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 June 28, 2009

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		22-1024240
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		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 the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

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). 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 26, 2009 2,755,813,865 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 — June 28, 2009 and December 28, 2008			3
Consolidated Statements of Earnings for the Fiscal Second Quarters Ended June 28, 2009 and June 29, 2008			5
Consolidated Statements of Earnings for the Fiscal Six Months Ended June 28, 2009 and June 29, 2008			6
Consolidated Statements of Cash Flows for the Fiscal Six Months Ended June 28, 2009 and June 29, 2008			7
Notes to Consolidated Financial Statements			8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			36
Item 3. Quantitative and Qualitative Disclosures About Market Risk			48
Item 4. Controls and Procedures			49
Part II — Other Information
Item 1 — Legal Proceedings			50
Item 2 — Unregistered Sales of Equity Securities and Use of Proceeds			50
Item 4 — Submission of matters to a vote of security holders			51
Item 6 — Exhibits			51
Signatures			52
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)

ASSETS

		June 28, 2009				December 28, 2008
Current assets:
Cash & cash equivalents		$	11,686			$	10,768
Marketable securities			3,030				2,041
Accounts receivable, trade, less allowances for doubtful accounts $321 (2008,$268)			10,133				9,719
Inventories (Note 4)			5,472				5,052
Deferred taxes on income			2,454				3,430
Prepaid expenses and other receivables			2,719				3,367
Total current assets			35,494				34,377
Marketable securities, non-current			18				4
Property, plant and equipment at cost			28,411				27,392
Less: accumulated depreciation			(13,909	)			(13,027	)
Property, plant and equipment, net			14,502				14,365
Intangible assets, net (Note 5)			14,720				13,976
Goodwill, net (Note 5)			14,152				13,719
Deferred taxes on income			5,870				5,841
Other assets			2,682				2,630
Total assets		$	87,438			$	84,912

See Notes to Consolidated Financial Statements

JOHNSON & JOHNSON AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited; Dollars in Millions)

LIABILITIES AND SHAREHOLDERS’ EQUITY

		June 28, 2009				December 28, 2008
Current liabilities:
Loans and notes payable		$	5,435			$	3,732
Accounts payable			5,832				7,503
Accrued liabilities			4,765				5,531
Accrued rebates, returns and promotions			2,153				2,237
Accrued salaries, wages and commissions			1,191				1,432
Accrued taxes on income			510				417
Total current liabilities			19,886				20,852
Long-term debt			8,179				8,120
Deferred taxes on income			1,481				1,432
Employee related obligations			7,370				7,791
Other liabilities			4,275				4,206
Total liabilities			41,191				42,401
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 8)			(4,481	)			(4,955	)
Retained earnings			67,408				63,379
Less: common stock held in treasury, at cost (365,502,527 and 350,665,000 shares)			19,800				19,033
Total shareholders’ equity			46,247				42,511
Total liabilities and shareholders’ equity		$	87,438			$	84,912

See Notes to Consolidated Financial Statements

JOHNSON & JOHNSON AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited; dollars & shares in millions
except per share amounts)

		Fiscal Quarters Ended
						Percent								Percent
		June 28,				to				June 29,				to
		2009				Sales				2008				Sales
Sales to customers (Note 6)		$	15,239				100.0	%		$	16,450				100.0	%
Cost of products sold			4,450				29.2				4,751				28.9
Gross profit			10,789				70.8				11,699				71.1
Selling, marketing and administrative expenses			4,797				31.5				5,507				33.5
Research expense			1,638				10.7				1,896				11.5
In-process research & development (IPR&D)			—				—				40				0.2
Interest income			(25	)			(0.1	)			(89	)			(0.5	)
Interest expense, net of portion capitalized			110				0.7				105				0.6
Other (income) expense, net			6				—				(135	)			(0.8	)
Earnings before provision for taxes on income			4,263				28.0				4,375				26.6
Provision for taxes on income (Note 3)			1,055				6.9				1,048				6.4
NET EARNINGS		$	3,208				21.1	%		$	3,327				20.2	%
NET EARNINGS PER SHARE (Note 7)
Basic		$	1.16							$	1.18
Diluted		$	1.15							$	1.17
CASH DIVIDENDS PER SHARE		$	0.490							$	0.460
AVG. SHARES OUTSTANDING
Basic			2,756.2								2,809.8
Diluted			2,782.0								2,844.8

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
		June 28,				Percent				June 29,				Percent
		2009				to Sales				2008				to Sales
Sales to customers (Note 6)		$	30,265				100.0	%		$	32,644				100.0	%
Cost of products sold			8,701				28.7				9,365				28.7
Gross profit			21,564				71.3				23,279				71.3
Selling, marketing and administrative expenses			9,405				31.1				10,630				32.6
Research expense			3,156				10.4				3,608				11.1
In-process research & development (IPR&D)			—				—				40				0.1
Interest income			(50	)			(0.1	)			(171	)			(0.5	)
Interest expense, net of portion capitalized			216				0.7				203				0.6
Other income, net			(69	)			(0.2	)			(153	)			(0.5	)
Earnings before provision for taxes on income			8,906				29.4				9,122				27.9
Provision for taxes on income (Note 3)			2,191				7.2				2,197				6.7
NET EARNINGS		$	6,715				22.2	%		$	6,925				21.2	%
NET EARNINGS PER SHARE (Note 7)
Basic		$	2.43							$	2.45
Diluted		$	2.41							$	2.43
CASH DIVIDENDS PER SHARE		$	0.950							$	0.875
AVG. SHARES OUTSTANDING
Basic			2,761.3								2,821.6
Diluted			2,785.5								2,856.1

See Notes to Consolidated Financial Statements

JOHNSON & JOHNSON AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; Dollars in Millions)

		Fiscal Six Months Ended
		June 28,				June 29,
		2009				2008
CASH FLOW FROM OPERATING ACTIVITIES
Net earnings		$	6,715			$	6,925
Adjustment to reconcile net earnings to cash flows from operating activities:
Depreciation and amortization of property and intangibles			1,355				1,349
Stock based compensation			341				356
Purchased in-process research and development			—				40
Decrease/(Increase) in deferred tax provision			645				(322	)
Accounts receivable allowances			52				15
Changes in assets and liabilities, net of effects from acquisitions:
Increase in accounts receivable			(225	)			(732	)
Increase in inventories			(339	)			(379	)
Decrease in accounts payable and accrued liabilities			(1,897	)			(1,160	)
Increase in other current and non-current assets			(28	)			(756	)
(Decrease)/Increase in other current and non-current liabilities			(429	)			742
NET CASH FLOWS FROM OPERATING ACTIVITIES			6,190				6,078
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment			(1,002	)			(1,166	)
Proceeds from the disposal of assets			12				47
Acquisitions, net of cash acquired			(1,291	)			(46	)
Purchases of investments			(3,485	)			(687	)
Sales of investments			2,471				1,786
Other			(84	)			(46	)
NET CASH USED BY INVESTING ACTIVITIES			(3,379	)			(112	)
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends to shareholders			(2,623	)			(2,466	)
Repurchase of common stock			(1,123	)			(3,617	)
Proceeds from short-term debt			3,082				3,376
Retirement of short-term debt			(1,331	)			(837	)
Proceeds from long-term debt			9				1,641
Retirement of long-term debt			(16	)			(5	)
Proceeds from the exercise of stock options/excess tax benefits			74				610
NET CASH USED BY FINANCING ACTIVITIES			(1,928	)			(1,298	)
Effect of exchange rate changes on cash and cash equivalents			35				208
Increase in cash and cash equivalents			918				4,876
Cash and Cash equivalents, beginning of period			10,768				7,770
CASH AND CASH EQUIVALENTS, END OF PERIOD		$	11,686			$	12,646
Acquisitions
Fair value of assets acquired		$	1,519			$	51
Fair value of liabilities assumed			(228	)			(5	)
Net cash paid for acquisitions		$	1,291			$	46

