Johnson and Johnson 2009 Annual Report Download - page 37

M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S O F R E S U L T S O F O P E R A T I O N S A N D F I N A N C I A L C O N D I T I O N 35
(prescription and over-the-counter drugs, hospital and professional
products) was below the U.S. Consumer Price Index (CPI).
Inflation rates continue to have an effect on worldwide
economies and, consequently, on the way companies operate.
The Company will account for operations in Venezuela as highly
inflationary in 2010, as the prior three-year cumulative inflation
rate has surpassed 100%. In the face of increasing costs, the Com-
pany strives to maintain its profit margins through cost reduction
programs, productivity improvements and periodic price increases.
The Company is exposed to fluctuations in currency exchange
rates. A 1% change in the value of the U.S. dollar as compared to
all foreign currencies in which the Company had sales, income or
expense in 2009 would have increased or decreased the translation
of foreign sales by $300 million and income by $50 million.
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.
Changes in the behavior and spending patterns of purchasers
of health care products and services, including delaying medical
procedures, rationing prescription medications, reducing the fre-
quency of physician visits and foregoing health care insurance
coverage, as a result of the current global economic downturn may
continue to impact the Company’s businesses.
The Company also operates in an environment which has
become increasingly hostile to intellectual property rights. Generic
drug firms have filed Abbreviated New Drug Applications (ANDAs)
seeking to market generic forms of most of the Company’s key phar-
maceutical 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 ANDA filings, the
generic firms will then introduce generic versions of the product
at issue, resulting in the potential for substantial market share and
revenue losses for that product. For further information see the
discussion on “Litigation Against Filers of Abbreviated New Drug
Applications” in Note 21 to the Consolidated Financial Statements.
LEGAL PROCEEDINGS
The Company is involved in numerous product liability cases in the
United States, many of which concern alleged adverse reactions to
drugs and medical devices. The damages claimed are substantial,
and while the Company is confident of the adequacy of the warnings
and instructions for use which accompany such products, it is not
feasible to predict the ultimate outcome of litigation. However, the
Company believes that if any liability results from such cases, it
will be substantially covered by existing amounts accrued in the
Company’s balance sheet under its self-insurance program and by
third-party product liability insurance.
The Company is also involved in a number of patent, trademark
and other lawsuits, as well as investigations, incidental to its busi-
ness. The ultimate legal and financial liability of the Company in
respect to all claims, lawsuits and proceedings referred to above
cannot be estimated with any certainty. However, in the Company’s
opinion, based on its examination of these matters, its experience
to date and discussions with counsel, the ultimate outcome of legal
proceedings, net of liabilities already accrued in the Company’s
balance sheet, is not expected to have a material adverse effect on
the Company’s financial condition, although the resolution in any
reporting period of one or more of these matters could have a
significant impact on the Company’s results of operations and
cash flows for that period.
See Note 21 to the Consolidated Financial Statements for
further information regarding legal proceedings.
COMMON STOCK MARKET PRICES
The Company’s common stock is listed on the New York Stock
Exchange under the symbol JNJ. The composite market price ranges
for Johnson & Johnson common stock during 2009 and 2008 were:
2009 2008
____________________ ____________________
High Low High Low
First quarter $61.00 46.25 68.85 61.17
Second quarter 56.65 50.12 68.32 63.40
Third quarter 62.47 55.71 72.76 63.10
Fourth quarter 65.41 58.78 69.86 52.06
Year-end close $64.41 58.56
Cautionary Factors That May Affect
Future Results
This Annual Report contains forward-looking statements. Forward-
looking statements do not relate strictly to historical or current facts
and anticipate results based on management’s plans that are sub-
ject to uncertainty. Forward-looking statements may be identified
by the use of words such as “plans,” “expects,” “will,” “anticipates,”
“estimates” and other words of similar meaning in conjunction with,
among other things, discussions of future operations, financial
performance, the Company’s strategy for growth, product develop-
ment, regulatory approval, market position and expenditures.
Forward-looking statements are based on current expectations
of future events. The Company cannot guarantee that any forward-
looking statement will be accurate, although the Company believes
that it has been reasonable in its expectations and assumptions.
Investors should realize that if underlying assumptions prove inac-
curate or that unknown risks or uncertainties materialize, actual
results could vary materially from the Company’s expectations and
projections. Investors are therefore cautioned not to place undue
reliance on any forward-looking statements. The Company does not
undertake to update any forward-looking statements as a result of
new information or future events or developments.
Risks and uncertainties include general industry conditions
and competition; economic conditions, such as interest rate and
currency exchange rate fluctuations; technological advances,
new products and patents attained by competitors; challenges
inherent in new product development, including obtaining regula-
tory approvals; challenges to patents; U.S. and foreign health care
reforms and governmental laws and regulations; trends toward
health care cost containment; increased scrutiny of the health
care industry by government agencies; product efficacy or safety
concerns resulting in product recalls or regulatory action.
The Company’s report on Form 10-K for the year ended
January 3, 2010 includes, in Exhibit 99, a discussion of additional
factors that could cause actual results to differ from expectations.
The Company notes these factors as permitted by the Private
Securities Litigation Reform Act of 1995.