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

 

 

JOHNSON & JOHNSON

 

(Exact name of registrant as specified in its charter)

 

 

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

 

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

 

 

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 Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes þ  No o

 

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

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company (as defined in Rule 12b-2 of the Exchange Act).

Large accelerated filer  þ     Accelerated filer  o     Non-accelerated filer  o     Smaller reporting company  o

 

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 $156 billion.

 

On February 8, 2010 there were 2,751,927,062 shares of Common Stock outstanding.

 

DOCUMENTS INCORPORATED BY REFERENCE

 

 

 

 

 

 

Johnson & Johnson and its subsidiaries have approximately 115,500 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 250 operating companies conducting business in virtually all countries of the world. Johnson & Johnson’s primary focus has been on products related to human health and well-being. Johnson & Johnson was incorporated in the State of New Jersey in 1887.

 

The Company’s structure is based on the principle of decentralized management. The Executive Committee of Johnson & Johnson is the principal management group responsible for the operations and allocation of the resources of the Company. This Committee oversees and coordinates the activities of the Consumer, Pharmaceutical and Medical Devices and Diagnostics business segments. Each subsidiary within the business segments is, with some exceptions, managed by citizens of the country where it is located.

 

 

Johnson & Johnson’s operating companies are organized into three business segments: Consumer, Pharmaceutical and Medical Devices and Diagnostics. Additional information required by this item is incorporated herein by reference to the narrative and tabular (but not the graphic) descriptions of segments and operating results under the captions “Management’s Discussion and Analysis of Results of Operations and Financial Condition” on pages 26 through 35 and Note 18 “Segments of Business and Geographic Areas” under “Notes to Consolidated Financial Statements” on page 55 of the Annual Report, filed as Exhibit 13 to this Report on Form 10-K.

 

Consumer

 

The Consumer segment includes a broad range of products used in the baby care, skin care, oral care, wound care and women’s health care fields, as well as nutritional and over-the-counter pharmaceutical products, and wellness and prevention platforms. The Baby Care franchise includes the JOHNSON’S^® Baby line of products. Major brands in the Skin Care franchise include the AVEENO^®; CLEAN & CLEAR^®; JOHNSON’S^® Adult; NEUTROGENA^®; RoC^®; LUBRIDERM^®; Dabao; and Vendôme product lines. The Oral Care franchise includes the LISTERINE^® and REACH^® oral care lines of products. The Wound Care franchise includes BAND-AID^® brand adhesive bandages and PURELL^® instant hand sanitizer products. Major brands in the Women’s Health franchise are the CAREFREE^® Pantiliners; STAYFREE^® sanitary protection products; and Vania Expansion products. The nutritional and over-the-counter lines include SPLENDA^®, No Calorie Sweetener; the broad family of TYLENOL^® acetaminophen products; SUDAFED^® cold, flu and allergy products; ZYRTEC^® allergy products; MOTRIN^® IB ibuprofen products; and PEPCID^® AC Acid Controller from Johnson & Johnson • Merck Consumer Pharmaceuticals Co. These products are marketed to the general public and sold both to retail outlets and distributors throughout the world.

 

Pharmaceutical

 

The Pharmaceutical segment includes products in the following therapeutic areas: anti-infective, antipsychotic, cardiovascular, contraceptive, dermatology, gastrointestinal, hematology, immunology, neurology, oncology, pain management, urology and virology. These products are distributed directly to retailers, wholesalers and health care professionals for prescription use. Key products in the Pharmaceutical segment include: REMICADE^® (infliximab), a biologic approved for the treatment of a number of immune mediated inflammatory diseases; PROCRIT^® (Epoetin alfa, sold outside the U.S. as EPREX^®), a biotechnology-derived product that stimulates red blood cell production; LEVAQUIN^® (levofloxacin) in the anti-infective field; RISPERDAL^® CONSTA^® (risperidone), a long-acting injectable for the treatment of schizophrenia; CONCERTA^® (methylphenidate HCl), a product for the treatment of attention deficit hyperactivity disorder; ACIPHEX^®/PARIET^®, a proton pump inhibitor co-marketed with Eisai Inc.; DURAGESIC^®/Fentanyl Transdermal (fentanyl transdermal system, sold outside the U.S. as DUROGESIC^®), a treatment for chronic pain that offers a novel delivery system; VELCADE^® (bortezomib), a product for the treatment for multiple myeloma; PREZISTA^® (darunavir) for the treatment of HIV/AIDS patients; and INVEGA^® (paliperidone), a once-daily atypical antipsychotic.

 

Medical Devices and Diagnostics

 

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

 

The international business of Johnson & Johnson is conducted by subsidiaries located in 59 countries outside the United States, which are selling products in virtually all countries throughout the world. The products made and sold in the international business include many of those described above under “— Segments of Business — Consumer,” “— Pharmaceutical” and “— Medical Devices and Diagnostics.” However, the principal markets, products and methods of distribution in the international business vary with the country and the culture. The products sold in international business include not only those developed in the United States, but also those developed by subsidiaries abroad.

 

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

 

Raw materials essential to Johnson & Johnson’s operating companies’ businesses are generally readily available from multiple sources.

 

Johnson & Johnson and its subsidiaries have made a practice of obtaining patent protection on their products and processes where possible. They own or are licensed under a number of patents relating to their products and manufacturing processes, which in the aggregate are believed to be of material importance to Johnson & Johnson in the operation of its businesses. Sales of the Company’s largest product, REMICADE^® (infliximab), accounted for approximately 7% of Johnson & Johnson’s total revenues for fiscal 2009. Accordingly, the patents related to this product are believed to be material to Johnson & Johnson.

 

During 2007 through 2009, RISPERDAL^® (risperidone) oral and TOPAMAX^® (topiramate) lost basic patent protection and market exclusivity and became subject to generic competition in the United States and international markets. RISPERDAL^® oral sales declined by 57.7% and 37.8% in 2009 and 2008, respectively. TOPAMAX^® lost market exclusivity in March 2009 and sales declined by 57.9% as compared to 2008. The next significant patent scheduled to expire on December 20, 2010 is for LEVAQUIN^® (levofloxacin), which accounted for 2.5% of the Company’s 2009 sales. A pediatric extension for LEVAQUIN^® was granted by the U.S. Food and Drug Administration (“FDA”), which extends market exclusivity in the United States through June 20, 2011.

 

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

 

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.

 

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

 

Research activities represent a significant part of Johnson & Johnson’s subsidiaries’ businesses. Major research facilities are located not only in the United States, but also in Belgium, Brazil, Canada, China, France, Germany, India, Israel, Japan, the Netherlands, Singapore and the United Kingdom. The costs of worldwide Company-sponsored research activities relating to the development of new products, improvement of existing products, technical support of products and compliance with governmental regulations for the protection of consumers and patients (excluding purchased in-process research and development charges for fiscal 2008 and 2007), amounted to $7.0 billion, $7.6 billion and $7.7 billion for fiscal years 2009, 2008 and 2007, respectively. These costs are charged directly to expense, or directly against income, in the year in which incurred.

 

Johnson & Johnson’s operating companies are subject to a variety of U.S. and international environmental protection measures. Johnson & Johnson believes that its operations comply in all material respects with applicable environmental laws and regulations. Johnson & Johnson’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.

 

Most of Johnson & Johnson’s businesses are subject to varying degrees of governmental regulation in the countries in which operations are conducted, and the general trend is toward increasingly stringent regulation. In the United States, the drug, device, diagnostics and cosmetic industries have long been subject to regulation by various federal and state agencies, primarily as to product safety, efficacy, manufacturing, advertising, labeling and safety reporting. The exercise of broad regulatory powers by the FDA continues to result in increases in the amounts of testing and documentation required for FDA clearance of new drugs and devices and a corresponding increase in the expense of product introduction. Similar trends are also evident in major markets outside of the United States.