See Notes to Consolidated Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 December 28, 2008. 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 2009, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 165, Subsequent Events. This statement establishes standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued. See Note 13 for additional information.

During the fiscal first quarter of 2009, the Company adopted SFAS No. 141(R), Business Combinations, and No. 160, Noncontrolling Interests in Consolidated Financial Statements. These statements aim to improve, simplify, and converge internationally, the accounting for business combinations and the reporting of noncontrolling interests in consolidated financial statements. These statements have a significant impact on the manner in which the Company accounts for acquisitions beginning in the fiscal year 2009. Significant changes include the capitalization of in process research and development (IPR&D), expensing of acquisition related restructuring actions and transaction related costs and the recognition of contingent purchase price consideration at fair value at the acquisition date. In addition, changes in accounting for deferred tax asset valuation allowances and acquired income tax uncertainties after the measurement period will be recognized in earnings rather than as an adjustment to the cost of acquisition. This accounting treatment for taxes is applicable to acquisitions that occurred both prior and subsequent to the adoption of SFAS No. 141(R). Noncontrolling interests as related to Johnson & Johnson’s financial statements are insignificant. The adoption of SFAS No. 141(R) and SFAS No. 160 did not have a material impact on the Company’s results of operations, cash flows or financial position.

During the fiscal first quarter of 2009, the Company adopted SFAS Statement No. 161, Disclosures About Derivative Instruments and Hedging Activities, to enhance the disclosure regarding the Company’s derivative and hedging activities to improve the transparency of financial reporting. The adoption of SFAS No. 161 did not have a significant impact on the Company’s results of operations, cash flows or financial position. See Note 2 for enhanced disclosures.

EITF Issue 07-1: Accounting for Collaborative Arrangements Related to the Development and Commercialization of Intellectual Property. This issue is effective for financial statements issued for fiscal years beginning after December 15, 2008 and was adopted by the Company in the fiscal first quarter of 2009. This issue addresses the income statement classification of payments made between parties in a collaborative arrangement.

The Company enters into collaborative arrangements, typically with other pharmaceutical or biotechnology companies, to develop and commercialize drug candidates or intellectual property. These arrangements typically involve two (or more) parties who are active participants in the collaboration and are exposed to significant risks and rewards dependent on the commercial success of the activities. These collaborations usually involve various activities by one or more parties, including research and development, marketing and selling and distribution. Often, these collaborations require upfront, milestone and royalty or profit share payments, contingent upon the occurrence of certain future events linked to the success of the asset in development. Amounts due from collaborative partners related to development activities are generally reflected as a reduction of research and development expense because the performance of contract development services is not central to the Company’s operations. In general, the income statement presentation for these collaborations is as follows:

Nature / Type of Collaboration		Statement of Earnings Presentation
Third party sale of product		Sales to customers
Royalties / milestones paid to collaborative partner (post-regulatory approval)*		Cost of goods sold
Royalties received from collaborative partner		Other income (expense), net
Upfront payments & milestones paid to collaborative partner (pre-regulatory approval)		Research expense
Research and development payments to collaborative partner		Research expense
Research and development payments received from collaborative partner		Reduction of Research expense

The impact of the adoption of EITF Issue 07-1 related to all collaboration agreements that existed as of June 28, 2009 and December 28, 2008 was immaterial to the Company’s results of operations, cash flows or financial position.

EITF Issue 08-7: Accounting for Defensive Intangible Assets. This issue is effective for financial statements issued for fiscal years beginning after December 15, 2008 and was adopted by the Company in the fiscal first quarter of 2009. This issue applies to acquired intangible assets in situations in which an entity does not intend to actively use the asset but intends to hold the asset to prevent others from obtaining access to the asset, except for intangible assets that are used in research and development activities. The adoption of EITF 08-7 did not have a significant impact on the Company’s results of operations, cash flows or financial position.

NOTE 2 — FINANCIAL INSTRUMENTS

During the fiscal first quarter of 2009, the Company adopted SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities, an amendment of SFAS Statement No. 133. SFAS No. 161 requires enhanced disclosures about the Company’s derivative and hedging activities. SFAS No. 161 requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of gain and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements.

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 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 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 June 28, 2009, the Company had notional amounts outstanding for forward foreign exchange contracts and cross currency interest rate swaps of $20 billion and $4 billion, respectively.

The Company follows the provisions of SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended. SFAS No. 133 requires that all derivative instruments be 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.

The designation as a cash flow hedge is made at the entrance date into 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) and expense, net, and was insignificant for the fiscal quarters and fiscal six months ended June 28, 2009 and June 29, 2008. Refer to Note 8 for disclosures of movements in Accumulated Other Comprehensive Income.

As of June 28, 2009, the balance of deferred net gains on derivatives included in accumulated other comprehensive income was $208 million after-tax. For additional information, see Note 8. The Company expects that substantially all of the amount 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. 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 for the fiscal second quarter and first fiscal six months ended June 28, 2009 related to designated derivatives as defined in SFAS No. 133:

		Gain/(Loss)				Gain/(Loss)
		recognized				reclassed from								Gain/(Loss)
		in				Accumulated OCI								recognized in
		Accumulated				into income(1)								income(2)
		OCI(1)								Six								Six
(Dollars in Millions)		Six Months				Quarter				Months				Quarter				Months
Cash Flow Hedges		Ended				ended				Ended				ended				Ended
Foreign exchange contracts		$	(46	)		$	(13	)		$	(8	) (A)		$	(2	)		$	(4	) (E)
Foreign exchange contracts			(65	)			15				34	(B)			3				8	(E)
Foreign exchange contracts			16				12				22	(C)			—				—	(E)
Cross currency interest rate swaps			193				(1	)			(7	) (D)			—				—	(E)
Foreign exchange contracts			33				6				3	(E)			—				1	(E)
Total		$	131			$	19			$	44			$	1			$	5

For the fiscal quarter and the first fiscal six months ended June 28, 2009, a gain of $10 million and $4 million, respectively, was recognized in Other (income)/expense, net, relating to foreign exchange contracts not designated as hedging instruments under SFAS No. 133.

