Johnson & Johnson
JOHNSON & JOHNSON (Form: 10-K, Received: 02/24/2015 06:10:10)

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 28, 2014
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
4.75% Notes Due November 2019
5.50% Notes Due November 2024
 
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.   þ
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 $296 billion.
On February 17, 2015, there were 2,780,488,708 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 2014 (the "Annual Report").
Parts I and III:
 
Portions of registrant’s proxy statement for its 2015 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 126,500 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 265 operating companies conducting business in virtually all countries of the world. The Company’s primary focus is 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 (previously referred to as 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. 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, oral care, skin care, over-the-counter pharmaceutical, women’s health and wound care markets. Baby Care includes the JOHNSON’S ® Baby line of products. Oral Care includes the LISTERINE ® product line. Major brands in Skin Care include the AVEENO ® ; CLEAN & CLEAR ® ; DABAO ; JOHNSON’S ® Adult; LE PETITE MARSEILLAIS ® ; LUBRIDERM ® ; NEUTROGENA ® ; and RoC ® product lines. Over-the-counter medicines include the broad family of TYLENOL ® acetaminophen products; SUDAFED ® cold, flu and allergy products; BENADRYL ® and ZYRTEC ® allergy products; MOTRIN ® IB ibuprofen products; and the PEPCID ® line of heartburn products. Major brands in Women’s Health outside of North America are STAYFREE ® and CAREFREE ® sanitary pad and o.b. ® tampon brands. Wound Care brands include the BAND-AID ® Brand Adhesive Bandages and NEOSPORIN ® First Aid product lines. The principal nutritional line is SPLENDA ® No Calorie Sweetener. These products are marketed to the general public and sold both to retail outlets and distributors throughout the world.
Pharmaceutical
The Pharmaceutical segment is focused on five therapeutic areas, including immunology (e.g., rheumatoid arthritis, inflammatory bowel disease, psoriasis and pulmonary diseases), infectious diseases (e.g., HIV, hepatitis, respiratory infections, tuberculosis and vaccines), neuroscience (e.g., Alzheimer's disease, mood disorders, schizophrenia and pain), oncology (e.g., prostate cancer, multiple myeloma, hematologic malignancies and lung cancer), and cardiovascular and metabolic diseases (e.g., thrombosis and diabetes). Products in this segment are distributed directly to retailers, wholesalers, hospitals 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 subcutaneous treatment for adults with moderate to severe rheumatoid arthritis, active psoriatic arthritis, active ankylosing spondylitis and moderately active to severely active ulcerative colitis; SIMPONI ARIA ® (golimumab) an intravenous treatment for adults with moderate to severe rheumatoid arthritis; STELARA ® (ustekinumab), a treatment for adults with moderate to severe plaque psoriasis and active psoriatic arthritis; INCIVO ® (telaprevir), for the treatment of hepatitis C; OLYSIO ® /SOVRIAD ® (simeprevir), for combination treatment of chronic hepatitis C in adult patients; PREZISTA ® (darunavir), a treatment for HIV/AIDS; EDURANT ® (rilpivirine), for the treatment of HIV; 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 and schizoaffective disorder in adults; RISPERDAL CONSTA ® (risperidone long-acting injection), for the treatment of schizophrenia and the maintenance treatment of Bipolar I Disorder in adults; VELCADE ® (bortezomib), a treatment for multiple myeloma; ZYTIGA ® (abiraterone acetate), a treatment for metastatic castration-resistant prostate cancer; IMBRUVICA ® (ibrutinib), an oral, once-daily therapy approved for use in treating certain B-cell malignancies, or blood

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cancers; PROCRIT ® (epoetin alfa, sold outside the U.S. as EPREX ® ), to stimulate red blood cell production; 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; and INVOKANA ® (canagliflozin), for the treatment of adults with type 2 diabetes. Many of these products were developed in collaboration with strategic partners or are licensed from other companies.
Medical Devices
The Medical Devices (previously referred to as Medical Devices and Diagnostics) segment includes a broad range of products used in the orthopaedic, surgical care, specialty surgery, cardiovascular care, diagnostics, diabetes care, and vision care markets, which are distributed to wholesalers, hospitals and retailers, and used principally in the professional fields by physicians, nurses, hospitals, and clinics. These include orthopaedic, trauma and neurological products; general surgery, biosurgical and energy products; products to treat cardiovascular disease; infection prevention products; diagnostics products; blood glucose monitoring and insulin delivery products; and disposable contact lenses. The Company completed the divestiture of its Ortho-Clinical Diagnostics business in June 2014.
Geographic Areas
The business of Johnson & Johnson is conducted by more than 265 operating companies located in 60 countries, including the U.S., which conduct business 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.” 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 U.S. are subject to higher risks than comparable U.S. activities because the investment and commercial climate may be influenced by financial instability in international economies, restrictive economic policies and political and legal system 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
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 9.2% of the Company's total revenues for fiscal 2014. 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 NYU Langone 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 latest patent expires in September 2018. The patent expired in Canada in March 2012. In certain countries in Europe the patent was 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 August 2015.   In the United States, the patent expiring in 2018 is subject to reexamination proceedings instituted by a third party. Those proceedings are on-going.

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 licenses (exclusive for human anti-TNF antibodies and semi-exclusive for non-human anti-TNF antibodies) to these patents that expire in 2017 outside of the United States and 2018 in the United States. The validity of these patents has been challenged. Certain claims have been invalidated and others are under review in various patent offices around the world and are also subject to litigation in Canada.

The Company does not expect that any additional extensions will be available for the patents related to REMICADE ® . Loss of exclusivity will likely result in a reduction in sales as biosimilar versions of REMICADE ® are introduced to the market.

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For legal matters regarding the patents related to REMICADE ®   , see 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, under the heading “Intellectual Property - Pharmaceutical - REMICADE ® Related Cases”.

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 up to nine years.
Trademarks
The Company’s subsidiaries have made a practice of selling their products under trademarks and of obtaining protection for these trademarks by all available means. These trademarks are protected by registration in the United States and other countries where such products are marketed. The Company considers these trademarks in the aggregate to be of material importance in the operation of its businesses.
Seasonality
Worldwide sales do not reflect any significant degree of seasonality; however, spending has been heavier in the fourth quarter of each year than in other quarters. This reflects increased spending decisions, principally for advertising and research and development activity.
Competition
In all of their product lines, the Company's subsidiaries compete with companies both locally and globally, throughout the world. Competition exists in all product lines without regard to the number and size of the competing companies involved. Competition in research, both internally and externally sourced, 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 $8.5 billion, $8.2 billion and $7.7 billion for fiscal years 2014, 2013 and 2012, 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 U.S., 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 U.S.
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 U.S., 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

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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.
Further, the Company relies on global supply chains, and production and distribution processes, that are complex, are subject to increasing regulatory requirements that may affect sourcing, supply and pricing of materials used in the Company's products, and which are subject to lengthy regulatory approvals.
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
The Company faces a number of uncertainties and risks that are difficult to predict and many of which are outside of the Company's control. In addition to the other information in this Report and the Company’s other filings with the SEC, investors should consider carefully the factors set forth in Exhibit 99 to this Report on Form 10-K. Investors should realize that if known or unknown risks or uncertainties materialize, the Company’s business, results of operations or financial condition could be adversely affected.
Item 1B.
UNRESOLVED STAFF COMMENTS
Not applicable.

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Item 2.
PROPERTIES
The Company's subsidiaries operate 134 manufacturing facilities occupying approximately 21.5 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
 
7,213

Pharmaceutical
 
7,404

Medical Devices
 
6,850

Worldwide Total
 
21,467

Within the United States, eight facilities are used by the Consumer segment, eight by the Pharmaceutical segment and 26 by the Medical Devices segment. The Company’s manufacturing operations outside the United States are often conducted in facilities that serve more than one business segment.
In 2014, the divestiture of the Ortho-Clinical Diagnostics business resulted in the sale of eight manufacturing facilities, seven in the United States and one in Europe.
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
 
42

 
5,892

Europe
 
41

 
7,673

Western Hemisphere, excluding U.S. 
 
15

 
3,005

Africa, Asia and Pacific
 
36

 
4,897

Worldwide Total
 
134

 
21,467

In addition to the manufacturing facilities discussed above, the Company maintains 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 non-U.S. locations, are leased. Office and warehouse facilities are often leased.
The Company is committed to maintaining all of its properties in good operating condition and repair, and the facilities are well utilized.
McNEIL-PPC, Inc. continues to operate under a consent decree, signed in 2011 with the FDA, which governs certain McNeil Consumer Healthcare manufacturing operations (the “Consent Decree”).  The Consent Decree requires McNEIL-PPC to remediate the facilities it operates in Lancaster, Pennsylvania, Fort Washington, Pennsylvania, and Las Piedras, Puerto Rico. The Fort Washington facility, which was voluntarily shut down in April 2010, will remain shut down until a third-party current Good Manufacturing Practices (cGMP) expert certifies that its operations are in compliance with applicable law, and the FDA concurs with the third-party certification. Many products previously made in Fort Washington have been transferred to other manufacturing sites and successfully reintroduced to the market. The Lancaster and Las Piedras facilities continue to manufacture and distribute drugs with third-party oversight. Third-party oversight will cease once the FDA has determined that the facilities appear to be in compliance with applicable law. Each facility operating under the Consent Decree is subject to a five-year audit period by a third-party cGMP expert after the facility has been deemed by the FDA to be in apparent compliance with applicable law. McNeil has successfully completed all requirements contained in the Consent Decree Workplan for the Lancaster and Las Piedras manufacturing sites and has completed the steps required for third-party certification of the Fort Washington plant. In February 2015, the third-party cGMP expert submitted written certification to the FDA for all three manufacturing sites. The timeline for completion of any FDA inspection is within the FDA's discretion. A discussion of legal proceedings related to this matter can be found under the heading “Government Proceedings - McNeil Consumer Healthcare” 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.

