Johnson & Johnson
JOHNSON & JOHNSON (Form: 10-K, Received: 02/22/2013 06:01:18)

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 December 30, 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  o
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  o      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  o
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  o
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.   o
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   o      Non-accelerated filer   o      Smaller reporting company   o
(Do not check if a 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  o      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 $186 billion.
On February 19, 2013, there were 2,795,319,117 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 2012 (the “Annual Report”).
Parts I and III:
 
Portions of registrant’s proxy statement for its 2013 annual meeting of shareholders filed within 120 days after the close of the registrant’s fiscal year (the “Proxy Statement”).




Item
 
Page
PART I
1
1
 
1
 
1
 
 
 
 
 
 
 
 
 
1A.
1B.
2
3
4
 
 
PART II
5
6
7
7A.
8
9
9A.
9B.
 
PART III
10
11
12
13
14
 
PART IV
15
 
 
 
 



Table of Contents

PART I

Item 1.
BUSINESS
General
Johnson & Johnson and its subsidiaries (the "Company") have approximately 127,600 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 275 operating companies conducting business in virtually all countries of the world. The Company’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
The Company is 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 descriptions of segments and operating results under the caption “Management’s Discussion and Analysis of Results of Operations and Financial Condition” and Note 18 “Segments of Business and Geographic Areas” under “Notes to Consolidated Financial Statements” 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 care 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. Brands in the Oral Care franchise include the LISTERINE ® and REMBRANDT ® oral care lines, as well as REACH ® interdental 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 CAREFREE ® pantiliners; o.b. ® tampons and STAYFREE ® sanitary protection products. The principal nutritional line is SPLENDA ® No Calorie Sweetener. Over-the-counter medicines include 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, 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: REMICADE ® (infliximab), a treatment for a number of immune-mediated inflammatory diseases; STELARA ® (ustekinumab), a treatment for adults with moderate to severe plaque psoriasis; SIMPONI ® (golimumab), a treatment for adults with moderate to severe rheumatoid arthritis, active psoriatic arthritis, and active 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 ® ER (tapentadol) extended release tablets, a treatment for moderate to severe chronic pain in adults and neuropathic pain associated with diabetic peripheral neuropathy in adults; INVEGA ® SUSTENNA ® (paliperidone palmitate), for the acute and maintenance treatment of schizophrenia in adults; INVEGA ® (paliperidone) extended-release tablets, for the treatment of of schizophrenia and schizoaffective disorder; RISPERDAL ® CONSTA ® (risperidone), a treatment for the management of Bipolar I Disorder and schizophrenia; XARELTO ®   (rivaroxaban), an oral anticoagulant for the prevention of thrombosis following total hip or knee replacement surgery, for the prevention of stroke in patients with atrial fibrillation, for the treatment of pulmonary embolism (PE) or deep vein thrombosis (DVT) or to reduce the risk of recurrence of DVT or PE following an initial six months of treatment for acute venous thromboembolism; PROCRIT ® (epoetin alfa, sold outside the U.S. as EPREX ® ), to stimulate red blood cell production; LEVAQUIN ® (levofloxacin) for the treatment of bacterial infections;


Table of Contents

CONCERTA ® (methylphenidate HCl) extended-release tablets CII, a treatment for attention deficit hyperactivity disorder; ACIPHEX ® /PARIET ® , a proton pump inhibitor co-marketed with Eisai Inc.; and DURAGESIC ® / (fentanyl transdermal system) CII, 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 used principally in the professional fields by physicians, nurses, hospitals, and clinics. These include products to treat cardiovascular disease; orthopaedic and neurological products; blood glucose monitoring and insulin delivery products; general surgery, biosurgical, and energy products; professional diagnostic products; infection prevention products; and disposable contact lenses. These products are distributed to wholesalers, hospitals and retailers both directly and through surgical supply and other distributors.
Geographic Areas
The business of Johnson & Johnson is conducted by more than 275 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 Company's business 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
The Company's 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 manufacturing processes, which in the aggregate are believed to be of material importance to the Company in the operation of its businesses. Sales of the Company’s largest product, REMICADE ® (infliximab), accounted for approximately 9.1% of the Company's total revenues for fiscal 2012. Accordingly, the patents related to this product are believed to be material to the Company.
In June of 2011, LEVAQUIN ® lost market exclusivity and became subject to generic competition in the United States. Sales of LEVAQUIN ® , in the United States, declined approximately 94% in 2012 as compared to 2011.
The Company’s subsidiaries 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. The Company 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, the Company's subsidiaries 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.

2

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Research and Development
Research activities represent a significant part of the Company’s 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 $7.7 billion, $7.5 billion and $6.8 billion for fiscal years 2012, 2011 and 2010, 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, Switzerland and the United Kingdom.
Environment
The Company is 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 the Company’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 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.
F ollowing the U.S. Supreme Court decision in June 2012 upholding the Patient Protection and Affordable Care Act (the "ACA"), there has been an increase in the pace of regulatory issuances by those U.S. government agencies designated to carry out the extensive requirements of the ACA.   These have both positive and negative impacts on the U.S. healthcare industry with much remaining uncertain as to how various provisions of the ACA will ultimately affect the industry.
The regulatory agencies under whose purview the Company operates have administrative powers that may subject it to actions such as product withdrawals, recalls, seizure of products and other civil and criminal sanctions. In some cases, the Company’s subsidiaries 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 the Company’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, the Regulatory, Compliance & Government Affairs Committee and the Science, Technology & Sustainability Committee of the Board of Directors and the Company’s Principles of Corporate Governance, Policy on Business Conduct for employees, Code of Business Conduct & Ethics for Members of the Board of Directors and Executive Officers, and other corporate governance materials, 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.

3

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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
The Company's subsidiaries operate 146 manufacturing facilities occupying approximately 21.6 million square feet of floor space. The manufacturing facilities are used by the industry segments of the Company’s business approximately as follows:
Segment
 
Square Feet
(in thousands)
Consumer
 
7,335

Pharmaceutical
 
7,061

Medical Devices and Diagnostics
 
7,248

Worldwide Total
 
21,644

Within the United States, 8 facilities are used by the Consumer segment, 8 by the Pharmaceutical segment and 35 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
 
51

 
6,346

Europe
 
43

 
7,937

Western Hemisphere, excluding U.S. 
 
17

 
3,465

Africa, Asia and Pacific
 
35

 
3,896

Worldwide Total
 
146

 
21,644

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.”
The Company'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.
McNEIL-PPC, Inc. continues to operate under a consent decree signed in 2011 with the FDA, which governs certain McNeil Consumer Healthcare manufacturing operations. McNEIL-PPC, Inc. continues to operate the manufacturing facilities in Las Piedras, Puerto Rico and Lancaster, Pennsylvania; however, production volumes from these facilities continue to be impacted by additional review and approval processes required under the consent decree. The Company expects this to continue throughout most of 2013. Plants operating under the consent decree will produce a simplified portfolio focused on key brands. The Fort Washington, Pennsylvania manufacturing site is not in operation at this time. McNeil continues to work on the re-siting of the products previously produced at the Fort Washington facility to other facilities. 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” of the Annual Report, which is filed as Exhibit 13 to this Report of Form 10-K.
For information regarding lease obligations, see Note 16 “Rental Expense and Lease Commitments” under “Notes to Consolidated Financial Statements” 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

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Areas” under “Notes to Consolidated Financial Statements” of the Annual Report, filed as Exhibit 13 to this Report on Form 10-K.
Item 3.
LEGAL PROCEEDINGS
The information set forth in Note 21 “Legal Proceedings” under “Notes to Consolidated Financial Statements” 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.
Not applicable.
EXECUTIVE OFFICERS OF THE REGISTRANT
Listed below are the executive officers of the Company as of February 19, 2013, each of whom, unless otherwise indicated below, has been an employee of the Company 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 Alex Gorsky, is incorporated herein by reference to the material captioned “Election of Directors” in the Proxy Statement.
Name
 
Age
 
Position
Dominic J. Caruso
 
55
 
Member, Executive Committee; Vice President, Finance; Chief Financial Officer(a)
Peter M. Fasolo
 
50
 
Member, Executive Committee; Vice President, Global Human Resources (b)
Alex Gorsky
 
52
 
Chairman, Board of Directors; Chairman, Executive Committee; Chief Executive Officer
Sandra E. Peterson
 
54
 
Member, Executive Committee; Group Worldwide Chairman(c)
Paulus Stoffels
 
51
 
Member, Executive Committee; Chief Scientific Officer; Worldwide Chairman, Pharmaceuticals Group(d)
Michael H. Ullmann
 
54
 
Member, Executive Committee; Vice President, General Counsel(e)
_______________________________________
(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)
Dr. 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. Dr. 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.
(c)
Ms. S. E. Peterson joined the Company in December 2012 as Group Worldwide Chairman and a Member of the Executive Committee, with responsibility for the Consumer Group of Companies, Johnson & Johnson Supply Chain, and Information Technology. Prior to joining Johnson & Johnson, Ms. Peterson had an extensive global career in healthcare, consumer goods and consulting. Most recently, she was Chairman and Chief Executive Officer of Bayer

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CropScience AG in Germany, previously serving as President and Chief Executive Officer of Bayer Medical Care and President of Bayer HealthCare AG's Diabetes Care Division. Before joining Bayer in 2005, Ms. Peterson held a number of leadership roles at Medco Health Solutions (previously known as Merck-Medco). Among her responsibilities was the application of information technology to healthcare systems.
(d)
Dr. P. Stoffels joined the Company in 2002 with the acquisition of Virco and Tibotec, where he was Chief Executive Officer of Virco and Chairman of Tibotec. In 2005, he was appointed Company Group Chairman, Global Virology where he led the development of PREZISTA® and INTELENCE®, leading products for the treatment of HIV. In 2006, he assumed the role of Company Group Chairman, Pharmaceuticals, with responsibility for worldwide research and development for the CNS and Internal Medicine Franchises. Dr. Stoffels was appointed Global Head, Research & Development, Pharmaceuticals, in 2009, and in 2011 became Worldwide Chairman, Pharmaceuticals Group, with responsibility for research and development, business development and global strategy and innovation. In October 2012, Dr. Stoffels was appointed Chief Scientific Officer and a Member of the Executive Committee.
(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 19, 2013, there were 169,820 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”; “— Other Information — Common Stock Market Prices”; Note 17 “Common Stock, Stock Option Plans and Stock Compensation Agreements” under “Notes to Consolidated Financial Statements”; and “Shareholder Return Performance Graphs” under "Supporting Schedules" 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 2012. Pursuant to the accelerated stock repurchase agreements in connection with the acquisition of Synthes, Inc., the Company has not made any purchases of Common Stock on the open market during the fiscal fourth quarter.  The repurchases below represent the stock-for-stock option exercises that settled in the fiscal fourth quarter.
Period
 