 

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

 

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

 

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

 

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

 

Not applicable. Some important factors that could cause the Company’s actual results to differ from the Company’s expectations in any forward-looking statements in this Report are set forth in Exhibit 99 to this Report on Form 10-K.

 

Not applicable.

 

Johnson & Johnson and its subsidiaries operate 143 manufacturing facilities occupying approximately 21.4 million square feet of floor space.

 

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

 

 

Within the United States, 7 facilities are used by the Consumer segment, 12 by the Pharmaceutical segment and 37 by the Medical Devices and Diagnostics segment. Johnson & Johnson’s manufacturing operations outside the United States are often conducted in facilities that serve more than one business segment.

 

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

 

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

 

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

 

Johnson & Johnson’s properties are maintained in good operating condition and repair and are well utilized.

 

For information regarding lease obligations, see Note 16 “Rental Expense and Lease Commitments” under “Notes to Consolidated Financial Statements” on page 53 of the Annual Report, filed as Exhibit 13 to this Report on Form 10-K. Segment information on additions to property, plant and equipment is contained in Note 18 “Segments of Business and Geographic Areas” under “Notes to Consolidated Financial Statements” on page 55 of the Annual Report, filed as Exhibit 13 to this Report on Form 10-K.

 

The information set forth in Note 21 “Legal Proceedings” under “Notes to Consolidated Financial Statements” on pages 57 through 63 of the Annual Report is incorporated herein by reference and filed as Exhibit 13 to this Report on Form 10-K.

 

The Company or its subsidiaries are parties to a number of proceedings brought under the Comprehensive Environmental Response, Compensation and Liability Act, commonly known as Superfund, and comparable state laws, in which the primary relief sought is the cost of past and future remediation. While it is not feasible to predict or determine the outcome of these proceedings, in the opinion of the Company, such proceedings would not have a material adverse effect on the results of operations, cash flows or financial position of the Company.

 

Not applicable.

 

Listed below are the executive officers of Johnson & Johnson as of February 8, 2010, each of whom, unless otherwise indicated below, has been an employee of the Company or its affiliates and held the position indicated during the past five years. There are no family relationships between any of the executive officers, and there is no arrangement or understanding between any executive officer and any other person pursuant to which the executive officer was selected. At the annual meeting of the Board of Directors, the executive officers are elected by the Board to hold office for one year and until their respective successors are elected and qualified, or until earlier resignation or removal.

 

Information with regard to the directors of the Company, including those of the following executive officers who are directors, is incorporated herein by reference to the material captioned “Election of Directors” in the Proxy Statement.

 

 

 

As of February 8, 2010, there were 185,121 record holders of Common Stock of the Company. Additional information called for by this item is incorporated herein by reference to: the material under the captions “Management’s Discussion and Analysis of Results of Operations and Financial Condition — Liquidity and Capital Resources — Share Repurchase and Dividends” on page 32; “ — Other Information — Common Stock Market Prices” on page 35; Note 17 “Common Stock, Stock Option Plans and Stock Compensation Agreements” under “Notes to Consolidated Financial Statements” on pages 53 and 54; and “Shareholder Return Performance Graphs” on page 67 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 9, 2007, the Company announced that its Board of Directors approved a stock repurchase program, authorizing the Company to buy back up to $10 billion of the Company’s Common Stock. Share repurchases 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 funds the share repurchase program through a combination of available cash and debt. The Company does not expect its triple-A credit rating to be affected by the share repurchase program. As of January 3, 2010, an aggregate of 140,377,700 shares were purchased for a total of $8.9 billion since the inception of the repurchase program announced on July 9, 2007.

 

In addition, Common Stock purchases on the open market are made as part of a systematic plan related to the Company’s compensation programs.

 

The following table provides information with respect to Common Stock purchases by the Company during the fiscal fourth quarter of 2009.

 

 

 

 

 

The information called for by this item is incorporated herein by reference to the material under the caption “Summary of Operations and Statistical Data 1999-2009” on page 66 of the Annual Report, filed as Exhibit 13 to this Report on Form 10-K.

 

 

The information called for by this item is incorporated herein by reference to the narrative and tabular (but not the graphic) material under the caption “Management’s Discussion and Analysis of Results of Operations and Financial Condition” on pages 26 through 35 of the Annual Report, filed as Exhibit 13 to this Report on Form 10-K.

 

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

 

The information called for by this item is incorporated herein by reference to the Audited Consolidated Financial Statements and Notes thereto and the material under the caption “Report of Independent Registered Public Accounting Firm” on pages 36 through 65 of the Annual Report, filed as Exhibit 13 to this Report on Form 10-K.

 

Not applicable.

 

 

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

 

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

 

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

 

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

 

The Company’s management has assessed the effectiveness of the Company’s internal control over financial reporting as of January 3, 2010. In making this assessment, the Company used the criteria established by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in “Internal Control-Integrated Framework.” These criteria are in the areas of control environment, risk assessment, control activities, information and communication, and monitoring. The Company’s assessment included extensive documenting, evaluating and testing the design and operating effectiveness of its internal control over financial reporting.

 

Based on the Company’s processes and assessment, as described above, management has concluded that, as of January 3, 2010, the Company’s internal control over financial reporting was effective.

 

The effectiveness of the Company’s internal control over financial reporting as of January 3, 2010 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report, which appears in the “Report of Independent Registered Public Accounting Firm” on page 64 of the Annual Report, which is incorporated herein by reference and filed as Exhibit 13 to this Report on Form 10-K.

 

Changes in Internal Control Over Financial Reporting.  During the fiscal quarter ended January 3, 2010, there were no changes in the Company’s internal control over financial reporting identified in connection with the evaluation of such referred to above in this Item 9A that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

 

Not applicable.

 

The information called for by this item is incorporated herein by reference to the material under the captions “Election of Directors” and “Stock Ownership and Section 16 Compliance — Section 16(a) Beneficial Ownership Reporting Compliance” and the discussion of the Audit Committee under the caption “Corporate Governance — 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 Web site 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 Web site at www.investor.jnj.com/governance.cfm within five business days (and retained on the Web site 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 Web site 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 Web site at www.investor.jnj.com/governance.cfm within five business days (and retained on the Web site for at least one year).

 

 

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

 

 

Additional information called for by this item is incorporated herein by reference to the material under the captions “Stock Ownership and Section 16 Compliance” in the Proxy Statement and Note 17 “Common Stock, Stock Option Plans and Stock Compensation Agreements” under “Notes to Consolidated Financial Statements” on pages 53 and 54 of the Annual Report, filed as Exhibit 13 to this Report on Form 10-K.

Equity Compensation Plan Information

 

The following table provides certain information as of January 3, 2010 concerning the shares of the Company’s Common Stock that may be issued under existing equity compensation plans.

 

 

 

 

The shares that are included in this column that were issued under plans not approved by shareholders of the applicable acquired company are: 131,183 shares issuable under the 1996 Scios Non-Officer Stock Option Plan; and 35,171 shares issuable under warrants under an Inverness Medical plan.

 

 

 

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.

 

 

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.

