Fundamental Analysis of Johnson and Johnson, Inc.

JOHNSON & JOHNSON The Fundamental Analysis of Johnson & Johnson Inc. (J& J, 2005) Economic and Market Analysis Globalization Industry Analysis Company Analysis Brief History of the Company Analysis of Capital Asset Pricing Model Intrinsic Value Valuation Measures Trading Information Competitors Awards & Recognition Our modern business world consists of an extremely competitive global economy where manufactures search for opportunities to strategically reduce costs and increase market share and profitability.

Historically, the most often chosen solution for holding down costs was to systematically reduce labor and therefore eliminate the associated costs of labor. In the 1990's for example, many companies chose lay-offs, downsizing or to simply slow manufacturing processes and these types of scenarios consistently headed the 'business section' headlines. In reality, these methodologies were merely attempts to reduce overhead.

Manufactures today are finding that labor is now at more of a premium level which entails that it can no longer be reduced without indirectly or directly affecting output capacity, quality and efficiency quotas because manufacturing lines are at a barebones minimum. All of these ideas affect a company's stock and the overall manufacturing process. This report therefore is a stock analysis of Johnson & Johnson Inc.

And their efforts at reducing costs, increasing market share, meeting their shareholders and stakeholders as well as industry expectations while still fulfilling the very high levels of quality demanded by their customers. Johnson & Johnson Inc. has made great strides in divesting itself of unprofitable functions and maintaining high levels of customer support for its many products and associations. Through new acquisitions, novel business strategies and a regular migration to cheaper labor pools, Johnson & Johnson Inc.

has become a strong force to be reckoned with in the highly competitive major drugs and healthcare industry. The Fundamental Analysis of Johnson & Johnson Inc. Introduction The report represents the research and methods used to create a fundamental analysis of Johnson & Johnson Inc. In other words, this report aims to provide insights into the company as well as being a financial analysis report. The report attempted to use a top-down approach for security analysis-content for Johnson & Johnson Inc.

which entailed using between five to ten years of data analysis for the company. Basically, this project was nothing more than a detailed security analysis project designed to apply various techniques for evaluating the desirability of a company's common stock. "Johnson & Johnson, through its operating companies, 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 medical devices and diagnostics markets.

The more than 200 Johnson & Johnson operating companies employ approximately 111,000 men and women in 57 countries and sell products throughout the world." (J& J, 2005) A main objective was also to demonstrate familiarization with various tools and techniques that are pertinent in a security's valuation. This report encompassed typically available data to implement the various techniques of analysis and focused on Johnson & Johnson and resurgence in the highly competitive major drug, drug manufacturing and healthcare industries.

Trends in these industries have forced companies such as Johnson & Johnson to completely reevaluate the way they will do business today and in the future. The healthcare industry has become an extremely mobile global business that continues to be driven by cheap labor and resources from new and emerging markets in various industrialized and developing countries.

Johnson & Johnson has had to reinvent their business and marketing strategies in order to grow and prosper in the twenty-first century and beyond and this report will evaluate the industry, economic and market trends and the company itself to demonstrate whether or not they seem as though they will remain a viable investment opportunity for investors. Economic and Market Analysis Understanding economic trends and their ties to stocks is always an important aspect of analysis because of the many correlations between economic indicators and stock prices.

On the local and national television news and throughout the global financial media circuits, there have been notices that the United States has been in a mode of steady economic recovery. For example, based on the percentage of change for the real Gross Domestic Product, Consumer Price Index and the S& P. 500, there are good indications of steady growth. The Gross Domestic Product helps nations monitor what is occurring in their economies.

The United States recent eighteen month forecasts for the Gross Domestic Product was increasing at a clip of near two point seven percent (2.7%) annually. This is seems like a good pace until we note that in comparison, the combined first world nation's Gross Domestic Products have been estimated to grow at an even higher pace of over three percent (3%) annually with some new emerging nations doubling that. Thus, all looks well in the sense of economic growth.

Also, the ability of corporations to easily pick up and move into cheaper labor havens throughout the Third World was considered to be a good way to boost profits. But, the fact of the matter is that corporate relocations have actually led to more downsizing and corporate restructurings of whole companies. Thus, this entails higher levels of unemployment and lower earnings throughout the urban communities and the rural farms of the United States.

