Johnson and Johnson 2008 Annual Report Download - page 45

MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION 43
ECONOMIC AND MARKET FACTORS
The Company is aware that its products are used in an environment
where, for more than a decade, policymakers, consumers and busi-
nesses have expressed concerns about the rising cost of health care.
In response to these concerns, the Company has a long-standing
policy of pricing products responsibly. For the period 1998–2008, in
the United States, the weighted average compound annual growth
rate of the Company’s net price increases for health care products
(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 econo-
mies and, consequently, on the way companies operate. In the face
of increasing costs, the Company strives to maintain its profit mar-
gins 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 2008 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
frequency of physician visits and foregoing health care insurance
coverage, as a result of the current global economic downturn
will continue to impact the Company’s businesses.
The Company also operates in an environment which has
become increasingly hostile tointellectual property rights. Generic
drug firms have filed Abbreviated New Drug Applications (ANDAs)
seeking tomarket 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 ANDAfilings, 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 disc-
ussion on “Litigation Against Filers of Abbreviated New Drug Appli-
cations” in Note 18 to the Consolidated Financial Statements.
LEGAL PROCEEDINGS
The Companyis 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 Companyis 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-partyproduct liabilityinsurance.
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 anycertainty. However, in the Company’s
opinion, based on its examination of these matters, its experience
to dateand discussions with counsel, the ultimate outcome of legal
proceedings, net of liabilities already accrued in the Company’s
balancesheet, is not expected tohave a material adverse effect on
the Company’sfinancial 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 18 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 2008 and 2007 were:
2008 2007
____________________ ____________________
High Low High Low
First quarter $68.85 61.17 68.22 59.87
Second quarter 68.32 63.40 65.45 59.95
Third quarter 72.76 63.10 65.75 59.72
Fourth quarter 69.86 52.06 68.75 63.55
Year-end close $58.56 67.38
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 futureoperations, financial
performance, the Company’s strategy for growth, product develop-
ment, regulatory approval, market position and expenditures.
Forward-looking statements arebased 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
relianceon anyforward-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 scrutinyof 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
December 28, 2008 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.