During the fiscal first quarter of 2008, the Company adopted SFAS No. 157, Fair Value Measurements except for non-financial assets and liabilities recognized or disclosed at fair value on a non-recurring basis, which became effective during the first fiscal quarter of 2009. The effect of adoption on January 1, 2009 of SFAS No. 157 for non-financial assets and liabilities recorded at fair value on a nonrecurring basis did not have a material impact on the Company’s financial position and results of operations. SFAS No. 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. During the fiscal first quarter of 2008, the Company adopted SFAS No. 159, Fair Value Option for Financial Assets and Financial Liabilities. SFAS No. 159 permits the Company to measure certain financial assets and financial liabilities at fair value. The Company assessed the fair value option made available upon adopting SFAS No. 159, and has elected not to apply the fair value

option to any financial instruments that were not already recognized at fair value.

SFAS No. 157 defines fair value as 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 should be determined using assumptions that market participants would use in pricing an asset or liability. The statement establishes a three-level hierarchy to prioritize the inputs used in measuring fair value. The levels within the hierarchy are described in the table 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, 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 did not have any other significant financial assets or liabilities which would require revised valuations under SFAS No. 157 that are recognized at fair value.

The Company’s significant financial assets and liabilities measured at fair value as of June 28, 2009 were as follows:

		Quoted prices
		in active				Significant
		markets for				other				Significant
		identical				observable				unobservable
		assets				inputs				inputs
(Dollars in Millions)		Level 1				Level 2				Level 3
Derivatives designated as hedging instruments under SFAS 133:
Other Assets:
Foreign exchange contracts			—			$	488				—
Cross currency interest rate swaps			—				75				—
Total							563
Other Liabilities:
Foreign exchange contracts			—				579				—
Cross currency interest rate swaps			—				576				—
Total							1,155
Derivatives not designated as hedging instruments under SFAS 133:
Other Assets:
Foreign exchange contracts			—				22				—
Other Liabilities:
Foreign exchange contracts			—			$	22				—

Financial Instruments not measured at Fair Value:

The following financial asset and liabilities are held at carrying amount on the consolidated balance sheet:

		Carrying				Estimated
(Dollars in Millions)		Amount				Fair Value
Financial Assets
Current Investments
Cash		$	3,256				3,256
Government securities and obligations			9,792				9,793
Corporate debt securities			256				256
Money market funds			913				913
Time deposits			499				499
Total cash, cash equivalents and current marketable securities		$	14,716				14,717
Non-Current Investments
Marketable securities		$	18				18
Financial Liabilities
Current Debt		$	5,435				5,435
Non-Current Debt
5.15% Debentures due 2012			600				657
3.80% Debentures due 2013			500				524
5.55% Debentures due 2017			1,000				1,096
5.15% Debentures due 2018			898				972
4.75% Notes due 2019 (1B Euro 1.3902)			1,381				1,408
3% Zero Coupon Convertible Subordinated Debentures due in 2020			186				160
6.73% Debentures due 2023			250				273
5.50% Notes due 2024 (500 GBP 1.6238)			805				849
6.95% Notes due 2029			294				351
4.95% Debentures due 2033			500				490
5.95% Notes due 2037			995				1,076
5.86% Debentures due 2038			700				777
Other (Includes Industrial Revenue Bonds)			70				70
Total Non-Current Debt		$	8,179				8,703

The weighted average effective rate on non-current debt is 5.42%.

Fair value of government securities and obligations and non-current marketable securities was estimated using quoted broker prices in active markets.

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

NOTE 3 — INCOME TAXES

The worldwide effective income tax rates for the first fiscal six months of 2009 and 2008 were 24.6% and 24.1%, respectively. The increase in the effective tax rate was primarily due to a decline in taxable income in lower tax jurisdictions relative to taxable income in higher tax jurisdictions partially offset by the U.S. Research and Development tax credit which was not in effect in the first fiscal six months of 2008.

NOTE 4 — INVENTORIES

(Dollars in Millions)		June 28, 2009				December 28, 2008
Raw materials and supplies		$	948			$	839
Goods in process			1,613				1,372
Finished goods			2,911				2,841
Total		$	5,472			$	5,052

NOTE 5 — 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 2008. Future impairment tests for goodwill and indefinite lived intangible assets will be performed annually in the fiscal fourth quarter, or sooner if warranted.

(Dollars in Millions)		June 28, 2009				December 28, 2008
Trademarks (non-amortizable)- gross		$	5,912			$	5,879
Less accumulated amortization			145				145
Trademarks (non-amortizable)- net			5,767				5,734
Patents and trademarks — gross			5,553				5,119
Less accumulated amortization			1,968				1,820
Patents and trademarks — net			3,585				3,299
Other amortizable intangibles — gross			7,945				7,376
Less accumulated amortization			2,595				2,433
Other intangibles — net			5,350				4,943
Purchased in process research and development(non-amortizable)- gross*			18				—
Total intangible assets — gross			19,428				18,374
Less accumulated amortization			4,708				4,398
Total intangible assets — net		$	14,720			$	13,976

Goodwill as of June 28, 2009 was allocated by segment of business as follows:

										Med Dev
(Dollars in Millions)		Consumer				Pharm				& Diag				Total
Goodwill, net at December 28, 2008			$7,474				$963				$5,282				$13,719
Acquisitions			—				—				376				376
Translation & Other**			215				(2	)			(156	)			57
Goodwill, net as of June 28, 2009			$7,689				$961				$5,502				$14,152

The weighted average amortization periods for patents and trademarks and other intangible assets are 16 years and 28 years, respectively. The amortization expense of amortizable intangible assets for the fiscal six months ended June 28, 2009 was $365 million, and the estimated amortization expense for the five succeeding years approximates $775 million, per year.