Total Number
of Shares Purchased
 
Avg. Price
Paid Per Share
 
Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs
 
Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs
October 1, 2012 through October 28, 2012
 
126,488

 
$
70.62

 
-
 
-
October 29, 2012 through November 25, 2012
 
58,338

 
71.49

 
-
 
-
November 26, 2012 through December 30, 2012




 
139,288

 
70.44

 
-
 
-
Total
 
324,114

 
 
 
 
 
 
Item 6.
SELECTED FINANCIAL DATA
The information called for by this item is incorporated herein by reference to the “Summary of Operations and Statistical Data 2002-2012” under "Supporting Schedules" 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 OPERATIONS
The information called for by this item is incorporated herein by reference to the narrative and tabular material under the caption “Management’s Discussion and Analysis of Results of Operations and Financial Condition” of the Annual Report, filed as Exhibit 13 to this Report on Form 10-K.

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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” and Note 1 “Summary of Significant Accounting Policies — Financial Instruments” under “Notes to Consolidated Financial Statements” 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” 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. Alex Gorsky, Chairman and Chief Executive Officer, and Dominic J. Caruso, Chief Financial Officer, reviewed and participated in this evaluation. Based on this evaluation, Messrs. Gorsky 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.  The information called for by this item is incorporated herein by reference to the material under the caption "Management’s Report on Internal Control Over Financial Reporting" of the Annual Report, filed as Exhibit 13 to this Report on Form 10-K.
Changes in Internal Control Over Financial Reporting.   During the fiscal quarter ended December 30, 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 “Item 1: 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 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

7

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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 Corporate Governance — Item 1: Election of Directors — Director Compensation - 2012," "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” of the Annual Report, filed as Exhibit 13 to this Report on Form 10-K.
Equity Compensation Plan Information
The following table provides certain information as of December 30, 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(3)(4)
Equity Compensation Plans Approved by Security Holders (1)
166,461,456

 

$49.70

 
201,764,610

Equity Compensation Plans Not Approved by Security Holders (2)(3)
7,774

 

$54.69

 

Total
166,469,230

 

$49.70

 
201,764,610

_______________________________________
(1)  
Included in this category are the following equity compensation plans, which have been approved by the Company’s shareholders: 2000 Stock Option Plan, 2005 Long-Term Incentive Plan and 2012 Long-Term Incentive Plan.
(2)  
Included in this category are 7,774 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)  
This column excludes shares reflected under the column “Number of Securities to be Issued Upon Exercise of Outstanding Options and Rights.”
(4)  
The 2005 Long-Term Incentive Plan expired April 26, 2012. All options and restricted shares granted subsequent to that date were under the 2012 Long-Term Incentive Plan.
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.

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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.

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” 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 2012 and 2011
Consolidated Statements of Earnings for Fiscal Years 2012, 2011 and 2010
Consolidated Statements of Comprehensive Income for Fiscal Years 2012, 2011 and 2010
Consolidated Statements of Equity for Fiscal Years 2012, 2011 and 2010
Consolidated Statements of Cash Flows for Fiscal Years 2012, 2011 and 2010
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.



9

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JOHNSON & JOHNSON AND SUBSIDIARIES

SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS

Fiscal Years Ended December 30, 2012, January 1, 2012 and January 2, 2011
(Dollars in Millions)

 
Balance at
Beginning of
Period
 
Accruals
 
Payments/Other
 
Balance at
End of
Period
2012
 

 
 

 
 

 
 

Accrued Rebates (1)
$
2,215

 
8,973

 
(8,722
)
 
2,466

Accrued Returns
682

 
549

 
(521
)
 
710

Accrued Promotions
396

 
1,583

 
(1,544
)
 
435

Subtotal
$
3,293

 
11,105

 
(10,787
)
 
3,611

Reserve for doubtful accounts
361

 
127

 
(22
)
 
466

Reserve for cash discounts
99

 
1,010

 
(1,004
)
 
105

Total
$
3,753

 
12,242

 
(11,813
)
 
4,182

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)
$
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

_______________________________________
(1)  
Includes reserve for customer rebates of $642 million, $656 million and $701 million at December 30, 2012, January 1, 2012 and January 2, 2011, respectively.




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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 21, 2013
JOHNSON & JOHNSON
(Registrant)

By 
/s/  A. Gorsky
 
A. Gorsky, 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/  A. Gorsky
 
Chairman, Board of Directors,
 
February 21, 2013
A. Gorsky
 
Chief Executive Officer, and Director (Principal Executive Officer)
 
 
 
 
 
 
 
/s/  D. J. Caruso
 
Chief Financial Officer (Principal Financial Officer)
 
February 21, 2013
D. J. Caruso
 
 
 
 
 
 
 
 
 
/s/  S. J. Cosgrove
 
Controller (Principal Accounting Officer)
 
February 21, 2013
S. J. Cosgrove
 
 
 
 
 
 
 
 
 
/s/  M. S. Coleman
 
Director
 
February 21, 2013
M. S. Coleman
 
 
 
 
 
 
 
 
 
/s/  J. G. Cullen
 
Director
 
February 21, 2013
J. G. Cullen
 
 
 
 
 
 
 
 
 
/s/  I. E. L. Davis
 
Director
 
February 21, 2013
I. E. L. Davis
 
 
 
 
 
 
 
 
 
/s/  M. M. E. Johns
 
Director
 
February 21, 2013
M. M. E. Johns
 
 
 
 

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Table of Contents

Signature
 
Title
 
Date
 
 
 
 
 
/s/  S. L. Lindquist
 
Director
 
February 21, 2013
S. L. Lindquist
 
 
 
 
 
 
 
 
 
/s/  A. M. Mulcahy
 
Director
 
February 21, 2013
A. M. Mulcahy
 
 
 
 
 
 
 
 
 
/s/  L. F. Mullin
 
Director
 
February 21, 2013
L. F. Mullin
 
 
 
 
 
 
 
 
 
/s/  W. D. Perez
 
Director
 
February 21, 2013
W. D. Perez
 
 
 
 
 
 
 
 
 
/s/  C. Prince
 
Director
 
February 21, 2013
C. Prince
 
 
 
 
 
 
 
 
 
/s/  D. Satcher
 
Director
 
February 21, 2013
D. Satcher
 
 
 
 
 
 
 
 
 
/s/  A. E. Washington
 
Director
 
February 21, 2013
A. E. Washington
 
 
 
 
 
 
 
 
 
/s/  R. A. Williams
 
Director
 
February 21, 2013
R. A. Williams
 
 
 
 


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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 21, 2013 appearing in the 2012 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.


________________________________________________________
PricewaterhouseCoopers LLP
New York, New York
February 21, 2013



13

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EXHIBIT INDEX

Reg. S-K
 
 
Exhibit Table
 
Description
Item No.
 
of Exhibit
3(i)(a)
 
Restated Certificate of Incorporation effective 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 effective 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 effective 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 April 17, 2012 — Incorporated herein by reference to Exhibit 3.1 the Registrant’s Form 8-K Current Report filed April 19, 2012.
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) — Incorporated herein by reference to Exhibit 10(b) of the Registrant's Form 10-K Annual Report for the year ended January 1, 2012.*
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 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)
 
2012 Long-Term Incentive Plan — Incorporated herein by reference to Appendix A of the Registrant’s Proxy Statement filed with the Commission on March 14, 2012 .*
10(g)
 
Form of Stock Option Certificate, Restricted Share Unit Certificate and Performance Share Unit Certificate under the 2012 Long-Term Incentive Plan — Incorporated herein by reference to Exhibits 10.2, 10.3 and 10.4 of the Registrant’s Form 10-Q Quarterly Report filed May 7, 2012.*
10(h)
 
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(i)
 
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(j)
 
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(k)
 
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(l)
 
Amended and Restated Deferred Fee Plan for Directors — Incorporated herein by reference to Exhibit 10(k) of the Registrant's Form 10-K Annual Report for the year ended January 1, 2012.*
10(m)
 
Executive Income Deferral Plan (Amended and Restated) — Incorporated herein by reference to Exhibit 10.1 of the Registrant’s Form 10-Q Quarterly Report for the quarter ended September 30, 2012.*

14

Table of Contents

Reg. S-K
 
 
Exhibit Table
 
Description
Item No.
 
of Exhibit
10(n)
 
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(o)
 
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(p)
 
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(q)
 
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(r)
 
Executive Life Plan Agreement — 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(s)
 
Employment Agreement for Dr. Paulus Stoffels - Incorporated herein by reference to Exhibit 10.2 of the Registrant’s Form 10-Q Quarterly Report for the quarter ended September 30, 2012.*
10(t)
 
Summary of Employment Arrangements for Sandra E. Peterson — Filed with this document.*
12
 
Statement of Computation of Ratio of Earnings to Fixed Charges — Filed with this document.
13
 
The following sections of the Annual Report to Shareholders for fiscal year 2012, which are incorporated by reference in this report, are deemed “filed”:  “Management's Discussion and Analysis of Results of Operations and Financial Condition”; “Audited Consolidated Financial Statements”; “Supporting Schedules - Summary of Operations and Statistical Data 2002 - 2012”; and “Supporting Schedules - Shareholder Return Performance Graphs” - 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 December 30, 2012, formatted in Extensive Business Reporting Language (XBRL): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Earnings, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statements of Equity, (v) Consolidated Statements of Cash Flows, (vi) Notes to the Consolidated Financial Statements, and (vii) Schedule II — Valuation and Qualifying Accounts.
_______________________________________
*
Management contract or compensatory plan.
A copy of any of the Exhibits listed above will be provided without charge to any shareholder submitting a written request specifying the desired exhibit(s) to the Secretary at the principal executive offices of the Company.


