Founded in 1887, Johnson and Johnson engages in the worldwide research, development, manufacture and sale of health care products. Johnson & Johnson is a holding company, which has more than 250 operating companies conducting business in virtually all countries of the world. Product franchises are grouped within one of our principal global businesses. Many of our businesses develop, produce, and market the products that consumers and health care professionals have come to know and trust. Other businesses provide specialized services that are shared by other Johnson & Johnson companies.

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.

You would be hard-pressed to find someone in the world today who is not familiar with at least one or two J&J products. The company’s Consumer segment products are probably some of the best known and loved medical and health products known today. Outside the consumer market, less well known, but equally as popular Pharmaceuticals and Medical Devices & Diagnostics products also dominate in branding and recognition.

2009 Results

When 2009 began, JNJ set expectations for financial results anticipating the business and economic challenges, including a forecast of the first reported sales decline in 76 years.

Worldwide sales were $61.9 billion, a decrease of 2.9 percent from 2008. Operational results declined 0.3 percent, and the negative impact of currency was 2.6 percent. Adjusted earnings were $12.9 billion; however, and adjusted earnings per share increased 1.8 percent, which means investors still got paid – in fact, shareholders were paid more in 2009 than 2008. Why?

Some of the losses were due to a 5% loss of sales in Europe, compounded by negative currency impact. Some was definitely due to product recalls and bad press on Tylenol; specifically on Tylenol and codeine products along with a bad smell supposedly coming from a EZ-Open Tylenol Arthritis Pain products. Despite these issues, and the leveling off of Zyrtec sales from the 2008 blockbuster debut, the company also generated free cash flow of approximately $14.2 billion.

Cost cutting measures instituted in 2008 paid off in huge savings, the ability to offset more than a 15% decrease in Pharmaceutical profits, and a much better position for going forward. During 2009, Johnson & Johnson delivered a total shareholder return of 11.3 percent. In 2009, the operating profit in the Medical Devices and Diagnostics segment increased 6.5% from 2008. Ongoing market focus is being exerted in these areas.

In 2009, Consumer segment operating profit decreased 7.4% from 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.

Over two and three years, JNJ outperformed the Dow Jones Industrial Average, the Standard & Poor’s 500 and other drug and health care indices. This reflects solid performance during the recent market downturn. Over the longer term, Johnson & Johnson continued to outperform most stock indices in total shareholder returns.

Growth Priorities

JNJ’s strategic framework provides leaders with a common set of growth priorities. For 2010, these include:

Innovative Products: Focused on bringing forth innovative, accessible and effective products—and entirely new business models—that address the most prevalent health care needs.

Robust Pipelines: A mix of internal and external sources will sustain a flow of new products that provide a competitive advantage. New products coming from today’s pipeline are expected to accelerate the proportion of our sales driven by newer products.

Global Presence: Will continue to expand presence and execute strategies for diverse markets and customers. This may mean relating to customers in new ways, tailoring product innovation to market needs or building health care capacity. For Johnson & Johnson, this also means a special focus on high-growth emerging markets such as the BRIC countries (Brazil, Russia, India and China).

Talented People: JNJ’s ability to develop, challenge, motivate and reward a diverse workforce is a cornerstone for sustained growth.

Changing U.S. Health Care Landscape

The health care landscape has changed at an unprecedented pace over the past few years and will continue to evolve. JNJ addressed this issue in its 2009 Annual Report. An excerpt from that report appears below:

“As the health care debate unfolds in the United States and other markets, Johnson & Johnson supports reform that expands access to care, improves the long-term sustainability of the U.S. health care system and builds on the best aspects, including incentives for medical progress. We believe that appropriate reforms can both improve patient care and create growth opportunities for health care companies.”

Link to Chairman’s Letter