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ANNUAL REPORT 2011

Table of contents

  • Page 1
    ANNUAL REPORT 2011

  • Page 2
    ... and dedicated to the people who use our products, our employees, the communities in which we live and work, and you, our shareholders. Most important, we will never lose sight of who we are. ON THE COVER Matt Cox, who has type 1 diabetes and uses the waterproof ANIMAS® VIBE™ insulin pump...

  • Page 3
    ...capital has been returned to shareholders in the form of dividends and share repurchases. Capital has also been used for important long-term investments in strategic alliances and acquisitions like Pfizer Consumer Healthcare and Beijing Dabao Cosmetics Company, Ltd. in the Consumer business; Crucell...

  • Page 4
    ...to constraints on health care spending. These dynamics are balanced by demographic trends that to patients and customers; • Because of the steps we have taken to build a more agile company; • And because of our commitment to the operating model and NET SALES (in billions of dollars) $61.1 $ 63...

  • Page 5
    ..., Johnson & Johnson is better positioned today than at any time in recent history to deliver sustainable growth for you, our loyal shareholders. William C. Weldon Chairman, Board of Directors, and Chief Executive Officer March 14, 2012 Just as important as the way we innovate is the way we operate...

  • Page 6
    ... billion in sales in 2011, our Medical Devices and Diagnostics (MD&D) business unit is the largest medical device business in the world. Operational sales growth was just under 2 percent. The year saw many challenges in several MD&D markets, as well as issues with the DePuy ASRâ„¢ Hip System recall...

  • Page 7
    ... ORTHO-CLINICAL DIAGNOSTICS® $2.2 5.4% DIABETES CARE $2.6 7.4% $2.9 8.8% VISION CARE DEPUY® $5.8 4.0% CARDIOVASCULAR CARE $2.3 (10.3%) Consumer segment sales sales by major Franchise (in billions of dollars) SKIN CARE $3.7 7.6% 2011 Sales: $14.9 Sales Change Total: 2.0% Operational...

  • Page 8
    ... close to its environment, and it's using its environment to grow better," says Hait. That kind of insight enabled the paradigm-changing scientific progress that led to ZYTIGA®, validating the TSG approach. Importantly, Hait also helped open minds to look beyond the company's own labs and invest...

  • Page 9
    ...people internally. "Like-minded people seek each other out," says Hait. "At the end of the day it's the terms of the contract, but to get to that point the other company or group has to have confidence that the people they are working with are really experts." 7 JOHNSON & JOHNSON 2011 ANNUAL REPORT

  • Page 10
    ... of Johnson & Johnson. The Janssen Companies have the right to commercialize telaprevir in Europe, Latin America, the Middle East, Africa, India, Australia and New Zealand under the commercial name INCIVO®. ** The most common genotype in Europe and the U.S. JOHNSON & JOHNSON 2011 ANNUAL REPORT

  • Page 11
    ...), the company can provide treatment options for patients at all stages of the disease. Since 2007, licensing agreements have been used with generic manufacturers to make these HIV medicines available at a low special access price to 65 countries that have a high HIV burden, including India and...

  • Page 12
    ... Global Topical Health Care, Johnson & Johnson Family of Consumer Companies. "We're proud to be able to help eczema sufferers." Other heritage brands are also launching innovative products to meet consumer needs. For example, TEUTROGETA®, a 58-year-old iconic brand, learned from consumer insight...

  • Page 13
    ..., which deeply resonated with consumers. "Consumers have trusted our brands for generations. We must invest in our heritage brands to keep them successful and relevant to consumer needs," says Jesse Wu, Worldwide Chairman, Consumer Group, Johnson & Johnson. 11 JOHNSON & JOHNSON 2011 ANNUAL REPORT

  • Page 14
    ..., the Johnson & Johnson Family of Companies acquired the over- the-counter business of J.B. Chemicals & Pharmaceuticals Ltd., including its DOKTOR MOM® brand, a well-known line of products for mid-tier consumers in Russia. Such acquisitions are helping to expand the portfolio of products that meet...

  • Page 15
    ... Paulette Frank, Vice President, Sustainability and Environment, Health and Safety, Johnson & Johnson Family of Consumer Companies. In 2010 and 2011, sustainable palm oil certificates equal to 100 percent of our estimated palm oil use were purchased from the GreenPalm program, which is endorsed by...

