Johnson & Johnson
JOHNSON & JOHNSON (Form: 10-K, Received: 02/23/2012 17:14:46)
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OF

THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended January 1, 2012   Commission file number 1-3215

 

 

JOHNSON & JOHNSON

(Exact name of registrant as specified in its charter)

 

New Jersey   22-1024240
(State of incorporation)  

(I.R.S. Employer

Identification No.)

One Johnson & Johnson Plaza

New Brunswick, New Jersey

  08933
(Address of principal executive offices)   (Zip Code)

Registrant’s telephone number, including area code: (732) 524-0400

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT

 

Title of each class

 

Name of each exchange on which registered

Common Stock, Par Value $1.00   New York Stock Exchange

 

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes   þ     No   ¨

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.    Yes   ¨     No   þ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes   þ     No   ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes   þ     No   ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.     ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer   þ    Accelerated filer   ¨
Non-accelerated filer   ¨   (Do not check if a smaller reporting company)    Smaller reporting company   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes   ¨     No   þ

The aggregate market value of the Common Stock held by non-affiliates computed by reference to the price at which the Common Stock was last sold as of the last business day of the registrant’s most recently completed second fiscal quarter was approximately $184 billion.

On February 17, 2012, there were 2,745,078,671 shares of Common Stock outstanding.

 

 

DOCUMENTS INCORPORATED BY REFERENCE

 

Parts I, II and III:

   Portions of registrant’s annual report to shareholders for fiscal year 2011 (the “Annual Report”).

Parts I and III:

   Portions of registrant’s proxy statement for its 2012 annual meeting of shareholders filed within 120 days after the close of the registrant’s fiscal year (the “Proxy Statement”).

 

 

 


Table of Contents

Item

   Page  
PART I   

1.            Business

     1   

General

     1   

Segments of Business

     1   

Geographic Areas

     2   

Raw Materials

     2   

Patents and Trademarks

     2   

Seasonality

     3   

Competition

     3   

Research and Development

     3   

Environment

     3   

Regulation

     3   

Available Information

     4   

1A.          Risk Factors

     4   

1B.          Unresolved Staff Comments

     4   

2.           Properties

     4   

3.            LegalProceedings

     6   

4.            MineSafety Disclosures

     6   

Executive Officers of the Registrant

     6   
PART II   

5.            Marketfor Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of              Equity Securities

     7   

6.            SelectedFinancial Data

     8   

7.            Management’sDiscussion and Analysis of Financial Condition and Results of Operation

     8   

7A.          Quantitativeand Qualitative Disclosures About Market Risk

     8   

8.            FinancialStatements and Supplementary Data

     8   

9.            Changesin and Disagreements With Accountants on Accounting and Financial Disclosure

     8   

9A.          Controls and Procedures

     8   

9B.          Other Information

     9   
PART III   

10.           Directors,Executive Officers and Corporate Governance

     9   

11.           ExecutiveCompensation

     10   

12.           SecurityOwnership of Certain Beneficial Owners and Management and Related Stockholder               Matters

     10   

13.           CertainRelationships and Related Transactions, and Director Independence

     11   

14.           PrincipalAccountant Fees and Services

     11   
PART IV   

15.           Exhibitsand Financial Statement Schedules

     12   

Schedule II—Valuation and Qualifying Accounts

     13   

Signatures

     14   

Report of Independent Registered Public Accounting Firm on Financial Statement Schedule

     16   

Exhibit Index

     17   


Table of Contents

PART I

 

Item 1. BUSINESS

General

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. Johnson & Johnson is a holding company, which has more than 250 operating companies conducting business in virtually all countries of the world. Johnson & Johnson’s primary focus has been on products related to human health and well-being. Johnson & Johnson was incorporated in the State of New Jersey in 1887.

The Company’s structure is based on 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 line with the principle of decentralized management, senior management groups at U.S. and international operating companies are each responsible for their own strategic plans, as well as the day-to-day operations of those companies, and each subsidiary within the business segments is, with some exceptions, managed by citizens of the country where it is located.

Segments of Business

Johnson & Johnson’s operating companies are organized into three business segments: Consumer, Pharmaceutical and Medical Devices and Diagnostics. Additional information required by this item is incorporated herein by reference to the narrative and tabular (but not the graphic) descriptions of segments and operating results under the captions “Management’s Discussion and Analysis of Results of Operations and Financial Condition” on pages 26 through 36 and Note 18 “Segments of Business and Geographic Areas” under “Notes to Consolidated Financial Statements” on page 56 of the Annual Report, filed as Exhibit 13 to this Report on Form 10-K.

Consumer

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. The Baby Care franchise includes the JOHNSON’S ® Baby line of products. Major brands in the Skin Care franchise include the AVEENO ® ; CLEAN & CLEAR ® ; JOHNSON’S ® Adult; NEUTROGENA ® ; RoC ® ; LUBRIDERM ® ; DABAO™; and VENDÔME product lines. The Oral Care franchise includes the LISTERINE ® and REACH ® oral care lines of products. The Wound Care franchise includes BAND-AID ® brand adhesive bandages and NEOSPORIN ® First Aid products. Major brands in the Women’s Health franchise are the CAREFREE ® Pantiliners; o.b. ® tampons and STAYFREE ® sanitary protection products. The nutritional and over-the-counter lines include SPLENDA ® No Calorie Sweetener; the broad family of TYLENOL ® acetaminophen products; SUDAFED ® cold, flu and allergy products; ZYRTEC ® allergy products; MOTRIN ® IB ibuprofen products; and PEPCID ® AC Acid Controller. These products are marketed to the general public and sold both to retail outlets and distributors throughout the world.

Pharmaceutical

The Pharmaceutical segment includes products in the following areas: anti-infective, antipsychotic, contraceptive, dermatology, gastrointestinal, hematology, immunology, infectious diseases, neurology, oncology, pain management, thrombosis and vaccines. These products are distributed directly to retailers, wholesalers and health care professionals for prescription use. Key products in the Pharmaceutical segment include:


Table of Contents

REMICADE ® (infliximab), a treatment for a number of immune mediated inflammatory diseases; STELARA ® (ustekinumab), a treatment for moderate to severe plaque psoriasis; SIMPONI ® (golimumab), a treatment for adults with moderate to severe rheumatoid arthritis, psoriatic arthritis, and ankylosing spondylitis; VELCADE ® (bortezomib), a treatment for multiple myeloma; ZYTIGA ® (abiraterone acetate), a treatment for metastatic castration-resistant prostate cancer; PREZISTA ® (darunavir), INTELENCE ® (etravirine) and EDURANT ® (rilpivirine), treatments for HIV/AIDS; INCIVO ® (telaprevir), for the treatment of hepatitis C; NUCYNTA ® (tapentadol), a treatment for moderate to severe acute pain; INVEGA ® SUSTENNA ® (paliperidone palmitate), for the acute and maintenance treatment of schizophrenia in adults; RISPERDAL ® CONSTA ® (risperidone), a treatment for the management of Bipolar I Disorder and schizophrenia; XARELTO ® (rivaroxaban), a treatment for the prevention of thrombosis following total hip or knee replacement surgery and for the prevention of stroke in patients with atrial fibrillation; PROCRIT ® (Epoetin alfa, sold outside the U.S. as EPREX ® ), to stimulate red blood cell production; LEVAQUIN ® (levofloxacin), for the treatment of bacterial infections; CONCERTA ® (methylphenidate HCl), a treatment for attention deficit hyperactivity disorder; ACIPHEX ® /PARIET ® , a proton pump inhibitor co-marketed with Eisai Inc.; and DURAGESIC ® /Fentanyl Transdermal (fentanyl transdermal system, sold outside the U.S. as DUROGESIC ® ), a treatment for chronic pain that offers a novel delivery system.

Medical Devices and Diagnostics

The Medical Devices and Diagnostics segment includes a broad range of products distributed to wholesalers, hospitals and retailers, used principally in the professional fields by physicians, nurses, therapists, hospitals, diagnostic laboratories and clinics. These products include Cardiovascular Care’s electrophysiology and circulatory disease management products; DePuy’s orthopaedic joint reconstruction, spinal care, neurological and sports medicine products; Diabetes Care’s blood glucose monitoring and insulin delivery products; Ethicon’s surgical care, aesthetics and women’s health products; Ethicon Endo-Surgery’s minimally invasive surgical products and advanced sterilization products; Ortho-Clinical Diagnostics’ professional diagnostic products; and Vision Care’s disposable contact lenses. Distribution to these health care professional markets is done both directly and through surgical supply and other distributors.

Geographic Areas

The business of Johnson & Johnson is conducted by more than 250 operating companies located in 60 countries, including the United States, which sell products in virtually all countries throughout the world. The products made and sold in the international business include many of those described above under “—Segments of Business—Consumer,” “—Pharmaceutical” and “—Medical Devices and Diagnostics.” However, the principal markets, products and methods of distribution in the international business vary with the country and the culture. The products sold in international business include not only those developed in the United States, but also those developed by subsidiaries abroad.

Investments and activities in some countries outside the United States are subject to higher risks than comparable U.S. activities because the investment and commercial climate may be influenced by restrictive economic policies and political uncertainties.

Raw Materials

Raw materials essential to the business of Johnson & Johnson’s operating companies are generally readily available from multiple sources. Where there are exceptions, the temporary unavailability of those raw materials would not likely have a material adverse effect on the financial results of the Company.

Patents and Trademarks

Johnson & Johnson and its subsidiaries have made a practice of obtaining patent protection on their products and processes where possible. They own or are licensed under a number of patents relating to their products and

 

2


Table of Contents

manufacturing processes, which in the aggregate are believed to be of material importance to Johnson & Johnson in the operation of its businesses. Sales of the Company’s largest product, REMICADE ® (infliximab), accounted for 8.4% of Johnson & Johnson’s total revenues for fiscal 2011. Accordingly, the patents related to this product are believed to be material to Johnson & Johnson.

In June of 2011, LEVAQUIN ® lost market exclusivity and became subject to generic competition in the United States. Sales of LEVAQUIN ® declined 54.1% in 2011 as compared to 2010.

Johnson & Johnson’s operating companies have made a practice of selling their products under trademarks and of obtaining protection for these trademarks by all available means. These trademarks are protected by registration in the United States and other countries where such products are marketed. Johnson & Johnson considers these trademarks in the aggregate to be of material importance in the operation of its businesses.

Seasonality

Worldwide sales do not reflect any significant degree of seasonality; however, spending has been heavier in the fourth quarter of each year than in other quarters. This reflects increased spending decisions, principally for advertising and research and development activity.

Competition

In all of their product lines, Johnson & Johnson’s operating companies compete with companies 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, involving 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 success in all areas of its business. This also includes protecting the Company’s portfolio of intellectual property. The competitive environment requires substantial investments in continuing research and in maintaining sales forces. In addition, the development and maintenance of customer demand for the Company’s consumer products involves significant expenditures for advertising and promotion.

Research and Development

Research activities represent a significant part of Johnson & Johnson’s subsidiaries’ businesses. Research and development expenditures relate to the processes of discovering, testing and developing new products, improving existing products, as well as demonstrating product efficacy and regulatory compliance prior to launch. The Company remains committed to investing in research and development with the aim of delivering high quality and innovative products. Worldwide costs of research and development activities amounted to $7.5 billion, $6.8 billion and $7.0 billion for fiscal years 2011, 2010 and 2009, respectively. Major research facilities are located not only in the United States, but also in Belgium, Brazil, Canada, China, France, Germany, India, Israel, Japan, the Netherlands, Singapore and the United Kingdom.

Environment

Johnson & Johnson’s operating companies are subject to a variety of U.S. and international environmental protection measures. The Company believes that its operations comply in all material respects with applicable environmental laws and regulations. The Company’s compliance with these requirements did not during the past year, and is not expected to, have a material effect upon its capital expenditures, cash flows, earnings or competitive position.

Regulation

Most of Johnson & Johnson’s businesses are subject to varying degrees of governmental regulation in the countries in which operations are conducted, and the general trend is toward increasingly stringent regulation. In

 

3


Table of Contents

the United States, the drug, device, diagnostics and cosmetic industries have long been subject to regulation by various federal and state agencies, primarily as to product safety, efficacy, manufacturing, advertising, labeling and safety reporting. The exercise of broad regulatory powers by the U.S. Food and Drug Administration (the FDA) continues to result in increases in the amounts of testing and documentation required for FDA clearance of new drugs and devices and a corresponding increase in the expense of product introduction. Similar trends are also evident in major markets outside of the United States.

The costs of human health care have been and continue to be a subject of study, investigation and regulation by governmental agencies and legislative bodies around the world. In the United States, attention has been focused on drug prices and profits and programs that encourage doctors to write prescriptions for particular drugs or recommend, use or purchase particular medical devices. Payers have become a more potent force in the market place and increased attention is being paid to drug and medical device pricing, appropriate drug and medical device utilization and the quality and costs of health care.

The regulatory agencies under whose purview Johnson & Johnson’s operating companies operate have administrative powers that may subject those companies to actions such as product withdrawals, recalls, seizure of products and other civil and criminal sanctions. In some cases, Johnson & Johnson’s operating companies may deem it advisable to initiate product recalls.

In addition, business practices in the health care industry have come under increased scrutiny, particularly in the United States, by government agencies and state attorneys general, and resulting investigations and prosecutions carry the risk of significant civil and criminal penalties.

Available Information

The Company’s main corporate website address is www.jnj.com. Copies of Johnson & Johnson’s Quarterly Reports on Form 10-Q, Annual Report on Form 10-K and Current Reports on Form 8-K filed or furnished to the U.S. Securities and Exchange Commission (the “SEC”), and any amendments to the foregoing, will be provided without charge to any shareholder submitting a written request to the Secretary at the principal executive offices of the Company or by calling 1-800-950-5089. All of the Company’s SEC filings are also available on the Company’s website at www.investor.jnj.com/governance/materials.cfm , as soon as reasonably practicable after having been electronically filed or furnished to the SEC. All SEC filings are also available at the SEC’s website at www.sec.gov . In addition, the written charters of the Audit Committee, the Compensation & Benefits Committee, the Nominating & Corporate Governance Committee and the Science and Technology Advisory Committee of the Board of Directors and the Company’s Principles of Corporate Governance, Policy on Business Conduct for employees and Code of Business Conduct & Ethics for Members of the Board of Directors and Executive Officers are available at the www.investor.jnj.com/governance/materials.cfm website address and will be provided without charge to any shareholder submitting a written request, as provided above.

 

Item 1A. RISK FACTORS

Some important factors that could cause the Company’s actual results to differ from the Company’s expectations in any forward-looking statements in this Report are set forth in Exhibit 99 to this Report on Form 10-K.

 

Item 1B. UNRESOLVED STAFF COMMENTS

Not applicable.

 

Item 2. PROPERTIES

Johnson & Johnson’s subsidiaries operate 139 manufacturing facilities occupying approximately 21.8 million square feet of floor space.

 

4


Table of Contents

The manufacturing facilities are used by the industry segments of Johnson & Johnson’s business approximately as follows:

 

Segment

   Square Feet
(in thousands)
 

Consumer

     7,216   

Pharmaceutical

     7,606   

Medical Devices and Diagnostics

     6,955   
  

 

 

 

Worldwide Total

     21,777   
  

 

 

 

Within the United States, 8 facilities are used by the Consumer segment, 10 by the Pharmaceutical segment and 34 by the Medical Devices and Diagnostics segment. The Company’s manufacturing operations outside the United States are often conducted in facilities that serve more than one business segment.

The locations of the manufacturing facilities by major geographic areas of the world are as follows:

 

Geographic Area

   Number of
Facilities
     Square Feet
(in thousands)
 

United States

     52         6,537   

Europe

     37         8,137   

Western Hemisphere, excluding U.S.

     17         3,455   

Africa, Asia and Pacific

     33         3,648   
  

 

 

    

 

 

 

Worldwide Total

     139         21,777   
  

 

 

    

 

 

 

In addition to the manufacturing facilities discussed above, Johnson & Johnson and its subsidiaries maintain numerous office and warehouse facilities throughout the world. Research facilities are also discussed in Item 1 under “Business—Research and Development.”

Johnson & Johnson’s subsidiaries generally seek to own their manufacturing facilities, although some, principally in locations abroad, are leased. Office and warehouse facilities are often leased.

The Company is committed to maintaining all of its properties in good operating condition and repair, and the facilities are well utilized.

During the first fiscal quarter of 2011, a consent decree was signed with the FDA, which requires McNEIL-PPC, Inc. to take enhanced measures to remediate certain facilities it operates. McNEIL-PPC voluntarily shut down its Fort Washington, Pennsylvania facility in April 2010. This facility will remain shut down until rebuilding is complete, a third-party consultant certifies that its operations will be in compliance with applicable law, and the FDA concurs with the third-party certification. A discussion of this matter can be found under the heading “Government Proceedings—McNeil Consumer Healthcare” in Note 21 “Legal Proceedings” under “Notes to the Consolidated Financial Statements” on page 63 of the Annual Report, which is filed as Exhibit 13 to this Report on Form 10-K.

For information regarding lease obligations, see Note 16 “Rental Expense and Lease Commitments” under “Notes to Consolidated Financial Statements” on page 54 of the Annual Report, filed as Exhibit 13 to this Report on Form 10-K. Segment information on additions to property, plant and equipment is contained in Note 18 “Segments of Business and Geographic Areas” under “Notes to Consolidated Financial Statements” on page 56 of the Annual Report, filed as Exhibit 13 to this Report on Form 10-K.

 

5


Table of Contents
Item 3. LEGAL PROCEEDINGS

The information set forth in Note 21 “Legal Proceedings” under “Notes to Consolidated Financial Statements” on pages 58 through 67 of the Annual Report is incorporated herein by reference and filed as Exhibit 13 to this Report on Form 10-K.

In addition, Johnson & Johnson and its subsidiaries are from time to time party to government investigations, inspections or other proceedings relating to environmental matters, including their compliance with applicable environmental laws. In connection with a routine inspection of a subsidiary’s manufacturing facility, the California Department of Toxic Substances Control (the Department) has alleged violation of regulations dealing with the handling of certain wastes. The Company believes that adequate defenses to those allegations exist and is presently in discussions with the Department regarding the validity of such allegations. Although the Company cannot predict the ultimate outcome of any proceeding that may be brought regarding these matters, the Company expects that this matter will be resolved without significant penalties or other adverse impact to the Company.

 

Item 4. MINE SAFETY DISCLOSURES

Not applicable.

EXECUTIVE OFFICERS OF THE REGISTRANT

Listed below are the executive officers of Johnson & Johnson as of February 17, 2012, each of whom, unless otherwise indicated below, has been an employee of the Company or its affiliates and held the position indicated during the past five years. There are no family relationships between any of the executive officers, and there is no arrangement or understanding between any executive officer and any other person pursuant to which the executive officer was selected. At the annual meeting of the Board of Directors, the executive officers are elected by the Board to hold office for one year and until their respective successors are elected and qualified, or until earlier resignation or removal.

Information with regard to the directors of the Company, including information for William C. Weldon, is incorporated herein by reference to the material captioned “Election of Directors” in the Proxy Statement.

