 11.3 (2.0)
Knees 339 317 6.7 8.8 (2.1)
Trauma 748 733 2.1 4.2 (2.1)
Spine, Sports & Other 712 707 0.6 2.7 (2.1)
Vision 1,257 1,145 9.8 13.9 (4.1)
Contact Lenses/Other 910 857 6.2 10.6 (4.4)
Surgical 347 288 20.4 23.8 (3.4)
Interventional Solutions 1,092 949 15.1 17.4 (2.3)
Total MedTech Sales $ 6,971 $ 6,579 5.9 % 8.5 % (2.6) %
*Previously referred to as Medical Devices
The Surgery franchise achieved operational sales growth of 5.0% as compared to the prior year fiscal first quarter. The operational growth in Advanced Surgery was primarily driven by Endocutter and Biosurgery products attributable to market recovery, market expansion and the success of new products. Growth of Endocutter products was offset by COVID-19 market slow down in theAsia Pacific region and competitive pressures in the U.S. Energy products growth was flat to the prior year fiscal first quarter with market recovery and new product penetration mostly offset by COVID-19 market slow downs inAsia Pacific . The operational growth in General Surgery was primarily driven by market recovery, strength of the Suture portfolio, and technology penetration. The Orthopaedics franchise achieved operational sales growth of 5.6% as compared to the prior year fiscal first quarter. The operational growth in hips reflects the market recovery, continued strength of the portfolio including the ACTIS stem and enabling technologies - KINCISE and VELYS Hip Navigation and momentum in theU.S. Ambulatory Surgery Center channel. The operational growth in knees was primarily driven by market recovery and uptake of new products and momentum in theU.S. Ambulatory Surgery Center channel. The operational growth in Trauma was driven by global market recovery and uptake of new products. The operational growth in Spine, Sports & Other was driven by recovery across most specialties, new products in Sports, Spine & VELYS Digital Solutions and a prior yearChina distribution channel change. Growth was partially offset by market softness and competitive pressures in Spine. The Vision franchise achieved operational sales growth of 13.9% as compared to the prior year fiscal first quarter. The Contact Lenses/Other operational growth was due to market recovery, new products and theU.S. benefit related to a current year forward buy ahead of a list price increase. The growth was partially offset by the negative impact from prior year stocking. The Surgical operational growth was primarily due to market recovery and uptake of recently launched products.
The Interventional Solutions franchise achieved operational sales growth of 17.4% as compared to the prior year fiscal first quarter driven by the market recovery, success of new products and commercial strategies.
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ANALYSIS OF CONSOLIDATED EARNINGS BEFORE PROVISION FOR TAXES ON INCOME
Consolidated earnings before provision for taxes on income for the fiscal first quarter of 2022 was$5.9 billion representing 25.0% of sales as compared to$7.4 billion in the fiscal first quarter of 2021, representing 33.3% of sales.
Cost of Products Sold
[[Image Removed: jnj-20220403_g3.jpg]](Dollars in billions. Percentages in chart are as a percent to total sales)
Q1 2022 versus Q1 2021 Cost of products increased as a percent to sales driven by: •Unfavorable volume/mix in the MedTech segment •Commodity inflation in theConsumer Health segment The intangible asset amortization expense included in cost of products sold for the fiscal first quarters of 2022 and 2021 was$1.1 billion and$1.2 billion , respectively.
Selling, Marketing and Administrative Expenses
[[Image Removed: jnj-20220403_g4.jpg]](Dollars in billions. Percentages in chart are as a percent to total sales)
Q1 2022 versus Q1 2021 Selling, Marketing and Administrative Expenses increased as a percent to sales driven by: •Higher brand marketing expenses in thePharmaceutical and Consumer Health businesses 47
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Research and Development Expense
[[Image Removed: jnj-20220403_g5.jpg]](Dollars in billions. Percentages in chart are as a percent to total sales)
Q1 2022 versus Q1 2021 Research and Development increased as a percent to sales driven by: •General portfolio progression in the Pharmaceutical business
In the fiscal first quarter of 2022, the Company recorded an intangible asset impairment charge of approximately$0.6 billion related to an in-process research and development asset, bermekimab (JnJ-77474462), an investigational drug for the treatment of Atopic Dermatitis (AD) and Hidradenitis Suppurativa (HS). Additional information regarding efficacy of the AD indication became available which led the Company to the decision to terminate the development of bermekimab for AD. The Company acquired all rights to bermekimab from XBiotech, Inc. in the fiscal year 2020.