 

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

 

1. Financial Statements

 

The following Audited Consolidated Financial Statements and Notes thereto and the material under the caption “Report of Independent Registered Public Accounting Firm” on pages 36 through 64 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 2009 and 2008

 

Consolidated Statements of Earnings for Fiscal Years 2009, 2008 and 2007

 

Consolidated Statements of Equity for Fiscal Years 2009, 2008 and 2007

 

Consolidated Statements of Cash Flows for Fiscal Years 2009, 2008 and 2007

 

Notes to Consolidated Financial Statements

 

Report of Independent Registered Public Accounting Firm

 

2. Financial Statement Schedules

 

Schedule II — Valuation and Qualifying Accounts

 

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

 

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

 

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

Schedule Of Valuation And Qualifying Accounts Disclosure

 

JOHNSON & JOHNSON AND SUBSIDIARIES

 

SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS

 

Fiscal Years Ended January 3, 2010, December 28, 2008 and December 30, 2007

(Dollars in Millions)

 

 

 

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: March 1, 2010

JOHNSON & JOHNSON

(Registrant)

 

W. C. Weldon, Chairman, Board of Directors,

and Chief Executive Officer

 

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

 

 

To the Board of Directors of

Johnson & Johnson:

 

Our audits of the consolidated financial statements and of the effectiveness of internal control over financial reporting referred to in our report dated March 1, 2010 appearing in the 2009 Annual Report to Shareholders of Johnson & Johnson (which report and consolidated financial statements are incorporated by reference in this Annual Report on Form 10-K) also included an audit of the financial statement schedule listed in Item 15(a)2 of this Form 10-K. In our opinion, this financial statement schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements.

 

PricewaterhouseCoopers LLP

 

New York, New York

March 1, 2010

 

 

 

 

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.

EXHIBIT 10(w)

 

Summary of Compensation Arrangements for
Named Executive Officers and Directors

 

Compensation Arrangements for Named Executive Officers

 

Following is a description of the compensation arrangements that have been approved by the Compensation & Benefits Committee of the Board of Directors of Johnson & Johnson (the “Compensation Committee”) on February 8, 2010 for the Company’s Chief Executive Officer, Chief Financial Officer and the other three most highly compensated executive officers in 2009 (the “Named Executive Officers”).

 

Annual Base Salary:

 

The Compensation Committee has approved the following base salaries, effective February 22, 2010, for the Named Executive Officers:

 

 

Annual Performance Bonus:

 

The Compensation Committee has approved the following annual performance bonus payments for performance in 2009 (paid in the form of 85% cash and 15% Company Common Stock as determined by the Compensation Committee):

 

 

Stock Option and Restricted Share Unit Grants:

 

The Compensation Committee has approved the following stock option and Restricted Share Unit (“RSU”) grants under the Company’s 2005 Long-Term Incentive Plan (the “LTI Plan”). The stock options were granted at an exercise price of $62.62, at the “fair market value” (calculated as the average of the high and low prices of the Company’s Common Stock on the New York Stock Exchange) on February 8, 2010. The options will become exercisable on February 9, 2013 and expire on February 7, 2020. The RSUs will vest on February 9, 2013, upon which, the holder, if still employed by the Company on such date, will receive one share of the Company’s Common Stock for each RSU.

 

Non-Equity Incentive Plan Awards:

 

The Compensation Committee has approved the following non-equity incentive plan awards in recognition of performance during 2009 under the Company’s Certificates of Long-Term Performance (“CLP”) program. Vested awards are not paid out until the earlier of ten years from the date of grant or retirement or other termination of employment. As of the grant date, the defined present value per CLP was $4.69. The CLP unit value will vary over time based on the performance of the Company.

 

 

Due to the change in the planning basis of CLP awards from a vesting-based approach under the Certificates of Long-term Compensation Plan (the “CLC Plan”) to a grant-based approach under the new CLP Plan, which replaced the CLC Plan effective February 2010, certain executives were adversely impacted. The Committee approved selected one-time CLP awards to transition these executives to the new CLP Plan:

 

 

Equity Compensation for Non-Employee Directors

 

Each Non-Employee Director receives non-retainer equity compensation in the first quarter of each year under the LTI Plan in the form of shares of restricted Common Stock having a fair market value of $100,000 on the grant date. Accordingly, each Non-Employee Director was granted 1,596 shares of restricted Common Stock under the LTI Plan on February 8, 2010. The restricted shares will become freely transferable on February 8, 2013.

EXHIBIT 12

 

JOHNSON & JOHNSON AND SUBSIDIARIES

 

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

(Dollars in Millions)

 

Table of Contents

MANAGEMENT’S DISCUSSION AND ANALYSIS
26		Organization and Business Segments
26		Results of Operations
27		Analysis of Sales by Business Segments
29		Analysis of Consolidated Earnings Before Provision for Taxes on Income
32		Liquidity and Capital Resources
33		Other Information
35		Cautionary Factors That May Affect Future Results
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
36		Consolidated Balance Sheets
37		Consolidated Statements of Earnings
38		Consolidated Statements of Equity
39		Consolidated Statements of Cash Flows
40		Notes to Consolidated Financial Statements
64		Report of Independent Registered Public Accounting Firm
65		Management’s Report on Internal Control over Financial Reporting
SUPPORTING SCHEDULES
66		Summary of Operations and Statistical Data 1999-2009
67		Shareholder Return Performance Graphs

JOHNSON & JOHNSON 2009 ANNUAL REPORT

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 115,500 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 and Diagnostics. The Consumer segment includes a broad range of products used in the baby care, skin care, oral care, wound care and women’s health care fields, as well as nutritional and over-the-counter pharmaceutical products. These products are marketed to the general public and sold both to retail outlets and distributors throughout the world. The Pharmaceutical segment includes products in the following therapeutic areas: anti-infective, antipsychotic, cardiovascular, contraceptive, dermatology, gastrointestinal, hematology, immunology, neurology, oncology, pain management, urology and virology. These products are distributed directly to retailers, wholesalers and health care professionals for prescription use. The Medical Devices and Diagnostics segment includes a broad range of products used principally in the professional fields by physicians, nurses, therapists, hospitals, diagnostic laboratories and clinics. These products include Cordis’ circulatory disease management products; DePuy’s orthopaedic joint reconstruction, spinal care and sports medicine products; Ethicon’s surgical care, aesthetics and women’s health products; Ethicon Endo-Surgery’s minimally invasive surgical products; LifeScan’s blood glucose monitoring and insulin delivery products; Ortho-Clinical Diagnostics’ professional diagnostic products and Vistakon’s disposable contact lenses.

     The Company’s structure is based upon the principle of decentralized management. The Executive Committee of Johnson & Johnson is the principal management group responsible for the operations and allocation of the resources of the Company. This Committee oversees and coordinates the activities of the Consumer, Pharmaceutical and Medical Devices and Diagnostics business segments.

     In all of its product lines, the Company competes with companies both local and global, located throughout the world. Competition exists in all product lines without regard to the number and size of the competing companies involved. Competition in research, involving the development and the improvement of new and existing products and processes, is particularly significant. The development of new and innovative products is important to the Company’s success in all areas of its business. This also includes protecting the Company’s portfolio of intellectual property. The competitive environment requires substantial investments in continuing research and in maintaining sales forces. In addition, the development and maintenance of customer demand for the Company’s consumer products involves significant expenditures for advertising and promotion.

MANAGEMENT’S OBJECTIVES

A primary objective of the Company is to achieve superior levels of capital efficient profitable growth. To accomplish this, the Company’s management operates the business consistent with certain strategic principles that have proven successful over time. To this end, the Company participates in growth areas in human health care and is committed to attaining leadership positions in these growth areas through the development of innovative products and services. New products introduced within the past five years accounted for approximately 25% of 2009 sales. In 2009, $7.0 billion, or 11.3% of sales, was invested in research and development. This investment reflects management’s commitment to the importance of ongoing development of new and differentiated products and services to sustain long-term growth.

     With more than 250 operating companies located in 60 countries, the Company views its principle of decentralized management as an asset and fundamental to the success of a broadly based business. It also fosters an entrepreneurial spirit, combining the extensive resources of a large organization with the ability to react quickly to local market changes and challenges.