  • Page 16
    ..."neurological"disorders."Codman"is"part" of"the"DePuy"Family"of"Companies,"which" has"a"rich"history"of"pioneering"products"in" orthopaedic"and"neurological"care."" A"fast-growth"area,"the"neurovascular" market"is"expanding"at"more"than"" 10"percent"annually. JOHNSON & JOHNSON 2011 ANNUAL REPORT 14

  • Page 17
    ... area"while"watching"the"image"on"a"screen." The"device's"mesh"basket"expanded," pushing"the"clot"against"the"vessel"wall" and"restoring"blood"flow"to"the"brain."Prof." Bendszus"then"retrieved"and"removed" the"blood"clot"that"caused"Mrs."Wecker's" JOHNSON & JOHNSON 2011 ANNUAL REPORT stroke"and"the...

  • Page 18
    ...G4â„¢"Transmitter"is"waterproof" at"2.4"meters"for"24"hours." Matt"Cox"took"part"in"a"relay"swim"across" the"English"Channel"with"support"from"his"family."He"wanted"to" show"his"son,"Jack,"that"diabetes"shouldn't"hold"him"back"from" accomplishing"his"goals. 16 JOHNSON & JOHNSON 2011 ANNUAL REPORT

  • Page 19
    ..."" long"term. " "In"April"2011," Johnson"&"Johnson"announced" it"planned"to"acquire"Synthes," Inc.,"a"premier"global" developer"and"manufacturer" of"orthopaedics"devices."The" acquisition,"which"would" be"the"largest"purchase"in" Johnson"&"Johnson"history," will"strengthen"the"Company's" leadership...

  • Page 20
    ... JJMC team, including regulatorfj affairs," explains Watanabe. Bfj March 25, five labeling rooms were operating at almost 100 percent capacitfj, while repairs to the manufacturing line continued. All repairs to the automated distribution warehouse were completed. JOHNSON & JOHNSON 2011 ANNUAL REPORT

  • Page 21
    ... the JOHNSON & JOHNSON 2011 ANNUAL REPORT Children and World Vision. In Japan, Janssen Pharmaceutical K.K.'s support for rescue efforts included donating medical equipment, supplies and funding for a group of 600 doctors working in affected areas. The Vision Care Division provided free lenses to...

  • Page 22
    ..., Vice President, Worldwide Corporate Contributions & Community Relations. "We bring a rigor for metrics and evaluation, and our work to help programs demonstrate measurable outcomes provides organizations with data that can attract additional sources of funding." The Company's diverse partners are...

  • Page 23
    ...Communities, Healthy Ecosystems" program in Africa, which links the health of the environment to the health of local people. Johnson & Johnson was also an early participant in WWF's Global Forest & Trade Network, focused on reliable, sustainable sourcing of paper and wood products. While the Company...

  • Page 24
    ... Health Disparities; Director, Satcher Health Leadership Institute and Poussaint-Satcheriosby ihair in Mental Health, Morehouse School of Medicine; Former U.S. Surgeon General RONAL D A. WI L L I AM S Former ihairman and ihief Executive Officer, Aetna Inc. 22 JOHNSON & JOHNSON 2011 ANNUAL REPORT

  • Page 25
    ... iommittee, which determines management compensation and establishes perquisites and other compensation policies for non-executive employees. Additionally, the iommittee oversees the management of the various retirement, pension, long-term incentive, savings, health and welfare plans that cover the...

  • Page 26
    ... CCOY Vice President, Finance ihief Financial Officer Executive iommittee DOUG L A S K . C H IA Vice ihairman Executive iommittee J OHN A . PA PA The Executive iommittee of Johnson & Johnson is the principal management group responsible for the strategic operations and allocation of the resources...

  • Page 27
    ... Public Accounting Firm Management's Report on Internal Control Over Financial Reporting SUPPORTING SCHEDULES 70 Summary of Operations and Statistical Data 2001-2011 71 Shareholder Return Performance Graphs 72 Reconciliation of Non-GAAP Financial Measures JOHNSON & JOHNSON 2011 ANNUAL REPORT...

