Johnson and Johnson 2011 Annual Report Download - page 28

Management’s Discussion and Analysis of Results of Operations and Financial Condition
26 JOHNSON & JOHNSON 2011 ANNUAL REPORT
Organization and Business Segments
DESCRIPTION OF THE COMPANY AND BUSINESS SEGMENTS
Johnson & Johnson and its subsidiaries (the Company) have
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. The Company conducts business
in virtually all countries of the world with the primary focus 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 includes a broad range of products used in
the baby care, skin care, oral care, wound care and women’s health
fields, as well as nutritional and over-the-counter pharmaceutical
products and wellness and prevention platforms. These products
are marketed to the general public and sold both to retail outlets
and distributors throughout the world. The Pharmaceutical segment
includes products in the following areas: anti-infective, antipsy-
chotic, contraceptive, dermatology, gastrointestinal, hematology,
immunology, neurology, oncology, pain management, thrombosis,
vaccines and infectious diseases. These products are distributed
directly to retailers, wholesalers and health care professionals for
prescription use. The Medical Devices and Diagnostics segment
includes a broad range of products distributed to wholesalers, hos-
pitals and retailers, used principally in the professional fields by
physicians, nurses, therapists, hospitals, diagnostic laboratories and
clinics. These products include Cardiovascular Care’s electrophysi-
ology and circulatory disease management products; DePuy’s
orthopaedic joint reconstruction, spinal care, neurological and
sports medicine products; Ethicon’s surgical care, aesthetics and
women’s health products; Ethicon Endo-Surgery’s minimally inva-
sive surgical products and advanced sterilization products; Diabetes
Care’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 responsible
for the strategic operations and allocation of the resources of the
Company. This Committee oversees and coordinates the activities
of the Consumer, Pharmaceutical and Medical Devices and
Diagnostics business segments.
In all of its product lines, the Company competes with compa-
nies both locally and globally, throughout the world. Competition
exists in all product lines without regard to the number and size of
the competing companies involved. Competition in research, involv-
ing the development and the improvement of new and existing
products and processes, is particularly significant. The development
of new and innovative products is important to the Company’s suc-
cess in all areas of its business. This also includes protecting the
Company’s portfolio of intellectual property. The competitive envi-
ronment requires substantial investments in continuing research and
in maintaining sales forces. In addition, the development and main-
tenance of customer demand for the Company’s consumer products
involves significant expenditures for advertising and promotion.
MANAGEMENT’S OBJECTIVES
The Company manages within a strategic framework aimed at
achieving sustainable growth. To accomplish this, the Company’s
management operates the business consistent with certain strate-
gic 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 areas
through the development of high quality, innovative products and
services. New products introduced within the past five years
accounted for approximately 25% of 2011 sales. 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 60
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, combining
the extensive resources of a large organization with the ability to
anticipate and react quickly to local market changes and challenges.
The Company is committed to developing global business lead-
ers who can achieve growth objectives. Businesses are managed for
the long-term in order to sustain leadership positions and achieve
growth that provides an enduring source of value to our shareholders.
Our Credo unifies the management team and the Company’s
dedicated employees in achieving these objectives, and provides a
common set of values that serve as a constant reminder of the
Company’s responsibilities to its customers, employees, communi-
ties 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 2011, worldwide sales increased 5.6% to $65.0 billion, compared
to decreases of 0.5% in 2010 and 2.9% in 2009. These sales
changes consisted of the following:
Sales (decrease)/increase due to: 2011 2010 2009
Volume 3.1% (0.5) (0.2)
Price (0.3) (0.8) (0.1)
Currency 2.8 0.8 (2.6)
Total 5.6% (0.5) (2.9)
Sales by U.S. companies were $28.9 billion in 2011, $29.5 billion in
2010 and $30.9 billion in 2009. This represents decreases of 1.8%
in 2011, 4.7% in 2010 and 4.4% in 2009. Sales by international
companies were $36.1 billion in 2011, $32.1 billion in 2010 and
$31.0 billion in 2009. This represents an increase of 12.4% in 2011,
an increase of 3.6% in 2010 and a decrease of 1.4% in 2009.