Unemployment was historically localized in small segments of the nation but it has now become both a national and an international problem. "We live in a world so rich that global income is more than $31 trillion a year. In this world, the average person in some countries earns more than $40,000 a year. But in this same world, 2.8 billion people -- more than half the people in developing countries -- live on less than $700 a year.

Of these, 1.2 billion earn less than $1 a day." (Chossudovsky, 1998) There are also many other indications that all is not well. The baby boomer generation is nearing retirement at a time when healthcare, social security and failing retirement funds are at all time highs. The nation is also suffering from mass increases in the trade imbalance. "China accounts for a quarter of the U.S. trade deficit and for one-third of the U.S. deficit in manufactured goods, is the second largest source of U.S.

imports after Canada and is America's third largest trading partner as conventionally measured. Despite these facts, the U.S. government does not publish full current account data for China, instead lumping China in with "Other Countries in Asia and Africa." This keeps the magnitude of the problem out of sight." (Roberts, 2004) Other concerns include the dependence on foreign oil, heightened terroristic activity and more troubling signs out of nations like North Korea, Iraq and other world trouble spots also add concerns and skepticism on the true economic picture and outlook.

These concerns are not only for the United States but the entire world. Recent Bush administration announcements that they require increased debt ceiling levels also raises questions regarding the future of government financial obligations and the nations ability to pay its future debt. The current governmental debt ceiling was just over seven trillion dollars and that was reached around October of last year.

Obviously a request to raise our nation's debt ceiling is the result of the record budget deficit caused by several natural disasters, the Iraq debacle and multiple tax changes aimed at saving the rich. The United States was already the world's largest debtor nation so a default from any aspect of the nations business or governmental cycles could be devastating to the entire world economy.

Couple these concerns with the fact that the United States dollar has also fallen sharply which could also indicate that there is some real instability in the United States and the world economy. "Since the dollar is, and will likely remain, the unit of value of international transactions, any fluctuation in its parity will have repercussions far beyond the U.S.

balance-of-trade picture." (Fatemi) Throughout the European Union for example, the fall of the dollar continues to alter the export markets and has threatened European growth expectations at the same time that they have been busily consuming goods out of Asia. Leaders of the European Union have publicly criticized our Bush Administration for its inherent deficit effect on the world economy. Add in all new surges for the price of oil and a major economic downturn could be right around the corner.

World oil prices continue to hit new all-time highs and demand will always far outstrip supply because oil producing nations have been desperately trying to meet global demand. Any disruptions in the oil supply such as a recent Russian oil tax problem, wars in oil producing nations or something as simple as bad weather could cause critical shortfalls. The United States and China, the number one and two users of crude, recently announced that demand for crude imports could rise as high as another forty percent throughout 2005.

We also must not overlook the effect of interest rates and Alan Greenspan on the economy. The constant fear of inflation continues to provide cause for stocks to become overvalued and has become an almost daily trend for announcements from the Fed and their efforts to not overvalue the Dow, NASDAQ and other markets. Investors have to grasp that stocks are only inflation proof when the underlying companies are profitable in spite of the effects of the economy.

Globalization A real trend in the healthcare industry has been the continued migrations of industry players into developed and newly emerging markets. The twenty-first century's new world order appears to have been founded on a single, global, technologically advanced, highly competitive economic market place. This single global market is also being serviced by fewer industrialized powers that are teaming together to form free trade agreement conglomerates or states. Consider the phenomenon be demonstrated by the likes of the oil producing nations forming OPEC.

The United States, Canada and Mexico all agreed to open their markets to each other with the North American Free Trade Agreement or NAFTA. Of course, the majority of the world may believe that those combinations have created the world's largest combined Gross Domestic Products -- but, the European Union has effectively equaled the benefits of OPEC and NAFTA through their own combined economic and trade agreement pacts.

The member countries include: Austria, Belgium, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Slovakia, Slovenia, Spain, Sweden, and the United Kingdom. Bulgaria and Romania are scheduled to join the union in 2007 and Croatia and Turkey are currently considered as candidate countries.

(Akademie de) When we discuss the word globalization, we often assume it is a new phenomenon or that it is a race between the United States, China and the developed and emerging nations to see who can drain the world of its oil resources the fastest. "The global appetite for crude in 2003 will grow by a robust 1.9%, or 1.44 million barrels a day, and in 2004 by 1.5%, or 1.16 million barrels a day.

