ALZA Announces Closing of Zero Coupon Convertible Subordinated Debentures Source Press Release Company ALZA Tags Date Convertible Issue July 28, 2000 Offering Raises a Total of $600 Million in Private Offering Mountain View, CA - July 28, 2000 ALZA Corporation announced today the closing of its offering of zero coupon convertible subordinated debentures due July 28, 2020. ALZA issued debentures with an aggregate issue price of approximately $600 million ($1.09 billion aggregate principal amount at maturity), including $100 million ($180 million aggregate principal amount at maturity) sold to the initial purchasers under their overallotment option. The debentures were sold at an issue price of $551.26 per $1,000 principal amount at maturity. The issue price represents a yield to maturity of 3 percent per year. The securities are not registered under the Securities Act of 1933 or any state securities laws and were sold in the United States in a private placement under Rule 144A under the Securities Act NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Summary of Significant Accounting Policies Principles of Consolidation - The consolidated financial statements include the accounts of Johnson and Johnson and its subsidiaries (the Company). Intercompany accounts and transactions are eliminated 7. Borrowings The components of long-term debt are as follows: Effective Rate% Effective (Dollars in Millions) 2.15% Notes due 2016 |3 month LIBOR+0.07% FRN due 2016 0.70% Notes due 2016 5.55% Debentures due 2017 1.125% Notes due 2017 5.15% Debentures due 2018 1.65% Notes due 2018 4.75% Notes due 2019 (1B Euro |1.0882)(2/(1B Euro 1.2199)3) 1.875% Notes due 2019 3% Zero Coupon Convertible Subordinated Debentures due 2020 2.95% Debentures due 2020 3.55% Notes due 2021 2.45% Notes due 2021 6.73% Debentures due 2023 3.375% Notes due 2023 5.50% Notes due 2024 (500MM GBP |1.4818)(2(500MM GBP 1.5542)) 6.95% Notes due 2029 2015 2014 Rate % 2.22% $ 900 898 2.22 0.48 0.74 5.55 800 800 0.31 398 1,000 700 899 602 398 1,000 697 898 597 0.74 5.55 1.15 5.15 1.70 1.15 5.15 1.70 1,085 (2) 502 1,216 (3) 497 5.83 1.93 5.83 1.93 158 543 446 349 250 812 3.00 3.15 3.67 2.48 137 545 448 349 250 811 3.00 3.15 3.67 2.48 6.73 3.17 6.73 3.17 737 (2) 297 772 (3) 297 6.75 7.14 6.75 7.14 4.95 |4.95% Debentures due 2033 4.375% Notes due 2033 |5.95% Notes due 2037 5.85% Debentures due 2038 4.50% Debentures due 2040 4.85% Notes due 2041 4.50% Notes due 2043 Other Subtotal Less current portion Total long-term debt 4.95 4.24 5.99 5.86 4.63 500 865 995 700 539 298 500 864 996 700 540 298 499 104 14,961(4) 2,104 $12,857 4.23 5.99 5.86 4.63 4.89 4.52 4.89 4.52 499 105 4.06% (1)15,129(4) 7 15,122 4.081 (1) Weighted average effective rate. (2) Translation rate at January 3, 2016. (3) Translation rate at December 28, 2014 (4) The excess of the fair value over the carrying value of debt was $1.7 billion in 2015 and $2.2 billion in 2014. Fair value of the non-current debt was estimated using market prices, which were corroborated by quoted broker prices and significant other observable inputs. The Company has access to substantial sources of funds at numerous banks worldwide. In September 2015, the Company secured a new 364-day Credit Facility. Total credit available to the Company approximates $10 billion, which expires on September 15, 2016. Interest charged on borrowings under the credit line agreements is based on either bids provided by banks, the prime rate or London Interbank Offered Rates (LIBOR), plus applicable margins. Commitment fees under the agreements are not material Throughout 2015, the Company continued to have access to liquidity through the commercial paper market. Short-term borrowings and the current portion of long-term debt amounted to approximately $7.0 billion at the end of 2015, of which $4.6 billion was borrowed under the Commercial Paper Program. The remainder principally represents local borrowing by international subsidiaries Aggregate maturities of long-term obligations commencing in 2016 are: |(Dollars in Millions) 2016 2017 2018 2019 2020 After 2020 $2,104 1,790 1,501 1,587 683 7,296 On July 28, 2000, ALZA Corporation issued $1.09 billion of 3%, 20 year, zero coupon bonds. Zero coupon bonds do not pay any interest, so the issuance price of the bonds is equal to the present value of the $1.09 billion discounted at the 3% interest rate 1. Read the press release for the bond issue. What was the issue price of the bonds per $1,000 principal amount? 2. Re-compute the issue price per $1,000 principal using the present value tables from our text. How many periods were used? What was the interest rate used? 3. Compute the bond proceeds for the $1.09 billion face value bonds. Show your computations here: 4. ALZA Corporation was acquired by Johnson and Johnson (J and J) and the debt from these bonds was assumed by them. Bond holders had the option of holding on to the bonds or converting their bonds into J and J stock. Look at the debt footnote for J and J. What is the current value of the zero coupon bonds at the end of 2015? 