  • Page 28
    ...In 2011, $7.5 billion, or 11.6% of sales, was invested in research and development. This investment reflects management's commitment to the importance of ongoing development of new and differentiated products and services to sustain long-term growth. With more than 250 operating companies located in...

  • Page 29
    ... Consumer Healthcare manufacturing operations. The consent decree identifies procedures that will help provide additional assurance of product quality to the FDA. McNeil continues to % Change (Dollars in Millions) 2011 2010 2009 '11 vs. '10 '10 vs. '09 OTC Pharmaceuticals & Nutritionals Skin Care...

  • Page 30
    ... alternative sites and a modest amount of products returned to the market in the fourth quarter of 2011. Products will continue to be reintroduced throughout 2012 and 2013. The Skin Care franchise achieved sales of $3.7 billion in 2011, a 7.6% increase as compared to the prior year primarily due...

  • Page 31
    ..., investment spending, the fee on branded pharmaceutical Major Medical Devices and Diagnostics Franchise Sales: % Change (Dollars in Millions) 2011 2010 2009 '11 vs. '10 '10 vs. '09 DEPUY® ETHICON ENDO-SURGERY® ETHICON® Vision Care Diabetes Care Cardiovascular Care* ORTHO-CLINICAL DIAGNOSTICS...

  • Page 32
    ... in consolidated earnings before provision for taxes on income. Cost of Products Sold and Selling, Marketing and Administrative Expenses: Cost of products sold and selling, marketing and administrative expenses as a percent to sales were as follows: % of Sales 2011 2010 2009 Cost of products sold...

  • Page 33
    ... in the operating profit margin in the Medical Devices and Diagnostics segment were product liability and litigation expenses, costs associated with the DePuy ASRâ„¢ Hip recall program, restructuring expense, costs incurred related to the planned acquisition of Synthes, Inc. and increased investment...

  • Page 34
    ....5 billion in 2009 versus $12.9 billion in 2008 was primarily related to funding acquisitions and investments and the purchase of the Company's Common Stock under the Common Stock repurchase program announced on July 9, 2007. Provision for Taxes on Income: The worldwide effective income tax rate was...

  • Page 35
    ... pensions and other 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...

  • Page 36
    .... 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 2011, 2010 and 2009. Promotional programs, such as product listing...

  • Page 37
    ..., consumers and businesses 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 2001-2011, in the United States, the weighted average compound annual growth rate of...

  • Page 38
    ... share and revenue losses for that product. For further information see the discussion on "Litigation Against Filers of Abbreviated New Drug Applications" in Note 21 to the Consolidated Financial Statements. LEGAL PROCEEDINGS Cautionary Factors That May Affect Future Results This Annual Report...

  • Page 39
    Consolidated Balance Sheets At January 1, 2012 and January 2, 2011 (Dollars in Millions Except Share and Per Share Data) (Note 1) Johnson & Johnson and Subsidiaries 2011 2010 Assets Current assets Cash and cash equivalents (Notes 1 and 2) Marketable securities (Notes 1 and 2) Accounts receivable...

  • Page 40
    ...759.5 2,789.1 Sales to customers Cost of products sold Gross profit Selling, marketing and administrative expenses Research and development expense Interest income Interest expense, net of portion capitalized (Note 4) Other (income) expense, net Restructuring (Note 22) Earnings before provision for...

  • Page 41
    ... 1) Total Comprehensive Income Retained Earnings Johnson & Johnson and Subsidiaries Accumulated Other Comprehensive Income Common Stock Issued Amount Treasury Stock Amount Balance, December 28, 2008 Net earnings Cash dividends paid Employee compensation and stock option plans Repurchase of common...

  • Page 42
    ... assets Acquisitions, net of cash acquired (Note 20) 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-term debt Retirement of...

  • Page 43
    ... of operations, cash flows or financial position. RECENTLY ISSUED ACCOUNTING STANDARDS NOT ADOPTED AS OF JANUARY 1, 2012 The Company has approximately 117,900 employees worldwide engaged in the research and development, manufacture and sale of a broad range of products in the health care field...

  • Page 44
    ... not material. 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 2011, 2010 and 2009. 42 The authoritative literature...