The IEA raised its estimates for daily demand growth in the two years by 160,000 barrels and 90,000 barrels, respectively." (Stanley) But, oil and other natural resources are just a few reasons why the world has been gradually moving to a more global business environment. Technology is another. By the standards of global trade in the realm of ancient Rome or Mesopotamia, our modern day ability to traverse large land masses is no longer limited by our technology.

Today, airplanes, ocean transports, satellite communications, the Internet and even cell phones far surpass the abilities of our ancestors. For example, the current age of information and technological advances make it possible to move billions of dollars in milliseconds from anywhere in the world. All of this opens up new opportunities for trade and investment on a global spectrum.

With all of this being considered, Globalization entails interconnectivity of localities and those localities span more local sites such as the day-to-day social, economic, cultural, and political aspects of the communities being served. It implies more a physical expansion in the sense of geographical domain and increases in the scale or volume of global resources the potential of international conglomerates like Johnson & Johnson and gives them the potential to alter the lives of everyone on the entire planet.

Industry Analysis The industry in is in the middle of a growing concern that healthcare related costs are going to eventually put health out of reach of the majority of the world. For example, as America's population continues to age, a large number of the senior citizens cannot afford the cost of their basic medicines. Many grandparents are in predicaments where the only solution has been to find cost relief across the United States' boarders in Canada or on the internet.

Ironically, this idea has appealed to the major drug and healthcare industry players including Johnson & Johnson. The companies have all become obsessed with the notion of shaping their own fate in a highly technical global economy. New marketing strategies incorporate the internet has addressed the new demand for personalized healthcare. Consumers have been experimenting with the notion of buying their pharmaceutical and healthcare related products directly from the manufacturing process and existing technology makes this concept very real.

The idea works by a person logging on to a company's site like Johnson & Johnson which would list medical professionals such as local general practioners. When a person needs a prescription filled, he visits a doctor, logs on to the manufacture with a prescription code provided by the doctor and the manufacturer confirms this prescription code in real time via a three way internet communication with the physician's system and the medicine would be FedEx'd overnight directly to the consumer.

Although these scenarios are still forecast for the future, the healthcare industry especially major drugs consists of very capable organizations all participating in: Biotechnology & Drugs, Healthcare Facilities, Major Drugs an the Medical Equipment & Supplies.

The industry is a highly competitive industry lead by major global powers as demonstrated by the industry leaders in total revenues: PFIZER INC [PFE] $53.1 B JOHNSON AND JOHNS DC [JNJ] $48.6 B GLAXOSMITHKLINE PLC [GSK] $37.9 B BAYER AKTIENGES ADS [BAY] $36.8 B NOVARTIS AG ADS [NVS] $29.0 B ROCHE HLDG LTD SPONS [RHHBY.PK] $25.6 B MERCK CO INC [MRK] $22.7 B ASTRAZENECA PLC ADS [AZN] $22.1 B ABBOTT LABORATORIES [ABT] $20.4 B BRISTOL MYERS SQIBB [BMY] $19.3 B (Yahoo Finance Industry Center, 2005) Other industry advances include the fact that the major drug and healthcare industry has systematically reduced its dependence on suppliers while at the same time pressuring them into improving the quality of the resources as well as implementing such innovations as just-in-time delivery for supply chain management.

These requirements have escalated the communication process between suppliers and the industry both digitally and verbally. Computing technology for instance at Johnson & Johnson has directly connected them with their suppliers all over the world and therefore increases the overall manufacturing efficiency, quality and productivity. The strategy may be to continue to search for more economical and cheaper resources to be delivered in cost effective manners controlling both price and time. Company Analysis Johnson & Johnson Inc. is headquartered at One Johnson & Johnson Plaza, New Brunswick, NJ 08933.

"The story of Johnson & Johnson is one of innovative products, strong leadership and an ongoing commitment to our customers, employees, communities and shareowners. Since 1886, when it was formed in a former wallpaper factory along the Raritan River in New Brunswick, New Jersey, the Company has remained focused on our founders' mission of creating safe and effective health care products." (J& J, 2005) The company considers itself as the world's largest, most comprehensive and broadly-based manufacturer of health care products and related services.

Johnson & Johnson as an organization focuses on the manufacture and sale of products related to human healthcare and individual well-being and conducts business all over the globe through its more than two hundred operating companies stationed throughout the world. "The Company's business is divided into three segments: Consumer, Pharmaceutical and Medical Devices and Diagnostics. The Consumer segment manufactures and markets a range of products used in the baby and child care, skin care, oral and wound care and women's healthcare fields, as well as nutritional and over-the-counter pharmaceutical products.

