Johnson & Johnson
JOHNSON & JOHNSON (Form: 10-K, Received: 02/21/2014 14:30:22)

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 29, 2013
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
ALZA Corp Zero Coupon LYON Due July 2014
4.75% Notes Due November 2019
5.50% Notes Due November 2024
 
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
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 $242 billion.
On February 18, 2014, there were 2,828,901,694 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 2013 (the “Annual Report”).
Parts I and III:
 
Portions of registrant’s proxy statement for its 2014 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
 
 
 
 
 
 
 
 
 
 
 
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 128,100 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. Within the strategic parameters provided by the Committee, 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 fields, as well as nutritionals, 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 ® ; DABAO ; JOHNSON’S ® Adult; LUBRIDERM ® ; NEUTROGENA ® ; RoC ® ; and VENDÔME ® product lines. Brands in the Oral Care franchise include the LISTERINE ® oral care lines. The Wound Care franchise includes BAND-AID ® Brand Adhesive Bandages and NEOSPORIN ® First Aid products. Major brands in the Women’s Health franchise outside of North America are STAYFREE ® and CAREFREE ® sanitary pad and o.b. ® tampon brands. 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 ® line of heartburn products. 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, cardiovascular, contraceptive, gastrointestinal, hematology, immunology, infectious diseases, metabolic, neurology, oncology, pain management 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; SIMPONI ® (golimumab), a treatment for adults with moderate to severe rheumatoid arthritis, active psoriatic arthritis, active ankylosing spondylitis and moderately active to severely active ulcerative colitis; STELARA ® (ustekinumab), a treatment for adults with moderate to severe plaque psoriasis and active psoriatic arthritis; INCIVO ® (telaprevir), for the treatment of hepatitis C; INTELENCE ® (etravirine) and PREZISTA ® (darunavir), treatments for HIV/AIDS; CONCERTA ® (methylphenidate HCl) extended-release tablets CII, a treatment for attention deficit hyperactivity disorder; INVEGA ® (paliperidone) extended-release tablets, for the treatment of schizophrenia and schizoaffective disorder; INVEGA ® SUSTENNA ® /XEPLION ® (paliperidone palmitate), for the treatment of schizophrenia in adults; RISPERDAL ® CONSTA ® (risperidone), for the treatment of schizophrenia and for the maintenance treatment of Bipolar I Disorder; VELCADE ® (bortezomib), a treatment for multiple myeloma; ZYTIGA ® (abiraterone acetate), a treatment for metastatic castration-resistant prostate cancer; ACIPHEX ® /PARIET ® , a proton pump inhibitor co-marketed with Eisai Inc.; PROCRIT ® (epoetin alfa, sold outside the U.S. as EPREX ® ), to stimulate red blood cell production; and XARELTO ®   (rivaroxaban), an oral anticoagulant for the prevention of deep vein thrombosis (DVT), which may lead to pulmonary embolism (PE) in patients undergoing hip or knee replacement surgery, to reduce the risk of stroke and systemic embolism in patients with nonvalvular atrial fibrillation, for the treatment of DVT and PE, and for the reduction in the risk of recurrence of DVT and PE.

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Medical Devices and Diagnostics
The Medical Devices and Diagnostics segment includes a broad range of products distributed to wholesalers, hospitals and retailers, used principally in the professional fields by physicians, nurses, 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.
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 9.4% of the Company's total revenues for fiscal 2013. Accordingly, the patents related to this product are believed to be material to the Company.

There are two sets of patents related to REMICADE ® (infliximab). The first set of patents is co-owned by Janssen Biotech, Inc., a wholly-owned subsidiary of Johnson & Johnson, and New York University Medical Center (NYU). Janssen Biotech, Inc. has an exclusive license to NYU's interests in the patents. Patents have been granted in the United States, certain countries in the European Union (certain of these patents have been extended by Supplementary Patent Certificates), and Australia. In the United States, the patent expires in September 2018.  These patents expired in Canada in March 2012. In certain countries in Europe the patent has been extended to February 2015 (Germany, Spain, United Kingdom, Sweden, Austria, Belgium, Switzerland, Denmark, France, Greece, Italy, Luxembourg and the Netherlands). In Australia, the patent expires in March 2017.  
 
The second set of patents related to REMICADE ® was granted to the Kennedy Institute of Rheumatology in the United Kingdom in Europe, Canada, Australia and the United States. Janssen Biotech, Inc. has an exclusive license to these patents which expire in 2017 outside of the United States and 2018 in the United States. The validity of these patents has been
challenged and is currently in litigation.
 
Loss of exclusivity for REMICADE ® in the above-mentioned markets may result in a reduction in sales. Johnson & Johnson does not expect that any additional extensions will be available for the patents related to REMICADE ® .

In addition to competing in the immunology market with REMICADE ® , the Company is currently marketing STELARA ® (ustekinumab), SIMPONI ® (golimumab) and SIMPONI ® ARIA™ (golimumab), next generation immunology products with remaining patent lives of 10 years.

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.


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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. In addition, the development and maintenance of customer demand for the Company’s consumer products involves significant expenditures for advertising and promotion.
Research and Development
Research activities represent a significant part of 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 $8.2 billion, $7.7 billion and $7.5 billion for fiscal years 2013, 2012 and 2011, 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 generally.
Following 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.


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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/sec-filings.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 www.investor.jnj.com/governance/materials.cfm on the Company's website and will be provided without charge to any shareholder submitting a written request, as provided above. The information on the Company’s website is not, and will not be deemed, a part of this Report on Form 10-K or incorporated into any other filings the Company makes with the SEC.
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 144 manufacturing facilities occupying approximately 21.7 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
 
7,104

Pharmaceutical
 
7,069

Medical Devices and Diagnostics
 
7,500

Worldwide Total
 
21,673

Within the United States, eight facilities are used by the Consumer segment, eight by the Pharmaceutical segment and 34 by the Medical Devices and Diagnostics segment. The Company’s manufacturing operations outside the United States are often conducted in facilities that serve more than one business segment. The locations of the manufacturing facilities by major geographic areas of the world are as follows:
Geographic Area
 
Number of Facilities
 
Square Feet
(in thousands)
United States
 
50

 
6,510

Europe
 
43

 
7,979

Western Hemisphere, excluding U.S. 
 
15

 
2,886

Africa, Asia and Pacific
 
36

 
4,298

Worldwide Total
 
144

 
21,673

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.

