1999 ANNUAL REPORT Leading from Our Strengths Credo Values Decentralized Management Multiple Growth Platforms Global Reach Research & Development Partnering with Others Innovation Focus on the Long Term Leadership Brands Three Years in Brief–Worldwide % Change (Dollars in Millions Except Per Share Figures) 1999 1998 1997 1999 1998 Sales to customers $27,471 23,995 22,830 14.5 5.1 Net earnings* 4,167 3,003 3,311 38.8 (9.3) Cash dividends paid 1,479 1,305 1,137 13.3 14.8 Shareowners’ equity 16,213 14,077 12,866 15.2 9.4 Percent return on average shareowners’ equity* 27.5 22.3 27.4 – – Per share Net earnings – basic* $ 3.00 2.16 2.40 38.9 (10.0) – diluted* 2.94 2.12 2.34 38.7 (9.4) Cash dividends paid 1.09 0.97 0.85 12.4 14.1 Shareowners’ equity 11.67 10.13 9.26 15.1 9.5 1 7 7 Market price (year-end close) 93 /4 83 /8 64 /8 11.2 29.3 Average shares outstanding (millions) – basic 1,390.1 1,389.8 1,380.6 0.0 0.7 – diluted 1,418.2 1,417.2 1,415.4 0.1 0.1 Shareowners of record (thousands) 169.4 168.9 160.0 0.3 5.6 Number of employees (thousands) 97.8 94.3 91.1 3.7 3.5 * Net earnings and earnings per share for 1999 and 1998 include special charges of $42 million or $.03 diluted earnings per share for 1999 and $697 million or $.49 diluted earnings per share in 1998. These special charges include costs associated with the Centocor merger in 1999 and Restructuring and In-Process Research and Development charges in 1998. Excluding the impact of these charges, 1999 net earnings increased 13.8% over 1998. The percent return on average shareowners' equity in 1999 before these charges is 27.8%. For detailed discussion of these charges, refer to Note 14 and Note 17 of the Notes to Consolidated Financial Statements. Description of the Company Johnson & Johnson has $27.5 billion in sales and is the world’s most comprehensive and broadly based manufacturer of health care products, as well as a provider of related services, for the consumer, pharmaceutical and professional markets. Johnson & Johnson has 97,800 employees and 190 operating companies in 51 countries around the world, selling products in more than 175 countries. Letter to Shareowners e are pleased to report that 1999 was a very good year for Johnson & Johnson as we continued to deliver strong double-digit growth in both sales and earnings. Our invest- mentsW in a broad range of opportunities, both internally and outside the Company, have allowed us to grow at an accelerated rate and provide a strong platform for future growth. Our sales and earnings ended the year in record-break- ing territory. With revenue of $27.5 billion, an increase of 14.5% over 1998, the Company has achieved 67 consecu- tive years of sales increases. Net earnings for the year crossed the $4 billion level for the first time to $4.2 billion, an increase of 13.8% over the $3.7 billion achieved in 1998 — excluding special merger charges in 1999 and the 1998 reconfiguration of our worldwide manufacturing network and in-process research & development charges. Earnings per share rose to $2.97 for the year, an increase of 13.8%, compared with $2.61 per share in 1998, exclud- ing the special charges. Enabled by our strong cash flow, we increased our divi- dend to shareowners by 12% — our 37th consecutive year of dividend increases. Our total return to shareown- ers, including reinvestment of dividends, has grown at a compounded annual rate of 22.1% over the past 10 years, and 29.6% over the past five years. Ralph S. Larsen, Chairman and Chief Executive Officer The biggest news in 1999 was our largest merger ever, the $4.9 billion stock-for-stock transaction with Centocor, Inc. Centocor, a leader in monoclonal antibody technology and immunology and acute vascular care products, business through internal development combined with strengthens several of our existing growth platforms, includ- selective acquisitions that strengthen our market or tech- ing biotechnology. With Centocor and our Ortho Biotech nological position. affiliate, Johnson & Johnson has now become a world leader Our track record over the years flows directly from a in biotechnology. unique combination of underlying strengths that have Our financial position remains strong and we continue allowed us to sustain impressive growth and create endur- to be one of only six U.S. industrial corporations to maintain ing value over many years. To provide greater insight a Triple A credit rating. Our strong cash flow, combined into these key drivers of our success, the theme of this year’s with our Triple A status, has enhanced our ability to con- Annual Report is “Leading from Our Strengths.” summate more than $9 billion in mergers, acquisitions, While we have a well-earned reputation for marketing and various other third