The Pharmaceutical segment's principal worldwide franchises are in the antifungal, anti-infective, cardiovascular, contraceptive, dermatology, gastrointestinal, hematology, immunology, neurology, oncology, pain management, psychotropic and urology fields. The Medical Devices and Diagnostics segment includes a range of products used by or under the direction of physicians, nurses, therapists, hospitals, diagnostic laboratories and clinics." (Yahoo Finance, 2005) (Yahoo Finance, 2005) The organization has seen the future and has therefore begun to move in the right direction by expanding its global manufacturing capabilities and reach.

The company has expanded by adding new manufacturing facilities throughout the alphabet as they have companies in Algeria through Zimbabwe. They have made the necessary internal changes to offer unique opportunities for attracting new vendors and suppliers that have instituted the just-in-time delivery methodology and they have increased their research and development outreach in all corners of the world.

Because of the highly competitive nature of its industry, Johnson & Johnson have implemented many efficiency strategies such as the Six Sigma and Total Quality Management control processes as well as many other cost cutting processes and strategic approaches. The company demonstrates a sound business approach with: strong leadership, strong market share in its industries, strong financial stability, relatively few employment issues, a sound company's ethics and global green policy and strong customer support for their products and services.

Brief History of the Company The company has a long history of innovation and success. The founders created the first 'ready-made, ready-to-use surgical dressings' and initiated the way for 'application of the theory of antiseptic wound treatment' in the mid-1880's. These new products and services concepts literally reduced the threat of infection and disease in postoperative victims and helped save many lives in the early days of modern medicine.

"The story begins with the discoveries of Sir Joseph Lister, a noted English surgeon, who identified airborne germs as a source of infection in the operating room. He called them, with grim aptness, the "invisible assassins." Medical science was beginning to understand, however imperfectly, the need for greater care in protecting the wound area.

Yet, this concept of myriad living organisms, unseen and deadly, remained beyond the grasp of many surgeons in the 19th century who were doubtful or even contemptuous of Lister's work." (J& J, 2005) By 1890, the company added many new products and services such as including 'treating cotton and gauze dressings' which eventually lead to an even more sterile antiseptic product which also lead to the creation of a bacteriological laboratory one year later.

After the company's first president, Robert Wood Johnson, died in 1910, the company management was on a mission to continuously create new products and services that would accommodate the medical community. From the demand produced by two world wars, Johnson & Johnson saw an amazing amount of international growth through today. "International growth, initiated in 1919 with the establishment of an affiliate in Canada, began in earnest in 1923 with an around-the-world trip by the two sons of Robert Wood Johnson.

The young men, Robert Wood Johnson, who carried his father's name, and J. Seward Johnson, returned from their worldwide tour with the conviction that the Company must establish a strong international position. The following year, in 1924, Johnson & Johnson created its first overseas affiliate, Johnson & Johnson Ltd., in Great Britain. Over time, international affiliates of Johnson & Johnson were created in more than 50 countries.

For example, companies were begun in Australia in 1931, Sweden in 1956, Japan in 1961, Greece in 1973, Korea in 1981 and Egypt in 1985." (J& J, 2005) (CBS Market Watch, 2005) Of course, just like any business history, the company has not simply had all clear sailing. "In 1982 and again in 1986 TYLENOL®, a product of our McNeil Consumer & Specialty Pharmaceuticals subsidiary, was altered by unknown individuals who placed deadly cyanide in the capsule form of the product. The result was the death of seven people in 1982.

The product was voluntarily recalled and Johnson & Johnson took a $100 million charge against earnings. No one was ever convicted of the tampering and subsequent deaths. In 1986, as a result of the second tampering incident and another fatality, the decision was made to discontinue the sale of TYLENOL in capsule form, and subsequently the caplet form of TYLENOL was introduced.

Johnson & Johnson received much praise for its quick and honest handling of the crisis." (J& J, 2005) Through adversity, however, the company actually became stronger and better prepared to deal with risk and adverse situations. For example, after the second Tylenol problem, Johnson & Johnson reintroduced TYLENOL in completely innovative tamper-evident packaging which eventually helped them regain the market lead in over the counter pain medicine. Analysis of Capital Asset Pricing Model The Capital Asset Pricing Model or CAPM carries a time value of money to a higher level.