     The Company is committed to developing global business leaders who can drive growth objectives. Businesses are managed for the long-term in order to sustain leadership positions and achieve growth that provides an enduring source of value to our shareholders.

     Unifying the management team and the Company’s dedicated employees in achieving these objectives is Our Credo. Our Credo provides a common set of values and serves as a constant reminder of the Company’s responsibilities to its customers, employees, communities and shareholders. The Company believes that these basic principles, along with its overall mission of improving the quality of life for people everywhere, will enable Johnson & Johnson to continue to be among the leaders in the health care industry.

Results of Operations

ANALYSIS OF CONSOLIDATED SALES

In 2009, worldwide sales decreased 2.9% to $61.9 billion, compared to increases of 4.3% in 2008 and 14.6% in 2007. These sales changes consisted of the following:

Sales (decrease)/increase due to:		2009				2008				2007
Volume			(0.2	)%			1.1				10.1
Price			(0.1	)			0.8				1.4
Currency			(2.6	)			2.4				3.1
Total			(2.9	)%			4.3				14.6

Sales by U.S. companies were $30.9 billion in 2009, $32.3 billion in 2008 and $32.4 billion in 2007. This represents a decrease of 4.4% in 2009, a decrease of 0.4% in 2008 and an increase of 9.0% in 2007. Sales by international companies were $31.0 billion in 2009, $31.4 billion in 2008 and $28.7 billion in 2007. This represents a decrease of 1.4% in 2009 and increases of 9.7% and 21.7% in 2008 and 2007, respectively.

JOHNSON & JOHNSON 2009 ANNUAL REPORT

     The five-year compound annual growth rates for worldwide, U.S. and international sales were 5.5%, 2.2% and 9.6%, respectively. The ten-year compound annual growth rates for worldwide, U.S. and international sales were 8.5%, 7.1% and 10.1%, respectively.

     Sales in Europe experienced a decline of 5.1% including operational growth of 2.1% and a negative impact from currency of 7.2%. Sales in the Western Hemisphere (excluding the U.S.) experienced a decline of 0.3% including operational growth of 8.8% and a negative impact from currency of 9.1%. Sales in the Asia-Pacific, Africa region achieved growth of 4.6%, including operational growth of 4.4% and an increase of 0.2% related to the positive impact of currency.

     In 2009, 2008 and 2007, the Company did not have a customer that represented 10% or more of total consolidated revenues.

     2009 results benefited from the inclusion of a 53rd week. (See Note 1 to the Consolidated Financial Statements for Annual Closing Date details). The Company estimated that the fiscal year 2009 growth rate was enhanced by approximately 0.5%. While the additional week added a few days to sales, it also added a full week’s worth of operating costs; therefore, the net earnings impact was negligible.

Analysis of Sales by Business Segments

CONSUMER SEGMENT

Consumer segment sales in 2009 were $15.8 billion, a decrease of 1.6% from 2008 with 2.0% of this change due to operational growth and negative currency impact of 3.6%. U.S. Consumer segment sales were $6.8 billion, a decrease of 1.4%. International sales were $9.0 billion, a decrease of 1.7%, with growth of 4.7% achieved by operations and a decrease of 6.4% resulting from the negative impact of currency fluctuations.

     The Over-the-Counter (OTC) Pharmaceuticals and Nutritionals franchise sales were $5.6 billion, a decrease of 4.5% from 2008. This was primarily due to the negative impact of currency and lower sales of the over-the-counter ZYRTEC^® allergy product line related to the initial build of inventory by the trade during the 2008 launch year. This was partially offset by sales growth in the SPLENDA^® sweetener product line. The U.S. Food and Drug Administration (FDA) is currently considering certain recommendations made by its advisory committee for reducing the potential for overdose with acetaminophen, the active ingredient in TYLENOL^® brand products. The Company has provided the FDA with its own recommendations and will continue to be actively engaged with the FDA on this topic. In December 2009, the Company announced a voluntary recall of all lots of TYLENOL^® Arthritis Pain 100 count with EZ-OPEN CAP following reports of an uncharacteristic smell; however, there was an insignificant impact on sales. In January 2010, the Company has undertaken a broader voluntary recall of TYLENOL^® and certain OTC products as a precautionary action.

     The Skin Care franchise sales grew by 2.5% to $3.5 billion in 2009. The sales growth was primarily due to the AVEENO^®, NEUTROGENA^®, and DABAO™ skin care lines. The Baby Care franchise sales were $2.1 billion, a decrease of 4.5% primarily due to the negative impact of currency and lower sales for Babycenter.com as a result of exiting the online retail business, partially offset by growth in the haircare product line. The Women’s Health franchise sales were $1.9 billion, a decrease of 0.8% primarily due to the negative impact of currency partially offset by increased sales associated with the acquisition of a joint venture partner in France in the fiscal

Major Consumer Franchise Sales:

														% Change
(Dollars in Millions)		2009				2008				2007				’09 vs. ’08				’08 vs. ’07
OTC Pharmaceuticals & Nutritionals		$	5,630				5,894				5,142				(4.5)	%			14.6
Skin Care			3,467				3,381				3,051				2.5				10.8
Baby Care			2,115				2,214				1,982				(4.5	)			11.7
Women’s Health			1,895				1,911				1,806				(0.8	)			5.8
Oral Care			1,569				1,624				1,488				(3.4	)			9.1
Wound Care/Other			1,127				1,030				1,024				9.4				0.6
Total		$	15,803				16,054				14,493				(1.6)	%			10.8

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

first quarter of 2009. Prior to the acquisition of the joint venture partner, sales by the joint venture were not recorded as part of the Company’s sales to customers. The Oral Care franchise sales were $1.6 billion, a decrease of 3.4% due to softness in the category in the U.S., partially offset by growth of LISTERINE^® mouthwash outside the U.S. The Wound Care/Other franchise sales grew by 9.4% to $1.1 billion primarily due to the recent acquisitions in the Wellness and Prevention platform and strong sales of PURELL^® hand sanitizer.

     Consumer segment sales in 2008 were $16.0 billion, an increase of 10.8% over 2007 with 8.3% of this change due to operational growth and the remaining 2.5% due to positive currency fluctuations. U.S. Consumer segment sales were $6.9 billion, an increase of 8.3%. International sales were $9.1 billion, an increase of 12.8%, with 8.3% as a result of operations and 4.5% due to currency fluctuations over 2007.

PHARMACEUTICAL SEGMENT

Pharmaceutical segment sales in 2009 were $22.5 billion, a decrease of 8.3% from 2008, with an operational decline of 6.1% and the remaining 2.2% due to the negative impact of currency fluctuations. U.S. sales were $13.0 billion, a decrease of 12.1%. International sales were $9.5 billion, a decrease of 2.6%, which included 3.0% operational growth and a decrease of 5.6% resulting from the negative impact of currency fluctuations.

     REMICADE^® (infliximab), a biologic approved for the treatment of a number of immune mediated inflammatory diseases, achieved sales of $4.3 billion in 2009, with growth of 14.8% over the prior year primarily attributable to strong overall market growth. REMICADE^® is competing in a market which is experiencing increased competition due to new entrants and the expansion of indications for existing competitors.

     PROCRIT^® (Epoetin alfa) and EPREX^® (Epoetin alfa) had combined sales of $2.2 billion in 2009, a decline of 8.7% compared to the prior year. Lower sales of PROCRIT^® and EPREX^® were due to the declining markets for Erythropoiesis Stimulating Agents (ESAs).

     LEVAQUIN^® (levofloxacin)/FLOXIN^® (ofloxacin) sales were $1.6 billion, a decline of 2.6% versus the prior year, due to competition in the category. The patent for LEVAQUIN^® (levofloxacin) in the U.S. will expire in December 2010. A pediatric extension was granted by the FDA, which extends market exclusivity in the U.S. through June 2011. The expiration of the product patent or loss of market exclusivity is likely to result in a significant reduction in sales.

