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ANNUAL REPORT 2010

Table of contents

  • Page 1
    ANNUAL REPORT 2010

  • Page 2
    ... and new mothers made possible by the National Healthy Mothers, Healthy Babies Coalition, founding sponsor Johnson & Johnson and multiple other partners. Text4baby symbolizes our commitment to caring for the health and well-being of mothers and babies, the Johnson & Johnson legacy for 125 years...

  • Page 3
    ..., Board of Directors, and Chief Executive Officer while maintaining investments for future revenue and earnings growth. With these investments, we are developing a number of exciting new products that have the potential to address significant unmet health care needs. Worldwide sales for 2010 were...

  • Page 4
    ... organizational changes to our Supply Chain, Manufacturing and Quality and Compliance areas, which began early in 2010. We also undertook a thorough review of how we operated our manufacturing plants and examined in detail the historical production records of McNeil Consumer Healthcare products sold...

  • Page 5
    ... work across our various business groups and geographies. And we continue to invest more than ever in our people. Our objective is simple: to develop employees with the skills, judgment and integrity to carry on the Johnson & Johnson legacy. BRoadly Based iN HuMaN HealtH MaNaged foR tHe loNg teRM...

  • Page 6
    ... products in the Biosense Webster business, which grew nearly 20 percent operationally for the year. co Ns u MeR $1.0 (10.4%) BABY CARE $2.2 4.4% SKIN CARE $3.5 (0.4%) Consumer sales were $14.6 billion, a decline of approximately 9 percent operationally. Sales were impacted by McNeil recalls...

  • Page 7
    ...our loyal shareholders. William C. Weldon Chairman, Board of Directors, and Chief Executive Officer March 16, 2011 As our businesses have diversified and expanded globally, Johnson & Johnson remains true to the foundation of our company: caring for the health and well-being of mothers and children...

  • Page 8
    ...world's oldest and most deadly infectious diseases, tuberculosis kills 1.8 million people a year. Company researchers' work in TB has been groundbreaking, and for the first time in more than 40 years, a new class of drugs potentially effective against TB has been JOHNSON & JOHNSON 2010 ANNUAL REPORT

  • Page 9
    ... Development, which will conduct studies of TMC207 in patients undergoing TB treatment for the first time. In addition, a new HIV drug, TMC278 (rilpivirine), is undergoing regulatory review and may add to the already strong HIV portfolio. "It is generally safe and well-tolerated in clinical trials...

  • Page 10
    ...Global Therapeutic Area Head, Oncology. "We believe that abiraterone acetate is an important medical advance, and we look forward to further developing additional therapies for oncology patients that will help save the lives of people around the world," he says. JOHNSON & JOHNSON 2010 ANNUAL REPORT

  • Page 11
    ...are working to develop new treatment options that will not only help better manage the disease but have the potential to limit its progression." In 2010, a large clinical development program for canagliflozin* and new collaborations supported the Company's commitment to build a portfolio of diabetes...

  • Page 12
    ... that opened in Shanghai in 2007 iv built on a convumer clovenevv and bonding program, an integral part of emerging market product devign and development to meet needv in China. "I am happy Johnvon & Johnvon iv focuved on making new technologiev and better health care accevvible to lower-income...

  • Page 13

  • Page 14
    ...of consumers everywhere in the world want a natural solution," says Patrick Mutchler, Company Group Chairman. "As the global leader in baby care, it's our responsibility to meet the different needs of different mothers." NAT UR A L AN D M O RE S U STA I NA BLE Johnson's® poured more than 100 years...

  • Page 15
    JOHNSON & JOHNSON 2010 ANNUAL REPORT 25

  • Page 16
    ...® Total Care MotrIn® has gained their trust, Enamel Guard, accounted as well as the trust of parents for more than half the like Hai Yan Li. brand's total sales. Shanghai Johnson & Johnson "The continued success of Pharmaceuticals and the China lIsterIne® mouthwash in Medical Association also...

  • Page 17
    ...-skin website. Products specifically designed for sale online, with direct links to purchase, were the brand's main revenue drivers. Strategic alliances with top online retailers helped make clean & clear® the No. 1 teen skin care brand in major online channels in Korea. And the aVeeno® Baby site...