In other words, the Capital Asset Pricing Model takes into consideration the inherent risk that is associated with any investment and the rates of return. The model allows investors to compare factors to a source such as the overall stock market or an individual index within the stock market. Investors attempt to reduce or minimize the risk factors. The Capital Asset Pricing Model therefore serves as a tool that will assist the investor in avoiding risk and when certain risk factor are involved, investors are rewarded for the additional risk.

Ks = Krf + B x (Km -- Krf) where Ks = The Rate of Return Krf = The Risk Free Rate B = Beta Km = The expected return on the overall stock market For The Johnson & Johnson we can assume a risk free rate of five percent and an overall stock market return of ten percent with a Beta as of 5/10/2005 of 0.213. Ks = Krf + B x (Km -- Krf) 0.06065 or 6.07% = 5% + 0.213x (10% - 5%) The CAPM says that Johnson & Johnson's return on investment must be greater than a return of 6.07%.

And the range of growth last year was around 18.20% growth.

Thus, an investment in the Johnson & Johnson of $1,000 over the course of the next three years would provide a rate of return of: First Year Return = $1,000 x (0.182 + 1) = $1,182 Second Year Return = $1,182 x (0.182 + 1) = $1,397.124 Third Year Return = $1,397.124 x (0.182 + 1) = $1,651.400568 Intrinsic Value The company's potential can be seen by utilizing the CAPM method, but by demonstrating the intrinsic value of the Johnson & Johnson stock we can also see how these values change for both optimistic and pessimistic economic conditions as they relate to growth rates.

Current Initial Final Discount Intrinsic Cash Growth Rate Growth Rate Rate Value $1.00 10% 4% 11% $23.09 $1.00 11% 5% 10% $33.50 $1.00 12% 6% 9% $58.00 If we were to assume that Johnson & Johnson spends ten years in a stage of growth during which cash per share or the free cash flow that it generates grows by the rate of the table bellows second column. Thus, during this period cash could be assumed to grow at the rate described in the column three. However, eventually everything would be discounted back into present time as demonstrated in the column four.

Even minute economic changes could affect the rate of return for Johnson & Johnson from $23 to $58. Recommendation and Conclusion This report has been a stock analysis of Johnson & Johnson Inc. And their quest to find ways to reduce costs, increase market share, meet shareholder expectations and fulfill the quality demands by their customer base. From the investor perspective, Johnson & Johnson is a good middle of the road choice.

They are heavily influenced by current economic factors in the United States including the healthcare and social security concerns and economic issues but they have a strong potential outlook because of the fact that as the baby boomers continue to age, the overall industry outlook will rise. The return on investment does not compete with some of the highly profitable tech stocks as well as other emerging industries such as BioTechs.

However, Johnson & Johnson will beat a large portion of its own industry and others such as the auto industry. Johnson & Johnson has consistently been a force in medicinal and healthcare manufacturing, their stock has been providing a sound return on investment but there may be some hard researched better options.

If I was to purchase the Johnson & Johnson stock I would wait until the purchase price dipped below $60.00 (currently hovering around $66) during a market downturn with the intention of taking advantage of the high annual growth rates and therefore profiting on a long-term hold. The economy seems to be slowing but the international opportunities for the long run seem promising.

Johnson & Johnson as an organization will continue to take advantage of the emerging markets and the new investments in factory and infrastructure in those markets will reap benefits over the long-term and could increase the growth rate dramatically and thus bring back a higher return on investment. "For the three months ended 4/3/05, revenues rose 11% to $12.83 billion. Net income rose 17% to $2.93 billion. Revenues reflect a positive impact of currency fluctuations and strong sales performance in major franchises.

Net income reflects favorable product mix and cost improvement initiatives." (Yahoo Finance, 2005) References Akademie de. European Union. Free Definition. Ed. Wikipedia. 2005. Retrieved on May 10, 2005, from Akademie de at http://www.free-definition.com/European-Union.html Chossudovsky, Michel (1998). Global Poverty in the Late 20th Century. Journal of International Affairs, Vol. 52. Cutlip, Scott M. The Unseen Power: Public Relations, a History. Hillsdale, NJ: Erlbaum Associates, 1964. J& J. (n.d.). Home Page. Retrieved May 10, 2005, from Johnson & Johnson Web Site at http://www.jnj.com Morris, Lloyd. Not So Long Ago.

