Johnson and Johnson 2006 Annual Report Download

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O U R P A S S I O N T R A N S F O R M S

Table of contents

  • Page 1
    O U R PA S S I O N T R A N S FO R M S

  • Page 2
    ... to human health. This year was an extraordinary testament to this fact. Passion is part of who we are: the people of the Johnson & Johnson Family of Companies. It's in our DNA. It's what compels us to work for a corporation devoted to improving the health and well-being of people the world over...

  • Page 3
    ...world's most comprehensive and broadly based health care company, Johnson & Johnson is privileged to play a role in helping millions of people be well ...and stay well. In 2006, thanks to the passion, hard work and ingenuity of our people, we introduced hundreds of significant new products and line...

  • Page 4
    ...company. Our products and services bring high value; they are in increasing demand; and the progress of science is opening new horizons for improving human health and well-being. Demographic and geographic trends will drive even stronger demand for all categories of health care products in the years...

  • Page 5
    ...1946 1956 1966 1976 1986 1996 2006 2006 2005 2004 % CHANGE 2006 % CHANGE 2005 Sales to customers (in millions) Net earnings (in millions) Percent return on average shareholders' equity Diluted net earnings per share Cash dividends paid per share Market price (year-end close) $53,324 $11...

  • Page 6
    ...-through the eyes of new customers, new markets, new technologies and new fiscal realities. A desire to capitalize on changes in the global health care environment that favor consumer-driven health care was part of our rationale for acquiring Pfizer Consumer Healthcare. Managing our business for...

  • Page 7
    ... to prospective business partners with new product ideas and new technologies ...doors to research institutions working on the health advances of tomorrow. It opens doors to policy makers and advocacy groups who want to hear our perspective on improving the health care system in their countries (see...

  • Page 8
    ... ANNUAL REPORT "Our shared values help us to earn trust and respect. Both are essential to a company devoted to improving the health and well-being of people the world over." CHRISTINE A. POON Vice Chairman, Board of Directors decade to strengthen our pipeline are starting to pay off. New drug...

  • Page 9
    diabetes monitoring devices, to enter the diabetes treatment market. Even more important, this acquisition is an initial step in LifeScan's plan to develop integrated solutions for total management of a patient's disease. Future Medical Systems, SA, a company that develops, manufactures and markets ...

  • Page 10
    OUR STORIES Behind every new product that our family of companies introduces-behind every one of our partnerships to advance the health and well-being of people around the world- stands a team of people, their passion and a story. The stories behind our 2006 accomplishments reveal much about the ...

  • Page 11
    .... But an idea is only as good as its execution-so we worked hard to give consumers the most delightful aesthetic experience possible with the new technology." In 2006, both NEUTROGENA® and AVEENO successfully launched new lines of skin care products containing the newly patented advanced sunscreen...

  • Page 12
    ..., to support her government's initiative to modernize health care. Given what happened to her father, how could it not be personal? In the eyes of the more than 1,000 employees of the Johnson & Johnson Family of Companies serving Russia and the CIS, the Russian government's new initiative is nothing...

  • Page 13
    ...CIS; Naira Adamian, Country Manager, Janssen-Cilag Russia; and Sandy McIntire, Managing Director, Consumer Group Ukraine, Cilag GmbH International. "By taking very seriously the responsibilities outlined in Our Credo, Johnson & Johnson, LLC became, in 2006, the largest health care company in Russia...

  • Page 14
    ... in response to Asian customer research insights, has helped 1-DAY ACUVUE® become a market leader there. Many of those involved in developing the new brand are pleased the product has exceeded expectations. But one Korean-born employee of Johnson & Johnson Vision Care, Inc., Karren Koo, was...

  • Page 15
    ... BUS I N ESS The year 2006 also marked the 25th anniversary of the Johnson & Johnson Vision Care business, which-much like its beauty contact lenses for Asian women-was created in a paradigm-shifting approach based directly on consumer insight. ACUVUE® was the world's first disposable contact lens...