 

Name

   Age     

Position

Dominic J. Caruso

     54       Member, Executive Committee; Vice President, Finance; Chief Financial Officer(a)

Peter M. Fasolo

     49       Member, Executive Committee, Vice President, Global Human Resources(b)

Alex Gorsky

     51       Vice Chairman, Executive Committee(c)

Sherilyn S. McCoy

     53       Vice Chairman, Executive Committee(d)

Michael H. Ullmann

     53       Member, Executive Committee; Vice President, General Counsel(e)

William C. Weldon

     63       Chairman, Board of Directors; Chairman, Executive Committee; Chief Executive Officer

 

(a) Mr. D. J. Caruso joined the Company in 1999 when the Company acquired Centocor, Inc. At the time of that acquisition, he had been Senior Vice President, Finance of Centocor. Mr. Caruso was named Vice President, Finance of Ortho-McNeil Pharmaceutical, Inc., a subsidiary of the Company, in 2001, and Vice President, Group Finance of the Company’s Medical Devices and Diagnostics Group in 2003. In 2005, Mr. Caruso was named Vice President of the Company’s Group Finance organization. Mr. Caruso became a Member of the Executive Committee and Vice President, Finance and Chief Financial Officer in 2007.
(b) Mr. P. M. Fasolo joined the Company in 2004 as Vice President, Worldwide Human Resources for Cordis Corporation, a subsidiary of the Company. He was then named Vice President, Global Talent Management for the Company. He left Johnson & Johnson in 2007 to join Kohlberg Kravis Roberts & Co. as Chief Talent Officer. Mr. Fasolo returned to the Company in September 2010 as the Vice President, Global Human Resources, and in January 2011, he became a Member of the Executive Committee.

 

6


Table of Contents
(c) Mr. A. Gorsky joined the Company in 2008 as Company Group Chairman and Worldwide Franchise Chairman for Ethicon, Inc., a subsidiary of the Company. Previously, he was head of the North American pharmaceuticals business at Novartis Pharmaceuticals Corporation from 2004 to 2008. Prior to Novartis, Mr. Gorsky served in various management positions at Johnson & Johnson, including Company Group Chairman for the Company’s pharmaceutical business in Europe, Middle East and Africa, and President of Janssen Pharmaceutica Inc. (U.S.), a subsidiary of the Company. In January 2009, he became a Member of the Executive Committee and Worldwide Chairman, Surgical Care Group, and in September 2009, he became Worldwide Chairman, Medical Devices and Diagnostics Group. Mr. Gorsky was appointed as Vice Chairman, Executive Committee in January 2011. On February 21, 2012, the Company announced that the Board of Directors named Mr. Gorsky Chief Executive Officer of the Company, effective April 26, 2012. Mr. Gorsky also has been nominated for election to the Board of Directors at the 2012 Annual Meeting of Shareholders.
(d) Ms. S. S. McCoy joined the Company in 1982 as an Associate Scientist in Research & Development for Personal Products Company, a subsidiary of the Company. She was named Vice President, Research & Development for the Personal Products Worldwide Division of McNEIL-PPC, Inc., a subsidiary of the Company, in 1995, and Vice President, Marketing for its Skin Care franchise in 2000. In 2002, Ms. McCoy became Global President for its Baby and Wound Care franchise. She was named Company Group Chairman and Worldwide Franchise Chairman of Ethicon, Inc., a subsidiary of the Company, in 2005. In 2008 she became a Member of the Executive Committee and Worldwide Chairman, Surgical Care Group. In 2009, she became Worldwide Chairman, Pharmaceuticals Group. Ms. McCoy was appointed as Vice Chairman, Executive Committee in January 2011.
(e) Mr. M. H. Ullmann joined the Company in 1989 as a corporate attorney in the Law Department. He was appointed Corporate Secretary in 1999 and served in that role until 2006. During that time, he also held various management positions in the Law Department. In 2006, he was named General Counsel of the Medical Devices and Diagnostics Group. Mr. Ullmann was appointed Vice President, General Counsel and a Member of the Executive Committee in January 2012.

PART II

 

Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

As of February 17, 2012, there were 176,293 record holders of Common Stock of the Company. Additional information called for by this item is incorporated herein by reference to: the material under the captions “Management’s Discussion and Analysis of Results of Operations and Financial Condition—Liquidity and Capital Resources—Share Repurchase and Dividends” on page 33; “—Other Information—Common Stock Market Prices” on page 36; Note 17 “Common Stock, Stock Option Plans and Stock Compensation Agreements” under “Notes to Consolidated Financial Statements” on pages 54 and 55; and “Shareholder Return Performance Graphs” on page 71 of the Annual Report, filed as Exhibit 13 to this Report on Form 10-K; and Item 12 “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters—Equity Compensation Plan Information” of this Report on Form 10-K.

Issuer Purchases of Equity Securities

The following table provides information with respect to Common Stock purchases by the Company during the fiscal fourth quarter of 2011. Common Stock purchases on the open market are made as part of a systematic plan to meet the needs of the Company’s compensation programs.

 

Period

   Total Number
of Shares
Purchased
     Avg. Price
Paid Per Share
 

October 3, 2011 through October 30, 2011

     2,831,300       $ 63.05   

October 31, 2011 through November 27, 2011

     4,548,380         63.90   

November 28, 2011 through January 1, 2012

     6,067,124         63.44   
  

 

 

    

Total

     13,446,804      

 

7


Table of Contents
Item 6. SELECTED FINANCIAL DATA

The information called for by this item is incorporated herein by reference to the material under the caption “Summary of Operations and Statistical Data 2001-2011” on page 70 of the Annual Report, filed as Exhibit 13 to this Report on Form 10-K.

 

Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

The information called for by this item is incorporated herein by reference to the narrative and tabular (but not the graphic) material under the caption “Management’s Discussion and Analysis of Results of Operations and Financial Condition” on pages 26 through 36 of the Annual Report, filed as Exhibit 13 to this Report on Form 10-K.

 

Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The information called for by this item is incorporated herein by reference to the material under the caption “Management’s Discussion and Analysis of Results of Operations and Financial Condition—Liquidity and Capital Resources—Financing and Market Risk” on pages 32 and 33 and Note 1 “Summary of Significant Accounting Policies—Financial Instruments” under “Notes to Consolidated Financial Statements” on page 42 of the Annual Report, filed as Exhibit 13 to this Report on Form 10-K.

 

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The information called for by this item is incorporated herein by reference to the Audited Consolidated Financial Statements and Notes thereto and the material under the caption “Report of Independent Registered Public Accounting Firm” on pages 37 through 68 of the Annual Report, filed as Exhibit 13 to this Report on Form 10-K.

 

Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Not applicable.

 

Item 9A. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures.  At the end of the period covered by this report, the Company evaluated the effectiveness of the design and operation of its disclosure controls and procedures. The Company’s disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. William C. Weldon, Chairman and Chief Executive Officer, and Dominic J. Caruso, Chief Financial Officer, reviewed and participated in this evaluation. Based on this evaluation, Messrs. Weldon and Caruso concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective.

Management’s Report on Internal Control Over Financial Reporting.  Under Section 404 of the Sarbanes-Oxley Act of 2002, management is required to assess the effectiveness of the Company’s internal control over financial reporting as of the end of each fiscal year and report, based on that assessment, whether the Company’s internal control over financial reporting is effective.

 

8


Table of Contents

Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s internal control over financial reporting is designed to provide reasonable assurance as to the reliability of the Company’s financial reporting and the preparation of external financial statements in accordance with generally accepted accounting principles.

Internal control over financial reporting, no matter how well designed, has inherent limitations. Therefore, internal control over financial reporting determined to be effective can provide only reasonable assurance with respect to financial statement preparation and may not prevent or detect all misstatements. Moreover, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

The Company’s management has assessed the effectiveness of the Company’s internal control over financial reporting as of January 1, 2012. In making this assessment, the Company used the criteria established by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in “Internal Control-Integrated Framework.” These criteria are in the areas of control environment, risk assessment, control activities, information and communication, and monitoring. The Company’s assessment included extensive documenting, evaluating and testing the design and operating effectiveness of its internal control over financial reporting.

Based on the Company’s processes and assessment, as described above, management has concluded that, as of January 1, 2012, the Company’s internal control over financial reporting was effective.

The effectiveness of the 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 in the “Report of Independent Registered Public Accounting Firm” on page 68 of the Annual Report, which is incorporated herein by reference and filed as Exhibit 13 to this Report on Form 10-K.

Changes in Internal Control Over Financial Reporting.  During the fiscal quarter ended January 1, 2012, there were no changes in the Company’s internal control over financial reporting identified in connection with the evaluation required under Rules 13a-15 and 15d-15 under the Exchange Act that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

Item 9B. OTHER INFORMATION

Not applicable.

PART III

 

Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information called for by this item is incorporated herein by reference to the material under the captions “Election of Directors” and “Stock Ownership and Section 16 Compliance—Section 16(a) Beneficial Ownership Reporting Compliance” and the discussion of the Audit Committee under the caption “Corporate Governance —Standing Board Committees” in the Proxy Statement; and the material under the caption “Executive Officers of the Registrant” in Part I of this Report on Form 10-K.

The Company’s Policy on Business Conduct, which covers all employees (including the Chief Executive Officer, Chief Financial Officer and Controller), meets the requirements of the SEC rules promulgated under Section 406 of the Sarbanes-Oxley Act of 2002. The Policy on Business Conduct is available on the Company’s website at www.investor.jnj.com/governance/policies.cfm , and copies are available to shareholders without charge upon written request to the Secretary at the Company’s principal executive offices. Any substantive

 

9


Table of Contents

amendment to the Policy on Business Conduct or any waiver of the Policy granted to the Chief Executive Officer, the Chief Financial Officer or the Controller will be posted on the Company’s website at www.investor.jnj.com/governance.cfm within five business days (and retained on the website for at least one year).

In addition, the Company has adopted a Code of Business Conduct & Ethics for Members of the Board of Directors and Executive Officers. The Code of Business Conduct & Ethics for Members of the Board of Directors and Executive Officers is available on the Company’s website at www.investor.jnj.com/governance/policies.cfm , and copies are available to shareholders without charge upon written request to the Secretary at the Company’s principal executive offices. Any substantive amendment to the Code or any waiver of the Code granted to any member of the Board of Directors or any executive officer will be posted on the Company’s website at www.investor.jnj.com/governance.cfm within five business days (and retained on the website for at least one year).

 

Item 11. EXECUTIVE COMPENSATION

The information called for by this item is incorporated herein by reference to the material under the captions “Director Compensation—2011,” “Compensation Committee Report,” “Compensation Discussion and Analysis,” and “Executive Compensation” in the Proxy Statement.

The material incorporated herein by reference to the material under the caption “Compensation Committee Report” in the Proxy Statement shall be deemed furnished, and not filed, in this Report on Form 10-K and shall not be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, as a result of this furnishing, except to the extent that the Registrant specifically incorporates it by reference.

 

Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Additional information called for by this item is incorporated herein by reference to the material under the captions “Stock Ownership and Section 16 Compliance” in the Proxy Statement and Note 17 “Common Stock, Stock Option Plans and Stock Compensation Agreements” under “Notes to Consolidated Financial Statements” on pages 54 and 55 of the Annual Report, filed as Exhibit 13 to this Report on Form 10-K.

 

10


Table of Contents

Equity Compensation Plan Information

The following table provides certain information as of January 1, 2012 concerning the shares of the Company’s Common Stock that may be issued under existing equity compensation plans.

 

Plan Category    Number of
Securities to
be Issued Upon
Exercise of
Outstanding
Options and
Rights
     Weighted Average
Exercise Price of
Outstanding
Options and
Rights
     Number of Securities
Remaining Available for
Future Issuance Under  Equity
Compensation Plans (4)
 

Equity Compensation Plans Approved by Security Holders (1)

     210,441,904       $ 51.24         104,900,116   

Equity Compensation Plans Not Approved by Security Holders (2)(3)

     43,178         46.60         —     

Total

     210,485,082       $ 51.24         104,900,116   

 

(1)

Included in this category are the following equity compensation plans, which have been approved by the Company’s shareholders: 2000 Stock Option Plan and 2005 Long-Term Incentive Plan.

(2)  

Included in this category are 38,428 shares of Common Stock of the Company issuable under one equity compensation plan assumed by the Company upon acquisition of Scios Inc. At the time of the acquisition, options to acquire equity of the acquired company were replaced by options to acquire the Common Stock of the Company. No stock options or equity awards of any type have been made under this plan since the assumption of the plan by the Company, and no further stock options or other equity awards of any type will be made under this plan in the future.

The shares were issued under a plan not approved by shareholders of Scios under the 1996 Scios Non-Officer Stock Option Plan.

 

(3)  

Also included in this category are 4,750 shares of Common Stock of the Company issuable upon the exercise of outstanding stock options under the Company’s Stock Option Plan for Non-Employee Directors. All options outstanding under this plan have fully vested with an expiration period of ten years from the date of grant.

(4)  

This column excludes shares reflected under the column “Number of Securities to be Issued Upon Exercise of Outstanding Options and Rights.”

 

Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information called for by this item is incorporated herein by reference to the material under the captions “Transactions with Related Persons” and “Corporate Governance—Director Independence” in the Proxy Statement.

 

Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information called for by this item is incorporated herein by reference to the material under the caption “Ratification of Appointment of Independent Registered Public Accounting Firm” in the Proxy Statement.

 

11


Table of Contents

PART IV

 

Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) The following documents are filed as part of this report:

1.  Financial Statements

The following Audited Consolidated Financial Statements and Notes thereto and the material under the caption “Report of Independent Registered Public Accounting Firm” on pages 37 through 68 of the Annual Report are incorporated herein by reference and filed as Exhibit 13 to this Report on Form 10-K:

Consolidated Balance Sheets at end of Fiscal Years 2011 and 2010

Consolidated Statements of Earnings for Fiscal Years 2011, 2010 and 2009

Consolidated Statements of Equity for Fiscal Years 2011, 2010 and 2009

Consolidated Statements of Cash Flows for Fiscal Years 2011, 2010 and 2009

Notes to Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm

2.  Financial Statement Schedules

Schedule II—Valuation and Qualifying Accounts

Schedules other than those listed above are omitted because they are not required or are not applicable.

3.  Exhibits Required to be Filed by Item 60l of Regulation S-K

The information called for by this item is incorporated herein by reference to the Exhibit Index in this report.

 

12


Table of Contents

JOHNSON & JOHNSON AND SUBSIDIARIES

 

Schedule VALUATION AND QUALIFYING ACCOUNTS

SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS

Fiscal Years Ended January 1, 2012, January 2, 2011 and January 3, 2010

(Dollars in Millions)

 

     Balance at
Beginning of
Period
     Accruals     

Payments/Credits

     Balance at
End of
Period
 

2011

           

Accrued Rebates (1)

   $ 2,146         8,331         (8,262      2,215   

Accrued Returns

     640         560         (518      682   

Accrued Promotions

     427         1,774         (1,805      396   
  

 

 

    

 

 

    

 

 

    

 

 

 

Subtotal

   $ 3,213         10,665         (10,585      3,293   

Reserve for doubtful accounts

     340         77         (56      361   

Reserve for cash discounts

     110         960         (971      99   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 3,663         11,702         (11,612      3,753   
  

 

 

    

 

 

    

 

 

    

 

 

 

2010

           

Accrued Rebates (1) (2)

   $ 1,639         8,400         (7,893      2,146   

Accrued Returns

     689         517         (566      640   

Accrued Promotions

     429         2,664         (2,666      427   
  

 

 

    

 

 

    

 

 

    

 

 

 

Subtotal

   $ 2,757         11,581         (11,125      3,213   

Reserve for doubtful accounts

     333         130         (123      340   

Reserve for cash discounts

     101         1,112         (1,103      110   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 3,191         12,823         (12,351      3,663   
  

 

 

    

 

 

    

 

 

    

 

 

 

2009

           

Accrued Rebates (1) (2)

   $ 1,808         7,418         (7,587      1,639   

Accrued Returns

     794         355         (460      689   

Accrued Promotions

     356         2,446         (2,373      429   
  

 

 

    

 

 

    

 

 

    

 

 

 

Subtotal

   $ 2,958         10,219         (10,420      2,757   

Reserve for doubtful accounts

     267         110         (44      333   

Reserve for cash discounts

     79         1,163         (1,141      101   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 3,304         11,492         (11,605      3,191   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)

Includes reserve for customer rebates of $656 million, $701 million and $729 million at January 1, 2012, January 2, 2011 and January 3, 2010, respectively.

(2)  

Accruals and Payments/Credits for 2010 have been revised by $908 million, and for 2009 by $834 million, to appropriately reflect non-cash credits/adjustments, consistent with current year presentation related to the Ethicon franchise, previously reported net in the Accruals column. This revision is not considered material to the previously issued financial statements.

 

13


Table of Contents

SIGNATURES

Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: February 23, 2012

 

JOHNSON & JOHNSON
(Registrant)
By   /s/    W. C. W ELDON        
  W. C. Weldon, Chairman, Board of Directors,
and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

Signature

  

Title

 

Date

/s/    W. C. W ELDON        

W. C. Weldon

   Chairman, Board of Directors, Chief Executive Officer, and Director (Principal Executive Officer)   February 23, 2012

/s/    D. J. C ARUSO        

D. J. Caruso

   Chief Financial Officer (Principal Financial Officer)   February 23, 2012

/s/    S. J. C OSGROVE        

S. J. Cosgrove

   Controller (Principal Accounting Officer)   February 23, 2012

/s/    M. S. C OLEMAN        

M. S. Coleman

  

Director

  February 23, 2012

/s/    J. G. C ULLEN        

J. G. Cullen

  

Director

  February 23, 2012

         

I. E. L. Davis

  

Director

 

/s/    M. M. E. J OHNS        

M. M. E. Johns

  

Director

  February 23, 2012

/s/    S. L. L INDQUIST        

S. L. Lindquist

  

Director

  February 23, 2012

/s/    A. M. M ULCAHY        

A. M. Mulcahy

  

Director

  February 23, 2012

         

L. F. Mullin

  

Director

 

 

14


Table of Contents

Signature

  

Title

 

Date

/s/    W. D. P EREZ        

W. D. Perez

  

Director

  February 23, 2012

/s/    C. P RINCE        

C. Prince

  

Director

  February 23, 2012

/s/    D. S ATCHER        

D. Satcher

  

Director

  February 23, 2012

/s/    R. A. W ILLIAMS        

R. A. Williams

  

Director

  February 23, 2012

 

15


Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON

FINANCIAL STATEMENT SCHEDULE

To the Board of Directors of

Johnson & Johnson:

Our audits of the consolidated financial statements and of the effectiveness of internal control over financial reporting referred to in our report dated February 23, 2012 appearing in the 2011 Annual Report to Shareholders of Johnson & Johnson (which report and consolidated financial statements are incorporated by reference in this Annual Report on Form 10-K) also included an audit of the financial statement schedule listed in Item 15(a)2 of this Form 10-K. In our opinion, this financial statement schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements.

 

/s/ P RICEWATERHOUSECOOPERS LLP

PricewaterhouseCoopers LLP

New York, New York

February 23, 2012

 

16


Table of Contents

EXHIBIT INDEX

 

Reg. S-K
Exhibit Table
Item No.