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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 U.S. Food and Drug Administration (FDA), which governs certain McNeil Consumer Healthcare manufacturing operations.  McNeil continues to operate the manufacturing facilities in Las Piedras, Puerto Rico and Lancaster, Pennsylvania and has made significant progress, having met the remediation commitments at those facilities.  The Company also successfully reintroduced many products previously made in Fort Washington, Pennsylvania, from other sites.  Plants operating under the consent decree will continue to produce a simplified portfolio focused on key brands. The Fort Washington manufacturing site is not in operation at this time and the Company recently made the decision to make further investments in that facility prior to certification. A discussion of this matter can be found under the heading “Government Proceedings - McNeil Consumer Healthcare” in Note 21 “Legal Proceedings” under “Notes to the Consolidated Financial Statements” of the Annual Report, filed as Exhibit 13 to this Report on Form 10-K.
For information regarding lease obligations, see Note 16 “Rental Expense and Lease Commitments” under “Notes to Consolidated Financial Statements” of the Annual Report, filed as Exhibit 13 to this Report on Form 10-K. Segment information on additions to property, plant and equipment is contained in Note 18 “Segments of Business and Geographic Areas” under “Notes to Consolidated Financial Statements” of the Annual Report, filed as Exhibit 13 to this Report on Form 10-K.
Item 3.
LEGAL PROCEEDINGS
The following information is incorporated by reference: the information set forth in Note 21 “Legal Proceedings” under “Notes to Consolidated Financial Statements” of the Annual Report 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 has reached an agreement in principal with the Department to resolve this matter. The Company does not expect the resolution of this matter to have a material adverse impact on the Company.
Item 4.
MINE SAFETY DISCLOSURES
Not applicable.
EXECUTIVE OFFICERS OF THE REGISTRANT
Listed below are the executive officers of the Company as of February 21, 2014. 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
 
56
 
Member, Executive Committee; Vice President, Finance; Chief Financial Officer(a)
Peter M. Fasolo
 
51
 
Member, Executive Committee; Vice President, Global Human Resources(b)
Alex Gorsky
 
53
 
Chairman, Board of Directors; Chairman, Executive Committee; Chief Executive Officer
Sandra E. Peterson
 
55
 
Member, Executive Committee; Group Worldwide Chairman(c)
Paulus Stoffels
 
52
 
Member, Executive Committee; Chief Scientific Officer; Worldwide Chairman, Pharmaceuticals Group(d)
Michael H. Ullmann
 
55
 
Member, Executive Committee; Vice President, General Counsel(e)
_______________________________________

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(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 2010 as the Vice President, Global Human Resources, and in 2011, he became a Member of the Executive Committee.
(c)
Ms. S. E. Peterson joined the Company in 2012 as Group Worldwide Chairman and a Member of the Executive Committee, with responsibility for the Consumer Group of Companies, consumer-directed medical device businesses, Johnson & Johnson Vision Care and Johnson & Johnson Diabetes Care franchises, and functions such as Johnson & Johnson Supply Chain, Information Technology, Wellness and Prevention and Global Strategic Design. 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 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 Central Nervous System 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 the Company's therapeutic pipeline through global research and development and strategic business development. In 2012, Dr. Stoffels was also appointed Chief Scientific Officer, with responsibility for enterprise-wide innovation and product safety, 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 2012.
PART II
Item 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
As of February 18, 2013, there were 165,304 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 — 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.

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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 2013. Common Stock purchases on the open market are made as part of a systematic plan to meet the needs of the Company’s compensation programs. The repurchases below also include 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
September 30, 2013 through October 27, 2013
 
693,733

 
$
88.12

 
-
 
-
October 28, 2013 through November 24, 2013
 
1,929,925

 
92.95

 
-
 
-
November 25, 2013 through December 29, 2013
 
2,728,307

 
94.07

 
-
 
-
Total
 
5,351,965

 
 
 
 
 
 
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 2003-2013” 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.
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

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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 29, 2013, 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 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 - 2013," "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.




8

Table of Contents

Equity Compensation Plan Information
The following table provides certain information as of December 29, 2013 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 (2)(3)
Equity Compensation Plans Approved by Security Holders (1)
151,707,900

 

$50.99

 
583,022,234

Equity Compensation Plans Not Approved by Security Holders
-

 
-

 
-

Total
151,707,900

 

$50.99

 
583,022,234

_______________________________________
(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)  
This column excludes shares reflected under the column “Number of Securities to be Issued Upon Exercise of Outstanding Options and Rights.”
(3)  
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.
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.


9

Table of Contents


PART IV
Item 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following documents are filed as part of this report:
1.  Financial Statements
The following Audited Consolidated Financial Statements and Notes thereto and the material under the caption “Report of Independent Registered Public Accounting Firm” 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 2013 and 2012
Consolidated Statements of Earnings for Fiscal Years 2013, 2012 and 2011
Consolidated Statements of Comprehensive Income for Fiscal Years 2013, 2012 and 2011
Consolidated Statements of Equity for Fiscal Years 2013, 2012 and 2011
Consolidated Statements of Cash Flows for Fiscal Years 2013, 2012 and 2011
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.



10

Table of Contents


JOHNSON & JOHNSON AND SUBSIDIARIES

SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS

Fiscal Years Ended December 29, 2013, December 30, 2012 and January 1, 2012
(Dollars in Millions)

 
Balance at
Beginning of
Period
 
Accruals
 
Payments/Other
 
Balance at
End of
Period
2013
 
 
 
 
 
 
 
Accrued Rebates (1)
$
2,466

 
10,559

 
(10,102
)
 
2,923

Accrued Returns
710

 
480

 
(558
)
 
632

Accrued Promotions
435

 
1,619

 
(1,571
)
 
483

Subtotal
$
3,611

 
12,658

 
(12,231
)
 
4,038

Reserve for doubtful accounts
466

 
53

 
(186
)
 
333

Reserve for cash discounts
105

 
1,097

 
(1,099
)
 
103

Total
$
4,182

 
13,808

 
(13,516
)
 
4,474

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

_______________________________________
(1)  
Includes reserve for customer rebates of $730 million, $642 million and $656 million at December 29, 2013, December 30, 2012 and January 1, 2012, respectively, recorded as a contra asset.




11

Table of Contents


SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: February 21, 2014
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, 2014
A. Gorsky
 
Chief Executive Officer, and Director (Principal Executive Officer)
 
 
 
 
 
 
 
/s/  D. J. Caruso
 
Chief Financial Officer (Principal Financial Officer)
 
February 21, 2014
D. J. Caruso
 
 
 
 
 
 
 
 
 
/s/  S. J. Cosgrove
 
Controller (Principal Accounting Officer)
 
February 21, 2014
S. J. Cosgrove
 
 
 
 
 
 
 
 
 
/s/  M. S. Coleman
 
Director
 
February 21, 2014
M. S. Coleman
 
 
 
 
 
 
 
 
 
/s/  J. G. Cullen
 
Director
 
February 21, 2014
J. G. Cullen
 
 
 
 
 
 
 
 
 
/s/  I. E. L. Davis
 
Director
 
February 21, 2014
I. E. L. Davis
 
 
 
 
 
 
 
 
 
/s/  M. M. E. Johns
 
Director
 
February 21, 2014
M. M. E. Johns
 
 
 
 

12

Table of Contents

Signature
 
Title
 
Date
 
 
 
 
 
/s/  S. L. Lindquist
 
Director
 
February 21, 2014
S. L. Lindquist
 
 
 
 
 
 
 
 
 
/s/ M. B. McClellan
 
Director
 
February 21, 2014
M. B. McClellan
 
 
 
 
 
 
 
 
 
/s/  A. M. Mulcahy
 
Director
 
February 21, 2014
A. M. Mulcahy
 
 
 
 
 
