JOHNSON & JOHNSON RESULTS OF OPERATIONS
Sales to Customers
Analysis of Consolidated Sales For the fiscal first quarter of 2021, worldwide sales were$22.3 billion , a total increase of 7.9%, which included operational growth of 5.5% and a positive currency impact of 2.4% as compared to 2020 fiscal first quarter sales of$20.7 billion . In the fiscal first quarter of 2021, the net impact of acquisitions and divestitures on worldwide operational sales growth was a negative 0.5%. Sales byU.S. companies were$11.1 billion in the fiscal first quarter of 2021, which represented an increase of 3.9% as compared to the prior year. In the fiscal first quarter of 2021, the net impact of acquisitions and divestitures on theU.S. operational sales growth was negligible. Sales by international companies were$11.2 billion , a total increase of 12.2%, which included operational growth of 7.3% and a positive currency impact of 4.9%. In the fiscal first quarter of 2021, the net impact of acquisitions and divestitures on the international operational sales growth was a negative 0.9%. In the fiscal first quarter of 2021, sales by companies inEurope achieved growth of 12.1%, which included operational growth of 4.7% and a positive currency impact of 7.4%. Sales by companies in the Western Hemisphere, excluding theU.S. , experienced a decline of 5.1%, which included a negative currency impact of 5.1%. Sales by companies in theAsia-Pacific ,Africa region achieved growth 19.4%, including operational growth of 13.7% and a positive currency impact of 5.7%. [[Image Removed: jnj-20210404_g1.jpg]][[Image Removed: jnj-20210404_g2.jpg]] Note: values may have been rounded 41
--------------------------------------------------------------------------------
Table of Content
Analysis of Sales by Business Segments
Consumer Health Consumer Health segment sales in the fiscal first quarter of 2021 were$3.5 billion , a decrease of 2.3% as compared to the same period a year ago, including an operational decline of 3.3% and a positive currency impact of 1.0%.U.S. Consumer Health segment sales declined by 7.4%.International Consumer Health segment sales increased by 2.5%, including operational growth of 0.5% and a positive currency impact of 2.0%. In the fiscal first quarter of 2021, the net impact of acquisitions and divestitures on theConsumer Health segment operational sales growth was a negative 0.4%.
Major Consumer Health Franchise Sales - Fiscal First Quarter Ended
Total Operations Currency
(Dollars in Millions) April 4, 2021 March 29, 2020 Change Change Change
OTC $ 1,175 $ 1,348 (12.9) % (14.8) % 1.9 %
Skin Health/Beauty 1,163 1,117 4.1 2.8 1.3
Oral Care 417 395 5.7 4.5 1.2
Baby Care 389 361 7.7 9.5 (1.8)
Women's Health 222 232 (4.3) (2.6) (1.7)
Wound Care/Other 177 171 3.3 2.2 1.1
Total Consumer Health Sales $ 3,543 $ 3,625 (2.3) % (3.3) % 1.0 %
The OTC franchise experienced an operational decline of 14.8% as compared to the
prior year fiscal first quarter. The results reflect negative comparisons due to
prior year COVID-19 pantry loading and category declines driven by weaker Cough,
Cold and Flu season due to social distancing and lockdowns. Partially offsetting
declines were timing of shipments, e-commerce strength, and U.S. share gains
primarily in TYLENOL® , ZYRTEC® and PEPCID® as well as strong international
sales of NICORETTE®.
The Skin Health /Beauty franchise achieved operational growth of 2.8% as compared
to the prior year fiscal first quarter. Growth was primarily attributable to
international NEUTROGENA® and DABAO® as well as worldwide AVEENO® due
to strength in e-commerce, new product innovations and COVID-19 related
recovery. Results were partially offset by U.S. COVID-19 related market
contraction in make-up wipes and competitive pressures in NEUTROGENA®.
The Oral Care franchise achieved operational growth of 4.5% as compared to the
prior year fiscal first quarter primarily due to sales of LISTERINE® mouthwash
outside the U.S. related to category growth driven by increased consumer focus
on oral hygiene and strong promotions partially offset by divestitures.
The Baby Care franchise achieved operational growth of 9.5% as compared to the
prior year fiscal first quarter. Growth was attributable to sales of JOHNSON'S®
products outside the U.S. primarily in Latin America and Asia Pacific due to
increased COVID-19 demand coupled with AVEENO® baby growth in e-commerce
globally.