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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 herein 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 alleged violation of regulations dealing with the handling of certain wastes.  In the fourth quarter of 2014, the subsidiary entered into a settlement agreement with the State of California and agreed to perform certain remedial actions and pay approximately $400,000 to settle the claim.
Item 4.
MINE SAFETY DISCLOSURES
Not applicable.
EXECUTIVE OFFICERS OF THE REGISTRANT
Listed below are the executive officers of the Company as of February 23, 2015. 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 “Item 1: Election of Directors” in the Proxy Statement.
Name
 
Age
 
Position
Dominic J. Caruso
 
57
 
Member, Executive Committee; Vice President, Finance; Chief Financial Officer(a)
Peter M. Fasolo
 
52
 
Member, Executive Committee; Vice President, Global Human Resources(b)
Alex Gorsky
 
54
 
Chairman, Board of Directors; Chairman, Executive Committee; Chief Executive Officer
Sandra E. Peterson
 
56
 
Member, Executive Committee; Group Worldwide Chairman(c)
Paulus Stoffels
 
53
 
Member, Executive Committee; Chief Scientific Officer; Worldwide Chairman, Pharmaceuticals(d)
Michael H. Ullmann
 
56
 
Member, Executive Committee; Vice President, General Counsel(e)
_______________________________________
(a)
Mr. D. J. Caruso joined the Company in 1999 when the Company acquired Centocor, Inc. At the time of that acquisition, he had been Senior Vice President, Finance of Centocor. Mr. Caruso was named Vice President, Finance of Ortho-McNeil Pharmaceutical, Inc., a subsidiary of the Company, in 2001 and Vice President, Group Finance of the Company’s Medical Devices and Diagnostics Group in 2003. In 2005, Mr. Caruso was named Vice President of the Company’s Group Finance organization. Mr. Caruso became a Member of the Executive Committee and Vice President, Finance and Chief Financial Officer in 2007.
(b)
Dr. P. M. Fasolo joined the Company in 2004 as Vice President, Worldwide Human Resources for Cordis Corporation, a subsidiary of the Company. He was then named Vice President, Global Talent Management for the Company. He left Johnson & Johnson in 2007 to join Kohlberg Kravis Roberts & Co. as Chief Talent Officer. Dr. Fasolo returned to the Company in 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 medical device businesses in the Vision Care and Diabetes Care franchises, and functions such as Johnson & Johnson Supply Chain, Information

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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, 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, Medical Devices and Diagnostics.  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 17, 2015, there were 162,062 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.
Issuer Purchases of Equity Securities
On July 21, 2014, the Company announced that its Board of Directors approved a share repurchase program, authorizing the Company to purchase up to $5.0 billion of the Company's Common Stock. Share repurchases will take place on the open market from time to time based on market conditions. The repurchase program has no time limit and may be suspended for periods or discontinued at any time.
The following table provides information with respect to common stock purchases by the Company during the fiscal fourth quarter of 2014. 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 (1)
 
Avg. Price
Paid Per Share
 
Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs (2)
 
Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs (3)
September 29, 2014 through October 26, 2014
 
5,431,384

 
$
100.16

 
4,610,000
 
-
October 27, 2014 through November 23, 2014
 
8,154,338

 
106.65

 
6,567,056
 
-
November 24, 2014 through December 28, 2014
 
12,593,034

 
106.63

 
5,423,816
 
-
Total
 
26,178,756

 
 
 
16,600,872
 
14,275,927
(1)
During the fiscal fourth quarter of 2014, the Company repurchased an aggregate of 26,178,756 shares of Johnson & Johnson Common Stock in open-market transactions, of which 16,600,872 shares were purchased pursuant to the repurchase program that was publicly announced on July 21, 2014, and of which 9,577,884 shares were purchased in open-market transactions as part of a systematic plan to meet the needs of the Company’s compensation programs.

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(2)
As of December 28, 2014, an aggregate of 33,683,058 shares were purchased for a total of $3.5 billion since the inception of the repurchase program announced on July 21, 2014.
(3)
As of December 28, 2014, the maximum number of shares that may yet be purchased under the plan is 14,275,927 based on the closing price of Johnson & Johnson Common Stock on the New York Stock Exchange on December 26, 2014 of $105.06 per share.
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 2004-2014” 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, Vice President, Finance and Chief Financial Officer, reviewed and participated in this evaluation. Based on this evaluation, Messrs. Gorsky and Caruso concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective.
Management’s Report on Internal Control Over Financial Reporting.  The information called for by this item is incorporated herein by reference to the material under the caption "Management’s Report on Internal Control Over Financial Reporting" of the Annual Report, filed as Exhibit 13 to this Report on Form 10-K.
Changes in Internal Control Over Financial Reporting.   During the fiscal quarter ended December 28, 2014, 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.
The Company is implementing a multi-year, enterprise-wide initiative to integrate, simplify and standardize processes and systems for the human resources, information technology, procurement and finance functions. These are enhancements to support the growth of the Company’s financial shared service capabilities and standardize financial systems. This initiative is not in response to any identified deficiency or weakness in the Company’s internal control over financial reporting. In response

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to this initiative, the Company has and will continue to align and streamline the design and operation of its financial control environment.
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 "Item 1: Election of Directors — Director Compensation - 2014," "Compensation Committee Report," “Compensation Discussion and Analysis” and "Executive Compensation Tables" 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.

9

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Equity Compensation Plan Information
The following table provides certain information as of December 28, 2014 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)
145,936,341

 

$55.80

 
529,841,040

Equity Compensation Plans Not Approved by Security Holders
-

 
-

 
-

Total
145,936,341

 

$55.80

 
529,841,040

_______________________________________
(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.


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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 2014 and 2013
Consolidated Statements of Earnings for Fiscal Years 2014, 2013 and 2012
Consolidated Statements of Comprehensive Income for Fiscal Years 2014, 2013 and 2012
Consolidated Statements of Equity for Fiscal Years 2014, 2013 and 2012
Consolidated Statements of Cash Flows for Fiscal Years 2014, 2013 and 2012
Notes to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
Schedules other than those listed above are omitted because they are not required or are not applicable.
2.  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.



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SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: February 23, 2015
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 23, 2015
A. Gorsky
 
Chief Executive Officer, and Director (Principal Executive Officer)
 
 
 
 
 
 
 
/s/  D. J. Caruso
 
Chief Financial Officer (Principal Financial Officer)
 
February 23, 2015
D. J. Caruso
 
 
 
 
 
 
 
 
 
/s/  S. J. Cosgrove
 
Controller (Principal Accounting Officer)
 
February 23, 2015
S. J. Cosgrove
 
 
 
 
 
 
 
 
 
/s/  M. S. Coleman
 
Director
 
February 23, 2015
M. S. Coleman
 
 
 
 
 
 
 
 
 
/s/  J. G. Cullen
 
Director
 
February 23, 2015
J. G. Cullen
 
 
 
 
 
 
 
 
 
/s/  D. S. Davis
 
Director
 
February 23, 2015
D. S. Davis
 
 
 
 
 
 
 
 
 
/s/  I. E. L. Davis
 
Director
 
February 23, 2015
I. E. L. Davis
 
 
 
 

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Signature
 
Title
 
Date
 
 
 
 
 
/s/  S. L. Lindquist
 
Director
 
February 23, 2015
S. L. Lindquist
 
 
 
 
 
 
 
 
 
/s/ M. B. McClellan
 
Director
 
February 23, 2015
M. B. McClellan
 
 
 
 
 
 
 
 
 
/s/  A. M. Mulcahy
 
Director
 
February 23, 2015
A. M. Mulcahy
 
 
 
 
 
 
 
 
 
/s/  L. F. Mullin
 
Director
 
February 23, 2015
L. F. Mullin
 
 
 
 
 
 
 
 
 
/s/  W. D. Perez
 
Director
 
February 23, 2015
W. D. Perez
 
 
 
 
 
 
 
 
 
/s/  C. Prince
 
Director
 
February 23, 2015
C. Prince
 
 
 
 
 
 
 
 
 
/s/  A. E. Washington
 
Director
 
February 23, 2015
A. E. Washington
 
 
 
 
 
 
 
 
 
/s/  R. A. Williams
 
Director
 
February 23, 2015
R. A. Williams
 
 
 
 


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EXHIBIT INDEX

Reg. S-K
 
 
Exhibit Table
 
Description
Item No.
 
of Exhibit
3(i)(a)
 
Restated Certificate of Incorporation effective April 26, 1990 — Incorporated herein by reference to Exhibit 3(a) of the Registrant’s Form 10-K Annual Report for the year ended December 30, 1990.
3(i)(b)
 
Certificate of Amendment to the Restated Certificate of Incorporation of the Company effective May 20, 1992 — Incorporated herein by reference to Exhibit 3(a) of the Registrant’s Form 10-K Annual Report for the year ended January 3, 1993.
3(i)(c)
 
Certificate of Amendment to the Restated Certificate of Incorporation of the Company effective May 21, 1996 — Incorporated herein by reference to Exhibit 3(a)(iii) of the Registrant’s Form 10-K Annual Report for the year ended December 29, 1996.
3(i)(d)
 
Certificate of Amendment to the Restated Certificate of Incorporation of the Company effective May 22, 2001 — Incorporated herein by reference to Exhibit 3 of the Registrant’s Form 10-Q Quarterly Report for the quarter ended July 1, 2001.
3(i)(e)
 
