Johnson and Johnson 2006 Annual Report Download - page 40

Organization and Business Segments
DESCRIPTION OF THE COMPANY AND BUSINESS SEGMENTS
Johnson & Johnson and its subsidiaries (the “Company”) have
approximately 122,200 employees worldwide engaged in the
research and development, manufacture and sale of a broad range
of products in the health care field. The Company conducts busi-
ness 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 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, as well as nutritional and over-
the-counter pharmaceutical products. These products are mar-
keted principally to the general public and sold both to
wholesalers and directly to independent and chain retail outlets
throughout the world. The Pharmaceutical segment includes
products in the following therapeutic areas: anti-fungal, anti-
infective, cardiovascular, contraceptive, dermatology, gastroin-
testinal, hematology, immunology, neurology, oncology, pain
management, psychotropic (central nervous system), urology
and virology areas. These products are distributed directly to
retailers, wholesalers and health care professionals for prescrip-
tion use by the general public. The Medical Devices and Diag-
nostics segment includes a broad range of products used
principally in the professional fields byphysicians, nurses, thera-
pists, hospitals, diagnostic laboratories and clinics. These prod-
ucts include Cordis’ circulatory disease management products;
DePuy’s orthopaedic joint reconstruction and spinal care prod-
ucts; Ethicon’s wound care and women’s health products;
Ethicon Endo-Surgery’s minimally invasive surgical products;
LifeScan’s blood glucose monitoring and insulin delivery
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 respon-
sible for the operations and allocation of the resources of the
Company. This Committee oversees and coordinates the activi-
ties of the Consumer, Pharmaceutical 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.
In all of its product lines, the Company competes with
companies 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. Com-
petition in research, involving the development and the improve-
ment 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 portfolio of intellec-
tual property. The competitive environment requires substantial
investments in continuing research and multiple sales forces.
In addition, the development and maintenance of customer
acceptance of the Company’s consumer products involves signif-
icant expenditures for advertising and promotion.
MANAGEMENT’S OBJECTIVES
A primary objective of the Company 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
innovative products and services. New products introduced
within the past five years accounted for over 30% of 2006 sales.
In 2006, $7.1 billion, or 13.4% of sales was invested in research
and development, an increase of $0.7 billion over 2005. This
increase reflects management’s commitment to the importance
of on-going development of new and differentiated products and
services to sustain long term growth.
With more than 250 operating companies located in 57
countries, the Company views its principle of decentralized man-
agement as an asset and fundamental to the success of a broadly
based business. It also fosters an entrepreneurial spirit, combin-
ing the extensive resources of a large organization 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 Our Credo. Our
Credo provides a common set of values and serves as a constant
reminder of the Company’s responsibilities to its customers,
employees, communities and shareholders. 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.
Results of Operations
ANALYSIS OF CONSOLIDATED SALES
In 2006, worldwide sales increased 5.6% to $53.3 billion, com-
pared to increases of 6.7% in 2005 and 13.1% in 2004. These
sales increases consisted of the following:
Sales increase due to: 2006 2005 2004
Volume 3.8% 5.4 8.7
Price1.5 0.6 1.0
Currency0.3 0.7 3.4
Total 5.6%6.7 13.1
Sales by U.S. companies were $29.8 billion in 2006, $28.4 billion
in 2005, and $27.7 billion in 2004. This represents an increase of
4.9% in 2006, 2.2% in 2005, and 9.9% in 2004. Sales by inter-
national companies were $23.5 billion in 2006, $22.1 billion in
2005, and $19.6 billion in 2004. This represents an increase of
6.4% in 2006, 13.1% in 2005, and 18.0% in 2004.
38 JOHNSON & JOHNSON 2006 ANNUAL REPORT
Management’s Discussion and Analysis of Results of Operations and Financial Condition