15


Exhibit 10(t)

Employment Agreement
between
Johnson & Johnson, c/o Peter Fasolo, WW Vice-President, Human Resources, One Johnson & Johnson Plaza, New Brunswick, New Jersey 08933 (“ Employer ”)
and
Sandra E. Peterson, 97 Old Beach Road, Tudor Lodge, Newport, Rhode Island 02840 (the “ Employee ”)
The Employer and the Employee are hereinafter referred to collectively as the “ Parties ” and individually as a “ Party.

WHEREAS:

A)
the Employer, a corporation organized under the laws of the State of New Jersey in the United States of America, wishes to hire Employee for an indefinite term; and
B)
the Employee desires to work for the Employer.

NOW, THEREFORE, THE PARTIES HAVE AGREED AS FOLLOWS:

1.
TITLE, JOB DUTIES AND REPORTING RELATIONSHIP
Upon the effective date, the Employee shall be employed by Employer and shall have the title of Group Worldwide Chair and serve as an Executive Committee Member for the Employer. The Employee shall directly report to the Chief Executive Officer (“CEO”) of the Company. The Employee shall be responsible for leading and managing the Employer's Consumer, IT and Supply Chain business units for the Employer. The Chief Executive Officer has the right to assign other duties and responsibilities to the Employee, which are commensurate with the Employee's title, knowledge, experience, skills and specified duties above.






2.
WORK LOCATION
The Employee's place of work shall be at the Employer's corporate office in New Brunswick, New Jersey. The Employee's duties may require the Employee to regularly travel on business to other locations both in the United States and abroad; such travel may include, where reasonably required, weekends and public holidays.

3.
EMPLOYMENT TERMS AND START DATE
Employment under this Agreement is “at-will” and is entered into for an indefinite term with an anticipated first day of employment (“ Start Date ”) by November 1, 2012 (or earlier as the Parties may agree), provided however, that this Employment Agreement shall be null and void ab initio and of no further force or effect if the Employee is: (1) unable to obtain an agreement from her current employer, (“ Current Employer ”), allowing for early cancellation of her Contract of Service Agreement (“ Service Agreement ”) with her Current Employer and (2) unable to get a release and/or amendment of her post contractual non-compete obligations ( “post employment restrictions”) in a manner reasonably satisfactory to Employer and in a manner which would permit her to commence employment consistent with the job responsibilities and duties of this Employment Agreement.

The Parties agree to use all reasonable efforts to negotiate Employee's departure from her Current Employer with respect to her Service Agreement and post employment restrictions. Employer agrees to extend the November 1, 2012 Start Date until December 31, 2012, provided negotiations with Employee's Current Employer regarding the two conditions set forth above are continuing and progressing and provided that Employee starts employment with Employer within 15 days after the pre-conditions set forth above are met (and no later than December 31, 2012). Employee agrees that she will promptly inform Employer if her Current Employer informs her that it is unwilling to nego-

2/14






tiate the above provisions and/or if negotiations with her Current Employer are terminated due to an impasse. The Parties agree that the offer of employment under this Employment Agreement will not expire prior to December 31, 2012, and will remain open as long as Employee commences employment by that date, unless and until the Parties mutually conclude that the Current Employer is unwilling to negotiate terms which would legally permit Employee to commence employment with Employer consistent with the timing, job responsibilities and duties of this Employment Agreement.

4.
SALARY
Employee's starting base salary (“ Base Salary ”) shall be U.S. $800,000 less applicable deductions, and shall be payable bi-weekly, consistent with the normal payroll practices of the Employer. Employee will be considered for a 2013 merit increase to her Base Salary in accordance with Employer's normal cycle (which increased amount, if applicable, shall thereafter be Employee's “Base Salary” for all purposes under this Employment Agreement). The amount of any such merit increase will be determined in Employer's sole discretion based on factors including market data, internal equity, individual performance, and business performance.

5.
SIGN-ON BONUS
The Employee shall also receive in installment payments a cash sign bonus totaling $2,200,000 (“Sign-On“) less applicable withholdings, which will be paid in two cash installments described below. Each installment of the Sign-On is subject to the Employee being actively employed as of the payout date.

The first installment payment of $300,000 will be paid to Employee shortly after Employee's Start Date. The second payment of $1,900,000 will be paid after April 1, 2013 but on or before May 1, 2013 and, except as provided in the last sentence of this paragraph, is subject to Employee remaining actively employed with the Employer as of the date of payout. Should the Employee voluntarily terminate her employment for other than Good Reason (and other

3/14





than due to a disability as defined under the Company's disability plan) or her employment is terminated by the Employer for Cause prior to the first anniversary date of the second installment payment the Employee will be required to reimburse the Employer for the full amount of the SignOn installment payments. Employee will receive each unpaid installment payment of the Sign-On, as and when payable above, if she is terminated without Cause (as defined below) or she resigns for “Good Reason" (as defined below).

“Cause“ for purposes of this Employment Agreement shall mean the occurence of any of the following: (i) Employee's conviction of (or a plea of guilty or nolo contendere) to a crime involving moral turpitude, dishonesty, fraud, theft, financial impropriety or unethical business conduct, or any felony of any nature whatsoever which results in incarceration or criminal probation; (ii) Employee's engagement in conduct that constitutes gross misconduct, gross neglect, or willful failure to perform the material duties of Employee's position; (iii) Employee's material breach of the applicable rules, policies, and/or practices of Employer, including but not limited to conduct with would constitute a Group I offense under the Employer's Performance and Conduct Standards Policy or a violation of Employer's Policy on Business Conduct; and (iv) Employee's material breach of the Secrecy, Intellectual Property, Non-Competition and Non-Solicitation Agreement.

For purposes of this Agreement a “ willful “ failure to perform will not apply to acts or ommissions conducted by the Employee in good faith or with a reasonable belief that such act or omission was in the best interests of the Employer.

“Good Reason” for purposes of this Employment Agreement means the occurrence of any of the following without the Employee's consent: (i) a material adverse change in Employee's title, duties or responsibilities (including reporting responsibilities); (ii) a material reduction in Employee's base salary; and (iii) any relocation of Employee's principal office by more than 50 miles from her office in New Brunswick, New Jersey (this does not apply to customary business travel throughout the U.S. and abroard associated with her role as Group Worldwide Chair as required and determined by her job duties under Section 1); or (iv) a failure to assign to any successor to the business, the contractual obligations of the Employer under this Employment Agreement. Employer and Employee agree that “Good Reason“ shall not exist unless and until Employee provides the Employer with written notice of the acts alleged to constitute Good Reason within ninety (90) days of Employee's knowledge of the occurrence of such event, and Employer fails to cure such acts within thirty (30) days of receipt of such notice, if curable. Employee must terminate her employment within sixty (60) days following the

4/14






expiration of such cure period for the termination to be on account of Good Reason.

6.
RSU REPLACEMENT AWARD
The Employee shall receive a new hire restricted share unit (or “ RSU ”) grant with a fair value of $4,300,000 to compensate for awards Employee is forfeiting upon leaving employment with the Current Employer. The number of RSUs will be determined by dividing the RSU fair value by the fair value per RSU of the Employer's common stock on the Grant Date (as defined below). The number of RSUs will be rounded to the nearest whole share. The Employee's new hire grant will be processed and granted on a date that is that is the first business day of the month that is at least 15 days but no more than 31 days following the Start Date (provided, in all events, so long as Employee's Start Date is no later than December 14, 2012, the award will be granted no later than December 31, 2012) (the “ Grant Date ”) and shall be subject to and administered in accordance with the terms of the Employer's LTIP and vesting is subject to the terms of the accompanying award agreement. Under the award agreement the $4,300,000 grant of shares will vest in three equal installments as follows: (1) 1/3 will vest one year after the Grant Date; (2) 1/3 will vest two years after the Grant Date and (3) 1/3 will vest three years after the Grant Date. Employee understands and agrees that she must be an active employee on the date of vesting to vest in RSU shares.

7.
SEVERANCE
If during the first three years of her employment, the Employer terminates this Employment Agreement for other than for Cause (as defined in Section 5 above) or Employee terminates her employment for Good Reason (as defined in Section 5 above), Employee shall be entitled to a cash lump sum severance payment (“ Severance ”) equal to 52 weeks of Base Salary, less applicable deductions. Employee's receipt of Severance .is subject to execution of a general release of claims within 30 days of the termination date (which general release of claims does not impose upon Employee any post-employment
5/14





covenants beyond which Employee agreed to prior to such termination of employment) and continuing compliance with any existing post employment contractual obligations, including under any confidentiality agreement and any non-solicitation and/or non-competition agreement signed by Employee with Employer. Severance is payable no later than 20 days after the general release of claims becomes irrevocable. After the first three years of employment, Employee's eligibility for severance shall be governed by the terms and conditions of the Severance Pay Plan of Johnson & Johnson and U.S. Affiliated Companies, then in effect at the time of termination for her level as an Executive Committee Member.

8.
DISCRETIONARY BONUS AND OTHER REMUNERATION
Except as otherwise provided herein, the award of bonuses, long-term incentives and other forms of voluntary additional remuneration shall be determined in accordance with the Employer's corporate executive compensation plans or programs then in effect for Executive Committee Members and subject to the terms and conditions of the individual plans and programs. The eligibility criteria as well as any payment under each such plan or program will be determined by the Employer in its sole discretion. The Employer may modify or repeal such plans or programs at its discretion at any time. The rights and obligations of the Employee under each such plan or program shall be governed by the terms of the plan or program, as amended from time to time, and by any individual bonus agreements between the Employer and the Employee.