Certificate of Amendment to the Restated Certificate of Incorporation of the Company effective April 27, 2006 — Incorporated herein by reference to Exhibit 3(i) of the Registrant’s Form 10-Q Quarterly Report for the quarter ended April 2, 2006.
3(ii)
 
By-Laws of the Company, as amended effective April 17, 2012 — Incorporated herein by reference to Exhibit 3.1 the Registrant’s Form 8-K Current Report filed April 19, 2012.
4(a)
 
Upon the request of the Securities and Exchange Commission, the Registrant will furnish a copy of all instruments defining the rights of holders of long-term debt of the Registrant.
10(a)
 
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(b)
 
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(c)
 
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(d)
 
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(e)
 
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(f)
 
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(g)
 
Executive Incentive Plan (as amended) — Incorporated herein by reference to Exhibit 10(f) of the Registrant’s Form 10-K Annual Report for the year ended December 31, 2000.*
10(h)
 
Domestic Deferred Compensation (Certificate of Extra Compensation) Plan — Incorporated herein by reference to Exhibit 10(g) of the Registrant’s Form 10-K Annual Report for the year ended December 28, 2003.*
10(i)
 
Amendments to the Certificate of Extra Compensation Plan effective as of January 1, 2009 — Incorporated herein by reference to Exhibit 10(j) of the Registrant’s Form 10-K Annual Report for the year ended December 28, 2008.*
10(j)
 
2009 Certificates of Long-Term Performance Plan — Incorporated herein by reference to Exhibit 10.1 of the Registrant’s Form 10-Q Quarterly Report for the quarter ended September 27, 2009.*
10(k)
 
Amended and Restated Deferred Fee Plan for Directors — 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(l)
 
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.*

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Reg. S-K
 
 
Exhibit Table
 
Description
Item No.
 
of Exhibit
10(m)
 
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(n)
 
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(o)
 
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(p)
 
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(q)
 
Amendment to the Excess Benefit Plan of Johnson & Johnson and Affiliated Companies, effective as of January 1, 2015 — Filed with this document.*
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.*
10(v)
 
Severance Pay Plan of Johnson & Johnson and U.S. Affiliated Companies, Amended and Restated as of October 1, 2014 — Incorporated herein by reference to Exhibit 10.1 of the Registrant's Form 10-Q Quarterly Report for the quarter ended September 28, 2014.*
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 2014, 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 2004 - 2014”; 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 28, 2014, 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, and (vi) Notes to the Consolidated Financial Statements.
*
Management contract or compensatory plan.
A copy of any of the Exhibits listed above will be provided without charge to any shareholder submitting a written request specifying the desired exhibit(s) to the Secretary at the principal executive offices of the Company.

15


    
    
Exhibit 10(q)


CERTIFICATION OF AMENDMENTS TO THE
EXCESS BENEFIT PLAN OF JOHNSON & JOHNSON AND AFFILIATED COMPANIES

Effective as of January 1, 2015, the Excess Benefit Plan of Johnson & Johnson and Affiliated Companies (the “Plan”) is hereby amended to incorporate the amendments attached hereto.


Date: December 19, 2014         


/s/ S. M. Podlogar ______________
S.M. PODLOGAR
Vice President, Global Total Rewards and Performance
             Member, Pension & Benefits Committee







AMENDMENT TO THE
EXCESS BENEFIT PLAN OF JOHNSON & JOHNSON AND AFFILIATED COMPANIES
Effective January 1, 2015, the Excess Benefit Plan of Johnson & Johnson and Affiliated Companies (the “Plan”) is amended to insert the following new RVP Addendum at the end of the Plan:
RVP Addendum
1.
Excess RVP Benefit . Effective January 1, 2015, the Consolidated Retirement Plan of Johnson & Johnson (the “Qualified Plan”) was amended to adopt a new benefit formula, called the “retirement value” (“RVP”) formula. Notwithstanding any other provision of the Plan, the only benefit paid under this Plan with respect to benefits accrued under the RVP formula shall be the Excess RVP Benefit described in this RVP Addendum. With respect to such RVP benefits, the provisions of this RVP Addendum shall apply in lieu of Article II (Benefits), as modified with respect to time and form of payment by the 409A Addendum. All other provisions of the Plan, including the provisions of the 409A Addendum that are required to comply with Section 409A of the Code, shall continue to apply.
2.
Amount of Excess RVP Benefit . A participant’s Excess RVP Benefit under this Plan shall equal the excess, if any, of:
a.
The lump-sum amount calculated under the RVP formula set forth in Article 14 of the Qualified Plan, determined as of the payment date set forth in paragraph 3, below, and computed without regard to the limitations imposed by Sections 401(a)(17) and 415 and of the Internal Revenue Code of 1986, as amended (the “Code”), over
b.
The actual lump-sum amount payable under the RVP formula set forth in Article 14 of the Qualified Plan as of the same date.
3.
Time and Form of Payment of Excess RVP Benefit . Except as provided below in the event of death, a participant’s Excess RVP Benefit shall be paid in a lump sum on the first day of the seventh month after the participant’s Separation from Service (within the meaning of Treasury Regulations Section 1.409A-1(h) and other applicable rules under Section 409A of the Code).
4.
Death . If a participant dies before the payment date prescribed by paragraph 3, above, an Excess RVP Benefit (calculated by applying the formula in paragraph 2, above, to the death benefit payable under the Qualified Plan) shall be paid to his beneficiary in a lump sum as of the first day of the month on or after the participant’s death.





EXHIBIT 12
JOHNSON & JOHNSON AND SUBSIDIARIES
STATEMENT OF COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (1)  
(Dollars in Millions)
 
Fiscal Year Ended
 
December 28, 2014
December 29, 2013
 
December 30, 2012
 
January 1, 2012
 
January 2, 2011
 
Determination of Earnings:
 
 
 
 
 
 
 
 

 
Earnings Before Provision for Taxes on Income
$
20,563

$
15,471

 
$
13,775

 
$
12,361

 
$
16,947

 
Fixed Charges, less Capitalized Interest
647

603

 
657

 
675

 
555

 
Total Earnings as Defined
$
21,210

$
16,074

 
$
14,432

 
$
13,036

 
$
17,502

 
Fixed Charges:
 
 
 
 
 
 
 
 

 
Estimated Interest Portion of Rent Expense
114

121

 
125

 
104

 
100

 
Interest Expense before Capitalization of Interest
648

587

 
647

 
655

 
528

 
Total Fixed Charges
$
762

$
708

 
$
772

 
$
759

 
$
628

 
Ratio of Earnings to Fixed Charges
27.83

22.70

 
18.69

 
17.18

 
27.87

 
_______________________________________
(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 2014 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 126,500 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 (previously referred to as Medical Devices and Diagnostics). The Consumer segment includes a broad range of products used in the baby care, oral care, skin care, over-the-counter pharmaceutical, women’s health and wound care markets. These products are marketed to the general public and sold both to retail outlets and distributors throughout the world. The Pharmaceutical segment is focused on five therapeutic areas, including immunology, infectious diseases, neuroscience, oncology, and cardiovascular and metabolic diseases. Products in this segment are distributed directly to retailers, wholesalers, hospitals and health care professionals for prescription use. The Medical Devices segment includes a broad range of products used in the orthopaedic, surgical care, specialty surgery, cardiovascular care, diagnostics, diabetes care, and vision care markets, which are distributed to wholesalers, hospitals and retailers, and used principally in the professional fields by physicians, nurses, hospitals, and clinics.
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 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 2014 sales. In 2014, $8.5 billion, or 11.4% 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 265 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 2014 ANNUAL REPORT
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Results of Operations
Analysis of Consolidated Sales
In 2014, worldwide sales increased 4.2% to $74.3 billion, compared to increases of 6.1% in 2013 and 3.4% in 2012. These sales changes consisted of the following:
Sales increase/(decrease) due to:
 
2014
 
2013
 
2012
Volume
 
6.3
%
 
7.6

 
5.7

Price
 
(0.2
)
 
0.1

 
0.4

Currency
 
(1.9
)
 
(1.6
)
 
(2.7
)
Total
 
4.2
%
 
6.1

 
3.4


In 2014, sales of the Company's Hepatitis C products, OLYSIO ® /SOVRIAD ® (simeprevir) and INCIVO ® (telaprevir), had a positive impact of 2.8%, and the divestiture of the Ortho-Clinical Diagnostics business had a negative impact of 1.4% on the worldwide operational growth. The acquisition of Synthes, Inc., net of the related divestiture, increased worldwide operational growth by 2.5% and 3.1% in 2013 and 2012, respectively.
Sales by U.S. companies were $34.8 billion in 2014, $31.9 billion in 2013 and $29.8 billion in 2012. This represents increases of 9.0% in 2014, 7.0% in 2013 and 3.2% in 2012. Sales by international companies were $39.5 billion in 2014, $39.4 billion in 2013 and $37.4 billion in 2012. This represents increases of 0.4% in 2014, 5.4% in 2013 and 3.5% in 2012.
The five-year compound annual growth rates for worldwide, U.S. and international sales were 3.7%, 2.4% and 5.0%, respectively. The ten-year compound annual growth rates for worldwide, U.S. and international sales were 4.6%, 2.3% and 7.3%, respectively.
Sales in Europe achieved growth of 1.9% as compared to the prior year, including operational growth of 2.6% partially offset by a negative currency impact of 0.7%. Sales in the Western Hemisphere (excluding the U.S.) experienced a decline of 3.5% as compared to the prior year, including operational growth of 5.2% offset by a negative currency impact of 8.7%. Sales in the Asia-Pacific, Africa region achieved growth of 0.4% as compared to the prior year, including operational growth of 4.4% and a negative currency impact of 4.0%.
In 2014, the Company had one wholesaler distributing products for all three segments that represented approximately 11.0% of the total consolidated revenues. In 2013 and 2012, 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 full-year impact of the excise tax was approximately $180 million in 2014 and $200 million in 2013.
On July 28, 2014, the Internal Revenue Service issued final regulations for the Branded Prescription Drug Fee, an annual non-tax deductible fee imposed on entities engaged in the business of manufacturing or importing branded prescription drugs (covered entities) enacted by section 9008 of the Patient Protection and Affordable Care Act. The final regulations accelerated the expense recognition criteria for the fee obligation by one year, from the year in which the fee is paid to the year in which the sales used to calculate the fee occur. This change impacted covered entities and resulted in the need for all entities to record an additional expense in 2014 for the fee that would have otherwise been expensed when paid in 2015. The Company accrued an additional $220 million in the fiscal third quarter of 2014 due to this change. The fee associated with this accelerated expense will be paid, as scheduled in 2015 and therefore had no cash impact in 2014.


