Johnson and Johnson 2005 Annual Report Download - page 30

Organization and Business Segments
Results of Operations
PAGE 28 JOHNSON & JOHNSON 2005 ANNUAL REPORT
MANAGEMENT’SDISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Description of the Company and Business Segments
The Company and its subsidiaries have approximately 115,600
employees worldwide engaged in the manufacture and sale of a
broad range of products in the health care field. The Company
conducts business in virtually all countries of the world and its
primary focus has been on products related to human health
and well-being.
The Company is organized into three business segments:
Consumer, Pharmaceutical, and Medical Devices and Diagnos-
tics. The Consumer segment manufactures and markets a
broad range of products used in the baby and child care, skin
care, oral and wound care and women’s health care fields, as
well as nutritional and over-the-counter pharmaceutical prod-
ucts. These products are marketed principally to the general
public and sold both to wholesalers and directly to independent
and chain retail outlets throughout the world. The Pharmaceu-
tical segment includes products in the following therapeutic
areas: anti-fungal, anti-infective, cardiovascular, contraceptive,
dermatology, gastrointestinal, hematology, immunology, neu-
rology, oncology, pain management, psychotropic (central ner-
vous system) and urology areas. These products are distributed
directly to retailers, wholesalers and health care professionals
for prescription use by the general public. The Medical Devices
and Diagnostics segment includes a broad range of products
used principally in the professional fields by physicians, nurses,
therapists, hospitals, diagnostic laboratories and clinics. These
products include Cordis’ circulatory disease management
products; DePuy’s orthopaedic joint reconstruction and spinal
care products; Ethicon’s wound care and women’s health
products; Ethicon Endo-Surgery’s minimally invasive surgical
products; LifeScan’s blood glucose monitoring products;
Ortho-Clinical Diagnostics’ professional diagnostic products
and Vision Care’s disposable contact lenses.
The Company’s structure is based upon the principle of
decentralized management. The Executive Committee of
Johnson & Johnson is the principal management group
responsible for the operations and allocation of the resources
of the Company. This Committee oversees and coordinates the
activities of the Consumer, Pharmaceutical and Medical Devices
and Diagnostics business segments. Each subsidiary within the
business segments is, with some exceptions, managed by citi-
zens of the country where it is located.
In all of its product lines, the Company competes with com-
panies both large and small, located throughout the world.
Competition is strong in all product lines without regard to
the number and size of the competing companies involved.
Competition in research, involving the development and the
improvement of new and existing products and processes, is
particularly significant. The development of new and improved
products is important to the Company’s success in all areas of
its business. This also includes protecting the Company’s port-
folio of intellectual property. The competitive environment
requires substantial investments in continuing research and
multiple sales forces. In addition, the development and mainte-
nance of customer acceptance of the Company’s consumer
products involves significant expenditures for advertising
and promotion.
Management’s Objectives
The Company’s objective is to achieve superior levels of capital
efficient profitable growth. To accomplish this, the Company’s
management operates the business consistent with certain
strategic principles that have proven successful over time. To
this end, the Company participates in growth areas in human
health care and is committed to attaining leadership positions
in these growth segments through the development of innova-
tive products and services. New products introduced within the
past five years accounted for over 33% of 2005 sales. In 2005,
$6.3 billion, or 12.5% of sales were invested in research and
development, an increase of $1.1 billion over 2004. This signifi-
cant increase reflects management’s commitment to the impor-
tance of on-going development of new and differentiated
products and services, and to sustain long term growth.
With more than 230 operating companies located in 57
countries, the Company views its principle of decentralized
management as an asset and fundamental to the success of a
broadly based business. It also fosters an entrepreneurial
spirit, combining the extensive resources of a large organiza-
tion with the ability to react quickly to local market changes
and challenges.
The Company is committed to developing global business
leaders who can drive growth objectives. Businesses are man-
aged for the long term in order to sustain leadership positions
and achieve growth that provides an enduring source of value
to our shareholders.
Unifying the management team and the Company’s dedi-
cated employees in achieving these objectives is the Johnson
& Johnson Credo. The Credo provides a common set of values
and serves as a constant reminder of the Company’s responsi-
bilities to its customers, employees, communities and share-
holders. The Company believes that these basic principles,
along with its overall mission of improving the quality of life for
people everywhere, will enable Johnson & Johnson to continue
to be among the leaders in the health care industry.
Analysis of Consolidated Sales
In 2005, worldwide sales increased 6.7% to $50.5 billion, com-
pared to increases of 13.1% in 2004 and 15.3% in 2003. These
sales increases consisted of the following:
Sales increase due to: 2005 2004 2003
Volume 5.4% 8.7 9.4
Price 0.6 1.0 1.3
Currency 0.7 3.4 4.6
Total 6.7% 13.1 15.3
Sales by U.S. companies were $28.4 billion in 2005, $27.7 bil-
lion in 2004 and $25.3 billion in 2003. This represents an
increase of 2.2% in 2005, 9.9% in 2004 and 12.6% in 2003.
Sales by international companies were $22.1 billion in 2005,
$19.6 billion in 2004 and $16.6 billion in 2003. This represents
an increase of 13.1% in 2005, 18.0% in 2004 and 19.8% in 2003.