UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

þ		Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended July 3, 2011

o		Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from            to

Commission file number 1-3215

(Exact name of registrant as specified in its charter)

NEW JERSEY (State or other jurisdiction of incorporation or organization)		22-1024240 (I.R.S. Employer Identification No.)

One Johnson & Johnson Plaza
New Brunswick, New Jersey 08933
(Address of principal executive offices)

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

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 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. þ Yes o No

     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). þ Yes o No

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer þ		Accelerated filer o		Non-accelerated filer o		Smaller reporting company o
				(Do not check if a smaller reporting company)

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes þ No

     Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

     On July 29, 2011 2,740,354,114 shares of Common Stock, $1.00 par value, were outstanding.

 

 

JOHNSON & JOHNSON AND SUBSIDIARIES

TABLE OF CONTENTS

		Page
		No.
Part I — Financial Information
Item 1. Financial Statements (unaudited)
Consolidated Balance Sheets — July 3, 2011 and January 2, 2011			3
Consolidated Statements of Earnings for the Fiscal Second Quarters Ended July 3, 2011 and July 4, 2010			5
Consolidated Statements of Earnings for the Fiscal Six Months Ended July 3, 2011 and July 4, 2010			6
Consolidated Statements of Cash Flows for the Fiscal Six Months Ended July 3, 2011 and July 4, 2010			7
Notes to Consolidated Financial Statements			9
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			41
Item 3. Quantitative and Qualitative Disclosures About Market Risk			55
Item 4. Controls and Procedures			55
Part II — Other Information
Item 1 - Legal Proceedings			55
Item 2 — Unregistered Sales of Equity Securities and Use of Proceeds			55
Item 5 - Other Information			56
Item 6 - Exhibits			56
Signatures			57
EX-31.1
EX-32.1
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

Part I — FINANCIAL INFORMATION

Item 1 — FINANCIAL STATEMENTS

JOHNSON & JOHNSON AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited; Dollars in Millions Except Share and Per Share Data)

ASSETS

		July 3, 2011				January 2, 2011
Current assets:
Cash and cash equivalents		$	14,974			$	19,355
Marketable securities			14,708				8,303
Accounts receivable, trade, less allowances for doubtful accounts $327 (2010, $340)			10,982				9,774
Inventories (Note 2)			6,413				5,378
Deferred taxes on income			2,306				2,224
Prepaid expenses and other receivables			3,290				2,273
Total current assets			52,673				47,307
Property, plant and equipment at cost			32,435				30,426
Less: accumulated depreciation			(17,461	)			(15,873	)
Property, plant and equipment, net			14,974				14,553
Intangible assets, net (Note 3)			18,378				16,716
Goodwill, net (Note 3)			16,243				15,294
Deferred taxes on income			5,653				5,096
Other assets			4,193				3,942
Total assets		$	112,114			$	102,908

See Notes to Consolidated Financial Statements

JOHNSON & JOHNSON AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited; Dollars in Millions Except Share and Per Share Data)

LIABILITIES AND SHAREHOLDERS’ EQUITY

		July 3, 2011				January 2, 2011
Current liabilities:
Loans and notes payable		$	5,046			$	7,617
Accounts payable			5,689				5,623
Accrued liabilities			4,405				4,100
Accrued rebates, returns and promotions			2,933				2,512
Accrued compensation and employee related obligations			2,104				2,642
Accrued taxes on income			808				578
Total current liabilities			20,985				23,072
Long-term debt (Note 4)			13,680				9,156
Deferred taxes on income			1,888				1,447
Employee related obligations			6,202				6,087
Other liabilities			7,227				6,567
Total liabilities			49,982				46,329
Shareholders’ equity:
Common stock — par value $1.00 per share (authorized 4,320,000,000 shares; issued 3,119,843,000 shares)			3,120				3,120
Accumulated other comprehensive income (Note 7)			(1,192	)			(3,531	)
Retained earnings			80,836				77,773
Less: common stock held in treasury, at cost (379,263,000 and 381,746,000 shares)			20,632				20,783
Total shareholders’ equity			62,132				56,579
Total liabilities and shareholders’ equity		$	112,114			$	102,908

See Notes to Consolidated Financial Statements

JOHNSON & JOHNSON AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS

(Unaudited; Dollars & Shares in Millions Except Per Share Amounts)

		Fiscal Second Quarters Ended
		July 3,				Percent				July 4,				Percent
		2011				to Sales				2010				to Sales
Sales to customers (Note 9)		$	16,597				100.0	%		$	15,330				100.0	%
Cost of products sold			5,172				31.2				4,630				30.2
Gross profit			11,425				68.8				10,700				69.8
Selling, marketing and administrative expenses			5,215				31.4				4,756				31.0
Research and development expense			1,882				11.3				1,648				10.8
Interest income			(18	)			(0.1	)			(43	)			(0.3	)
Interest expense, net of portion capitalized			129				0.8				101				0.7
Other (income)expense, net			206				1.3				18				0.1
Restructuring expense			589				3.5				—				—
Earnings before provision for taxes on income			3,422				20.6				4,220				27.5
Provision for taxes on income (Note 5)			646				3.9				771				5.0
NET EARNINGS		$	2,776				16.7	%		$	3,449				22.5	%
NET EARNINGS PER SHARE (Note 8)
Basic		$	1.01							$	1.25
Diluted		$	1.00							$	1.23
CASH DIVIDENDS PER SHARE		$	0.57							$	0.54
AVG. SHARES OUTSTANDING
Basic			2,740.5								2,756.6
Diluted			2,781.3								2,796.0

See Notes to Consolidated Financial Statements

JOHNSON & JOHNSON AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS

(Unaudited; Dollars & Shares in Millions Except Per Share Amounts)

		Fiscal Six Months Ended
		July 3,				Percent				July 4,				Percent
		2011				to Sales				2010				to Sales
Sales to customers (Note 9)		$	32,770				100.0	%		$	30,961				100.0	%
Cost of products sold			9,950				30.4				9,158				29.6
Gross profit			22,820				69.6				21,803				70.4
Selling, marketing and administrative expenses			10,271				31.3				9,535				30.8
Research and development expense			3,620				11.0				3,205				10.4
Interest income			(39	)			(0.1	)			(70	)			(0.2	)
Interest expense, net of portion capitalized			254				0.8				209				0.6
Other (income)expense, net			193				0.6				(1,576	)			(5.1	)
Restructuring expense			589				1.8				—				—
Earnings before provision for taxes on income			7,932				24.2				10,500				33.9
Provision for taxes on income (Note 5)			1,680				5.1				2,525				8.1
NET EARNINGS		$	6,252				19.1	%		$	7,975				25.8	%
NET EARNINGS PER SHARE (Note 8)
Basic		$	2.28							$	2.89
Diluted		$	2.25							$	2.85
CASH DIVIDENDS PER SHARE		$	1.11							$	1.03
AVG. SHARES OUTSTANDING
Basic			2,739.6								2,755.7
Diluted			2,778.1								2,796.1

See Notes to Consolidated Financial Statements

JOHNSON & JOHNSON AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited; Dollars in Millions)

		Fiscal Six Months Ended
		July 3,				July 4,
		2011				2010
CASH FLOW FROM OPERATING ACTIVITIES
Net earnings		$	6,252			$	7,975
Adjustments to reconcile net earnings to cash flows from operating activities:
Depreciation and amortization of property and intangibles			1,532				1,445
Stock based compensation			339				305
Deferred tax provision			(504	)			604
Accounts receivable allowances			(33	)			46
Changes in assets and liabilities, net of effects from acquisitions:
Increase in accounts receivable			(576	)			(555	)
Increase in inventories			(620	)			(88	)
Decrease in accounts payable and accrued liabilities			(444	)			(1,719	)
Increase in other current and non-current assets			(920	)			(704	)
Increase in other current and non-current liabilities			1,199				218
NET CASH FLOWS FROM OPERATING ACTIVITIES			6,225				7,527
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment			(1,054	)			(897	)
Proceeds from the disposal of assets			143				109
Acquisitions, net of cash acquired			(2,049	)			(871	)
Purchases of investments			(16,820	)			(6,695	)
Sales of investments			10,582				3,800
Other			(62	)			(21	)
NET CASH USED BY INVESTING ACTIVITIES			(9,260	)			(4,575	)
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends to shareholders			(3,043	)			(2,839	)
Repurchase of common stock			(929	)			(780	)
Proceeds from short-term debt			3,586				956
Retirement of short-term debt			(6,194	)			(3,598	)
Proceeds from long-term debt			4,404				—
Retirement of long-term debt			(5	)			(12	)
Proceeds from the exercise of stock options/excess tax benefits			717				386
NET CASH USED BY FINANCING ACTIVITIES			(1,464	)			(5,887	)