The award of any voluntary additional forms of remuneration shall be subject to the continued existence of the employment relationship between the Employer and the Employee and this Employment Agreement being in effect at the time such remuneration is paid, except as described in Section 8.1 below. The Employee may not deduce any legal entitlements from said plans or programs except as provided in accordance with the terms thereof. The (repeated) awarding of voluntary additional remuneration within the scope of said plans or programs shall not give rise to any entitlement to future payments.
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8.1      Annual Performance Bonus
Based on the Employee's position as Group Worldwide Chair and Executive Committee Member, the Employee's annual bonus target opportunity is 125% of her annual Base Salary (less applicable deductions) for the 2013 performance year and is payable during the first quarter of 2014. Currently, under the corporate executive plan in effect for an executive at Employee's level the bonus is paid 85% in cash and 15% in shares of Employer's common stock. Under the terms of the current plan, shares awarded as part of the annual performance bonus fully vest upon grant.

8.2      Long-Term Incentive Compensation
Based on the Employee's position, the Employee's current long-term incentive (“LTI”) Fair Value target opportunity is 475% of the Employee's Base Salary for the 2013 performance year and is granted during the first quarter of 2014. The award will be comprised of a combination of stock options, RSUs and performance share units (“PSUs”) in accordance with Employer's executive compensation plans and programs. Awards vest three years from the date of the grant.

9.
COMPENSATION GENERALLY
Except as provided herein with respect to Employee's Sign On Bonus at Section 5, Replacement RSUs at Section 6, starting Base Salary, and Performance Year 2013 Performance Bonus and LTI compensation targets, the granting of all compensation, as well as its amount, is at management's sole discretion and is contingent upon the Employee's individual performance, the performance of the Employer, the performance criteria defined by the Employer's compensation plans, and the Employee's length of service during the year for which it is being granted. Guidelines and continued eligibility are determined annually, and are subject to change from year to year. The continuation of any compensation program is subject to management's discretion. Salary and non-salary compensation, based on guidelines and eligibility, as well as the Employee's performance, are determined at year-end, once the Employer results have been assessed, and paid and granted during
7/14





the first quarter of the following year. During her employment Employee will be eligible for salary, bonus and LTI compensation commensurate with employees similarly situated to Employee's title, reporting level and responsibilites.
Any individual tax obligations that may arise based on the Employee's employment in any jurisdiction are solely the Employee's. The Employer will have no responsibility, directly or indirectly, with respect to such obligations, including any obligation to pay, reimburse or gross up any payments to the Employee.

10.
BENEFIT PROGRAMS
Employee will be eligible to participate in all then current executive benefit programs and then current employee medical, dental, life and accidental insurance coverage and 401K plans and pension plans commensurate with Employee's position. Employee will be eligible to participate in Employer's medical benefit plan commencing on her Start Date.

11.
EXPENSES
Reimbursement of travel and other expenses shall be subject to and paid on the basis of the relevant policies of Parent governing expenses, including the Johnson & Johnson Global Travel and Entertainment Policy, as amended from time to time.

12.
VACATION
The Employee is entitled to twenty (20) days of paid vacation per year. The Employee's total vacation and floating holiday entitlement for 2012 will be based on the Employee's Start Date and will be pro-rated according to the current vacation and holiday policy. The granting for floating holidays is at management's sole discretion and is announced annually.
8/14






13.
RELOCATION
Employee's relocation will be administered in accordance with the terms of Employer's current relocation policy.

Should the Employee voluntarily terminate her employment or her employment is terminated for Cause (as defined in Section 5) within 24 months of her Start Date, the Employee will be required to reimburse the Employer or an affiliate of it for relocation costs paid on Employee's behalf. Employee understands and agrees that she is required to sign the Employer's Relocation Repayment Agreement and return it with the signed Employment Agreement. Employee understands employment is “at-will“ and the Relocation Repayment Agreement is not a contract for employment nor does it imply that Employee's employment will continue for any period of time or confer any rights with respect to duration of Employment.

Employee will not have any repayment obligation if her employment is terminated without Cause or she resigns for “Good Reason“ (as defined in Section 5).

14.
CONFIDENTIALITY, NON-COMPETITION AND NON-SOLICITATION
As a condition to entering into this Employment Agreement, the Employee will enter into and abide by the Employee Secrecy, Intellectual Property, Non-Competition and Non-Solicitation Agreement which is attached hereto and will become effective only as of the Start Date.

15.
EMPLOYMENT APPLICATION AND OTHER PRE-EMPLOYMENT FORMS
Employee understands and agrees that she must satisfactorily complete the following prior to her Start Date: (1) background and reference checks, which Employer hereby confirms are satisfied; (2) pre-placement health evaluation
9/14





(including drug screen); (3) Employment Application and Employer's background release form, which Employer hereby confirms is completed and (4) work authorization papers (I-9 documentation).

16.
ASSIGNMENT
The Employer may, in its sole discretion, transfer or assign this Employment Agreement, or the Employee's employment pursuant to this Employment Agreement, to any affiliates of the Employer, in which case such affiliate will automatically become the Employee's employer. The Employee's consent will not be required for any such transaction as long as such affiliate assumes the liabilities, obligations and duties of the Employer, as contained in this Employment Agreement.

17.
COMMON GROUND PROGRAM
The Employer employs an Employee Dispute Resolution Program ( Common Ground) as the exclusive means for attempting to quickly resolve disputes between employees and the Employer. The Parties agree that under this program employment related claims may be referred to non-binding mediation prior to litigation. Information regarding the Common Ground program is provided in the attached brochure.

18.
MISCELLANEOUS
This Employment Agreement and the policies and rules of the Employer constitute the entire agreement and understanding among the Parties with respect to the employment of the Employee by the Employer, and shall supersede all prior oral and written agreements or understandings of the Parties relating hereto. Except as otherwise agreed by the Parties in writing, any representation or statement (in whatever form) made to the Employee in connection with the Employee's employment not incorporated into this Employment Agreement shall not be valid and are not binding on Employer.
10/14






Amendments to this Employment Agreement shall only be valid if made in writing.

If any provision of this Employment Agreement is found by any competent authority to be void, invalid or unenforceable, such provision shall be deemed to be deleted from this Employment Agreement and the remaining provisions of this Employment Agreement shall continue in full force. In this event, the Employment Agreement shall be construed, and, if necessary, amended in a way to give effect to, or to approximate, or to achieve a result which is as close as legally possible to the result intended by the provision hereof determined to be void, illegal or unenforceable.

Anything in this Employment Agreement to the contrary notwithstanding:

(a)    It is intended that any amounts payable under this Employment Agreement will either be exempt from or comply with Section 409A of the Internal Revenue Code of 1986, as amended, and all regulations, guidance and other interpretive authority issued thereunder (collectively, “ Section 409A ”) so as not to subject Employee to payment of any additional tax, penalty or interest imposed under Section 409A, and this Employment Agreement will be interpreted on a basis consistent with such intent.
(b)    To the extent that the reimbursement of any expenses or the provision of any in-kind benefits under this Employment Agreement is subject to Section 409A, (i) the amount of such expenses eligible for reimbursement, or in-kind benefits to be provided, during any one calendar year shall not affect the amount of such expenses eligible for reimbursement, or in-kind benefits to be provided, in any other calendar year (provided, that, this clause (i) will not be violated with regard to expenses reimbursed under any arrangement covered by Code Section 105(b) solely because such expenses are subject to a limit related to the period the arrangement is in effect); (ii) reimbursement of any such expense shall be made by no later than December 31 of the year following the calendar year in which such expense is incurred; and (iii) Employee's right to receive such reimbursements or in-kind benefits shall not be subject to liquidation or exchange for another benefit.
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(c)    If Employee is a “specified employee” within the meaning of Treasury Regulation Section 1.409A -1(i) as of the date of the Employee's separation from service (within the meaning of Treas. Reg. Section 1.409A-1(h)), then any payment or benefit pursuant to this Employment Agreement on account of Employee's separation from service, to the extent such payment constitutes non-qualified deferred compensation subject to Section 409A and required to be delayed pursuant to Section 409A(a)(2)(B)(i) of the Code (after taking into account any exclusions applicable to such payment under Section 409A), shall not be made until the first business day after (i) the expiration of six (6) months from the date of Employee's separation from service, or (ii) if earlier, the date of Employee's death (the “ Delay Period ”). Upon the expiration of the Delay Period, all payments and benefits delayed pursuant to this Employment Agreement (whether they would have otherwise been payable in a single sum or in installments in the absence of such delay) will be paid or reimbursed to Employee in a lump sum and any remaining payments and benefits due under this Employment Agreement will be paid or provided in accordance with the normal payment dates specified for them herein. Notwithstanding any provision of this Employment Agreement to the contrary, for purposes of any provision of this Employment Agreement providing for the payment of any amounts or benefits upon or following a termination of employment that are considered deferred compensation under Section 409A, references to Employee's “termination of employment” (and corollary terms) with the Employer shall be construed to refer to Employee's “separation from service” (within the meaning of Treas. Reg. Section 1.409A-1(h)) with the Employer.

(d)    Whenever payments under this Employment Agreement are to be made in installments, each such installment shall be deemed to be a separate payment for purposes of Section 409A. Whenever a payment under this Employment Agreement specifies a payment period with reference to a number of days (e.g., “payment will be made within thirty (30) days following the date of termination”), the actual date of payment within the specified period shall be within the sole discretion of the Employer.
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(e)    To the extent any amount payable to Employee is subject to the Employee entering into a release of claims with the Employer and any such amount is a deferral of compensation under Section 409A and which amount could be payable in either of two taxable years for Employee, and the timing of such payment is not subject to terms and conditions under another plan, program or agreement of the Company that otherwise satisfies Section 409A, such payments shall be made, as applicable, on January 15 (or any later date that is not earlier than 8 days after the date that the release becomes irrevocable) of such later taxable year and shall include all payments that otherwise would have been made before such date.