                
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Analysis of Sales by Business Segments
Consumer Segment
Consumer segment sales in 2014 were $14.5 billion, a decrease of 1.4% from 2013, which included 1.0% operational growth offset by a negative currency impact of 2.4%. U.S. Consumer segment sales were $5.1 billion, a decrease of 1.3%. International sales were $9.4 billion, a decrease of 1.4%, which included 2.3% operational growth offset by a negative currency impact of 3.7%.
Major Consumer Franchise Sales:
 
 
 
 
 
 
 
 
% Change
(Dollars in Millions)
 
2014
 
2013
 
2012
 
’14 vs. ’13
 
’13 vs. ’12
OTC
 
$
4,106

 
4,028

 
3,766

 
1.9
 %
 
7.0

Skin Care
 
3,758

 
3,704

 
3,618

 
1.5

 
2.4

Baby Care
 
2,239

 
2,295

 
2,254

 
(2.4
)
 
1.8

Oral Care
 
1,647

 
1,622

 
1,624

 
1.5

 
(0.1
)
Wound Care/Other
 
1,444

 
1,480

 
1,560

 
(2.4
)
 
(5.1
)
Women’s Health
 
1,302

 
1,568

 
1,625

 
(17.0
)
 
(3.5
)
Total Consumer Sales
 
$
14,496

 
14,697

 
14,447

 
(1.4
)%
 
1.7


The Over-the-Counter (OTC) franchise achieved sales of $4.1 billion, an increase of 1.9% from 2013. Strong U.S. sales growth of 5.5% was driven by analgesics and upper respiratory products, primarily due to continued progress in returning a 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 (the Consent Decree).  The Consent Decree requires McNEIL-PPC to remediate the facilities it operates in Lancaster, Pennsylvania, Fort Washington, Pennsylvania, and Las Piedras, Puerto Rico. The Fort Washington facility was voluntarily shut down in April 2010, however, many products previously made in Fort Washington have been transferred to other manufacturing sites and successfully reintroduced to the market. The Lancaster and Las Piedras facilities continue to manufacture and distribute drugs with third-party oversight.  Third-party oversight will cease once the FDA has determined that the facilities appear to be in compliance with applicable law.  In February 2015, the third-party overseer submitted written certification to the FDA for all three manufacturing sites. The timeline for completion of any FDA inspection is within the FDA’s discretion.
The Skin Care franchise achieved sales of $3.8 billion, an increase of 1.5% as compared to the prior year, primarily due to strong results from the AVEENO ® , NEUTROGENA ® , and DABAO™ product lines. The Baby Care franchise sales were $2.2 billion in 2014, a decrease of 2.4% from 2013. Sales growth in Latin America and Asia Pacific was offset by the impact of negative currency in all the regions outside the U.S. The Oral Care franchise sales were $1.6 billion, an increase of 1.5% as compared to the prior year. The growth was driven by increased sales of LISTERINE ® products, as a result of new product launches and successful marketing campaigns. The Wound Care/Other franchise sales were $1.4 billion in 2014, a decrease of 2.4% from 2013, primarily due to lower sales of nutritionals outside the U.S. The Women’s Health franchise sales were $1.3 billion, a decrease of 17.0% primarily due to the divestiture of women's sanitary protection products in the U.S., Canada and Caribbean, which was completed in the fiscal fourth quarter of 2013.
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%.




                
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Pharmaceutical Segment
The Pharmaceutical segment achieved sales of $32.3 billion in 2014, representing an increase of 14.9% over the prior year, with strong operational growth of 16.5% and a negative currency impact of 1.6%. U.S. sales were $17.4 billion, an increase of 25.0%. International sales were $14.9 billion, an increase of 5.0%, which included 8.3% operational growth and a negative currency impact of 3.3%. In 2013, Pharmaceutical segment sales included a positive adjustment to previous estimates for Managed Medicaid rebates. This negatively impacted 2014 Pharmaceutical operational sales growth by 0.8% as compared to the prior year. In 2014, sales of the Company's Hepatitis C products, OLYSIO ® /SOVRIAD ® (simeprevir) and INCIVO ® (telaprevir), had a positive impact of 6.9% on the operational growth of the Pharmaceutical segment.

Major Pharmaceutical Therapeutic Area Sales: *
 
 
 
 
 
 
 
 
% Change
(Dollars in Millions)
 
2014
 
2013
 
2012
 
’14 vs. ’13
 
’13 vs. ’12
Total Immunology
 
$
10,193

 
9,190

 
7,874

 
10.9
 %
 
16.7

     REMICADE ®
 
6,868

 
6,673

 
6,139

 
2.9

 
8.7

     SIMPONI ® /SIMPONI ARIA ®
 
1,187

 
932

 
607

 
27.4

 
53.5

     STELARA ®
 
2,072

 
1,504

 
1,025

 
37.8

 
46.7

     Other Immunology
 
66

 
81

 
103

 
(18.5
)
 
(21.4
)
Total Infectious Diseases
 
5,599

 
3,550

 
3,194

 
57.7

 
11.1

     EDURANT ®
 
365

 
236

 
102

 
54.7

 
**

     INCIVO ®
 
226

 
517

 
443

 
(56.3
)
 
16.7

     OLYSIO ® /SOVRIAD ®
 
2,302

 
23

 

 
**

 

     PREZISTA ®
 
1,831

 
1,673

 
1,414

 
9.4

 
18.3

     Other Infectious Diseases
 
875

 
1,101

 
1,235

 
(20.5
)
 
(10.9
)
Total Neuroscience
 
6,487

 
6,667

 
6,718

 
(2.7
)
 
(0.8
)
     CONCERTA ® /methylphenidate
 
599

 
782

 
1,073

 
(23.4
)
 
(27.1
)
     INVEGA ®
 
640

 
583

 
550

 
9.8

 
6.0

     INVEGA ®  SUSTENNA ® /XEPLION ®
 
1,588

 
1,248

 
796

 
27.2

 
56.8

     RISPERDAL ®  CONSTA ®
 
1,190

 
1,318

 
1,425

 
(9.7
)
 
(7.5
)
     Other Neuroscience
 
2,470

 
2,736

 
2,874

 
(9.7
)
 
(4.8
)
Total Oncology
 
4,457

 
3,773

 
2,629

 
18.1

 
43.5

     VELCADE ®
 
1,618

 
1,660

 
1,500

 
(2.5
)
 
10.7

     ZYTIGA ®
 
2,237

 
1,698

 
961

 
31.7

 
76.7

     Other Oncology
 
602

 
415

 
168

 
45.1

 
**

Total Other
 
5,577

 
4,945

 
4,936

 
12.8

 
0.2

     PROCRIT ® /EPREX ®
 
1,238

 
1,364

 
1,462

 
(9.2
)
 
(6.7
)
     XARELTO ®
 
1,522

 
864

 
239

 
76.2

 
**

     Other
 
2,817

 
2,717

 
3,235

 
3.7

 
(16.0
)
Total Pharmaceutical Sales
 
$
32,313

 
28,125

 
25,351

 
14.9
 %
 
10.9

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

Immunology products achieved sales of $10.2 billion in 2014, representing an increase of 10.9% as compared to the prior year. The increased sales of STELARA ® (ustekinumab) and SIMPONI ® /SIMPONI ARIA ® (golimumab) were primarily due to market growth and market share gains. REMICADE ® (infliximab) growth was primarily due to market growth.
The patents for REMICADE ® in certain countries in Europe (Germany, Spain, United Kingdom, Sweden, Austria, Belgium, Switzerland, Denmark, France, Greece, Italy, Luxembourg and the Netherlands) expire in February 2015. Loss of exclusivity will likely result in a reduction in sales as biosimilar versions are introduced to the market. See Note 21 to the Consolidated Financial Statements for legal matters regarding the REMICADE ® patents.
Infectious disease products achieved sales of $5.6 billion in 2014, representing an increase of 57.7% as compared to the prior year. Major contributors to the growth were the launch of OLYSIO ® /SOVRIAD ® (simeprevir); PREZISTA ® (darunavir), due to market growth; and sales of EDURANT ® (rilpivirine) . This was partially offset by lower sales of INCIVO ® (telaprevir),