CONSOLIDATED STATEMENTS OF CASH FLOWS

		Fiscal Six Months Ended
		July 3,				July 4,
		2011				2010
Effect of exchange rate changes on cash and cash equivalents			118				(162	)
Decrease in cash and cash equivalents			(4,381	)			(3,097	)
Cash and Cash equivalents, beginning of period			19,355				15,810
CASH AND CASH EQUIVALENTS, END OF PERIOD		$	14,974			$	12,713
Acquisitions
Fair value of assets acquired		$	2,248			$	909
Fair value of liabilities assumed and non-controlling interests			(199	)			(38	)
Net cash paid for acquisitions		$	2,049			$	871

See Notes to Consolidated Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NOTE 1 — The accompanying unaudited interim consolidated financial statements and related notes should be read in conjunction with the audited Consolidated Financial Statements of Johnson & Johnson and its subsidiaries (the “Company”) and related notes as contained in the Company’s Annual Report on Form 10-K for the fiscal year ended January 2, 2011. The unaudited interim financial statements include all adjustments (consisting only of normal recurring adjustments) and accruals necessary in the judgment of management for a fair statement of the results for the periods presented.

During the fiscal second quarter of 2011, the Financial Accounting Standards Board (FASB) issued amendments to the disclosure requirements for presentation of comprehensive income. The amendment requires that all non-owner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. This guidance is effective retrospectively for the interim periods and annual periods beginning after December 15, 2011. Early adoption is permitted. The adoption of this standard will not have a material impact on the Company’s results of operations, cash flows or financial position.

During the fiscal second quarter of 2011, the FASB issued amendments to disclosure requirements for common fair value measurement. These amendments result in convergence of fair value measurement and disclosure requirements between U.S. GAAP and IFRS. This guidance is effective prospectively for the interim periods and annual periods beginning after December 15, 2011. Early adoption is prohibited. The adoption of this standard is not expected to have a material impact on the Company’s results of operations, cash flows or financial position.

During the fiscal first quarter of 2011, the Company adopted the FASB guidance and amendments issued related to revenue recognition under the milestone method. The objective of the accounting standard update is to provide guidance on defining a milestone and determining when it may be appropriate to apply the milestone method of revenue recognition for research or development transactions. This update is effective on a prospective basis for milestones achieved in fiscal years, and interim periods within those years, beginning on or after June 15, 2010. The adoption of this standard did not have a material impact on the Company’s results of operations, cash flows or financial position.

During the fiscal first quarter of 2011, the Company adopted the FASB guidance on how pharmaceutical companies should recognize and classify in the Company’s financial statements, the non-deductible annual fee paid to the Government in accordance with the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act. This fee is based on an allocation of a company’s market share of total branded prescription drug sales from the prior year. The estimated fee was recorded as a selling, marketing and administrative expense in the Company’s financial statement and will be amortized on a straight-line basis for the year as per the FASB guidance. The adoption of

this standard did not have a material impact on the Company’s results of operations, cash flows or financial position.

NOTE 2 — INVENTORIES

(Dollars in Millions)		July 3, 2011				January 2, 2011
Raw materials and supplies		$	1,383				1,073
Goods in process			1,897				1,460
Finished goods			3,133				2,845
Total inventories		$	6,413				5,378

NOTE 3 — INTANGIBLE ASSETS AND GOODWILL

Intangible assets that have finite useful lives are amortized over their estimated useful lives. The latest impairment assessment of goodwill and indefinite lived intangible assets was completed in the fiscal fourth quarter of 2010. Future impairment tests for goodwill and indefinite lived intangible assets will be performed annually in the fiscal fourth quarter, or sooner if warranted.

		July 3,				January 2,
(Dollars in Millions)		2011				2011
Intangible assets with definite lives:
Patents and trademarks — gross		$	7,520				6,660
Less accumulated amortization			2,819				2,629
Patents and trademarks — net			4,701				4,031
Other intangibles — gross			8,609				7,674
Less accumulated amortization			3,048				2,880
Other intangibles — net			5,561				4,794
Intangible assets with indefinite lives:
Trademarks			6,080				5,954
Purchased in-process research and development			2,036				1,937
Total intangible assets with indefinite lives			8,116				7,891
Total intangible assets — net		$	18,378				16,716

During the fiscal second quarter of 2011, the Company reclassified $971 million from purchased in-process research and development to amortizable other intangibles to reflect the commercialization of ZYTIGA®.

Goodwill as of July 3, 2011 was allocated by segment of business as follows:

										Med Dev
(Dollars in Millions)		Consumer				Pharm				& Diag				Total
Goodwill, net at January 2, 2011		$	8,144				1,225				5,925				15,294
Acquisitions			—				538				—				538
Currency translation/Other			320				52				39				411
Goodwill, net as of July 3, 2011		$	8,464				1,815				5,964				16,243

The weighted average amortization periods for patents and trademarks and other intangible assets are 17 years and 27 years, respectively. The amortization expense of amortizable intangible assets for the fiscal six months ended July 3, 2011 was $402 million, and the estimated amortization expense for the five succeeding years approximates $840 million, per year.

NOTE 4 — FAIR VALUE MEASUREMENTS

The Company uses forward exchange contracts to manage its exposure to the variability of cash flows, primarily related to the foreign exchange rate changes of future intercompany product and third- party purchases of raw materials denominated in foreign currency. The Company also uses cross currency interest rate swaps to manage currency risk primarily related to borrowings. Both types of derivatives are designated as cash flow hedges. The Company also uses forward exchange contracts to manage its exposure to the variability of cash flows for repatriation of foreign dividends. These contracts are designated as net investment hedges. Additionally, the Company uses forward exchange contracts to offset its exposure to certain foreign currency assets and liabilities. These forward exchange contracts are not designated as hedges, and therefore, changes in the fair values of these derivatives are recognized in earnings, thereby offsetting the current earnings effect of the related foreign currency assets and liabilities. The Company does not enter into derivative financial instruments for trading or speculative purposes, or that contain credit risk related contingent features or requirements to post collateral. On an ongoing basis, the Company monitors counterparty credit ratings. The Company considers credit non-performance risk to be low, because the Company enters into agreements with commercial institutions that have at least an A (or equivalent) credit rating. As of July 3, 2011, the Company had notional amounts outstanding for forward foreign exchange contracts and cross currency interest rate swaps of $23 billion and $3 billion, respectively.

All derivative instruments are recorded on the balance sheet at fair value. Changes in the fair value of derivatives are recorded each period in current earnings or other comprehensive income, depending on whether the derivative is designated as part of a hedge transaction, and if so, the type of hedge transaction.

During the fiscal second quarter of 2011, the Company entered into an option to hedge the currency risk associated with the cash portion of the payment for the planned acquisition of Synthes, Inc. The option was not designated as a hedge, and therefore, the change in the fair value of the option of $102 million was recognized as Other Income in the fiscal second quarter of 2011.