 
 
 
 
/s/  L. F. Mullin
 
Director
 
February 21, 2014
L. F. Mullin
 
 
 
 
 
 
 
 
 
/s/  W. D. Perez
 
Director
 
February 21, 2014
W. D. Perez
 
 
 
 
 
 
 
 
 
/s/  C. Prince
 
Director
 
February 21, 2014
C. Prince
 
 
 
 
 
 
 
 
 
/s/  A. E. Washington
 
Director
 
February 21, 2014
A. E. Washington
 
 
 
 
 
 
 
 
 
/s/  R. A. Williams
 
Director
 
February 21, 2014
R. A. Williams
 
 
 
 


13

Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors of
Johnson & Johnson:
Our audits of the consolidated financial statements and of the effectiveness of internal control over financial reporting referred to in our report dated February 21, 2014 appearing in the 2013 Annual Report to Shareholders of Johnson & Johnson (which report and consolidated financial statements are incorporated by reference in this Annual Report on Form 10-K) also included an audit of the financial statement schedule listed in Item 15(a)(2) of this Form 10-K. In our opinion, this financial statement schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements.


/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
New York, New York
February 21, 2014



14

Table of Contents

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.*

15

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)
 
Johnson & Johnson Retirement Savings Plan, Johnson & Johnson Savings Plan for Union Represented Employees, and Johnson & Johnson Savings Plan - Incorporated herein by reference to Exhibits 99.1, 99.2 and 99.3 of the Registrant's Form S-8 filed with the Commission on May 6, 2013.*
10(t)
 
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(u)
 
Summary of Employment Arrangements for Sandra E. Peterson — Incorporated herein by reference to Exhibit 10(t) of the Registrant's Form 10-K Annual Report for the year ended December 30, 2012.*
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 2013, 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 2003 - 2013”; 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 29, 2013, 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.


16


EXHIBIT 12
JOHNSON & JOHNSON AND SUBSIDIARIES
STATEMENT OF COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (1)  
(Dollars in Millions)
 
Fiscal Year Ended
 
December 29, 2013
 
December 30, 2012
 
January 1, 2012
 
January 2, 2011
 
January 3, 2010
 
Determination of Earnings:
 
 
 
 
 
 
 

 
 

 
Earnings Before Provision for Taxes on Income
$
15,471

 
$
13,775

 
$
12,361

 
$
16,947

 
$
15,755

 
Fixed Charges, less Capitalized Interest
603

 
657

 
675

 
555

 
558

 
Total Earnings as Defined
$
16,074

 
$
14,432

 
$
13,036

 
$
17,502

 
$
16,313

 
Fixed Charges:
 
 
 
 
 
 
 

 
 

 
Estimated Interest Portion of Rent Expense
121

 
125

 
104

 
100

 
107

 
Interest Expense before Capitalization of Interest
587

 
647

 
655

 
528

 
552

 
Total Fixed Charges
$
708

 
$
772

 
$
759

 
$
628

 
$
659

 
Ratio of Earnings to Fixed Charges
22.70

 
18.69

 
17.18

 
27.87

 
24.75

 
_______________________________________
(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 2013 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 128,100 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 nutritionals, 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, cardiovascular, contraceptive, gastrointestinal, hematology, immunology, infectious diseases, metabolic, neurology, oncology, pain management 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. 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 with Our Credo as the foundation. The Company believes that our strategic operating principles; being broadly based in human health care, managing the business for the long term, a decentralized management approach and commitment to our people and values are required to successfully meet the demands of the rapidly evolving markets in which we compete. To this end, management is focused on our growth drivers: creating value through innovation, expanding our global reach with a local focus, excellence in execution and leading with purpose.
The Company engages in areas of human health care where there is an opportunity to make a meaningful difference, and is committed to creating value by developing broadly accessible, high quality, innovative products and services. New products introduced within the past five years accounted for approximately 25% of 2013 sales. In 2013, $8.2 billion, or 11.5% of sales, was invested in research and development, reflecting management’s commitment to delivering new and differentiated products and services to meet evolving health care needs and sustain the Company’s long-term growth.
Our diverse businesses with more than 275 operating companies located in 60 countries are the key drivers of the Company’s success. Maintaining the Company’s decentralized management approach while at the same time leveraging the extensive resources of the enterprise uniquely positions the Company to innovate, execute and reach markets globally, while focusing on the needs and challenges of the local markets.
In order to remain a leader in health care the Company strives to maintain a purpose-driven organization and is committed to developing global business leaders who can achieve these growth objectives. Businesses are managed for the long-term in order to sustain market leadership positions and enable growth, which provides an enduring source of value to our shareholders.
Our Credo unifies all Johnson & Johnson employees in achieving these objectives, and provides a common set of values that serve as the foundation of the Company’s responsibilities to its customers, employees, communities and shareholders. The Company believes that these basic principles and growth drivers, along with its overall mission of improving the quality of life for people across the globe, will enable Johnson & Johnson to continue to be a leader in the health care industry.


                
JOHNSON & JOHNSON 2013 ANNUAL REPORT
2
                                



Results of Operations
Analysis of Consolidated Sales
In 2013, worldwide sales increased 6.1% to $71.3 billion, compared to increases of 3.4% in 2012 and 5.6% in 2011. These sales changes consisted of the following:
Sales increase/(decrease) due to:
 
2013
 
2012
 
2011
Volume
 
7.6
%
 
5.7

 
3.1

Price
 
0.1

 
0.4

 
(0.3
)
Currency
 
(1.6
)
 
(2.7
)
 
2.8

Total
 
6.1
%
 
3.4

 
5.6


Sales by U.S. companies were $31.9 billion in 2013, $29.8 billion in 2012 and $28.9 billion in 2011. This represents increases of 7.0% in 2013 and 3.2% in 2012, and a decrease of 1.8% in 2011. Sales by international companies were $39.4 billion in 2013, $37.4 billion in 2012 and $36.1 billion in 2011. This represents increases of 5.4% in 2013, 3.5% in 2012 and 12.4% in 2011. The acquisition of Synthes, Inc., net of the related divestiture, increased both total worldwide sales growth and operational growth by 2.5% and 3.1% in 2013 and 2012, respectively.
The five-year compound annual growth rates for worldwide, U.S. and international sales were 2.3%, (0.2)% and 4.6%, respectively. The ten-year compound annual growth rates for worldwide, U.S. and international sales were 5.5%, 2.4% and 9.0%, respectively.
Sales in Europe achieved growth of 9.8% as compared to the prior year, including operational growth of 7.7% and a positive currency impact of 2.1%. Sales in the Western Hemisphere (excluding the U.S.) achieved growth of 3.0% as compared to the prior year, including operational growth of 8.9% and a negative currency impact of 5.9%. Sales in the Asia-Pacific, Africa region achieved growth of 1.1% as compared to the prior year, including operational growth of 8.6% and a negative currency impact of 7.5%.
In 2013, 2012 and 2011, 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 2013, the Company began paying a tax deductible 2.3% excise tax imposed on the sale of certain medical devices. The 2013 full-year impact of the excise tax was approximately $200 million.


