Johnson & Johnson - Index

Johnson & Johnson - report - Index

OPERATING PROFIT BY SEGMENT
Operating profits by segment of business were as follows:
Percent of
Segment Sales
_____________________
(Dollars in Millions) 2007 2006 2007 2006
Consumer $ 2,277 1,374 15.7% 14.1
Pharmaceutical 6,540 6,894 26.3 29.6
Med Devices and Diag 4,846 6,126 22.3 30.2
Total (1) 13,663 14,394 22.4 27.0
Less: Expenses/(Income)
not allocated to
segments (2) 380 (193)
Earnings before
provision for taxes
on income $13,283 14,587 21.7% 27.4
(1) See Note 11 for more details.
(2) Amounts not allocated to segments include interest (income)/expense, minority
interest, and general corporate (income)/expense.
Operating Profit
by Segment
(in billions of dollars)
Consumer
Pharmaceutical
Medical Devices
and Diagnostics
15
12
9
6
3
0
05 06 07
Consumer Segment: In 2007, Consumer segment operating profit
increased 65.7% from 2006. As a percent to sales, 2007 operating
profit increased to 15.7%. IPR&D expenses of $320 million as well
as expenses associated with the Consumer Healthcare business of
Pfizer Inc. integration were recorded during 2006. In 2006, Consumer
segment operating profit decreased 13.7% and as a percent
to sales declined to 14.1% over the prior year resulting from
$320 million of IPR&D expenses as well as expenses associated
with the Pfizer Consumer Healthcare business of Pfizer Inc.
integration recorded during 2006.
Pharmaceutical Segment: In 2007, Pharmaceutical segment
operating profit decreased 5.1% from 2006. As a percent to
sales, 2007 operating profit decreased to 26.3% resulting from
$429 million of restructuring charges and $678 million for the
NATRECOR® intangible asset write-down in 2007. In 2006,
Pharmaceutical segment operating profit increased 8.3% and as
a percent to sales increased to 29.6% over the prior year. This
increase was the result of $302 million of IPR&D recorded during
2005 partially offset by increases in research and development
spending and lower gross margins in 2006.
Medical Devices and Diagnostics Segment: In 2007, the operating
profit in the Medical Devices and Diagnostics segment decreased
20.9% from 2006. As a percent to sales, 2007, operating profit
decreased to 22.3% resulting from $807 million of IPR&D
expenses and $301 million of restructuring charges in 2007, while
2006 included the gain associated with the Guidant acquisition
agreement termination fee, less associated expenses, of $622 million.
In 2006, the Medical Devices and Diagnostics segment
operating profit increased 16.9% and as a percent to sales
increased 2.8% over the prior year. The primary driver of the
improved operating profit was the Guidant acquisition agreement
termination fee, less associated expenses, of $622 million
recorded during 2006. This was partially offset by higher IPR&D
charges of $239 million in 2006 versus $60 million in 2005. In
addition, advertising and promotional expense leveraging were
offset in part by increases in research and development spending.
Interest (Income) Expense: Interest income in 2007 decreased
by $377 million due to a lower average cash balance. The decline
in the average cash balance was due primarily to the acquisition
of the Consumer Healthcare business of Pfizer Inc. on December
20, 2006. The cash balance, including marketable securities was
$9.3 billion at the end of 2007, and averaged $6.6 billion as
compared to the $15.7 billion average cash balance in 2006.
Interest expense in 2007 increased by $233 million due to a
higher average debt balance. The net debt balance at the end of
2007 was $9.5 billion as compared to $6.6 billion at the end of
2006. The higher debt balance in 2007 was due to the debt associated
with the acquisition of the Consumer Healthcare business of
Pfizer Inc. and the Common Stock repurchase program in 2007.
Interest income in 2006 increased by $342 million due primarily
to higher rates of interest, as well as a higher average cash
balance, despite the $5.0 billion Common Stock repurchase program
and an increase in acquisition activity as compared to prior
year. The cash balance, including current marketable securities
was $4.1 billion at the end of 2006 and averaged $15.7 billion, as
compared to the $14.3 billion average cash balance in 2005.
Interest expense in 2006 increased slightly as compared
to 2005 due to a higher average debt balance, from $2.6 billion
in 2005 to $3.1 billion in 2006. This was partially offset by a
decrease in interest rates.
Interest income in 2005 increased by $292 million due
primarily to higher rates of interest, as well as a higher average cash
balance. The cash balance, including current marketable securities,
was $16.1 billion at the end of 2005 and averaged $14.3 billion, as
compared to the $11.3 billion average cash balance in 2004.
Provision for Taxes on Income: The worldwide effective income
tax rate was 20.4% in 2007, 24.2% in 2006 and 23.3% in 2005.
The 2007 tax rate benefited from a one-time gain of $267 million
related to an international business restructuring in certain countries,
as well as increases in taxable income in lower tax jurisdictions
relative to taxable income in higher tax jurisdictions and
lower international tax rates in certain countries. The 2006 tax
rate increased as compared to 2005 primarily due to a gain of
$225 million recorded in 2005, which was partially offset by a
benefit in 2006 related to the reversal of a tax allowance of
$134 million associated with the international business. The
2005 effective tax rate benefited from the previously mentioned
$225 million, due to the reversal of a tax liability previously
recorded during the fiscal fourth quarter of 2004, related to a
technical correction to the American Jobs Creation Act of 2004.
Liquidity and Capital Resources
CASH FLOWS
In 2007, cash flow from operations was $15.2 billion, an increase
of $1.0 billion over 2006. The $1.0 billion increase in cash flow
from operations is primarily attributable to non-cash expenses
associated with the NATRECOR® intangible asset write-down
42 JOHNSON & JOHNSON 2007 ANNUAL REPORT