Johnson & Johnson - Index

Johnson & Johnson - report - Index

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 119,200 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-thecounter
pharmaceutical products. These products are marketed
principally to the general public and sold both to wholesalers and
directly to independent and chain retail outlets 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 by the general public. 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 and spinal
care products; Ethicon’s wound care 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 Vision Care’s disposable contact lenses.
The Company’s structure is based upon the principle of
decentralized management. The Executive Committee of
Johnson & Johnson is the principal management group responsible
for the 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.
In all of its product lines, the Company competes with
companies both large and small, located throughout the world.
Competition is strong 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 improved 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 multiple sales forces.
In addition, the development and maintenance of customer
acceptance of 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 segments through the development of
innovative products and services. New products introduced
within the past five years accounted for approximately 30% of
2007 sales. In 2007, $7.7 billion, or 12.6% of sales was invested
in research and development, an increase of $0.6 billion over
2006. This increase reflects management’s commitment to the
importance of on-going development of new and differentiated
products and services to sustain long-term growth.
With more than 250 operating companies located in 57
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 2007, worldwide sales increased 14.6% to $61.1 billion, compared
to increases of 5.6% in 2006 and 6.7% in 2005. These
sales increases consisted of the following:
Sales increase due to: 2007 2006 2005
Volume 10.1% 3.8 5.4
Price 1.4 1.5 0.6
Currency 3.1 0.3 0.7
Total 14.6% 5.6 6.7
Sales by U.S. companies were $32.4 billion in 2007, $29.8 billion
in 2006 and $28.4 billion in 2005. This represents an increase of
9.0% in 2007, 4.9% in 2006 and 2.2% in 2005. Sales by international
companies were $28.7 billion in 2007, $23.5 billion in
2006 and $22.1 billion in 2005. This represents an increase of
21.7% in 2007, 6.4% in 2006 and 13.1% in 2005.
36 JOHNSON & JOHNSON 2007 ANNUAL REPORT