J&J(JNJ) - 2025 Q1 - Quarterly Report

Part I — Financial Information Item 1 — Financial Statements (Unaudited) Unaudited Q1 2024 consolidated financial statements, including key statements and detailed notes on accounting and financial positions Consolidated Balance Sheets Total assets and liabilities increased from December 2023 to March 2024, notably in cash and current liabilities Consolidated Balance Sheet Data | Metric | March 31, 2024 (Millions) | December 31, 2023 (Millions) | | :---------------------- | :------------------------ | :--------------------------- | | Total Assets | $171,966 | $167,558 | | Total Liabilities | $101,946 | $98,784 | | Total Shareholders' Equity | $70,020 | $68,774 | | Cash and Cash Equivalents | $25,473 | $21,859 | | Total Current Liabilities | $48,725 | $46,282 | Consolidated Statements of Earnings Net earnings significantly improved in Q1 2024, driven by higher sales and reduced other (income) expense, net, from lower talc charges Consolidated Statements of Earnings Data | Metric (Millions) | Q1 2024 | Q1 2023 | Change (YoY) | | :---------------------------- | :---------- | :---------- | :----------- | | Sales to customers | $21,383 | $20,894 | +2.3% | | Gross profit | $14,872 | $14,207 | +4.7% | | Selling, marketing and administrative expenses | $5,257 | $4,906 | +7.1% | | Research and development expense | $3,542 | $3,455 | +2.5% | | Other (income) expense, net | $2,404 | $6,940 | -65.3% | | Earnings (loss) before provision for taxes on income | $3,714 | $(1,287) | * | | Net earnings (loss) | $3,255 | $(68) | * | | Diluted EPS | $1.34 | $(0.03) | * | - The significant improvement in net earnings and EPS is largely due to a lower charge for talc settlement proposals in Q1 2024 ($2.7 billion) compared to Q1 2023 ($6.9 billion)[59][154] Consolidated Statements of Comprehensive Income Comprehensive income significantly increased in Q1 2024, driven by higher net earnings and positive foreign currency translation, offset by derivative losses Consolidated Statements of Comprehensive Income Data | Metric (Millions) | Q1 2024 | Q1 2023 | | :------------------------------------ | :------ | :------ | | Net earnings / (Loss) | $3,255 | $(68) | | Other comprehensive income (loss), net of tax | | | | Foreign currency translation | $2,123 | $(181) | | Derivatives & hedges | $(418) | $573 | | Total Other comprehensive income (loss) | $1,759 | $341 | | Comprehensive income | $5,014 | $273 | Consolidated Statements of Equity Total shareholders' equity increased from December 2023 to March 2024, driven by net earnings and comprehensive income, offset by dividends and stock repurchases Consolidated Statements of Equity Data | Metric (Millions) | March 31, 2024 | December 31, 2023 | | :------------------------------------ | :------------- | :---------------- | | Balance, beginning of period | $68,774 | $68,774 | | Net earnings | $3,255 | - | | Cash dividends paid | $(2,869) | - | | Repurchase of common stock | $(1,475) | - | | Other comprehensive income (loss), net of tax | $1,759 | - | | Balance, end of period | $70,020 | $68,774 | - Cash dividends paid were $1.19 per share in Q1 2024, compared to $1.13 per share in Q1 2023[18][19] Consolidated Statements of Cash Flows Operating cash flows increased in Q1 2024, while investing activities shifted to a net outflow due to acquisitions, and financing activities generated cash Consolidated Statements of Cash Flows Data | Metric (Millions) | Q1 2024 | Q1 2023 | | :------------------------------------ | :------ | :------ | | Net cash flows from operating activities | $3,657 | $3,257 | | Net cash (used by)/from investing activities | $(464) | $3,315 | | Net cash flows from financing activities | $546 | $6,138 | | Increase in cash, cash equivalents and restricted cash | $3,614 | $12,738 | - Acquisitions, net of cash acquired, amounted to $1,811 million in Q1 2024, compared to none in Q1 2023, significantly impacting investing cash flows[21][22] Notes to Consolidated Financial Statements Detailed disclosures on accounting policies, financial instruments, segment performance, acquisitions, divestitures, and legal proceedings, notably talc and opioid litigation Note 1 — Basis of Presentation and New Accounting Standards Interim financial statements are unaudited; new accounting standards ASU 2023-07 and ASU 2023-09 will impact disclosures but not materially affect financials - No new material accounting standards were adopted in Q1 2024[26] - ASU 2023-07 (Segment Reporting) and ASU 2023-09 (Income Taxes) will be effective for fiscal years beginning after December 15, 2023, and December 15, 2024, respectively, impacting disclosures