party partnerships over the past consumer and health care products, at its very core Johnson two years. & Johnson is a science-based corporation. In recent months we have seen some large mergers in Last year we committed $2.6 billion to research & develop- the pharmaceutical industry. We expect there will be ment and anticipate an investment of close to $3 billion in others. Fortunately, with total revenues approaching the 2000. We continue to set our sights ever higher, as medical $30 billion mark, Johnson & Johnson has the size and science evolves at an extraordinary rate, opening whole scale to compete aggressively in this changing landscape. new horizons for discovery research, product development We will continue to focus our energies on building our and innovation in all manner of treatments and therapies. 1 comes data that support the efficacy of our products and expansion of direct-to-consumer advertising through which we make consumers more knowledgeable about the bene- fits of our prescription medicines. We now market more than 100 prescription medicines in 150 countries. Of these, 33 products had 1999 sales in excess of $50 million, with 20 of them in excess of $100 million. In the Professional segment, which introduced numer- ous new products, worldwide sales increased 15.7% over 1998, with the addition of DePuy’s orthopaedic products; strong growth from Ethicon Endo-Surgery’s laparoscopy and mechanical wound closure products; solid contribu- tions from Ethicon, Inc. through its Mitek suture anchors and Gynecare’s women’s health products; continued growth in disposable contact lenses from Vistakon, and steady progress from Cordis. A number of new stents were introduced by Cordis and its most recent was the BX VELOCITY coronary stent — launched in Europe, where it has been well received by the medical community. Worldwide Consumer segment sales for 1999 were par- ticularly hard hit by negative currency adjustments of 3.5% reflecting primarily the strength of the U.S. dollar against the Euro and several Latin American currencies. Despite this currency impact, our consumer sales increased by 5.2% over the prior year. Solid growth was led by positive consumer acceptance of a newly introduced line of cosmet- Robert N. Wilson, Vice Chairman of the Board ics from Neutrogena, as well as continued strength in Neu- trogena’s base business. Also in the skin care franchise, we experienced good performances by the RoC, AVEENO, Our Pharmaceutical segment had a worldwide sales CLEAN & CLEAR and JOHNSON’S pH5.5 product lines. increase last year of more than 20% over 1998. Pharma- The adult and children’s TYLENOL and MOTRIN lines of ceutical growth reflected the strong performance of analgesic products rounded out the continued growth of PROCRIT, for the treatment of anemia; RISPERDAL, an our Consumer segment. antipsychotic medication; DURAGESIC, a transdermal Our entry into the nutraceuticals business with the patch for chronic pain; LEVAQUIN, an anti-infective, BENECOL line of cholesterol-lowering products is off to a and the oral contraceptive line of products. In the latter slower start than we had hoped initially. part of the year we received marketing approval from the We are focusing our attention on increased levels of FDA for ORTHO-PREFEST, for hormone replacement professional education which will help establish BENECOL therapy, and an additional indication for REMICADE for products as an important part of the health-conscious the treatment of rheumatoid arthritis. On the negative side, consumer’s cholesterol-lowering regimen. BENECOL is doing PROPULSID, a gastrointestinal motility medicine, experi- quite well in the United Kingdom, where we are gaining enced a sales decline as Janssen, in cooperation with the important marketing insights. FDA, implemented stronger label directions cautioning Among the challenges facing our industry is the ongoing against its use by certain patients and in conjunction with debate about changes to the health care system in the United certain other medications. States. Our view is that the public and private sectors need The growth of our pharmaceutical business has been to work together to develop sensible ways of providing health driven by a number of factors including good clinical out- insurance coverage for people who either cannot afford, 2 cannot obtain or simply decide to take their chances and person per day on alcohol … $.92 on electricity and $1.05 not purchase health insurance. per day getting our cars repaired. (Source: U.S. Depart- In addition, while about two thirds of the nation’s senior ment of Commerce, Bureau of Economic Analysis, 1998) citizens have some form of insurance coverage for pre- scription medicines, one third do not.