Johnson and Johnson 2011 Annual Report Download - page 29

MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION 27
The five-year compound annual growth rates for worldwide,
U.S. and international sales were 4.0%, (0.6)% and 8.9%, respec-
tively. The ten-year compound annual growth rates for worldwide,
U.S. and international sales were 7.2%, 3.8% and 11.2%, respectively.
Sales in Europe achieved growth of 10.4% as compared to the
prior year, including operational growth of 5.3% and a positive impact
from currency of 5.1%. Sales in the Western Hemisphere (excluding
the U.S.) achieved growth of 15.6% as compared to the prior year,
including operational growth of 12.2% and a positive impact from
currency of 3.4%. Sales in the Asia-Pacific, Africa region achieved
growth of 13.5% as compared to the prior year, including operational
growth of 6.6% and a positive impact from currency of 6.9%.
In 2011, 2010 and 2009, the Company did not have a customer
that represented 10% or more of total consolidated revenues.
The 2009 results benefited from the inclusion of a 53rd week.
(See Note 1 to the Consolidated Financial Statements for Annual
Closing Date details). The Company estimated that the fiscal year
2009 growth rate was enhanced by approximately 0.5% due to the
53rd week.
U.S. HEALTH CARE REFORM
The Patient Protection and Affordable Care Act and the Health Care
and Education Reconciliation Act of 2010 were signed into law in
March 2010. The health care reform legislation included an increase
60
70
50
40
30
20
10
0
Sales by
Geographic
Region
(in billions of dollars)
U.S.
Europe
Western Hemisphere
excluding U.S.
Asia Pacific, Africa
’09 ’10 ’11
U.S. and
International Sales
for 10 Years
(in billions of dollars)
U.S.
International
60
70
50
40
30
20
10
0’01 ’02 ’03 ’04 ’05 ’06 ’07 ’08 ’09 ’10 ’11
in the minimum Medicaid rebate rate from 15.1% to 23.1% and also
extended the rebate to drugs provided through Medicaid managed
care organizations. Additionally, in 2011, discounts were provided
on the Company’s brand-name drugs to patients who fall within the
Medicare Part D coverage gap “donut hole.” The impact was an
increase in sales rebates reducing sales revenue by approximately
$425 million and $400 million in 2011 and 2010, respectively.
In 2011, companies that sell branded prescription drugs to speci-
fied U.S. Government programs paid an annual non-tax deductible fee
based on an allocation of the company’s market share of total branded
prescription drug sales from the prior year. The 2011 full year impact to
selling, marketing and administrative expenses was $140 million. Under
the current law, beginning in 2013, the Company will be required to pay
a tax deductible 2.3% excise tax imposed on the sale of certain medical
devices. The 2013 tax is estimated to be between $200–$250 million
and will be recorded in selling, marketing and administrative expenses.
Analysis of Sales by Business Segments
CONSUMER SEGMENT
Consumer segment sales in 2011 were $14.9 billion, an increase of
2.0% from 2010, a 0.7% operational decline was offset by a positive
currency impact of 2.7%. U.S. Consumer segment sales were
$5.2 billion, a decrease of 6.7%. International sales were $9.7 billion,
an increase of 7.3%, which included 2.9% operational growth and a
positive currency impact of 4.4%.
The Over-the-Counter (OTC) Pharmaceuticals and Nutritionals
franchise sales were $4.4 billion, a decrease of 3.2% from 2010.
Sales in the U.S. were negatively impacted by the suspension of pro-
duction at McNeil Consumer Healthcare’s Fort Washington, Penn-
sylvania facility as well as the impact on production volumes related
to ongoing efforts to enhance quality and manufacturing systems at
its other manufacturing sites.
During the fiscal first quarter of 2011, a consent decree was
signed with the U.S. Food and Drug Administration (FDA), which gov-
erns certain McNeil Consumer Healthcare manufacturing operations.
The consent decree identifies procedures that will help provide addi-
tional assurance of product quality to the FDA. McNeil continues to
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60
50
40
30
20
10
0
Sales by
Segment
(in billions of dollars)
Consumer
Pharmaceutical
Medical Devices
and Diagnostics
’09 ’10 ’1 1
Major Consumer Franchise Sales:
% Change
(Dollars in Millions) 2011 2010 2009 ’11 vs. ’10 ’10 vs. ’09
OTC Pharmaceuticals & Nutritionals $ 4,402 4,549 5,630 (3.2)% (19.2)
Skin Care 3,715 3,452 3,467 7.6 (0.4)
Baby Care 2,340 2,209 2,115 5.9 4.4
Women’s Health 1,792 1,844 1,895 (2.8) (2.7)
Oral Care 1,624 1,526 1,569 6.4 (2.7)
Wound Care/Other 1,010 1,010 1,127 0.0 (10.4)
Total $14,883 14,590 15,803 2.0% (7.7)