but not materially affecting the Consolidated Financial Statements[27][28] Note 2 — Inventories Total inventories increased slightly from December 2023 to March 2024, primarily due to an increase in goods in process Inventories Data | Category | March 31, 2024 (Millions) | December 31, 2023 (Millions) | | :----------------------- | :------------------------ | :--------------------------- | | Raw materials and supplies | $2,331 | $2,355 | | Goods in process | $2,172 | $1,952 | | Finished goods | $6,880 | $6,874 | | Total inventories | $11,383 | $11,181 | Note 3 — Intangible Assets and Goodwill Net intangible assets remained stable, while goodwill increased slightly due to Innovative Medicine acquisitions; amortization expense was consistent year-over-year Intangible Assets and Goodwill Data | Metric (Millions) | March 31, 2024 | December 31, 2023 | | :------------------------------------ | :------------- | :---------------- | | Total intangible assets — net | $34,286 | $34,175 | | Goodwill | $36,616 | $36,558 | | Goodwill, related to acquisitions (Innovative Medicine) | $290 | — | | Amortization expense (Q1) | $1,100 | $1,100 | - Estimated amortization expense for approved products is projected to decrease over the next five years, from $4.3 billion in 2024 to $1.6 billion in 2028[37] Note 4 — Fair Value Measurements The company uses various derivative financial instruments, including forward foreign exchange and interest rate swaps, to manage currency and interest rate risks, mostly Level 2 hedges - The company uses forward foreign exchange contracts, cross currency interest rate swaps, and interest rate swaps to manage financial risks, with notional amounts of $43.2 billion, $39.6 billion, and $10.0 billion, respectively, as of March 31, 2024[38] - As of March 31, 2024, the balance of deferred net loss on derivatives in accumulated other comprehensive income was $795 million after-tax[38] Fair Value Measurements Data | Category (Millions) | March 31, 2024 | December 31, 2023 | | :------------------------------------ | :------------- | :---------------- | | Derivatives designated as hedging instruments (Assets) | $1,701 | $1,527 | | Derivatives designated as hedging instruments (Liabilities) | $3,944 | $5,962 | | Equity investments | $4,486 | $4,473 | | Debt securities | $9,346 | $8,874 | | Contingent consideration | $1,114 | $1,092 | Note 5 — Income Taxes Worldwide effective income tax rate significantly decreased in Q1 2024 due to lower talc settlement charges and Pillar Two legislative changes in foreign jurisdictions Worldwide Effective Income Tax Rate | Metric | Q1 2024 | Q1 2023 | | :---------------------- | :------ | :------ | | Worldwide effective income tax rate | 12.4% | 61.8% | - The change in tax rate is primarily due to a $2.7 billion charge for the talc settlement proposal in Q1 2024, compared to $6.9 billion in Q1 2023, both recorded at an effective U.S. federal and state tax rate of approximately 23%[59] - The effective tax rate in Q1 2024 was also impacted by legislative changes for Pillar Two in some foreign jurisdictions and tax benefits from stock-based compensation[59] Note 6 — Pensions and Other Benefit Plans Net periodic benefit cost for retirement plans showed a credit in Q1 2024, while other benefit plans incurred a cost; contributions were made to U.S. and international plans Net Periodic Benefit Cost | Component (Millions) | Retirement Plans (Q1 2024) | Retirement Plans (Q1 2023) | Other Benefit Plans (Q1 2024) | Other Benefit Plans (Q1 2023) | | :---------------------------- | :------------------------- | :------------------------- | :---------------------------- | :---------------------------- | | Service cost | $224 | $210 | $69 | $68 | | Interest cost | $352 | $352 | $52 | $54 | | Expected return on plan assets | $(642) | $(668) | $(2) | $(1) | | Net periodic benefit cost/(credit) | $(69) | $(202) | $132 | $127 | - The company contributed $29 million to U.S. retirement plans and $3 million to international retirement plans in Q1 2024[62] Note 7 — Accumulated Other Comprehensive Income Accumulated other comprehensive income (loss) improved significantly from December 2023 to March 2024, driven by positive foreign currency translation, offset by derivative losses Accumulated Other Comprehensive Income/(Loss) Data | Component (Millions) | December 31, 2023 | Net Change | March 31, 2024 | | :------------------------------------ | :---------------- | :--------- | :------------- | | Foreign Currency Translation | $(10,149) | $2,123 | $(8,026) | | Gain/ (Loss) On Securities | $(1) | $2 | $1 | | Employee Benefit Plans | $(2,000) | $52 | $(1,948) | | Gain/ (Loss) On