The designation as a cash flow hedge is made at the entrance date of the derivative contract. At inception, all derivatives are expected to be highly effective. Changes in the fair value of a derivative that is designated as a cash flow hedge and is highly effective are recorded in accumulated other comprehensive income

until the underlying transaction affects earnings, and are then reclassified to earnings in the same account as the hedged transaction. Gains/losses on net investment hedges are accounted for through the currency translation account and are insignificant. On an ongoing basis, the Company assesses whether each derivative continues to be highly effective in offsetting changes in the cash flows of hedged items. If and when a derivative is no longer expected to be highly effective, hedge accounting is discontinued. Hedge ineffectiveness, if any, is included in current period earnings in other (income)/expense, net, and was not material for the fiscal quarters ended July 3, 2011 and July 4, 2010. Refer to Note 7 for disclosures of movements in Accumulated Other Comprehensive Income.

As of July 3, 2011, the balance of deferred net gains on derivatives included in accumulated other comprehensive income was $228 million after-tax. For additional information, see Note 7. The Company expects that substantially all of the amounts related to foreign exchange contracts will be reclassified into earnings over the next 12 months as a result of transactions that are expected to occur over that period. The maximum length of time over which the Company is hedging transaction exposure is 18 months excluding interest rate swaps. The amount ultimately realized in earnings will differ as foreign exchange rates change. Realized gains and losses are ultimately determined by actual exchange rates at maturity of the derivative.

The following table is a summary of the activity related to derivatives designated as hedges for the fiscal second quarters in 2011 and 2010:

										Gain/ (Loss)
		Gain/ (Loss)								reclassified								Gain/ (Loss)
		recognized in								from								recognized in
		Accumulated								Accumulated OCI								other
		OCI(1)								into income(1)								income/expense(2)
		Fiscal				Fiscal				Fiscal				Fiscal				Fiscal				Fiscal
		second				second				second				second				second				second
(Dollars in Millions)		quarter				quarter				quarter				quarter				quarter				quarter
Cash Flow Hedges		2011				2010				2011				2010				2011				2010
Foreign exchange contracts		$	—			$	(53	)		$	—			$	(9	)(A)		$	—			$	(20	)
Foreign exchange contracts			12				(102	)			(44	)			(76	)(B)			6				(149	)
Foreign exchange contracts			28				44				18				20	(C)			(2	)			16
Cross currency interest rate swaps			(31	)			(82	)			(16	)			11	(D)			—				—
Foreign exchange contracts			(7	)			35				2				—	(E)			—				20
Total		$	2			$	(158	)		$	(40	)		$	(54	)		$	4			$	(133	)

All amounts shown in the table above are net of tax.

The following table is a summary of the activity related to derivatives designated as hedges for the first fiscal six months in 2011 and 2010:

										Gain/ (Loss)
		Gain/ (Loss)								reclassified								Gain/ (Loss)
		recognized in								from								recognized in
		Accumulated								Accumulated OCI								other
		OCI(1)								into income(1)								income/expense(2)
		Fiscal				Fiscal				Fiscal				Fiscal				Fiscal				Fiscal
		six				six				six				six				six				six
(Dollars in Millions)		months				months				months				months				months				months
Cash Flow Hedges		2011				2010				2011				2010				2011				2010
Foreign exchange contracts		$	27			$	(84	)		$	(10	)		$	(29	)(A)		$	(2	)		$	(21	)
Foreign exchange contracts			92				(206	)			(106	)			(98	)(B)			3				(154	)
Foreign exchange contracts			(8	)			73				19				21	(C)			(2	)			16
Cross currency interest rate swaps			(40	)			(49	)			(18	)			11	(D)			—				—
Foreign exchange contracts			(59	)			81				(3	)			(1	)(E)			2				20
Total		$	12			$	(185	)		$	(118	)		$	(96	)		$	1			$	(139	)

All amounts shown in the table above are net of tax.

For the fiscal second quarters ended July 3, 2011 and July 4, 2010, a loss of $7 million and $21 million, respectively, were recognized in Other (income)/expense, net, relating to foreign exchange contracts not designated as hedging instruments.

For the first fiscal six months ended July 3, 2011 and July 4, 2010, a gain of $8 million and a loss of $69 million, respectively, were recognized in Other (income)/expense, net, relating to foreign exchange contracts not designated as hedging instruments.

Fair value is the exit price that would be received to sell an asset or paid to transfer a liability. Fair value is a market-based measurement that is determined using assumptions that market participants would use in pricing an asset or liability. The authoritative literature establishes a three-level hierarchy to

prioritize the inputs used in measuring fair value. The levels within the hierarchy are described below with Level 1 having the highest priority and Level 3 having the lowest.

The fair value of a derivative financial instrument (i.e. forward exchange contract or currency swap) is the aggregation by currency of all future cash flows discounted to its present value at the prevailing market interest rates and subsequently converted to the U.S. dollar at the current spot foreign exchange rate. The Company does not believe that fair values of these derivative instruments materially differ from the amounts that could be realized upon settlement or maturity, or that the changes in fair value will have a material effect on the Company’s results of operations, cash flows or financial position. The Company also holds equity investments which are classified as Level 1 because they are traded in an active exchange market. The Company did not have any other significant financial assets or liabilities which would require revised valuations under this standard that are recognized at fair value.

The following three levels of inputs are used to measure fair value:

Level 1 — Quoted prices in active markets for identical assets and liabilities.

Level 2 — Significant other observable inputs.

Level 3 — Significant unobservable inputs.

The Company’s significant financial assets and liabilities measured at fair value as of July 3, 2011 and January 2, 2011 were as follows:

						July 3, 2011												January 2, 2011
(Dollars in Millions)		Level 1				Level 2				Level 3				Total				Total(1)
Derivatives designated as hedging instruments:
Assets:
Foreign exchange contracts			—			$	487				—			$	487			$	321
Cross currency interest rate swaps(2)			—				2				—				2				17
Total			—				489				—				489				338
Liabilities:
Foreign exchange contracts			—				646				—				646				586
Cross currency interest rate swaps(3)			—				404				—				404				502
Total			—				1,050				—				1,050				1,088
Derivatives not designated as hedging instruments:
Assets:
Foreign exchange contracts			—				28				—				28				19
Swiss Franc Option*			—				569				—				569				—
Total			—				597				—				597				19
Liabilities:
Foreign exchange contracts			—				27				—				27				39
Other Investments(4)		$	1,371				—				—			$	1,371			$	1,165

Financial Instruments not measured at Fair Value:

The following financial assets and liabilities are held at carrying amount on the consolidated balance sheet as of July 3, 2011:

		Carrying				Estimated
(Dollars in Millions)		Amount				Fair Value
Financial Assets
Current Investments
Cash		$	2,299				2,299
Government securities and obligations			23,951				23,951
Corporate debt securities			515				515
Money market funds			1,820				1,820
Time deposits			1,097				1,097
Total cash, cash equivalents and current marketable securities		$	29,682				29,682
Fair value of government securities and obligations and non-current marketable securities was estimated using quoted broker prices in active markets.
Financial Liabilities
Current Debt		$	5,046				5,046
Non-Current Debt
5.15% Debentures due 2012			599				632
0.70% Notes due 2013			500				503
3.80% Debentures due 2013			500				527
3 month LIBOR+0% FRN due 2013			500				500
3 month LIBOR+0.09% FRN due 2014			750				750
1.20% Notes due 2014			999				1,006
2.15% Notes due 2016			898				903
5.55% Debentures due 2017			1,000				1,161
5.15% Debentures due 2018			898				1,015
4.75% Notes due 2019 (1B Euro 1.4476)			1,440				1,569
3% Zero Coupon Convertible Subordinated Debentures due in 2020			197				246
2.95% Debentures due 2020			541				522
3.55% Notes due 2021			446				456
6.73% Debentures due 2023			250				323
5.50% Notes due 2024 (500 GBP1.6025)			795				856
6.95% Notes due 2029			294				375
4.95% Debentures due 2033			500				523
5.95% Notes due 2037			995				1,120
5.86% Debentures due 2038			700				773
4.50% Debentures due 2040			539				489
4.85% Notes due 2041			298				291
Other (Includes Industrial Revenue Bonds)			41				41
Total Non-Current Debt		$	13,680				14,581

The weighted average effective rate on non-current debt is 4.08%.