The Women's Health franchise experienced an operational decline of 2.6% as
compared to the prior year fiscal first quarter primarily driven by internal
sanitary protection and liners due to prior year COVID-19 impact comparisons
primarily in Europe , partially offset by growth in napkins in Asia Pacific and
Latin America .
The Wound Care/Other franchise achieved operational growth of 2.2% as compared
to the prior year fiscal first quarter. Growth was due to strong performance in
hand hygiene primarily due to increased demand and new promotional campaigns
coupled with U.S. share gains partially offset by prior year COVID-19 impact
comparisons.
42--------------------------------------------------------------------------------
Table of Content
Pharmaceutical
Pharmaceutical segment sales in the fiscal first quarter of 2021 were$12.2 billion , an increase of 9.6% as compared to the same period a year ago, with an operational increase of 7.1% and a positive currency impact of 2.5%.U.S. Pharmaceutical sales increased 6.4% as compared to the same period a year ago. International Pharmaceutical sales increased by 13.4%, including operational growth of 7.9% and a positive currency impact of 5.5%. In the fiscal first quarter of 2021, the net impact of acquisitions and divestitures on the Pharmaceutical segment operational sales growth was a negative 0.3%. Adjustments to previous reserve estimates were$0.2 billion in both fiscal first quarters of 2021 and 2020.
Major Pharmaceutical Therapeutic Area Sales** - Fiscal First Quarter Ended
March 29, Total Operations Currency
(Dollars in Millions) April 4, 2021 2020 Change Change Change
Immunology $ 3,914 $ 3,638 7.6 % 5.5 % 2.1 %
REMICADE® 777 990 (21.5) (22.2) 0.7
SIMPONI®/ SIMPONI ARIA® 562 529 6.2 3.7 2.5
STELARA® 2,148 1,819 18.1 15.4 2.7
TREMFYA® 418 296 41.0 37.8 3.2
Other Immunology 8 3 * * *
Infectious Diseases 1,007 920 9.5 7.1 2.4
COVID-19 vaccine 100 - * * -
EDURANT®/rilpivirine 243 224 8.6 0.2 8.4
PREZISTA®/ PREZCOBIX®/ REZOLSTA®/ SYMTUZA® 546 579 (5.8) (5.9) 0.1
Other Infectious Diseases 117 116 0.6 (1.2) 1.8
Neuroscience 1,721 1,658 3.8 1.6 2.2
CONCERTA®/ methylphenidate 171 171 0.2 (3.2) 3.4
INVEGA SUSTENNA®/ XEPLION®/ INVEGA TRINZA®/ TREVICTA® 965 883 9.4 6.9 2.5 RISPERDAL CONSTA® 157 170 (7.9) (10.1) 2.2 Other Neuroscience 428 435 (1.5) (2.5) 1.0 Oncology 3,570 3,013 18.5 14.6 3.9 DARZALEX® 1,365 937 45.6 42.2 3.4 ERLEADA® 261 143 82.8 79.7 3.1 IMBRUVICA® 1,125 1,031 9.0 5.6 3.4 ZYTIGA®/ abiraterone acetate 638 690 (7.6) (12.9) 5.3 Other Oncology(1) 182 212 (14.2) (17.9) 3.7 Pulmonary Hypertension 861 745 15.5 13.7 1.8 OPSUMIT® 450 389 15.6 13.5 2.1 UPTRAVI® 305 250 22.0 20.9 1.1 Other Pulmonary Hypertension 105 106 (0.6) (2.7)
2.1
Cardiovascular / Metabolism / Other 1,127 1,160 (2.8) (4.1) 1.3 XARELTO® 589 527 11.7 11.7 - INVOKANA®/ INVOKAMET® 150 175 (14.4) (16.1) 1.7 PROCRIT®/ EPREX® 127 155 (18.2) (20.3) 2.1 Other 261 302 (13.6) (16.4) 2.8 Total Pharmaceutical Sales$ 12,199 $ 11,134 9.6 % 7.1 % 2.5 % * Percentage greater than 100% or not meaningful **Certain prior year amounts have been reclassified to conform to current year presentation (1) Inclusive of VELCADE® which was previously disclosed separately 43
--------------------------------------------------------------------------------
Table of Content
Immunology products achieved operational growth of 5.5% as compared to the same period a year ago driven by strong uptake of STELARA® (ustekinumab) in Crohn's disease and Ulcerative Colitis and strength in 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®. Infectious disease products achieved operational growth of 7.1% as compared to the same period a year ago primarily due to the contribution of the recently authorized COVID-19 vaccine and uptake of JULUCA®(dolutegravir/rilpivirine). 