                
JOHNSON & JOHNSON 2014 ANNUAL REPORT
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due to competitive pressures, and lower sales of vaccine products. The approval of competitive products to OLYSIO ® /SOVRIAD ® (simeprevir) had a negative impact in the fourth quarter of 2014 and is expected to continue to have a significant negative impact on future sales of OLYSIO ® /SOVRIAD ® (simeprevir).
Neuroscience products sales were $6.5 billion, a decline of 2.7% as compared to the prior year. Strong sales of INVEGA ® SUSTENNA ® /XEPLION ® (paliperidone palmitate) and INVEGA ® (paliperidone palmitate) were partially offset by lower sales of RISPERDAL ® CONSTA ® . Additionally, a decline in sales of CONCERTA ® /methylphenidate and TOPAMAX ® (topiramate) were due to continued generic competition.
Oncology products achieved sales of $4.5 billion in 2014, representing an increase of 18.1% as compared to the prior year. Major contributors to the growth were strong sales of ZYTIGA ® (abiraterone acetate), as well as the recent launch of IMBRUVICA ® (ibrutinib). Sales growth of VELCADE ® (bortezomib) was more than offset by negative currency.
Other Pharmaceutical sales were $5.6 billion, an increase of 12.8% as compared to the prior year. Strong sales of XARELTO ® (rivaroxaban) and INVOKANA ® /INVOKAMET™ (canagliflozin) were partially offset by lower sales of ACIPHEX ® /PARIET ® (rabeprazole sodium) and PROCRIT ® /EPREX ® (Epoetin alfa).
During 2014, the Company received several regulatory approvals including: the U.S. Food and Drug Administration (FDA) granted approval of IMBRUVICA ® (ibrutinib) capsules, which is being jointly developed and commercialized by Pharmacyclics, Inc. for the treatment of patients with chronic lymphocytic leukemia (CLL) who have received at least one prior therapy; the European Commission (EC) granted conditional approval for SIRTURO ® (bedaquiline) in the European Union, for use as part of an appropriate combination regimen for pulmonary multi-drug resistant tuberculosis in adult patients; the FDA and the EC granted approval of SYLVANT ® (siltuximab) for the treatment of patients with multicentric Castleman’s disease who are human immunodeficiency virus negative and human herpesvirus-8 negative; the EC granted approval for VOKANAMET ® (canagliflozin/metformin HCl), a fixed-dose therapy combining canagliflozin and immediate release metformin hydrochloride in a single tablet for the treatment of adults with type 2 diabetes; OLYSIO ® (simeprevir) for the treatment of adult patients with genotype 1 or 4 chronic hepatitis C; and for INVEGA ® (paliperidone ER) to extend its adult indication of schizophrenia to include adolescents aged 15 years and older; the FDA granted approval for a third indication for IMBRUVICA ® (ibrutinib), for the treatment of patients with CLL who have the genetic mutation 17p deletion (del 17p) and also granted IMBRUVICA ® (ibrutinib) full approval for the treatment of patients with CLL who have received at least one prior therapy; FDA granted approval for INVOKAMET TM (canagliflozin/metformin HCl) for the treatment of adults with type 2 diabetes; The EC approved IMBRUVICA ® (ibrutinib) for the treatment of adult patients with relapsed or refractory mantle cell lymphoma and adult patients with chronic lymphocytic leukemia who have received at least one prior therapy, or in first-line in the presence of 17p deletion or TP53 mutation in patients unsuitable for chemo-immunotherapy. The EC also approved REZOLSTA ® (darunavir/cobicistat) in combination with other antiretroviral medicinal products for the treatment of human immunodeficiency virus-1 infection in adults aged 18 years or older.
The Company submitted several New Drug Applications (NDAs) to the FDA, including an NDA seeking approval for a once-daily fixed-dose antiretroviral combination tablet containing darunavir, a protease inhibitor developed by Janssen R&D Ireland and marketed as PREZISTA ® in the U.S., with cobicistat, an investigational pharmacokinetic enhancer or boosting agent, developed by Gilead Sciences, Inc. for use in combination with other human immunodeficiency virus medicines; an NDA for three-month atypical antipsychotic paliperidone palmitate as a treatment for schizophrenia in adults; and an NDA for YONDELIS ® (trabectedin) for the treatment of patients with advanced soft tissue sarcoma, including liposarcoma and leiomyosarcoma subtypes, who have received prior chemotherapy including an anthracycline.
In addition, a supplemental New Drug Application (sNDA) was approved by the FDA for OLYSIO ® in combination with the nucleotide analog NS5B polymerase inhibitor sofosbuvir developed by Gilead Sciences, Inc. for the treatment of chronic hepatitis C. Additional sNDA’s were also submitted to the FDA for OLYSIO ® for the treatment of adult patients in genotype 4 chronic hepatitis C and patients co-infected with HIV; once-monthly atypical long-acting antipsychotic INVEGA ® SUSTENNA ® (paliperidone palmitate) was approved to treat schizoaffective disorder as either monotherapy or adjunctive therapy; and a Type II variation application was submitted to the European Medicines Agency (EMA) for an additional indication of IMBRUVICA ® (ibrutinib) for the treatment of patients with Waldenström’s macroglobulinemia, a rare type of B-cell lymphoma.
A Marketing Authorization Application was submitted to the European Medicines Agency to expand the label for VELCADE ® (bortezomib) to include its use, in combination with rituximab, cyclophosphamide, doxorubicin and prednisone, for the treatment of adult patients with previously untreated mantle cell lymphoma.
Pharmaceutical segment sales in 2013 were $28.1 billion, 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.

Medical Devices Segment
The Medical Devices segment sales in 2014 were $27.5 billion, a decrease of 3.4% from 2013, which included an operational decline of 1.6% and a negative currency impact of 1.8%. U.S. sales were $12.3 billion, a decrease of 4.3% as compared to the

                
JOHNSON & JOHNSON 2014 ANNUAL REPORT
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prior year. International sales were $15.3 billion, a decline of 2.7% as compared to the prior year, with operational growth of 0.5% offset by a negative currency impact of 3.2%. In 2014, the divestiture of the Ortho-Clinical Diagnostics business had a negative impact of 3.2% on the operational growth of the Medical Devices segment.
Major Medical Devices Franchise Sales:*
 
 
 
 
 
 
 
 
% Change
(Dollars in Millions)
 
2014
 
2013
 
2012
 
’14 vs. ’13
 
’13 vs. ’12
Orthopaedics
 
$
9,675

 
9,509

 
7,799

 
1.7
 %
 
21.9

Surgical Care
 
6,176

 
6,269

 
6,483

 
(1.5
)
 
(3.3
)
Specialty Surgery/Other
 
3,541

 
3,504

 
3,478

 
1.1

 
0.7

Vision Care
 
2,818

 
2,937

 
2,996

 
(4.1
)
 
(2.0
)
Cardiovascular Care
 
2,208

 
2,077

 
1,985

 
6.3

 
4.6

Diabetes Care
 
2,142

 
2,309

 
2,616

 
(7.2
)
 
(11.7
)
Diagnostics
 
962

 
1,885

 
2,069

 
(49.0
)
 
(8.9
)
Total Medical Devices Sales
 
$
27,522

 
28,490

 
27,426

 
(3.4
)%
 
3.9

* Previously referred to as Medical Devices and Diagnostics. Prior year amounts have been reclassified to conform to current year presentation. Infection Prevention is included in Specialty Surgery/Other.

The Orthopaedics franchise achieved sales of $9.7 billion in 2014, a 1.7% increase over the prior year. Growth was primarily driven by sales of trauma, sports medicine, knee and hip products. Growth was negatively impacted by continued pricing pressures.
The Surgical Care franchise sales were $6.2 billion in 2014, a decrease of 1.5% from the prior year. U.S. pricing pressure, lower sales of women's health and urology products due to the Company's decision to exit from certain women's health products, and the impact from negative currency were partially offset by worldwide sales growth of sutures and the success of the ECHELON FLEX powered ENDOPATH ® Stapler outside the U.S.
The Specialty Surgery/Other franchise sales were $3.5 billion in 2014, a 1.1% increase over the prior year. Contributors to the growth were strong sales from biosurgical products, sales of energy products outside the U.S. and Mentor products due to new product launches and market growth.
The Vision Care franchise sales were $2.8 billion in 2014, a decrease of 4.1% from the prior year. The decline was primarily due to increased competition and pricing pressures in the U.S. and the Asia Pacific region, partially offset by sales growth in Europe.
The Cardiovascular Care franchise achieved sales of $2.2 billion, a 6.3% increase over the prior year. The increased sales were driven by strong growth of Biosense Webster products in all regions.
The Diabetes Care franchise sales were $2.1 billion, a decrease of 7.2% versus the prior year. In the U.S., lower prices were partially offset by volume growth.
The Diagnostics franchise sales were $1.0 billion, a decline of 49.0% versus the prior year. The decline was due to the divestiture of the Ortho-Clinical Diagnostics business (the Diagnostics franchise) to The Carlyle Group on June 30, 2014.
Medical Devices segment sales in 2013 were $28.5 billion, 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 segment by 6.0% and 7.9% in 2013 and 2012, respectively.



                
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Analysis of Consolidated Earnings Before Provision for Taxes on Income
Consolidated earnings before provision for taxes on income increased to $20.6 billion in 2014 as compared to $15.5 billion in 2013, an increase of 32.9%. Earnings before provision for taxes on income were favorable due to strong sales volume growth, particularly sales of OLYSIO ® /SOVRIAD ® (simeprevir), positive mix from higher sales of higher margin products in the Pharmaceutical business, divestitures of lower margin businesses and cost reduction efforts across many of the businesses. Additionally, 2014 included higher net gains on divestitures of $2.3 billion, primarily the divestiture of the Ortho-Clinical Diagnostics business, lower litigation expense of $1.0 billion, lower in-process research and development costs of $0.4 billion and lower expenses of $0.1 billion related to the DePuy ASR™ Hip program as compared to the fiscal year 2013. This was partially offset by the inclusion of an additional year of the Branded Prescription Drug Fee of $0.2 billion and $0.1 billion of higher Synthes integration/transaction costs in 2014. The fiscal year 2013 included a net gain of $0.4 billion on equity investment transactions, primarily the sale of Elan American Depositary Shares. 
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 as compared to 2012. 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.