  • Page 45
    ... approximately $1.3 billion as of January 2, 2011 of the Southern European Region net trade accounts receivable balance related to the Company's Consumer, Vision Care and Diabetes Care businesses as well as certain Pharmaceutical and Medical Devices and Diagnostics customers which are in line with...

  • Page 46
    ... CLOSING DATE 3. Inventories At the end of 2011 and 2010, inventories were comprised of: (Dollars in Millions) 2011 2010 Raw materials and supplies Goods in process Finished goods Total inventories $1,206 1,637 3,442 $6,285 1,073 1,460 2,845 5,378 4. Property, Plant and Equipment The Company...

  • Page 47
    ... currency interest rate swaps to manage currency risk primarily related to borrowings. Both types of derivatives are designated as cash flow hedges. The Company also uses forward exchange contracts to manage its exposure to the variability of cash flows for repatriation of foreign dividends. These...

  • Page 48
    ...-current liabilities for the fiscal years ending January 1, 2012 and January 2, 2011, respectively. (4) Classified as non-current other assets. See Notes 2 and 7 for financial assets and liabilities held at carrying amount on the Consolidated Balance Sheet. 46 JOHNSON & JOHNSON 2011 ANNUAL REPORT

  • Page 49
    ... and warrants to purchase debt securities on a timely basis. The Company issued bonds in May 2011 for a total of $4.4 billion for general corporate purposes. Aggregate maturities of long-term obligations commencing in 2011 are: (Dollars in Millions) 2012 2013 2014 2015 2016 After 2016 $616 1,545...

  • Page 50
    ...as the measurement date for all U.S. and international retirement and other benefit plans. The unrecognized tax benefits of $2.7 billion at January 1, 2012, if recognized, would affect the Company's annual effective tax rate. The Company conducts business and files tax returns in numerous countries...

  • Page 51
    ...projected benefit obligation for the year listed and also the net periodic benefit cost for the following year. (Dollars in Millions) Retirement Plans _____ 2011 2010 2009 Other Benefit Plans _____ 2011 2010 2009 U.S. Benefit Plans Discount rate Expected long-term rate of return on plan assets Rate...

  • Page 52
    ... Settlements Divestitures & acquisitions Benefits paid from plan assets Effect of exchange rates Plan assets at fair value - end of year Funded status - end of year Amounts Recognized in the Company's Balance Sheet consist of the following: Non-current assets Current liabilities Non-current...

  • Page 53
    ... the future. (Dollars in Millions) 2012 2013 2014 2015 2016 2017-2021 Projected future contributions Unfunded U.S. retirement plans Unfunded international retirement plans $39 $22 41 21 44 20 47 22 51 26 329 126 Each pension plan is overseen by a local committee or board that is responsible...

  • Page 54
    ... by the fund, minus its liabilities, and then divided by the number of shares outstanding. The NAV is a quoted price in a market that is not active and classified as Level 2. • Government and agency securities - A limited number of these investments are valued at the closing price reported on the...

  • Page 55
    ... Shares Amount Balance at December 28, 2008 Employee compensation and stock option plans Repurchase of common stock Balance at January 3, 2010 Employee compensation and stock option plans Repurchase of common stock Balance at January 2, 2011 Employee compensation and stock option plans Repurchase...

  • Page 56
    ... to four years. All options are granted at the average of the high and low prices of the Company's Common Stock on the New York Stock Exchange on the date of grant. Under the 2005 Long-Term Incentive Plan, the Company may issue up to 260 million shares of common stock. Shares available for future...

  • Page 57
    ...summary of option activity under the Plan as of January 1, 2012, January 2, 2011 and January 3, 2010 and changes during the years ending on those dates is presented below: Outstanding Shares Weighted Average Exercise Price Aggregate Intrinsic Value (Dollars in Millions) Stock options exercisable at...

  • Page 58
    ... Sales to Customers(2) (Dollars in Millions) 2011 2010 2009 Consumer - United States International Total Pharmaceutical - United States International Total Medical Devices and Diagnostics - United States International Total Worldwide total Operating Profit (Dollars in Millions) 2011(5) 2010(6) 2009...

  • Page 59
    ... 2011 (Dollars in Millions Except Per Share Data) First Quarter(1) Second Quarter(2) Third Quarter(3) Fourth Quarter(4) First Quarter(5) 2010 Second Quarter(6) Third Quarter Fourth Quarter(7) Segment sales to customers Consumer Pharmaceutical Medical Devices and Diagnostics Total sales Gross profit...

