ANNUAL REPORT 2015 MARCH 2016 TO OUR SHAREHOLDERS ALEX GORSKY Chairman, Board of Directors and Chief Executive Officer This year at Johnson & Johnson, we are proud this aligned with our values. Our Board of WRITTEN OVER to celebrate 130 years of helping people Directors engages in a formal review of 70 YEARS AGO, everywhere live longer, healthier and happier our strategic plans, and provides regular OUR CREDO lives. As I reflect on our heritage and consider guidance to ensure our strategy will continue UNITES & our future, I am optimistic and confident in the creating better outcomes for the patients INSPIRES THE long-term potential for our business. and customers we serve, while also creating EMPLOYEES long-term value for our shareholders. OF JOHNSON We manage our business using a strategic & JOHNSON. framework that begins with Our Credo. Written OUR STRATEGIES ARE BASED ON over 70 years ago, it unites and inspires the OUR BROAD AND DEEP KNOWLEDGE employees of Johnson & Johnson. It reminds OF THE HEALTH CARE LANDSCAPE us that our first responsibility is to the patients, IN WHICH WE OPERATE. customers and health care professionals who For 130 years, our company has been use our products, and it compels us to deliver driving breakthrough innovation in health on our responsibilities to our employees, care – from revolutionizing wound care in communities and shareholders. the 1880s to developing cures, vaccines and treatments for some of today’s most Our strategic framework positions us well pressing diseases in the world. We are acutely to continue our leadership in the markets in aware of the need to evaluate our business which we compete through a set of strategic against the changing health care environment principles: we are broadly based in human and to challenge ourselves based on the health care, our focus is on managing for the results we deliver. Consider some of the long term, we operate under a decentralized changes we are facing in the future global management approach, and we do all health care market: $)"*3."/µ4-&55&3 * 1PQVMBUJPOTPGEFWFMPQFEOBUJPOTBSF base gives us a unique perspective. While we aging rapidly – and we know the elderly are pleased to see that health care is a focus consume about seven times the health in the dialogue among government officials, care resources as younger people. politicians, and other stakeholders, we must ensure that the discussion isn’t just about .JEEMFDMBTTFTBSFFYQBOEJOHJONBOZ developing nations – and we know that cost of care alone. In fact, a disproportionate those developing economies cannot grow focus on pharmaceutical pricing, which fast enough to meet the demand of nearly represents approximately 14%* of total U.S. two billion people who want and deserve health spending, puts us at risk of missing the greater access to quality health care. bigger picture. 1BUJFOUTBSFCFDPNJOHJODSFBTJOHMZ involved in their own health care decisions In this discussion we have to put the patient – and we know we must deliver a holistic in the center and reward innovations that approach to meet their needs and drive better outcomes and long-term value. expectations; integrating wellness solutions, We realize it is the responsibility of all WE HAVE TO innovative new medicines and advanced stakeholders to also consider the economic PUT THE PATIENT technologies. and financial implications of health care, so IN THE CENTER that we have a high quality, innovative, and & REWARD At Johnson & Johnson, we believe the sustainable approach in all that we do. INNOVATIONS most important contribution we can make THAT DRIVE to the dynamic challenges we are facing is The promise of innovation in health care BETTER innovation – innovation in products, services, is great, but it comes with the need for OUTCOMES & solutions and in everything we do. As I think forward-focused investment in R&D, a holistic LONG-TERM back on how far we’ve come, the advances in approach to evolving global health care VALUE. health care are remarkable. The average life markets and bold future-facing strategies. expectancy continues to rise; and diseases, such as HIV, that were once considered a OUR BROAD BASE STRUCTURE IS A death sentence are now treatable. Cures and STRATEGIC CHOICE, NOT JUST OUR treatments reaching the market today are not HERITAGE, AND IT IS ONE THAT IS only improving quality of life for many patients, GROUNDED IN PERFORMANCE. extending life for others, and contributing Our broad base in human health care extends to the productivity of our society, but they our reach, capabilities and strategic advantages are also helping to reduce caregiver burden, for patients, providers and consumers disability, and health care spending in other around the world, and ultimately benefits our parts of the system. shareholders. We review and discuss our structure with our Board of Directors, and we In this environment, ensuring access to believe it has a number of inherent advantages important medicines and medical procedures given the challenges and opportunities in remains a key objective for us, and our broad today’s evolving health care marketplace. ** $)"*3."