                
JOHNSON & JOHNSON 2013 ANNUAL REPORT
3
                                



Analysis of Sales by Business Segments
Consumer Segment
Consumer segment sales in 2013 were $14.7 billion, an increase of 1.7% from 2012, which included 2.8% operational growth and a negative currency impact of 1.1%. U.S. Consumer segment sales were $5.2 billion, an increase of 2.3%. International sales were $9.5 billion, an increase of 1.4%, which included 3.1% operational growth and a negative currency impact of 1.7%.
Major Consumer Franchise Sales:*
 
 
 
 
 
 
 
 
% Change
(Dollars in Millions)
 
2013
 
2012
 
2011
 
’13 vs. ’12
 
’12 vs. ’11
OTC
 
$
4,028

 
3,766

 
3,740

 
7.0
 %
 
0.7

Skin Care
 
3,704

 
3,618

 
3,715

 
2.4

 
(2.6
)
Baby Care
 
2,295

 
2,254

 
2,340

 
1.8

 
(3.7
)
Oral Care
 
1,622

 
1,624

 
1,624

 
(0.1
)
 
0.0
Women’s Health
 
1,568

 
1,625

 
1,792

 
(3.5
)
 
(9.3
)
Wound Care/Other
 
1,480

 
1,560

 
1,672

 
(5.1
)
 
(6.7
)
Total Consumer Sales
 
$
14,697

 
14,447

 
14,883

 
1.7
 %
 
(2.9
)

* Prior year amounts have been reclassified to conform to current year presentation. Nutritionals, previously included in OTC, is included in Wound Care/Other.

The Over-the-Counter (OTC) franchise achieved sales of $4.0 billion, an increase of 7.0% from 2012. Strong U.S. sales growth of 19.7% was driven by analgesics and upper respiratory products, primarily due to continued progress in returning a reliable supply of products to the marketplace.
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 operate the manufacturing facilities in Las Piedras, Puerto Rico and Lancaster, Pennsylvania and has made significant progress; having met the remediation commitments at those facilities.  The Company also successfully reintroduced many products previously made in Fort Washington, Pennsylvania, from other sites.  Plants operating under the consent decree will continue to produce a simplified portfolio focused on key brands. The Fort Washington manufacturing site is not in operation at this time and the Company recently made the decision to make further investments in that facility prior to certification. 
The Skin Care franchise achieved sales of $3.7 billion, an increase of 2.4% as compared to the prior year, primarily due to strong results from the NEUTROGENA ® , AVEENO ® and Dabao product lines. The Baby Care franchise sales grew to $2.3 billion, an increase of 1.8% from 2012. Growth was primarily due to sales of haircare and baby cleansers outside the U.S. and newly acquired products from the acquisition of Shanghai Elsker Mother & Baby Co., Ltd. The Oral Care franchise sales were flat as compared to the prior year. Increased sales of LISTERINE ® outside the U.S. were partially offset by the impact of the divestiture of the manual toothbrush product line in the U.S. The Women’s Health franchise sales were $1.6 billion, a decrease of 3.5% primarily due to the divestiture of women's sanitary protection products in the U.S., Canada and Caribbean. The Wound Care/Other franchise sales were $1.5 billion in 2013, a decrease of 5.1% from 2012 due to competitive pressures and the impact of divestitures.
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%.


                
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Pharmaceutical Segment
The Pharmaceutical segment achieved sales of $28.1 billion in 2013, representing an increase of 10.9% over the prior year, with strong operational growth of 12.0% and a negative currency impact of 1.1%. U.S. sales were $13.9 billion, an increase of 12.3%. International sales were $14.2 billion, an increase of 9.6%, which included 11.8% operational growth and a negative currency impact of 2.2%. The Pharmaceutical segment operational growth was impacted by 0.8% in 2013 due to a positive adjustment to previous estimates for Managed Medicaid rebates.

Major Pharmaceutical Therapeutic Area Sales: *
 
 
 
 
 
 
 
 
% Change
(Dollars in Millions)
 
2013
 
2012
 
2011
 
’13 vs. ’12
 
’12 vs. ’11
Total Immunology
 
$
9,190

 
7,874

 
6,798

 
16.7
 %
 
15.8

     REMICADE ®
 
6,673

 
6,139

 
5,492

 
8.7

 
11.8

     SIMPONI ®
 
932

 
607

 
410

 
53.5

 
48.0

     STELARA ®
 
1,504

 
1,025

 
738

 
46.7

 
38.9

     Other Immunology
 
81

 
103

 
158

 
(21.4
)
 
(34.8
)
Total Infectious Diseases
 
3,550

 
3,194

 
3,189

 
11.1

 
0.2

     INCIVO ®
 
517

 
443

 
82

 
16.7

 
**
     INTELENCE ®
 
379

 
349

 
314

 
8.6

 
11.1

     PREZISTA ®
 
1,673

 
1,414

 
1,211

 
18.3

 
16.8

     Other Infectious Diseases
 
981

 
988

 
1,582

 
(0.7
)
 
(37.5
)
Total Neuroscience
 
6,667

 
6,718

 
6,948

 
(0.8
)
 
(3.3
)
     CONCERTA ® /methylphenidate
 
782

 
1,073

 
1,268

 
(27.1
)
 
(15.4
)
     INVEGA ®
 
583

 
550

 
499

 
6.0

 
10.2

     INVEGA ®  SUSTENNA ® /XEPLION ®
 
1,248

 
796

 
378

 
56.8

 
**
     RISPERDAL ®  CONSTA ®
 
1,318

 
1,425

 
1,583

 
(7.5
)
 
(10.0
)
     Other Neuroscience
 
2,736

 
2,874

 
3,220

 
(4.8
)
 
(10.7
)
Total Oncology
 
3,773

 
2,629

 
2,048

 
43.5

 
28.4

     VELCADE ®
 
1,660

 
1,500

 
1,274

 
10.7

 
17.7

     ZYTIGA ®
 
1,698

 
961

 
301

 
76.7

 
**
     Other Oncology
 
415

 
168

 
473

 
**
 
(64.5
)
Total Other
 
4,945

 
4,936

 
5,385

 
0.2

 
(8.3
)
     ACIPHEX ® /PARIET ®
 
470

 
835

 
975

 
(43.7
)
 
(14.4
)
     PROCRIT ® /EPREX ®
 
1,364

 
1,462

 
1,623

 
(6.7
)
 
(9.9
)
     XARELTO ®
 
864

 
239

 
25

 
**
 
**
     Other
 
2,247

 
2,400

 
2,762

 
(6.4
)
 