  • Page 16
    ... the medical Veridex platform, CELLSEARCHâ„¢-will help write the next big team, and it is more economical." chapter in the history of medicine. They represent the vanguard of a new era in which cellular- and molecular-based diagnostics will enable doctors to manage more patients back to wellness PI...

  • Page 17
    ...also working to identify novel diagnostic and prognostic markers for major types of cancer to support THE POWER OF KNOWING the Veridex molecular testing pipeline." Wang's other Ortho-Clinical responsibility is to support pharmaceutical research and development teams in biomarker evaluation for drug...

  • Page 18
    ... challenges of our generation," says Julie McHugh, Company Group Chairman, Virology. "Infectious diseases like HIV, HCV and TB are truly global health issues. They require the pharmaceutical industry to create innovative solutions, not only by developing new best-in-class compounds but also by...

  • Page 19
    ... Stoffels, M.D. (right), Company Group Chairman, Research and Development, is reunited in Mechelen, Belgium, with three founding members of his AIDS-fighting research team (clockwise from bottom): Hilde Azijn, Senior Scientist, Tibotec Clinical Virology; Kurt Hertogs, Vice President, Tibotec-Virco...

  • Page 20
    ... core team went off-site to a remote location in northeast Belgium for an entire week, working from 7 a.m. to 11 p.m. each day." 18 HI V I N WOM EN : A S PEC I A L STUDY On the research front, Tibotec Therapeutics-the company's U.S. marketing, sales and clinical arm-initiated in 2006 the largest...

  • Page 21
    ... this access is a core part of our business." M OR E EPI D EM I C S I N THEI R S I GHTS The research and development teams at Tibotec and Virco have even more than HIV within their sights. TMC207, the first novel anti-TB compound in 40 years, was discovered at the Johnson & Johnson Pharmaceutical...

  • Page 22
    ..., Worldwide Vice President of Hip Marketing for DePuy Orthopaedics, Inc., manufacturers and marketers' expertise in a true collaborative effort-with people who have the passion to go the extra mile." a leader in developing state-of-the art technologies for joint Continues Isaac, "Teams of global...

  • Page 23
    ... tissue. This advance in hip replacement was introduced in Europe in 2006. An Investigational Device Exemption study begins in the U.S. in early 2007. · The DEPUY PROXIMA™ Hip finds a perfect synergy with another DePuy innovation, the DEPUY MICROHIP™ surgical procedure. Developed by surgeons...

  • Page 24
    ... Pediatric Institute, LLC meet with Chinese Ministry of Health representatives Ms. Cao Bin (second from right), Director, Child Division, and Madame Zhang Deying, Deputy Director, Maternal and Child Division, to discuss China's Neonatal Resuscitation Program. 22 JOHNSON & JOHNSON 2006 ANNUAL REPORT

  • Page 25
    ... & Johnson company dedicated to saving the lives of mothers and babies the world over-they found an equally determined partner. Almost two years later, the Chinese Ministry of Health's Division of Child Health launched its Neonatal Resuscitation Program (NRP). The program teaches Chinese health care...

  • Page 26
    ...Company • Groupe Vendome Acquisition Expands Global Skin Care Presence • More Than 400 New Products Fuel Worldwide Growth SEIZING A RARE OPPORTUNITY: 2006 Y E AR I N RE VI E W: PFIZER CONSUMER HEALTHCARE (PCH) ACQUISITION The acquisition of Pfizer Consumer Healthcare assets marks an important...

  • Page 27
    ... in international markets. Geographic expansion of our skin care businesses was further enhanced in 2006 with the acquisition of Groupe Vendome, a French company known for adult and baby skin care brands such as LE PETIT MARSEILLAIS®, a line of shower gels, soaps and bath and hair care products...

  • Page 28
    ...virology business based on evolving science and combining pharmaceutical and diagnostic approaches. Thanks to strong internal development capabilities and in-licensing of important early-stage products, the virology franchise has been launched with a strong pipeline and promising growth for years to...