NOTE 6 — SEGMENTS OF BUSINESS AND GEOGRAPHIC AREAS
(Dollars in Millions)

SALES BY SEGMENT OF BUSINESS (1)

		Fiscal Quarters Ended
		June 28,				June 29,				Percent
(Dollars in Millions)		2009				2008				Change
Consumer
U.S.		$	1,708			$	1,694				0.8	%
International			2,146				2,342				(8.4	)
Total			3,854				4,036				(4.5	)
Pharmaceutical
U.S.			3,172				3,793				(16.4	)
International			2,326				2,547				(8.7	)
Total			5,498				6,340				(13.3	)
Medical Devices & Diagnostics
U.S.			2,776				2,723				1.9
International			3,111				3,351				(7.2	)
Total			5,887				6,074				(3.1	)
Worldwide
U.S.			7,656				8,210				(6.7	)
International			7,583				8,240				(8.0	)
Total		$	15,239			$	16,450				(7.4	)%

		Fiscal Six Months Ended
		June 28,				June 29,				Percent
(Dollars in Millions)		2009				2008				Change
Consumer
U.S.		$	3,434			$	3,513				(2.2	)%
International			4,131				4,587				(9.9	)
Total			7,565				8,100				(6.6	)
Pharmaceutical
U.S.			6,846				7,863				(12.9	)
International			4,432				4,906				(9.7	)
Total			11,278				12,769				(11.7	)
Medical Devices & Diagnostics
U.S.			5,428				5,311				2.2
International			5,994				6,464				(7.3	)
Total			11,422				11,775				(3.0	)
Worldwide
U.S.			15,708				16,687				(5.9	)
International			14,557				15,957				(8.8	)
Total		$	30,265			$	32,644				(7.3	)%

OPERATING PROFIT BY SEGMENT OF BUSINESS

		Fiscal Quarters Ended
		June 28,				June 29,				Percent
(Dollars in Millions)		2009				2008				Change
Consumer		$	695			$	683				1.8	%
Pharmaceutical			1,701				2,143				(20.6	)
Medical Devices & Diagnostics (2)			2,088				1,702				22.7
Segments total			4,484				4,528				(1.0	)
Expense not allocated to segments (3)			(221	)			(153	)
Worldwide total		$	4,263			$	4,375				(2.6	)%

		Fiscal Six Months Ended
		June 28,				June 29,				Percent
(Dollars in Millions)		2009				2008				Change
Consumer		$	1,495			$	1,411				6.0	%
Pharmaceutical			3,958				4,510				(12.2	)
Medical Devices & Diagnostics (2)			3,875				3,502				10.7
Segments total			9,328				9,423				(1.0	)
Expense not allocated to segments (3)			(422	)			(301	)
Worldwide total		$	8,906			$	9,122				(2.4	)%

SALES BY GEOGRAPHIC AREA
(Dollars in Millions)

		Fiscal Quarters Ended
		June 28,				June 29,				Percent
(Dollars in Millions)		2009				2008				Change
U.S.		$	7,656			$	8,210				(6.7	)%
Europe			3,972				4,547				(12.6	)
Western Hemisphere, excluding U.S.			1,215				1,280				(5.1	)
Asia-Pacific, Africa			2,396				2,413				(0.7	)
Total		$	15,239			$	16,450				(7.4	)%

		Fiscal Six Months Ended
		June 28,				June 29,				Percent
(Dollars in Millions)		2009				2008				Change
U.S.		$	15,708			$	16,687				(5.9	)%
Europe			7,643				8,855				(13.7	)
Western Hemisphere, excluding U.S.			2,277				2,525				(9.8	)
Asia-Pacific, Africa			4,637				4,577				1.3
Total		$	30,265			$	32,644				(7.3	)%

NOTE 7 — 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 June 28, 2009 and June 29, 2008.

		Fiscal Quarters Ended
		June 28,				June 29,
(Shares in Millions)		2009				2008
Basic net earnings per share		$	1.16			$	1.18
Average shares outstanding — basic			2,756.2				2,809.8
Potential shares exercisable under stock option plans			80.8				197.4
Less: shares which could be repurchased under treasury stock method			(58.6	)			(166.1	)
Convertible debt shares			3.6				3.7
Average shares outstanding — diluted			2,782.0				2,844.8
Diluted earnings per share		$	1.15			$	1.17

The diluted earnings per share calculation for the fiscal second quarters ended June 28, 2009 and June 29, 2008 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 June 28, 2009 and June 29, 2008 excluded 178 million shares and 61 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 June 28, 2009 and June 29, 2008.

		Fiscal Six Months Ended
		June 28,				June 29,
(Shares in Millions)		2009				2008
Basic net earnings per share		$	2.43			$	2.45
Average shares outstanding — basic			2,761.3				2,821.6
Potential shares exercisable under stock option plans			108.4				197.4
Less: shares which could be repurchased under treasury stock method			(87.8	)			(166.6	)
Convertible debt shares			3.6				3.7
Average shares outstanding — diluted			2,785.5				2,856.1
Diluted earnings per share		$	2.41			$	2.43

The diluted earnings per share calculation for both the fiscal six months ended June 28, 2009 and June 29, 2008 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 June 28, 2009 and June 29, 2008, excluded 151 million shares and 61 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.

NOTE 8 — ACCUMULATED OTHER COMPREHENSIVE INCOME

Total comprehensive income for the first fiscal six months ended June 28, 2009 was $7.2 billion, compared with $8.2 billion for the same period a year ago. Total comprehensive income for the fiscal second quarter ended June 28, 2009 was $3.9 billion, compared with $3.4 billion for the same period a year ago. Total comprehensive income included net earnings, net unrealized currency gains and losses on translation, adjustments related to Employee Benefit Plans, net unrealized gains and losses on securities available for sale 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
						Unrld								Gains/				Accum
		For.				Gains/				Employee				(Losses)				Other Comp
		Cur.				(Losses)				Benefit				on Deriv				Inc/
(Dollars in Millions)		Trans.				on Sec				Plans				& Hedges				(Loss)
December 28, 2008		$	(1,871	)			25				(3,230	)			121				(4,955	)
2009 six months change
Net change associated with current period hedging transactions															138
Net amount reclassed to net earnings															(51)	*
Net six months change			410				2				(25	)			87				474
June 28, 2009		$	(1,461	)			27				(3,255	)			208				(4,481	)

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 9 — MERGERS, ACQUISITIONS AND DIVESTITURES

During the fiscal second quarter of 2009, there were no significant acquisitions or divestitures.

During the fiscal first quarter of 2009, the Company acquired Mentor Corporation, a leading supplier of medical products for the global aesthetic market, for a net purchase price of $1.1 billion. The purchase price for the acquisition was allocated primarily to amortizable intangible assets for $0.9 billion and goodwill for $0.4 billion.

During the fiscal second quarter of 2008 the Company acquired Amic AB for a purchase price of $44 million in cash and debt. Amic AB is 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). An in-process research & development (IPR&D) charge of $40 million before and after tax was recorded related to the acquisition of Amic AB.