/µ4-&55&3 Our broad base enables us to: OUR FOCUS IS ON MANAGING $SFBUFBOEBDDFTTHSPXUIPQQPSUVOJUJFT FOR THE LONG TERM—BUILDING across multiple sectors of the health ENDURING EQUITY FOR OUR BRANDS care market. AND BUILDING SHAREHOLDER VALUE OVER TIME. #FBTUSBUFHJDQBSUOFSPGDIPJDFGPS information technology companies and Johnson & Johnson has a set of clear innovative start-ups that can benefit from objectives for creating long-term value. We the deep health care expertise Johnson expect global health care to grow at three & Johnson can uniquely provide. to five percent over the next five years, and we have an objective to grow our 8PSLXJUIMPDBMHPWFSONFOUTBOEQVCMJD health organizations, where we are sales organically at a faster rate than the collaborating more than ever to address market. We also intend to grow our earnings the world’s most pressing health challenges. faster than sales. When we combine these objectives with our plans to continue OUR BROAD 1SPWJEFPVSDVTUPNFSTXJUICSPBEFS creating value through strategic acquisitions BASE IN HUMAN offerings of products, solutions and HEALTH CARE partnership opportunities with us, particularly and partnerships, as well as our strong EXTENDS in large health care systems focused dividend yield, we believe the result to on attracting patients, improving patient be a compelling basis for long-term total OUR REACH, outcomes and reducing the cost of care. shareholder return. CAPABILITIES & STRATEGIC $SFBUFQSPEVDUQMBUGPSNTBOETZTUFNT ADVANTAGES that cross categories and establish new Johnson & Johnson also has a rigorous FOR PATIENTS, sources of innovation through convergent and disciplined portfolio review program PROVIDERS & combination products. We are excited about focused on creating long-term shareholder the promise of convergent technologies in value, and this applies to all our businesses. CONSUMERS categories like lung cancer, vision care, We regularly review this approach with AROUND THE biosurgery, robotics, obesity and diabetes. our Board of Directors, and we have a WORLD. 3FBMJ[FBEWBOUBHFTPGTDBMFUPBDIJFWF track record of taking decisive actions, enterprise efficiencies and capabilities including divestitures and acquisitions, across all sectors. We are targeting as in order to meet changing industry and much as $1 billion in operational savings consumer dynamics. by 2018, to support our growth. Additionally, our disciplined capital allocation Because of its many advantages, our strategy allows us to capitalize on the broad base ultimately helps us deliver right opportunities to create greater long- strong, consistent and sustainable financial term value for our shareholders, while also performance. And most importantly, it allows investing in our businesses for the future. us to create better products, more valuable Our capital allocation strategy starts with services and improve outcomes for patients, paying dividends to our shareholders. consumers and their families. Next, we seek value-creating strategic $)"*3."/µ4-&55&3 *** acquisitions and partnership opportunities. As an enterprise, we continue to focus Finally, we consider other prudent ways to on delivering on our financial and quality return value to shareholders such as share commitments. Consistent with our long-term repurchase programs. strategy, we exceeded our 2015 adjusted operational earnings per share growth During 2015, we increased our dividend for the goal and met our operational sales and 53rd consecutive year, we invested nearly $2.5 free cash flow goals**, while executing billion in licensing, acquisitions and strategic against our enterprise priorities for long- partnerships, and we announced a $10 billion term value creation. share repurchase program in October. The success of our strategies is predicated THE SUCCESS Over the past decade, we have supported on the strength of our leaders and our OF OUR our organic growth programs and prioritized talented, diverse employees across the STRATEGIES IS business needs while also investing globe, with their broad base of experience PREDICATED about 30 percent of our free cash flows** helping to drive results. Our goal is to attract ON THE in merger and acquisition opportunities. and retain the best talent in order to deliver STRENGTH OF Approximately 70 percent has been returned the best outcomes. We’ve made significant OUR LEADERS & to our shareholders in the form of dividends investments, both internally