As a percent to sales, consolidated earnings before provision for taxes on income in 2014 was 27.7% versus 21.7% in 2013.
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
 
2014
 
2013
 
2012
Cost of products sold
 
30.6
%
 
31.3

 
32.2

Percent point (decrease)/increase over the prior year
 
(0.7
)
 
(0.9
)
 
0.9

Selling, marketing and administrative expenses
 
29.5
%
 
30.6

 
31.0

Percent point (decrease)/increase over the prior year
 
(1.1
)
 
(0.4
)
 
(1.3
)

In 2014, cost of products sold as a percent to sales decreased compared to the prior year. This was primarily the result of positive mix from higher sales of higher margin products in the Pharmaceutical business, divestitures of lower margin businesses and cost improvements across many of the businesses. This was partially offset by pricing and the impact of negative transactional currency. In addition, 2013 included an inventory step-up charge of $0.1 billion related to the Synthes acquisition. Intangible asset amortization expense included in cost of products sold for both 2014 and 2013 was $1.4 billion. There was a decrease in the percent to sales of selling, marketing and administrative expenses in 2014 compared to the prior year primarily due to leveraged costs resulting from growth in the Pharmaceutical business, particularly sales of OLYSIO ® /SOVRIAD ® (simeprevir), and cost containment initiatives across many of the businesses. This was partially offset by the inclusion of an additional year of the Branded Prescription Drug Fee of $220 million in the fiscal third quarter of 2014.
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.



                
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Research and Development Expense: Research and development expense by segment of business was as follows:
 
 
2014
 
2013
 
2012
(Dollars in Millions)
 
Amount
 
% of Sales*
 
Amount
 
% of Sales*
 
Amount
 
% of Sales*
Consumer
 
$
629

 
4.3
%
 
$
590

 
4.0

 
622

 
4.3

Pharmaceutical
 
6,213

 
19.2

 
5,810

 
20.7

 
5,362

 
21.2

Medical Devices
 
1,652

 
6.0

 
1,783

 
6.3

 
1,681

 
6.1

Total research and development expense
 
$
8,494

 
11.4
%
 
8,183

 
11.5

 
7,665

 
11.4

Percent increase/(decrease) over the prior year
 
3.8
%
 
 

 
6.8

 
 

 
1.6

 
 

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 2014, worldwide costs of research and development activities increased by 3.8% compared to 2013. The reduction as a percent to sales was primarily due to strong sales growth in the Pharmaceutical business. Research spending in the Pharmaceutical segment increased in absolute dollars to $6.2 billion as compared to $5.8 billion primarily due to higher levels of spending to advance the Company's Pharmaceutical pipeline. 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-Process Research and Development (IPR&D): In 2014, the Company recorded charges of $0.2 billion for the impairment of various IPR&D projects related to RespiVert, Crucell, Mentor and Synthes for the delay or discontinuation of certain development projects. 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. The 2012 charges relate to development projects which have been 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 or losses on divestitures; currency gains and losses; and litigation accruals and settlements. The change in other (income) expense, net for the fiscal year 2014 was a favorable change of $2.6 billion as compared to the prior year. The fiscal year 2014 included higher net gains on divestitures of $2.3 billion, primarily the divestiture of the Ortho-Clinical Diagnostics business, lower litigation expense of $1.0 billion and lower costs of $0.1 billion related to the DePuy ASR Hip program as compared to 2013. This was partially offset by higher Synthes integration/transaction costs of $0.2 billion and higher intangible asset write-downs of $0.1 billion primarily related to INCIVO ® (telaprevir) in 2014. Additionally, the fiscal year 2013 included a higher net gain of $0.5 billion as compared to 2014 on equity investment transactions, primarily the sale of Elan American Depositary Shares.
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.
Interest (Income) Expense:   Interest income in 2014 was comparable to the prior year. A higher balance in cash, cash equivalents and marketable securities was offset by lower interest rates. Cash, cash equivalents and marketable securities totaled $33.1 billion at the end of 2014, and averaged $31.1 billion as compared to the $25.2 billion average cash balance in 2013. The increase in the year-end cash balance was primarily due to cash generated from operating activities.
Interest expense in 2014 increased by $51 million as compared to 2013 due to a higher average debt balance. The average debt balance was $18.5 billion in 2014 versus $17.2 billion in 2013. The total debt balance at the end of 2014 was $18.8 billion as compared to $18.2 billion at the end of 2013. The higher debt balance of approximately $0.6 billion was due to increased borrowings in November 2014. The Company increased borrowings, capitalizing on favorable terms in the capital markets. The proceeds of the borrowings will be used for general corporate purposes.

                
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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 borrowings in December 2013. The Company increased borrowings, capitalizing on favorable terms in the capital markets. The proceeds of the borrowings were used for general corporate purposes.
Segment Pre-Tax Profit
Pre-tax profits by segment of business were as follows:
 
 
 
 
 
 
Percent of Segment Sales
(Dollars in Millions)
 
2014
 
2013
 
2014
 
2013
Consumer
 
$
1,941

 
1,973

 
13.4
%
 
13.4
Pharmaceutical
 
11,696

 
9,178

 
36.2

 
32.6
Medical Devices
 
7,953

 
5,261

 
28.9

 
18.5
Total (1)
 
21,590

 
16,412

 
29.0

 
23.0
Less: Expenses not allocated to segments (2)
 
1,027

 
941

 
 

 
 
Earnings before provision for taxes on income
 
$
20,563

 
15,471

 
27.7
%
 
21.7

(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.
Consumer Segment:   In 2014, Consumer segment pre-tax profit as a percent to sales was 13.4%, flat to the prior year. 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 in 2013 versus 2012 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.
Pharmaceutical Segment:  In 2014, Pharmaceutical segment pre-tax profit as a percent to sales was 36.2% versus 32.6% in 2013. The favorable pre-tax profit was attributable to strong sales volume growth, particularly sales of OLYSIO ® /SOVRIAD ® (simeprevir), positive sales mix of higher margin products and cost containment initiatives realized in selling, marketing and administrative expenses. This was partially offset by $0.2 billion for an additional year of the Branded Prescription Drug Fee and a $0.1 billion intangible asset write-down related to INCIVO ® (telaprevir). Additionally, 2013 included a net gain of $0.4 billion on equity investment transactions, primarily the sale of Elan American Depositary Shares, and a positive adjustment of $0.2 billion to previous estimates for Managed Medicaid rebates, partially offset by higher write-downs of $0.4 billion for the impairment of IPR&D as compared to 2014. 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 $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.
Medical Devices Segment:  In 2014, Medical Devices segment pre-tax profit as a percent to sales was 28.9% versus 18.5% in 2013. The favorable pre-tax profit was attributable to the net gain of $1.9 billion on the divestiture of the Ortho-Clinical Diagnostics business in 2014 and lower litigation expense of $1.1 billion as compared to 2013. In 2013, Medical Devices segment pre-tax profit as a percent to sales was 18.5% versus 26.2% in 2012.  The Medical Devices 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 as compared to 2012. 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.

Provision for Taxes on Income:   The worldwide effective income tax rate was 20.6% in 2014 , 10.6% in 2013 and 23.7% in 2012 . The increase in the 2014 effective tax rate, as compared to 2013, was attributable to the following: the divestiture of the

                
JOHNSON & JOHNSON 2014 ANNUAL REPORT
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Ortho-Clinical Diagnostics business at an approximate 44% effective tax rate, litigation accruals at low tax rates, the mix of earnings into higher tax jurisdictions, primarily the U.S., the accrual of an additional year of the Branded Prescription Drug Fee, which is not tax deductible, and additional U.S. tax expense related to a planned increase in dividends from current year foreign earnings as compared to the prior year. These increases to the 2014 effective tax rate were partially offset by a tax benefit of $0.4 billion associated with the Conor Medsystems divestiture.
The 2013 effective tax rate was reduced by a tax benefit associated with the write-off of assets for tax purposes associated with Scios, Inc., and the inclusion of both the 2013 and 2012 benefit from the Research and Development tax credit and the Controlled Foreign Corporation look-through provisions, because those provisions were enacted into law in January 2013 and were retroactive to January 1, 2012.
The 2014 effective tax rate was also reduced as the Company adjusted its unrecognized tax benefits as a result of (i) the federal appeals court’s decision in OMJ Pharmaceuticals, Inc.’s litigation regarding credits under former Section 936 of the Internal Revenue Code (see Note 21 to the Consolidated Financial Statements for additional information), and (ii) a settlement of substantially all issues related to the Company’s U.S. Internal Revenue Service audit of tax years 2006 - 2009.