NOTE 10 — 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 2009 and 2008 include the following components:

		Retirement Plans								Other Benefit Plans
						Fiscal Quarters Ended
		June 28,				June 29,				June 28,				June 29,
(Dollars in Millions)		2009				2008				2009				2008
Service cost		$	116				126				36				35
Interest cost			182				178				42				42
Expected return on plan assets			(227	)			(222	)			—				—
Amortization of prior service cost			3				3				(1	)			(2	)
Amortization of net transition asset			1				1				—				—
Recognized actuarial losses			41				16				14				17
Net periodic benefit cost		$	116				102				91				92

Net periodic benefit cost for the Company’s defined benefit retirement plans and other benefit plans for the first fiscal six months of 2009 and 2008 include the following components:

		Retirement Plans								Other Benefit Plans
						Fiscal Six Months Ended
		June 28,				June 29,				June 28,				June 29,
(Dollars in Millions)		2009				2008				2009				2008
Service cost		$	234				255				70				71
Interest cost			367				357				85				83
Expected return on plan assets			(455	)			(446	)			(1	)			(1	)
Amortization of prior service cost			5				6				(2	)			(3	)
Amortization of net transition asset			1				1				—				—
Recognized actuarial losses			82				35				28				33
Net periodic benefit cost		$	234				208				180				183

Company Contributions

For the fiscal six months ended June 28, 2009, the Company contributed $568 million and $13 million to its U.S. and international retirement plans, respectively. In 2006, Congress passed the Pension Protection Act of 2006. The Act amended the Employee Retirement Income Security Act (ERISA) for plan years beginning after 2007 and established new minimum funding standards for U.S. employer defined benefit plans. 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 11 — RESTRUCTURING

In the third quarter of 2007, the Company announced restructuring initiatives in an effort to improve its overall cost structure. This action was taken to offset the anticipated negative impacts associated with generic competition in the Pharmaceutical segment and challenges in the drug-eluting stent market. The Company’s Pharmaceuticals segment has reduced its cost base by consolidating certain operations, while continuing to invest in recently launched products and its late-stage pipeline of new products. The Cordis franchise has moved to a more integrated business model to address the market changes underway with drug-eluting stents and to better serve the broad spectrum of its patients’ cardiovascular needs, while reducing its cost base. This program allowed the Company to accelerate steps to standardize and streamline certain aspects of its enterprise-wide functions such as human resources, finance and information technology to support growth across the business, while also leveraging its scale more effectively in areas such as procurement to benefit its operating companies. Additionally, as part of this initiative, the Company planned to eliminate approximately 4,400 positions of which 4,100 have been

eliminated since this restructuring initiative was announced in 2007.

During the fiscal third quarter of 2007, the Company recorded $745 million in pre-tax charges of which, approximately, $500 million of the pre-tax restructuring charges are expected to require cash payments. The $745 million of restructuring charges included severance costs of $450 million, asset write-offs of $272 million and $23 million related to leasehold obligations. The $272 million of asset write-offs relate to property, plant and equipment of $166 million, intangible assets of $48 million and other assets of $58 million.

The following table summarizes the severance reserve and the associated spending under this initiative through the second quarter of 2009:

(Dollars in Millions)		Severance
Reserve balance as of:
December 28, 2008		$	178
Cash outlays			(81	)
June 28, 2009*		$	97

NOTE 12 — LEGAL PROCEEDINGS 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 is 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. However, the Company believes that if any product liability results from such cases, it will be substantially covered by existing amounts accrued in the Company’s balance sheet and, where available, by third-party product liability insurance.

Multiple products of Johnson & Johnson subsidiaries are subject to numerous product liability claims and lawsuits, including ORTHO EVRA^®, RISPERDAL^®, DURAGESIC^®, LEVAQUIN^®, the CYPHER^® Stent and the CHARITÉ™ Artificial Disc. There are approximately 565 claimants who have pending lawsuits or claims regarding injuries allegedly due to ORTHO EVRA^®, 452 with respect to RISPERDAL^®, 279 with respect to CHARITÉ™, 152 with respect to LEVAQUIN^® 101 with respect to DURAGESIC^® and 56 with respect to CYPHER^®. These claimants seek substantial compensatory and, where available, punitive damages.

With respect to RISPERDAL^®, the Attorneys General of eight states and the Office of General Counsel of the Commonwealth of

Pennsylvania have filed actions seeking 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, punitive damages, or other relief. The Attorney General of Texas has joined a qui tam action in that state seeking similar relief. Certain of these actions also seek injunctive relief relating to the promotion of RISPERDAL^®. The Attorneys General of more than 40 other states have indicated a potential interest in pursuing similar litigation against the Company’s Janssen subsidiary (now Ortho-McNeil-Janssen Pharmaceuticals Inc.) (OMJPI), and have obtained a tolling agreement staying the running of the statute of limitations while they inquire into the issues. In addition, there are six cases filed by union health plans seeking damages for alleged overpayments for RISPERDAL^®, several of which seek certification as class actions. In the case brought by the Attorney General of West Virginia, based on claims for alleged consumer fraud as to DURAGESIC^® as well as RISPERDAL^®, Janssen (now OMJPI) was found liable and damages were assessed at $4.5 million. OMJPI intends to appeal.

Numerous claims and lawsuits in the United States relating to the drug PROPULSID^®, withdrawn from general sale by the Company’s Janssen (now OMJPI) subsidiary in 2000, have been resolved or are currently enrolled in settlement programs with an aggregate cap below $100 million. Litigation concerning PROPULSID^® is pending in Canada, where a class action of persons alleging adverse reactions to the drug has been certified.

AFFIRMATIVE STENT PATENT LITIGATION

In patent infringement actions tried in Delaware Federal District Court in late 2000, Cordis Corporation (Cordis), a subsidiary of Johnson & Johnson, obtained verdicts of infringement and patent validity, and damage awards against Boston Scientific Corporation (Boston Scientific) and Medtronic AVE, Inc. (Medtronic) based on a number of Cordis vascular stent patents. In December 2000, the jury in the damage action against Boston Scientific returned a verdict of $324 million and the jury in the Medtronic action returned a verdict of $271 million. The Court of Appeals for the Federal Circuit has upheld liability in these cases, and on September 30, 2008, the district court entered judgments, including interest, in the amounts of $702 million and $521 million against Boston Scientific and Medtronic, respectively. Medtronic paid $472 million in October 2008, representing the judgment, net of amounts exchanged in settlement of a number of other litigations between the companies. The net settlement of $472 million was recorded as a credit to other (income) expense, net in the 2008 consolidated statement of earnings. The $702 million judgment against Boston Scientific is not reflected in the Company’s financial statements as Boston Scientific has appealed the judgments, and no amounts have been received to date. In May 2009, Medtronic paid $270 million to settle additional patent infringement claims asserted by Cordis based on its vascular stent patents.

In January 2003, Cordis filed a patent infringement action against Boston Scientific in Delaware Federal District Court accusing its

Express2™, Taxus^® and Liberte^® stents of infringing the Palmaz patent that expired in November 2005. The Liberte^® stent was also accused of infringing Cordis’ Gray patent that expires in 2016. In June 2005, a jury found that the Express2™, Taxus^® and Liberte^® stents infringed the Palmaz patent and that the Liberte^® stent also infringed the Gray patent. On March 31, 2009, the U.S. Court of Appeals for the Federal Circuit affirmed this judgment. The case has been remanded to the district court for a trial on damages and willfulness. Cordis also filed a lawsuit in Delaware Federal District Court in October of 2008 alleging that Boston Scientific’s sale of Taxus^® Liberte^® since June of 2005 infringes Cordis’ Gray patent.