Fair value of the non-current debt was estimated using market prices, which were corroborated by quoted broker prices in active markets.

NOTE 5 — INCOME TAXES

The worldwide effective income tax rates for the first fiscal six months of 2011 and 2010 were 21.2% and 24.0%, respectively. The lower effective tax rate was due to higher income in lower tax jurisdictions and the U.S. Research and Development tax credit, which was not in effect for the first fiscal six months of 2010. Additionally, in 2010 the Company had litigation gains in high tax jurisdictions.

NOTE 6 — PENSIONS AND OTHER POSTRETIREMENT BENEFITS

Components of Net Periodic Benefit Cost Net periodic benefit cost for the Company’s defined benefit retirement plans and other benefit plans for the fiscal second quarters of 2011 and 2010 include the following components:

		Retirement Plans								Other Benefit Plans
						Fiscal Quarters Ended
		July 3,				July 4,				July 3,				July 4,
(Dollars in Millions)		2011				2010				2011				2010
Service cost		$	144				121				37				33
Interest cost			214				194				46				50
Expected return on plan assets			(277	)			(248	)			(1	)			(1	)
Amortization of prior service cost/(credit)			1				3				—				(1	)
Amortization of net transition obligation			1				1				—				—
Recognized actuarial losses			98				59				12				13
Net periodic benefit cost		$	181				130				94				94

Net periodic benefit cost for the Company’s defined benefit retirement plans and other benefit plans for the first fiscal six months of 2011 and 2010 include the following components:

		Retirement Plans								Other Benefit Plans
						Fiscal Six Months Ended
		July 3,				July 4,				July 3,				July 4,
(Dollars in Millions)		2011				2010				2011				2010
Service cost		$	287				247				74				67
Interest cost			427				394				94				100
Expected return on plan assets			(555	)			(500	)			(1	)			(1	)
Amortization of prior service cost/(credit)			4				6				(1	)			(2	)
Amortization of net transition obligation			1				1				—				—
Recognized actuarial losses			194				117				23				25
Net periodic benefit cost		$	358				265				189				189

Company Contributions
For the fiscal six months ended July 3, 2011, the Company contributed $119 million and $16 million to its U.S. and international retirement plans, respectively. The Company plans to continue to fund its U.S. defined benefit plans to comply with the Pension Protection Act of 2006. International plans are funded in accordance with local regulations.

NOTE 7 — ACCUMULATED OTHER COMPREHENSIVE INCOME

Total comprehensive income for the fiscal six months ended July 3, 2011 was $8.6 billion, compared with $5.3 billion for the same period a year ago. Total comprehensive income for the fiscal second quarter ended July 3, 2011 was $3.6 billion, compared with $1.6 billion for the same period a year ago. Total comprehensive income included net earnings, net unrealized currency gains and losses on translation, net unrealized gains and losses on securities available for sale, adjustments related to employee benefit plans, and net gains and losses on derivative instruments qualifying and designated as cash flow hedges. The following table sets forth the components of accumulated other comprehensive income.

																		Total
																		Accum
																		Other
		Foreign				Securities				Employee				Deriv.				Comp.
Gains/(Losses)		Currency				Available				Benefit				&				Income/
(Dollars in Millions)		Translation				for sale				Plans				Hedges				(Loss)
January 2, 2011		$	(969	)			24				(2,686	)			100				(3,531	)
2011 six months change
Unrealized gain (loss)							435								12
Net amount reclassed to net earnings			—				(139	)			—				116	*
Net six months change			1,787				296				128				128				2,339
July 3, 2011		$	818				320				(2,558	)			228				(1,192	)

Amounts in accumulated other comprehensive income are presented net of the related tax impact. Foreign currency translation adjustments are not currently adjusted for income taxes as they relate to permanent investments in international subsidiaries.

NOTE 8 — EARNINGS PER SHARE

The following is a reconciliation of basic net earnings per share to diluted net earnings per share for the fiscal second quarters ended July 3, 2011 and July 4, 2010.

		Fiscal Quarters Ended
		July 3,				July 4,
(Shares in Millions)		2011				2010
Basic net earnings per share		$	1.01			$	1.25
Average shares outstanding — basic			2,740.5				2,756.6
Potential shares exercisable under stock option plans			168.9				175.5
Less: shares which could be repurchased under treasury stock method			(131.7	)			(139.7	)
Convertible debt shares			3.6				3.6
Average shares outstanding — diluted			2,781.3				2,796.0
Diluted earnings per share		$	1.00			$	1.23

The diluted earnings per share calculation for both fiscal second quarters ended July 3, 2011 and July 4, 2010 included the dilutive effect of convertible debt that was offset by the related reduction in interest expense.

The diluted earnings per share calculation for the fiscal second quarters ended July 3, 2011 and July 4, 2010, excluded 51 million and 68 million shares, respectively, related to stock options, as the exercise price of these options was greater than their average market value, which would result in an anti-dilutive effect on diluted earnings per share.

The following is a reconciliation of basic net earnings per share to diluted net earnings per share for the fiscal six months ended July 3, 2011 and July 4, 2010.

		Fiscal Six Months Ended
		July 3,				July 4,
(Shares in Millions)		2011				2010
Basic net earnings per share		$	2.28			$	2.89
Average shares outstanding — basic			2,739.6				2,755.7
Potential shares exercisable under stock option plans			168.8				175.4
Less: shares which could be repurchased under treasury stock method			(133.9	)			(138.6	)
Convertible debt shares			3.6				3.6
Average shares outstanding — diluted			2,778.1				2,796.1
Diluted earnings per share		$	2.25			$	2.85

The diluted earnings per share calculation for both the fiscal six months ended July 3, 2011 and July 4, 2010 included the dilutive effect of convertible debt that was offset by the related reduction in interest expense.

The diluted earnings per share calculation for the fiscal six months ended July 3, 2011 and July 4, 2010 excluded 52 million and 68 million shares related to stock options, as the exercise price of these options was greater than their average market value, which would result in an anti-dilutive effect on diluted earnings per share.

NOTE 9 — SEGMENTS OF BUSINESS AND GEOGRAPHIC AREAS

SALES BY SEGMENT OF BUSINESS

		Fiscal Quarters Ended
		July 3,				July 4,				Percent
(Dollars in Millions)		2011				2010				Change
Consumer
U.S.		$	1,339			$	1,463				(8.5	)%
International			2,454				2,184				12.4
Total			3,793				3,647				4.0
Pharmaceutical
U.S.			3,239				3,110				4.1
International			2,994				2,443				22.6
Total			6,233				5,553				12.2
Medical Devices & Diagnostics
U.S.			2,869				2,865				0.1
International			3,702				3,265				13.4
Total			6,571				6,130				7.2
Worldwide
U.S.			7,447				7,438				0.1
International			9,150				7,892				15.9
Total		$	16,597			$	15,330				8.3	%

		Fiscal Six Months Ended
		July 3,				July 4,				Percent
(Dollars in Millions)		2011				2010				Change
Consumer
U.S.		$	2,684			$	3,023				(11.2	)%
International			4,791				4,390				9.1
Total			7,475				7,413				0.8
Pharmaceutical
U.S.			6,630				6,316				5.0
International			5,662				4,875				16.1
Total			12,292				11,191				9.8
Medical Devices & Diagnostics
U.S.			5,741				5,751				(0.2	)
International			7,262				6,606				9.9
Total			13,003				12,357				5.2
Worldwide
U.S.			15,055				15,090				(0.2	)
International			17,715				15,871				11.6
Total		$	32,770			$	30,961				5.8	%

OPERATING PROFIT BY SEGMENT OF BUSINESS

		Fiscal Quarters Ended
		July 3,				July 4,				Percent
(Dollars in Millions)		2011				2010				Change
Consumer		$	549			$	669				(17.9	)%
Pharmaceutical (1)			1,714				1,833				(6.5	)
Medical Devices & Diagnostics (2)			1,275				1,876				(32.0	)
Segments operating profit			3,538				4,378				(19.2	)
Expense not allocated to segments (3)			(116	)			(158	)
Worldwide income before taxes		$	3,422			$	4,220				(18.9	)%