19.
APPLICABLE LAW
This Employment Agreement is subject to New Jersey law.

20.
ADDENDUMS
The agreements and documents attached to this Employment Agreement, as amended from time to time, form an integral part of this Employment Agreement.

21.
EFFECTIVE DATE OF THIS AGREEMENT
This Agreement will be effective as of the later of: (1) the date all pre-conditions to Employee's employment are met or (2) the date by which all Parties have Employee signed and executed the Agreement. Until so effective, the offer of employment under this Agreement is governed by Section 3.
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DATED: August 14, 2012
EMPLOYER - Johnson & Johnson


By /s/ Peter M. Fasolo
     Peter M. Fasolo
     Worldwide Vice-President, Human Resources
DATED: August 29, 2012
EMPLOYEE - Sandra E. Peterson

By /s/ Sandra E. Peterson
       Sandra E. Peterson






ADDENDUMS:         Policy on Business Conduct
Employee Secrecy, Intellectual Property, Non-Competition
and Non-Solicitation Agreement
Relocation Repayment Agreement
Performance Standards and Conduct Policy







EXHIBIT 12
JOHNSON & JOHNSON AND SUBSIDIARIES
STATEMENT OF COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (1)  
(Dollars in Millions)
 
 
 
Fiscal Year Ended
 
December 30, 2012
 
January 1, 2012
 
January 2,
2011
 
January 3,
2010
 
December 28,
2008
 
 
Determination of Earnings:
 
 
 
 
 

 
 

 
 

 
 
Earnings Before Provision for Taxes on Income
$
13,775

 
$
12,361

 
$
16,947

 
$
15,755

 
$
16,929

 
 
Fixed Charges, less Capitalized Interest
657

 
675

 
555

 
558

 
538

 
 
Total Earnings as Defined
$
14,432

 
$
13,036

 
$
17,502

 
$
16,313

 
$
17,467

 
 
Fixed Charges:
 
 
 
 
 

 
 

 
 

 
 
Estimated Interest Portion of Rent Expense
125

 
104

 
100

 
107

 
103

 
 
Interest Expense before Capitalization of Interest
647

 
655

 
528

 
552

 
583

 
 
Total Fixed Charges
$
772

 
$
759

 
$
628

 
$
659

 
$
686

 
 
Ratio of Earnings to Fixed Charges
18.69

 
17.18

 
27.87

 
24.75

 
25.46

 
 
_______________________________________
(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 OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
 
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
 
SUPPORTING SCHEDULES



                
JOHNSON & JOHNSON 2012 ANNUAL REPORT
1
                                



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 127,600 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, 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. 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, hospitals and clinics. These include products to treat cardiovascular disease; orthopaedic and neurological products; blood glucose monitoring and insulin delivery products; general surgery, biosurgical, and energy products; professional diagnostic products; infection prevention products; and 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 2012 sales. In 2012, $7.7 billion, or 11.4% 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 275 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 2012, worldwide sales increased 3.4% to $67.2 billion, compared to an increase of 5.6% in 2011 and a decrease of 0.5% in 2010. These sales changes consisted of the following:

                
JOHNSON & JOHNSON 2012 ANNUAL REPORT
2
                                



Sales increase/(decrease) due to:
 
2012
 
2011
 
2010
Volume
 
5.7
%
 
3.1

 
(0.5
)
Price
 
0.4

 
(0.3
)
 
(0.8
)
Currency
 
(2.7
)
 
2.8

 
0.8

Total
 
3.4
%
 
5.6

 
(0.5
)
Sales by U.S. companies were $29.8 billion in 2012, $28.9 billion in 2011 and $29.5 billion in 2010. This represents an increase of 3.2% in 2012, and decreases of 1.8% in 2011 and 4.7% in 2010. Sales by international companies were $37.4 billion in 2012, $36.1 billion in 2011 and $32.1 billion in 2010. This represents increases of 3.5% in 2012, 12.4% in 2011 and 3.6% in 2010. The acquisition of Synthes, Inc., net of the related divestiture, increased both total worldwide sales growth and operational growth by 3.1%.
The five-year compound annual growth rates for worldwide, U.S. and international sales were 1.9%, (1.7)% and 5.5%, respectively. The ten-year compound annual growth rates for worldwide, U.S. and international sales were 6.4%, 2.9% and 10.4%, respectively.
Sales in Europe experienced a decline of 1.1% as compared to the prior year, including operational growth of 5.8% offset by a negative currency impact of 6.9%. Sales in the Western Hemisphere (excluding the U.S.) achieved growth of 12.3% as compared to the prior year, including operational growth of 19.0% and a negative currency impact of 6.7%. Sales in the Asia-Pacific, Africa region achieved growth of 5.3% as compared to the prior year, including operational growth of 6.7% and a negative currency impact of 1.4%.
In 2012, 2011 and 2010, the Company did not have a customer that represented 10% or more of total consolidated revenues.
U.S. Health Care Reform
Under the provisions of the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010, beginning in 2011, companies that sold branded prescription drugs to specified U.S. Government programs pay an annual non-tax deductible fee based on an allocation of each company’s market share of total branded prescription drug sales from the prior year. The full-year impact to selling, marketing and administrative expenses was approximately $115 million in 2012 and $140 million in 2011. 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 excise tax is estimated to be between $200 -$300 million and will be recorded in cost of products sold within the statement of earnings.
The net trade sales impact of the health care reform legislation was an annual reduction of approximately $450 million and $425 million in 2012 and 2011, respectively, due to an increase in sales rebates and discounts.

Analysis of Sales by Business Segments
Consumer Segment
Consumer segment sales in 2012 were $14.4 billion, a decrease of 2.9% from 2011, which included 0.5% operational growth offset by a negative currency impact of 3.4%. U.S. Consumer segment sales were $5.0 billion, a decrease of 2.0%. International sales were $9.4 billion, a decrease of 3.4%, which included 1.9% operational growth offset by a negative currency impact of 5.3%.
Major Consumer Franchise Sales:
 
 
 
 
 
 
 
 
% Change
(Dollars in Millions)
 
2012
 
2011
 
2010
 
’12 vs. ’11
 
’11 vs. ’10
OTC Pharmaceuticals & Nutritionals
 
$
4,354

 
4,402

 
4,549

 
(1.1
)%
 
(3.2
)
Skin Care
 
3,618

 
3,715

 
3,452

 
(2.6
)
 
7.6

Baby Care
 
2,254

 
2,340

 
2,209

 
(3.7
)
 
5.9

Women’s Health
 
1,625

 
1,792

 
1,844

 
(9.3
)
 
(2.8
)
Oral Care
 
1,624

 
1,624

 
1,526

 
     0.0
 
6.4

Wound Care/Other
 
972

 
1,010

 
1,010

 
(3.8
)
 
0.0

Total Consumer Sales
 
$
14,447

 
14,883

 
14,590

 
(2.9
)%
 
2.0


The Over-the-Counter (OTC) Pharmaceuticals and Nutritionals franchise sales were $4.4 billion, a decrease of 1.1% from 2011. Sales in the U.S. decreased primarily due to lower sales of analgesics as a result of supply constraints and competitive pressures in nutritional products. Strong growth of upper respiratory, digestive health and analgesics products outside the U.S. was offset by negative currency.
McNEIL-PPC, Inc. continues to operate under a consent decree signed in 2011, with the U.S. Food and Drug Administration (FDA), which governs certain McNeil Consumer Healthcare manufacturing operations. McNeil continues to

                
JOHNSON & JOHNSON 2012 ANNUAL REPORT
3
                                



operate the manufacturing facilities in Las Piedras, Puerto Rico and Lancaster, Pennsylvania; however, production volumes from these facilities continue to be impacted by additional review and approval processes required under the consent decree. The Company expects this to continue throughout most of 2013. Plants operating under the consent decree will produce a simplified portfolio focused on key brands. The Fort Washington, Pennsylvania manufacturing site is not in operation at this time. McNeil continues to work on the re-siting of the products previously produced at the Fort Washington facility to other facilities.
The Skin Care franchise sales were $3.6 billion in 2012, a decrease of 2.6% from 2011. Increased sales of NEUTROGENA ® products in the U.S. were offset by competition and economic conditions outside the U.S. The Baby Care franchise sales were $2.3 billion, a decrease of 3.7% from 2011. The decline in U.S. sales and the impact of negative currency was partially offset by increased sales of haircare and wipes outside the U.S. The Women’s Health franchise sales were $1.6 billion, a decrease of 9.3% primarily due to the impact of the divestiture of certain brands. The Oral Care franchise sales were flat as compared to the prior year. Increased sales of LISTERINE ® products outside the U.S. were partially offset by competitive pressures in the U.S. The Wound Care/Other franchise sales were $1.0 billion in 2012, a decrease of 3.8% from 2011 due to divestitures and competitive pressures. Negative currency impacted all of the franchises.
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%.

                
JOHNSON & JOHNSON 2012 ANNUAL REPORT
4
                                



Pharmaceutical Segment
The Pharmaceutical segment achieved sales of $25.4 billion in 2012, representing an increase of 4.0% over the prior year, with operational growth of 6.8% and a negative currency impact of 2.8%. U.S. sales were $12.4 billion, an increase of 0.3%. International sales were $12.9 billion, an increase of 7.9%, which included 13.6% operational growth and a negative currency impact of 5.7%.