Cordis has filed several lawsuits in New Jersey Federal District Court against Guidant Corporation (Guidant), Abbott Laboratories, Inc. (Abbott), Boston Scientific and Medtronic alleging that the Xience V™ (Abbott), Promus™ (Boston Scientific) and Endeavor^® (Medtronic) drug eluting stents infringe several patents owned by or licensed to Cordis.

PATENT LITIGATION AGAINST VARIOUS JOHNSON & JOHNSON SUBSIDIARIES

The products of various Johnson & Johnson subsidiaries are the subject of various patent lawsuits, the outcomes of which could potentially adversely affect the ability of those subsidiaries to sell those products, or require the payment of past damages and future royalties.

In July 2005, a jury in Federal District Court in Delaware found that the Cordis CYPHER^® Stent infringed Boston Scientific’s Ding ‘536 patent and that the Cordis CYPHER^® and BX VELOCITY^® Stents also infringed Boston Scientific’s Jang ‘021 patent. The jury also found both of those patents valid. Boston Scientific seeks substantial damages and an injunction in those actions. Cordis appealed. On January 15, 2009, the Court of Appeals for the Federal Circuit held the Ding patent invalid. In March of 2009, the Court of Appeals for the Federal Circuit denied Boston Scientific’s motion for reconsideration. On March 31, 2009, the Court of Appeals for the Federal Circuit upheld the judgment that Cordis’ CYPHER^® stent infringed Boston Scientific’s Jang patent. The Court of Appeals denied Cordis’ application for reconsideration. The case has been remanded for a trial on the issues of damages and willfulness. Boston Scientific is not seeking injunctive relief.

In Germany, Boston Scientific has several actions based on its Ding patents pending against the Cordis CYPHER^® Stent. Cordis was successful in these actions at the trial level, but Boston Scientific has appealed. Boston Scientific has brought actions in Belgium, the Netherlands, Germany, France and Italy under its Kastenhofer patent, which purports to cover two-layer catheters such as those used to deliver the CYPHER^® Stent, to enjoin the manufacture and sale of allegedly infringing catheters in those countries, and to recover damages. A decision by the lower court in the Netherlands in Boston Scientific’s favor was reversed on

appeal in April 2007. Boston Scientific has filed an appeal to the Dutch Supreme Court. In October 2007, Boston Scientific prevailed in the nullity action challenging the validity of the Kastenhofer patent filed by Cordis in Germany. Cordis has appealed. No substantive hearings have been scheduled in the French or Italian actions.

Trial in Boston Scientific’s U.S. case based on the Kastenhofer patent in Federal District Court in California concluded in October 2007 with a jury finding that the patent was invalid. The jury also found for Cordis on its counterclaim that sale by Boston Scientific of its balloon catheters and stent delivery systems infringe Cordis’ Fontirroche patent. The Court has denied Boston Scientific’s post trial motions. On April 9, 2009, the Court ruled that Boston Scientific will be required to pay Cordis a royalty of 5.1% of all infringing sales of catheters and stent delivery systems from October 2007 as long as they practice the patented invention. The Court entered judgment against Boston Scientific in the amount of $26 million. Boston Scientific has filed an appeal.

In May 2008, Centocor, Inc. (now Centocor Ortho Biotech Inc. (COBI)) filed a lawsuit against Genentech, Inc. (Genentech) in U.S. District Court for the Central District of California seeking to invalidate the Cabilly II patent. Prior to filing suit, Centocor had a sublicense under this patent from Celltech (who was licensed by Genentech) for REMICADE^® and had been paying royalties to Celltech. Centocor has terminated that sublicense and stopped paying royalties. Genentech has filed a counterclaim alleging that REMICADE^® infringes its Cabilly II patents and that the manufacture of REMICADE^®, ustekinumab, golimumab and ReoPro infringe various of its patents relating to the purification of antibodies made through recombinant DNA techniques.

In April 2009, a trial was held before the Federal District Court for the Middle District of Florida on the liability phase of Ciba’s patent infringement lawsuit alleging that Johnson & Johnson Vision Care’s ACUVUE^® OASYS™ lenses infringe three of their Nicholson patents. The key issues were infringement and the validity of the patents in suit. Post trial briefs were filed in May 2009 and closing arguments were held in June 2009. If the court finds the patents valid and infringed there will be another trial to determine damages and Ciba’s request for injunctive relief.

On May 1, 2009 Abbott Laboratories filed a patent infringement lawsuit against Centocor (now COBI) in the United States District Court for the District of Massachusetts. The suit alleges that Centocor’s SIMPONI^® product, a human anti TNF alpha antibody, which was recently approved by the FDA, infringes Abbott’s ’394 patent (the Salfeld patent). The case has been stayed pending the resolution of an arbitration filed by Centocor directed to its claim that it is licensed under the ‘394 patent.

In June of 2009, Centocor’s (COBI) lawsuit alleging that Abbott’s HUMIRA anti TNF alpha product infringes Centocor’s ‘775 patent went to trial in Federal District Court in the Eastern District of

Texas. On June 28, 2009 a jury returned a verdict finding the patent valid and willfully infringed, and awarded Centocor damages of approximately $1.7 billion. A bench trial on Abbott’s defenses, of inequitable conduct and prosecution laches, will be held on August 4, 2009. Post trial motions and an appeal are likely to follow.

The following chart summarizes various patent lawsuits concerning products of Johnson & Johnson subsidiaries that have yet to proceed to trial:

Plaintiff/

Trial

Date

J&J Product

Company

Patents

Patent Holder

Court

Date

Filed

Two-layer Catheters

Cordis

Kastenhofer

Boston Scientific Corp.

Multiple European

*

09/07

CYPHER® Stent

Cordis

Wall

Wall

E.D. TX

04/11

11/07

CYPHER® Stent

Cordis

Saffran

Saffran

E.D. TX

06/11

10/07

Blood Glucose Meters and Strips

Lifescan

Wilsey

Roche Diagnostics

D. DE

*

11/07

REMICADE®, ustekinumab, golimumab, ReoPro

Centocor/ COBI

Cabilly II

Genentech

C.D. CA

*

05/08

SIMPONIâ

Centocor/ COBI

Salfeld

Abbott Laboratories

MA

*

05/09

LITIGATION AGAINST FILERS OF ABBREVIATED NEW DRUG APPLICATIONS (ANDAs)

The following chart indicates lawsuits pending against generic firms 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 subsidiary of the Company involved is not successful in these actions, or the statutory 30-month stay expires before a ruling from the district court is obtained, the firms involved will have the ability, upon FDA approval, to introduce generic versions of the product at issue resulting in very substantial market share and revenue losses for the product of the Company’s subsidiary.