     RISPERDAL^® CONSTA^® (risperidone), a long-acting injectable for the treatment of schizophrenia, achieved sales of $1.4 billion in 2009, representing an increase of 8.9% as compared to the prior year. The growth was due to a positive shift from daily therapies to longer-acting RISPERDAL^® CONSTA^® and the launch of RISPERDAL^® CONSTA^® in Japan earlier in the year.

     CONCERTA^® (methylphenidate HCl), a product for the treatment of attention deficit hyperactivity disorder (ADHD), achieved sales of $1.3 billion in 2009, representing an increase of 6.3% over 2008. Sales results in 2008 were favorably impacted by approximately $115 million related to a change in the estimate of accrued sales reserves related to sales outside the U.S. Although the original CONCERTA^® patent expired in 2004, the FDA has not approved any generic version that is substitutable for CONCERTA^®. Parties have filed Abbreviated New Drug Applications (ANDAs) for generic versions of CONCERTA^®, which are pending and may be approved at any time. An approval would lead to a loss of exclusivity and is likely to result in a significant reduction in sales.

     TOPAMAX^® (topiramate), RISPERDAL^® (risperidone), and DURAGESIC^®/Fentanyl Transdermal (fentanyl transdermal system) experienced sales declines in 2009 of 57.9%, 57.7% and 14.3%, respectively, versus the prior year due to generic competition. Market exclusivity in the U.S. expired for TOPAMAX^® (topiramate) in March 2009, RISPERDAL^® oral in June 2008 and DURAGESIC^® in January 2005.

     ACIPHEX^®/PARIET^® (rabeprazole sodium) experienced a sales decline of 5.4% due to competition in the category.

     In 2009, Other Pharmaceutical sales were $7.6 billion, representing a growth of 6.6% over the prior year. Contributors to the increase were sales of VELCADE^® (bortezomib), a product for the treatment of multiple myeloma; PREZISTA^® (darunavir), for the treatment of HIV/AIDS patients; INTELENCE™ (etravirine), for HIV combination therapy and INVEGA^® (paliperidone), a once-daily atypical antipsychotic. The growth was partially offset by the impact of a generic version of ORTHO TRI-CYCLEN^® LO shipped by a competitor. Subsequently, the generic manufacturer recognized the validity of the patent, paid damages for its infringing sales and ceased further shipments of the product.

     During 2009, the Company received regulatory approval for several new molecular entities (NMEs), including STELARA™ (ustekinumab) in the U.S. and European Union (EU) for the treatment of moderate-to-severe plaque psoriasis; INVEGA^® SUSTENNA™ (paliperidone palmitate) extended-release injectable suspension in the U.S. for the acute and maintenance treatment of schizophrenia; SIMPONI™ (golimumab) in the U.S. and EU for the treatment of moderate-to-severe, active rheumatoid arthritis (RA), active and progressive psoriatic arthritis (PsA) and severe, active ankylosing spondylitis (AS); and PRILIGY™ (dapoxetine) in several countries for the on-demand treatment of premature ejaculation. NUCYNTA™ (tapentadol) Immediate Release Tablets, for relief

Major Pharmaceutical Product Revenues:

														% Change
(Dollars in Millions)		2009				2008				2007				’09 vs. ’08				’08 vs. ’07
REMICADE® (infliximab)		$	4,304				3,748				3,327				14.8	%			12.7
PROCRIT®/EPREX® (Epoetin alfa)			2,245				2,460				2,885				(8.7	)			(14.7	)
LEVAQUIN®/FLOXIN® (levofloxacin/ofloxacin)			1,550				1,591				1,646				(2.6	)			(3.3	)
RISPERDAL® CONSTA® (risperidone)			1,425				1,309				1,128				8.9				16.0
CONCERTA® (methylphenidate HCl)			1,326				1,247				1,028				6.3				21.3
TOPAMAX® (topiramate)			1,151				2,731				2,453				(57.9	)			11.3
ACIPHEX®/PARIET® (rabeprazole sodium)			1,096				1,158				1,357				(5.4	)			(14.7	)
RISPERDAL® (risperidone)			899				2,126				3,420				(57.7	)			(37.8	)
DURAGESIC®/Fentanyl Transdermal (fentanyl transdermal system)			888				1,036				1,164				(14.3	)			(11.0	)
Other Pharmaceuticals			7,636				7,161				6,458				6.6				10.9
Total		$	22,520				24,567				24,866				(8.3)	%			(1.2	)

JOHNSON & JOHNSON 2009 ANNUAL REPORT

of moderate to severe acute pain, was also launched in the U.S. in 2009.

     The Company also received approvals expanding the indications for several key products, including INVEGA^® (paliperidone) extended-release tablets in the U.S. for the acute treatment of schizoaffective disorder; RISPERDAL^® CONSTA^® (risperidone) Long-Acting Treatment in the U.S. as both monotherapy and adjunctive therapy to lithium or valproate in the maintenance treatment of Bipolar I Disorder, as well as for the treatment of schizophrenia in Japan; PREZISTA^® (darunavir) in the EU with low-dose ritonavir as part of combination therapy in treatment-naïve adults, as well as for treatment-experienced pediatric patients with HIV.

     The Company submitted a New Drug Application (NDA) to the FDA for tapentadol extended release (ER) tablets, an investigational oral analgesic for the management of moderate to severe chronic pain in patients 18 years of age or older. In addition, the Company also invested in a number of new platforms for growth in Oncology, Alzheimer’s disease and vaccines for the treatment and prevention of influenza and other infectious and non-infectious diseases.

     Pharmaceutical segment sales in 2008 were $24.6 billion, a decrease of 1.2% from 2007, with an operational decline of 3.1% and 1.9% increase due to the positive impact of currency fluctuations. U.S. Pharmaceutical segment sales were $14.9 billion, a decrease of 4.9%. International Pharmaceutical segment sales were $9.7 billion, an increase of 5.1%, which included 0.1% of operational growth and 5.0% related to the positive impact of currency fluctuations.

MEDICAL DEVICES AND DIAGNOSTICS SEGMENT

The Medical Devices and Diagnostics segment achieved sales of $23.6 billion in 2009, representing an increase of 1.9% over the prior year, with operational growth of 4.2% and a negative currency impact of 2.3%. U.S. sales were $11.0 billion, an increase of 4.5% over the prior year. International sales were $12.6 billion, a decrease of 0.2%, with growth of 4.0% from operations and a decrease of 4.2% resulting from the negative impact of currency fluctuations.

     The DePuy franchise achieved sales of $5.4 billion in 2009, a 4.6% increase over the prior year. This was primarily due to growth in the spine, hip and knee product lines. Additionally, new product launches in the Mitek sports medicine product line contributed to the growth.

     The Ethicon Endo-Surgery franchise achieved sales of $4.5 billion in 2009, a 4.8% increase over the prior year. This was attributable to growth in the endoscopy, HARMONIC^®, ENSEAL^® and Advanced Sterilization product lines.

     The Ethicon franchise achieved sales of $4.1 billion in 2009, a 7.3% increase over the prior year. This was attributable to growth in the sutures, biosurgical and mesh product lines in addition to sales of newly acquired products from the acquisitions of Omrix Biopharmaceuticals, Inc. and Mentor Corporation. The growth was partially offset by the divestiture of the Professional Wound Care business of Ethicon, Inc. in the fiscal fourth quarter of 2008.

     Sales in the Cordis franchise were $2.7 billion, a decline of 10.3% versus the prior year. The decline reflects lower sales of the CYPHER^® Sirolimus-eluting Coronary Stent due to increased global competition. The decline was partially offset by growth of the Biosense Webster business.