Interest (Income) Expense
Interest (Income) Expense in the fiscal first quarter of 2022 was a net interest income of$12 million as compared to interest expense of$48 million in the same period a year ago primarily due to the benefit from net investment hedging, a higher average cash balance and a lower average debt balance. The balance of cash, cash equivalents and current marketable securities was$30.4 billion at the end of the fiscal first quarter of 2022 as compared to$24.6 billion at the end of the fiscal first quarter of 2021. The Company's debt position was$33.1 billion as ofApril 3, 2022 as compared to$33.6 billion the same period a year ago. Other (Income) Expense, Net* Q1 2022 versus Q1 2021 Other (income) expense, net for the fiscal first quarter of 2022 was unfavorable by$0.8 billion as compared to the prior year primarily due to the following:
Fiscal First Quarter
(Dollars in Billions)(Income)/Expense 2022 2021 Change
Changes in the fair value of securities $ 0.4 0.0 0.4
Acquisition, integration and divestiture related(1) 0.0 (0.5) 0.5
Consumer Health separation costs 0.1
0.0 0.1
Employee benefit plan related (0.3) (0.2) (0.1)
Other (0.3) (0.2) (0.1)
Total Other (Income) Expense, Net $ (0.1) $
(0.9)
(1) Primarily related to divestiture gains of two pharmaceutical brands outside
the
*Other (income) expense, net is the account where the Company records gains and losses related to the sale and write-down of certain investments in equity securities held byJohnson & Johnson Innovation - JJDC, Inc. (JJDC), changes in the fair value of securities, gains and losses on divestitures, gains and losses on sale of assets, certain transactional currency gains and losses, acquisition-related costs, litigation accruals and settlements, investment (income)/loss related to employee benefit plans, as well as royalty income. 48 -------------------------------------------------------------------------------- Table of Content EARNINGS BEFORE PROVISION FOR TAXES BY SEGMENT Income (loss) before tax by segment of business for the fiscal first quarters were as follows: Income Before Tax Segment Sales Percent of Segment Sales April 4, (Dollars in Millions) April 3, 2022 2021 April 3, 2022 April 4, 2021 April 3, 2022 April 4, 2021 Consumer Health $ 686$ 842 $ 3,586 $ 3,641 19.1 % 23.1 % Pharmaceutical 3,924 5,169 12,869 12,101 30.5 42.7 MedTech 1,477 1,629 6,971 6,579 21.2 24.8 Segment earnings before tax 6,087 7,640 23,426 22,321 26.0 34.2 Less: Expenses not allocated to segments (1) 123
211
Less:Consumer Health separation costs 102 - Worldwide income before tax$ 5,862 $ 7,429 $ 23,426 $ 22,321 25.0 % 33.3 %
(1) Amounts not allocated to segments include interest (income) expense and general corporate (income) expense.