  • Page 18
    ...how we've used our scale to quickly globalize important products," says Randy Hubbell, Worldwide Vice President, Ethicon Biosurgery unit. "With EvicEl® we've 16 D taken the best technology, leveraged the global network of Johnson & Johnson companies and provided a strategic plan executed by local...

  • Page 19

  • Page 20
    ... glucose management system, a step toward the goal of revolutionizing treatment of type 1 diabetes. Paul Andrews and colleague Carrole White use a GlOsAiRâ„¢ 400 System to help reduce health care-associated infections at Dorset County Hospital in England. 18 JOHNSON & JOHNSON 2010 ANNUAL REPORT

  • Page 21
    ... from two to eight hours. "It was depressing," he says, recalling the extreme fatigue that came with them. Recently retired, he loves taking long walks and is enjoying living life again. "All that anxiety and stress is gone. My life has changed completely." 19 JOHNSON & JOHNSON 2010 ANNUAL REPORT

  • Page 22
    ..., Vice President, Supply Chain Strategy and Project Management, JJSC. "Rather than plan around one operating unit, we can approach manufacturing from a Johnson & Johnson vantage point. With the new supply chain model, we're more able to leverage assets, best practices, systems and technologies while...

  • Page 23

  • Page 24
    ...touch lives throughout the world. "Meeting unmet needs in health care, one of our most important mandates, is to foster innovation both internally and through external collaborations," says Garry Neil, M.D., Corporate Vice President, Corporate Office of Science & Technology. "Throughout our business...

  • Page 25

  • Page 26
    ... in China and Megan Johnson in the United States share something in common. Each of these mother's lives has been touched by Johnson & Johnson and its network of communitybased partners, working together to better health and save and improve lives. "Caring for the health of mothers and children...

  • Page 27
    ...(bottom right) is using text4baby to help her during her second pregnancy as she tries to take the best care of herself, daughter Alessandra and baby on-the-way. Read their stories, and more about the Company's philanthropic efforts, on www.jnj.com/ourcaring. 25 JOHNSON & JOHNSON 2010 ANNUAL REPORT

  • Page 28
    ...to businesses," says Michael Maggio, Vice President, Global Strategic Design Operations, Johnson & Johnson. "That's important, because they provide valuable recycled content to suppliers and companies, like us, that are increasingly interested in using these materials." Project Phoenix is modeled on...

  • Page 29
    ... Board and Retired President and ihief reviews its performance. Operating Officer, Bell Atlantic In addition, the iommittee iorporation monitors the adequacy of Third Row, Left to Right internal accounting practices, IAN E. L . DAVIS procedures and controls; Managing Director Emeritus; reviews the...

  • Page 30
    ... President, Science and Technology, helps the Board with scientific matters impacting the iompany's business, including monitoring the strategy and effectiveness of the iompany's research and development organization; reviewing the effectiveness of scientific aspects of the iompany's product safety...

  • Page 31
    ... Statements of Cash Flows Notes to Consolidated Financial Statements Report of Independent Registered Public Accounting Firm Management's Report on Internal Control Over Financial Reporting SUPPORTING SCHEDULES 74 Summary of Operations and Statistical Data 2000-2010 75 Shareholder Return...

  • Page 32
    ...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 care, skin care, oral care, wound care and women's health care fields, as well as nutritional and over-the-counter...

  • Page 33
    ...items, training, resources and capital investments in quality and manufacturing systems across the McNeil organization. The 2010 2009 2008 % Change _____ '10 vs. '09 '09 vs. '08 OTC Pharmaceuticals & Nutritionals Skin Care Baby Care Women's Health Oral Care Wound Care/Other Total $ 4,549 3,452...

  • Page 34
    ...in the United States. The Wound Care/Other franchise sales were $1.0 billion, a decrease of 10.4% primarily due to private label competition and slower category growth. Consumer segment sales in 2009 were $15.8 billion, a decrease of 1.6% from 2008, with 2.0% of this change due to operational growth...