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 1.6% as compared to the same period a year ago. Paliperidone long-acting injectables growth was driven by sales of INVEGA SUSTENNA®/XEPLION® (paliperidone palmitate) and INVEGA TRINZA®/TREVICTA® from new patient starts and persistence. Oncology products achieved strong operational sales growth of 14.6% as compared to the same period a year ago. Contributors to the growth were strong sales of DARZALEX® (daratumumab) driven by continued strong market growth, share gains in all regions and solid uptake from the recent launch of the subcutaneous formulation; the continued global launch uptake of ERLEADA® (apalutamide) and IMBRUVICA® (ibrutinib) growth driven by market leading share and increased persistence as patients extend the duration of therapy, partially offset by COVID-19 related market dynamics including new patient starts and longer-term scripts written in the same period a year ago. The growth was negatively impacted by declining sales of ZYTIGA® (abiraterone acetate) due to generic competition. Pulmonary Hypertension achieved operational sales growth of 13.7% as compared to the same period a year ago. Sales growth of OPSUMIT® (macitentan) and UPTRAVI® (selexipag) were due to continued share gains and market growth. Cardiovascular / Metabolism / Other products experienced an operational decline of 4.1% as compared to the same period a year ago. The decline was primarily attributable to lower sales of INVOKANA®/INVOKAMET® (canagliflozin) due to share erosion partially offset by strong market growth and PROCRIT®/ EPREX® (epoetin alfa) due to biosimilar competition. Additionally, the growth of XARELTO® (rivaroxaban) was driven by continued demand and a one-time favorable prior period pricing adjustment in the current quarter partially offset by higher rebates. 44
--------------------------------------------------------------------------------
Table of Content
Medical Devices The Medical Devices segment sales in the fiscal first quarter of 2021 were$6.6 billion , an increase of 10.9% as compared to the same period a year ago, which included operational growth of 8.0% and a positive currency impact of 2.9%.U.S. Medical Devices sales increased 5.4%. International Medical Devices sales increased by 16.2%, including operational growth of 10.5% and a positive currency impact of 5.7%. In the fiscal first quarter of 2021, the net impact of acquisitions and divestitures on the Medical Devices segment operational sales growth was a negative 0.8%.
Major Medical Devices Franchise Sales - Fiscal First Quarter Ended
Total Operations Currency
(Dollars in Millions) April 4, 2021 March 29, 2020 Change Change Change
Surgery $ 2,372 $ 2,100 12.9 % 9.6 % 3.3 %
Advanced 1,118 948 18.0 14.3 3.7
General 1,254 1,153 8.8 5.8 3.0
Orthopaedics 2,113 2,038 3.7 1.2 2.5
Hips 357 337 5.8 3.2 2.6
Knees 317 343 (7.6) (9.9) 2.3
Trauma 733 654 12.1 9.5 2.6
Spine, Sports & Other 706 703 0.4 (2.2) 2.6
Vision 1,145 1,067 7.3 5.4 1.9
Contact Lenses/Other 857 814 5.3 3.5 1.8
Surgical 288 253 13.7 11.2 2.5
Interventional Solutions 949 727 30.4 26.4 4.0
Total Medical Devices Sales
The Surgery franchise achieved operational sales growth of 9.6% as compared to the prior year fiscal first quarter. The operational growth in Advanced Surgery was primarily driven by market recovery. In addition, growth of Endocutters was due to market expansion and new products primarily inChina , which was partially offset by competitive pressure in theU.S. The growth in Biosurgery and Energy products was due to the success of new products and expansion within theChina market. The operational growth in General Surgery was primarily driven by market recovery and continued strength of the Suture portfolio in Wound Closure partially offset by the impact of theAdvanced Sterilization Products (ASP) divestiture in the prior year. The Orthopaedics franchise achieved operational sales growth of 1.2% as compared to the prior year fiscal first quarter. The operational growth in hips was driven by market procedure recovery as well as leadership in the Anterior approach, strong market demand for the ACTIS® stem and enabling technologies - KINCISE™ and VELYS™ Hip Navigation. The operational decline in knees was driven by the negative impact of COVID-19 on procedure volume and changes in channel mix. The operational growth in Trauma was driven by global market recovery and uptake of new products. The operational decline in Spine, Sports & Other was driven by the negative impact from COVID-19 andChina distribution channel changes partially offset by uptake of new products and partnerships in Spine. The Vision franchise achieved operational sales growth of 5.4% as compared to the prior year fiscal first quarter. The Contact Lenses/Other operational growth was due to market recovery, new products and channel inventory changes in theU.S. andJapan . 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 26.4% as compared to the prior year fiscal first quarter driven by atrial fibrillation market growth coupled with strength from new products.