(13.1
)
Total Pharmaceutical Sales
 
$
28,125

 
25,351

 
24,368

 
10.9
 %
 
4.0

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

Immunology products achieved sales of $9.2 billion in 2013, representing an increase of 16.7% as compared to the prior year. The increased sales of STELARA ® (ustekinumab), SIMPONI ® (golimumab) and REMICADE ® (infliximab) were primarily due to market growth and market share gains.
Certain patents related to REMICADE ® (infliximab) expired in Canada in March 2012. In certain countries in Europe the patent has been extended to February 2015 (Germany, Spain, United Kingdom, Sweden, Austria, Belgium, Switzerland, Denmark, France, Greece, Italy, Luxembourg and the Netherlands). Loss of exclusivity for REMICADE ® in these markets may result in a reduction in sales. The U.S. patents for REMICADE ® expire in 2018.
Infectious disease products achieved sales of $3.6 billion in 2013, representing an increase of 11.1% as compared to the prior year. Major contributors were PREZISTA ® (darunavir), due to the continued momentum in market share growth, INCIVO ® (telaprevir), EDURANT ® (rilpivirine), INTELENCE ® (etravirine) and the launch of OLYSIO™ (simeprevir).
Neuroscience products sales were $6.7 billion, a decline of 0.8% as compared to the prior year. Strong sales of INVEGA ® SUSTENNA ® /XEPLION ® (paliperidone palmitate) and INVEGA ® (paliperidone palmitate) were partially offset by lower sales

                
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of RISPERDAL ® CONSTA ® due to growth of INVEGA ® SUSTENNA ® /XEPLION ® . Additionally, a decline in U.S. sales of CONCERTA ® /methylphenidate and lower sales of DURAGESIC ® /Fentanyl Transdermal (fentanyl transdermal system) and RISPERDAL ® (risperidone) was due to continued generic competition.
Oncology products achieved sales of $3.8 billion in 2013, representing an increase of 43.5% as compared to the prior year. This growth was primarily due to sales of ZYTIGA ® (abiraterone acetate), VELCADE ® (bortezomib) and DOXIL ® /CAELYX ® (pegylated liposomal doxorubicin hydrochloride), due to returning supply of CAELYX ® .
Other Pharmaceutical sales were $4.9 billion, an increase of 0.2% as compared to the prior year. Strong sales of XARELTO ® (rivaroxaban) and the launch of INVOKANA ® (canagliflozin) were partially offset by lower sales of ACIPHEX ® /PARIET ® (rabeprazole sodium) and EPREX ® (Epoetin alfa) primarily due to generic competition.
During 2013, the company received several regulatory approvals including: The U.S. Food and Drug Administration (FDA) approval of OLYSIO™ (simeprevir), an NS3/4A inhibitor, for the treatment of chronic hepatitis C infection as part of an antiviral treatment regimen in combination with pegylated interferon and ribavirin in genotype 1 infected adults with compensated liver disease, including cirrhosis; FDA approval for IMBRUVICA™ (ibrutinib) capsules for the treatment of patients with mantle cell lymphoma who have received at least one prior therapy; The FDA and European Commission (EC) approved INVOKANA ® (canagliflozin), an oral, once-daily, selective sodium glucose co-transporter 2 inhibitor, for the treatment of adults with type 2 diabetes; The FDA approved the use of STELARA ® (ustekinumab) alone or in combination with methotrexate for the treatment of adult patients with active psoriatic arthritis; The EC also approved STELARA ® (ustekinumab), alone or in combination with methotrexate for active psoriatic arthritis in adults when the response to previous non-biological disease-modifying anti-rheumatic drug therapy has been inadequate; The EC approved an expanded indication for 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 or azathioprine, or who are intolerant to or have medical contraindications for such therapies; SIMPONI ® (golimumab) was also approved by the FDA for the treatment of moderately to severely active ulcerative colitis in adult patients who have demonstrated corticosteroid dependence or who have had an inadequate response to or failed to tolerate oral aminosalicylates, oral corticosteroids, azathioprine, or 6-mercaptopurine; The FDA also approved SIMPONI ® ARIA TM (golimumab) for infusion for the treatment of adults with moderately to severely active rheumatoid arthritis in combination with methotrexate. The EC approved the use of VELCADE ® (bortezomib) as induction therapy in combination with dexamethasone or thalidomide and dexamethasone and applies to adult patients with previously-untreated multiple myeloma who are eligible for high-dose chemotherapy with hematological stem cell transplantation.
The Company submitted several New Drug Applications, including a Marketing Authorization Application (MAA) to the European Medicines Agency (EMA) and a New Drug Application (NDA) to the FDA seeking approval for the use of ibrutinib for the treatment of adult patients with relapsed or refractory chronic lymphocytic leukemia /small lymphocytic lymphoma, and an MAA for relapsed or refractory mantle cell lymphoma. An MAA was submitted to the EMA seeking approval for a once-daily single tablet fixed-dose antiretroviral combination product containing darunavir, a protease inhibitor, with cobicistat, a pharmacokinetic enhancer or boosting agent, developed by Gilead Sciences, Inc. for use in combination with other human immunodeficiency virus medicines. A Biologic License Application to the FDA and an MAA to the EMA were simultaneously submitted for siltuximab for the treatment of patients with multicentric Castleman disease who are HIV-negative and human herpes virus-8 -negative. An MAA was submitted to the EMA for simeprevir for the treatment of adult patients with chronic hepatitis C genotype 1 or genotype 4. Additionally, an MAA was submitted to the EMA for canagliflozin/metformin fixed-dose combination therapy to treat patients with type 2 diabetes.
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%.

                
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Medical Devices and Diagnostics Segment
The Medical Devices and Diagnostics segment achieved sales of $28.5 billion in 2013, representing an increase of 3.9% over the prior year, with operational growth of 6.1% and a negative currency impact of 2.2%. U.S. sales were $12.8 billion, an increase of 3.5% as compared to the prior year. International sales were $15.7 billion, an increase of 4.2% over the prior year, with operational growth of 8.3% and a negative currency impact of 4.1%. The acquisition of Synthes, Inc., net of the related trauma business divestiture, increased both total sales growth and operational growth for the Medical Devices and Diagnostics segment by 6.0% and 7.9% in 2013 and 2012, respectively.
Major Medical Devices and Diagnostics Franchise Sales:
 
 
 
 
 
 
 
 
% Change
(Dollars in Millions)
 
2013
 
2012
 
2011
 
’13 vs. ’12
 
’12 vs. ’11
Orthopaedics
 
$
9,509

 
7,799

 
5,809

 
21.9
 %
 
34.3

Surgical Care
 
6,269

 
6,483

 
6,637

 
(3.3
)
 
(2.3
)
Vision Care
 
2,937

 
2,996

 
2,916

 
(2.0
)
 
2.7

Specialty Surgery
 
2,592

 
2,526

 
2,407

 
2.6

 
4.9

Diabetes Care
 
2,309

 
2,616

 
2,652

 
(11.7
)
 
(1.4
)
Cardiovascular Care
 
2,077

 
1,985

 
2,288

 
4.6

 
(13.2
)
Diagnostics
 
1,885

 
2,069

 
2,164

 
(8.9
)
 
(4.4
)
Infection Prevention/Other
 
912

 
952

 
906

 
(4.2
)
 