  • Page 35
    ... by costs associated with product liability expense and the impact of the OTC and DePuy ASR™ Hip recalls. Additional offsets were lower 2010 2009 2008 % Change _____ '10 vs. '09 '09 vs. '08 DEPUY® ETHICON ENDO-SURGERY® ETHICON® Vision Care CORDIS® Diabetes Care ORTHO-CLINICAL DIAGNOSTICS...

  • Page 36
    ... program. In addition, in 2008 the Company utilized the proceeds associated with the divestiture of the Professional Wound Care business of Ethicon, Inc. to fund increased investment spending. In 2008, cost of products sold as a percent to sales remained flat to the prior year. The change in the mix...

  • Page 37
    ...at the end of 2008. The higher average debt balance of $13.5 billion in 2009 35 Operating profits by segment of business were as follows: Percent of Segment Sales _____ 2010 2009 (Dollars in Millions) 2010 2009 Consumer Pharmaceutical Medical Devices and Diagnostics Total (1) Less: Expenses not...

  • Page 38
    ... Statements. The Company anticipates that operating cash flows, existing credit facilities and access to the commercial paper markets will provide sufficient resources to fund operating needs in 2011. The Company uses financial instruments to manage the impact of foreign exchange rate changes...

  • Page 39
    .... The Company rarely exchanges products from inventory for returned products. The sales returns reserve for the total Company has ranged between 1.0% and 1.2% of annual net trade sales during the prior three fiscal reporting years 2008-2010. Promotional programs, such as product listing allowances...

  • Page 40
    ..., returns, promotions, reserve for doubtful accounts and reserve for cash discounts by segment of business for the fiscal years ended January 2, 2011 and January 3, 2010. CONSUMER SEGMENT Balance at Beginning of Period Payments/ Other Balance at End of Period MEDICAL DEVICES AND DIAGNOSTICS SEGMENT...

  • Page 41
    ...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 2010 and 2009 were: 2010 _____ High Low 2009 _____ High Low First quarter Second quarter Third quarter Fourth quarter Year-end close...

  • Page 42
    ... by government agencies; changes in behavior and spending patterns of purchasers of healthcare products and services; manufacturing difficulties or delays; product efficacy or safety concerns resulting in product recalls or regulatory action. The Company's report on Form 10-K for the year ended...

  • Page 43
    ... Balance Sheets At January 2, 2011 and January 3, 2010 (Dollars in Millions Except Share and Per Share Data) (Note 1) Johnson & Johnson and Subsidiaries 2010 2009 Assets Current assets Cash and cash equivalents (Notes 1 and 2) Marketable securities (Notes 1 and 2) Accounts receivable trade...

  • Page 44
    ... 1 and 15) Diluted net earnings per share (Notes 1 and 15) Cash dividends per share Basic average shares outstanding (Notes 1 and 15) Diluted average shares outstanding (Notes 1 and 15) $ 2.110 2,751.4 2,788.8 See Notes to Consolidated Financial Statements 42 JOHNSON & JOHNSON 2010 ANNUAL REPORT

  • Page 45
    ... losses on securities Employee benefit plans Gains on derivatives & hedges Reclassification adjustment Total comprehensive income Balance, December 28, 2008 Net earnings Cash dividends paid Employee compensation and stock option plans Conversion of subordinated debentures Repurchase of common stock...

  • Page 46
    ... 1) Johnson & Johnson and Subsidiaries 2010 2009 2008 Cash flows from operating activities Net earnings Adjustments to reconcile net earnings to cash flows from operating activities: Depreciation and amortization of property and intangibles Stock based compensation Purchased in-process research...

  • Page 47
    ...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 care, skin care, oral care, wound care and...

  • Page 48
    ... The Company rarely exchanges products from inventory for returned products. The sales returns reserve for the total Company has ranged between 1.0% and 1.2% of annual sales to customers during the prior three fiscal reporting years 2008-2010. Promotional programs, such as product listing allowances...

  • Page 49
    ...instruments; and (4) manage the enterprise risk associated with financial institutions. See Note 6 for additional information on Financial Instruments. PRODUCT LIABILITY contract development services is not central to the Company's operations. In general, the income statement presentation for these...

  • Page 50
    ...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 and...