  

Description of Exhibit

3(i)(a)    Restated Certificate of Incorporation dated April 26, 1990—Incorporated herein by reference to Exhibit 3(a) of the Registrant’s Form 10-K Annual Report for the year ended December 30, 1990.
3(i)(b)    Certificate of Amendment to the Restated Certificate of Incorporation of the Company dated May 20, 1992—Incorporated herein by reference to Exhibit 3(a) of the Registrant’s Form 10-K Annual Report for the year ended January 3, 1993.
3(i)(c)    Certificate of Amendment to the Restated Certificate of Incorporation of the Company dated May 21, 1996—Incorporated herein by reference to Exhibit 3(a)(iii) of the Registrant’s Form 10-K Annual Report for the year ended December 29, 1996.
3(i)(d)    Certificate of Amendment to the Restated Certificate of Incorporation of the Company effective May 22, 2001—Incorporated herein by reference to Exhibit 3 of the Registrant’s Form 10-Q Quarterly Report for the quarter ended July 1, 2001.
3(i)(e)    Certificate of Amendment to the Restated Certificate of Incorporation of the Company effective April 27, 2006—Incorporated herein by reference to Exhibit 3(i) of the Registrant’s Form 10-Q Quarterly Report for the quarter ended April 2, 2006.
3(ii)    By-Laws of the Company, as amended effective February 9, 2009—Incorporated herein by reference to Exhibit 3.1 the Registrant’s Form 8-K Current Report filed February 13, 2009.
4(a)    Upon the request of the Securities and Exchange Commission, the Registrant will furnish a copy of all instruments defining the rights of holders of long-term debt of the Registrant.
10(a)    Stock Option Plan for Non-Employee Directors—Incorporated herein by reference to Exhibit 10(a) of the Registrant’s Form 10-K Annual Report for the year ended December 29, 1996.*
10(b)    2000 Stock Option Plan (as amended)—Filed with this document.*
10(c)    2005 Long-Term Incentive Plan—Incorporated herein by reference to Exhibit 4 of the Registrant’s S-8 Registration Statement filed with the Commission on May 10, 2005 (file no. 333-124785).*
10(d)    Form of Restricted Shares to Non-Employee Directors Certificate under the 2005 Long-Term Incentive Plan—Incorporated herein by reference to Exhibit 10.1 of the Registrant’s Form 8-K Current Report filed August 25, 2005.*
10(e)    Form of Stock Option Certificate, Restricted Share Unit Certificate and Performance Share Unit Certificate under the 2005 Long-Term Incentive Plan—Incorporated herein by reference to Exhibits 10.1, 10.2 and 10.3 of the Registrant’s Form 8-K Current Report filed January 13, 2012.*
10(f)    Executive Bonus Plan—Incorporated herein by reference to Exhibit 4 of the Registrant’s Form S-8 Registration Statement filed with the Commission on November 8, 2005 (file no. 333-129542).*
10(g)    Executive Incentive Plan (as amended)—Incorporated herein by reference to Exhibit 10(f) of the Registrant’s Form 10-K Annual Report for the year ended December 31, 2000.*
10(h)    Domestic Deferred Compensation (Certificate of Extra Compensation) Plan—Incorporated herein by reference to Exhibit 10(g) of the Registrant’s Form 10-K Annual Report for the year ended December 28, 2003.*
10(i)    Amendments to the Certificate of Extra Compensation Plan effective as of January 1, 2009—Incorporated herein by reference to Exhibit 10(j) of the Registrant’s Form 10-K Annual Report for the year ended December 28, 2008.*
10(j)    2009 Certificates of Long-Term Performance Plan—Incorporated herein by reference to Exhibit 10.1 of the Registrant’s Form 10-Q Quarterly Report for the quarter ended September 27, 2009.*
10(k)    Amended and Restated Deferred Fee Plan for Directors—Filed with this document.*
10(l)    Amendments to the Deferred Fee Plan for Directors effective as of January 1, 2009—Incorporated herein by reference to Exhibit 10(l) of the Registrant’s Form 10-K Annual Report for the year ended December 28, 2008.*

 

17


Table of Contents

Reg. S-K
Exhibit Table
Item No.

  

Description of Exhibit

10(m)    Executive Income Deferral Plan (as amended)—Incorporated herein by reference to Exhibit 10(i) of the Registrant’s Form 10-K Annual Report for the year ended December 28, 2003.*
10(n)    Amendments to the Executive Income Deferral Plan effective as of January 1, 2009—Incorporated herein by reference to Exhibit 10(n) of the Registrant’s Form 10-K Annual Report for the year ended December 28, 2008.*
10(o)    Excess Savings Plan—Incorporated herein by reference to Exhibit 10(j) of the Registrant’s Form 10-K Annual Report for the year ended December 29, 1996.*
10(p)    Amendments to the Johnson & Johnson Excess Savings Plan effective as of January 1, 2009—Incorporated herein by reference to Exhibit 10(p) of the Registrant’s Form 10-K Annual Report for the year ended December 28, 2008.*
10(q)    Excess Benefit Plan (Supplemental Retirement Plan)—Incorporated herein by reference to Exhibit 10(h) of the Registrant’s Form 10-K Annual Report for the year ended January 3, 1993.*
10(r)    Amendments to the Excess Benefit Plan of Johnson & Johnson and Affiliated Companies effective as of January 1, 2009—Incorporated herein by reference to Exhibit 10(r) of the Registrant’s Form 10-K Annual Report for the year ended December 28, 2008.*
10(s)    Executive Life Insurance Plan—Incorporated herein by reference to Exhibit 10(i) of the Registrant’s Form 10-K Annual Report for the year ended January 3, 1993.*
10(t)    Stock Option Gain Deferral Plan—Incorporated herein by reference to Exhibit 10(m) of the Registrant’s Form 10-K Annual Report for the year ended January 2, 2000.*
10(u)    Estate Preservation Plan—Incorporated herein by reference to Exhibit 10(n) of the Registrant’s Form 10-K Annual Report for the year ended January 2, 2000.*
10(v)    Summary of Compensation Arrangements for Named Executive Officers and Directors—Filed with this document.*
12    Statement of Computation of Ratio of Earnings to Fixed Charges—Filed with this document.
13    —Pages 25 through 71 of the Company’s Annual Report to Shareholders for fiscal year 2011 (only those portions of the Annual Report incorporated by reference in this report are deemed “filed”)—Filed with this document.
21    Subsidiaries—Filed with this document.
23    Consent of Independent Registered Public Accounting Firm—Filed with this document.
31(a)    Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act—Filed with this document.
31(b)    Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act—Filed with this document.
32(a)    Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act—Furnished with this document.
32(b)    Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act—Furnished with this document.
99    Cautionary Statement Pursuant to Private Securities Litigation Reform Act of 1995—“Safe Harbor” for Forward-Looking Statements—Filed with this document.
101    XBRL (Extensible Business Reporting Language) The following materials from Johnson & Johnson’s Annual Report on Form 10-K for the fiscal year-ended January 1, 2012, formatted in Extensive Business Reporting Language (XBRL): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Earnings, (iii) Consolidated Statements of Equity, (iv) Consolidated Statements of Cash Flows, (v) Notes to the Consolidated Financial Statements, and (vi) Schedule II—Valuation and Qualifying Accounts.

 

* Management contract or compensatory plan.

 

18

Exhibit 10(b)

JOHNSON & JOHNSON

2000 STOCK OPTION PLAN

(Effective April 19, 2000, as amended February 10, 2003 and October 1, 2003)

1. P URPOSE

The purpose of the Johnson & Johnson 2000 Stock Option Plan (the “Plan”) is to promote the interests of Johnson & Johnson (the “Company”) by ensuring continuity of management and increased incentive on the part of officers and executive employees responsible for major contributions to effective management, through facilitating their acquisition of an equity interest in the Company on reasonable terms.

2. A DMINISTRATION

The Plan shall be administered by the Compensation & Benefits Committee of the Board of Directors (the “Committee”). The Committee shall consist of not less than three directors. No person shall be eligible to continue to serve as a member of such Committee unless such person is a “Non-Employee Director” within the meaning of Rule 16b-3 of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended, and an “outside director” within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”). The Committee shall have the power to select optionees, to establish the number of shares and other terms applicable to each such option, to construe the provisions of the Plan, and to adopt rules and regulations governing the administration of the Plan.

The Board of Directors, within its discretion, shall have authority to amend the Plan and the terms of any option issued hereunder without the necessity of obtaining further approval of the shareowners, unless such approval is required by law. Notwithstanding the foregoing, except for any stock split, adjustment or other change in the corporate structure or shares of the Company as contemplated under Section 6(A)(v) hereof, the Company shall neither lower the exercise price of any option granted under the Plan nor grant any option hereunder in replacement of an option which had previously been granted at a higher exercise price, without the approval of the shareowners.

3. E LIGIBILITY

Those eligible to participate in the Plan will be selected by the Committee from the following:

(1) Directors.

(2) Officers and other key employees of the Company and its domestic subsidiaries.

(3) Key employees of subsidiaries outside the United States.

(4) Key employees of a joint venture operation of the Company or its subsidiaries and key employees of joint venture partners who are assigned to such a joint venture.

In all cases, optionees shall be selected on the basis of demonstrated ability to contribute substantially to the effective management or financial performance of the Company or its subsidiaries.

In no event shall an option be granted to any individual who, immediately after such option is granted, is considered to own stock possessing more than 10% of the combined voting power of all classes of stock of Johnson & Johnson or any of its subsidiaries within the meaning of Section 422 of the Internal Revenue Code.

4. A LLOTMENT OF S HARES

The amount of Common Stock of the Company (par value $1.00 per share) that may be made subject to grants of options under the Plan in any calendar year shall not exceed an amount equal to 1.6 percent of the

 

1


issued shares of the Company’s Common Stock (including Treasury Shares) on January 1 of such year, plus (i) the number of shares that were available for grants in the previous year under the Plan but were not made subject to a grant in such previous year and (ii) the number of shares that were covered by options granted under the Plan which options lapsed, expired or terminated in the previous year without being exercised. Notwithstanding the foregoing, no more than 150 million shares (giving effect to the stock split in May 2001) in the aggregate shall be available for issuance as incentive stock options under the Plan.

The total number of shares which may be awarded under the Plan to any optionee in any one year shall not exceed the lesser of (x) 5% of the total shares allotted to the Plan for such year and (y) 2 million shares. The Committee may, in its discretion, issue upon exercise of any option Treasury Shares or authorized but unissued shares.

5. E FFECTIVE D ATE AND T ERM OF P LAN

The Plan, if approved by the shareowners of the Company, shall become effective on April 19, 2000. No option shall be granted pursuant to this Plan later than April 18, 2005, but the rights of optionees under options theretofore granted to them will not be affected, and all unexpired options will continue in force and operation thereafter, except as such options may lapse or be terminated in accordance with their terms and conditions.

6. T ERMS AND C ONDITIONS

A. All Options

The following shall apply to all options granted under the Plan:

(i) Option Price

The option price per share for each stock option shall be determined by the Committee and shall not be less than the fair market value on the date the option is granted. The fair market value shall be determined as prescribed by the Internal Revenue Code and Regulations.

(ii) Time of Exercise of Option

The Committee shall establish the time or times within the option period when the stock option may be exercised in whole or in such parts as may be specified from time to time by the Committee. With respect to an optionee whose employment has terminated by reason of death, disability or retirement, the Committee may in its discretion accelerate the time or times when any particular stock option held by said optionee may be so exercised so that such time or times are earlier than those originally provided in said option. In all cases exercise of a stock option shall be subject to the provisions of Section 6B(ii) or 6C(iii), as the case may be. The Committee shall determine, either at the time of grant or later, whether and to what extent and under what circumstances, the delivery of shares issuable in connection with the exercise of a non-qualified option may be deferred at the election of the optionee.

(iii) Payment

The entire option price may be paid at the time the option is exercised. When an option is exercised prior to termination of employment, the Committee shall have the discretion to arrange for the payment of such price, in whole or in part, in installments. In such cases, the Committee shall obtain such evidence of the optionee’s obligation, establish such interest rate and require such security as it may deem appropriate for the adequate protection of the Company.

(iv) Non-Transferability of Option

Unless otherwise specified by the Committee to the contrary, an option by its terms shall not be transferable by the optionee otherwise than by will or by the laws of descent and distribution and shall be

 

2


exercisable during the optionee’s lifetime only by the optionee. The Committee may, in the manner established by the Committee, provide for the transfer, without payment of consideration, of a non-qualified option by an optionee to a member of the optionee’s immediate family or to a trust or partnership whose beneficiaries are members of the optionee’s immediate family. In such case, the option shall be exercisable only by such transferee. For purposes of this provision, an optionee’s “immediate family” shall mean the holder’s spouse, children and grandchildren.

(v) Adjustment in Event of Recapitalization of the Company

In the event of a reorganization, recapitalization, stock split, stock dividend, combination of shares, merger, consolidation, rights offering, or any other change in the corporate structure or shares of the Company, the Board of Directors shall make such adjustment as it may deem equitably required in the number and kind of shares authorized by and for the Plan, the number and kind of shares covered by the options granted, the number of shares which may be awarded to an optionee in any one year, and the option price.

(vi) Rights after Termination of Employment

(1) In the event of termination of employment due to any cause other than death, disability or retirement, rights to exercise the stock option shall cease, except for those which have accrued to and including the “date of termination” (as defined below), unless the Committee shall otherwise specify. These rights shall remain exercisable for a period of three (3) months after the date of termination, or such longer period (not to exceed three (3) years) as the Committee shall provide.

(2) In the event of termination of employment due to death or disability, rights to exercise the stock option shall cease, except for those which have accrued to and including the date of termination, unless the Committee shall otherwise specify. These rights shall remain exercisable for a period of three (3) years or such longer period (not to exceed the term of the option) as the Committee shall provide.

Notwithstanding the above, in the event such termination of employment due to death or disability occurs with optionee having at least ten (10) years of Service (as defined below) for options granted prior to October 1, 2003 and, for options granted on or after October 1, 2003, with optionee having at least ten (10) years of Service with a minimum of five (5) consecutive years of Service immediately prior to the time of termination, then, any unexercised or unexercisable portion of the stock option may be exercised in whole or in part during the remaining term of the option at such times and to the extent the optionee could have exercised such stock option had the optionee’s employment not terminated.

(3) In the event of retirement (unrelated to termination for cause, as defined below, which shall be governed by the provisions of (1) above) rights to exercise the stock option shall cease, except for those which have accrued to and including the date of termination, unless the Committee shall otherwise specify. These rights shall remain exercisable for a period of three (3) years, or such longer period (not to exceed the term of the option) as the Committee shall provide, provided, however, that in the event the optionee is “employed by a competitor” (as defined below) within two (2) years from the date of such retirement, no rights may be exercisable beyond a date which is three (3) months after the commencement of such employment with a competitor.

Notwithstanding the above, in the event such retirement (unrelated to termination for cause which shall be governed by the provisions of (1) above) occurs with optionee having at least ten (10) years of Service for options granted prior to October 1, 2003 and, for options granted on or after October 1, 2003, with optionee having at least ten (10) years of Service with a minimum of five (5) consecutive years of Service immediately prior to the time of retirement, then, any unexercised or unexercisable portions of the stock option may be exercised in whole or in part during the remaining term of the stock option at such times and to the extent the optionee could have exercised such stock option had the optionee’s employment not terminated, provided, however, that in the event the optionee is employed by a competitor within two

 

3


(2) years from the date of such retirement, (i) any unexercisable portion of the stock option shall terminate immediately and (ii) no rights may be exercisable beyond a date which is three (3) months after the commencement of such employment with a competitor.

(4) No stock option shall, in any event, be exercised after the expiration of 10 years from the date such option is granted, or such earlier date as may be specified in the option. In addition, any stock option granted within six (6) months of termination of employment due to any cause whatsoever shall be void unless the Committee shall otherwise provide.

(5) As used in the Plan:

(i) The term “termination for cause” shall mean optionee’s termination by the Company or any of its subsidiaries in connection with the violation of any federal or state law, dishonesty, the willful and deliberate failure on the part of an optionee to perform his/her employment duties in any material respect or such other events, including the existence of a conflict of interest, as the Management Compensation Committee may determine. Such committee shall have the sole discretion to determine whether a “termination for cause” exists, and its determination shall be final.

(ii) The term “employed by a competitor” shall mean the optionee’s engaging in any activity or providing services, whether as director, employee, advisor, consultant or otherwise, for any corporation or other entity which is a competitor of the Company or any of its subsidiaries. The Management Compensation Committee shall have the sole discretion to determine if an optionee is “employed by a competitor”, and its determination shall be final.

(iii) The term “date of termination” shall mean the last date on which the optionee was in an active employment status. Specifically, in the event an optionee is covered by a severance agreement or arrangement, the “date of termination” shall be the last date of active employment, not the date corresponding to the end of the severance period.

(iv) The term “Service” shall mean employment with Johnson & Johnson or one of its subsidiaries, while that corporation or other legal entity was a subsidiary of Johnson & Johnson, unless the Committee shall otherwise provide.

B. Non-Qualified Stock Options

The Committee may, in its discretion, grant options under the Plan which, in whole or in part, do not qualify as incentive stock options under Section 422 of the Internal Revenue Code. In addition to the terms and conditions set forth in Section 6A above, the following terms and conditions shall govern any option (or portion thereof) to the extent that it does not so qualify.

(i) Form of Payment

Payment of the option price of any option (or portion thereof) not qualifying as an incentive stock option shall be made in cash or, in the discretion of the Committee, in the Common Stock of the Company valued at its fair market value (as the same shall be determined by the Committee), or a combination of such Common Stock and cash. Where payment of the option price is to be made with Common Stock acquired under a Company compensation plan (within the meaning of Opinion No. 25 of the Accounting Principles Board), such Common Stock will not be accepted as payment unless the optionee has beneficially owned such Common Stock for at least six months (increased to one year if such Common Stock was acquired under an incentive stock option) prior to such payment.

(ii) Period of Option

The exercise period of each non-qualified stock option by its terms shall not be more than l0 years from the date the option is granted as specified by the Committee.

 

4


C. Incentive Stock Options

The Committee may, in its discretion, grant options under the Plan which qualify in whole or in part as incentive stock options under Section 422 of the Internal Revenue Code. In addition to the terms and conditions set forth in Section 6A above, the following terms and conditions shall govern any option (or portion thereof) to the extent that it so qualifies:

(i) Maximum Fair Market Value of Incentive Stock Options

The aggregate fair market value (determined as of the time such option is granted) of the Common Stock for which any optionee may have stock options which first become vested in any calendar year (under all incentive stock option plans of the Company and its subsidiaries) shall not exceed $100,000.

(ii) Form of Payment

Payment of the option price for incentive stock options shall be made in cash or in the Common Stock of the Company valued at its fair market value (as the same shall be determined by the Committee), or a combination of such Common Stock and cash. Where payment of the option price is to be made with Common Stock acquired under a Company compensation plan (within the meaning of Opinion No. 25 of the Accounting Principles Board), such Common Stock will not be accepted as payment unless the optionee has beneficially owned such Common Stock for at least six months (increased to one year if such Common Stock was acquired under an incentive stock option) prior to such payment.