Consumer Health Segment
The Consumer Health segment income/(loss) before tax as a percent of sales in the fiscal first quarter of 2022 was 19.1% versus 23.1% for the same period a year ago. The decrease in the income before tax as a percent of sales in the fiscal first quarter of 2022 as compared to the prior year was primarily driven by the following: •An increase in brand marketing expenses •Commodity inflation
Pharmaceutical Segment
The Pharmaceutical segment income before tax as a percent of sales in the fiscal first quarter of 2022 was 30.5% versus 42.7% for the same period a year ago. The decrease in the income before tax as a percent of sales for the fiscal first quarter of 2021 as compared to the prior year was primarily driven by the following: •An IPR&D charge of$0.6 billion in 2022 related to bermekimab (JnJ-77474462), an investigational drug for the treatment of AD and Hidradenitis Suppurativa (HS) •Divestiture gains of$0.6 billion in 2021. •Net mark-to-market loss related to the change in the fair value of securities ($0.4 billion in 2022 vs.$0.0 billion in 2021) •Increased Research & Development investment for general portfolio progression •Higher brand marketing expenses MedTech Segment The MedTech segment income before tax as a percent of sales in the fiscal first quarter of 2022 was 21.2% versus 24.8% for the same period a year ago. The decrease in the income before tax as a percent of sales for the fiscal first quarter was primarily driven by the following: •Product mix within the MedTech franchises 49 -------------------------------------------------------------------------------- Table of Content Restructuring In the fiscal second quarter of 2018, the Company announced plans to implement actions across its Global Supply Chain that are intended to enable the Company to focus resources and increase investments in critical capabilities, technologies and solutions necessary to manufacture and supply its product portfolio of the future, enhance agility and drive growth. The Company expects these supply chain actions will include expanding its use of strategic collaborations, and bolstering its initiatives to reduce complexity, improving cost-competitiveness, enhancing capabilities and optimizing its network. Discussions regarding specific future actions are ongoing and are subject to all relevant consultation requirements before they are finalized. In total, the Company expects these actions to generate approximately$0.6 to$0.8 billion in annual pre-tax cost savings that will be substantially delivered by the end of 2022. The Company expects to record pre-tax restructuring charges of approximately$2.1 to$2.3 billion by the completion of the program inDecember 2022 . In the fiscal first quarter of 2022, the Company recorded a net pre-tax charge of$72 million , which is included on the following lines of the Consolidated Statement of Earnings,$70 million in restructuring,$16 million in cost of products sold and income of$14 million (from property sales) in other (income) expense, net. In the fiscal first quarter of 2021, the Company recorded a pre-tax charge of$104 million , which is included on the following lines of the Consolidated Statement of Earnings,$53 million in restructuring,$27 million in cost of products sold and$24 million in other (income) expense, net. Restructuring charges of approximately$1.8 billion have been recorded since the restructuring was announced.
See Note 12 to the Consolidated Financial Statements for additional details related to the restructuring.
Provision for Taxes on Income
The worldwide effective income tax rate was 12.2% in 2022 and 16.6% in 2021. During fiscal year 2022, the Company is expected to incur significant additional international tax costs related to the legal separation of theConsumer Health businesses.
For discussion related to the fiscal first quarter of 2022 provision for taxes refer to Note 5 to the Consolidated Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
[[Image Removed: jnj-20220403_g6.jpg]] [[Image Removed: jnj-20220403_g7.jpg]]
[[Image Removed: jnj-20220403_g8.jpg]]
Cash Flows
Cash and cash equivalents were
(Dollars In Billions)
$ 14.5 Q4 2021 Cash and cash equivalents balance
4.0 cash generated from operating activities
(3.6) net cash used by investing activities
(4.4) net cash used by financing activities
$ 10.5 Q1 2022 Cash and cash equivalents balance
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In addition, the Company had$19.9 billion in marketable securities at the end of the fiscal first quarter of 2022 and$17.1 billion at the end of fiscal year 2021.
Cash flow from operations of
(Dollars In Billions)
$ 5.1 Net Earnings
non-cash expenses and other adjustments primarily for depreciation and
amortization, stock-based compensation, assetwrite-downs and credit losses
and accounts receivable allowances partially offset by the deferred tax
1.6 provision and net gain on sale of assets/businesses
(1.0) an increase in accounts receivable and inventories
(2.8) a decrease in accounts payable and accrued liabilities
1.0 a decrease in other current and non-current assets
0.1 an increase in other current and non-current liabilities
$ 4.0 Cash Flow from operations
Investing activities use of
(Dollars In Billions)
$ (0.6) additions to property, plant and equipment
0.2 proceeds from the disposal of assets/businesses, net
(0.3) acquisitions, net of cash acquired and other
(2.7) net purchases of investments
(0.2) credit support agreements activity, net
$ (3.6) Net cash used for investing activities
Financing activities use of
(Dollars In Billions)
$ (2.8) dividends to shareholders
(1.6) repurchase of common stock
0.0 net repayment of short and long term debt
proceeds from stock options exercised/employee withholding tax on stock
0.3 awards, net
(0.2) credit support agreements activity, net
(0.1) other and rounding
$ (4.4) Net cash used for financing activities
The Company has access to substantial sources of funds at numerous banks
worldwide. In September 2021 , the Company secured a new 364-day Credit Facility.