45--------------------------------------------------------------------------------
Table of Content
ANALYSIS OF CONSOLIDATED EARNINGS BEFORE PROVISION FOR TAXES ON INCOME
Consolidated earnings before provision for taxes on income for the fiscal first quarter of 2021 was$7.4 billion representing 33.3% of sales as compared to$6.5 billion in the fiscal first quarter of 2020, representing 31.5% of sales.
Cost of Products Sold
[[Image Removed: jnj-20210404_g3.jpg]](Dollars in billions. Percentages in chart are as a percent to total sales)
Q1 2021 versus Q1 2020 Cost of products decreased as a percent to sales driven by: •Favorable product mix and translational currency in the Pharmaceutical business •Favorable volume/mix in the Medical Devices business •The establishment of a COVID-19 inventory reserve in the fiscal first quarter 2020 in the Medical Devices business which did not repeat in 2021. The intangible asset amortization expense included in cost of products sold for the fiscal first quarters of 2021 and 2020 was$1.2 billion and$1.1 billion , respectively. Selling, Marketing and Administrative Expenses [[Image Removed: jnj-20210404_g4.jpg]]
(Dollars in billions. Percentages in chart are as a percent to total sales)
Q1 2021 versus Q1 2020
Selling, Marketing and Administrative Expenses decreased as a percent to sales
driven by:
•Leveraging in the Medical Devices business resulting from the recovery of sales
from the prior years impact of COVID-19
46--------------------------------------------------------------------------------
Table of Content
Research and Development Expense
[[Image Removed: jnj-20210404_g5.jpg]](Dollars in billions. Percentages in chart are as a percent to total sales)
Q1 2021 versus Q1 2020 Research and Development increased as a percent to sales driven by: •COVID-19 vaccine expenses, net of governmental reimbursements •Portfolio progression in the Pharmaceutical business
Interest (Income) Expense
Interest (Income) Expense in the fiscal first quarter of 2021 was a net interest expense of$48 million as compared to income of$42 million in the same period a year ago. This was primarily due to reduced interest income resulting from lower rates of interest earned on cash balances and a higher average debt balance. The balance of cash, cash equivalents and current marketable securities was$24.6 billion at the end of the fiscal first quarter of 2021 as compared to$18.0 billion at the end of the fiscal first quarter of 2020. The Company's debt position was$33.6 billion as ofApril 4, 2021 as compared to$27.6 billion the same period a year ago.