  • Page 29
    Pharmaceutical Segment Sales Sales by Major Product 2006 Sales: $23,267 million Growth Rate: 4.2% (in millions of dollars) RISPERDAL®/ RISPERDAL® CONSTA® $4,183 +17.8% Ortho-McNeil, Inc. Signs Deal for Worldwide Rights to Two Type 2 Diabetes Compounds A licensing agreement between Ortho-McNeil...

  • Page 30
    ... who care for them. Since 2003, the international Janssen-Cilag businesses have marketed a leading treatment for multiple myeloma, VELCADE ® (bortezomib), a novel protease inhibitor for which new uses are being co-developed with Millennium Pharmaceuticals, Inc. Recently, Ortho Biotech Products, LP...

  • Page 31
    ...N RE VI E W: Medical Devices & Diagnostics • 59 New Products Extend Global Leadership in Medical Technology • Six Major Acquisitions Expand Key Business Portfolios Cordis Corporation Portfolio Benefits From Acquisitions, Agreements and R&D In 2006 two strategic acquisitions and three licensing...

  • Page 32
    ... Surgical Advances for Women Medical Devices & Diagnostics Segment Sales Sales by Major Franchise 2006 Sales: $20,283 million Growth Rate: 6.2% (in millions of dollars) $4,105 +6.7% DEPUY® ETHICON® $3,213 +3.9% OTHER $60 +1.7% Ethicon, Inc. introduced two important advances in 2006 that...

  • Page 33
    ...Johnson Vision Care, Inc., continues to perform strongly around the globe with new products introduced in 2006 including 1-DAY ACUVUE® MOIST™ Brand Contact Lenses and 1-DAY ACUVUE® DEFINE™ Vivid Style Cosmetic Contact Lenses in Asian markets. (See story on page 12.) Ortho-Clinical Diagnostics...

  • Page 34
    ... Agency for five consecutive years. Our participation in the voluntary Green Power Partnership program fosters development of the green power market. The company ranks as the third-largest corporate purchaser and the fifth-largest purchaser in the U.S. Johnson & Johnson is taking seriously the...

  • Page 35
    ... Access to Health Care and Health Products M EB EN DA ZOLE D ON ATI ON I N I TI ATI V E (CA M EROON ) is a new multi-year program to provide mebendazole, a treatment for intestinal worms, to some of the most severely infected children in the world. In 2006, 4 million doses were distributed for use...

  • Page 36
    ...cer of the Robert W. Woodruff Health Sciences Center, Emory University; Chairman of Emory Healthcare, Emory University Second Row, Left to Right A N N D. JOR DA N Former Director, Social Services Department, Chicago Lying-In Hospital LEO F. M ULLI N Retired Chairman and Chief Executive Officer...

  • Page 37
    ... of independent Directors, helps the Board oversee the Company's accounting and reporting practices. It recommends independent public accountants for appointment by the Board and reviews their performance; monitors the adequacy of internal accounting practices, procedures and controls; and reviews...

  • Page 38
    ...the activities of the Consumer, Pharmaceuticals and Medical Devices and Diagnostics business segments. Each subsidiary within the business segments is, with some exceptions, managed by citizens of the country where it is located. Vice President, Human Resources Executive Committee COLLEEN A . GOGGI...

  • Page 39
    ... reporting was effective as of December 31, 2006. We refer you to Management's Report on Internal Control over Financial Reporting on page 76. We require the management teams of our operating companies to certify their compliance with our Policy on Business Conduct and we have a systematic program...

  • Page 40
    ...to human health and well-being. The Company is organized into three business segments: Consumer, Pharmaceutical and Medical Devices and Diagnostics. The Consumer segment includes a broad range of products used in the baby and kids care, skin care, oral care, wound care and women's health care fields...

  • Page 41
    ... the AVEENO®, JOHNSON'S® adult, suncare, and the newly acquired Groupe Vendôme adult skin care product lines. The Baby & Kids Care franchise sales grew by 11.5% to $1.7 billion in 2006. This strong growth was led by the success of powder product lines in international markets, as well as cleanser...