5.1

Total Medical Devices and Diagnostics Sales
 
$
28,490

 
27,426

 
25,779

 
3.9
 %
 
6.4


The Orthopaedics franchise achieved sales of $9.5 billion in 2013, a 21.9% increase over the prior year. Growth was primarily due to a full year of sales recorded from the acquisition of Synthes, Inc. and sales of joint reconstruction products. Sales were impacted by 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 21.2% and 34.7% in 2013 and 2012, respectively.
The Surgical Care franchise sales were $6.3 billion in 2013, a decrease of 3.3% from the prior year. The decline was primarily due to lower sales of mechanical surgery, breast care and pelvic floor products. Outside the U.S. increased sales of sutures and endoscopy products, with the success of the ECHELON FLEX powered ENDOPATH ® Stapler were offset by the negative impact from currency.
The Vision Care franchise achieved sales of $2.9 billion in 2013, a decrease of 2.0% from the prior year. The decline was primarily due to sales in Japan which were impacted by the devaluation of the Yen. The decline was partially offset by growth of ACUVUE ® TruEye ® and 1-DAY ACUVUE ® MOIST ® for Astigmatism.
The Specialty Surgery franchise achieved sales of $2.6 billion in 2013, a 2.6% increase over the prior year. Contributors to the growth were strong sales from biosurgical products, sales of energy products outside the U.S. and Acclarent products in the U.S.
The Diabetes Care franchise sales were $2.3 billion, a decrease of 11.7% versus the prior year. Sales declined due to the impact of lower prices primarily related to competitive bidding in the U.S. as well as pricing pressures outside the U.S.
The Cardiovascular Care franchise sales were $2.1 billion, a 4.6% increase from the prior year. The increased sales were driven by strong growth in Biosense Webster's electrophysiology business primarily due to the success of a number of catheter launches.
The Diagnostics franchise sales were $1.9 billion, a decline of 8.9% versus the prior year. The decline was primarily due to the divestiture of the Therakos business and a sales decline in clinical laboratories. In January 2013, the Company announced it was exploring strategic alternatives for the Ortho-Clinical Diagnostics business (the Diagnostics franchise), including a possible divestiture. In January 2014, the Company received a binding offer from The Carlyle Group to acquire the Ortho-Clinical Diagnostics business. For more details see Note 20 to the Consolidated Financial Statements.
The Infection Prevention/Other franchise sales were $0.9 billion in 2013, a decrease of 4.2% versus the prior year primarily due to a negative currency impact.
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%.

                
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Analysis of Consolidated Earnings Before Provision for Taxes on Income
Consolidated earnings before provision for taxes on income increased by $1.7 billion to $15.5 billion in 2013 as compared to $13.8 billion in 2012, an increase of 12.3%. Earnings before provision for taxes on income were favorable due to increased gross profit of $3.4 billion resulting from higher sales of higher margin products and cost containment initiatives and a $0.4 billion net gain on equity investment transactions, primarily from the sale of Elan American Depositary Shares. This was partially offset by higher litigation expenses of $1.1 billion and higher expenses of $0.1 billion related to the DePuy ASR™ Hip program. The fiscal year 2012 included $1.5 billion of higher write-downs of intangible assets and in-process research and development and higher costs of $0.3 billion related to the Synthes acquisition partially offset by higher gains of $0.8 billion related to divestitures.
The 2012 consolidated earnings before provision for taxes on income increased by $1.4 billion to $13.8 billion 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 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.
As a percent to sales, consolidated earnings before provision for taxes on income in 2013 was 21.7% versus 20.5% in 2012.
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
 
2013
 
2012
 
2011
Cost of products sold
 
31.3
%
 
32.2

 
31.3

Percent point (decrease)/increase over the prior year
 
(0.9
)
 
0.9

 
0.8

Selling, marketing and administrative expenses
 
30.6
%
 
31.0

 
32.3

Percent point (decrease)/increase over the prior year
 
(0.4
)
 
(1.3
)
 
0.8


In 2013, cost of products sold as a percent to sales decreased compared to the prior year. This was primarily the result of positive mix resulting from higher sales of higher margin products, lower costs associated with strong volume growth in the Pharmaceutical business and cost reduction efforts across many of the businesses. The decrease was partially offset by incremental intangible asset amortization expense primarily related to Synthes, the Medical Device Excise tax and increased amortization expense as a result of the royalty buyout agreement with Vertex for INCIVO ® . Intangible asset amortization expense for 2013 and 2012 was $1.4 billion and $1.1 billion, respectively. Additionally, 2012 included $0.2 billion higher amortization of the inventory step-up charge related to the Synthes, Inc. acquisition. There was a decrease in the percent to sales of selling, marketing and administrative expenses in 2013 compared to the prior year primarily due to cost containment initiatives across many of the businesses.
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 intangible assets 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.


                
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Research and Development Expense: Research and development expense by segment of business was as follows:
 
 
2013
 
2012
 
2011
(Dollars in Millions)
 
Amount
 
% of Sales*
 
Amount
 
% of Sales*
 
Amount
 
% of Sales*
Consumer
 
$
590

 
4.0
%
 
622

 
4.3

 
659

 
4.4

Pharmaceutical
 
5,810

 
20.7

 
5,362

 
21.2

 
5,138

 
21.1

Medical Devices and Diagnostics
 
1,783

 
6.3

 
1,681

 
6.1

 
1,751

 
6.8

Total research and development expense
 
$
8,183

 
11.5
%
 
7,665

 
11.4

 
7,548

 
11.6

Percent increase/(decrease) over the prior year
 
6.8
%
 
 

 
1.6

 
 

 
10.3

 
 

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 2013, worldwide costs of research and development activities increased by 6.8% compared to 2012. The increase in the Pharmaceutical segment was primarily due to higher levels of spending to advance the Company's Pharmaceutical pipeline. In 2012, worldwide costs of research and development activities increased by 1.6% compared to 2011. The 2012 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 2013, the Company recorded charges of $0.6 billion primarily for the impairment of various IPR&D projects related to Crucell, Corimmun and Acclarent for the delay or discontinuation of certain development projects. In 2012, the Company recorded charges 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 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. The change in other (income) expense, net for the fiscal year 2013, was an unfavorable change of $0.9 billion as compared to the prior year. The fiscal year 2013 included a net gain of $0.4 billion on equity investment transactions, primarily the sale of Elan American Depositary Shares, offset by higher litigation expenses of $1.1 billion, higher expenses of $0.1 billion related to the DePuy ASR™ Hip program and higher currency losses of $0.1 billion. The fiscal year 2012 included higher write-downs of intangible assets of $0.8 billion, primarily related to the Crucell vaccine business and higher costs of $0.1 billion related to the Synthes acquisition. Additionally, 2012 included higher gains of $0.8 billion related to divestitures.
In 2012, the favorable change of $1.1 billion in other (income) expense, net, as compared to the prior year 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.
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 cost of products sold. There was no restructuring charge in 2012 and 2013.
Interest (Income) Expense:   Interest income in 2013 increased by $10 million as compared to the prior year. Cash, cash equivalents and marketable securities totaled $29.2 billion at the end of 2013, and averaged $25.2 billion as compared to the $26.7 billion average cash balance in 2012. The increase in the year end cash balance was due to cash generated from operating activities.
Interest expense in 2013 decreased by $50 million as compared to 2012 due to a lower average debt balance. The average debt balance was $17.2 billion in 2013 versus $17.9 billion in 2012. The total debt balance at the end of 2013 was $18.2 billion as compared to $16.2 billion at the end of 2012. The higher debt balance of approximately $2.0 billion was due to increased