Major Pharmaceutical Therapeutic Area Sales: *
 
 
 
 
 
 
 
 
% Change
(Dollars in Millions)
 
2012
 
2011
 
2010
 
’12 vs. ’11
 
’11 vs. ’10
Total Immunology
 
$
7,874

 
6,798

 
5,398

 
15.8
 %
 
25.9

     REMICADE ®
 
6,139

 
5,492

 
4,610

 
11.8

 
19.1

     SIMPONI ®
 
607

 
410

 
226

 
48.0

 
81.4

     STELARA ®
 
1,025

 
738

 
393

 
38.9

 
87.8

     Other Immunology
 
103

 
158

 
169

 
(34.8
)
 
(6.5
)
Total Infectious Diseases
 
3,194

 
3,189

 
3,033

 
0.2

 
5.1

     INTELENCE ®
 
349

 
314

 
243

 
11.1

 
29.2

     LEVAQUIN ® /FLOXIN ®
 
75

 
623

 
1,357

 
(88.0
)
 
(54.1
)
     PREZISTA ®
 
1,414

 
1,211

 
857

 
16.8

 
41.3

     Other Infectious Diseases
 
1,356

 
1,041

 
576

 
30.3

 
80.7

Total Neuroscience
 
6,718

 
6,948

 
6,644

 
(3.3
)
 
4.6

     CONCERTA ® /methylphenidate
 
1,073

 
1,268

 
1,319

 
(15.4
)
 
(3.9
)
     INVEGA ®
 
550

 
499

 
424

 
10.2

 
17.7

     INVEGA ®  SUSTENNA ® /XEPLION ®
 
796

 
378

 
152

 
**
 
**
     RISPERDAL ®  CONSTA ®
 
1,425

 
1,583

 
1,500

 
(10.0
)
 
5.5

     Other Neuroscience
 
2,874

 
3,220

 
3,249

 
(10.7
)
 
(0.9
)
Total Oncology
 
2,629

 
2,048

 
1,465

 
28.4

 
39.8

     DOXIL ® /CAELYX ®
 
83

 
402

 
320

 
(79.4
)
 
25.6

     VELCADE ®
 
1,500

 
1,274

 
1,080

 
17.7

 
18.0

     ZYTIGA ®
 
961

 
301

 

 
**
 
100.0

     Other Oncology
 
85

 
71

 
65

 
19.7

 
9.2

Total Other
 
4,936

 
5,385

 
5,856

 
(8.3
)
 
(8.0
)
     ACIPHEX ® /PARIET ®
 
835

 
975

 
1,006

 
(14.4
)
 
(3.1
)
     PROCRIT ® /EPREX ®
 
1,462

 
1,623

 
1,934

 
(9.9
)
 
(16.1
)
     Other
 
2,639

 
2,787

 
2,916

 
(5.3
)
 
(4.4
)
Total Pharmaceutical Sales
 
$
25,351

 
24,368

 
22,396

 
4.0
 %
 
8.8


* Prior year amounts have been reclassified to conform to current year presentation.
** Percentage greater than 100%

Immunology products achieved sales of $7.9 billion in 2012, representing an increase of 15.8% as compared to the prior year. The increased sales of SIMPONI ® (golimumab) and REMICADE ® (infliximab) were primarily due to market growth and the impact of the agreement with Merck & Co. Inc. (Merck). Effective July 1, 2011, distribution rights to REMICADE ® and SIMPONI ® in certain territories were relinquished to the Company by Merck. Additional contributors to the increase were sales of STELARA ® (ustekinumab).
Infectious disease products achieved sales of $3.2 billion in 2012, representing an increase of 0.2% as compared to the prior year. Major contributors were INCIVO ® (telaprevir), the continued momentum in market share growth of PREZISTA ® (darunavir), EDURANT ® (rilpivirine) and INTELENCE ® (etravirine) partially offset by lower sales of LEVAQUIN ® (levofloxacin)/FLOXIN ® (ofloxacin), due to the loss of market exclusivity in the U.S. in June 2011.
Neuroscience products sales were $6.7 billion, a decline of 3.3% as compared to the prior year. Growth was impacted by generic competition for CONCERTA ® /methylphenidate, RAZADYNE ® (galantamine), RISPERDAL ® (risperidone) and DURAGESIC ® /Fentanyl Transdermal (fentanyl transdermal system). A decline in the Company's long-acting injectable

                
JOHNSON & JOHNSON 2012 ANNUAL REPORT
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antipsychotic, RISPERDAL ® CONSTA ® (risperidone), was offset by strong sales of INVEGA ® SUSTENNA ® /XEPLION ® (paliperidone palmitate) and INVEGA ® (paliperidone palmitate). The Company's U.S. Supply and Distribution Agreement with Watson Laboratories, Inc. to distribute an authorized generic version of CONCERTA ® became effective May 1, 2011. The original CONCERTA ® patent expired in 2004, and the parties have received approval from the FDA to manufacture and market a generic version of CONCERTA ® . Another generic version of CONCERTA ® was launched on December 31, 2012. This will result in a further reduction in CONCERTA ® sales.
Oncology products achieved sales of $2.6 billion in 2012, representing an increase of 28.4% as compared to the prior year. This growth was primarily due to sales of ZYTIGA ® (abiraterone acetate) and VELCADE ® (bortezomib). This growth was partially offset by lower sales of DOXIL ® (doxorubicin HCI liposome injection)/CAELYX ® (pegylated liposomal doxorubicin hydrochloride), due to supply constraints from the Company's third-party manufacturer. The Company has been working to restore a reliable supply of DOXIL ® /CAELYX ® . Full access in the U.S. has been restored. An alternate manufacturing approach was approved in the European Union (EU) and Japan late in 2012 and in Canada in January of 2013. In the European Union, the CAELYX ® managed access program was put in place to ensure patients can complete their full course of treatment. It will remain in place until a full supply of CAELYX ® has been restored. In February 2013, the FDA approved a generic version of DOXIL ® .
Other Pharmaceutical sales were $4.9 billion, a decline of 8.3% as compared to the prior year primarily due to divestitures and lower sales of ACIPHEX ® /PARIET ® (rabeprazole sodium) and EPREX ® (Epoetin alfa), primarily due to the impact of generic competition. These results were partially offset by sales growth of XARELTO ® (rivaroxaban).
During 2012, the Company received several regulatory approvals including: U.S. approval of a new 800mg tablet of PREZISTA ® (darunavir) for once daily oral administration for the treatment of human immunodeficiency virus (HIV-1) in treatment-naive and treatment-experienced adult patients with no darunavir resistance-associated mutations; FDA approval for the expanded use of XARELTO ® (rivaroxaban) to treat deep-vein thrombosis, or DVT, and pulmonary embolism, or PE and to reduce the risk of recurrent DVT and PE following initial treatment; and the FDA granted accelerated approval for SIRTURO™ (bedaquiline) tablets for the treatment of pulmonary multi-drug resistant tuberculosis as part of combination therapy in adults. The FDA approved the supplemental New Drug Application (NDA) for NUCYNTA ® ER (tapentadol) extended-release tablets, an oral analgesic taken twice daily, for the management of neuropathic pain associated with diabetic peripheral neuropathy in adults. The FDA and the European Commission also approved an expanded indication for ZYTIGA ® (abiraterone acetate), in combination with prednisone, allowing for the use before chemotherapy in the treatment of metastatic castration-resistant prostate cancer. In addition, the European Commission approved the marketing authorizations for DACOGEN ® (decitabine) for the treatment of adult patients (age 65 years and above) with newly diagnosed de novo or secondary acute myeloid leukemia who are not candidates for standard induction chemotherapy, and for the subcutaneous administration of VELCADE ® (bortezomib) for the treatment of multiple myeloma.
The Company submitted several New Drug Applications, including an NDA to the FDA and Marketing Authorization Application (MAA) to the European Medicines Agency (EMA) seeking approval for the use of canagliflozin, an oral, once-daily, selective sodium glucose co-transporter 2 (SGLT2) inhibitor, for the treatment of adult patients with type 2 diabetes, and an NDA seeking approval for a fixed-dose therapy combining canagliflozin and immediate release metformin to treat patients with type 2 diabetes. Additional submissions included a supplemental Biologics License Application to the FDA and a Type II Variation to the EMA requesting approval of STELARA ® (ustekinumab) for the treatment of adult patients with active psoriatic arthritis, and a Biologics License Application to the FDA requesting approval of an investigational intravenous formulation of the anti-tumor necrosis factor (TNF)-alpha SIMPONI ® (golimumab) for the treatment of adults with moderately to severely active rheumatoid arthritis. In addition, a supplemental Biologics License Application was submitted to the FDA and a Type II Variation was submitted to the EMA requesting approval of SIMPONI ® (golimumab) for the treatment of moderately to severely active ulcerative colitis in adult patients who have had an inadequate response to conventional therapy including corticosteroids and 6‑mercaptopurine (6‑MP) or azathioprine (AZA), or who are intolerant to or have medical contraindications for such therapies. Finally, an MAA was submitted to the EMA seeking conditional approval for the use of bedaquiline (TMC207) as an oral treatment, to be used as part of combination therapy for pulmonary, multi-drug resistant tuberculosis in adults.
Pharmaceutical segment sales in 2011 were $24.4 billion, an increase of 8.8% from 2010, 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%.
Medical Devices and Diagnostics Segment
The Medical Devices and Diagnostics segment achieved sales of $27.4 billion in 2012, representing an increase of 6.4% over the prior year, with operational growth of 8.7% and a negative currency impact of 2.3%. U.S. sales were $12.4 billion, an increase of 8.7% as compared to the prior year. International sales were $15.1 billion, an increase of 4.5% over the prior year, with operational growth of 8.6% and a negative currency impact of 4.1%. The acquisition of Synthes, Inc., net of the related divestiture, increased both total sales growth and operational growth for the Medical Devices and Diagnostics segment by 7.9%.