     The Vision Care franchise achieved sales of $2.5 billion in 2009, a 0.2% increase over prior year primarily related to growth in the Astigmatic contact lens product line offset by the negative impact of currency.

     Sales in the Diabetes Care franchise were $2.4 billion in 2009, a decline of 3.7% versus the prior year. Declines in the LifeScan product line were partially offset by growth of the Animas insulin delivery business resulting from new product launches and continued development in international markets.

     The Ortho-Clinical Diagnostics franchise achieved sales of $2.0 billion in 2009, a 6.6% increase over the prior year primarily attributable to the recent launch of the VITROS^® 3600 and 5600 analyzers.

     The Medical Devices and Diagnostics segment achieved sales of $23.1 billion in 2008, representing an increase of 6.4% over the prior year, with operational growth of 3.5% and 2.9% due to a positive impact from currency fluctuations. U.S. sales were $10.5 billion, an increase of 1.0%. International sales were $12.6 billion, an increase of 11.3%, with 5.8% from operations and a positive currency impact of 5.5%.

Analysis of Consolidated Earnings Before Provision for Taxes on Income

Consolidated earnings before provision for taxes on income decreased by $1.1 billion to $15.8 billion in 2009 as compared to the $16.9 billion earned in 2008, a decrease of 6.9%. The decrease was primarily related to lower sales, the negative impact of product mix, lower interest income due to lower rates of interest earned and restructuring charges of $1.2 billion. This was partially offset by lower selling, marketing and administrative expenses due to cost containment efforts across all the businesses. 2008 included purchased in-process research and development (IPR&D) charges of $0.2 billion and increased investment spending in selling, marketing and administrative expenses utilized from the proceeds associated with the divestiture of the Professional Wound Care business of Ethicon, Inc. The increase in 2008 of 27.4% over the $13.3 billion in 2007 was primarily due to lower IPR&D charges of $0.6 billion, gains from divestitures of $0.5 billion and higher litigation gains of $0.5 billion versus restructuring charges of $0.7 billion and the write-down of the NATRECOR^® intangible asset of $0.7 billion recorded in 2007. As a percent to sales, consolidated

Major Medical Devices and Diagnostics Franchise Sales*:

														% Change
(Dollars in Millions)		2009				2008				2007				’09 vs. ’08				’08 vs. ’07
DEPUY®		$	5,372				5,136				4,698				4.6	%			9.3
ETHICON ENDO-SURGERY®			4,492				4,286				3,834				4.8				11.8
ETHICON®			4,122				3,840				3,603				7.3				6.6
CORDIS®			2,679				2,988				3,314				(10.3	)			(9.8	)
Vision Care			2,506				2,500				2,209				0.2				13.2
Diabetes Care			2,440				2,535				2,373				(3.7	)			6.8
ORTHO-CLINICAL DIAGNOSTICS®			1,963				1,841				1,705				6.6				8.0
Total		$	23,574				23,126				21,736				1.9	%			6.4

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

earnings before provision for taxes on income in 2009 was 25.4% versus 26.5% in 2008.

     The sections that follow highlight the significant components of the changes in consolidated earnings before provision for taxes on income.

Cost of Products Sold and Selling, Marketing and Administrative Expenses: Cost of products sold and selling, marketing and administrative expenses as a percent to sales were as follows:

% of Sales		2009				2008				2007
Cost of products sold			29.8	%			29.1				29.1
Percent point increase over the prior year			0.7				—				0.9
Selling, marketing and administrative expenses			32.0				33.7				33.5
Percent point (decrease)/increase over the prior year			(1.7	)			0.2				0.8

In 2009, cost of products sold as a percent to sales increased primarily due to the continued negative impact of product mix and inventory write-offs associated with the restructuring activity. Additionally, 2008 included some non-recurring positive items. There was a decrease in the percent to sales of selling, marketing and administrative expenses in 2009 primarily due to cost containment efforts across all the businesses and the annualized savings recognized from the 2007 restructuring program. Additionally, 2008 utilized the proceeds associated with the divestiture of the Professional Wound Care business of Ethicon, Inc. to fund increased investment spending.

     In 2008, cost of products sold as a percent to sales remained flat to the prior year. The change in the mix of businesses, with higher sales growth in the Consumer business and a slight sales decline in the Pharmaceutical business, had a negative impact on the cost of products sold as a percent to sales. In 2008, this was offset by manufacturing efficiencies and non-recurring positive items in 2008 and negative items in 2007. There was an increase in the percent to sales of selling, marketing and administrative expenses in 2008 primarily due to the change in the mix of businesses, whereby a greater proportion of sales were attributable to the Consumer segment, which has higher selling, marketing and administrative spending. Additionally, in 2008 the Company utilized the gain associated with the divestiture of the Professional Wound Care business of Ethicon, Inc. to fund increased investment spending. This was partially offset by ongoing cost containment efforts.

     In 2007, there was an increase in the percent to sales of cost of products sold primarily due to the impact of newly acquired consumer brands. There was an increase in the percent to sales of selling, marketing and administrative expenses in 2007 primarily due to the impact of newly acquired consumer brands partially offset by cost containment efforts.

Research and Development expense (excluding purchased in-process research and development charges) by segment of business was as follows:

		2009								2008								2007
(Dollars in Millions)		Amount				% of Sales*				Amount				% of Sales*				Amount				% of Sales*
Consumer		$	632				4.0	%			624				3.9				564				3.9
Pharmaceutical			4,591				20.4				5,095				20.7				5,265				21.2
Medical Devices and Diagnostics			1,763				7.5				1,858				8.0				1,851				8.5
Total research and development expense		$	6,986				11.3	%			7,577				11.9				7,680				12.6
Percent (decrease)/increase over the prior year			(7.8	)%							(1.3	)							7.8

Research and Development Expense: Research and development activities represent a significant part of the Company’s business. These expenditures relate to the development of new products, improvement of existing products, technical support of products and compliance with governmental regulations for the protection of consumers and patients.

     In 2009 and 2008, the reduction in the Pharmaceutical research and development spending was primarily due to increased efficiencies in Pharmaceutical research and development activities.

Restructuring: In 2009, the Company announced global restructuring initiatives that are expected to generate pre-tax, annual cost savings of $1.4 – $1.7 billion when fully implemented in 2011, with $0.8 – $0.9 billion expected to be achieved in 2010. The associated savings will provide additional resources to invest in new growth platforms; ensure the successful launch of the Company’s many new products and continued growth of the core businesses; and provide flexibility to adjust to the changed and evolving global environment. In the fiscal fourth quarter of 2009 the Company recorded a pre-tax charge of $1.2 billion, of which $113 million is included in cost of products sold.

     The restructuring program announced in 2007 has been completed. See Note 22 to the Consolidated Financial Statements for additional details related to the restructuring.

Purchased In-Process Research and Development: In 2009, in accordance with U.S. GAAP for business combinations, purchased in-process research and development (IPR&D) is no longer expensed but capitalized and tested for impairment. The Company capitalized $1.7 billion of IPR&D in 2009, primarily associated with the acquisitions of Cougar Biotechnology, Inc. and substantially all of the assets and rights of Elan’s Immunotherapy program.