  • Page 51
    ... of intangible assets were: (Dollars in Millions) 2010 2009 6. Fair Value Measurements The Company uses forward exchange contracts to manage its exposure to the variability of cash flows, primarily related to the foreign exchange rate changes of future intercompany product and thirdparty purchases...

  • Page 52
    ... operations, cash flows or financial position. The Company also holds equity investments that are classified as Level 1 as they are traded in an active exchange market. The following three levels of inputs are used to measure fair value: Level 1 - Quoted prices in active markets for identical assets...

  • Page 53
    ... with the Securities and Exchange Commission that enables the Company to issue on a timely basis debt securities and warrants to purchase debt securities. Aggregate maturities of long-term obligations commencing in 2010 are: (Dollars in Millions) 2011 2012 2013 2014 2015 After 2015 $13 644...

  • Page 54
    ...2010 2009 2008 U.S. International Earnings before taxes on income Tax rates: U.S. statutory rate Ireland and Puerto Rico operations Research and orphan drug tax credits U.S. state and local International subsidiaries excluding Ireland U.S. manufacturing deduction In-process research and development...

  • Page 55
    ... governmentsponsored programs and the cost to the Company is not significant. Retirement plan benefits are primarily based on the employee's compensation during the last three to five years before retirement and the number of years of service. International subsidiaries have plans under which funds...

  • Page 56
    ... listed and also the net periodic benefit cost for the following year. Retirement Plans _____ 2010 2009 2008 Other Benefit Plans _____ 2010 2009 2008 U.S. Benefit Plans Discount rate Expected long-term rate of return on plan assets Rate of increase in compensation levels International Benefit Plans...

  • Page 57
    ... contributions Settlements Benefits paid from plan assets Effect of exchange rates Plan assets at fair value - end of year Funded status at - end of year* Amounts Recognized in the Company's Balance Sheet consist of the following: Non-current assets Current liabilities Non-current liabilities Total...

  • Page 58
    ...securities Real estate and other Total plan assets The Company's other benefit plans are unfunded except for U.S. life insurance contract assets of $14 million and $16 million at January 2, 2011 and January 3, 2010, respectively. The fair value of Johnson & Johnson Common Stock directly held in plan...

  • Page 59
    ...using pricing models, quoted prices of securities with similar characteristics or discounted cash flows and are classified as Level 2. Level 3 debt instruments are priced based on unobservable inputs. • Equity securities - Common stocks are valued at the closing price reported on the major market...

  • Page 60
    ...of the Plan's Level 3 assets for the years ended January 2, 2011 and January 3, 2010: (Dollars in Millions) Debt Instruments Equity Securities Commingled Funds Insurance Contracts Other Assets Total Level 3 Balance December 28, 2008 Realized gains (losses) Unrealized gains (losses) Purchases, sales...

  • Page 61
    ... At January 2, 2011, the Company had 7 stock-based compensation plans. The shares outstanding are for contracts under the Company's 2000 Stock Option Plan, the 2005 Long-Term Incentive Plan, the 1997 Non-Employee Director's Plan and the ALZA Corporation, Inverness Medical Technology, Inc., and...

  • Page 62
    ...for the number of shares used for employee stock issuances. A summary of share activity under the Plan as of January 2, 2011: (Shares in Thousands) Outstanding Shares $1,310 $ 648 The total intrinsic value of options exercised was $278 million, $184 million and $506 million in 2010, 2009 and 2008...

  • Page 63
    ... Segments of Business(1) and Geographic Areas (Dollars in Millions) Sales to Customers(2) _____ 2010 2009 2008 Consumer - United States International Total Pharmaceutical - United States International Total Medical Devices and Diagnostics - United States International Total Worldwide total $ 5,519...

  • Page 64
    ... Third Fourth Quarter(1) Quarter(2) Quarter Quarter(3) 2009 _____ First Second Third Fourth Quarter Quarter Quarter Quarter(4) (Dollars in Millions Except Per Share Data) Segment sales to customers Consumer Pharmaceutical Med Devices & Diagnostics Total sales Gross profit Earnings before provision...

  • Page 65
    ...such projects. A probability of success factor of 90% was used to reflect inherent risk. The discount rate applied was 14%. Supplemental pro forma information for 2010, 2009 and 2008 in accordance with U.S. GAAP standards related to business combinations, and goodwill and other intangible assets, is...