		Fiscal Six Months Ended
		July 3,				July 4,				Percent
(Dollars in Millions)		2011				2010				Change
Consumer		$	1,122			$	1,454				(22.8	)%
Pharmaceutical (1)			3,923				3,803				3.2
Medical Devices & Diagnostics (2)			3,219				5,578				(42.3	)
Segments operating profit			8,264				10,835				(23.7	)
Expense not allocated to segments (3)			(332	)			(335	)
Worldwide income before taxes		$	7,932			$	10,500				(24.5	)%

SALES BY GEOGRAPHIC AREA

		Fiscal Quarters Ended
		July 3,				July 4,				Percent
(Dollars in Millions)		2011				2010				Change
U.S.		$	7,447			$	7,438				0.1	%
Europe			4,543				3,832				18.6
Western Hemisphere, excluding U.S.			1,543				1,375				12.2
Asia-Pacific, Africa			3,064				2,685				14.1
Total		$	16,597			$	15,330				8.3	%

		Fiscal Six Months Ended
		July 3,				July 4,				Percent
(Dollars in Millions)		2011				2010				Change
U.S.		$	15,055			$	15,090				(0.2	)%
Europe			8,726				7,934				10.0
Western Hemisphere, excluding U.S.			2,979				2,655				12.2
Asia-Pacific, Africa			6,010				5,282				13.8
Total		$	32,770			$	30,961				5.8	%

NOTE 10— BUSINESS COMBINATIONS AND DIVESTITURES

During the fiscal second quarter of 2011, the Company entered into a definitive agreement to acquire Synthes, Inc. for approximately

$21.3 billion, approximately $19.3 billion net of cash acquired, subject to the terms of the merger agreement and currency values at the time of closing. Under the terms of the agreement, each share of Synthes common stock, subject to certain conditions, will be exchanged for approximately 35% in cash and 65% in Johnson & Johnson common stock. Synthes, Inc. is a premier global developer and manufacturer of orthopaedics devices.

During the fiscal first quarter of 2011, the Company acquired substantially all of the outstanding equity of Crucell N.V. that it did not already own. Crucell is a global biopharmaceutical company focused on the research and development, production and marketing of vaccines and antibodies against infectious disease worldwide. The net purchase price of $2.0 billion was allocated primarily to non-amortizable intangible assets for $1.0 billion, amortizable intangible assets for $0.7 billion and goodwill for $0.5 billion.

During the fiscal second quarter of 2010, the Company acquired RespiVert Ltd., a privately held drug discovery company focused on developing small-molecule, inhaled therapies for the treatment of pulmonary diseases.

During the fiscal first quarter of 2010, the Company acquired Acclarent, Inc., a medical technology company dedicated to designing, developing and commercializing devices that address conditions affecting the ear, nose and throat, for a net purchase price of $0.8 billion. The purchase price for the acquisition was allocated primarily to amortizable intangible assets for $0.7 billion.

NOTE 11 — LEGAL PROCEEDINGS

Johnson & Johnson (the Company) and certain of its subsidiaries are involved in various lawsuits and claims regarding product liability, intellectual property, commercial and other matters; governmental investigations; and other legal proceedings that arise from time to time in the ordinary course of their business.

The Company records accruals for such contingencies when it is probable that a liability will be incurred and the amount of the loss can be reasonably estimated. Through the period ended July 3, 2011, the Company has determined that the liabilities associated with certain litigation matters are probable and can be reasonably estimated. The Company has accrued for these matters and will continue to monitor each related legal issue and adjust accruals for new information and further developments in accordance with ASC 450-20-25. For these and other litigation and regulatory matters currently disclosed for which a loss is probable or reasonably possible, the Company is unable to determine an estimate of the possible loss or range of loss beyond the amounts already accrued. These matters can be affected by various factors, including damages sought in the proceedings are unsubstantiated or indeterminate; scientific and legal discovery has not commenced or is not complete; proceedings are in early stages; matters present legal uncertainties; there are significant facts in dispute; there are numerous parties involved.

In the Company’s opinion, based on its examination of these matters, its experience to date and discussions with counsel, the ultimate outcome of legal proceedings, net of liabilities accrued in the Company’s balance sheet, is not expected to have a material adverse effect on the Company’s financial position, although the resolution in any reporting period of one or more of these matters, either alone or in the aggregate, may have a material adverse effect on the Company’s results of operations, and cash flows for that period.

PRODUCT LIABILITY

The Company’s subsidiaries are involved in numerous product liability cases in the United States, many of which concern alleged adverse reactions to drugs and medical devices. The damages claimed are substantial, and while the Company’s subsidiaries are confident of the adequacy of the warnings and instructions for use that accompany such products, it is not feasible to predict the ultimate outcome of litigation. The Company has established product liability reserves based on currently available information, which in some cases may be limited, and changes to the reserves may be required in the future as additional information becomes available.

Multiple products of the Company’s subsidiaries are subject to numerous product liability claims and lawsuits. There are a significant number of claimants who have pending lawsuits or claims regarding injuries allegedly due to ORTHO EVRA®, RISPERDAL®, LEVAQUIN®, DURAGESIC®/fentanyl patches, pelvic meshes, the CHARITÉ™ Artificial Disc, CYPHER® Stent, and ASR™ Hip. These claimants seek substantial compensatory and, where available, punitive damages.

In August 2010, DePuy Orthopaedics, Inc. (DePuy) announced a worldwide voluntary recall of its ASR™ XL Acetabular System and DePuy ASR™ Hip Resurfacing System used in hip replacement surgery. Claims for personal injury have been made against DePuy and the Company. The Company has received limited information to date with respect to potential claims and other costs associated with this recall. The Company’s product liability reserve has been increased in part due to an increase in anticipated product liability litigation expense and costs associated with the DePuy ASR™ Hip recall program. Changes to the reserve may be required in the future as additional information becomes available. The ultimate resolution of these matters is not expected to have a material adverse effect on the Company’s financial position, although the resolution in any reporting period could have a material impact on the Company’s results of operations and cash flows for that period.

INTELLECTUAL PROPERTY

Certain of the Company’s subsidiaries are subject, from time to time, to legal proceedings and claims related to patent, trademark and other intellectual property matters arising out of their business. The most significant of these matters are described below.

PATENT INFRINGEMENT

Certain of the Company’s subsidiaries are involved in lawsuits challenging the coverage and/or validity of the patents on their products. Although the Company’s subsidiaries believe that they have substantial defenses to these challenges with respect to all material patents, there can be no assurance as to the outcome of these matters, and a loss in any of these cases could potentially adversely affect the ability of the Company’s subsidiaries to sell their products, or require the payment of past damages and future royalties.

MEDICAL DEVICES & DIAGNOSTICS

In October 2004, Tyco Healthcare Group, LP, (Tyco) and U.S. Surgical Corporation filed a lawsuit against Ethicon Endo-Surgery, Inc. (EES) in the United States District Court for the District of Connecticut alleging that several features of EES’s HARMONIC® scalpel infringed four Tyco patents. In October 2007, on motions for summary judgment prior to the initial trial, a number of claims were found invalid and a number were found infringed. However, no claim was found both valid and infringed. Trial commenced in December 2007, and the court dismissed the case without prejudice on grounds that Tyco did not own the patents in suit. The dismissal without prejudice was affirmed on appeal. In January 2010, Tyco filed another complaint in the United States District Court for the District of Connecticut asserting infringement of three of the four patents from the previous lawsuit and adding new products. Tyco is seeking monetary damages and injunctive relief. This case is scheduled to be tried in October 2011.