(iii) Period of Option

The exercise period of each incentive stock option by its terms shall not be more than l0 years from the date the option is granted as specified by the Committee.

D. Options for Non-Employee Directors

Notwithstanding the foregoing, in the event of any inconsistency between the terms and conditions above and the following terms and conditions, the following terms and conditions shall govern the stock options granted to non-employee directors of the Board of Directors:

(i) The Committee shall establish the time or times within the option period when the stock option may be exercised in whole or in such parts as may be specified from time to time by the Committee; provided however that each option shall become 100% exercisable upon the earlier of completion of a non-employee director’s Board service, or on a date which is one year after the date of grant.

(ii) If a non-employee director completes his or her service as a director of the Company for any reason (other than death), their options may be exercised at any time during the remainder of the option term.

(iii) In the event of a non-employee director’s death, regardless of whether he or she is still serving as a director, the option may be exercised, subject to the provisions of Section 6B (ii) above, within three (3) years after death by his or her estate or by any person who acquires such option by inheritance or devise. Thereafter, such rights shall lapse.

 

5

Exhibit 10(k)

JOHNSON & JOHNSON

AMENDED AND RESTATED

DEFERRED FEE PLAN FOR DIRECTORS

(Amended as of January 17, 2012)

1. Purpose. The purpose of the Johnson & Johnson Deferred Fee Plan for Directors (the “Plan”) is to provide outside Directors of Johnson & Johnson (the “Company”) the opportunity to defer receipt of compensation earned as a Director to a date following termination of such service and to receive deferred stock units. These opportunities are designed to aid the Company in attracting and retaining as members of its Board of Directors persons whose abilities, experience and judgment can contribute to the well-being of the Company and to facilitate equity ownership in the Company by the Board of Directors.

2. Effective Date. The original effective date of the Plan was January 1, 1983. The Plan was amended effective as of January 1, 1995, December 5, 1996, February 14, 2005, December 16, 2008, and January 17, 2012.

3. Eligibility. Any Director of the Company who is not also an employee of the Company or any related company shall be eligible to participate in the Plan.

4. Deferred Compensation Account. A deferred compensation account (the “Account”) shall be established for each Director who is eligible to participate in the Plan as provided in Section 3 hereof (a “Participant”). Amounts credited to each Participant’s Account shall be identified in the Plan’s records as comprised of two sub-accounts as follows: (a) the “Elective Deferral Sub-Account” for amounts credited with respect to a Participant’s “Elective Deferrals” (as defined in Section 5 hereof); and (b) the “Mandatory Deferral Sub-Account” for amounts credited with respect to a Participant’s “Mandatory Deferrals” (as defined in Section 5 hereof).

5. Amount of Deferral.

(a) Elective Deferrals . Each Participant may elect to defer receipt of all or a specified part of any cash compensation payable to the Participant for serving on the Board of Directors or for serving on committees of the Board of Directors of the Company (the “Elective Deferrals”). An amount equal to all compensation deferred as Elective Deferrals will be credited to the participant’s Elective Deferral Sub-Account on a quarterly basis as of the dividend payment date in each quarter (the “Elective Deferral Payment Date”). In the event that there shall not be a dividend payment date in any quarter, then the Elective Deferral Payment Date shall be deemed to be the last business day of such quarter.

(b) Mandatory Deferrals . From time to time the Board of Directors may grant stock units to Participants that are immediately vested but that are required to be deferred under the Plan (the “Mandatory Deferrals”). The number of stock units granted to Participants as Mandatory Deferrals may vary from grant to grant and from Participant to Participant and will be determined by the Board of Directors and credited to the Participant’s Mandatory Deferral Sub-Account as of the date of grant (the “Mandatory Deferral Payment Date” and, together with the Elective Deferral Payment Date, the “Payment Date”).

6. Deferred Compensation Account—Hypothetical Investment Options .

(a) Unless otherwise specified by the Participant pursuant to the terms of paragraph (b) of this Section 6, all amounts of Elective Deferrals and Mandatory Deferrals shall be credited to the Participant’s Elective Deferral Sub-Account or Mandatory Deferral Sub-Account, as applicable, converted into equivalent units of Johnson & Johnson Common Stock (“Company Stock”) and adjusted as if the compensation deferred had been invested in Company Stock as of the Payment Date, until the date of final payment pursuant to Section 9 hereof (“Company Stock Equivalent Units”). The number of Company Stock


Equivalent Units shall be determined by dividing the amount of compensation payable by the average of the high and low price of the Company Stock as traded on the New York Stock Exchange on the trading day immediately prior to the Payment Date, as reported by Bloomberg (or another financial reporting service selected by the Company in its sole discretion). The number of Company Stock Equivalent Units included in a Participant’s Account shall be adjusted to reflect dividends, and the value of such Account shall be adjusted to reflect increases or decreases in market value which would have resulted had funds equal to the balance of the Participant’s Account been invested in Company Stock. Nothing herein obligates the Company to purchase any such Company Stock; and if such Company Stock is purchased, it shall remain the sole property of the Company.

(b) At the election of each Participant, to be made as provided for in Section 7, each Elective Deferral Sub-Account will be credited with interest from the Payment Date, until the date of final payment pursuant to Section 9 hereof, at a rate equal to the annual rate of growth of investment in the Johnson & Johnson Certificate of Long-Term Compensation Plan (the “CLC Plan”), for the prior year provided, however, that the computation of said growth rate shall not include dividend equivalents paid under the CLC Plan. The election permitted under this Section 6(b) shall not be available to any Director who becomes a Participant in the Plan after December 31, 1995.

(c) With respect to Company Stock Equivalent Units in a Participant’s Account, the Company shall credit such Account on each dividend payment date declared with respect to the Company’s Stock, the number of Company Stock Equivalent Units equal to: (i) the product of (y) the dividend per share of the Company’s Stock which is payable as of the dividend payment date, multiplied by (z) the number of Company Stock Equivalent Units credited to such Account as of the applicable dividend record date, divided by (ii) the average of the high and low price of the Company Stock as traded on the New York Stock Exchange on the trading day immediately prior to the dividend payment date, as reported by Bloomberg (or another financial reporting service selected by the Company in its sole discretion). Fractional Company Stock Equivalent Units shall be carried forward, and fractional dividend equivalent units shall be payable thereon.

7. Time of Election for Elective Deferrals . A Participant may change (i) the amount of Elective Deferrals and/or (ii) the option elected under Section 6 with respect to his/her Elective Deferral Sub-Account and deferrals for subsequent years, once annually in December by completing forms provided by the Company for that purpose. Any such change shall become effective on January 1 of the following year. If a Participant elects to change his/her investment option available under Section 6, the Participant’s Elective Deferral Sub-Account shall be valued as of December 31 with that value being entered into his/her Sub-Account under the new investment option as of the following January 1 (except if such change is to Company Stock Equivalent Units, the first trading day following such January 1 shall be used).

8. Value of Deferred Compensation Account. The value of each Participant’s Account shall include Elective and Mandatory Deferrals, interest credited thereon (if any), adjustments for dividends, and increases or decreases in the market value of Company Stock, pursuant to the option selected under Section 6 or as otherwise required under the Plan. If the Company Stock does not trade on any date a calculation of Common Stock Equivalent Units is to be made under the Plan, the next preceding date on which such stock was traded shall be utilized.

9. Payment of Deferred Compensation. Upon a Participant’s completion of service as a member of the Board of Directors (the “Completion Date”), each Participant (or in the event of the Participant’s death, the named beneficiary or his/her estate) shall be entitled to receive: (a) with respect to the Elective Deferral Sub-Account, cash in a lump sum in the amount of his/her Elective Deferral Sub-Account as of the Completion Date; and (b) with respect to the Mandatory Deferral Sub-Account, a lump sum payment of cash, or, in the sole discretion of the Compensation & Benefits Committee of the Board of Directors, payment in shares of Company Stock issued under a stockholder-approved equity compensation plan permitting such payment in shares or a combination of cash and shares of Company Stock, in the amount of his/her Mandatory Deferral Sub-Account. Company Stock Equivalent Units shall be valued at the average of the high and low price of the Company’s Stock as traded on the New York Stock Exchange on the trading day immediately prior to such date, as reported by Bloomberg (or another financial reporting service selected by the Company in its sole discretion). No


withdrawal may be made from the Participant’s Account prior to the Completion Date. The value of a Participant’s Account shall be paid as soon as practicable following the Completion Date or date of death.

10. Section 409A Requirements . Notwithstanding any other provision of the Plan to the contrary, effective as of January 1, 2009, the terms of this Section 10 shall apply to the payment of a Participant’s Account under the Plan. This Section 10 is intended to ensure that the terms of the Plan comply with Section 409A of the Internal Revenue Code of 1986, as amended, and the regulations and other guidance issued thereunder (“Section 409A”).

(a) Payment of Accounts . Notwithstanding any other provision of the Plan to the contrary, effective as of January 1, 2009, the value of a Participant’s Account shall be payable solely in a single lump sum within the 90-day period beginning on the Participant’s Completion Date or date of death, if earlier. The Participant shall have no influence on any determination as to the tax year in which the payment is made.

(b) No Deferral of Payment . Effective as of January 1, 2009, a Participant may not elect to defer receipt of any portion of his Account or to receive such amounts in the form of installment payments. A Participant’s election to defer receipt of any portion of his Account or to be paid in installments shall be null and void as of January 1, 2009.

(c) Provisions Intended to Ensure Compliance with Section 409A . This Section 10 and any other provision of this Plan that applies to deferrals, including the rights of the Company or a participant with respect to the deferrals, shall be limited to those terms permitted under Section 409A. Any terms not permitted under Section 409A shall be automatically modified and limited to the extent necessary to comply with Section 409A, but only to the extent such modification or limitation is permitted under Section 409A.

(d) Payment Upon Termination of the Plan . Upon termination of the Plan pursuant to this Section 10 with respect to all Participants and the termination of all other arrangements sponsored by the Company that would be aggregated with the Plan under Section 409A, the Company shall have the right, in its sole discretion, to pay to each Participant the value of his/her Account in a lump sum to the extent permitted under Section 409A. All payments made under this Section 10 upon termination of the Plan shall be made no earlier than the thirteenth (13th) month and no later than the twenty-fourth (24th) month after the termination of the Plan. The Company may not accelerate payments pursuant to this Section 10 if the termination of the Plan is proximate to a downturn in the Company’s financial health. If the Company exercises its discretion to accelerate payments under this Section 10, the Company shall not adopt any new arrangement that would have been aggregated with the Plan under Section 409A within three (3) years following the date of the Plan’s termination.

11. Designation of Beneficiary. Each Participant may, from time to time, by writing filed with the Secretary of the Company, designate any legal or natural person or persons (who may be designated contingently or successively) to whom payments of a Participant’s Account are to be made if a Participant dies prior to the receipt of payment of such Account. A beneficiary designation will be effective only if the signed form is filed with the Secretary of the Company while the Participant is alive and will cancel all beneficiary designation forms filed earlier. If a Participant fails to designate a beneficiary as provided above, or if all designated beneficiaries die before the Participant or before complete payment of the Account, such Account shall be paid to the estate of the last to die of the Participant and designated beneficiaries as soon as practicable after such death.

12. Participant’s Rights Unsecured. The right of any Participant to receive payment under the provisions of the Plan shall be an unsecured claim against the general assets of the Company, and no provisions contained in the Plan shall be construed to give any Participant or beneficiary at any time a security interest in any Account or any other asset in trust with the Company for the benefit of any Participant or beneficiary.

13. Statement of Account. A statement will be sent to Participants as soon as practical following the end of each year as to the value of his/her Account as of December 31 of such year.

14. Assignability. No right to receive payments hereunder shall be transferable or assignable by a Participant or a beneficiary, except by will or by the laws of descent and distribution.


15. Administration of the Plan. The Plan shall be administered by the Compensation & Benefits Committee of the Board of Directors (the “Committee”) and responsible to the Board of Directors. The Committee shall consist of no less than three Directors of the Company. The Committee shall act by vote or written consent of a majority of its members. The Committee may designate one or more of its members or employees of the Company to execute documents on its behalf or take such other actions that may be necessary or proper to assist the Committee in its administration and operation of the Plan.

16. Amendment or Termination of Plan. This Plan may at any time or from time to time be amended, modified or terminated by the Compensation & Benefits Committee of the Board of Directors or the Board of Directors of the Company. No amendment, modification or termination shall, without the consent of a Participant, adversely affect such Participant’s accruals in his/her Account.

17. Governing Law. This Agreement shall be governed by and construed in accordance with the Laws of the State of New Jersey.

EXHIBIT 10(v)

Summary of Compensation Arrangements for

Named Executive Officers and Directors

Compensation Arrangements for Named Executive Officers

Following is a description of the compensation arrangements that were approved on January 17, 2012 by the Board of Directors of Johnson & Johnson for the Company’s Chief Executive Officer, and by the Compensation & Benefits Committee of the Board of Directors (the “Compensation Committee”) for the Company’s Chief Financial Officer and the other three most highly compensated executive officers in 2011 (together with the Chief Executive Officer, the “Named Executive Officers”).

Annual Base Salary:

The Compensation Committee has approved the following base salaries for 2012 for the Named Executive Officers:

 

William C. Weldon

Chairman/CEO

   $ 1,973,300   

Dominic J. Caruso

Vice President, Finance; CFO

   $ 800,000   

Russell C. Deyo*

Former Vice President, General Counsel

     —     

Alex Gorsky**

Vice Chairman, Executive Committee

   $ 880,600   

Sherilyn S. McCoy

Vice Chairman, Executive Committee

   $ 932,400   

 

* Will retire in March 2012.
** Effective April 26, 2012, upon assuming the role of Chief Executive Officer, Mr. Gorsky’s annual base salary will be $1,200,000.

Annual Performance Bonus:

The Compensation Committee has approved the following annual performance bonus payments under the Company’s Executive Incentive Plan for performance in 2011 (paid in the form of 85% cash and 15% Company Common Stock as determined by the Compensation Committee):

 

Mr. Weldon

   $ 3,065,280   

Mr. Caruso

   $ 970,625   

Mr. Deyo

   $ 1,100,000   

Mr. Gorsky

   $ 1,275,000   

Ms. McCoy

   $ 1,275,000   

Stock Option, Restricted Share Unit and Performance Share Unit Grants:

The Compensation Committee has approved the following grants of stock options, restricted share units (“RSUs”) and performance share units (“PSUs”) under the Company’s 2005 Long-Term Incentive Plan (the “LTI Plan”). The stock options were granted at an exercise price of $65.37, at the “fair market value” (calculated as the average of the high and low prices of the Company’s Common Stock on the New York Stock Exchange) on January 17, 2012. The options will become exercisable on January 18, 2015 and expire on January 17, 2022. The RSUs will vest on January 17, 2015, upon which the holder, if still employed by the Company on such date, will receive one share of the Company’s Common Stock for each RSU. The PSUs will vest after the end of the three-year performance cycle based on the achievement of certain performance metrics, provided the holder is still employed by the Company on such date. Due to his intention to retire, Mr. Deyo did not receive stock options, RSUs or PSUs in 2012.


 

Mr. Weldon

     628,911 stock options         45,673 RSUs         114,182 PSUs   

Mr. Caruso

     173,702 stock options         12,615 RSUs         31,537 PSUs   

Mr. Gorsky

     231,951 stock options         16,845 RSUs         42,112 PSUs   

Ms. McCoy

     231,951 stock options         16,845 RSUs         42,112 PSUs   

Equity Compensation for Non-Employee Directors

On February 13, 2012, each Non-Employee Director received a grant of 1,543 shares under the LTI Plan having a fair market value of $100,000 on the grant date. In addition, on February 13, 2012, each Non-Employee Director received a grant of 694 deferred share units under the Amended and Restated Deferred Fee Plan having a fair market value of $45,000 on the grant date. The restricted shares will become freely transferable on February 13, 2015. The deferred share units are tracked against the value of the Company’s Common Stock, receive dividend equivalents, and are settled in cash upon termination of directorship.

EXHIBIT 12

JOHNSON & JOHNSON AND SUBSIDIARIES

STATEMENT OF COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (1)

(Dollars in Millions)

 

     Fiscal Year Ended  
     January 1,
2012
     January 2,
2011
     January 3,
2010
     December 28,
2008
     December 30,
2007
 

Determination of Earnings:

              

Earnings Before Provision for Taxes on Income

   $ 12,361       $ 16,947       $ 15,755       $ 16,929       $ 13,283   

Fixed Charges, less Capitalized Interest

     675         555         558         538         397   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total Earnings as Defined

   $ 13,036       $ 17,502       $ 16,313       $ 17,467       $ 13,680   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Fixed Charges:

              

Estimated Interest Portion of Rent Expense

     104         100         107         103         101   

Interest Expense before Capitalization of Interest

     655         528         552         583         426   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total Fixed Charges

   $ 759       $ 628       $ 659       $ 686       $ 527   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Ratio of Earnings to Fixed Charges

     17.18         27.87         24.75         25.46         25.96   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)

The ratio of earnings to fixed charges is computed by dividing the sum of earnings before provision for taxes on income and fixed charges by fixed charges. Fixed charges represent interest expense (before interest is capitalized), amortization of debt discount and an appropriate interest factor on operating leases.

Table of Contents

 

 

MANAGEMENT’S DISCUSSION AND ANALYSIS

  26      Organization and Business Segments
  26      Results of Operations
  27      Analysis of Sales by Business Segments
  29      Analysis of Consolidated Earnings Before Provision for Taxes on Income
  32      Liquidity and Capital Resources
  33      Other Information
  36      Cautionary Factors That May Affect Future Results

 

AUDITED CONSOLIDATED FINANCIAL STATEMENTS

  37      Consolidated Balance Sheets
  38      Consolidated Statements of Earnings
  39      Consolidated Statements of Equity
  40      Consolidated Statements of Cash Flows
  41      Notes to Consolidated Financial Statements
  68      Report of Independent Registered Public Accounting Firm
  69      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

 

JOHNSON & JOHNSON 2011 ANNUAL REPORT

     25   


Management’s Discussion and Analysis of Results of Operations and Financial Condition

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, antipsychotic, 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, hospitals and retailers, used principally in the professional fields by physicians, nurses, therapists, hospitals, diagnostic laboratories and clinics. These products include Cardiovascular Care’s electrophysiology 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 invasive 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 companies 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, involving 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 success in all areas of its business. This also includes protecting the Company’s portfolio of intellectual property. The competitive environment requires substantial investments in continuing research and in maintaining sales forces. In addition, the development and maintenance 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 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 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 management 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 leaders 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, 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 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.

 

26    JOHNSON & JOHNSON 2011 ANNUAL REPORT


LOGO

The five-year compound annual growth rates for worldwide, U.S. and international sales were 4.0%, (0.6)% and 8.9%, respectively. The ten-year compound annual growth rates for worldwide, U.S. and international sales were 7.2%, 3.8% and 11.2%, respectively.