  • Page 66
    ...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 Company is confident of the adequacy of the warnings and instructions for use that accompany such products, it is...

  • Page 67
    ... in this case is ongoing. In August 2009, Bayer HealthCare LLC (Bayer) filed suit against COBI in Massachusetts District Court alleging infringement by COBI's SIMPONI® product of its patent relating to human antiTNF antibodies. On January 28, 2011, the court issued judgment dismissing Bayer...

  • Page 68
    ... very substantial market share and revenue losses for the product of the Company's subsidiary. As noted in the following chart, 30-month stays expired during 2009, 2010, and will expire in 2011, 2012 and 2013 with respect to ANDA challenges regarding various products: Brand Name Product Patent/NDA...

  • Page 69
    ... ORTHO TRI-CYCLEN® LO. The Sandoz and Watson cases have been consolidated. In September 2010, OMJPI entered into a settlement agreement with Sandoz. In January 2010, the Company's subsidiary OMJPI filed suit in Federal District Court in New Jersey against Lupin Ltd. and Lupin Pharmaceuticals...

  • Page 70
    ... Company's subsidiaries have been set for trial: Idaho in October 2011, Kentucky in January 2012 and Kansas in March 2013. Other state cases are likely to be set for trial in the coming year. In addition, an AWP case against the Johnson & Johnson defendants brought by the state of Pennsylvania was...

  • Page 71
    ... improper off-label marketing of pharmaceutical and medical device products, violations of current good manufacturing practice regulations that resulted in product recalls, and failed to disclose the aforementioned alleged misconduct in the Company's filings under the Securities Exchange Act of 1934...

  • Page 72
    ... the U.S. Attorney's Office, District of Massachusetts, seeking documents related to sales and marketing of eight drugs to Omnicare, Inc., (Omnicare) a manager of pharmaceutical benefits for longterm care facilities. The Company's subsidiaries involved responded to the subpoena. Several employees of...

  • Page 73
    ...unlawful trade practices act relating to an earlier recall of a McNeil OTC product. The defendants intend to seek dismissal of this civil complaint. Furthermore, a lawsuit was filed in September 2010 by a shareholder in the United States District Court for the District of New Jersey: Monk v. Johnson...

  • Page 74
    ... of Independent Registered Public Accounting Firm To the Shareholders and Board of Directors of Johnson & Johnson: In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of earnings, statements of equity, and statements of cash flows present fairly, in...

  • Page 75
    ... LLP, an independent registered public accounting firm, as stated in their report, which appears herein. William C. Weldon Chairman, Board of Directors, and Chief Executive Officer Dominic J. Caruso Vice President, Finance, and Chief Financial Officer MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER...

  • Page 76
    ... balance sheet data: Property, plant and equipment, net Additions to property, plant and equipment Total assets Long-term debt Operating cash flow Common stock information Dividends paid per share Shareholders' equity per share Market price per share (year-end close) Average shares outstanding...

  • Page 77
    ... rein e ted 5-Year Cumulative Total Shareholder Return (2005-2010) $125 $115 hn n & hn n S&P 500 Index $105 S&P Pharmaceutical Index S&P Health Care Equipment Index $ 5 5-Year C R & S&P 500 S&P Pharm S&P H C Equip 3.5% 2.3% 3.5% (0.2%) $ 5 $75 2005 2006 2007 2008 2009 2010 $100 00...

  • Page 78
    ... Share Data) 2010 2009 2008 '10 vs. '09 % Change '09 vs. '08 % Change Earnings before provision for taxes on income - as reported Purchased in-process research & development (IPR&D) Gain on litigation settlements, net Restructuring expense Product liability expense DePuy ASRâ„¢ Hip recall program...

  • Page 79
    ... on New York Stock Exchange Stock Symbol JNJ SH A R E H O L D E R R E L ATI ONS CONTACT Douglas K. Chia Corporate Secretary (732) 524-2455 The Johnson & Johnson annual report contains many of the valuable trademarks owned and used by the Johnson & Johnson Family of Companies in the United States...

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