Starting in March 2006, Cordis Corporation (Cordis) filed patent infringement lawsuits in the United States District Courts for the Districts of New Jersey and Delaware, against Guidant Corporation (Guidant), Abbott Laboratories, Inc. (Abbott), Boston Scientific Corporation (Boston Scientific) and Medtronic Ave, Inc. (Medtronic) alleging that the Xience V™ (Abbott), Promus™ (Boston Scientific) and Endeavor® (Medtronic) drug eluting stents infringe several of Cordis’s Wright/Falotico patents. Cordis is seeking monetary relief. In January 2010, in one of the cases against Boston Scientific, the United States District Court for the District of Delaware found the Wright/Falotico patents invalid for lack of written description and/or lack of enablement. In June 2011, the Court of Appeals for the Federal Circuit affirmed the ruling, and Cordis moved for the Court to reconsider that decision.

In October 2007, Bruce Saffran (Saffran) filed a patent infringement lawsuit against the Company and Cordis in the United States District Court for the Eastern District of Texas alleging infringement on U.S. Patent No. 5,653,760. In January 2011, a jury returned a verdict finding that Cordis’s sales of its CYPHER® stent willfully infringed a patent issued to Saffran. The jury awarded Saffran $482 million. In March 2011, the Court entered judgment against Cordis in the amount of $593 million, representing the jury verdict, plus $111 million in pre-judgment

interest. Cordis has moved for the District Court to overturn the jury verdict and to vacate the judgment. If that motion is denied, Cordis will appeal the judgment. Because the Company believes that the potential for an unfavorable outcome is not probable, it has not established a reserve with respect to the case.

In November 2007, Roche Diagnostics Operations, Inc., et al. (Roche) filed a patent infringement lawsuit against LifeScan, Inc. (LifeScan) in the United States District Court for the District of Delaware, accusing LifeScan’s entire OneTouch® line of blood glucose monitoring systems of infringement of two patents related to the use of microelectrode sensors. In September 2009, LifeScan obtained a favorable ruling on claim construction that precluded a finding of infringement. The Court entered judgment against Roche in July 2010 and Roche appealed. Briefing on appeal issues has been completed. Oral argument will be held in fall 2011. Roche is seeking monetary damages and injunctive relief.

Starting in February 2008, Cordis filed patent infringement lawsuits in the United States District Court for the District of New Jersey against Guidant, Abbott, Boston Scientific and Medtronic alleging that the Xience V™ (Abbott), Promus™ (Boston Scientific) and Endeavor® (Medtronic) drug eluting stents infringe several of Wyeth’s (now Pfizer Inc.) Morris patents, which have been licensed to Cordis. Cordis is seeking monetary relief. Trial is scheduled for September 2011.

In June 2009, Rembrandt Vision Technologies, L.P. (Rembrandt) filed a patent infringement lawsuit against Johnson & Johnson Vision Care, Inc. (JJVC) in the United States District Court for the Eastern District of Texas alleging that JJVC’s manufacture and sale of its ACUVUE ADVANCE® and ACUVUE® OASYS™ HYDROGEL contact lenses infringe their U.S. Patent No. 5,712,327 (the Chang patent). Rembrandt is seeking monetary relief. The case is scheduled for trial in May 2012.

PHARMACEUTICAL

In April 2007, Centocor, Inc. (Centocor) (now Janssen Biotech, Inc. (JBI)) filed a patent infringement lawsuit against Abbott Laboratories, Inc. (Abbott) in the United States District Court for the Eastern District of Texas alleging that Abbott’s HUMIRA® anti-TNF alpha product infringes Centocor’s U.S. Patent 7,070,775. In June 2009, a jury returned a verdict finding the patent valid and infringed, and awarded JBI damages of approximately $1.7 billion. In February 2011, the Court of Appeals reversed the June 2009 decision and the judgment of the District Court. JBI will file a petition for review of the decision in the United States Supreme Court.

In May 2009, Abbott Biotechnology Ltd. (Abbott) filed a patent infringement lawsuit against Centocor (now JBI) in the United States District Court for the District of Massachusetts alleging that SIMPONI® infringes Abbott’s U.S. Patent Nos. 7,223,394 and 7,451,031 (the Salfeld patents). Abbott is seeking monetary damages and injunctive relief. No trial date has been set.

In August 2009, Abbott GmbH & Co. (Abbott GmbH) and Abbott Bioresearch Center filed a patent infringement lawsuit against Centocor (now JBI) in the United States District Court for the District of Massachusetts alleging that STELARA® infringes two United States patents assigned to Abbott GmbH. JBI filed a complaint in the United States District Court for the District of Columbia for a declaratory judgment of non-infringement and invalidity of the Abbott GmbH patents, as well as a Complaint for Review of a Patent Interference Decision that granted priority of invention on one of the two asserted patents to Abbott GmbH. The

cases have been transferred from the District of Columbia to the District of Massachusetts. Discovery in these cases is ongoing. No trial date has been set. Also in August 2009, Abbott GmbH and Abbott Laboratories Limited brought a patent infringement lawsuit in The Federal Court of Canada alleging that STELARA® infringes Abbott GmbH’s Canadian patent. The Canadian case is scheduled to be tried in October 2012. In each of these cases, Abbott is seeking monetary damages and injunctive relief.

In August 2009, Bayer HealthCare LLC (Bayer) filed a patent infringement lawsuit against Centocor Ortho Biotech Inc. (now JBI) in United States District Court for the District of Massachusetts alleging that the manufacture and sale by JBI of SIMPONI® infringes a Bayer patent relating to human anti-TNF antibodies. In January 2011, the court issued judgment dismissing Bayer’s infringement claims. Bayer appealed this ruling. In addition, in November 2009, Bayer filed a lawsuit under its European counterpart to these patents in Germany and the Netherlands. The court in the Netherlands held the Dutch patent invalid and entered judgment in favor of JBI’s European affiliate, Janssen Biologics B.V. Bayer appealed that judgment in the Netherlands. In addition, in March 2010, Janssen-Cilag NV filed a revocation action in the High Court in London seeking to invalidate Bayer’s UK patent relating to human anti-TNF antibodies. In May 2011, JBI settled all of these cases and received a paid-up, royalty-free license to the family of patents in suit.

LITIGATION AGAINST FILERS OF ABBREVIATED NEW DRUG APPLICATIONS (ANDAs)

The following summarizes lawsuits pending against generic companies that filed Abbreviated New Drug Applications (ANDAs) seeking to market generic forms of products sold by various subsidiaries of the Company prior to expiration of the applicable patents covering those products. These ANDAs typically include allegations of non-infringement, invalidity and unenforceability of these patents. In the event the Company’s subsidiaries are not successful in these actions, or the statutory 30-month stays expire before the District Court rulings are obtained, the third-party companies involved will have the ability, upon approval of the United States Food and Drug Administration (FDA), to introduce generic versions of the products at issue resulting in very substantial market share and revenue losses for those products.

CONCERTA®

In January 2010, ALZA Corporation (ALZA) and Ortho-McNeil-Janssen Pharmaceuticals, Inc. (OMJPI) (now Janssen Pharmaceuticals, Inc. (JPI)) filed a patent infringement lawsuit in the United States District Court for the District of Delaware against Kremers-Urban, LLC and KUDCO Ireland, Ltd. (collectively, KUDCO) in response to KUDCO’s ANDA seeking approval to market a generic version of CONCERTA® before the expiration of two of ALZA and JPI’s patents relating to CONCERTA®. KUDCO filed counterclaims alleging non-infringement and invalidity. ALZA and JPI subsequently removed one of the patents from the lawsuit.

In November 2010, ALZA and OMJPI (now JPI) filed a patent infringement lawsuit in the United States District Court for the District of Delaware against Impax Laboratories, Inc. (Impax), Teva Pharmaceuticals USA, Inc., and Teva Pharmaceutical Industries Ltd. (collectively, Teva) in response to Impax and Teva’s filing of a major amendment to its ANDA seeking approval to market a generic version of CONCERTA® before the expiration of ALZA and JPI’s patent relating to CONCERTA®. Impax and Teva filed counterclaims alleging non-infringement and invalidity. In May 2011, Alza and JPI filed a second lawsuit against Teva in response to Teva’s filing of a second major amendment to its ANDA seeking approval to market additional dosage strengths of its generic CONCERTA® product before the expiration of Alza and JPI’s patent relating to CONCERTA®. In each of the above cases, ALZA and JPI are seeking an Order enjoining the defendants from marketing its generic version of CONCERTA® prior to the expiration of ALZA and JPI’s CONCERTA® patent.