LOGO

Sales in Europe achieved growth of 10.4% as compared to the prior year, including operational growth of 5.3% and a positive impact from currency of 5.1%. Sales in the Western Hemisphere (excluding the U.S.) achieved growth of 15.6% as compared to the prior year, including operational growth of 12.2% and a positive impact from currency of 3.4%. Sales in the Asia-Pacific, Africa region achieved growth of 13.5% as compared to the prior year, including operational growth of 6.6% and a positive impact from currency of 6.9%.

In 2011, 2010 and 2009, the Company did not have a customer that represented 10% or more of total consolidated revenues.

The 2009 results benefited from the inclusion of a 53rd week. (See Note 1 to the Consolidated Financial Statements for Annual Closing Date details). The Company estimated that the fiscal year 2009 growth rate was enhanced by approximately 0.5% due to the 53rd week.

U.S. Health Care Reform

The Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 were signed into law in March 2010. The health care reform legislation included an increase in the minimum Medicaid rebate rate from 15.1% to 23.1% and also extended the rebate to drugs provided through Medicaid managed care organizations. Additionally, in 2011, discounts were provided on the Company’s brand-name drugs to patients who fall within the Medicare Part D coverage gap “donut hole”. The impact was an increase in sales rebates reducing sales revenue by approximately $425 million and $400 million in 2011 and 2010, respectively.

In 2011, companies that sell branded prescription drugs to specified U.S. Government programs paid an annual non-tax deductible fee based on an allocation of the company’s market share of total branded prescription drug sales from the prior year. The 2011 full year impact to selling, marketing and administrative expenses was $140 million. Under the current law, beginning in 2013, the Company will be required to pay a tax deductible 2.3% excise tax imposed on the sale of certain medical devices. The 2013 tax is estimated to be between $200-$250 million and will be recorded in selling, marketing and administrative expenses.

LOGO

Analysis of Sales by Business Segments

Consumer Segment

Consumer segment sales in 2011 were $14.9 billion, an increase of 2.0% from 2010, a 0.7% operational decline was offset by a positive currency impact of 2.7%. U.S. Consumer segment sales were $5.2 billion, a decrease of 6.7%. International sales were $9.7 billion, an increase of 7.3%, which included 2.9% operational growth and a positive currency impact of 4.4%.

 

Major Consumer Franchise Sales:

 

                       % Change  

(Dollars in Millions)

   2011     2010     2009     ’11 vs. ’10     ’10 vs. ’09  

OTC Pharmaceuticals & Nutritionals

   $ 4,402        4,549        5,630        (3.2 )%      (19.2

Skin Care

     3,715        3,452        3,467        7.6        (0.4

Baby Care

     2,340        2,209        2,115        5.9        4.4   

Women’s Health

     1,792        1,844        1,895        (2.8     (2.7

Oral Care

     1,624        1,526        1,569        6.4        (2.7

Wound Care/Other

     1,010        1,010        1,127        0.0        (10.4
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 14,883        14,590        15,803        2.0     (7.7
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The Over-the-Counter (OTC) Pharmaceuticals and Nutritionals franchise sales were $4.4 billion, a decrease of 3.2% from 2010. Sales in the U.S. were negatively impacted by the suspension of production at McNeil Consumer Healthcare’s Fort Washington, Pennsylvania facility as well as the impact on production volumes related to ongoing efforts to enhance quality and manufacturing systems at its other manufacturing sites.

During the fiscal first quarter of 2011, a consent decree was signed with the U.S. Food and Drug Administration (FDA), which governs certain McNeil Consumer Healthcare manufacturing operations. The consent decree identifies procedures that will help provide additional assurance of product quality to the FDA. McNeil continues to

 

MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION

     27   


operate the manufacturing facilities in Las Piedras, Puerto Rico and Lancaster, Pennsylvania, however production volumes from these facilities have been impacted due to the additional review and approval processes required. Regarding the products previously produced at the Fort Washington facility, McNeil continues to work on the re-siting of these products to other facilities. McNeil is making progress on the validations at these 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 growth in the NEUTROGENA ® , DABAO ® , JOHNSON’S ® Adult and LE PETIT MARSEILLAIS ® product lines. The Baby Care franchise sales grew by 5.9% to $2.3 billion in 2011, primarily due to growth in cleansers, wipes and haircare. The Women’s Health franchise sales were $1.8 billion, a decrease of 2.8% primarily impacted by the divestiture of certain brands. The Oral Care franchise sales grew by 6.4% to $1.6 billion in 2011, primarily due to increased sales of LISTERINE ® products. The Wound Care/Other franchise sales were $1.0 billion in 2011, flat as compared to the prior year.

Consumer segment sales in 2010 were $14.6 billion, a decrease of 7.7% from 2009, with 8.9% of this change due to an operational decline partially offset by positive currency impact of 1.2%. U.S. Consumer segment sales were $5.5 billion, a decrease of 19.3%. International sales were $9.1 billion, an increase of 1.2%, with an operational decline of 1.0% offset by positive currency impact of 2.2%.

Pharmaceutical Segment

The Pharmaceutical segment achieved sales of $24.4 billion in 2011, representing an increase of 8.8% over the prior year, with operational growth of 6.2% and a positive currency impact of 2.6%. U.S. sales were $12.4 billion, a decrease of 1.1%. International sales were $12.0 billion, an increase of 21.3%, which included 15.5% operational growth and a positive currency impact of 5.8%.

Major Pharmaceutical Product Sales*:

 

                      % Change  

(Dollars in Millions)

  2011     2010     2009     ’11 vs. ’10     ’10 vs. ’09  

REMICADE ® (infliximab)

  $ 5,492        4,610        4,304        19.1     7.1   

PROCRIT ® /EPREX ® (Epoetin alfa)

    1,623        1,934        2,245        (16.1     (13.9

RISPERDAL ® CONSTA ® (risperidone)

    1,583        1,500        1,425        5.5        5.3   

VELCADE ® (bortezomib)

    1,274        1,080        933        18.0        15.8   

CONCERTA ® (methylphenidate HCl)

    1,268        1,319        1,326        (3.9     (0.5

PREZISTA ® (darunavir)

    1,211        857        592        41.3        44.8   

ACIPHEX ® /PARIET ® (rabeprazole sodium)

    975        1,006        1,096        (3.1     (8.2

LEVAQUIN ® /FLOXIN ® (levofloxacin/ofloxacin)

    623        1,357        1,550        (54.1     (12.5

Other Pharmaceuticals

    10,319        8,733        9,049        18.2        (3.5
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $ 24,368        22,396        22,520        8.8     (0.6
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

* Prior year amounts have been reclassified to conform to current presentation.

REMICADE ® (infliximab), a biologic approved for the treatment of a number of immune mediated inflammatory diseases, achieved sales of $5.5 billion in 2011, with growth of 19.1% over the prior year. On a combined basis, U.S. export and international sales of REMICADE ® increased nearly 50% due to the impact of the agreement with Merck & Co., Inc. (Merck), complemented by international market growth. On April 15, 2011, the Company announced it reached an agreement with Merck which included distribution rights to REMICADE ® and SIMPONI ® (golimumab) whereby, effective July 1, 2011, certain territories were relinquished to the Company. On July 1, 2011, the Company began to record sales of product, previously recorded by Merck, from certain territories, including Canada, Brazil, Australia and Mexico, which were previously supplied by Merck.

PROCRIT ® (Epoetin alfa) and EPREX ® (Epoetin alfa) had combined sales of $1.6 billion in 2011, a decline of 16.1% compared to the prior year. Lower sales of PROCRIT ® and EPREX ® were primarily due to a declining market for Erythropoiesis Stimulating Agents (ESAs) and increased competition for EPREX ® .

RISPERDAL ® CONSTA ® (risperidone), a long-acting injectable antipsychotic, achieved sales of $1.6 billion in 2011, representing an increase of 5.5% as compared to the prior year due to international growth. Total U.S. sales of the Company’s long-acting injectables, including RISPERDAL ® CONSTA ® and INVEGA ® SUSTENNA ® (paliperidone palmitate), increased by strong double digits versus a year ago due to an increase in the Company’s combined market share in the antipsychotic market.

VELCADE ® (bortezomib), a product for the treatment for multiple myeloma, for which the Company has commercial rights in markets outside the U.S., achieved sales of $1.3 billion in 2011, representing an increase of 18.0% primarily due to strong growth in Asia and Latin America.

CONCERTA ® (methylphenidate HCl) sales were $1.3 billion, a decline of 3.9% compared to the prior year. The U.S. supply and distribution agreement with Watson Laboratories, Inc. to distribute an authorized generic version of CONCERTA ® became effective May 1, 2011. All regions outside the U.S. achieved sales growth.

        PREZISTA ® (darunavir), a protease inhibitor for the treatment of HIV, achieved sales of $1.2 billion in 2011, representing an increase of 41.3% as compared to the prior year primarily due to market share growth.

ACIPHEX ® /PARIET ® (rabeprazole sodium) sales were $1.0 billion, a decline of 3.1% versus the prior year due to increased competition from generics in the category.

LEVAQUIN ® (levofloxacin)/FLOXIN ® (ofloxacin) sales were $0.6 billion, a decline of 54.1% versus the prior year due to the loss of market exclusivity in the U.S. in June 2011. LEVAQUIN ® sales will continue to decline in the first half of 2012 versus the first half of 2011.

In 2011, Other Pharmaceutical sales were $10.3 billion, representing a growth of 18.2% over the prior year. Contributors to the increase were sales of newly acquired products from Crucell N.V. (Crucell) and newly approved products including ZYTIGA ® (abiraterone acetate) and INCIVO ® (telaprevir). Additional contributors to the growth were STELARA ® (ustekinumab), INVEGA ® SUSTENNA ® (paliperidone palmitate), SIMPONI ® (golimumab), NUCYNTA ® (tapentadol), and INTELENCE ® (etravirine). This growth was partially offset by lower sales of DURAGESIC ® /Fentanyl Transdermal (fentanyl transdermal system), and TOPAMAX ® (topiramate) due to continued generic competition.

 

28    JOHNSON & JOHNSON 2011 ANNUAL REPORT


During 2011, the Company received several regulatory approvals including: U.S. approval for two indications for XARELTO ® (rivaroxaban), an anti-coagulant co-developed with Bayer HealthCare, the first one for the prevention (prophylaxis) of deep vein thrombosis (DVT) which may lead to a pulmonary embolism (PE) in people undergoing knee or hip replacement surgery, and the second one to reduce the risk of stroke and systemic embolism in patients with non-valvular atrial fibrulation; EDURANT ® (rilpivirine), in both the U.S. and the European Union (EU), for HIV in treatment-naïve patients; INCIVO ® (telaprevir), in the EU for the treatment of hepatitis C virus; and ZYTIGA ® (abiraterone acetate), in the U.S. and EU, for the treatment of metastic castration-resistant prostate cancer. In addition, the FDA approved additional indications for REMICADE ® (infliximab), for the treatment of moderately to severely active ulcerative colitis in pediatric patients, and NUCYNTA ® ER (tapentadol) extended-release tablets, an oral analgesic for the management of moderate to severe chronic pain in adults.

The Company submitted New Drug Applications (NDAs) to the FDA seeking approval for the use of XARELTO ® (rivaroxaban), an oral anticoagulant, to reduce the risk of thrombotic cardiovascular events in patients with Acute Coronary Syndrome, and for NUCYNTA ® ER (tapentadol) extended-release tablets, an oral analgesic for the management of neuropathic pain associated with diabetic peripheral neuropathy in adults.

Pharmaceutical segment sales in 2010 were $22.4 billion, a decrease of 0.6% from 2009, with an operational decline of 1.0% and a positive currency impact of 0.4%. U.S. sales were $12.5 billion, a decrease of 4.0%. International sales were $9.9 billion, an increase of 4.2%, which included 3.4% operational growth and a positive currency impact of 0.8%.

Medical Devices and Diagnostics Segment

The Medical Devices and Diagnostics segment achieved sales of $25.8 billion in 2011, representing an increase of 4.8% over the prior year, with operational growth of 1.7% and a positive currency impact of 3.1%. U.S. sales were $11.4 billion, a decrease of 0.4% as compared to the prior year. International sales were $14.4 billion, an increase of 9.2% over the prior year, with operational growth of 3.4% and a positive currency impact of 5.8%.

Major Medical Devices and Diagnostics Franchise Sales:

 

                       % Change  

(Dollars in Millions)

   2011     2010     2009     ’11 vs. ’10     ’10 vs. ’09  

DEPUY ®

   $ 5,809        5,585        5,372        4.0     4.0   

ETHICON ENDO-SURGERY ®

     5,080        4,758        4,492        6.8        5.9   

ETHICON ®

     4,870        4,503        4,122        8.2        9.2   

Vision Care

     2,916        2,680        2,506        8.8        6.9   

Diabetes Care

     2,652        2,470        2,440        7.4        1.2   

Cardiovascular Care*

     2,288        2,552        2,679        (10.3     (4.7

ORTHO-CLINICAL DIAGNOSTICS ®

     2,164        2,053        1,963        5.4        4.6   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 25,779        24,601        23,574        4.8     4.4   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

* Previously referred to as CORDIS ®

The DePuy franchise achieved sales of $5.8 billion in 2011, a 4.0% increase over the prior year. This growth was primarily due to sales of Mitek sports medicine and trauma product lines, and newly acquired products from Micrus. The growth was partially offset by lower sales of knees and hips in the U.S. due to increased competition, continued pricing pressure, a softer market and the impact of the DePuy ASR™ Hip recall.

The Ethicon Endo-Surgery franchise achieved sales of $5.1 billion in 2011, a 6.8% increase over the prior year. Growth was attributable to increased sales of Advanced Sterilization and HARMONIC ® product lines, and outside the U.S., the Endo Mechanical product line. Additionally, sales of newly acquired products from SterilMed contributed to the growth. Total growth was negatively impacted by the divestiture of the Breast Care business in the third quarter of 2010.

The Ethicon franchise achieved sales of $4.9 billion in 2011, an 8.2% increase over the prior year. Emerging market growth in sutures, newly launched products ETHICON PHYSIOMESH ® and ETHICON SECURESTRAP™, and growth in the biosurgical, Women’s Health and Urology and Acclarent product lines contributed to the increase in sales.

The Vision Care franchise achieved sales of $2.9 billion in 2011, an 8.8% increase over the prior year. Contributors to the growth were 1-DAY ACUVUE ® and astigmatism lenses.

The Diabetes Care franchise achieved sales of $2.7 billion in 2011, a 7.4% increase over the prior year. The growth was primarily due to sales in the OneTouch ® product line.

Sales in the Cardiovascular Care franchise were $2.3 billion, a decline of 10.3% versus the prior year. Sales were impacted by the Company’s decision to exit the drug-eluting stent market and lower sales of endovascular products due to increased competition. Sales for drug-eluting stents were approximately 11% and 25% of the total Cardiovascular Care franchise sales in 2011 and 2010, respectively. The decline in sales was partially offset by strong growth in Biosense Webster, the Company’s electrophysiology business.

The Ortho-Clinical Diagnostics franchise achieved sales of $2.2 billion in 2011, a 5.4% increase over the prior year. The growth was primarily attributable to the strength of the VITROS ® 5600 and 3600 Analyzers, partially offset by lower sales in donor screening.

The Medical Devices and Diagnostics segment achieved sales of $24.6 billion in 2010, representing an increase of 4.4% over the prior year, with operational growth of 3.4% and a positive currency impact of 1.0%. U.S. sales were $11.4 billion, an increase of 3.6% over the prior year. International sales were $13.2 billion, an increase of 5.0% over the prior year, with growth of 3.0% from operations and a positive currency impact of 2.0%.

Analysis of Consolidated Earnings Before Provision for Taxes on Income

Consolidated earnings before provision for taxes on income decreased by $4.5 billion to $12.4 billion in 2011 as compared to $16.9 billion in 2010, a decrease of 27.1%. The decrease was primarily due to costs associated with product liability and litigation expenses, the impact of the OTC and DePuy ASR™ Hip recalls and the restructuring expense related to the Cardiovascular Care business. Additionally, investment spending, the fee on branded pharmaceutical

 

MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION

     29   


products incurred due to the U.S. health care reform legislation, and the integration costs, including an inventory step-up charge, associated with the acquisition of Crucell contributed to the decrease in earnings. This was partially offset by gains from divestitures.

The 2010 increase of 7.6% as compared to 2009 was primarily related to lower selling, marketing and administrative expenses due to cost containment actions resulting from the restructuring plan initiated and implemented in 2009, income from litigation settlements and the gain on the divestiture of the Breast Care business of Ethicon Endo-Surgery, Inc. This was partially offset by costs associated with product liability expense and the impact of the OTC and DePuy ASR™ Hip recalls. Additional offsets were lower net selling prices in the Pharmaceutical business due to U.S. health care reform legislation and price reductions in certain Medical Devices and Diagnostics businesses. The 2009 decrease of 6.9% as compared to 2008 was primarily related to lower sales, the negative impact of product mix, lower interest income due to lower rates of interest earned and restructuring charges of $1.2 billion. This was partially offset by lower selling, marketing and administrative expenses due to cost containment efforts across all the businesses. As a percent to sales, consolidated earnings before provision for taxes on income in 2011 was 19.0% versus 27.5% in 2010.

The sections that follow highlight the significant components of the changes 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

     31.3     30.5        29.8   

Percent point increase over the prior year

     0.8        0.7        0.7   

Selling, marketing and administrative expenses

     32.3        31.5        32.0   

Percent point increase/(decrease) over the prior year

     0.8        (0.5     (1.7

In 2011, cost of products sold as a percent to sales increased compared to the prior year. This was primarily attributable to ongoing remediation costs in the Consumer OTC business and inventory write-offs due to the restructuring of the Cardiovascular Care business. In addition, lower margins and integration costs, including an inventory step-up charge, associated with the acquisition of Crucell negatively impacted cost of products sold. Percent to sales of selling, marketing and administrative expenses increased in 2011 compared to the prior year primarily due to investment spending, as well as the fee on branded pharmaceutical products incurred due to the U.S. health care reform legislation.

In 2010, cost of products sold as a percent to sales increased compared to the prior year primarily due to costs associated with the impact of the OTC recall and remediation efforts in the Consumer business, lower net selling prices in the Pharmaceutical business due to U.S. health care reform legislation and price reductions in certain Medical Devices and Diagnostics businesses. Additionally, unfavorable product mix attributable to the loss of market exclusivity for TOPAMAX ® contributed to the increase. There was a decrease in the percent to sales of selling, marketing and administrative expenses in 2010 compared to the prior year primarily due to cost containment initiatives principally resulting from the restructuring plan implemented in 2009. The decrease was partially offset by lower net selling prices in the Pharmaceutical business due to U.S. health care reform legislation and price reductions in certain Medical Devices and Diagnostics businesses.

In 2009, cost of products sold as a percent to sales increased compared to the prior year primarily due to the continued negative impact of product mix and inventory write-offs associated with the restructuring activity. Additionally, 2008 included certain non-recurring positive items. There was a decrease in the percent to sales of selling, marketing and administrative expenses in 2009 compared to the prior year primarily due to cost containment efforts across all the businesses and the annualized savings recognized from the 2007 restructuring 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.