                
JOHNSON & JOHNSON 2012 ANNUAL REPORT
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Major Medical Devices and Diagnostics Franchise Sales:*
 
 
 
 
 
 
 
 
% Change
(Dollars in Millions)
 
2012
 
2011
 
2010
 
’12 vs. ’11
 
’11 vs. ’10
Orthopaedics
 
$
7,799

 
5,809

 
5,585

 
34.3
 %
 
4.0

Surgical Care
 
6,483

 
6,637

 
6,272

 
(2.3
)
 
5.8

Vision Care
 
2,996

 
2,916

 
2,680

 
2.7

 
8.8

Diabetes Care
 
2,616

 
2,652

 
2,470

 
(1.4
)
 
7.4

Specialty Surgery
 
2,526

 
2,407

 
2,186

 
4.9

 
10.1

Diagnostics
 
2,069

 
2,164

 
2,053

 
(4.4
)
 
5.4

Cardiovascular Care
 
1,985

 
2,288

 
2,552

 
(13.2
)
 
(10.3
)
Infection Prevention/Other
 
952

 
906

 
803

 
5.1

 
12.8

Total Medical Devices and Diagnostics Sales
 
$
27,426

 
25,779

 
24,601

 
6.4
 %
 
4.8


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

The Orthopaedics franchise achieved sales of $7.8 billion in 2012, a 34.3% increase over the prior year. Growth was primarily due to sales of newly acquired products from Synthes, Inc., and sales of joint reconstruction and Mitek sports medicine products. Sales were impacted by the divestitures of the surgical instruments business of Codman & Shurtleff, Inc. in the fiscal fourth quarter of 2011, and the divestiture of certain rights and assets related to the DePuy trauma business. The positive impact on the Orthopaedics franchise total sales growth and operational growth due to the newly acquired products from Synthes, Inc. net of the related trauma business divestiture was 34.7%.
The Surgical Care franchise sales were $6.5 billion in 2012, a decrease of 2.3% from the prior year. Lower sales of mechanical, breast care and pelvic floor products were partially offset by increased sales of sutures and endoscopy products with the success of the ECHELON FLEX powered ENDOPATH ® Stapler.
The Vision Care franchise achieved sales of $3.0 billion in 2012, a 2.7% increase over the prior year. The growth was driven by ACUVUE ® TruEye ® , 1-DAY ACUVUE ® MOIST ® for Astigmatism and 1-DAY ACUVUE ® MOIST ® .
The Diabetes Care franchise sales were $2.6 billion, a decrease of 1.4% versus the prior year. Sales growth in Asia and Latin America was offset by the negative impact of currency.
The Specialty Surgery franchise achieved sales of $2.5 billion in 2012, a 4.9% increase over the prior year. Incremental sales from the acquisition of SterilMed Inc., sales of biosurgery products and international sales of energy products were the major contributors to the growth.
The Diagnostics franchise sales were $2.1 billion, a decline of 4.4% versus the prior year. The decline was primarily due to lower sales in donor screening due to competitive pressures, and the divestiture of the RhoGAM ® business during the third quarter of 2012. In January 2013, the Company announced it is exploring strategic alternatives for the Ortho-Clinical Diagnostics business, including a possible divestiture.
The Cardiovascular Care franchise sales were $2.0 billion, a decline of 13.2% versus the prior year. Sales were impacted by the Company’s decision to exit the drug-eluting stent market in the second quarter of 2011, and lower sales of endovascular products, impacted by competitive launches and a disruption in supply that was resolved late in the third quarter. The decline in sales was partially offset by strong growth in Biosense Webster's electrophysiology business primarily due to the success of the THERMOCOOL ® catheter launches.
The Infection Prevention/Other franchise achieved sales of $1.0 billion in 2012, a 5.1% increase over the prior year primarily due to growth in the advanced sterilization business.
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%.

Analysis of Consolidated Earnings Before Provision for Taxes on Income
Consolidated earnings before provision for taxes on income increased by $1.4 billion to $13.8 billion in 2012 as compared to $12.4 billion in 2011, an increase of 11.4%. Earnings before provision for taxes on income were favorable due to increased gross profit of $0.9 billion, a $0.1 billion decrease in selling, marketing and administrative expenses due to cost containment initiatives across many of the businesses, lower litigation expense of $2.1 billion and lower charges of $0.4 billion related to the DePuy ASR Hip program versus the prior year. This was partially offset by $2.1 billion of charges attributable to asset write-downs and impairment of in-process research and development, primarily related to the Crucell vaccine business and the discontinuation of the Phase III clinical development of bapineuzumab IV and $0.2 billion of integration and currency costs related to the acquisition of Synthes, Inc. versus the prior year. Included in 2011 was a $0.6 billion restructuring charge, net of

                
JOHNSON & JOHNSON 2012 ANNUAL REPORT
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inventory write-offs which are included in cost of products sold, related to the Cardiovascular Care business. Additionally, 2011 included higher gains from divestitures and other items of $0.3 billion, recorded in other (income) expense, net.
The 2011 decrease of 27.1% as compared to 2010 was primarily due to costs associated with litigation, which includes product liability, 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 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.
As a percent to sales, consolidated earnings before provision for taxes on income in 2012 was 20.5% versus 19.0% in 2011.
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
 
2012
 
2011
 
2010
Cost of products sold
 
32.2
%
 
31.3

 
30.5

Percent point increase over the prior year
 
0.9

 
0.8

 
0.7

Selling, marketing and administrative expenses
 
31.0

 
32.3

 
31.5

Percent point (decrease)/increase over the prior year
 
(1.3
)
 
0.8

 
(0.5
)

In 2012, cost of products sold as a percent to sales increased compared to the prior year. This was primarily the result of the amortization of the inventory step-up charge of $0.4 billion and amortization of intangibles related to the Synthes, Inc. acquisition of $0.3 billion and ongoing remediation costs in the McNeil OTC business. There was a decrease in the percent to sales of selling, marketing and administrative expenses in 2012 compared to the prior year primarily due to cost containment initiatives across many of the businesses. The prior year period included higher investment spending in the Pharmaceutical business for new products.
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 McNeil 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.

Research and Development Expense: Research and development expense by segment of business was as follows:
 
 
2012
 
2011
 
2010
(Dollars in Millions)
 
Amount
 
% of Sales*
 
Amount
 
% of Sales*
 
Amount
 
% of Sales*
Consumer
 
$
622

 
4.3
%
 
659

 
4.4

 
609

 
4.2

Pharmaceutical
 
5,362

 
21.2

 
5,138

 
21.1

 
4,432

 
19.8

Medical Devices and Diagnostics
 
1,681

 
6.1

 
1,751

 
6.8

 
1,803

 
7.3

Total research and development expense
 
$
7,665

 
11.4
%
 
7,548

 
11.6

 
6,844

 
11.1

Percent increase/(decrease) over the prior year
 
1.6
%
 
 

 
10.3

 
 

 
(2.0
)
 
 

As a percent to segment sales
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 2012, worldwide costs of research and development activities increased by 1.6% compared to 2011. The decrease in the Medical Devices and Diagnostics segment was primarily due to the discontinuation of the clinical development program for the NEVO™ Sirolimus-Eluting Coronary Stent.

In-Process Research and Development (IPR&D): In 2012, the Company recorded a charge of $1.2 billion, which included $0.7 billion for the impairment of the IPR&D related to the discontinuation of the Phase III clinical development of bapineuzumab IV and the partial impairment of the IPR&D related to the Crucell vaccine business in the amount of $0.4 billion. Of the $0.7 billion impairment of the IPR&D related to the discontinuation of the Phase III clinical development of bapineuzumab IV, $0.3 billion

                
JOHNSON & JOHNSON 2012 ANNUAL REPORT
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is attributable to noncontrolling interest. These charges relate to development projects which have been recently discontinued or delayed.

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; and litigation settlements. In 2012, the favorable change of $1.1 billion in other (income) expense, net, was primarily due to lower expenses of $2.1 billion related to litigation, including product liability, and $0.4 billion for costs related to the DePuy ASR Hip program. This was partially offset by $0.9 billion attributed to asset write-downs, primarily related to the Crucell vaccine business, and $0.2 billion of higher integration/transaction and currency costs related to the acquisition of Synthes, Inc.
In 2011, the unfavorable change of $3.5 billion in other (income) expense, net, was primarily due to net litigation, which includes product liability of $3.3 billion in 2011 as compared to a $0.4 billion net gain from litigation in 2010. Additionally, 2011 as compared to 2010 included higher expenses of $0.2 billion for costs related to the DePuy ASR Hip program and an adjustment of $0.5 billion to the value of the currency option and deal costs related to the acquisition of Synthes, Inc. Included in 2011 were higher gains on the divestitures of businesses of $0.6 billion as compared to 2010.
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 recorded a pre-tax charge of $0.7 billion, of which $0.1 billion was included in the cost of products sold. There was no restructuring charge in 2012. See Note 22 to the Consolidated Financial Statements for additional details related to the restructuring.
Interest (Income) Expense:   Interest income in 2012 decreased by $27 million as compared to the prior year due to lower rates of interest earned and lower average cash balances. Cash, cash equivalents and marketable securities totaled $21.1 billion at the end of 2012, and averaged $26.7 billion as compared to the $30.0 billion average cash balance in 2011. The decline in the average cash balance was due to the acquisition of Synthes, Inc. partially offset by cash generated from operating activities.
Interest expense in 2012 decreased by $39 million as compared to 2011 due to a lower average debt balance. The average debt balance was $17.9 billion in 2012 versus $18.2 billion in 2011. The total debt balance at the end of 2012 was $16.2 billion as compared to $19.6 billion at the end of 2011. The reduction in debt of approximately $3.4 billion was primarily due to a reduction in commercial paper.
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.
Segment Pre-Tax Profit
Pre-tax profits by segment of business were as follows:
 
 
 
 
 
 
Percent of Segment Sales
(Dollars in Millions)
 
2012
 
2011
 
2012
 
2011
Consumer
 
$
1,693

 
2,096

 
11.7
%
 
14.1
Pharmaceutical
 
6,075

 
6,406

 
24.0

 
26.3
Medical Devices and Diagnostics
 
7,187

 
5,263

 
26.2

 
20.4
Total (1)
 
14,955

 
13,765

 
22.2

 
21.2
Less: Expenses not allocated to segments (2)
 
1,180

 
1,404

 
 

 
 
Earnings before provision for taxes on income
 
$
13,775

 
12,361

 
20.5
%
 
19.0


(1)  
See Note 18 to the Consolidated Financial Statements for more details.
(2)  
Amounts not allocated to segments include interest (income) expense, noncontrolling interests, and general corporate (income) expense. A $0.2 billion and $0.5 billion currency related expense for the acquisition of Synthes, Inc. was included in 2012 and 2011, respectively.