ORTHO TRI-CYLEN®LO

In October 2008, OMJPI (now JPI) and Johnson & Johnson Pharmaceutical Research & Development, L.L.C. (JJPRD) filed a patent infringement lawsuit against Watson Laboratories, Inc. and Watson Pharmaceuticals, Inc. (collectively, Watson) in the United States District Court for the District of New Jersey in response to Watson’s ANDA seeking approval to market a generic version of JPI’s product prior to the expiration of JPI’s patent relating to ORTHO TRI-CYCLEN® LO (the OTCLO patent). Watson filed a counterclaim alleging invalidity of the patent. In addition, in January 2010, JPI filed a patent infringement lawsuit against Lupin Ltd. and Lupin Pharmaceuticals, Inc. (collectively, Lupin) in the United States District Court for the District of New Jersey in response to Lupin’s ANDA seeking approval to market a generic version of ORTHO TRI-CYCLEN® LO prior to the expiration of the OTCLO patent. Lupin filed a counterclaim alleging invalidity of the patent. The Lupin and Watson cases have been consolidated.

In November 2010, OMJPI (now JPI) filed a patent infringement lawsuit against Mylan Inc. and Mylan Pharmaceuticals, Inc. (collectively, Mylan), and Famy Care, Ltd. (Famy Care) in the United States District Court for the District of New Jersey in response to Famy Care’s ANDA seeking approval to market a generic version of ORTHO TRI-CYCLEN® LO prior to the expiration of the OTCLO patent. Mylan and Famy Care filed counterclaims alleging

invalidity of the patent. In each of the above cases, JJPRD and/or JPI are seeking an Order enjoining the defendants from marketing their generic versions of ORTHO TRI-CYLCEN® LO before the expiration of the OTCLO patent.

PREZISTA®

In November 2010, Tibotec, Inc. and Tibotec Pharmaceuticals, Inc. (collectively, Tibotec) filed a patent infringement lawsuit against Lupin, Ltd., Lupin Pharmaceuticals, Inc. (collectively, Lupin), Mylan, Inc. and Mylan Pharmaceuticals, Inc. (collectively, Mylan) in the United States District Court for the District of New Jersey in response to Lupin’s and Mylan’s respective ANDA’s seeking approval to market generic versions of Tibotec’s PREZISTA® product before the expiration of Tibotec’s patent relating to PREZISTA®. Lupin and Mylan each filed counterclaims alleging non-infringement and invalidity. In July 2011, Tibotec filed another patent infringement lawsuit against Lupin in the United States District Court for the District of New Jersey in response to Lupin’s supplement to its ANDA to add new dosage strengths for its proposed product. In August 2011, Tibotec and G.D. Searle & Company (G.D. Searle) filed a patent infringement lawsuit against Lupin and Mylan in response to their notice letters advising that their ANDAs are seeking approval to market generic versions of Tibotec’s PREZISTA® product before the expiration of two patents relating to PREZISTA® that Tibotec exclusively licenses from G.D. Searle.

In March 2011, Tibotec and G.D. Searle filed a patent infringement lawsuit against Teva Pharmaceuticals USA, Inc. and Teva Pharmaceuticals, Ltd. (collectively, Teva) in the United States District Court for the District of New Jersey in response to Teva’s ANDA seeking approval to market a generic version of PREZISTA® before the expiration of certain patents relating to PREZISTA® that Tibotec either owns or exclusively licenses from G.D. Searle.

In March 2011, Tibotec filed a patent infringement lawsuit against Hetero Drugs, Ltd. Unit III and Hetero USA Inc. (collectively, Hetero) in the United States District Court for the District of New Jersey in response to Hetero’s ANDA seeking approval to market a generic version of PREZISTA® before the expiration of certain patents relating to PREZISTA® that Tibotec exclusively licenses from G.D. Searle. In July 2011, upon agreement by the parties, the Court entered a stay of the lawsuit pending a final decision in the lawsuit against Teva with respect to the validity and/or enforceability of the patents that Tibotec licenses from G.D. Searle, with Hetero agreeing to be bound by such final decision. In each of the above lawsuits, Tibotec is seeking an Order enjoining the defendants from marketing their generic versions of PREZISTA® before the expiration of the relevant patents.

OTHER INTELLECTUAL PROPERTY MATTERS

In September 2009, Centocor Ortho Biotech Products, L.P. (now Janssen Products, LP (JPLP)) intervened in an inventorship lawsuit filed by the University of Kansas Center for Research, Inc. (KUCR) against the United States of America (USA) in the United States District Court for the District of Kansas. KUCR alleges that two KUCR scientists should be added as inventors on two USA-owned patents relating to VELCADE®. The USA licensed the patents

(and their foreign counterparts) to Millennium Pharmaceuticals, Inc. (MPI), who in turn sublicensed the patents (and their foreign counterparts) to JPLP for commercial marketing outside the United States. In July 2010, the parties reached a settlement agreement to resolve the disputes in this case and will submit the inventorship issue to arbitration. The case has been stayed pending the arbitration. As a result of the settlement agreement, the outcome of the arbitration regarding inventorship will determine whether pre-specified payments will be made to KUCR, but will not affect JPLP’s right to market VELCADE®.

In December 2009, the State of Israel filed a lawsuit in the District Court in Tel Aviv Jaffa against various affiliates of Omrix Biopharmaceuticals, Inc. (Omrix). In the lawsuit, the State claims that an employee of a government-owned hospital was the inventor on several patents related to fibrin glue technology that the employee developed while he was a government employee. The State claims that he had no right to transfer any intellectual property to Omrix because it belongs to the State. The State is seeking damages plus royalties on QUIXIL™ and EVICEL™ or, alternatively, transfer of the patents to the State.

In January 2011, Genentech, Inc. (Genentech) initiated an arbitration against UCB Celltech (Celltech) seeking damages for allegedly cooperating with Centocor (now JBI) to improperly terminate a prior agreement in which JBI was sublicensed under Genentech’s Cabilly patents. JBI has an indemnity agreement with Celltech, and Celltech has asserted that JBI is liable for any damages Celltech may be required to pay Genentech in that arbitration.

GOVERNMENT PROCEEDINGS

Like other companies in the pharmaceutical and medical devices and diagnostics industries, the Company and certain of its subsidiaries are subject to extensive regulation by national, state and local government agencies in the United States and other countries in which they operate. As a result, interaction with government agencies is ongoing. The most significant litigation brought by, and investigations conducted by, government agencies are listed below. It is possible that criminal charges and substantial fines and/or civil penalties or damages could result from government investigations or litigation.

AVERAGE WHOLESALE PRICE (AWP) LITIGATION

The Company and several of its pharmaceutical subsidiaries (the J&J AWP defendants), along with numerous other pharmaceutical companies, are defendants in a series of lawsuits in state and federal courts involving allegations that the pricing and marketing of certain pharmaceutical products amounted to fraudulent and otherwise actionable conduct because, among other things, the companies allegedly reported an inflated Average Wholesale Price (AWP) for the drugs at issue. Payors alleged that they used those AWPs in calculating provider reimbursement levels. Many of these cases, both federal actions and state actions

removed to federal court, were consolidated for pre-trial purposes in a Multi-District Litigation (MDL) in the United States District Court for the District of Massachusetts.

The plaintiffs in these cases included three classes of private persons or entities that paid for any portion of the purchase of the drugs at issue based on AWP, and state government entities that made Medicaid payments for the drugs at issue based on AWP. In June 2007, after a trial on the merits, the MDL Court dismissed the claims of two of the plaintiff classes against the J&J AWP defendants from the case regarding all claims of Classes 2 and 3. In March 2011, the Court dismissed the claims of the third class against the J&J AWP defendants without prejudice.