Research and Development expense by segment of business was as follows:

 

    2011     2010     2009  

(Dollars in Millions)

  Amount     % of Sales*     Amount     % of Sales*     Amount     % of Sales*  

Consumer

  $ 659        4.4     609        4.2        632        4.0   

Pharmaceutical

    5,138        21.1        4,432        19.8        4,591        20.4   

Medical Devices and Diagnostics

    1,751        6.8        1,803        7.3        1,763        7.5   
 

 

 

     

 

 

     

 

 

   

Total research and development expense

  $ 7,548        11.6     6,844        11.1        6,986        11.3   

Percent increase/(decrease) over the prior year

    10.3       (2.0       (7.8  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

* As a percent to segment sales

Research and Development Expense:  Research and development activities represent a significant part of the Company’s business. These expenditures relate to the processes of discovering, testing and developing new products, improving existing products, as well as ensuring product efficacy and regulatory compliance prior to launch. The Company remains committed to investing in research and development with the aim of delivering high quality and innovative products. In 2011, worldwide costs of research and development activities increased by 10.3% compared to 2010. The increase in the Pharmaceutical segment was primarily due to higher levels of spending to advance the Company’s Pharmaceutical pipeline. The decrease in the Medical Devices and Diagnostics segment was due to the discontinuation of its clinical development program for the NEVO™ Sirolimus-Eluting Coronary Stent.

Restructuring:  In 2011, Cordis Corporation, a subsidiary of Johnson & Johnson, announced the discontinuation of its clinical development program for the NEVO™ Sirolimus-Eluting Coronary Stent and cessation of the manufacture and marketing of CYPHER ® and CYPHER SELECT ® Plus Sirolimus-Eluting Coronary Stents by the end of 2011. The Company will focus on other cardiovascular therapies where significant patient needs exist. In the fiscal second quarter of 2011, the Company recorded a pre-tax charge of $676 million, of which $87 million is included in cost of products sold.

In 2009, the Company announced global restructuring initiatives expected to generate pre-tax, annual cost savings of approximately $1.5 billion when fully implemented. The associated savings has provided additional resources to invest in new growth platforms, ensure the successful launch of the Company’s many new products and

 

30    JOHNSON & JOHNSON 2011 ANNUAL REPORT


continued growth of the core businesses, and provide flexibility to adjust to the changed and evolving global environment. In the fiscal fourth quarter of 2009, the Company recorded a pre-tax charge of $1.2 billion, of which $113 million was included in cost of products sold.

See Note 22 to the Consolidated Financial Statements for additional details related to the restructuring.

Other (Income) Expense, Net:  Other (income) expense, net includes royalty income; gains and losses related to the sale and write-down of certain investments in equity securities held by Johnson & Johnson Development Corporation; gains and losses on the disposal of property, plant and equipment; currency gains and losses; non-controlling interests and litigation settlements. In 2011, the unfavorable change of $3.5 billion in other (income) expense, net, was primarily due to litigation expenses of $1.7 billion in 2011 as compared to a $1.0 billion net gain from litigation settlements in 2010. Additionally, 2011 as compared to 2010 included higher expenses of $1.0 billion related to product liability, $0.2 billion for costs related to the DePuy ASR™ Hip recall program and an adjustment of $0.5 billion to the value of the currency option and deal costs related to the planned acquisition of Synthes, Inc. Included in 2011 were higher gains on the divestitures of businesses of $0.6 billion as compared to 2010.

In 2010, the favorable change of $0.2 billion in other (income) expense, net as compared to 2009, was primarily due to a net gain from litigation settlements and gains on the divestiture of businesses partially offset by product liability expense. In 2009, other (income) expense, net included net litigation settlements of $0.4 billion.

Operating Profit by Segment

Operating profits by segment of business were as follows:

 

                 Percent of
Segment  Sales
 

(Dollars in Millions)

   2011     2010     2011     2010  

Consumer

   $ 2,096        2,342        14.1     16.1   

Pharmaceutical

     6,406        7,086        26.3        31.6   

Medical Devices and Diagnostics

     5,263        8,272        20.4        33.6   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total (1)

     13,765        17,700        21.2        28.7   

Less: Expenses not allocated to segments (2)

     1,404        753       
  

 

 

   

 

 

   

 

 

   

 

 

 

Earnings before provision for taxes on income

   $ 12,361        16,947        19.0     27.5   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)

See Note 18 to the Consolidated Financial Statements for more details.

 

(2)  

Amounts not allocated to segments include interest (income) expense, non-controlling interests, and general corporate (income) expense. Included in 2011, was a $0.5 billion expense for the adjustment to the value of the currency option related to the planned acquisition of Synthes, Inc.

LOGO

Consumer Segment:  In 2011, Consumer segment operating profit decreased 10.5% from 2010. The primary drivers of the decline in operating profit were unfavorable product mix and remediation costs associated with the recall of certain OTC products partially offset by the gain on the divestiture of MONISTAT ® . In 2010, Consumer segment operating profit decreased 5.4% from 2009. The primary reasons for the decrease in the operating profit were lower sales and higher costs associated with the recall of certain OTC products and the suspension of production at McNeil Consumer Healthcare’s Fort Washington, Pennsylvania facility.

Pharmaceutical Segment:  In 2011, Pharmaceutical segment operating profit decreased 9.6% from 2010. The primary drivers of the decrease in the operating profit margin were higher litigation expenses recorded in 2011, the impact of the U.S. health care reform fee, and lower margins and integration costs, including an inventory step-up charge, associated with the Crucell acquisition. This was partially offset by gains on the divestitures of the Animal Health Business and Ortho Dermatologics, the gain related to the Company’s earlier investment in Crucell, and lower manufacturing costs. In 2010, Pharmaceutical segment operating profit increased 10.5% from 2009. The primary reasons for the increase in operating profit were lower manufacturing costs, the gain on a divestiture, and benefits from cost improvement initiatives related to the restructuring plan implemented in 2009, partially offset by $333 million of expense related to litigation matters, increased product liability expense and the impact of the newly enacted U.S. health care reform legislation.

        Medical Devices and Diagnostics Segment:  In 2011, Medical Devices and Diagnostics segment operating profit decreased 36.4% from 2010. The primary drivers of the decline in the operating profit margin in the Medical Devices and Diagnostics segment were product liability and litigation expenses, costs associated with the DePuy ASR™ Hip recall program, restructuring expense, costs incurred related to the planned acquisition of Synthes, Inc. and increased investment spending. In 2010, Medical Devices and Diagnostics segment operating profit increased 7.5% from 2009. The improved operating profit was due to a gain of $1.3 billion from net litigation matters and the gain on the divestiture of the Breast Care business recorded in 2010. This was partially offset by increased product liability expense, $280 million of costs associated with the DePuy ASR™ Hip recall program and price reductions in certain Medical Devices and Diagnostics businesses.

Interest (Income) Expense:  Interest income in 2011 decreased by $16 million as compared to the prior year due to lower rates of interest earned despite higher average cash balances. Cash, cash equivalents and marketable securities totaled $32.3 billion at the end of 2011, and averaged $30.0 billion as compared to the $23.6 billion average cash balance in 2010. The increase in the average cash balance was primarily due to cash generated from operating activities and net cash proceeds from divestitures.

Interest expense in 2011 increased by $116 million as compared to 2010 due to a higher average debt balance. The total debt balance at the end of 2011 was $19.6 billion as compared to $16.8 billion at the end of 2010. The higher average debt balance of $18.2 billion in 2011 versus $15.7 billion in 2010 was due to increased borrowings. The Company increased borrowings, capitalizing on favorable terms in the capital markets. The proceeds of the borrowings were used for general corporate purposes.

Interest income in 2010 increased by $17 million over the prior year due to higher average cash balances. Cash, cash equivalents and marketable securities totaled $27.7 billion at the end of 2010, and averaged $23.6 billion as compared to the $15.6 billion average cash balance in 2009. The increase in the average cash balance was primarily due to cash generated from operating activities and net cash proceeds from litigation matters and divestitures.

 

MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION

     31   


Interest expense in 2010 was relatively flat as compared to 2009 due to a lower average rate despite a higher debt balance. The total debt balance at the end of 2010 was $16.8 billion as compared to $14.5 billion at the end of 2009. The higher average debt balance of $15.7 billion in 2010 versus $13.5 billion in 2009 was due to increased borrowings. The Company increased borrowings, capitalizing on favorable terms in the capital markets. The proceeds of the borrowings were used for general corporate purposes.

Interest income in 2009 decreased by $271 million as compared to 2008 due to lower rates of interest earned despite higher average cash balances. The cash balance, including marketable securities, was $19.4 billion at the end of 2009, and averaged $15.6 billion as compared to the $12.2 billion average cash balance in 2008. The increase in the average cash balance was primarily due to cash generated from operating activities.

Interest expense in 2009 increased by $16 million as compared to 2008 due to a higher debt balance. The net debt balance at the end of 2009 was $14.5 billion as compared to $11.9 billion at the end of 2008. The higher average debt balance of $13.5 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 21.8% in 2011, 21.3% in 2010 and 22.1% in 2009. The 2011 tax rate increased as compared to 2010 due to certain U.S. expenses which are not fully tax deductible and higher U.S. state taxes partially offset by increases in taxable income in lower tax jurisdictions relative to higher tax jurisdictions. The 2010 tax rate decreased as compared to 2009 due to decreases in taxable income in higher tax jurisdictions relative to taxable income in lower tax jurisdictions and certain U.S. tax adjustments.

Liquidity and Capital Resources

Liquidity & Cash Flows

Cash and cash equivalents were $24.5 billion at the end of 2011 as compared with $19.4 billion at the end of 2010. The primary sources of cash that contributed to the $5.1 billion increase versus the prior year were $14.3 billion of cash generated from operating activities, $3.0 billion net proceeds from long and short-term debt, $1.3 billion proceeds from the disposal of assets and proceeds from net investment sales of $0.5 billion. The major uses of cash were dividends to shareholders of $6.2 billion, capital spending of $2.9 billion, acquisitions of $2.8 billion, the repurchase of Common Stock, net of proceeds from the exercise of options of $1.3 billion and other of $0.8 billion primarily related to intangible assets.

Cash flows from operations were $14.3 billion in 2011. The major sources of cash flow were net income of $9.7 billion, adjusted for non-cash charges for depreciation and amortization, stock based compensation and deferred tax provision of $2.9 billion. The remaining change to operating cash flow of $1.7 billion was primarily due to an increase in other current and non-current liabilities related to accruals recorded for litigation matters, product liability and employee benefit plans.

In 2011, the Company continued to have access to liquidity through the commercial paper market. For additional details on borrowings, see Note 7 to the Consolidated Financial 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 2012.

LOGO

Concentration of Credit Risk

Global concentration of credit risk with respect to trade accounts receivables continues to be limited due to the large number of customers globally and adherence to internal credit policies and credit limits. Recent economic challenges in Italy, Spain, Greece and Portugal (the Southern European Region) have impacted certain payment patterns, which have historically been longer than those experienced in the U.S. and other international markets. The total net trade accounts receivable balance in the Southern European Region was approximately $2.4 billion as of January 1, 2012 and approximately $2.3 billion as of January 2, 2011. Approximately $1.4 billion as of January 1, 2012 and 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 historical collection patterns.

The remaining balance of net trade accounts receivable in the Southern European Region has been negatively impacted by the timing of payments from certain government owned or supported healthcare customers as well as certain distributors of the Pharmaceutical and Medical Devices and Diagnostics local affiliates. The total net trade accounts receivable balance for these customers were approximately $1.0 billion at January 1, 2012 and January 2, 2011. The Company continues to receive payments from these customers and in some cases late payment premiums. For customers where payment is expected over periods of time longer than one year, revenue and trade receivables have been discounted over the estimated period of time for collection. Allowances for doubtful accounts have been increased for these customers, but have been immaterial to date. The Company will continue to work closely with these customers, monitor the economic situation and take appropriate actions as necessary.

Financing and Market Risk

The Company uses financial instruments to manage the impact of foreign exchange rate changes on cash flows. Accordingly, the Company enters into forward foreign exchange contracts to protect the value of certain foreign currency assets and liabilities and to hedge future foreign currency transactions primarily related to product costs. Gains or losses on these contracts are offset by the gains or losses on the underlying transactions. A 10% appreciation of the U.S. Dollar from the January 1, 2012 market rates would increase the unrealized value of the Company’s forward contracts by $235 million. Conversely, a 10% depreciation of the U.S. Dollar from the January 1, 2012 market rates would decrease the unrealized value of the Company’s forward contracts by $287 million. In either scenario, the gain or loss on the forward contract would be offset by the gain or loss on the underlying transaction, and therefore, would have no impact on future anticipated earnings and cash flows.

The Company hedges the exposure to fluctuations in currency exchange rates, and the effect on certain assets and liabilities in

 

32    JOHNSON & JOHNSON 2011 ANNUAL REPORT


foreign currency, by entering into currency swap contracts. A 1% change in the spread between U.S. and foreign interest rates on the Company’s interest rate sensitive financial instruments would either increase or decrease the unrealized value of the Company’s swap contracts by approximately $232 million. In either scenario, at maturity, the gain or loss on the swap contract would be offset by the gain or loss on the underlying transaction, and therefore, would have no impact on future anticipated cash flows.

The Company does not enter into financial instruments for trading or speculative purposes. Further, the Company has a policy of only entering into contracts with parties that have at least an “A” (or equivalent) credit rating. The counter-parties to these contracts are major financial institutions and there is no significant concentration of exposure with any one counter-party. Management believes the risk of loss is remote.

The Company has access to substantial sources of funds at numerous banks worldwide. In September 2011, the Company secured a new 364-day Credit Facility. Total credit available to the Company approximates $10 billion, which expires September 20, 2012. Interest charged on borrowings under the credit line agreement is based on either bids provided by banks, the prime rate or London Interbank Offered Rates (LIBOR), plus applicable margins. Commitment fees under the agreement are not material.

Total borrowings at the end of 2011 and 2010 were $19.6 billion and $16.8 billion, respectively. The increase in borrowings between 2011 and 2010 was a result of financing for general corporate purposes. In 2011, net cash (cash and current marketable securities, net of debt) was $12.6 billion compared to net cash of $10.9 billion in 2010. Total debt represented 25.6% of total capital (shareholders’ equity and total debt) in 2011 and 22.9% of total capital in 2010. Shareholders’ equity per share at the end of 2011 was $20.95 compared with $20.66 at year-end 2010, an increase of 1.4%.

A summary of borrowings can be found in Note 7 to the Consolidated Financial Statements.

Contractual Obligations and Commitments

The Company’s contractual obligations are primarily for leases, debt and unfunded retirement plans, with no other significant obligations. To satisfy these obligations, the Company will use cash from operations. The following table summarizes the Company’s contractual obligations and their aggregate maturities as of January 1, 2012 (see Notes 7, 10 and 16 to the Consolidated Financial Statements for further details):

 

(Dollars in Millions)

   Long-Term
Debt
Obligations
    Interest on
Debt
Obligations
    Unfunded
Retirement
Plans
    Operating
Leases
    Total  

2012

   $ 616        560        61        188        1,425   

2013

     1,545        527        62        162        2,296   

2014

     1,816        508        64        131        2,519   

2015

            501        69        104        674   

2016

     898        496        77        82        1,553   

After 2016

     8,710        4,765        455        65        13,995   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 13,585        7,357        788        732        22,462   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

For tax matters, see Note 8 to the Consolidated Financial Statements.

Share Repurchase and Dividends

On July 9, 2007, the Company announced that its Board of Directors approved a stock repurchase program authorizing the Company to buy back up to $10.0 billion of the Company’s Common Stock. As of January 2, 2011, the Company repurchased an aggregate of 158.3 million shares of Johnson & Johnson Common Stock at a cost of $10.0 billion and the stock repurchase program was completed. The Company funded the share repurchase program through a combination of available cash and debt. In addition, the Company has an annual program to repurchase shares for use in employee stock and incentive plans.

The Company increased its dividend in 2011 for the 49th consecutive year. Cash dividends paid were $2.25 per share in 2011 compared with dividends of $2.11 per share in 2010, and $1.93 per share in 2009. The dividends were distributed as follows:

 

     2011     2010     2009  

First quarter

   $ 0.54        0.49        0.46   

Second quarter

     0.57        0.54        0.49   

Third quarter

     0.57        0.54        0.49   

Fourth quarter

     0.57        0.54        0.49   
  

 

 

   

 

 

   

 

 

 

Total

   $ 2.25        2.11        1.93   
  

 

 

   

 

 

   

 

 

 

On January 3, 2012, the Board of Directors declared a regular quarterly cash dividend of $0.57 per share, payable on March 13, 2012, to shareholders of record as of February 28, 2012. The Company expects to continue the practice of paying regular cash dividends.

Other Information

Critical Accounting Policies and Estimates

Management’s discussion and analysis of results of operations and financial condition are based on the Company’s consolidated financial statements that have been prepared in accordance with accounting principles generally accepted in the U.S. (GAAP). The preparation of these financial statements requires that management make estimates and assumptions that affect the amounts reported for revenues, expenses, assets, liabilities and other related disclosures. Actual results may or may not differ from these estimates. The Company believes that the understanding of certain key accounting policies and estimates are essential in achieving more insight into the Company’s operating results and financial condition. These key accounting policies include revenue recognition, income taxes, legal and self-insurance contingencies, valuation of long-lived assets, assumptions used to determine the amounts recorded for 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, coupons, product returns and discounts to customers are accounted for as reductions in sales in the same period the related sales are recorded.

Product discounts granted are based on the terms of arrangements with direct, indirect and other market participants, as well as market conditions, including prices charged by competitors. Rebates, the largest being the Medicaid rebate provision, are estimated based on contractual terms, historical experience, trend analysis and projected market conditions in the various markets served. The Company evaluates market conditions for products or groups of products primarily through the analysis of wholesaler and other third-party sell-through and market research data, as well as internally generated information.

Sales returns are generally estimated and recorded based on historical sales and returns information. Products that exhibit unusual sales or return patterns due to dating, competition or other marketing matters are specifically investigated and analyzed as part of the accounting for sales return accruals.

Sales returns allowances represent a reserve for products that may be returned due to expiration, destruction in the field, or in specific areas, product recall. The returns reserve is based on historical return trends by product and by market as a percent to gross sales. In accordance with the Company’s accounting policies, the

 

MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION

     33   


Company generally issues credit to customers for returned goods. The Company’s sales returns reserves are accounted for in accordance with the U.S. GAAP guidance for revenue recognition when right of return exists. Sales returns reserves are recorded at full sales value. Sales returns in the Consumer and Pharmaceutical segments are almost exclusively not resalable. Sales returns for certain franchises in the Medical Devices and Diagnostics segment are typically resalable but are 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 net trade sales during the prior three fiscal reporting years 2011, 2010 and 2009.

Promotional programs, such as product listing allowances and cooperative advertising arrangements, are recorded in the year incurred. Continuing promotional programs include coupons and volume-based sales incentive programs. The redemption cost of consumer coupons is based on historical redemption experience by product and value. Volume-based incentive programs are based on estimated sales volumes for the incentive period and are recorded as products are sold. The Company also earns service revenue for co-promotion of certain products. For all years presented, service revenues were less than 2% of total revenues and are included in sales to customers. These arrangements are evaluated to determine the appropriate amounts to be deferred.