  • Page 60
    ... cancer. The value of the IPR&D was calculated using cash flow projections discounted for the risk inherent in such projects. Probability of success factors ranging from 60-85% were used to reflect inherent clinical and regulatory risk. The discount rate applied was 23.5%. During 2009, the Company...

  • Page 61
    ...to receive information with respect to potential costs associated with this recall. In the fourth quarter of 2011, the Company increased its accruals for the DePuy ASRâ„¢ Hip recall program and related product liability after the Company completed an analysis of new information, including the number...

  • Page 62
    ...of the United States Food and Drug Administration (FDA), to introduce generic versions of the products at issue, resulting in very substantial market share and revenue losses for those products. CONCERTA® In January 2010, ALZA Corporation (ALZA) and Ortho-McNeilJanssen Pharmaceuticals, Inc. (OMJPI...

  • Page 63
    ... G.D. Searle. In September 2009, Centocor Ortho Biotech Products, L.P. (now Janssen Products, LP (JPLP)) intervened in an inventorship lawsuit filed by the University of Kansas Center for Research, Inc. (KUCR) against the United States of America (USA) in the United States District Court for the...

  • Page 64
    ... and the United States Attorney's Office for the Eastern District of Pennsylvania (the Government) are continuing to actively pursue both criminal and civil actions. In February 2010, the Government served Civil Investigative Demands seeking additional information relating to sales and marketing of...

  • Page 65
    ... and certain affiliates, including Johnson & Johnson (the Companies), received grand jury subpoenas from the United States Attorney's Office for the Eastern District of Pennsylvania requesting documents broadly relating to recent recalls of various products of McNeil Consumer Healthcare, and the FDA...

  • Page 66
    ... 2005, Johnson & Johnson received a subpoena from the United States Attorney's Office for the District of Massachusetts, seeking documents related to the sales and marketing of eight drugs to Omnicare, Inc. (Omnicare), a manager of pharmaceutical benefits for long-term care facilities. In April 2009...

  • Page 67
    ... of Appeals for the Ninth Circuit. Starting in April 2010, a number of shareholder derivative lawsuits were filed in the United States District Court for the District of New Jersey against certain current and former directors and officers of Johnson & Johnson. Johnson & Johnson is named as a nominal...

  • Page 68
    ...to make a demand upon the Board of Directors. Starting in May 2010, multiple complaints seeking class action certification related to the McNeil recalls have been filed against McNeil Consumer Healthcare and certain affiliates, including Johnson & Johnson, in the United States District Court for the...

  • Page 69
    In September 2010, a shareholder, Ronald Monk, filed a lawsuit in the United States District Court for the District of New Jersey seeking class certification and alleging that Johnson & Johnson and certain individuals, including executive officers and employees of Johnson & Johnson, failed to ...

  • Page 70
    Report 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...

  • Page 71
    ... Company's internal control over financial reporting as of January 1, 2012 has been audited by PricewaterhouseCoopers 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...

  • Page 72
    ... 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 73
    ...Year Cumulative Total Shareholder Return (2006-2011) Johnson & Johnson S&P 500 Index S&P Pharmaceutical Index S&P Health Care Equipment Index $105 $85 5-Year C.A.G.R. J&J S&P 500 S&P Pharm S&P H/C Equip 3.0% (0.2%) 3.8% (1.1%) $65 2006 2006 2007 2007 2008 2008 2009 2009 2010 2010 2011 2011...

  • Page 74
    ... 2010 2009 '11 vs. '10 % Change '10 vs. '09 % Change Earnings before provision for taxes on income - as reported Net litigation settlements loss (gain) Product liability expenses Restructuring expense DePuy ASRâ„¢ Hip recall program Adjustment to the value of the currency option and costs related...

  • Page 75
    ... submit a certification signed by the Chief Executive Officer to the New York Stock Exchange within 30 days following the Annual Meeting of Shareholders. Copies of the certifications filed for previous years are posted on the Company's Corporate Governance website, and future certifications will be...

  • Page 76
    One Johnson & Johnson Plaza, New Brunswick, New Jersey 08933