AWP cases brought by various Attorneys General have proceeded to trial against other manufacturers. Three state cases against certain of the Company’s subsidiaries have been set for trial: Idaho in October 2011, Kentucky in January 2012 and Kansas in March 2013. Other state cases are likely to be set for trial. In addition, an AWP case against the J&J AWP defendants brought by the Commonwealth of Pennsylvania was tried in Commonwealth Court in October and November 2010. The Court found in the Commonwealth’s favor with regard to certain of its claims under the Pennsylvania Unfair Trade Practices and Consumer Protection Law, entered an injunction, and awarded $45 million in restitution and $6.5 million in civil penalties. The Court found in the J&J AWP defendants’ favor on the Commonwealth’s claims of unjust enrichment, misrepresentation/fraud, civil conspiracy, and on certain of the Commonwealth’s claims under the Pennsylvania Unfair Trade Practices and Consumer Protection Law. The parties are currently awaiting a ruling on post trial motions, which, if necessary, will be followed by an appeal to the Pennsylvania Supreme Court. The Company believes that it has strong arguments supporting an appeal. Because the Company believes that the potential for an unfavorable outcome is not probable, it has not established a reserve with respect to the verdict.

RISPERDAL®

In January 2004, Janssen Pharmaceutica Inc. (Janssen) (now Janssen Pharmaceuticals, Inc. (JPI)) received a subpoena from the Office of the Inspector General of the United States Office of Personnel Management seeking documents concerning sales and marketing of, any and all payments to physicians in connection with sales and marketing of, and clinical trials for, RISPERDAL® from 1997 to 2002. Documents subsequent to 2002 have also been requested by the Department of Justice. An additional subpoena seeking information about marketing of, and adverse reactions to, RISPERDAL® was received from the United States Attorney’s Office for the Eastern District of Pennsylvania in November 2005. Numerous subpoenas seeking testimony from various witnesses before a grand jury were also received. JPI cooperated in responding to these requests for documents and witnesses. The United States Department of Justice and the United States Attorney’s Office for the Eastern District of Pennsylvania (the Government) are continuing to actively pursue both criminal and civil actions. In February 2010, the Government served Civil Investigative Demands seeking additional information

relating to sales and marketing of RISPERDAL® and sales and marketing of INVEGA®. The focus of these matters is the alleged promotion of RISPERDAL® and INVEGA® for off-label uses. The Government has notified JPI that there are also pending qui tam actions alleging off-label promotion of RISPERDAL®. The Government informed JPI that it will intervene in these qui tam actions and file a superseding complaint.

Discussions have been ongoing in an effort to resolve criminal penalties under the Food Drug and Cosmetic Act related to the promotion of RISPERDAL®. An agreement in principal on key issues relevant to a disposition of criminal charges pursuant to a single misdemeanor violation of the Food Drug and Cosmetic Act has been reached, but certain issues remain open before a settlement can be finalized. The Company has adjusted the accrued amount in the second quarter of 2011 to cover the financial component of the proposed criminal settlement.

In addition, discussions with state and federal government representatives to resolve the separate civil claims related to the marketing of RISPERDAL® and INVEGA®, including those under the False Claims Act (the qui tam actions), have been ongoing. The Company believes there are meritorious defenses to these claims, and it remains unclear whether a settlement can be reached as discovery is not complete, there are significant facts in dispute, the damages sought in the claims are unsubstantiated and indeterminate, there are numerous parties involved, and possible outcomes are uncertain. For these reasons, the Company is unable to estimate a range of loss. However, future negotiations may lead to a narrowing of the areas of disagreement and the liability may then become reasonably estimable in accordance with applicable accounting principles. If a negotiated resolution cannot be reached, civil litigation relating to the allegations of off-label promotion of RISPERDAL® and/or INVEGA® is likely. The ultimate resolution of the above criminal and these civil matters is not expected to have a material adverse effect on the Company’s financial position, although the resolution in any reporting period could have a material impact on the Company’s results of operations and cash flows for that period.

The Attorneys General of multiple states, including Alaska, Arkansas, Louisiana, Massachusetts, Mississippi, Montana, New Mexico, Pennsylvania, South Carolina, Texas and Utah, have pending actions against Janssen (now JPI) seeking one or more of the following remedies: reimbursement of Medicaid or other public funds for RISPERDAL® prescriptions written for off-label use, compensation for treating their citizens for alleged adverse reactions to RISPERDAL®, civil fines or penalties, damages for “overpayments” by the state and others, punitive damages, or other relief relating to alleged unfair business practices. Certain of these actions also seek injunctive relief relating to the promotion of RISPERDAL®. In the Texas matter, the Attorney General of Texas has joined a qui tam action in that state seeking similar relief, and the trial is scheduled to commence in late November 2011.

The Attorney General of West Virginia commenced suit in 2004 against Janssen (now JPI) based on claims of alleged consumer fraud as to DURAGESIC®, as well as RISPERDAL®. JPI was found liable and damages were assessed at $4.5 million. JPI filed an appeal, and in November 2010, the West Virginia Supreme Court reversed the trial court’s decision. In December 2010, the Attorney General of West Virginia dismissed the case as it related to RISPERDAL® without any payment. Thereafter, JPI settled the case insofar as it related to DURAGESIC®.

In 2004, the Attorney General of Louisiana filed a multi-count Complaint against Janssen (now JPI). The Company was later added as a defendant. The case was tried in October 2010. The issue tried to the jury was whether the Company or JPI had violated the State’s Medicaid Fraud Act (the Act) through misrepresentations allegedly made in the mailing of a November 2003 Dear Health Care Provider letter. The jury returned a verdict that JPI and the Company had violated the Act and awarded $257.7 million in damages. The trial judge subsequently awarded the Attorney General counsel fees and expenses in the amount of $73 million. The Company and JPI’s motion for a new trial was denied. The Company and JPI have filed an appeal and believe that they have strong arguments supporting the appeal. The Company believes that the potential for an unfavorable outcome is not probable, and therefore, the Company has not established a reserve with respect to the verdict.

In 2007, The Office of General Counsel of the Commonwealth of Pennsylvania filed a lawsuit against Janssen (now JPI) on a multi-Count Complaint related to Janssen’s sale of RISPERDAL® to the Commonwealth’s Medicaid program. The trial occurred in June 2010. The trial judge dismissed the case after the close of the plaintiff’s evidence. The Commonwealth’s post-trial motions were denied. The Commonwealth filed an appeal in April 2011.

In 2007, the Attorney General of South Carolina filed a lawsuit against the Company and Janssen (now JPI) on several counts. In March 2011, the matter was tried on liability only, at which time the lawsuit was limited to claims of violation of the South Carolina Unfair Trade Practice Act, including, among others, questions of whether the Company or JPI engaged in unfair or deceptive acts or practices in the conduct of any trade or commerce by distributing the November 2003 “Dear Doctor” letter or in their use of the FDA-approved label. The jury found in favor of the Company and against JPI. In June 2011, the Court awarded civil penalties of approximately $327.1 million. Post-trial briefing is underway, and if relief is not granted, JPI intends to appeal this judgment. The Company and JPI believe that JPI has strong arguments supporting an appeal and that the potential for an unfavorable outcome is not probable. Therefore, the Company has not established a reserve with respect to the verdict.

The Attorneys General of approximately 40 other states have indicated a potential interest in pursuing similar litigation against JPI, and have obtained a tolling agreement staying the running of the statute of limitations while they pursue a coordinated civil investigation of JPI regarding potential consumer fraud actions in connection with the marketing of RISPERDAL®.

MCNEIL CONSUMER HEALTHCARE

Starting in June 2010, McNeil Consumer Healthcare Division of McNEIL-PPC, Inc. (McNeil Consumer Healthcare), and certain