     In 2008, the Company recorded a charge for IPR&D of $181 million before and after tax related to the acquisitions of Amic AB, SurgRx, Inc., HealthMedia, Inc. and Omrix Biopharmaceuticals, Inc. HealthMedia, Inc, a privately held company that creates web-based behavior change interventions, accounted for $7 million before tax of the IPR&D charges and was included in the operating profit of the Consumer segment. The IPR&D charges for all of the following acquisitions were included in the operating profit of the Medical Devices and Diagnostics segment. Amic AB, a Swedish developer of in vitro diagnostic technologies for use in point-of-care and near-patient settings (outside the physical facilities of the clinical laboratory), accounted for $40 million before tax of the IPR&D charges. SurgRx, Inc., a privately held developer of the advanced bipolar tissue sealing system used in the ENSEAL^® family of devices, accounted for $7 million before tax of the IPR&D charges. Omrix Biopharmaceuticals, Inc., a fully integrated biopharmaceutical company that develops and markets biosurgical and immunotherapy products, accounted for $127 million before tax of the IPR&D charges.

     In 2007, the Company recorded a charge for IPR&D of $807 million before and after tax related to the acquisition of Conor Medsystems, Inc. The IPR&D charge was included in the operating profit of the Medical Devices and Diagnostics segment.

JOHNSON & JOHNSON 2009 ANNUAL REPORT

Other (Income) Expense, Net: Other (income) expense, net includes gains and losses related to the sale and write-down of certain investments in equity securities held by Johnson & Johnson Development Corporation, gains and losses on the disposal of property, plant and equipment, currency gains and losses, non-controlling interests, litigation settlements and liabilities and royalty income. The unfavorable change of $0.5 billion in other (income) expense, net from 2009 to 2008 was primarily due to a gain of $0.5 billion from the divestiture of the Professional Wound Care business of Ethicon, Inc. in 2008.

     In 2008, other (income) expense, net included income from net litigation settlements and awards of $0.5 billion and a gain of $0.5 billion from the divestiture of the Professional Wound Care business of Ethicon, Inc. In 2007, other (income) expense, net included a charge of $0.7 billion before tax related to the NATRECOR^® intangible asset write-down.

OPERATING PROFIT BY SEGMENT

Operating profits by segment of business were as follows:

										Percent of
										Segment Sales
(Dollars in Millions)		2009				2008				2009				2008
Consumer		$	2,475				2,674				15.7	%			16.7
Pharmaceutical			6,413				7,605				28.5				31.0
Med Devices and Diagnostics			7,694				7,223				32.6				31.2
Total (1)			16,582				17,502				26.8				27.4
Less: Expenses not allocated to segments (2)			827				573
Earnings before provision for taxes on income		$	15,755				16,929				25.4	%			26.5

Consumer Segment: In 2009, Consumer segment operating profit decreased 7.4% from 2008. The primary reasons for the decrease in operating profit was $369 million of restructuring charges, partially offset by cost containment initiatives in 2009. In 2008, Consumer segment operating profit increased 17.4% from 2007. Cost synergies, lower integration costs in 2008 related to the acquisition of the Consumer Healthcare business of Pfizer Inc., and other cost containment initiatives contributed to the increased operating profit in 2008.

Pharmaceutical Segment: In 2009, Pharmaceutical segment operating profit decreased 15.7% from 2008. The primary reasons for the decrease in operating profit were $496 million of restructuring charges, $92 million of litigation expense and negative product mix due to the loss of market exclusivity for TOPAMAX^® and RISPERDAL^® oral. In 2008, Pharmaceutical segment operating profit increased 16.3% from 2007. The primary driver of the improved operating profit in 2008 was due to the restructuring charges of $429 million and $678 million for the NATRECOR^® intangible asset write-down recorded in 2007.

Medical Devices and Diagnostics Segment: In 2009, the operating profit in the Medical Devices and Diagnostics segment increased 6.5% from 2008. The improved operating profit was due to $478 million gain from net litigation settlements, favorable product mix, manufacturing efficiencies and cost containment initiatives related to selling, marketing and administrative expenses. This was partially offset by $321 million in restructuring charges. In 2008, the operating profit in the Medical Devices and Diagnostics segment increased 49.1% from 2007. The improved operating profit was the result of the $429 million gain from net litigation settlements, favorable product mix, manufacturing efficiencies and lower IPR&D charges of $174 million in 2008 versus $807 million in 2007. Additionally, $301 million of restructuring charges were recorded in 2007.

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

     Interest expense in 2009 increased by $16 million due to a higher debt balance. The net debt balance at the end of 2009 was $14.5 billion as compared to $11.9 billion at the end of 2008. The higher average debt balance of $13.5 billion in 2009 versus $12.9 billion in 2008 was primarily related to funding acquisitions and investments and the purchase of the Company’s Common Stock under the ongoing Common Stock repurchase program announced on July 9, 2007.

     Interest income in 2008 decreased by $91 million due to lower rates of interest earned despite higher average cash balances. The cash balance, including marketable securities, was $12.8 billion at the end of 2008, and averaged $12.2 billion as compared to the $6.6 billion average cash balance in 2007. The increase in the average cash balance was primarily due to cash generated from operating activities.

     Interest expense in 2008 increased by $139 million due to a higher debt balance. In the second half of 2007 the Company converted some of its short-term debt to fixed long-term debt at higher interest rates. The net debt balance at the end of 2008 was $11.9 billion as compared to $9.5 billion at the end of 2007. The higher debt balance in 2008 was primarily due to the purchase of the Company’s Common Stock under the ongoing Common Stock repurchase program announced on July 9, 2007 and to fund acquisitions.

     Interest income in 2007 decreased by $377 million due to lower average cash balances. The decline in the average cash balance was primarily due to the acquisition of the Consumer Healthcare business of Pfizer Inc. on December 20, 2006.

     Interest expense in 2007 increased by $233 million as compared to prior year due to a higher average debt balance. The net debt balance at the end of 2007 was $9.5 billion as compared to $6.6 billion at the end of 2006. The higher debt balance in 2007 was due to the debt associated with the acquisition of the Consumer Healthcare business of Pfizer Inc. and the Common Stock repurchase program announced in 2007.

Provision for Taxes on Income: The worldwide effective income tax rate was 22.1% in 2009, 23.5% in 2008 and 20.4% in 2007. The 2009 tax rate decreased as compared to 2008 due to increases in taxable income in lower tax jurisdictions relative to taxable income in higher tax jurisdictions. The 2008 tax rate increased as compared to 2007 due to increases in taxable income in higher tax jurisdictions relative to taxable income in lower jurisdictions. In addition, the

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

2007 tax rate benefited from a one-time gain of $267 million related to a business restructuring of certain international subsidiaries.

Liquidity and Capital Resources

LIQUIDITY & CASH FLOWS

Cash and cash equivalents were $15.8 billion at the end of 2009 as compared with $10.8 billion at the end of 2008. The primary sources of cash that contributed to the $5.0 billion increase versus prior year were $16.6 billion of cash generated from operating activities and $2.5 billion net proceeds from long and short-term debt. The major uses of cash were capital spending of $2.4 billion, acquisitions of $2.5 billion, net investment purchases of $2.8 billion, dividends to shareholders of $5.3 billion and the repurchase of common stock, net of proceeds from the exercise of options, of $1.2 billion.

     Cash Flows from operations were $16.6 billion in 2009. The major sources of cash flow were net income of $12.3 billion, adjusted for non-cash charges for depreciation, amortization and stock based compensation of $3.4 billion, restructuring reserves of $1.1 billion and accounts receivable and inventories of $0.5 billion. The remaining changes to operating cash flow were a use of funds of $0.7 billion related to pension plan contributions and decreases in accounts payable partially offset by decreases in other receivables, prepaid expenses and deferred taxes.

     In 2009, 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 2010.