In addition, the Company enters into collaboration arrangements that contain multiple revenue generating activities. The revenue for these arrangements is recognized as each activity is performed or delivered, based on the relative fair value. Upfront fees received as part of these arrangements are deferred and recognized as revenue earned over the obligation period. See Note 1 to the Consolidated Financial Statements for additional disclosures on collaborations.

Reasonably likely changes to assumptions used to calculate the accruals for rebates, returns and promotions are not anticipated to have a material effect on the financial statements. The Company currently discloses the impact of changes to assumptions in the quarterly or annual filing in which there is a material financial statement impact.

Below are tables that show the progression of accrued rebates, returns, promotions, reserve for doubtful accounts and reserve for cash discounts by segment of business for the fiscal years ended January 1, 2012 and January 2, 2011.

Consumer Segment

 

(Dollars in Millions)

   Balance at
Beginning
of Period
    Accruals     Payments/Credits     Balance at
End of

Period
 

2011

        

Accrued rebates (1)

   $ 131        346        (350     127   

Accrued returns

     145        103        (134     114   

Accrued promotions

     294        1,520        (1,574     240   
  

 

 

   

 

 

   

 

 

   

 

 

 

Subtotal

   $ 570        1,969        (2,058     481   
  

 

 

   

 

 

   

 

 

   

 

 

 

Reserve for doubtful accounts

     57        3        (17     43   

Reserve for cash discounts

     21        226        (225     22   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 648        2,198        (2,300     546   
  

 

 

   

 

 

   

 

 

   

 

 

 

2010

        

Accrued rebates (1)

   $ 121        361        (351     131   

Accrued returns

     127        156        (138     145   

Accrued promotions

     272        2,418        (2,396     294   
  

 

 

   

 

 

   

 

 

   

 

 

 

Subtotal

   $ 520        2,935        (2,885     570   
  

 

 

   

 

 

   

 

 

   

 

 

 

Reserve for doubtful accounts

     107        6        (56     57   

Reserve for cash discounts

     21        249        (249     21   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 648        3,190        (3,190     648   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)

Includes reserve for customer rebates of $34 million at January 1, 2012 and $50 million at January 2, 2011, recorded as a contra asset.

Pharmaceutical Segment

 

(Dollars in Millions)

   Balance at
Beginning
of Period
    Accruals     Payments/Credits     Balance at
End of
Period
 

2011

        

Accrued rebates (1)(2)

   $ 1,520        4,732        (4,661     1,591   

Accrued returns

     294        105        (15     384   

Accrued promotions

     83        187        (187     83   
  

 

 

   

 

 

   

 

 

   

 

 

 

Subtotal

   $ 1,897        5,024        (4,863     2,058   
  

 

 

   

 

 

   

 

 

   

 

 

 

Reserve for doubtful accounts

     145        20        (8     157   

Reserve for cash discounts

     54        392        (401     45   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 2,096        5,436        (5,272     2,260   
  

 

 

   

 

 

   

 

 

   

 

 

 

2010

        

Accrued rebates (1)(2)

   $ 1,064        4,768        (4,312     1,520   

Accrued returns

     342        27        (75     294   

Accrued promotions

     84        135        (136     83   
  

 

 

   

 

 

   

 

 

   

 

 

 

Subtotal

   $ 1,490        4,930        (4,523     1,897   
  

 

 

   

 

 

   

 

 

   

 

 

 

Reserve for doubtful accounts

     83        91        (29     145   

Reserve for cash discounts

     48        379        (373     54   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 1,621        5,400        (4,925     2,096   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)

Includes reserve for customer rebates of $298 million at January 1, 2012 and $320 million at January 2, 2011, recorded as a contra asset.

 

(2)  

Includes additional sales rebates to Medicaid managed care organizations as a result of the U.S. health care reform legislation.

 

34    JOHNSON & JOHNSON 2011 ANNUAL REPORT


Medical Devices and Diagnostics Segment

 

(Dollars in Millions)

   Balance at
Beginning of
Period
    Accruals     Payments/Credits     Balance at
End of
Period
 

2011

        

Accrued rebates (1)

   $ 495        3,253        (3,251     497   

Accrued returns

     201        352        (369     184   

Accrued promotions

     50        67        (44     73   
  

 

 

   

 

 

   

 

 

   

 

 

 

Subtotal

   $ 746        3,672        (3,664     754   
  

 

 

   

 

 

   

 

 

   

 

 

 

Reserve for doubtful accounts

     138        54        (31     161   

Reserve for cash discounts

     35        342        (345     32   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 919        4,068        (4,040     947   
  

 

 

   

 

 

   

 

 

   

 

 

 

2010

        

Accrued rebates (1)(2)

   $ 454        3,271        (3,230     495   

Accrued returns

     220        334        (353     201   

Accrued promotions

     73        111        (134     50   
  

 

 

   

 

 

   

 

 

   

 

 

 

Subtotal

   $ 747        3,716        (3,717     746   
  

 

 

   

 

 

   

 

 

   

 

 

 

Reserve for doubtful accounts

     143        33        (38     138   

Reserve for cash discounts

     32        484        (481     35   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 922        4,233        (4,236     919   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)

Includes reserve for customer rebates of $324 million at January 1, 2012 and $331 million at January 2, 2011, recorded as a contra asset.

(2)  

Accruals and Payments/Credits for 2010 have been revised by $908 million to appropriately reflect non-cash credits/adjustments, consistent with current year presentation related to the Ethicon franchise, previously reported net in the Accruals column.

Income Taxes:  Income taxes are recorded based on amounts refundable or payable for the current year and include the results of any difference between U.S. GAAP accounting and tax reporting, recorded as deferred tax assets or liabilities. The Company estimates deferred tax assets and liabilities based on current tax regulations and rates. Changes in tax laws and rates may affect recorded deferred tax assets and liabilities in the future. Management believes that changes in these estimates would not have a material effect on the Company’s results of operations, cash flows or financial position.

At January 1, 2012 and January 2, 2011, the cumulative amounts of undistributed international earnings were approximately $41.6 billion and $37.0 billion, respectively. At January 1, 2012 and January 2, 2011, the Company’s foreign subsidiaries held balances of cash and cash equivalents in the amounts of $24.5 billion and $18.7 billion, respectively. The Company intends to continue to reinvest its undistributed international earnings to expand its international operations; therefore, no U.S. tax expense has been recorded with respect to the undistributed portion not intended for repatriation.

See Note 8 to the Consolidated Financial Statements for further information regarding income taxes.

Legal and Self Insurance Contingencies:  The Company records accruals for various contingencies including legal proceedings and product liability claims as these arise in the normal course of business. The accruals are based on management’s judgment as to the probability of losses and, where applicable, actuarially determined estimates. Additionally, the Company records insurance receivable amounts from third-party insurers when recovery is probable. As appropriate, reserves against these receivables are recorded for estimated amounts that may not be collected from third-party insurers.

The Company follows the provisions of U.S. GAAP when recording litigation related contingencies. A liability is recorded when a loss is probable and can be reasonably estimated. The best estimate of a loss within a range is accrued; however, if no estimate in the range is better than any other, the minimum amount is accrued.

Long-Lived and Intangible Assets:  The Company assesses changes in economic conditions and makes assumptions regarding estimated future cash flows in evaluating the value of the Company’s property, plant and equipment, goodwill and intangible assets. As these assumptions and estimates may change over time, it may or may not be necessary for the Company to record impairment charges.

Employee Benefit Plans:  The Company sponsors various retirement and pension plans, including defined benefit, defined contribution and termination indemnity plans, which cover most employees worldwide. These plans are based on assumptions for the discount rate, expected return on plan assets, expected salary increases and health care cost trend rates. See Note 10 to the Consolidated Financial Statements for further details on these rates and the effect a rate change would have on the Company’s results of operations.

        Stock Based Compensation:  The Company recognizes compensation expense associated with the issuance of equity instruments to employees for their services. The fair value of each award is estimated on the date of grant using the Black-Scholes option valuation model and is expensed in the financial statements over the vesting period. The input assumptions used in determining fair value are the expected life, expected volatility, risk-free rate and the dividend yield. See Note 17 to the Consolidated Financial Statements for additional information.

New Accounting Pronouncements

Refer to Note 1 to the Consolidated Financial Statements for recently adopted accounting pronouncements and recently issued accounting pronouncements not yet adopted as of January 1, 2012.

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 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 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 economies and, consequently, on the way companies operate. The Company accounted for operations in Venezuela as highly inflationary in 2010 and 2011, as the prior three-year cumulative inflation rate surpassed 100%. In the face of increasing costs, the Company strives to maintain its profit margins 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 2011 would have increased or decreased the translation of foreign sales by approximately $350 million and income by $75 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 of health care products.

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, may continue to impact the Company’s businesses.

The Company also operates in an environment which has become increasingly hostile to intellectual property rights. Generic drug firms have filed Abbreviated New Drug Applications (ANDAs)

 

MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION

     35   


seeking to market generic forms of most of the Company’s key pharmaceutical 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 ANDA filings, 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 discussion on “Litigation Against Filers of Abbreviated New Drug Applications” in Note 21 to the Consolidated Financial Statements.

Legal Proceedings

Johnson & Johnson and certain of its subsidiaries are involved in various lawsuits and claims regarding product liability, intellectual property, commercial and other matters; governmental investigations; and other legal proceedings that arise from time to time in the ordinary course of business.

The Company records accruals for such contingencies when it is probable that a liability will be incurred and the amount of the loss can be reasonably estimated. The Company has accrued for certain litigation matters and continues to monitor each related legal issue and adjust accruals for new information and further developments in accordance with ASC 450-20-25. For these and other litigation and regulatory matters currently disclosed for which a loss is probable or reasonably possible, the Company is unable to determine an estimate of the possible loss or range of loss beyond the amounts already accrued. These matters can be affected by various factors, including whether damages sought in the proceedings are unsubstantiated or indeterminate; scientific and legal discovery has not commenced or is not complete; proceedings are in early stages; matters present legal uncertainties; there are significant facts in dispute; or there are numerous parties involved.

In the Company’s opinion, based on its examination of these matters, its experience to date and discussions with counsel, the ultimate outcome of legal proceedings, net of liabilities accrued in the Company’s balance sheet, is not expected to have a material adverse effect on the Company’s financial position. However, the resolution in any reporting period of one or more of these matters, either alone or in the aggregate, may have a material adverse effect on the Company’s results of operations, and cash flows for that period.

See Note 21 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 2011 and 2010 were:

 

    2011     2010  
    High     Low     High      Low  

First quarter

  $ 63.54        57.50        65.95         61.89   

Second quarter

    67.37        59.25        66.20         57.55   

Third quarter

    68.05        59.08        62.70         56.86   

Fourth quarter

    66.32        60.83        64.92         61.25   

Year-end close

    $65.58        61.85   

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 subject 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 future operations, financial performance, the Company’s strategy for growth, product development, regulatory approval, market position and expenditures.

Forward-looking statements are based 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 inaccurate 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 reliance on any forward-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, but are not limited to, general industry conditions and competition; economic factors, 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 regulatory approvals; challenges to patents; significant litigation adverse to the Company; impact of business combinations; financial distress and bankruptcies experienced by significant customers and suppliers; changes to governmental laws and regulations and U.S. and foreign health care reforms; trends toward healthcare cost containment; increased scrutiny of the healthcare industry by government agencies; changes in behavior and spending patterns of purchasers of healthcare products and services; financial instability of international economies and sovereign risk; disruptions due to natural disasters; 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 January 1, 2012 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.

 

36    JOHNSON & JOHNSON 2011 ANNUAL REPORT


JOHNSON & JOHNSON AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

At January 1, 2012 and January 2, 2011

(Dollars in Millions Except Share and Per Share Data) (Note 1)

 

       2011     2010  

Assets

    

Current assets

    

Cash and cash equivalents (Notes 1 and 2)

   $ 24,542        19,355   

Marketable securities (Notes 1 and 2)

     7,719        8,303   

Accounts receivable trade, less allowances for doubtful accounts $361 (2010, $340)

     10,581        9,774   

Inventories (Notes 1 and 3)

     6,285        5,378   

Deferred taxes on income (Note 8)

     2,556        2,224   

Prepaid expenses and other receivables

     2,633        2,273   
  

 

 

   

 

 

 

Total current assets

     54,316        47,307   
  

 

 

   

 

 

 

Property, plant and equipment, net (Notes 1 and 4)

     14,739        14,553   

Intangible assets, net (Notes 1 and 5)

     18,138        16,716   

Goodwill (Notes 1 and 5)

     16,138        15,294   

Deferred taxes on income (Note 8)

     6,540        5,096   

Other assets

     3,773        3,942   
  

 

 

   

 

 

 

Total assets

   $ 113,644        102,908   
  

 

 

   

 

 

 

Liabilities and Shareholders’ Equity

    

Current liabilities

    

Loans and notes payable (Note 7)

   $ 6,658        7,617   

Accounts payable

     5,725        5,623   

Accrued liabilities

     4,608        4,100   

Accrued rebates, returns and promotions

     2,637        2,512   

Accrued compensation and employee related obligations

     2,329        2,642   

Accrued taxes on income

     854        578   
  

 

 

   

 

 

 

Total current liabilities

     22,811        23,072   
  

 

 

   

 

 

 

Long-term debt (Note 7)

     12,969        9,156   

Deferred taxes on income (Note 8)

     1,800        1,447   

Employee related obligations (Notes 9 and 10)

     8,353        6,087   

Other liabilities

     10,631        6,567   
  

 

 

   

 

 

 

Total liabilities

     56,564        46,329   
  

 

 

   

 

 

 

Shareholders’ equity

    

Preferred stock — without par value (authorized and unissued 2,000,000 shares)

     —         —    

Common stock — par value $1.00 per share (Note 12) (authorized 4,320,000,000 shares; issued 3,119,843,000 shares)

     3,120        3,120   

Accumulated other comprehensive income (Note 13)

     (5,632     (3,531

Retained earnings

     81,251        77,773   
  

 

 

   

 

 

 
     78,739        77,362   

Less: common stock held in treasury, at cost (Note 12) (395,480,000 shares and 381,746,000 shares)

     21,659        20,783   
  

 

 

   

 

 

 

Total shareholders’ equity

     57,080        56,579   
  

 

 

   

 

 

 

Total liabilities and shareholders’ equity

   $ 113,644        102,908   
  

 

 

   

 

 

 

See Notes to Consolidated Financial Statements

 

CONSOLIDATED FINANCIAL STATEMENTS

     37   


JOHNSON & JOHNSON AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS

(Dollars in Millions Except Per Share Figures) (Note 1)

 

     2011     2010     2009  

Sales to customers

   $ 65,030        61,587        61,897   
      

Cost of products sold

     20,360        18,792        18,447   
  

 

 

   

 

 

   

 

 

 

Gross profit

     44,670        42,795        43,450   

Selling, marketing and administrative expenses

     20,969        19,424        19,801   

Research and development expense

     7,548        6,844        6,986   

Interest income

     (91     (107     (90

Interest expense, net of portion capitalized (Note 4)

     571        455        451   

Other (income) expense, net

     2,743        (768     (526

Restructuring (Note 22)

     569        —         1,073   
  

 

 

   

 

 

   

 

 

 

Earnings before provision for taxes on income

     12,361        16,947        15,755   

Provision for taxes on income (Note 8)

     2,689        3,613        3,489   
  

 

 

   

 

 

   

 

 

 

Net earnings

   $ 9,672        13,334        12,266   
  

 

 

   

 

 

   

 

 

 

Basic net earnings per share (Notes 1 and 15)

   $ 3.54        4.85        4.45   

Diluted net earnings per share (Notes 1 and 15)

   $ 3.49        4.78        4.40   

Cash dividends per share

   $ 2.25        2.11        1.93   

Basic average shares outstanding (Notes 1 and 15)

     2,736.0        2,751.4        2,759.5   

Diluted average shares outstanding (Notes 1 and 15)

     2,775.3        2,788.8        2,789.1   
  

 

 

   

 

 

   

 

 

 

See Notes to Consolidated Financial Statements

 

 

38    JOHNSON & JOHNSON 2011 ANNUAL REPORT


JOHNSON & JOHNSON AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EQUITY

(Dollars in Millions) (Note 1)

 

     Total     Comprehensive
Income
    Retained
Earnings
    Accumulated
Other
Comprehensive
Income
    Common Stock
Issued Amount
     Treasury
Stock
Amount
 

Balance, December 28, 2008

   $ 42,511          63,379        (4,955     3,120         (19,033
  

 

 

     

 

 

   

 

 

   

 

 

    

 

 

 

Net earnings

     12,266        12,266        12,266          

Cash dividends paid

     (5,327       (5,327       

Employee compensation and stock option plans

     1,404          21             1,383   

Repurchase of common stock

     (2,130              (2,130

Other

     (33       (33       

Other comprehensive income, net of tax:

             

Currency translation adjustment

     1,363        1,363          1,363        

Unrealized losses on securities

     (55     (55       (55     

Employee benefit plans

     565        565          565        

Gains on derivatives & hedges

     24        24          24        
    

 

 

          

Total comprehensive income

       14,163            
    

 

 

          
  

 

 

     

 

 

 

Balance, January 3, 2010

   $ 50,588          70,306        (3,058     3,120         (19,780
  

 

 

     

 

 

   

 

 

   

 

 

    

 

 

 

Net earnings

     13,334        13,334        13,334          

Cash dividends paid

     (5,804       (5,804       

Employee compensation and stock option plans

     1,731          (63          1,794   

Repurchase of common stock

     (2,797              (2,797

Other comprehensive income, net of tax:

             

Currency translation adjustment

     (461     (461       (461     

Unrealized gains on securities

     54        54          54        

Employee benefit plans

     (21     (21       (21     

Losses on derivatives & hedges

     (45     (45       (45     
    

 

 

          

Total comprehensive income

       12,861            
    

 

 

          
             
  

 

 

     

 

 

 

Balance, January 2, 2011

   $ 56,579          77,773        (3,531     3,120         (20,783
  

 

 

     

 

 

   

 

 

   

 

 

    

 

 

 

Net earnings

     9,672        9,672        9,672          

Cash dividends paid

     (6,156       (6,156       

Employee compensation and stock option plans

     1,760          111             1,649   

Repurchase of common stock

     (2,525              (2,525

Other

     (149       (149       

Other comprehensive income, net of tax:

             

Currency translation adjustment

     (557     (557       (557     

Unrealized gains on securities

     424        424          424        

Employee benefit plans

     (1,700     (1,700       (1,700     

Losses on derivatives & hedges

     (268     (268       (268     
    

 

 

          

Total comprehensive income

       7,571            
    

 

 

          
  

 

 

     

 

 

 

Balance, January 1, 2012

   $ 57,080          81,251        (5,632     3,120         (21,659
  

 

 

     

 

 

   

 

 

   

 

 

    

 

 

 

See Notes to Consolidated Financial Statements

 

CONSOLIDATED FINANCIAL STATEMENTS

     39   


JOHNSON & JOHNSON AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in Millions) (Note 1)