5. The bonds mature in 2020. Assume there are 5 years remaining on the bonds. Compute the face value of the bonds outstanding at 2015. Show your computations. ALZA Announces Closing of Zero Coupon Convertible Subordinated Debentures Source Press Release Company ALZA Tags Date Convertible Issue July 28, 2000 Offering Raises a Total of $600 Million in Private Offering Mountain View, CA - July 28, 2000 ALZA Corporation announced today the closing of its offering of zero coupon convertible subordinated debentures due July 28, 2020. ALZA issued debentures with an aggregate issue price of approximately $600 million ($1.09 billion aggregate principal amount at maturity), including $100 million ($180 million aggregate principal amount at maturity) sold to the initial purchasers under their overallotment option. The debentures were sold at an issue price of $551.26 per $1,000 principal amount at maturity. The issue price represents a yield to maturity of 3 percent per year. The securities are not registered under the Securities Act of 1933 or any state securities laws and were sold in the United States in a private placement under Rule 144A under the Securities Act NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Summary of Significant Accounting Policies Principles of Consolidation - The consolidated financial statements include the accounts of Johnson and Johnson and its subsidiaries (the Company). Intercompany accounts and transactions are eliminated 7. Borrowings The components of long-term debt are as follows: Effective Rate% Effective (Dollars in Millions) 2.15% Notes due 2016 |3 month LIBOR+0.07% FRN due 2016 0.70% Notes due 2016 5.55% Debentures due 2017 1.125% Notes due 2017 5.15% Debentures due 2018 1.65% Notes due 2018 4.75% Notes due 2019 (1B Euro |1.0882)(2/(1B Euro 1.2199)3) 1.875% Notes due 2019 3% Zero Coupon Convertible Subordinated Debentures due 2020 2.95% Debentures due 2020 3.55% Notes due 2021 2.45% Notes due 2021 6.73% Debentures due 2023 3.375% Notes due 2023 5.50% Notes due 2024 (500MM GBP |1.4818)(2(500MM GBP 1.5542)) 6.95% Notes due 2029 2015 2014 Rate % 2.22% $ 900 898 2.22 0.48 0.74 5.55 800 800 0.31 398 1,000 700 899 602 398 1,000 697 898 597 0.74 5.55 1.15 5.15 1.70 1.15 5.15 1.70 1,085 (2) 502 1,216 (3) 497 5.83 1.93 5.83 1.93 158 543 446 349 250 812 3.00 3.15 3.67 2.48 137 545 448 349 250 811 3.00 3.15 3.67 2.48 6.73 3.17 6.73 3.17 737 (2) 297 772 (3) 297 6.75 7.14 6.75 7.14 4.95 |4.95% Debentures due 2033 4.375% Notes due 2033 |5.95% Notes due 2037 5.85% Debentures due 2038 4.50% Debentures due 2040 4.85% Notes due 2041 4.50% Notes due 2043 Other Subtotal Less current portion Total long-term debt 4.95 4.24 5.99 5.86 4.63 500 865 995 700 539 298 500 864 996 700 540 298 499 104 14,961(4) 2,104 $12,857 4.23 5.99 5.86 4.63 4.89 4.52 4.89 4.52 499 105 4.06% (1)15,129(4) 7 15,122 4.081 (1) Weighted average effective rate. (2) Translation rate at January 3, 2016. (3) Translation rate at December 28, 2014 (4) The excess of the fair value over the carrying value of debt was $1.7 billion in 2015 and $2.2 billion in 2014. Fair value of the non-current debt was estimated using market prices, which were corroborated by quoted broker prices and significant other observable inputs. The Company has access to substantial sources of funds at numerous banks worldwide. In September 2015, the Company secured a new 364-day Credit Facility. Total credit available to the Company approximates $10 billion, which expires on September 15, 2016. Interest charged on borrowings under the credit line agreements is based on either bids provided by banks, the prime rate or London Interbank Offered Rates (LIBOR), plus applicable margins. Commitment fees under the agreements are not material Throughout 2015, the Company continued to have access to liquidity through the commercial paper market. Short-term borrowings and the current portion of long-term debt amounted to approximately $7.0 billion at the end of 2015, of which $4.6 billion was borrowed under the Commercial Paper Program. The remainder principally represents local borrowing by international subsidiaries Aggregate maturities of long-term obligations commencing in 2016 are: |(Dollars in Millions) 2016 2017 2018 2019 2020 After 2020 $2,104 1,790 1,501 1,587 683 7,296 On July 28, 2000, ALZA Corporation issued $1.09 billion of 3%, 20 year, zero coupon bonds. Zero coupon bonds do not pay any interest, so the issuance price of the bonds is equal to the present value of the $1.09 billion discounted at the 3% interest rate 1. Read the press release for the bond issue. What was the issue price of the bonds per $1,000 principal amount? 2. Re-compute the issue price per $1,000 principal using the present value tables from our text. How many periods were used? What was the interest rate used? 3. Compute the bond proceeds for the $1.09 billion face value bonds. Show your computations here: 4. ALZA Corporation was acquired by Johnson and Johnson (J and J) and the debt from these bonds was assumed by them. Bond holders had the option of holding on to the bonds or converting their bonds into J and J stock. Look at the debt footnote for J and J. What is the current value of the zero coupon bonds at the end of 2015? 5. The bonds mature in 2020. Assume there are 5 years remaining on the bonds. Compute the face value of the bonds outstanding at 2015. Show your computations