  • Page 42
    ...of oral care products. The operating results of the Consumer Healthcare business acquired from Pfizer Inc. on December 20, 2006 will be reported in the Company's financial statements beginning in 2007, as 2006 results subsequent to the acquisition date were not significant. Consumer segment sales in...

  • Page 43
    ... addition, the Company received CE Mark 2006 2005 2004 % Change _____ '06 vs. '05 '05 vs. '04 DEPUY® CORDIS® ETHICON ENDO-SURGERY® ETHICON® LIFESCAN® Vision Care ORTHO-CLINICAL DIAGNOSTICS® Other Total * Prior year amounts have been restated to conform with current presentation. $ 4,105...

  • Page 44
    ... in the ONETOUCH® ULTRA® product line in both U.S. and international markets. Sales in the Vision Care franchise reached $1.9 billion in 2006, a growth rate of 10.9% over the prior year. This growth was led by the global success of ACUVUE® OASYS™ Brand Contact Lenses with HYDRACLEAR™ PLUS...

  • Page 45
    ... stage development. In-Process Research and Development: In 2006, the Company recorded in-process research and development (IPR&D) charges of $559 million before tax related to the acquisitions of the Consumer Healthcare business of Pfizer Inc., Vascular Control Systems, Inc., Ensure Medical, Inc...

  • Page 46
    ... (Income) Expense: Interest income in 2006 increased by $342 million due primarily to higher rates of interest, as well as a higher average cash balance despite the $5.0 billion common stock repurchase program and an increase in acquisition activity. The cash balance, including current marketable...

  • Page 47
    ... and 2006 was a result of financing the acquisition of the Consumer Healthcare business of Pfizer Inc. in December 2006. In 2006, net debt (cash and current marketable securities The Company has long-term contractual obligations, primarily lease, debt obligations and unfunded retirement plans, with...

  • Page 48
    ... employee benefit plans and accounting for stock options. Revenue Recognition: The Company recognizes revenue from product sales when goods are shipped or delivered and title and risk of loss pass to the customer. Provisions for certain rebates, sales incentives, trade promotions, coupons, product...

  • Page 49
    ... retirement and pension plans, including defined benefit, defined contribution and termination indemnity plans, that cover most employees worldwide. These plans are based on assumptions for the discount rate, expected return on plan assets, expected salary increases and health care cost trend rates...

  • Page 50
    ...sales, promotions and reimbursement. 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 seeking to market generic forms of most of the Company's key pharmaceutical products...

  • Page 51
    ... 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 2006 and 2005 were: 2006 _____ High Low 2005 _____ High Low First quarter Second quarter Third quarter Fourth quarter Year...

  • Page 52
    Consolidated Balance Sheets At December 31, 2006 and January 1, 2006 (Dollars in Millions Except Share and Per Share Data) (Note 1) Johnson & Johnson and Subsidiaries 2006 2005 Assets Current assets Cash and cash equivalents (Notes 1, 14 and 15) Marketable securities (Notes 1, 14 and 15) ...

  • Page 53
    ... (195) 187 15 21,543 12,331 4,151 8,180 2.76 2.74 Sales to customers Cost of products sold Gross profit Selling, marketing and administrative expenses Research expense Purchased in-process research and development (Note 17) Interest income Interest expense, net of portion capitalized (Note 3) Other...

  • Page 54
    ...Unrealized gains on securities Employee benefit plans Gains on derivatives & hedges Reclassification adjustment Total comprehensive income Note receivable from ESOP Balance, January 2, 2005 Net earnings Cash dividends paid Employee stock compensation and stock option plans Conversion of subordinated...

  • Page 55
    ... from the disposal of assets Acquisitions, net of cash acquired (Note 17) Purchases of investments Sales of investments Other (primarily intangibles) Net cash used by investing activities Cash flows from financing activities Dividends to shareholders Repurchase of common stock Proceeds from short...

  • Page 56
    ...on products related to human health and well-being. The Company is organized into three business segments: Consumer, Pharmaceutical and Medical Devices and Diagnostics. The Consumer segment manufactures and markets a broad range of products used in the baby and kids care, skin care, oral care, wound...