Total credit available to the Company approximates $10 billion , which expires on
September 8, 2022 . Interest charged on borrowings under the credit line
agreement is based on either Term Secured Overnight Financing Rate (SOFR)
Reference Rate or other applicable market rates as allowed under the terms of
the agreement, plus applicable margins. Commitment fees under the agreement are
not material.
In the fiscal first quarter of 2022, the Company's notes payable and long-term
debt was in excess of cash, cash equivalents and marketable securities. As of
April 3, 2022 , the net debt position was $2.8 billion as compared to the prior
year of $9.0 billion . Considering recent market conditions and the on-going
COVID-19 crisis, the Company has re-evaluated its operating cash flows and
liquidity profile and does not foresee any significant incremental risk. The
Company anticipates that operating cash flows, the ability to raise funds from
external sources, borrowing capacity from existing committed credit facilities
and access
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to the commercial paper markets will continue to provide sufficient resources to
fund operating needs, including the Company's approximate $0.9 billion in
contractual supply commitments associated with its development of the COVID-19
vaccine, the agreement to settle opioid litigation for $5 billion and the
establishment of the $2 billion trust for talc related liabilities (See Note 11
to the Consolidated Financial Statements for additional details). In addition,
the Company monitors the global capital markets on an ongoing basis and from
time to time may raise capital when market conditions are favorable. Subsequent
to April 3, 2022 , the Company paid approximately $1.0 billion to the U.S.
Treasury including $0.8 billion related to the current installment due on
foreign undistributed earnings as part of the TCJA charge (see Note 1 to the
Consolidated Financial Statements in the Company's Annual Report on Form 10-K
for the fiscal year ended January 2, 2022 ) and $0.2 billion primarily related to
the normal estimated payment for the fiscal first quarter of 2022.
Dividends
On
OnApril 19, 2022 , the Board of Directors declared a regular cash dividend of$1.13 per share, payable onJune 7, 2022 to shareholders of record as ofMay 24, 2022 . The Company expects to continue the practice of paying regular quarterly cash dividends. OTHER INFORMATION New Accounting Pronouncements
Refer to Note 1 to the Consolidated Financial Statements for new accounting pronouncements.
Economic and Market Factors
COVID-19 considerations and business continuity The Company has considered various internal and external factors in assessing the potential impact of COVID-19 on its business and financial results based upon information available at this time, as follows: •Operating Model: The Company has a diversified business model across the healthcare industry with flexibility designed into its manufacturing, research and development clinical operations and commercial capabilities. •Supply Chain: The Company continues to leverage its global manufacturing footprint and dual-source capabilities while closely monitoring and maintaining critical inventory at major distribution centers away from high-risk areas to ensure adequate and effective distribution. •Business Continuity: The robust, active business continuity plans across the Company's network have been instrumental in preparing the Company for events like COVID-19 and the ability to meet the majority of patient and consumer needs remains uninterrupted. •Workforce: The Company has put procedures in place to protect its essential workforce in manufacturing, distribution, commercial and research operations while ensuring appropriate remote working protocols have been established for other employees. •Liquidity: The Company's high-quality credit rating allows the Company superior access to the financial capital markets for the foreseeable future. •Domestic and Foreign Legislation: The Company will continue to assess and evaluate the on-going global legislative efforts to combat the COVID-19 impact on economies and the sectors in which it participates. Currently, the recent legislative acts put in place are not expected to have a material impact on the Company's operations. In fiscal 2021 and 2020, the Company entered into a series of contract manufacturing arrangements for vaccine production with third party contract manufacturing organizations. These arrangements provide the Company with future supplemental commercial capacity for vaccine production and potentially transferable rights to such production if capacity is not required. Amounts paid for services to be delivered and contractually obligated to be paid to these contract manufacturing organizations of approximately$0.9 billion are reflected in the prepaid expenses and other, other assets, accrued liabilities and other liabilities accounts in the Company's consolidated balance sheet upon execution of each agreement. Additionally, the Company has entered into certain vaccine development cost sharing arrangements with government related organizations. The Company continues to evaluate the global demand for the Covid-19 vaccine and its related supply. The Company continues to evaluate and monitor both its internal and external supply arrangements, including its contract with Emergent BioSolutions