Noncontrolling Interest: In 2012, a charge of $0.7 billion was recorded for the impairment of the IPR&D related to the discontinuation of the Phase III clinical development of bapineuzumab IV. 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 $14.5 billion at the end of 2014 as compared with $20.9 billion at the end of 2013. The primary sources and uses of cash that contributed to the $6.4 billion decrease versus the prior year were approximately $18.5 billion of cash generated from operating activities offset by $12.3 billion net cash used by investing activities and $12.3 billion net cash used by financing activities. See Note 1 to the Consolidated Financial Statements for additional details on cash. In addition, the Company had $18.6 billion in marketable securities at the end of 2014 and $8.3 billion at the end of 2013.
Cash flow from operations of $18.5 billion was the result of $16.3 billion of net earnings and $5.2 billion of non-cash charges and other adjustments for depreciation and amortization, stock-based compensation, asset write-downs, Venezuela adjustments and $1.8 billion related to deferred taxes, accounts payable and accrued liabilities and current and non-current assets. Cash flow from operations was reduced by $4.8 billion related to current and non-current liabilities, inventories, accounts receivable and net gains on sale of assets/businesses.
Investing activities use of $12.3 billion was primarily for net purchases of investments in marketable securities of $10.8 billion, additions to property, plant and equipment of $3.7 billion, acquisitions, net of cash acquired of $2.1 billion and other, primarily intangibles of $0.3 billion, partially offset by $4.6 billion of proceeds from the disposal of assets/businesses.
Financing activities use of $12.3 billion was primarily for dividends to shareholders of $7.8 billion and $7.1 billion for the repurchase of common stock. Financing activities also included a source of $0.8 billion from net proceeds of short and long-term debt and $1.8 billion of net proceeds from stock options exercised and associated tax benefits.
On July 21, 2014, the Company announced that its Board of Directors approved a share repurchase program, authorizing the Company to purchase up to $5.0 billion of the Company's shares of common stock. As of December 28, 2014, $3.5 billion has been repurchased under the program. Share repurchases will take place on the open market from time to time based on market conditions. The repurchase program has no time limit and may be suspended for periods or discontinued at any time. Any shares acquired will be available for general corporate purposes. The Company intends to finance the share repurchase program through available cash.
In 2014, 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 2015.
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 $1.8 billion as of December 28, 2014 and $2.3 billion as of December 29, 2013. Approximately $1.1 billion as of December 28, 2014 and approximately $1.3 billion as of December 29, 2013 of the Southern European Region net trade accounts receivable balance related to the Company's Consumer, Vision Care and Diabetes Care businesses as well as certain Pharmaceutical and Medical Devices 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

                
JOHNSON & JOHNSON 2014 ANNUAL REPORT
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Pharmaceutical and Medical Devices local affiliates. The total net trade accounts receivable balance for these customers were approximately $0.7 billion at December 28, 2014 and $1.0 billion at December 29, 2013. 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 28, 2014 market rates would increase the unrealized value of the Company’s forward contracts by $31 million. Conversely, a 10% depreciation of the U.S. Dollar from the December 28, 2014 market rates would decrease the unrealized value of the Company’s forward contracts by $38 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 $145 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 2014, the Company secured a new 364-day Credit Facility. Total credit available to the Company approximates $10 billion, which expires on September 17, 2015. 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 2014 and 2013 were $18.8 billion and $18.2 billion, respectively. The increase in borrowings between 2014 and 2013 was a result of financing for general corporate purposes. In 2014, net cash (cash and current marketable securities, net of debt) was $14.3 billion compared to net cash of $11.0 billion in 2013. Total debt represented 21.2% of total capital (shareholders’ equity and total debt) in 2014 and 19.7% of total capital in 2013. Shareholders’ equity per share at the end of 2014 was $25.06 compared to $26.25 at year-end 2013 , a decrease of 4.5%.
A summary of borrowings can be found in Note 7 to the Consolidated Financial Statements.

                
JOHNSON & JOHNSON 2014 ANNUAL REPORT
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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 28, 2014 (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
2015
 
$
7

 
603

 
74

 
200

 
884

2016
 
2,152

 
597

 
75

 
157

 
2,981

2017
 
1,722

 
557

 
78

 
111

 
2,468

2018
 
1,496

 
493

 
84

 
80

 
2,153

2019
 
1,713

 
448

 
89

 
66

 
2,316

After 2019
 
8,039

 
4,679

 
531

 
77

 
13,326

Total
 
$
15,129

 
7,377

 
931

 
691

 
24,128


For tax matters, see Note 8 to the Consolidated Financial Statements.
Dividends
The Company increased its dividend in 2014 for the 52nd consecutive year. Cash dividends paid were $2.76 per share in 2014 compared with dividends of $2.59 per share in 2013 , and $2.40 per share in 2012 . The dividends were distributed as follows:
 
2014
 
2013
 
2012
First quarter
$
0.66

 
$
0.61

 
$
0.57

Second quarter
0.70

 
0.66

 
0.61

Third quarter
0.70

 
0.66

 
0.61

Fourth quarter
0.70

 
0.66

 
0.61

Total
$
2.76

 
$
2.59

 
2.40

On January 5, 2015, the Board of Directors declared a regular quarterly cash dividend of $0.70 per share, payable on March 10, 2015, to shareholders of record as of February 24, 2015. 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 based awards.

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, which include the Medicaid rebate provision, are estimated based on contractual terms, historical experience, patient outcomes, trend analysis and projected market conditions in the various markets served. The Company evaluates market conditions for products or groups of products primarily through

                
JOHNSON & JOHNSON 2014 ANNUAL REPORT
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the analysis of wholesaler and other third-party sell-through and market research data, as well as internally generated information.
Sales returns are 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 segment are typically resalable but are not material. The Company infrequently 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 2014 , 2013 and 2012 .
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.

                
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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 28, 2014 and December 29, 2013 .

Consumer Segment
(Dollars in Millions)
 
Balance at
Beginning of Period
 
Accruals
 
Payments/Credits
 
Balance at
End of Period
2014
 
 

 
 

 
 

 
 

Accrued rebates (1)
 
$
137

 
619

 
(634
)
 
122

Accrued returns
 
80

 
102

 
(105
)
 
77

Accrued promotions
 
321

 
1,850

 
(1,930
)
 
241

Subtotal
 
$
538

 
2,571

 
(2,669
)
 
440

Reserve for doubtful accounts
 
25

 
5

 
(12
)
 
18

Reserve for cash discounts
 
24

 
215

 
(217
)
 
22

Total
 
$
587

 
2,791

 
(2,898
)
 
480

 
 
 
 
 
 
 
 
 
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

(1)  
Includes reserve for customer rebates of $37 million at December 28, 2014 and $32 million at December 29, 2013 , recorded as a contra asset.
Pharmaceutical Segment
(Dollars in Millions)
 
Balance at
Beginning of Period
 
Accruals
 
Payments/Credits
 
Balance at
End of Period
2014
 
 

 
 

 
 

 
 

Accrued rebates (1)
 
$
1,985

 
7,652

 
(6,920
)
 
2,717

Accrued returns
 
372

 
83

 
(33
)
 
422

Accrued promotions
 
96

 
34

 
(96
)
 
34

Subtotal
 
$
2,453

 
7,769

 
(7,049
)
 
3,173

Reserve for doubtful accounts
 
95

 
4

 
(58
)
 
41

Reserve for cash discounts
 
61

 
576

 
(586
)
 
51

Total
 
$
2,609

 
8,349

 
(7,693
)
 
3,265

 
 
 
 
 
 
 
 
 
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

(1)  
Includes reserve for customer rebates of $297 million at December 28, 2014 and $295 million at December 29, 2013 , recorded as a contra asset.

                
JOHNSON & JOHNSON 2014 ANNUAL REPORT
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Medical Devices Segment
(Dollars in Millions)
 
Balance at
Beginning of Period
 
Accruals
 
Payments/Credits
 
Balance at
End of Period
2014
 
 

 
 

 
 

 
 

Accrued rebates ( 1)
 
$
801

 
4,663

 
(4,620
)
 
844

Accrued returns
 
180

 
395

 
(387
)
 
188

Accrued promotions
 
66

 
35

 
(48
)
 
53

Subtotal
 
$
1,047

 
5,093

 
(5,055
)
 
1,085

Reserve for doubtful accounts
 
213

 
62

 
(59
)
 
216

Reserve for cash discounts
 
18

 
815

 
(817
)
 
16

Total
 
$
1,278

 
5,970

 
(5,931
)
 
1,317

 
 
 
 
 
 
 
 
 
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

(1)  
Includes reserve for customer rebates of $354 million at December 28, 2014 and $403 million at December 29, 2013 , recorded as a contra asset.

Income Taxes:   Income taxes are recorded based on amounts refundable or payable for the current year and include the results of any difference between U.S. GAAP accounting and tax reporting, recorded as deferred tax assets or liabilities. The Company estimates deferred tax assets and liabilities based on enacted tax regulations and rates. Future changes in tax laws and rates may affect recorded deferred tax assets and liabilities.
The Company has unrecognized tax benefits for uncertain tax positions. The Company follows U.S. GAAP, which prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Management believes that changes in these estimates would not have a material effect on the Company's results of operations, cash flows or financial position.
At December 28, 2014 and December 29, 2013 , the cumulative amounts of undistributed international earnings were approximately $53.4 billion and $50.9 billion, respectively. At December 28, 2014 and December 29, 2013 , the Company's foreign subsidiaries held balances of cash and cash equivalents in the amounts of $14.3 billion and $18.6 billion, respectively. The Company has not provided deferred taxes on the undistributed earnings from certain international subsidiaries where the earnings are considered to be permanently reinvested. The Company intends to continue to reinvest these earnings in international operations. If the Company decided at a later date to repatriate these earnings to the U.S., the Company would be required to provide for the net tax effects on these amounts. The Company does not determine the deferred tax liability associated with these undistributed earnings, as such determination is not practical.
See Note 8 to the Consolidated Financial Statements for further information regarding income taxes.
Legal and Self Insurance Contingencies:   The Company records accruals for various contingencies, including legal proceedings and product liability claims as these arise in the normal course of business. The accruals are based on management’s judgment as to the probability of losses and, where applicable, actuarially determined estimates. The Company has self insurance through a wholly-owned captive insurance company. In addition to accruals in the self insurance program, claims that exceed the insurance coverage are accrued when losses are probable and amounts can be reasonably estimated. Additionally, the Company records insurance receivable amounts from third-party insurers when recovery is probable. As appropriate, reserves against these receivables are recorded for estimated amounts that may not be collected from third-party insurers.
The Company follows the provisions of U.S. GAAP when recording litigation related contingencies. A liability is recorded when a loss is probable and can be reasonably estimated. The best estimate of a loss within a range is accrued; however, if no estimate in the range is better than any other, the minimum amount is accrued.