                
JOHNSON & JOHNSON 2013 ANNUAL REPORT
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borrowings in December 2013. The Company increased borrowings, capitalizing on favorable terms in the capital markets. The proceeds of the borrowings will be used for general corporate purposes.
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.
Segment Pre-Tax Profit
Pre-tax profits by segment of business were as follows:
 
 
 
 
 
 
Percent of Segment Sales
(Dollars in Millions)
 
2013
 
2012
 
2013
 
2012
Consumer
 
$
1,973

 
1,693

 
13.4
%
 
11.7
Pharmaceutical
 
9,178

 
6,075

 
32.6

 
24.0
Medical Devices and Diagnostics
 
5,261

 
7,187

 
18.5

 
26.2
Total (1)
 
16,412

 
14,955

 
23.0

 
22.2
Less: Expenses not allocated to segments (2)
 
941

 
1,180

 
 

 
 
Earnings before provision for taxes on income
 
$
15,471

 
13,775

 
21.7
%
 
20.5

(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 currency related expense for the acquisition of Synthes, Inc. was not allocated to segments in 2012.
Consumer Segment:   In 2013, Consumer segment pre-tax profit as a percent to sales was 13.4% versus 11.7% in 2012. The favorable pre-tax profit was primarily due to a gain of $55 million on the sale of intangible and other assets as well as cost containment initiatives. Included in 2012 were intangible asset write-downs of $0.3 billion. In addition, 2012 included higher gains on divestitures of $0.1 billion. 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.
Pharmaceutical Segment:  In 2013, Pharmaceutical segment pre-tax profit as a percent to sales was 32.6% versus 24.0% in 2012. The favorable pre-tax profit was attributable to positive sales mix of higher margin products, lower costs associated with strong volume growth, a net gain of $0.4 billion on equity investment transactions, primarily the sale of Elan American Depositary Shares, a positive adjustment of approximately $0.2 billion to previous estimates for Managed Medicaid rebates and cost containment initiatives. This was partially offset by increased amortization expense as a result of the royalty buyout agreement with Vertex for INCIVO ® . Additionally, 2012 included higher net litigation expense of $0.4 billion and higher write-downs of intangible assets and in-process research and development of $0.9 billion. This was partially offset by higher gains on divestitures of $0.3 billion. 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.
Medical Devices and Diagnostics Segment:  In 2013, Medical Devices and Diagnostics segment pre-tax profit as a percent to sales was 18.5% versus 26.2% in 2012.  The Medical Devices and Diagnostics segment pre-tax profit was unfavorably impacted by higher costs of $1.4 billion for litigation expense and $0.1 billion related to the DePuy ASR™ Hip program as well as the Medical Device Excise tax. In addition, 2012 included higher gains of $0.4 billion on divestitures partially offset by higher write-downs of intangible assets and in-process research and development of $0.1 billion and higher costs of $0.1 billion related to the Synthes acquisition. 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

                
JOHNSON & JOHNSON 2013 ANNUAL REPORT
10
                                



from Synthes sales, lower expenses of $1.4 billion for litigation 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 ® . Included in 2011 was a $0.7 billion restructuring charge related to the discontinuation of the clinical development program for the NEVO™ Sirolimus-Eluting Coronary Stent.

Provision for Taxes on Income:   The worldwide effective income tax rate was 10.6% in 2013 , 23.7% in 2012 and 21.8% in 2011 . The decrease in the 2013 effective tax rate of 13.1% as compared to 2012 was attributable to a tax benefit associated with the write-off of assets for tax purposes associated with Scios Inc., increased taxable income in lower tax jurisdictions relative to higher tax jurisdictions and the inclusion of two years of benefit of the U.S. Research and Development (R&D) tax credit and the Controlled Foreign Corporation (CFC) look-through provisions. The R&D tax credit and the CFC look-through provisions were enacted into law in January 2013 and were retroactive to January 1, 2012.
During 2013, the Company reached a settlement agreement related to certain issues regarding the U.S. Internal Revenue Service audit related to tax years 2006-2009. As a result of this settlement, the Company adjusted the unrecognized tax benefits relating to these matters which lowered tax expense. In addition, the Company recorded additional U.S. tax expense related to increased dividends of foreign earnings. The above items resulted in a net gain of $180 million. Also included in 2013 results were incremental tax expenses associated with the establishment of a valuation allowance of $187 million related to the Company's Belgian foreign affiliate. The above items had no net impact on the effective income tax rate for the fiscal year ended 2013.
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. R&D tax credit and the CFC look-through provisions from the 2012 fiscal year financial results.

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 was attributable to noncontrolling interest.

Liquidity and Capital Resources
Liquidity & Cash Flows
Cash and cash equivalents were $20.9 billion at the end of 2013 as compared with $14.9 billion at the end of 2012. The primary sources of cash that contributed to the $6.0 billion increase versus the prior year were approximately $17.4 billion of cash generated from operating activities partially offset by $5.1 billion net cash used by investing activities and $6.1 billion net cash used by financing activities.
Cash flow from operations of $17.4 billion was the result of $13.8 billion of net earnings and $4.5 billion of non-cash charges and other adjustments related to depreciation and amortization, stock-based compensation, the Venezuela currency devaluation, asset write-downs (primarily in-process research and development), net gain on equity investment transactions and deferred tax provision reduced by $0.9 billion related to changes in assets and liabilities, net of effects from acquisitions.
Investing activities use of $5.1 billion was primarily for net purchases of investments in marketable securities of $0.9 billion, additions to property, plant and equipment of $3.6 billion, acquisitions, net of cash acquired of $0.8 billion and other, primarily intangibles of $0.3 billion partially offset by $0.5 billion of proceeds from the disposal of assets.
Financing activities use of $6.1 billion was primarily for dividends to shareholders of $7.3 billion and $3.5 billion for the repurchase of common stock, of which $2.9 billion was used to settle the accelerated share repurchase (ASR) agreements in connection with the Synthes transaction. Financing activities also included a source of $2.0 billion from net proceeds of short and long-term debt and $2.7 billion of net proceeds from stock options exercised and associated tax benefits.
In 2013, 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 2014.
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. 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 $2.3 billion as of December 29, 2013 and $2.1 billion as of December 30, 2012. Approximately $1.3 billion as of December 29, 2013 and approximately $1.2 billion as of December 30, 2012 of the Southern

                
JOHNSON & JOHNSON 2013 ANNUAL REPORT
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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 $1.0 billion at December 29, 2013 and $0.9 billion at December 30, 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 29, 2013 market rates would increase the unrealized value of the Company’s forward contracts by $46 million. Conversely, a 10% depreciation of the U.S. Dollar from the December 29, 2013 market rates would decrease the unrealized value of the Company’s forward contracts by $56 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 $163 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 2013, the Company secured a new 364-day Credit Facility. Total credit available to the Company approximates $10 billion, which expires on September 18, 2014. 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 2013 and 2012 were $18.2 billion and $16.2 billion, respectively. The increase in borrowings between 2013 and 2012 was a result of financing for general corporate purposes. In 2013, net cash (cash and current marketable securities, net of debt) was $11.0 billion compared to net cash of $4.9 billion in 2012. Total debt represented 19.7% of total capital (shareholders’ equity and total debt) in 2013 and 20.0% of total capital in 2012. Shareholders’ equity per share at the end of 2013 was $26.25 compared to $23.33 at year-end 2012 , an increase of 12.5%.
A summary of borrowings can be found in Note 7 to the Consolidated Financial Statements.