FINANCING AND MARKET RISK

The Company uses financial instruments to manage the impact of foreign exchange rate changes on cash flows. Accordingly, the Company enters into forward foreign exchange contracts to protect the value of certain foreign currency assets and liabilities and to hedge future foreign currency transactions primarily related to product costs. Gains or losses on these contracts are offset by the gains or losses on the underlying transactions. A 10% appreciation of the U.S. Dollar from the January 3, 2010 market rates would increase the unrealized value of the Company’s forward contracts by $296 million. Conversely, a 10% depreciation of the U.S. Dollar from the January 3, 2010 market rates would decrease the unrealized value of the Company’s forward contracts by $361 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 $185 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 counterparties to these contracts are major financial institutions and there is no significant concentration of exposure with any one counterparty. Management believes the risk of loss is remote.

     The Company has access to substantial sources of funds at numerous banks worldwide. In September 2009, the Company secured a new 364-day Credit Facility. Total credit available to the Company approximates $10 billion, which expires September 23, 2010. Interest charged on borrowings under the credit line agreements 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 2009 and 2008 were $14.5 billion and $11.9 billion, respectively. The increase in borrowings between 2009 and 2008 was a result of financing general corporate purposes and the continuation of the Common Stock repurchase program announced in 2007. In 2009, net cash (cash and current marketable securities, net of debt) was $4.9 billion compared to net cash of $1.0 billion in 2008. Total debt represented 22.3% of total capital (shareholders’ equity and total debt) in 2009 and 21.8% of total capital in 2008. Shareholders’ equity per share at the end of 2009 was $18.37 compared with $15.35 at year-end 2008, an increase of 19.7%.

     Johnson & Johnson continues to be one of a few industrial companies with a Triple A credit rating. A summary of borrowings can be found in Note 7 to the Consolidated Financial Statements.

CONTRACTUAL OBLIGATIONS AND COMMITMENTS

The Company has contractual obligations, primarily lease, debt and unfunded retirement plans, with no other significant obligations. To satisfy these obligations, the Company will use cash from operations. The following table summarizes the Company’s contractual obligations and their aggregate maturities as of January 3, 2010 (see Notes 7, 10 and 16 to the Consolidated Financial Statements for further details):

		Long-term				Interest on				Unfunded
		Debt				Debt				Retirement				Operating
(Dollars in Millions)		Obligations				Obligations				Plans				Leases				Total
2010		$	34				469				66				178				747
2011			35				465				65				150				715
2012			615				442				69				128				1,254
2013			507				410				73				103				1,093
2014			9				402				76				87				574
After 2014			7,057				4,525				474				94				12,150
Total		$	8,257				6,713				823				740				16,533

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

SHARE REPURCHASE AND DIVIDENDS

On July 9, 2007, the Company announced that its Board of Directors approved a stock repurchase program, authorizing the Company to buy back up to $10.0 billion of the Company’s Common Stock. 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 funds the share repurchase program through a combination of available cash and debt. As of January 3, 2010, the Company repurchased an

JOHNSON & JOHNSON 2009 ANNUAL REPORT

aggregate of 140.4 million shares of Johnson & Johnson Common Stock under the current repurchase program at a cost of $8.9 billion. In addition, the Company has an annual program to repurchase shares for use in employee stock and incentive plans.

     The Company increased its dividend in 2009 for the 47th consecutive year. Cash dividends paid were $1.930 per share in 2009, compared with dividends of $1.795 per share in 2008 and $1.620 per share in 2007. The dividends were distributed as follows:

		2009				2008				2007
First quarter		$	0.460				0.415				0.375
Second quarter			0.490				0.460				0.415
Third quarter			0.490				0.460				0.415
Fourth quarter			0.490				0.460				0.415
Total		$	1.930				1.795				1.620

On January 4, 2010, the Board of Directors declared a regular quarterly cash dividend of $0.490 per share, payable on March 9, 2010, to shareholders of record as of February 23, 2010. The Company expects to continue the practice of paying regular cash dividends.

Other Information

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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

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

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

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

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

The Company’s sales return reserves are accounted for in accordance with the U.S. GAAP guidance for revenue recognition when right of return exists. Sales return reserves are recorded at full sales value. Sales returns in the Consumer and Pharmaceutical segments are almost exclusively not resalable. Sales returns for certain franchises in the Medical Devices and Diagnostics segment are typically resalable but are not material. The Company rarely exchanges products from inventory for returned products. The sales returns reserve for the total Company has ranged between 1.1% and 1.2% of annual net trade sales during the prior three fiscal reporting years 2007-2009.

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

     In addition, the Company enters into collaboration arrangements, which contain multiple revenue generating activities. The revenue for these arrangements is recognized as each activity is performed or delivered, based on the relative fair value. Upfront fees received as part of these arrangements are deferred and recognized as revenue earned over the obligation period.

See Note 1 to the Consolidated Financial Statements for additional disclosures on collaborations.

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

     Below are tables which show the progression of accrued rebates, returns, promotions, reserve for doubtful accounts and reserve for cash discounts by segment of business for the fiscal years ended January 3, 2010 and December 28, 2008.

CONSUMER SEGMENT

		Balance at												Balance at
		Beginning								Payments/				End
(Dollars in Millions)		of Period				Accruals				Other				of Period
2009
Accrued rebates(1)		$	131				380				(390	)			121
Accrued returns			115				134				(122	)			127
Accrued promotions			202				1,996				(1,926	)			272
Subtotal		$	448				2,510				(2,438	)			520
Reserve for doubtful accounts			110				23				(26	)			107
Reserve for cash discounts			22				285				(286	)			21
Total		$	580				2,818				(2,750	)			648
2008
Accrued rebates(1)		$	217				300				(386	)			131
Accrued returns			113				135				(133	)			115
Accrued promotions			297				2,369				(2,464	)			202
Subtotal		$	627				2,804				(2,983	)			448
Reserve for doubtful accounts			71				41				(2	)			110
Reserve for cash discounts			23				272				(273	)			22
Total		$	721				3,117				(3,258	)			580

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

PHARMACEUTICAL SEGMENT

		Balance at												Balance at
		Beginning								Payments/				End
(Dollars in Millions)		of Period				Accruals				Other				of Period
2009
Accrued rebates(1)		$	1,261				3,975				(4,172	)			1,064
Accrued returns			490				147				(295	)			342
Accrued promotions			107				330				(353	)			84
Subtotal		$	1,858				4,452				(4,820	)			1,490
Reserve for doubtful accounts			48				37				(2	)			83
Reserve for cash discounts			23				462				(437	)			48
Total		$	1,929				4,951				(5,259	)			1,621
2008
Accrued rebates(1)		$	1,249				3,331				(3,319	)			1,261
Accrued returns			345				168				(23	)			490
Accrued promotions			263				414				(570	)			107
Subtotal		$	1,857				3,913				(3,912	)			1,858
Reserve for doubtful accounts			26				24				(2	)			48
Reserve for cash discounts			24				376				(377	)			23
Total		$	1,907				4,313	(2)			(4,291	)			1,929

MEDICAL DEVICES AND DIAGNOSTICS SEGMENT

		Balance at												Balance at
		Beginning								Payments/				End
(Dollars in Millions)		of Period				Accruals				Other				of Period
2009
Accrued rebates(1)		$	416				2,229				(2,191	)			454
Accrued returns			189				74				(43	)			220
Accrued promotions			47				120				(94	)			73
Subtotal		$	652				2,423				(2,328	)			747
Reserve for doubtful accounts			109				50				(16	)			143
Reserve for cash discounts			34				416				(418	)			32
Total		$	795				2,889				(2,762	)			922
2008
Accrued rebates(1)		$	336				1,947				(1,867	)			416
Accrued returns			190				99				(100	)			189
Accrued promotions			18				208				(179	)			47
Subtotal		$	544				2,254				(2,146	)			652
Reserve for doubtful accounts			96				36				(23	)			109
Reserve for cash discounts			24				257				(247	)			34
Total		$	664				2,547	(2)			(2,416	)			795