Derivatives & Hedges | $(377) | $(418) | $(795) | | Total Accumulated Other Comprehensive Income/(Loss) | $(12,527) | $1,759 | $(10,768) | Note 8 — Earnings Per Share Basic and diluted net earnings per share from continuing operations showed strong positive performance in Q1 2024, a significant improvement from a Q1 2023 loss Earnings Per Share Data | Metric (Shares in Millions) | Q1 2024 | Q1 2023 | | :------------------------------------ | :-------- | :-------- | | Basic net earnings (loss) per share from continuing operations | $1.35 | $(0.19) | | Total net earnings (loss) per share - basic | $1.35 | $(0.03) | | Diluted net earnings (loss) per share from continuing operations | $1.34 | $(0.19) | | Total net earnings (loss) per share - diluted | $1.34 | $(0.03) | | Average shares outstanding — basic | 2,408.2 | 2,605.5 | | Average shares outstanding — diluted | 2,430.1 | 2,605.5 | - The diluted EPS calculation for Q1 2024 excluded 44.2 million shares related to stock options because their exercise price was greater than the average market value[67] Note 9 — Segments of Business and Geographic Areas Post-Kenvue separation, the company operates in Innovative Medicine and MedTech segments, with modest growth in Innovative Medicine and stronger operational growth in MedTech across geographies - The company is now organized into two business segments: Innovative Medicine and MedTech, with prior periods recast to reflect this structure[69] Sales by Business Segment | Segment | Q1 2024 Sales (Millions) | Q1 2023 Sales (Millions) | Total Change | Operational Change | | :------------------ | :----------------------- | :----------------------- | :----------- | :----------------- | | Innovative Medicine | $13,562 | $13,413 | 1.1% | 2.5% | | MedTech | $7,821 | $7,481 | 4.5% | 6.3% | | Worldwide Total | $21,383 | $20,894 | 2.3% | 3.9% | Sales by Geographic Area | Geographic Area | Q1 2024 Sales (Millions) | Q1 2023 Sales (Millions) | Percent Change | | :------------------ | :----------------------- | :----------------------- | :------------- | | United States | $11,620 | $10,782 | 7.8% | | International | $9,763 | $10,112 | (3.4)% | | Europe | $5,163 | $5,590 | (7.6)% | | Western Hemisphere, excluding U.S. | $1,194 | $1,076 | 11.0% | | Asia-Pacific, Africa | $3,406 | $3,446 | (1.1)% | Note 10 — Acquisitions and Divestitures The company acquired Ambrx Biopharma in Q1 2024, announced an agreement to acquire Shockwave Medical post-quarter, and divested Ponvory - On March 7, 2024, Johnson & Johnson acquired Ambrx Biopharma, Inc. for approximately $2.0 billion (equity value), or $1.8 billion net of cash acquired, adding next-generation antibody drug conjugates (ADCs) to the Innovative Medicine segment[82] - Subsequent to Q1 2024, the company announced an agreement to acquire Shockwave Medical, Inc. for approximately $13.1 billion, expected to close by mid-year 2024, to be included in the MedTech segment[81] - In Q1 2024, the company divested Ponvory, generating approximately $0.2 billion in proceeds[83] Note 11 — Legal Proceedings Extensive legal proceedings, including talc, opioid, and product liability claims; a proposed 'prepackaged' chapter 11 plan for talc claims led to a $2.7 billion charge and $11 billion total reserve - On May 1, 2024, the company commenced a three-month solicitation period for a proposed consensual 'prepackaged' chapter 11 bankruptcy plan to resolve cosmetic talc claims in the U.S., excluding mesothelioma and State consumer protection claims[86][87] - An incremental charge of approximately $2.7 billion was recorded in Q1 2024 for talc matters, bringing the total reserve to approximately $11 billion (present value) or $13.7 billion (nominal value)[87] - For opioid claims, approximately 60% of the $5.0 billion settlement for state and subdivision claims was paid by the end of Q1 2024, with 75% expected by fiscal year-end 2024[89] Product Liability Claims | Product or Product Category | Number of Plaintiffs (as of March 31, 2024) | | :-------------------------- | :------------------------------------------ | | Body powders containing talc | 61,490 | | Pelvic meshes | 6,440 | | ELMIRON | 2,150 | | PINNACLE Acetabular Cup System | 920 | | ETHICON PHYSIOMESH Flexible Composite Mesh | 230 | | DePuy ASR XL Acetabular System and DePuy ASR Hip Resurfacing System | 160 | | RISPERDAL | 50 | Note 12 — Restructuring Restructuring expenses in Q1 2024 related to R&D prioritization in Innovative Medicine and streamlining MedTech's Orthopaedics franchise operations - Pre-tax restructuring expenses in Q1 2024 totaled $171 million, with $144 million in Innovative Medicine (R&D program exits) and $27 