 

     2011     2010     2009  

Cash flows from operating activities

      

Net earnings

   $ 9,672        13,334        12,266   

Adjustments to reconcile net earnings to cash flows from operating activities:

      

Depreciation and amortization of property and intangibles

     3,158        2,939        2,774   

Stock based compensation

     621        614        628   

Deferred tax provision

     (836     356        (436

Accounts receivable allowances

     32        12        58   

Changes in assets and liabilities, net of effects from acquisitions:

      

(Increase)/decrease in accounts receivable

     (915     (207     453   

(Increase)/decrease in inventories

     (715     (196     95   

Increase/(decrease) in accounts payable and accrued liabilities

     493        20        (507

(Increase)/decrease in other current and non-current assets

     (1,625     (574     1,209   

Increase in other current and non-current liabilities

     4,413        87        31   
  

 

 

   

 

 

   

 

 

 

Net cash flows from operating activities

     14,298        16,385        16,571   
  

 

 

   

 

 

   

 

 

 

Cash flows from investing activities

      

Additions to property, plant and equipment

     (2,893     (2,384     (2,365

Proceeds from the disposal of assets

     1,342        524        154   

Acquisitions, net of cash acquired (Note 20)

     (2,797     (1,269     (2,470

Purchases of investments

     (29,882     (15,788     (10,040

Sales of investments

     30,396        11,101        7,232   

Other (primarily intangibles)

     (778     (38     (109
  

 

 

   

 

 

   

 

 

 

Net cash used by investing activities

     (4,612     (7,854     (7,598
  

 

 

   

 

 

   

 

 

 

Cash flows from financing activities

      

Dividends to shareholders

     (6,156     (5,804     (5,327

Repurchase of common stock

     (2,525     (2,797     (2,130

Proceeds from short-term debt

     9,729        7,874        9,484   

Retirement of short-term debt

     (11,200     (6,565     (6,791

Proceeds from long-term debt

     4,470        1,118        9   

Retirement of long-term debt

     (16     (32     (219

Proceeds from the exercise of stock options/excess tax benefits

     1,246        1,226        882   
  

 

 

   

 

 

   

 

 

 

Net cash used by financing activities

     (4,452     (4,980     (4,092
  

 

 

   

 

 

   

 

 

 

Effect of exchange rate changes on cash and cash equivalents

     (47     (6     161   
  

 

 

   

 

 

   

 

 

 

Increase in cash and cash equivalents

     5,187        3,545        5,042   

Cash and cash equivalents, beginning of year (Note 1)

     19,355        15,810        10,768   
  

 

 

   

 

 

   

 

 

 

Cash and cash equivalents, end of year (Note 1)

   $ 24,542        19,355        15,810   
  

 

 

   

 

 

   

 

 

 

Supplemental cash flow data

      

Cash paid during the year for:

      

Interest

   $ 576        491        533   

Income taxes

     2,970        2,442        2,363   

Supplemental schedule of non-cash investing and financing activities

      

Treasury stock issued for employee compensation and stock option plans, net of cash proceeds

   $ 433        673        541   

Conversion of debt

     1        1        2   

Acquisitions

      

Fair value of assets acquired

   $ 3,025        1,321        3,345   

Fair value of liabilities assumed and non-controlling interests

     (228     (52     (875
  

 

 

   

 

 

   

 

 

 

Net cash paid for acquisitions

   $ 2,797        1,269        2,470   
  

 

 

   

 

 

   

 

 

 

See Notes to Consolidated Financial Statements

 

40    JOHNSON & JOHNSON 2011 ANNUAL REPORT


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.    Summary of Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements include the accounts of Johnson & Johnson and its subsidiaries (the Company). Intercompany accounts and transactions are eliminated.

Description of the Company And Business Segments

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. The Company conducts business in virtually all countries of the world and its primary focus is 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, antipsychotic, 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, hospitals and retailers, used principally in the professional fields by physicians, nurses, therapists, hospitals, diagnostic laboratories and clinics. These products include Cardiovascular Care’s electrophysiology 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 invasive 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.

New Accounting Pronouncements

Recently Adopted Accounting Pronouncements

During the fiscal first quarter of 2011, the Company adopted the Financial Accounting Standards Board (FASB) guidance and amendments issued related to revenue recognition under the milestone method. The objective of the accounting standard update is to provide guidance on defining a milestone and determining when it may be appropriate to apply the milestone method of revenue recognition for research or development transactions. This update became effective on a prospective basis for milestones achieved in fiscal years, and interim periods within those years, beginning on or after June 15, 2010. The adoption of this standard did not have a material impact on the Company’s results of operations, cash flows or financial position.

During the fiscal first quarter of 2011, the Company adopted the FASB guidance on how pharmaceutical companies should recognize and classify in the Company’s financial statements, the non-deductible annual fee paid to the Government in accordance with the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act. This fee is based on an allocation of a company’s market share of total branded prescription drug sales to U.S. government programs from the prior year. The estimated fee was recorded as a selling, marketing and administrative expense in the Company’s financial statement and will be amortized on a straight-line basis for the year as per the FASB guidance. The adoption of this standard did not have a material impact on the Company’s results of operations, cash flows or financial position.

Recently Issued Accounting Standards

Not Adopted as of January 1, 2012

During the fiscal third quarter of 2011, the FASB issued amendments to goodwill impairment testing. Under the amendments in this update, an entity has the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events or circumstances, an entity determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the two-step impairment test is unnecessary. However, if an entity concludes otherwise, then it is required to perform the first step of the two-step impairment test. This guidance is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. The adoption of this standard is not expected to have a material impact on the Company’s results of operations, cash flows or financial position.

During the fiscal second quarter of 2011, the FASB issued an amendment to the disclosure requirements for presentation of comprehensive income. The amendment requires that all non-owner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. This guidance is effective retrospectively for the interim periods and annual periods beginning after December 15, 2011; however, the FASB agreed to an indefinite deferral of the reclassification requirement. The adoption of this standard is not expected to have a material impact on the Company’s results of operations, cash flows or financial position.

During the fiscal second quarter of 2011, the FASB issued amendments to disclosure requirements for common fair value measurement. These amendments result in convergence of fair value measurement and disclosure requirements between U.S. Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS). This guidance is effective prospectively for the interim periods and annual periods beginning after December 15, 2011. Early adoption is prohibited. The adoption of this standard is not expected to have a material impact on the Company’s results of operations, cash flows or financial position.

Cash Equivalents

The Company considers securities with maturities of three months or less, when purchased, to be cash equivalents.

Investments

Short-term marketable securities are carried at cost, which approximates fair value. Investments classified as available-for-sale are carried at estimated fair value with unrealized gains and losses recorded as a component of accumulated other comprehensive income. Long-term debt securities that the Company has the ability and intent to hold until maturity are carried at amortized cost. Management determines the appropriate classification of its investment in debt and equity securities at the time of purchase and re-evaluates such determination at each balance sheet date. The Company periodically reviews its investments in equity securities for impairment and adjusts these investments to their fair value when a decline in market value is deemed to be other than

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     41   


temporary. If losses on these securities are considered to be other than temporary, the loss is recognized in earnings.

Property, Plant and Equipment and Depreciation

Property, plant and equipment are stated at cost. The Company utilizes the straight-line method of depreciation over the estimated useful lives of the assets:

 

 

Building and building equipment

     20 - 40 years   

Land and leasehold improvements

     10 - 20 years   

Machinery and equipment

     2 - 13 years   

The Company capitalizes certain computer software and development costs, included in machinery and equipment, when incurred in connection with developing or obtaining computer software for internal use. Capitalized software costs are amortized over the estimated useful lives of the software, which generally range from 3 to 8 years.

The Company reviews long-lived assets to assess recoverability using undiscounted cash flows. When certain events or changes in operating or economic conditions occur, an impairment assessment may be performed on the recoverability of the carrying value of these assets. If the asset is determined to be impaired, the loss is measured based on the difference between the asset’s fair value and its carrying value. If quoted market prices are not available, the Company will estimate fair value using a discounted value of estimated future cash flows.

Revenue Recognition

The Company recognizes revenue from product sales when the goods are shipped or delivered and title and risk of loss pass to the customer. Provisions for certain rebates, sales incentives, trade promotions, coupons, product returns and discounts to customers are accounted for as reductions in sales in the same period the related sales are recorded.

Product discounts granted are based on the terms of arrangements with direct, indirect and other market participants, as well as market conditions, including prices charged by competitors. Rebates, the largest being the Medicaid rebate provision, are estimated based on contractual terms, historical experience, trend analysis and projected market conditions in the various markets served. The Company evaluates market conditions for products or groups of products primarily through the analysis of wholesaler and other third-party sell-through and market research data, as well as internally generated information.

Sales returns are generally estimated and recorded based on historical sales and returns information. Products that exhibit unusual sales or return patterns due to dating, competition or other marketing matters are specifically investigated and analyzed as part of the accounting for sales returns accruals.

Sales returns allowances represent a reserve for products that may be returned due to expiration, destruction in the field, or in specific areas, product recall. The returns reserve is based on historical return trends by product and by market as a percent to gross sales. In accordance with the Company’s accounting policies, the Company generally issues credit to customers for returned goods. The Company’s sales returns reserves are accounted for in accordance with U.S. GAAP guidance for revenue recognition when right of return exists. Sales returns reserves are recorded at full sales value. Sales returns in the Consumer and Pharmaceutical segments are almost exclusively not resalable. Sales returns for certain franchises in the Medical Devices and Diagnostics segment are typically resalable but are 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.

Promotional programs, such as product listing allowances and cooperative advertising arrangements, are recorded in the year incurred. Continuing promotional programs include coupons and volume-based sales incentive programs. The redemption cost of consumer coupons is based on historical redemption experience by product and value. Volume-based incentive programs are based on the estimated sales volumes for the incentive period and are recorded as products are sold. The Company also earns service revenue for co-promotion of certain products and includes it in sales to customers. These arrangements are evaluated to determine the appropriate amounts to be deferred.

Shipping and Handling

Shipping and handling costs incurred were $1,022 million, $945 million and $964 million in 2011, 2010 and 2009, respectively, and are included in selling, marketing and administrative expense. The amount of revenue received for shipping and handling is less than 0.5% of sales to customers for all periods presented.

Inventories

Inventories are stated at the lower of cost or market determined by the first-in, first-out method.

Intangible Assets and Goodwill

The authoritative literature on U.S. GAAP requires that goodwill and intangible assets with indefinite lives be assessed annually for impairment. The Company completed the annual impairment test for 2011 in the fiscal fourth quarter and no impairment was determined. Future impairment tests will be performed annually in the fiscal fourth quarter, or sooner if a triggering event occurs. Purchased in-process research and development is accounted for as an indefinite lived intangible asset until the underlying project is completed, at which point the intangible asset will be accounted for as a definite lived intangible asset, or abandoned, at which point the intangible asset will be written off.

Intangible assets that have finite useful lives continue to be amortized over their useful lives, and are reviewed for impairment when warranted by economic conditions. See Note 5 for further details on Intangible Assets and Goodwill.

Financial Instruments

As required by U.S. GAAP, all derivative instruments are recorded on the balance sheet at fair value. Changes in the fair value of derivatives are recorded each period in current earnings or other comprehensive income, depending on whether the derivative is designated as part of a hedge transaction, and if so, the type of hedge transaction.

The Company documents all relationships between hedged items and derivatives. The overall risk management strategy includes reasons for undertaking hedge transactions and entering into derivatives. The objectives of this strategy are: (1) minimize foreign currency exposure’s impact on the Company’s financial performance; (2) protect the Company’s cash flow from adverse movements in foreign exchange rates; (3) ensure the appropriateness of financial instruments; and (4) manage the enterprise risk associated with financial institutions. See Note 6 for additional information on Financial Instruments.

Product Liability

Accruals for product liability claims are recorded, on an undiscounted basis, when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated based on existing information. The accruals are adjusted periodically as additional information becomes available. As a result of cost and availability factors, effective November 1, 2005, the Company

 

42    JOHNSON & JOHNSON 2011 ANNUAL REPORT


ceased purchasing third-party product liability insurance. Based on the availability of prior coverage, receivables for insurance recoveries related to product liability claims are recorded on an undiscounted basis, when it is probable that a recovery will be realized.

Concentration of Credit Risk

Global concentration of credit risk with respect to trade accounts receivables continues to be limited due to the large number of customers globally and adherence to internal credit policies and credit limits. Recent economic challenges in Italy, Spain, Greece and Portugal (the Southern European Region) have impacted certain payment patterns, which have historically been longer than those experienced in the U.S. and other international markets. The total net trade accounts receivable balance in the Southern European Region was approximately $2.4 billion as of January 1, 2012 and approximately $2.3 billion as of January 2, 2011. Approximately $1.4 billion as of January 1, 2012 and 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 Pharmaceuticals and Medical Devices and Diagnostics customers which are in line with historical collection patterns.

The remaining balance of net trade accounts receivable in the Southern European Region has been negatively impacted by the timing of payments from certain government owned or supported healthcare customers as well as certain distributors of the Pharmaceutical and Medical Devices and Diagnostics local affiliates. The total net trade accounts receivable balance for these customers were approximately $1.0 billion at January 1, 2012 and January 2, 2011. The Company continues to receive payments from these customers and in some cases late payment premiums. For customers where payment is expected over periods of time longer than one year, revenue and trade receivables have been discounted over the estimated period of time for collection. Allowances for doubtful accounts have been increased for these customers, but have been immaterial to date. The Company will continue to work closely with these customers, monitor the economic situation and take appropriate actions as necessary.

Research and Development

Research and development expenses are expensed as incurred. Upfront and milestone payments made to third parties in connection with research and development collaborations are expensed as incurred up to the point of regulatory approval. Payments made to third parties subsequent to regulatory approval are capitalized and amortized over the remaining useful life of the related product. Amounts capitalized for such payments are included in other intangibles, net of accumulated amortization.

The Company enters into collaborative arrangements, typically with other pharmaceutical or biotechnology companies, to develop and commercialize drug candidates or intellectual property. These arrangements typically involve two (or more) parties who are active participants in the collaboration and are exposed to significant risks and rewards dependent on the commercial success of the activities. These collaborations usually involve various activities by one or more parties, including research and development, marketing and selling and distribution. Often, these collaborations require upfront, milestone and royalty or profit share payments, contingent upon the occurrence of certain future events linked to the success of the asset in development. Amounts due from collaborative partners related to development activities are generally reflected as a reduction of research and development expense because the performance of contract development services is not central to the Company’s operations. In general, the income statement presentation for these collaborations is as follows:

 

Nature/Type of Collaboration

  

Statement of Earnings Presentation

Third-party sale of product

   Sales to customers

Royalties/milestones paid to collaborative partner (post-regulatory approval)*

   Cost of goods sold

Royalties received from collaborative partner

   Other income (expense), net

Upfront payments & milestones paid to collaborative partner (pre-regulatory approval)

   Research and development expense

Research and development payments to collaborative partner

   Research and development expense

Research and development payments received from collaborative partner

   Reduction of Research and development expense

 

* Milestones are capitalized as intangible assets and amortized to cost of goods sold over the useful life.

Advertising

Costs associated with advertising are expensed in the year incurred and are included in selling, marketing and administrative expenses. Advertising expenses worldwide, which comprised television, radio, print media and Internet advertising, were $2.6 billion, $2.5 billion and $2.4 billion in 2011, 2010 and 2009, respectively.

Income Taxes

Income taxes are recorded based on amounts refundable or payable for the current year and include the results of any difference between U.S. GAAP accounting and tax reporting, recorded as deferred tax assets or liabilities. The Company estimates deferred tax assets and liabilities based on current tax regulations and rates. Changes in tax laws and rates may affect recorded deferred tax assets and liabilities in the future. Management believes that changes in these estimates would not have a material effect on the Company’s results of operations, cash flows or financial position.

At January 1, 2012 and January 2, 2011, the cumulative amounts of undistributed international earnings were approximately $41.6 billion and $37.0 billion, respectively. At January 1, 2012 and January 2, 2011, the Company’s foreign subsidiaries held balances of cash and cash equivalents in the amounts of $24.5 billion and $18.7 billion, respectively. The Company intends to continue to reinvest its undistributed international earnings to expand its international operations; therefore, no U.S. tax expense has been recorded with respect to the undistributed portion not intended for repatriation.

See Note 8 to the Consolidated Financial Statements for further information regarding income taxes.

Net Earnings Per Share

Basic earnings per share is computed by dividing net earnings available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur if securities were exercised or converted into common stock using the treasury stock method.

Use of Estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the U.S. 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,

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     43   


contingencies and intangible asset and liability valuations. For instance, in determining annual pension and post-employment benefit costs, the Company estimates the rate of return on plan assets, and the cost of future health care benefits. Actual results may or may not differ from those estimates.

The Company follows the provisions of U.S. GAAP when recording litigation related contingencies. A liability is recorded when a loss is probable and can be reasonably estimated. The best estimate of a loss within a range is accrued; however, if no estimate in the range is better than any other, the minimum amount is accrued.

Annual Closing Date

The Company follows the concept of a fiscal year, which ends on the Sunday nearest to the end of the month of December. Normally each fiscal year consists of 52 weeks, but every five or six years the fiscal year consists of 53 weeks, as was the case in 2009, and will be the case again in 2014.

Reclassification

Certain prior period amounts have been reclassified to conform to current year presentation.

2.    Cash, Cash Equivalents and Current Marketable Securities

At the end of 2011 and 2010, cash, cash equivalents and current marketable securities were comprised of:

 

 

September September

(Dollars in Millions)

   2011      2010  

Cash

   $ 2,709         2,293   

Government securities and obligations

     27,017         22,349   

Corporate debt securities

     489         225   

Money market funds

     1,590         2,135   

Time deposits

     456         656   
  

 

 

    

 

 

 

Total cash, cash equivalents and current marketable securities

   $ 32,261         27,658   
  

 

 

    

 

 

 

The estimated fair value was $32,262 million as of January 1, 2012 reflecting a $1 million unrealized gain in government securities and obligations. The estimated fair value was the same as the carrying value as of January 2, 2011.

As of January 1, 2012, current marketable securities consisted of $7,545 million and $174 million of government securities and obligations, and corporate debt securities, respectively.

As of January 2, 2011, current marketable securities consisted of $8,153 million and $150 million of government securities and obligations, and corporate debt securities, respectively.

Fair value of government securities and obligations and corporate debt securities were estimated using quoted broker prices in active markets.

The Company invests its excess cash in both deposits with major banks throughout the world and other high-quality money market instruments. The Company has a policy of making investments only with commercial institutions that have at least an A (or equivalent) credit rating.

3.    Inventories

At the end of 2011 and 2010, inventories were comprised of:

 

 

(Dollars in Millions)

   2011      2010  

Raw materials and supplies

   $ 1,206         1,073   

Goods in process

     1,637         1,460   

Finished goods

     3,442         2,845   
  

 

 

    

 

 

 

Total inventories

   $ 6,285         5,378   
  

 

 

    

 

 

 

4.    Property, Plant and Equipment

At the end of 2011 and 2010, property, plant and equipment at cost and accumulated depreciation were:

 

 

(Dollars in Million