and related production activities at its Bayview,Maryland facility. The Company has established a global vaccine supply network, where, in addition to its internal manufacturing site in Leiden,the Netherlands , ten other 52 -------------------------------------------------------------------------------- Table of Content manufacturing sites will be involved in the production of vaccine across different countries and continents. The Company does not believe that a disruption at a vaccine manufacturing site, or the resulting delay would have a material financial impact on the Company's consolidated financial statements or results. Russia-Ukraine War Although the long-term implications ofRussia's invasion ofUkraine are difficult to predict at this time, the financial impact of the conflict in the fiscal first quarter of 2022, including accounts receivable or inventory reserves, was not material. As of both the 2021 fiscal year endingJanuary 2, 2022 , and the fiscal first quarter endingApril 3, 2022 , the business of the Company'sUkraine subsidiaries represented less than 1% of the Company's consolidated assets and revenues. As of both the 2021 fiscal year endingJanuary 2, 2022 , and the fiscal first quarter endingApril 3, 2022 , the business of the Company's Russian subsidiaries represented less than 1% of the Company's consolidated assets and represented 1% of revenues. The Company continued to supply its products throughout the first quarter as patients rely on many of the products for healthcare purposes. However, in early March, the Company took steps to suspend all advertising, enrollment in clinical trials, and any additional investment inRussia . Additionally, at the end of March, the Company made the decision to suspend supply of personal care products inRussia . The Company operates in certain countries where the economic conditions continue to present significant challenges. The Company continues to monitor these situations and take appropriate actions. Inflation rates and currency exchange rates continue to have an effect on worldwide economies and, consequently, on the way the Company operates. The Company has accounted for operations inVenezuela andArgentina as highly inflationary, as the prior three-year cumulative inflation rate surpassed 100%. Beginning in the fiscal second quarter of 2022, the Company will account for operations inTurkey as highly inflationary, as the prior three-year cumulative inflation rate surpassed 100%. This will not have a material impact on the Company's results in the period. In the face of increasing costs, the Company strives to maintain its profit margins through cost reduction programs, productivity improvements and periodic price increases. Governments around the world consider various proposals to make changes to tax laws, which may include increasing or decreasing existing statutory tax rates. In connection with various government initiatives, companies are required to disclose more information to tax authorities on operations around the world, which may lead to greater audit scrutiny of profits earned in other countries. A change in statutory tax rate in any country would result in the revaluation of the Company's deferred tax assets and liabilities related to that particular jurisdiction in the period in which the new tax law is enacted. This change would result in an expense or benefit recorded to the Company's Consolidated Statement of Earnings. The Company closely monitors these proposals as they arise in the countries where it operates. Changes to the statutory tax rate may occur at any time, and any related expense or benefit recorded may be material to the fiscal quarter and year in which the law change is enacted. The Company faces various worldwide health care changes that may continue to result in pricing pressures that include health care cost containment and government legislation relating to sales, promotions and reimbursement of health care products.
Changes in the behavior and spending patterns of purchasers of healthcare products and services, including delaying medical procedures, rationing prescription medications, reducing the frequency of physician visits and foregoing healthcare insurance coverage, as a result of the current global economic downturn, may continue to impact the Company's businesses.
The Company also operates in an environment increasingly hostile to intellectual property rights. Firms have filed Abbreviated New Drug Applications or Biosimilar Biological Product Applications with the FDA or otherwise challenged the coverage and/or validity of the Company's patents, seeking to market generic or biosimilar forms of many of the Company's key pharmaceutical products prior to expiration of the applicable patents covering those products. In the event the Company is not successful in defending the patent claims challenged in the resulting lawsuits, generic or biosimilar versions of the products at issue will be introduced to the market, resulting in the potential for substantial market share and revenue losses for those products, and which may result in a non-cash impairment charge in any associated intangible asset. There is also a risk that one or more competitors could launch a generic or biosimilar version of the product at issue following regulatory approval even though one or more valid patents are in place.
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