million in MedTech (Orthopaedics streamlining)[127][128] - The Innovative Medicine restructuring, focusing on R&D investment prioritization, has recorded approximately $0.6 billion in total project costs since its announcement and is mostly completed[127] - The MedTech Orthopaedics restructuring, aimed at streamlining operations, has recorded approximately $0.3 billion in total project costs and is expected to be completed by the end of fiscal year 2025, with estimated total costs between $0.7 billion and $0.8 billion[127] Note 13 — Kenvue Separation The Consumer Health business (Kenvue) was separated in Q3 2023, with its results now reflected as discontinued operations in consolidated earnings statements - The Consumer Health business (Kenvue) was separated in Q3 2023 and is reported as discontinued operations[129] Discontinued Operations Data (Q1 2023) | Metric (Millions) | Q1 2023 (Discontinued Operations) | | :------------------------------------ | :-------------------------------- | | Net earnings from Discontinued Operations | $423 | | Depreciation and Amortization | $153 | | Capital expenditures | $47 | Item 2 — Management's Discussion and Analysis of Financial Condition and Results of Operations Management's discussion of Q1 2024 financial performance, liquidity, and capital resources, highlighting sales trends, earnings changes, macroeconomic factors, and legal matters Results of Operations Worldwide sales increased by 2.3% in Q1 2024 due to operational growth, despite negative currency impacts and declining COVID-19 vaccine sales; net earnings improved from lower litigation charges Worldwide Sales Performance | Metric (Millions) | Q1 2024 | Q1 2023 | Total Change | Operational Growth | Currency Impact | | :---------------- | :---------- | :---------- | :----------- | :----------------- | :-------------- | | Worldwide Sales | $21,383 | $20,894 | 2.3% | 3.9% | (1.6)% | | U.S. Sales | $11,620 | $10,782 | 7.8% | 7.9% | (0.1)% | | International Sales | $9,763 | $10,112 | (3.4)% | (0.3)% | (3.1)% | - The decline in COVID-19 Vaccine sales negatively impacted worldwide operational sales growth by 3.7% and international operational sales by 7.7% in Q1 2024[133] Analysis of Sales by Business Segments Innovative Medicine sales grew operationally, driven by Immunology and Oncology, despite declining COVID-19 vaccine revenue; MedTech sales showed stronger operational growth, led by Cardiovascular and Orthopaedics Sales by Business Segment Operational Change | Segment | Q1 2024 Sales (Millions) | Q1 2023 Sales (Millions) | Operational Change | | :------------------ | :----------------------- | :----------------------- | :----------------- | | Innovative Medicine | $13,562 | $13,413 | 2.5% | | MedTech | $7,821 | $7,481 | 6.3% | - Innovative Medicine's operational growth was driven by Immunology (TREMFYA +27.6%, STELARA +1.1%) and Oncology (DARZALEX +21.0%, ERLEADA +28.4%, CARVYKTI and TECVAYLI with significant growth), offset by a 96.7% operational decline in COVID-19 Vaccine sales[137][138][139] - MedTech's operational growth was led by Cardiovascular (+22.5%, with Electrophysiology +25.9% and Abiomed +15.0%) and Orthopaedics (+4.8%), partially offset by a decline in Vision (-1.4%)[142][143][144] Analysis of Consolidated Earnings Before Provision for Taxes on Income Consolidated earnings before taxes significantly improved in Q1 2024, primarily due to reduced litigation expenses, especially for talc matters, and favorable patient mix in Innovative Medicine Consolidated Earnings Before Taxes on Income | Metric (Millions) | Q1 2024 | Q1 2023 | | :---------------------------------------------- | :------ | :-------- | | Earnings (loss) before provision for taxes on income | $3,714 | $(1,287) | | As a percent of sales | 17.4% | (6.2)% | - The improvement was largely driven by a $4.2 billion decrease in litigation-related expenses (primarily talc matters) in Q1 2024 compared to Q1 2023[154] - Cost of products sold decreased as a percentage of sales due to lower COVID-19 vaccine exit costs and favorable patient mix in Innovative Medicine, partially offset by macroeconomic factors in MedTech[146] - Interest income increased to $364 million (Q1 2024) from $198 million (Q1 2023) due to higher rates on cash balances, while interest expense decreased to $155 million from $212 million due to a lower average debt balance[152] Liquidity and Capital Resources Cash and cash equivalents increased, supported by strong operating cash flows and financing activities; the company maintains a healthy net debt position and expects sufficient resources for operations, settlements, and dividends Liquidity and Capital