                
JOHNSON & JOHNSON 2013 ANNUAL REPORT
12
                                



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 29, 2013 (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
2014
 
$
1,769

 
568

 
74

 
286

 
2,697

2015
 
76

 
562

 
73

 
238

 
949

2016
 
2,096

 
556

 
78

 
186

 
2,916

2017
 
1,007

 
516

 
95

 
110

 
1,728

2018
 
1,526

 
460

 
89

 
85

 
2,160

After 2018
 
8,623

 
4,938

 
524

 
87

 
14,172

Total
 
$
15,097

 
7,600

 
933

 
992

 
24,622


For tax matters, see Note 8 to the Consolidated Financial Statements.
Dividends
The Company increased its dividend in 2013 for the 51st consecutive year. Cash dividends paid were $2.59 per share in 2013 compared with dividends of $2.40 per share in 2012 , and $2.25 per share in 2011 . The dividends were distributed as follows:
 
2013
 
2012
 
2011
First quarter
$
0.61

 
$
0.57

 
0.54

Second quarter
0.66

 
0.61

 
0.57

Third quarter
0.66

 
0.61

 
0.57

Fourth quarter
0.66

 
0.61

 
0.57

Total
$
2.59

 
$
2.40

 
2.25

On January 2, 2014, the Board of Directors declared a regular quarterly cash dividend of $0.66 per share, payable on March 11, 2014, to shareholders of record as of February 25, 2014. The Company expects to continue the practice of paying regular cash dividends.

Other Information
Critical Accounting Policies and Estimates
Management’s discussion and analysis of results of operations and financial condition are based on the Company’s consolidated financial statements that have been prepared in accordance with accounting principles generally accepted in the U.S. (GAAP). The preparation of these financial statements requires that management make estimates and assumptions that affect the amounts reported for revenues, expenses, assets, liabilities and other related disclosures. Actual results may or may not differ from these estimates. The Company believes that the understanding of certain key accounting policies and estimates are essential in achieving more insight into the Company’s operating results and financial condition. These key accounting policies include revenue recognition, income taxes, legal and self-insurance contingencies, valuation of long-lived assets, assumptions used to determine the amounts recorded for pensions and other employee benefit plans and accounting for stock options.

Revenue Recognition:   The Company recognizes revenue from product sales when goods are shipped or delivered, and title and risk of loss pass to the customer. Provisions for certain rebates, sales incentives, trade promotions, coupons, product returns and discounts to customers are accounted for as reductions in sales in the same period the related sales are recorded.
Product discounts granted are based on the terms of arrangements with direct, indirect and other market participants, as well as market conditions, including prices charged by competitors. Rebates, the largest being the Medicaid rebate provision, are estimated based on contractual terms, historical experience, trend analysis and projected market conditions in the various markets served. The Company evaluates market conditions for products or groups of products primarily through the analysis of wholesaler and other third-party sell-through and market research data, as well as internally generated information.

                
JOHNSON & JOHNSON 2013 ANNUAL REPORT
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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 been approximately 1.0% of annual net trade sales during the fiscal reporting years 2013 , 2012 and 2011 .
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.

                
JOHNSON & JOHNSON 2013 ANNUAL REPORT
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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 29, 2013 and December 30, 2012 .

Consumer Segment
(Dollars in Millions)
 
Balance at
Beginning of Period
 
Accruals
 
Payments/Credits
 
Balance at
End of Period
2013
 
 

 
 

 
 

 
 

Accrued rebates (1)
 
$
132

 
524

 
(519
)
 
137

Accrued returns
 
108

 
94

 
(122
)
 
80

Accrued promotions
 
281

 
1,478

 
(1,438
)
 
321

Subtotal
 
$
521

 
2,096

 
(2,079
)
 
538

Reserve for doubtful accounts
 
38

 
8

 
(21
)
 
25

Reserve for cash discounts
 
21

 
232

 
(229
)
 
24

Total
 
$
580

 
2,336

 
(2,329
)
 
587

 
 
 
 
 
 
 
 
 
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

(1)  
Includes reserve for customer rebates of $32 million at December 29, 2013 and $33 million at December 30, 2012 , recorded as a contra asset.
Pharmaceutical Segment
(Dollars in Millions)
 
Balance at
Beginning of Period
 
Accruals
 
Payments/Credits
 
Balance at
End of Period
2013
 
 

 
 

 
 

 
 

Accrued rebates (1)
 
$
1,767

 
5,774

 
(5,556
)
 
1,985

Accrued returns
 
397

 
30

 
(55
)
 
372

Accrued promotions
 
94

 
89

 
(87
)
 
96

Subtotal
 
$
2,258

 
5,893

 
(5,698
)
 
2,453

Reserve for doubtful accounts
 
191

 
26

 
(122
)
 
95

Reserve for cash discounts
 
62

 
471

 
(472
)
 
61

Total
 
$
2,511

 
6,390

 
(6,292
)
 
2,609

 
 
 
 
 
 
 
 
 
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

(1)  
Includes reserve for customer rebates of $295 million at December 29, 2013 and $269 million at December 30, 2012 , recorded as a contra asset.

                
JOHNSON & JOHNSON 2013 ANNUAL REPORT
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Medical Devices and Diagnostics Segment
(Dollars in Millions)
 
Balance at
Beginning of Period
 
Accruals
 
Payments/Credits
 
Balance at
End of Period
2013
 
 

 
 

 
 

 
 

Accrued rebates ( 1)
 
$
567

 
4,261

 
(4,027
)
 
801

Accrued returns
 
205

 
356

 
(381
)
 
180

Accrued promotions
 
60

 
52

 
(46
)
 
66

Subtotal
 
$
832

 
4,669

 
(4,454
)
 
1,047

Reserve for doubtful accounts
 
237

 
19

 
(43
)
 
213

Reserve for cash discounts
 
22

 
394

 
(398
)
 
18

Total
 
$
1,091

 
5,082

 
(4,895
)
 
1,278

 
 
 
 
 
 
 
 
 
2012
 
 

 
 

 
 

 
 

Accrued rebates (1)
 
$
497

 
3,803

 
(3,733
)
 
567

Accrued returns
 
184

 
369

 
(348
)
 
205

Accrued promotions
 
73

 
49

 
(62
)
 
60

Subtotal
 
$
754

 
4,221

 
(4,143
)
 
832

Reserve for doubtful accounts
 
161

 
74

 
2

 
237

Reserve for cash discounts
 
32

 
371

 
(381
)
 
22