Other (Income) Expense, Net*
Q1 2021 versus Q1 2020 Other (income) expense, net for the fiscal first quarter of 2021 was favorable by$0.2 billion as compared to the prior year primarily due to the following: Fiscal First Quarter (Dollars in Billions)(Income)/Expense 2021 2020 Change Divestiture gains(1)$ (0.6) 0.0 (0.6) Contingent consideration reversal(2) 0.0 (1.0) 1.0 Litigation expense 0.0 0.1 (0.1) Unrealized (gains)/losses on securities 0.0 0.3 (0.3) Other (0.3) (0.1) (0.2) Total Other (Income) Expense, Net$ (0.9) (0.7) (0.2) (1) Divestiture gains of two pharmaceutical brands outside theU.S. (2) Related to the timing of certain developmental milestones associated with theAuris Health acquisition. *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), unrealized gains and losses on investments, gains and losses on divestitures, certain transactional currency gains and losses, acquisition-related costs, litigation accruals and settlements, as well as royalty income. 47
--------------------------------------------------------------------------------
Table of Content
EARNINGS BEFORE PROVISION FOR TAXES BY SEGMENT
Income before tax by segment of business for the fiscal first quarters were as
follows:
Income Before Tax Segment Sales Percent of Segment Sales
March 29,
(Dollars in Millions) April 4, 2021 March 29, 2020 April 4, 2021 2020 April 4, 2021 March 29, 2020
Consumer Health $ 788 $ 770 $ 3,543 $ 3,625 22.2 % 21.2 %
Pharmaceutical 5,223 3,834 12,199 11,134 42.8 34.4
Medical Devices 1,629 2,025 6,579 5,932 24.8 34.1
Segment earnings before tax 7,640 6,629 22,321 20,691 34.2 32.0
Less: Expenses not allocated to
segments (1) 211 120
Worldwide income before tax $ 7,429 $ 6,509 $ 22,321 $ 20,691 33.3 % 31.5 %
(1) Amounts not allocated to segments include interest (income) expense and general corporate (income) expense.
Consumer Health Segment
The Consumer Health segment income before tax as a percent of sales in the fiscal first quarter of 2021 was 22.2% versus 21.2% for the same period a year ago. The increase in the income before tax as a percent of sales in the fiscal first quarter of 2021 as compared to the prior year was primarily driven by the following: •Supply chain efficiencies Partially offset by: •Increased brand marketing expense
Pharmaceutical Segment
The Pharmaceutical segment income before tax as a percent of sales in the fiscal first quarter of 2021 was 42.8% versus 34.4% for the same period a year ago. The increase 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: •Favorable product mix •Divestiture gains of$0.6 billion related to two pharmaceutical brands outside theU.S. in the fiscal first quarter of 2021 •Lower unrealized losses on securities ($0.0 billion in 2021 vs.$0.3 billion in 2020) •Lower litigation expense ($0.0 billion in 2021 vs.$0.1 billion in 2020) •Positive translational currency Partially offset by: •Research & Development investment in the COVID-19 vaccine net of governmental reimbursements Medical Devices Segment The Medical Devices segment income before tax as a percent of sales in the fiscal first quarter of 2021 was 24.8% versus 34.1% 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: •A contingent consideration reversal of approximately$1.0 billion in the fiscal first quarter of 2020 related to the timing of certain developmental milestones associated with theAuris Health acquisition Partially offset by: •Incremental inventory reserves recorded in the fiscal first quarter of 2020 associated with the impact of COVID-19, which did not repeat in the fiscal first quarter of 2021 •Overall leveraging in the fiscal first quarter of 2021 resulting from the Medical Devices sales recovery
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
48
--------------------------------------------------------------------------------
Table of Content
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 2022. The Company expects to record pre-tax
restructuring charges of approximately $1.9 to $2.3 billion . 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. In the fiscal first quarter of 2020, the Company
recorded a pre-tax charge of $118 million , which is included on the following
lines of the Consolidated Statement of Earnings, $58 million in restructuring,
$15 million in cost of products sold and $45 million in other (income) expense,
net. Restructuring charges of approximately $1.4 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
For discussion related to the fiscal first quarter of 2021 provision for taxes refer to Note 5 to the Consolidated Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
[[Image Removed: jnj-20210404_g6.jpg]] [[Image Removed: jnj-20210404_g7.jpg]]
[[Image Removed: jnj-20210404_g8.jpg]]
Cash Flows
Cash and cash equivalents were
(Dollars In Billions)
$ 14.0 Q4 2020 Cash and cash equivalents balance
4.1 cash generated from operating activities
(0.2) net cash used by investing activities
(5.1) net cash used by financing activities
(0.1) effect of exchange rate and rounding
$ 12.7 Q1 2021 Cash and cash equivalents balance
In addition, the Company had $11.9 billion in marketable securities at the end
of the fiscal first quarter of 2021 and $11.2 billion at the end of fiscal year
2020.
