Johnson & Johnson - Index

Johnson & Johnson - report - Index

and increased depreciation and amortization.
Net cash used by investing activities in 2007 was $6.1 billion
versus $20.3 billion in 2006 which included the acquisition
of the Consumer Healthcare business of Pfizer Inc. For a more
detailed discussion on mergers and acquisitions, see Note 17.
There was also a $1.6 billion net increase in purchases of investments,
primarily marketable securities. Capital expenditures
were $2.9 billion, $2.7 billion and $2.6 billion in 2007, 2006
and 2005, respectively.
Net cash used by financing activities decreased by $0.4 billion
primarily due to a $1.1 billion decrease in the repurchase of
Common Stock in 2007 and a $0.4 billion increase in proceeds
from the exercise of stock options partially offset by $0.7 billion
decrease in proceeds from short and long-term debt. There was
also a $0.4 billion increase in dividends to shareholders in 2007.
Cash and current marketable securities were $9.3 billion
at the end of 2007 as compared with $4.1 billion at the end of
2006, primarily due to cash flow from operations.
Cash generated from operations amounted to $14.2 billion
in 2006, which was $2.4 billion more than the cash generated
from operations in 2005 of $11.8 billion. The major factors
contributing to the increase were a net income increase of
$1.2 billion, net of the non-cash impact of IPR&D charges and a
$2.7 billion increase in accounts payable and accrued liabilities.
This was partially offset by a $0.9 billion increase in deferred
taxes and a $0.8 billion increase in other current and
non-current assets.
Operating
Cash Flow and
Capital Expenditures
(in billions of dollars)
Capital Expenditures
Operating Cash Flow
16
12
8
4
0
0
06 0
FINANCING AND MARKET RISK
The Company uses financial instruments to manage the impact of
foreign exchange rate changes on cash flows. Accordingly, the
Company enters into forward foreign exchange contracts to protect
the value of certain foreign currency assets and liabilities and
to hedge future foreign currency products costs. Gains or losses on
these contracts are offset by the gains or losses on the underlying
transactions. A 10% appreciation of the U.S. Dollar from the
December 30, 2007 market rates would increase the unrealized
value of the Company’s forward contracts by $245 million. Conversely,
a 10% depreciation of the U.S. Dollar from the December
30, 2007 market rates would decrease the unrealized value of the
Company’s forward contracts by $299 million. In either scenario,
the gain or loss on the forward contract would be offset by the gain
or loss on the underlying transaction and, therefore, would have no
impact on future earnings and cash flows.
The Company hedges the exposure to fluctuations in currency
exchange rates, and the effect on certain assets and liabilities
in foreign currency, by entering into currency swap contracts.
A 1% change in the spread between U.S. and foreign interest
rates on the Company’s interest rate sensitive financial instruments
would either increase or decrease the unrealized value of
the Company’s swap contracts by approximately $175 million. In
either scenario, at maturity, the gain or loss on the swap contract
would be offset by the gain or loss on the underlying transaction
and therefore would have no impact on future cash flows.
The Company does not enter into financial instruments for
trading or speculative purposes. Further, the Company has a policy
of only entering into contracts with parties that have at least
an “A” (or equivalent) credit rating. The counterparties to these
contracts are major financial institutions and there is no significant
concentration of exposure with any one counter-party.
Management believes the risk of loss is remote.
Total credit available to the Company approximates
$8.0 billion, of which $6.4 billion expires September 25, 2008,
and $1.6 billion expires September 27, 2012.
Total borrowings at the end of 2007 and 2006 were
$9.5 billion and $6.6 billion, respectively. The increase in borrowings
between 2006 and 2007 was a result of financing general
corporate purposes and the Common Stock repurchase program
in 2007. In 2007, net debt (cash and current marketable securities,
net of debt) was $0.2 billion compared to net debt of $2.5
billion in 2006. Total debt represented 18.0% of total capital
(shareholders’ equity and total debt) in 2007 and 14.4% of total
capital in 2006. Shareholders’ equity per share at the end of
2007 was $15.25 compared with $13.59 at year-end 2006, an
increase of 12.2%.
For the period ended December 30, 2007, there were no
material cash commitments. Johnson & Johnson continues to
be one of a few industrial companies with a Triple A credit rating.
A summary of borrowings can be found in Note 6.
MANAGEMENT’S DISCUSSION AND ANALY SIS OF RESULT S OF OPERATIONS AND FINANCIAL CONDITION 43