As noted in the following chart, 30-month stays expired during 2006, 2007 and 2008, and will expire in 2009, 2010 and 2011 with respect to ANDA challenges regarding various products:

Brand Name

Patent/NDA

Generic

Trial

Date

30-Month

Product

Holder

Challenger

Court

Date

Filed

Stay Expiration

CONCERTA®

McNeil-PPC

Andrx

D. DE

12/07

09/05

None

18, 27, 36 and 54 mg controlled release

ALZA

tablet

LEVAQUIN® 250, 500, 750 mg tablet

Ortho-McNeil

Lupin

D. NJ

*

10/06

03/09

ORTHO TRI-CYCLEN® LO

Ortho-McNeil

Barr

D. NJ

*

10/03

02/06

0.18 mg/0.025 mg, 0.215 mg/

Watson

D. NJ

*

10/08

03/11

0.025 mg and 0.25 mg/0.025 mg

Sandoz

D. NJ

*

06/09

10/11

RAZADYNE®

Janssen

Teva

D. DE

05/07

07/05

08/08

Mylan

D. DE

05/07

07/05

08/08

Dr. Reddy’s

D. DE

05/07

07/05

08/08

Purepac

D. DE

05/07

07/05

08/08

Barr

D. DE

05/07

07/05

08/08

AlphaPharm

D. DE

05/07

07/05

08/08

ULTRAM® ER 100, 200, 300 mg tablet

Ortho-

Par

D. DE

01/09

05/07

09/09

McNeil/Biovail

06/07

11/09

10/07

03/10

ULTRAM® ER 100, 200, 300 mg tablet

Ortho-

Impax

D. DE

06/10

08/08

01/11

McNeil/Biovail

11/08

03/11

In the action against Barr Pharmaceuticals, Inc. (Barr)(now a wholly-owned subsidiary of Teva Pharmaceutical Industries LTD.) regarding ORTHO TRI-CYCLEN^® LO, on January 22, 2008, the Company’s subsidiary Ortho Women’s Health & Urology, a Division of Ortho-McNeil-Janssen Pharmaceuticals, Inc., and Barr agreed to a non-binding term sheet to settle the litigation, which settlement discussions are still underway. The trial court postponed the January 22, 2008 trial without setting a new trial date. On June 30, 2009, Barr launched its generic product “at risk” before trial. OMJPI sought a preliminary injunction and recall of Barr product which the Court granted on July 21, 2009. On July 23, 2009, the parties entered into a definitive agreement to settle the lawsuit. Under the terms of the settlement, Barr obtained a release for its sales of its generic product in exchange for an undisclosed royalty payment. Barr also obtained a non-exclusive, royalty-bearing license to re-enter the market on December 31, 2015, or earlier in certain limited circumstances.

On October 16, 2008, the Company’s subsidiary Ortho-McNeil-Janssen Pharmaceuticals, Inc. (OMJPI) filed suit in Federal District Court in New Jersey against Watson Laboratories, Inc. (Watson) in response to Watson’s ANDA regarding ORTHO TRI-CYCLEN^® LO.

In the action against Barr and AlphaPharm with respect to their ANDA challenges to the RAZADYNE^® patent that Janssen (now OMJPI)licenses from Synaptech, Inc. (Synaptech), a four-day non-jury trial was held in the Federal District Court in Delaware in May 2007. On August 27, 2008, the court held that the patent was invalid because it was not enabled. Janssen (OMJPI) and Synaptech have appealed the decision. Since the court’s decision, three generic companies have received final approvals for their products and have launched “at risk” pending appeal. Additional generic approvals and launches could occur at any time.

In the action by McNEIL-PPC, Inc. (McNeil-PPC) and ALZA Corporation (ALZA) against Andrx Corporation (Andrx) with respect to its ANDA challenge to the CONCERTA^® patents, a five-day non-jury trial was held in the Federal District Court in Delaware in December 2007. On March 30, 2009, the court ruled that one CONCERTA^® patent would not be infringed by Andrx’s proposed generic product and that the patent was invalid because it was not enabled. The court dismissed without prejudice Andrx’s declaratory judgment suit on a second patent for lack of jurisdiction. McNeil-PPC and ALZA filed an appeal on May 7, 2009.

In the RAZADYNE^®ER cases, a lawsuit was filed against Barr on the RAZADYNE^® use patent that Janssen (now OMJPI) licenses from Synaptech in June 2006. In September 2008, the above-discussed Delaware decision invalidating the RAZADYNE^® use patent resulted in entry of judgment for Barr on that patent, but the case will be reopened if Janssen (now OMJPI) and Synaptech win on appeal. Barr has received FDA approval of its product and has launched “at risk.”

In the action against Lupin Pharmaceuticals, Inc. (Lupin) regarding its ANDA concerning LEVAQUIN^®, Lupin contends that the United States Patent and Trademark Office improperly granted a patent term extension to the patent that Ortho-McNeil (now Ortho-McNeil-Janssen Pharmaceuticals, Inc. (OMJPI)) licenses from Daiichi Pharmaceuticals, Inc. (Daiichi). Lupin alleges that the active ingredient in LEVAQUIN^® was the subject of prior marketing, and therefore was not eligible for the patent term extension. Lupin concedes validity and that its product would violate the patent if marketed prior to the expiration of the original patent term. Summary judgment against Lupin was granted in May 2009, and Lupin appealed. The matter has been fully briefed to the appellate court and the parties are awaiting oral argument.

In the ULTRAM^®ER actions, Ortho-McNeil (now OMJPI), filed lawsuits (each for different dosages) against Par Pharmaceuticals, Inc. and Par Pharmaceuticals Companies, Inc. (Par) in May, June and October 2007 on two Tramadol ER formulation patents owned by Purdue Pharma Products L.P. (Purdue) and Napp Pharmaceutical Group Ltd. (Napp). OMJPI also filed lawsuits (each for different dosages) against Impax Laboratories, Inc. (Impax) on a Tramadol ER formulation patent owned by Purdue and Napp in August and November 2008. Purdue, Napp and Biovail Laboratories International SRL (Biovail)(the NDA holder) joined as co-plaintiffs in the lawsuits against Par and Impax, but Biovail and OMJPI were subsequently dismissed for lack of standing. The trial against Par

took place on April 16-22, 2009 and Purdue is awaiting a decision from the Court. The trial against Impax is scheduled for June 2010.

AVERAGE WHOLESALE PRICE (AWP) LITIGATION

Johnson & Johnson and several of its pharmaceutical subsidiaries, 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. Many of these cases, both federal actions and state actions removed to federal court, have been consolidated for pre-trial purposes in a Multi-District Litigation (MDL) in Federal District Court in Boston, Massachusetts. The plaintiffs in these cases include 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.