                
JOHNSON & JOHNSON 2014 ANNUAL REPORT
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Long-Lived and Intangible Assets:   The Company assesses changes in economic conditions and makes assumptions regarding estimated future cash flows in evaluating the value of the Company’s property, plant and equipment, goodwill and intangible assets. As these assumptions and estimates may change over time, it may or may not be necessary for the Company to record impairment charges.
Employee Benefit Plans:   The Company sponsors various retirement and pension plans, including defined benefit, defined contribution and termination indemnity plans, which cover most employees worldwide. These plans are based on assumptions for the discount rate, expected return on plan assets, mortality rates, expected salary increases and health care cost trend rates. See Note 10 to the Consolidated Financial Statements for further details on these rates and the effect a rate change to the health care cost trend would have on the Company’s results of operations.
Stock Based Compensation:   The Company recognizes compensation expense associated with the issuance of equity instruments to employees for their services. Based on the type of equity instrument, the fair value is estimated on the date of grant using either the Black-Scholes option valuation model or a combination of both the Black-Scholes option valuation model and Monte Carlo valuation model, and is expensed in the financial statements over the vesting period. The input assumptions used in determining fair value are the expected life, expected volatility, risk-free rate and the dividend yield. See Note 17 to the Consolidated Financial Statements for additional information.
New Accounting Pronouncements
Refer to Note 1 to the Consolidated Financial Statements for recently adopted accounting pronouncements and recently issued accounting pronouncements not yet adopted as of December 28, 2014 .
Economic and Market Factors
The Company is aware that its products are used in an environment where, for more than a decade, policymakers, consumers and businesses have expressed concerns about the rising cost of health care. In response to these concerns, the Company has a long-standing policy of pricing products responsibly. For the period 2004 - 2014, in the United States, the weighted average compound annual growth rate of the Company’s net price increases for health care products (prescription and over-the-counter drugs, hospital and professional products) was below the U.S. Consumer Price Index (CPI).
The Company operates in certain countries where the economic conditions continue to present significant challenges. The Company continues to monitor these situations and take appropriate actions. Inflation rates continue to have an effect on worldwide economies and, consequently, on the way companies operate. The Company has accounted for operations in Venezuela as highly inflationary as the prior three-year cumulative inflation rate surpassed 100%. In the face of increasing costs, the Company strives to maintain its profit margins through cost reduction programs, productivity improvements and periodic price increases.
The Venezuelan government has established or is in the process of establishing alternative systems and offerings of various foreign currency exchanges. In 2014, the Company continued to have access to an official government rate of 6.3 Bolivares Fuertes to one U.S. dollar to settle imports of various products into Venezuela. Through the fourth quarter of 2014, the Company has primarily utilized the official government rate of 6.3 Bolivares Fuertes to one U.S. dollar in preparing its financial statements. During the second fiscal quarter, the Company applied to settle an outstanding dividend payable at one of the alternative foreign exchange rates. As a result, the Company has applied this alternative exchange rate to translate certain transactions, as appropriate. As of December 28, 2014, the Company’s Venezuelan subsidiaries represented less than 0.5% of the Company's consolidated assets, liabilities, revenues and profits; therefore, the effect of a change in the exchange rate is not expected to have a material adverse effect on the Company's 2015 full-year results.
The Company is exposed to fluctuations in currency exchange rates. A 1% change in the value of the U.S. Dollar as compared to all foreign currencies in which the Company had sales, income or expense in 2014 would have increased or decreased the translation of foreign sales by approximately $390 million and income by $100 million.
The Company faces various worldwide health care changes that may continue to result in pricing pressures that include health care cost containment and government legislation relating to sales, promotions and reimbursement of health care products.
Changes in the behavior and spending patterns of purchasers of health care products and services, including delaying medical procedures, rationing prescription medications, reducing the frequency of physician visits and foregoing health care insurance coverage, as a result of the current global economic downturn, may continue to impact the Company’s businesses.
The Company also operates in an environment increasingly hostile to intellectual property rights. Firms have filed Abbreviated New Drug Applications or Biosimilar Biological Product Applications with the FDA or otherwise challenged the coverage and/or validity of the Company's patents, seeking to market generic or biosimilar forms of many of the Company’s key pharmaceutical products prior to expiration of the applicable patents covering those products. In the event the Company is not successful in defending the patent claims challenged in the resulting lawsuits, generic or biosimilar versions of the products at issue will be introduced to the market, resulting in the potential for substantial market share and revenue losses for those products, and which may result in a non-cash impairment charge in any associated intangible asset. For further information, see

                
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the discussion on “REMICADE ® Related Cases” and “Litigation Against Filers of Abbreviated New Drug Applications” in Note 21 to the Consolidated Financial Statements.
Legal Proceedings
Johnson & Johnson and certain of its subsidiaries are involved in various lawsuits and claims regarding product liability, intellectual property, commercial and other matters; governmental investigations; and other legal proceedings that arise from time to time in the ordinary course of business.
The Company records accruals for such contingencies when it is probable that a liability will be incurred and the amount of the loss can be reasonably estimated. The Company has accrued for certain litigation matters and continues to monitor each related legal issue and adjust accruals for new information and further developments in accordance with Accounting Standards Codification (ASC) 450-20-25. For these and other litigation and regulatory matters currently disclosed for which a loss is probable or reasonably possible, the Company is unable to determine an estimate of the possible loss or range of loss beyond the amounts already accrued. These matters can be affected by various factors, including whether damages sought in the proceedings are unsubstantiated or indeterminate; scientific and legal discovery has not commenced or is not complete; proceedings are in early stages; matters present legal uncertainties; there are significant facts in dispute; or there are numerous parties involved.
In the Company's opinion, based on its examination of these matters, its experience to date and discussions with counsel, the ultimate outcome of legal proceedings, net of liabilities accrued in the Company's balance sheet, is not expected to have a material adverse effect on the Company's financial position. However, the resolution in any reporting period of one or more of these matters, either alone or in the aggregate, may have a material adverse effect on the Company's results of operations and cash flows for that period.

See Note 21 to the Consolidated Financial Statements for further information regarding legal proceedings.
Common Stock Market Prices
The Company’s Common Stock is listed on the New York Stock Exchange under the symbol JNJ. As of February 17, 2015, there were 162,062 record holders of Common Stock of the Company. The composite market price ranges for Johnson & Johnson Common Stock during 2014 and 2013 were:

 
2014
 
2013
 
High
 
Low
 
High
 
Low
First quarter
$
98.47

 
86.09

 
$
81.59

 
69.18

Second quarter
105.97

 
96.05

 
89.99

 
80.31

Third quarter
108.77

 
98.80

 
94.42

 
85.50

Fourth quarter
109.49

 
95.10

 
95.99

 
85.50

Year-end close
$105.06
 
92.35

                
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Cautionary Factors That May Affect Future Results
This Annual Report contains forward-looking statements. Forward-looking statements do not relate strictly to historical or current facts and anticipate results based on management’s plans that are subject to uncertainty. Forward-looking statements may be identified by the use of words such as “plans,” “expects,” “will,” “anticipates,” “estimates” and other words of similar meaning in conjunction with, among other things, discussions of future operations, financial performance, the Company’s strategy for growth, product development, regulatory approval, market position and expenditures.
Forward-looking statements are based on current expectations of future events. The Company cannot guarantee that any forward-looking statement will be accurate, although the Company believes that it has been reasonable in its expectations and assumptions. Investors should realize that if underlying assumptions prove inaccurate or that known or unknown risks or uncertainties materialize, actual results could vary materially from the Company’s expectations and projections. Investors are therefore cautioned not to place undue reliance on any forward-looking statements. The Company does not undertake to update any forward-looking statements as a result of new information or future events or developments.
Risks and uncertainties include, but are not limited to: economic factors, such as interest rate and currency exchange rate fluctuations; competition, including technological advances, new products and patents attained by competitors; challenges inherent in new product development, including obtaining regulatory approvals; challenges to patents; the impact of patent expirations; uncertainty of commercial success of new and existing products; significant adverse litigation or government action, including related to product liability claims; impact of business combinations and divestitures; significant changes in customer relationships or changes in behavior and spending patterns or financial distress of purchasers of health care products and services; changes to laws and regulations and global health care reforms; trends toward health care cost containment; increased scrutiny of the health care industry by government agencies; financial instability of international economies and sovereign risk; manufacturing difficulties or delays; complex global supply chains with increasing regulatory requirements; product efficacy or safety concerns resulting in product recalls or regulatory action; disruptions due to natural disasters; and the potential failure to meet obligations in compliance agreements with government bodies.
A discussion of these and other factors that could cause actual results to differ materially from expectations can be found in this Annual Report on Form 10-K for the fiscal year ended December 28, 2014 , including in Exhibit 99. The Company notes these factors as permitted by the Private Securities Litigation Reform Act of 1995.




                
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JOHNSON & JOHNSON AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
At December 28, 2014 and December 29, 2013
(Dollars in Millions Except Share and Per Share Amounts) (Note 1)
 
2014
 
2013
Assets
 
 
 
Current assets
 

 
 

Cash and cash equivalents (Notes 1 and 2)
$
14,523

 
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