                
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Consumer Segment:   In 2012, Consumer segment pre-tax profit as a percent to sales was 11.7% versus 14.1%, in 2011. Pre-tax profit was unfavorably impacted by $0.3 billion attributed to intangible asset write-downs and approximately $0.3 billion due to unfavorable product mix and remediation costs associated with the McNEIL-PPC, Inc. consent decree. This was partially offset by cost containment initiatives realized in selling, marketing and administrative expenses. In addition, 2011 included higher gains on divestitures. In 2011, Consumer segment pre-tax 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 ® .
Pharmaceutical Segment:   In 2012, Pharmaceutical segment pre-tax profit as a percent to sales was 24.0% versus 26.3%, in 2011. Pre-tax profit was unfavorably impacted by charges of $1.6 billion attributed to the write-down of assets and impairment of in-process research and development assets, related to the Crucell vaccine business, and to the discontinuation of the Phase III clinical development of bapineuzumab IV. This was partially offset by lower litigation expense of $1.1 billion versus the prior year and favorable operating expenses of $0.3 billion. Additionally, 2012 included the gain on the divestiture of BYSTOLIC ® (nebivolol) IP rights. In 2011, Pharmaceutical segment pre-tax profit decreased 9.6% from 2010. The primary drivers of the decrease in the pre-tax 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.
Medical Devices and Diagnostics Segment:   In 2012, Medical Devices and Diagnostics segment pre-tax profit as a percent to sales was 26.2% versus 20.4%, in 2011. The Medical Devices and Diagnostics segment pre-tax profit was favorably impacted by profits from Synthes sales, lower expenses of $1.4 billion for litigation, including product liability, and the DePuy ASR™ Hip program and $0.1 billion for research & development primarily due to the discontinuation of its clinical development program for the NEVO™ Sirolimus-Eluting Coronary Stent. This was partially offset by an increase in integration costs and amortization of the inventory step-up of $0.8 billion associated with the acquisition of Synthes, Inc. and $0.1 billion attributed to the write-down of intangible assets. In addition, 2012 included higher gains on divestitures versus the prior year due to the divestitures of the Therakos business and RhoGAM ® . Additionally, 2011 included a $0.7 billion restructuring charge related to the discontinuation of the clinical development program for the NEVO™ Sirolimus-Eluting Coronary Stent. In 2011, Medical Devices and Diagnostics segment pre-tax profit decreased 36.4% from 2010. The primary drivers of the decline in the pre-tax profit margin in the Medical Devices and Diagnostics segment were litigation expenses, including product liability, costs associated with the DePuy ASR™ Hip program, restructuring expense, costs incurred related to the acquisition of Synthes, Inc. and increased investment spending.

Provision for Taxes on Income:   The worldwide effective income tax rate was 23.7% in 2012 , 21.8% in 2011 and 21.3% in 2010 . The increase in the 2012 effective tax rate of 1.9% as compared to 2011 was due to lower tax benefits on the impairment of in-process research and development intangible assets in low tax jurisdictions, increases in taxable income in higher tax jurisdictions relative to lower tax jurisdictions and the exclusion of the benefit of the U.S. Research & Development (R&D) tax credit and the CFC look-through provisions from the 2012 fiscal year financial results. The R&D tax credit and the CFC look-through provisions were enacted into law in 2013 and were retroactive to January 1, 2012. The entire benefit of the R&D tax credit and the CFC look-through provisions will be reflected in the 2013 fiscal year financial results.
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.

Noncontrolling Interest: A charge of $0.7 billion for the impairment of the IPR&D related to the discontinuation of the Phase III clinical development of bapineuzumab IV was recorded in 2012. Of the $0.7 billion impairment, $0.3 billion is attributable to noncontrolling interest.

Liquidity and Capital Resources
Liquidity & Cash Flows
Cash and cash equivalents were $14.9 billion at the end of 2012 as compared with $24.5 billion at the end of 2011. The primary uses of cash that contributed to the $9.6 billion decrease versus the prior year were approximately $4.5 billion net cash used by investing activities and $20.6 billion net cash used by financing activities partially offset by $15.4 billion of cash generated from operating activities.
Cash flow from operations of $15.4 billion was the result of $10.5 billion of net earnings and $6.9 billion of non-cash charges primarily related to depreciation and amortization, asset write-downs (primarily in-process research and development), stock-based compensation, noncontrolling interest and deferred tax provision reduced by $2.0 billion related to changes in assets and liabilities, net of effects from acquisitions.
Investing activities use of $4.5 billion was primarily for $2.9 billion for additions to property, plant and equipment and acquisitions, net of cash acquired of $4.5 billion partially offset by net sales of investments in marketable securities of

                
JOHNSON & JOHNSON 2012 ANNUAL REPORT
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$1.4 billion and $1.5 billion of proceeds from the disposal of assets.
Financing activities use of $20.6 billion was for the repurchase of common stock of $12.9 billion primarily for the acquisition of Synthes, Inc., dividends to shareholders of $6.6 billion and net retirement of short and long-term debt of $3.7 billion, partially offset by $2.7 billion of net proceeds from stock options exercised/excess tax benefits.
In 2012, 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 2013.
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 $2.1 billion as of December 30, 2012 and approximately $2.4 billion as of January 1, 2012. Approximately $1.2 billion as of December 30, 2012 and approximately $1.4 billion as of January 1, 2012 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 health care 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 $0.9 billion at December 30, 2012 and $1.0 billion at January 1, 2012. 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 on payment plans, 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 December 30, 2012 market rates would increase the unrealized value of the Company’s forward contracts by $91 million. Conversely, a 10% depreciation of the U.S. Dollar from the December 30, 2012 market rates would decrease the unrealized value of the Company’s forward contracts by $112 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 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 $190 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 2012, the Company secured a new 364-day Credit Facility. Total credit available to the Company approximates $10 billion, which expires on September 19, 2013. 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 2012 and 2011 were $16.2 billion and $19.6 billion, respectively. The reduction in debt in 2012 of approximately $3.4 billion was primarily due to a reduction in commercial paper.
In 2012, net cash (cash and current marketable securities, net of debt) was $4.9 billion compared to net cash of $12.6 billion in 2011. Total debt represented 20.0% of total capital (shareholders’ equity and total debt) in 2012 and 25.6% of total capital in 2011. Shareholders’ equity per share at the end of 2012 was $23.33 compared to $20.95 at year-end 2011 , an

                
JOHNSON & JOHNSON 2012 ANNUAL REPORT
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increase of 11.4%.
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. There are 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 December 30, 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
2013
 
$
1,512

 
497

 
68

 
251

 
2,328

2014
 
1,789

 
483

 
66

 
192

 
2,530

2015
 

 
477

 
71

 
149

 
697

2016
 
898

 
471

 
76

 
115

 
1,560

2017
 
1,000

 
436

 
80

 
90

 
1,606

After 2017
 
7,802

 
4,232

 
502

 
128

 
12,664

Total
 
$
13,001

 
6,596

 
863

 
925

 
21,385


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.
Pursuant to the accelerated stock repurchase agreements in connection with the acquisition of Synthes, Inc., the Company has not made any purchases of Common Stock on the open market during the fiscal third and fourth quarters of 2012.

The Company increased its dividend in 2012 for the 50th consecutive year. Cash dividends paid were $2.40 per share in 2012 compared with dividends of $2.25 per share in 2011 , and $2.11 per share in 2010 . The dividends were distributed as follows:
 
2012
 
2011
 
2010
First quarter
$
0.57

 
0.54

 
0.49

Second quarter
0.61

 
0.57

 
0.54

Third quarter
0.61

 
0.57

 
0.54

Fourth quarter
0.61

 
0.57

 
0.54

Total
$
2.40

 
2.25

 
2.11

On January 2, 2013, the Board of Directors declared a regular quarterly cash dividend of $0.61 per share, payable on March 12, 2013, to shareholders of record as of February 26, 2013. 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

                
JOHNSON & JOHNSON 2012 ANNUAL REPORT
12
                                



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 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 fiscal reporting years 2012 , 2011 and 2010 .
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. Amounts due from collaborative partners for these arrangements are 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 over the performance 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 December 30, 2012 and January 1, 2012 .


















                
JOHNSON & JOHNSON 2012 ANNUAL REPORT
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Consumer Segment
(Dollars in Millions)
 
Balance at
Beginning of Period
 
Accruals
 
Payments/Credits
 
Balance at
End of Period
2012
 
 

 
 

 
 

 
 

Accrued rebates (1)
 
$
127

 
438

 
(433
)
 
132

Accrued returns
 
114

 
131

 
(137
)
 
108

Accrued promotions
 
240

 
1,392

 
(1,351
)
 
281

Subtotal
 
$
481

 
1,961

 
(1,921
)
 
521

Reserve for doubtful accounts
 
43

 
6

 
(11
)
 
38

Reserve for cash discounts
 
22

 
214

 
(215
)
 
21

Total
 
$
546

 
2,181

 
(2,147
)
 
580

 
 
 
 
 
 
 
 
 
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


(1)  
Includes reserve for customer rebates of $33 million at December 30, 2012 and $34 million at January 1, 2012, recorded as a contra asset.
Pharmaceutical Segment
(Dollars in Millions)
 
Balance at
Beginning of Period
 
Accruals
 
Payments/Credits
 
Balance at
End of Period
2012
 
 

 
 

 
 

 
 

Accrued rebates (1)
 
$
1,591

 
4,732

 
(4,556
)
 
1,767

Accrued returns
 
384

 
49

 
(36
)
 
397

Accrued promotions
 
83

 
142

 
(131
)
 
94

Subtotal
 
$
2,058

 
4,923

 
(4,723
)
 
2,258

Reserve for doubtful accounts
 
157

 
47

 
(13
)
 
191

Reserve for cash discounts
 
45

 
425

 
(408
)
 
62

Total
 
$
2,260

 
5,395

 
(5,144
)
 
2,511

 
 
 
 
 
 
 
 
 
2011
 
 

 
 

 
 

 
 

Accrued rebates (1)
 
$
1,520

 
4,732

 
(4,661
)
 
1,591

Accrued returns
 
294