The MDL Court identified classes of Massachusetts-only private insurers providing “Medi-gap” insurance coverage and private payers for physician-administered drugs where payments were based on AWP (“Class 2” and “Class 3”), and a national class of individuals who made co-payments for physician-administered drugs covered by Medicare (“Class 1”). A trial of the two Massachusetts-only class actions concluded before the MDL Court in December 2006. In June 2007, the MDL Court issued post-trial rulings, dismissing the Johnson & Johnson defendants from the case regarding all claims of Classes 2 and 3, and subsequently of Class 1 as well. The ruling is the subject of a pending appeal. AWP cases brought by various Attorneys General have proceeded to trial against other manufacturers. Cases including Johnson & Johnson subsidiaries are expected to be set for trial in 2010 and thereafter.

OTHER

In July 2003, Centocor (now COBI), a Johnson & Johnson subsidiary, received a request that it voluntarily provide documents and information to the criminal division of the U.S. Attorney’s Office, District of New Jersey, in connection with its investigation into various Centocor marketing practices. Subsequent requests for documents have been received from the U.S. Attorney’s Office. Both the Company and Centocor have responded to these requests for documents and information.

In December 2003, Ortho-McNeil (now OMJPI) received a subpoena from the U.S. Attorney’s Office in Boston, Massachusetts seeking documents relating to the marketing, including alleged off-label marketing, of the drug TOPAMAX^® (topiramate). Additional subpoenas for documents have been received, and current and former employees have testified before a grand jury. Discussions are underway in an effort to resolve this matter, but whether agreement can be reached and on what terms are uncertain.

In January 2004, Janssen (now OMJPI) received a subpoena from the Office of the Inspector General of the U.S. 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^® (risperidone) from 1997 to 2002. Documents subsequent to 2002 have also been requested. An additional subpoena seeking information about marketing of and adverse reactions to RISPERDAL^® was received from the U.S. Attorney’s Office for the Eastern District of Pennsylvania in November 2005. Subpoenas seeking testimony from various witnesses before a grand jury have also been received. Janssen is cooperating in responding to ongoing requests for documents and witnesses.

In September 2004, Ortho Biotech Inc. (now COBI), received a subpoena from the U.S. Office of Inspector General’s Denver, Colorado field office seeking documents directed to the sales and marketing of PROCRIT^® (Epoetin alfa) from 1997 to the present, as well as to dealings with U.S. Oncology Inc., a healthcare services network for oncologists. Ortho Biotech (now COBI) has responded to the subpoena.

In September 2004, plaintiffs in an employment discrimination litigation initiated against the Company in 2001 in Federal District Court in New Jersey moved to certify a class of all African American and Hispanic salaried employees of the Company and its affiliates in the U.S., who were employed at any time from November 1997 to the present. Plaintiffs seek monetary damages for the period 1997 through the present (including punitive damages) and equitable relief. The Court denied plaintiffs’ class certification motion in December 2006 and their motion for reconsideration in April 2007. Plaintiffs sought to appeal these decisions and, in April 2008, the Court of Appeals ruled that plaintiffs’ appeal of the denial of class certification was untimely. Plaintiffs are now engaged in further discovery of individual plaintiffs’ claims.

In March 2005, DePuy Orthopaedics, Inc. (DePuy), a Johnson & Johnson subsidiary, received a subpoena from the U.S. Attorney’s Office, District of New Jersey, seeking records concerning contractual relationships between DePuy and surgeons or surgeons-in-training involved in hip and knee replacement and reconstructive surgery. This investigation was resolved by DePuy and the four other leading suppliers of hip and knee implants in late September 2007 by agreements with the U.S. Attorney’s Office for the District of New Jersey. The settlements included an 18-month Deferred Prosecution Agreement (DPA), acceptance by each company of a monitor to assure compliance with the DPA and, with respect to four of the five companies, payment of settlement monies and entry into five year Corporate Integrity Agreements. DePuy paid $85 million as its settlement. The term of the Monitorship under the Deferred Prosecution Agreement concluded on March 27, 2009, and an order dismissing all charges was entered on March 30, 2009. In November 2007, the Attorney General of the Commonwealth of Massachusetts issued a civil investigative demand to DePuy seeking information regarding financial relationships

between a number of Massachusetts-based orthopedic surgeons and providers and DePuy, which relationships had been publicly disclosed by DePuy pursuant to the DPA. In February 2008, DePuy received a written request for information from the U.S. Senate Special Committee on Aging, as a follow-up to earlier inquiries, concerning a number of aspects of the DPA.

In July 2005, Scios Inc. (Scios), a Johnson & Johnson subsidiary, received a subpoena from the U.S. Attorney’s Office, District of Massachusetts, seeking documents related to the sales and marketing of NATRECOR^®. Scios is responding to the subpoena. In early August 2005, Scios was advised that the investigation would be handled by the U.S. Attorney’s Office for the Northern District of California in San Francisco. Additional requests for documents have been received and responded to and former Scios employees have testified before a grand jury in San Francisco. The qui tam complaints were unsealed on February 19, 2009. The U.S. government has intervened in one of the qui tam actions, and filed a complaint against Scios and Johnson & Johnson in June 2009.

In September 2005, Johnson & Johnson received a subpoena from the U.S. Attorney’s Office, District of Massachusetts, seeking documents related to sales and marketing of eight drugs to Omnicare, Inc., a manager of pharmaceutical benefits for long-term care facilities. The Johnson & Johnson subsidiaries involved responded to the subpoena. Several employees of the Company’s pharmaceutical subsidiaries have been subpoenaed to testify before a grand jury in connection with this investigation. In April 2009, Johnson & Johnson was served with the complaints in two civil qui tam cases relating to marketing of prescription drugs to Omnicare, Inc. The complaints assert claims under the federal False Claims Act and related state statutes in connection with the marketing of several drugs to Omnicare. The government has not yet announced whether it will intervene in these cases.

In November 2005, Amgen filed suit against Hoffmann-LaRoche, Inc. (Roche) in the U.S. District Court for the District of Massachusetts seeking a declaration that the Roche product CERA, which Roche has indicated it would seek to introduce into the United States, infringes a number of Amgen patents concerning EPO. Amgen licenses EPO for sale in the United States to Ortho Biotech (now COBI) for non-dialysis indications. Trial in this action concluded in October 2007 with a verdict in Amgen’s favor, finding the patents valid and infringed. The judge issued a preliminary injunction blocking the CERA launch, and subsequently made the injunction permanent. Roche has appealed to the Federal Circuit, and the Company is awaiting scheduling of the oral argument date.

In February 2006, Johnson & Johnson received a subpoena from the U.S. Securities & Exchange Commission (SEC) requesting documents relating to the participation by several Johnson & Johnson subsidiaries in the United Nations Iraq Oil for Food Program. The subsidiaries are cooperating with the SEC and U.S. Department of Justice (DOJ) in producing responsive documents.