Resources Data | Metric (Billions) | March 31, 2024 | December 31, 2023 | | :------------------------------------ | :------------- | :---------------- | | Cash and cash equivalents | $25.5 | $21.9 | | Marketable securities | $0.7 | $1.1 | | Total cash, cash equivalents and marketable securities | $26.2 | $23.0 | | Notes payable and long-term debt | $33.6 | $29.3 | | Net debt position | $7.4 | $7.4 | Cash Flow Summary | Cash Flow Source (Billions) | Q1 2024 | | :------------------------------------ | :------ | | Net cash generated from operating activities | $3.7 | | Net cash used by investing activities | $(0.5) | | Net cash generated from financing activities | $0.5 | - The company expects to fund remaining opioid litigation payments of approximately $2.1 billion and the $11.0 billion (present value) talc settlement proposal from operating cash flows and external sources[171] - The Board of Directors declared a regular cash dividend of $1.24 per share payable in June 2024, an increase from $1.19 per share in Q1 2024[172] Other Information Covers new accounting pronouncements, litigation challenging the Inflation Reduction Act, and the immaterial financial impact of geopolitical conflicts and macroeconomic factors - Janssen Pharmaceuticals, Inc. is challenging the constitutionality of the Inflation Reduction Act's Medicare Drug Price Negotiation Program, with an appeal filed in April 2024[174] - The financial impact of the Russia-Ukraine war and the conflict in the Middle East was not material in Q1 2024, with Russian and Israeli subsidiaries representing less than 1% of consolidated assets and revenues[175][176] - The company continues to monitor economic conditions in highly inflationary countries (Venezuela, Argentina, Turkey) and faces ongoing challenges from healthcare cost containment, government legislation, and intellectual property disputes[177] Item 3 — Quantitative and Qualitative Disclosures About Market Risk No material changes in the company's assessment of market risk sensitivity since the December 31, 2023, Annual Report on Form 10-K - No material change in the company's assessment of market risk sensitivity since the December 31, 2023, Annual Report on Form 10-K[179] Item 4 — Controls and Procedures Management concluded disclosure controls and procedures were effective as of March 31, 2024, with no material changes in internal control over financial reporting during Q1 2024, amidst an enterprise-wide integration initiative - The company's disclosure controls and procedures were effective as of March 31, 2024[180] - No material changes in internal control over financial reporting occurred during Q1 2024[180] - The company is implementing a multi-year, enterprise-wide initiative to integrate, simplify, and standardize processes and systems across various functions, which is not in response to any identified deficiency[180] Part II — Other Information Item 1 — Legal Proceedings Information regarding legal proceedings is incorporated by reference from Note 11 of the financial statements - Details on legal proceedings are incorporated by reference from Note 11 in Part I, Item 1[182] Item 2 — Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased common stock in Q1 2024 as part of a systematic plan to meet compensation program needs Common Stock Repurchases | Fiscal Month Period | Total Number of Shares Purchased | Avg. Price Per Share | | :----------------------------------- | :------------------------------- | :------------------- | | January 1, 2024 through January 28, 2024 | — | — | | January 29, 2024 through February 25, 2024 | 5,531,362 | $156.78 | | February 26, 2024 through March 31, 2024 | 3,793,074 | $160.35 | | Total | 9,324,436 | $158.23 | - All common stock repurchases were part of a systematic plan to meet the needs of the company's compensation programs[184] Item 5 — Other Information No directors or executive officers adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during Q1 2024 - No directors or officers adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements in Q1 2024[185] Item 6 — Exhibits Lists exhibits filed with the 10-Q report, including CEO and CFO certifications under Sarbanes-Oxley Act and various XBRL-related documents - Includes CEO and CFO certifications (Exhibits 31.1, 31.2, 32.1, 32.2) and Inline XBRL Taxonomy Extension documents (Exhibit 101)[186][187] Signatures The report is duly signed on behalf of Johnson & Johnson by its Executive Vice President, Chief Financial Officer, and Controller - The report was signed by J. J. Wolk, Executive Vice President, Chief Financial Officer, and R. J. Decker Jr., Controller, on May 1, 2024[188]