Cash flow from operations of
49
--------------------------------------------------------------------------------
Table of Content
(Dollars In Billions)
$ 6.2 Net Earnings
non-cash expenses and other adjustments primarily for depreciation and
amortization, stock-based compensation, assetwrite-downs partially offset
by the deferred tax provision, net gain on sale of assets/businesses and
0.9 credit losses and accounts receivable allowances
a decrease in accounts payable and accrued liabilities and other current
(3.2) and non-current liabilities
(2.3) an increase in accounts receivable and inventories
2.5 a decrease other current and non-current assets
$ 4.1 Cash Flow from operations
Investing activities use of
(Dollars In Billions)
$ (0.7) additions to property, plant and equipment
0.6 proceeds from the disposal of assets/businesses, net
(0.8) net purchases of investments
0.8 credit support agreements activity, net
(0.1) Other
$ (0.2) Net cash used for investing activities
Financing activities use of
(2.7) dividends to shareholders
(1.4) repurchase of common stock
(1.5) net repayment of short and long term debt
proceeds from stock options exercised/employee withholding tax on stock
0.2 awards, net
0.2 credit support agreements activity, net
0.1 other and rounding
$ (5.1) Net cash used for financing activities
The Company has access to substantial sources of funds at numerous banks
worldwide. In September 2020 , the Company secured a new 364-day Credit Facility.
Total credit available to the Company approximates $10 billion , which expires on
September 9, 2021 . Interest charged on borrowings under the credit line
agreement is based on either bids provided by banks, the prime rate, London
Interbank Offered Rates (LIBOR), Secured Overnight Financing Rate (SOFR) Swap
Curve 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 2021, the Company's notes payable and long-term
debt was in excess of cash, cash equivalents and marketable securities. As of
April 4, 2021 , the net debt position was $9.0 billion as compared to the prior
year of $9.6 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 to the commercial paper markets will continue to provide sufficient
resources to fund operating needs, including the Company's approximate $1.0
billion in contractual supply commitments associated with its development of the
COVID-19 vaccine, the talc litigation and agreement in principle to settle
opioid litigation of which the majority may be paid over the next two to three
years. 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. Additionally, as a result of the Tax Cuts and Jobs Act (TCJA), the
Company has access to its cash outside the U.S. at a significantly reduced cost.
50--------------------------------------------------------------------------------
Table of Content
Subsequent toApril 4, 2021 , the Company paid approximately$1.2 billion to theU.S. Treasury for$0.8 billion related to the current installment due on foreign undistributed earnings as part of the TCJA (see Note 1 to the Consolidated Financial Statements in the Company's Annual Report on Form 10-K for the fiscal year endedJanuary 3, 2021 ) and$0.4 billion primarily related to the normal estimated payment for the fiscal first quarter of 2021.
Dividends
On
OnApril 20, 2021 , the Board of Directors declared a regular cash dividend of$1.06 per share, payable onJune 8, 2021 to shareholders of record as ofMay 25, 2021 . 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 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 and contractually obligated to be paid to these contract manufacturing organizations of approximately$1.0 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 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 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. 51 -------------------------------------------------------------------------------- Table of Content 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%. This did 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. InJune 2016 , theUnited Kingdom (U.K. ) held a referendum in which voters approved an exit from theEuropean Union (E.U.), commonly referred to as "Brexit". TheU.K. officially exited the E.U. onJanuary 31, 2020 , however, there was a transition period to allow time to agree the terms of a new trade deal. OnDecember 30, 2020 , theU.K. , E.U. and theEuropean Atomic Energy Community (Euratom) signed the EU-UK Trade and Cooperation Agreement (TCA). Over the last few years, Brexit has created global political and economic uncertainty and has led to volatility in exchange rates and interest rates, additional cost containment by third-party payors and changes in regulations. While theUK and EU have now agreed on a future trade and cooperation agreement, it is still unclear what the ultimate financial, trade, regulatory and legal implications the withdrawal of theU.K. from the E.U. will have. However, the Company currently does not believe that these and other related effects will have a material impact on the Company's consolidated financial position or operating results. As ofApril 4, 2021 , and for the fiscal three months, the business of the Company'sU.K. subsidiaries represented less than 6% of the Company's consolidated assets and less than 3% of the fiscal three months revenues. Governments around the world consider various proposals to make changes to tax laws and regulations, which may include increasing or decreasing existing statutory tax rates. 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 health care products and services, including delaying medical procedures, rationing prescription medications, reducing the frequency of physician visits and foregoing health care insurance coverage, 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.
© Edgar Online, source