  • Page 57
    ... on Intangible Assets. FINANCIAL INSTRUMENTS The Company recognizes revenue from product sales when the goods are shipped or delivered and title and risk of loss pass to the customer. Provisions for certain rebates, sales incentives, trade promotions, product returns and discounts to customers are...

  • Page 58
    ... requires management to make estimates and assumptions that affect the amounts reported. Estimates are used when accounting for sales discounts, rebates, allowances and incentives, product liabilities, income taxes, depreciation, amortization, employee benefits, contingencies and intangible asset...

  • Page 59
    ... on July 28, 2008 or 2013, at a purchase price equal to the issue price plus accreted original issue discount to such purchase date. The Company, at its option, may elect to deliver either Johnson & Johnson common stock or cash, or a combination of stock and cash, in the event of repurchase of the...

  • Page 60
    price plus accreted original issue discount. At December 31, 2006 and January 1, 2006 the fair value based on quoted market value of the 3% Debentures was $250.7 million and $260.6 million respectively. Short-term borrowings and current portion of long term debt amounted to $4.6 billion at the end ...

  • Page 61
    ...the end of 2006. The Company settles employee stock option exercises with treasury shares. Treasury shares are replenished throughout the year for the number of shares used to settle employee stock option exercises. The difference between the net deferred tax on income per the balance sheet and the...

  • Page 62
    ...using the fair market value at the date of grant. The fair value of restricted stock units was discounted for dividends, which are not paid on the restricted stock units during the vesting period. The fair value of shares issued during 2006 was $1.7 million. 60 JOHNSON & JOHNSON 2006 ANNUAL REPORT

  • Page 63
    ...and Geographic Areas (Dollars in Millions) Sales to Customers(2) _____ 2006 2005 2004 Consumer - United States International Total Pharmaceutical - United States International Total Medical Devices and Diagnostics - United States International Total Worldwide total $ 4,573 5,201 9,774 15,092 8,175...

  • Page 64
    ...years before retirement and the number of years of service. International subsidiaries have plans under which funds are deposited with trustees, annuities are purchased under group contracts or reserves are provided. The Company does not fund retiree health care benefits in advance and has the right...

  • Page 65
    ...Rate of increase in compensation levels International Benefit Plans Discount rate Expected long-term rate of return on plan assets Rate of increase in compensation levels The Company's discount rates are determined by considering current yield curves representing high quality, long-term fixed income...

  • Page 66
    ... & settlements Benefits paid from plan assets Effect of exchange rates Plan assets at fair value - end of year Funded status at end of year Unrecognized actuarial losses Unrecognized prior service costs Unrecognized net transition assets Total recognized in the consolidated balance sheet Amounts...

  • Page 67
    ... and other Total plan assets The Company's other benefit plans are unfunded except for U.S. life insurance contract assets of $30 million and $34 million at December 31, 2006 and January 1, 2006, respectively. The fair value of Johnson & Johnson common stock directly held in plan assets was $452...

  • Page 68
    ... an employee stock ownership plan (ESOP) unless the employee chose to redirect his or her investment. In 1990, to establish the ESOP, the Company loaned $100 million to the ESOP Trust to purchase shares of the Company stock on the open market. In exchange, the Company received a note, the balance of...

  • Page 69
    ... period balance sheet is based on the best estimates of management. The completion of the purchase price allocation may result in adjustments to the carrying value of the Consumer Healthcare business of Pfizer Inc.'s recorded assets and liabilities, revisions of the useful lives of intangible assets...

  • Page 70
    ... Ensure Medical, Inc., a privately held company that develops devices for post-catheterization closure of the femoral artery. Excluding the acquisition of the Consumer Healthcare business of Pfizer Inc., the excess of purchase price over the estimated fair value of tangible assets acquired amounted...

  • Page 71
    .... The value of the IPR&D was calculated using cash flow projections discounted for the risk inherent in such projects. The discount rate was 25%. Supplemental pro forma information for 2005 and 2004 per SFAS No. 141, Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets, is...

  • Page 72
    ...Cordis Vision Care LITIGATION AGAINST FILERS OF ABBREVIATED NEW DRUG APPLICATIONS (ANDAs) The following chart indicates lawsuits pending against generic firms that filed Abbreviated New Drug Applications seeking to market generic forms of products sold by various subsidiaries of the Company prior...

  • Page 73
    ... the District Court in New Jersey ruled, on October 13, 2006, that the RISPERDAL® patent was valid, enforceable, and infringed by the generic products at issue, and entered an injunction prohibiting Mylan and Dr. Reddy's from marketing their generic risperidone products until a date no earlier than...

  • Page 74
    ... in state and federal courts involving allegations that the pricing and marketing of certain pharmaceutical products amounted to fraudulent and otherwise actionable conduct because, among other things, the companies allegedly reported an inflated Average Wholesale Price (AWP) for the drugs at issue...

  • Page 75
    ..., seeking documents related to sales and marketing of eight drugs to Omnicare, Inc., a manager of pharmaceutical benefits for long-term care facilities. The Johnson & Johnson subsidiaries involved are responding to the subpoena. Several employees of the Company's pharmaceutical subsidiaries have...

  • Page 76
    ... 207.0 (186.3) 3.9 2,961.0 $ 3.73 Shares of common stock issued were 3,119,842,000 shares at the end of 2006, 2005 and 2004. Cash dividends paid were $1.455 per share in 2006, compared with dividends of $1.275 per share in 2005 and $1.095 per share in 2004. 74 JOHNSON & JOHNSON 2006 ANNUAL REPORT

  • Page 77
    ... (Dollars in Millions Except Per Share Data) Segment sales to customers Consumer Pharmaceutical Med Devices & Diagnostics Total sales Gross profit Earnings before provision for taxes on income Net earnings Basic net earnings per share Diluted net earnings per share (1) $ 2,355 5,626 5,011 $12,992...

  • Page 78
    ... the Company's internal control over financial reporting, management excluded the Consumer Healthcare business of Pfizer Inc. from its assessment of internal control over financial reporting. The total assets of the Consumer Healthcare business of Pfizer Inc., which were primarily intangible assets...

  • Page 79
    ... of internal control over financial reporting. Total assets of the Consumer Healthcare business of Pfizer Inc. represent 26% of related consolidated financial statement amounts as of December 31, 2006. New York, New York February 20, 2007 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM...

  • Page 80
    ... Per Share Figures) 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 Sales to customers - U.S. Sales to customers - International Total sales Cost of products sold Selling, marketing and administrative expenses Research expense Purchased in-process research and development Interest income...

  • Page 81
    ... Graphs 1 00 1 001 1 1 00 100 00 ear umulat e otal Shareholder Return 140 Johnson & Johnson 1 0 & n AR 100 & n h & h n n 0 ear J&J & & & GR 4.2 . 2. . 0 01 0 0 YEAR 2001 2002 2003 2004 2005 2006 h 04 0 0 & & h Johnson & Johnson & n h n n n $100.00 $100.00 $100.00 $100.00 $ .11...

  • Page 82
    ... in the Letter to Shareholders, page 1. (Dollars in Millions Except Per Share Data) 2006 2005 2004 '06 vs. '05 % Change '05 vs. '04 % Change Net Earnings - as reported In-process research & development (IPR&D) charges Guidant acquisition agreement termination fee American Jobs Creation Act of 2004...

  • Page 83
    ... for employees and Code of Business Conduct & Ethics for Members of the Board of Directors and Executive Officers. Copies of these documents are available to shareholders without charge upon written request to the Secretary at the Company's principal address. Listed on New York Stock Exchange Stock...

  • Page 84
    ... in their jobs. Compensation must be fair and adequate, and working conditions clean, orderly and safe. We must be mindful of ways to help our employees fulfill their family responsibilities. Employees must feel free to make suggestions and complaints. There must be equal opportunity for employment...