New York: Random House, 1949. Roberts, Paul Craig. (2004, November 17). Economy In Crisis. Retrieved on May 10, 2005, from http://www.economyincrisis.com/modules/news/article.php?storyid=34 Stanley, Bruce. "China, U.S. Lead in Demand for Oil." Associated Press: 10 Dec. 2003. CBS Market Watch. (n.d.). 5-year chart of Johnson & Johnson compared to, djia and industry.

Retrieved May 13, 2005, from Market Watch Tools Web Site: http://www.marketwatch.com/tools/industry/stockchart.asp?bcind_ind=bc_top& bcind_o_symb=& bcind_sid=2689& bcind_period=5yr& bcind_compidx=DJIA%7E1643& bcind_comp=& bcind_compind=drg%7E171522& stockchartmanual.x=35& stockchartmanual.y=11 Yahoo Finance Industry Center. (2005). Industry Center - Major Drugs. Retrieved May 10, 2005, from Industry Center Major Drugs Leaders & Laggards Web Site at http://biz.yahoo.com/ic/ll/majrrxtor.html Yahoo Finance. (2005). Johnson & Johnson Inc. (JNJ).

Retrieved May 10, 2005, from http://finance.yahoo.com/q/pr?s=jnj Appendix A: Valuation Measures Market Cap (intraday): Enterprise Value (16-May-05)3: Trailing P/E (ttm, intraday): 22.58 Forward P/E (fye 2-Jan-07)1: 17.80 PEG Ratio (5 yr expected)±: 1.79 Price/Sales (ttm): 4.12 Price/Book (mrq): 5.95 Enterprise Value/Revenue (ttm)3: 3.88 Enterprise Value/EBITDA (ttm)3: 12.02 FINANCIAL HIGHLIGHTS Fiscal Year Fiscal Year Ends: 2-Jan Most Recent Quarter (mrq): 31-Mar-05 Profitability Profit Margin (ttm): 18.39% Operating Margin (ttm): 27.55% Management Effectiveness Return on Assets (ttm): 17.27% Return on Equity (ttm): 28.75% Income Statement Revenue (ttm): 48.62B Revenue Per Share (ttm): 16.138 Revenue Growth (lfy)3: 13.10% Gross Profit (ttm)2: 33.93B EBITDA (ttm): 15.69B Net Income Avl to Common (ttm): 8.94B Diluted EPS (ttm): 2.97 Earnings Growth (lfy)3: 18.20% Balance Sheet Total Cash (mrq): 13.65B Total Cash Per Share (mrq): 4.59 Total Debt (mrq)2: 2.78B Total Debt/Equity (mrq): 0.083 Current Ratio (mrq): 2.216 Book Value Per Share (mrq): 11.322 Cash Flow Statement From Operations (ttm)3: 11.13B Free Cashflow (ttm)3: 8.96B (Yahoo Finance, 2005) Appendix B: Trading Information Stock Price History Beta: 0.213 52-Week Change: 23.07% 52-Week Change (relative to S& P500): 16.85% 52-Week High (15-Apr-05): 69.99 52-Week Low (20-May-04): 54.07 50-Day Moving Average: 68.09 200-Day Moving Average: 62.20 Share Statistics Average Volume (3-month): 6,691,272 Average Volume (10 day): 5,892,000 Shares Outstanding: 2.97B Float: 2.94B % Held by Insiders: 1.00% % Held by Institutions: 65.02% Shares Short (as of 8-Apr-05): 42.48M Daily Volume (as of 8-Apr-05): N/A Short Ratio (as of 8-Apr-05): 5.909 Short % of Float (as of 8-Apr-05): 1.44% Shares Short (prior month): 33.47M Dividends & Splits Annual Dividend: 1.32 Dividend Yield: 1.98% Dividend Date: 7-Jun-05 Ex-Dividend Date: 13-May-05 Last Split Factor (new per old) 2: 2:1 Last Split Date: 13-Jun-01 (Yahoo Finance, 2005) Appendix C: Competitors DIRECT COMPETITOR COMPARISON JNJ MRK NVS PG Industry Market Cap: 73.72B 66.58B Employ-ees: 109,900 63,000 81,392 110,000 60.60K Rev.

Growth (ttm): 13.10% 2.00% 13.60% 18.50% 10.10% Revenue (ttm): 48.62B 22.67B 29.02B 55.45B 20.42B Gross Margin (ttm): 72.16% 77.58% 75.83% 51.31% 75.34% EBITDA (ttm): 15.69B 9.12B 8.09B 12.62B 5.14B Oper. Margins (ttm): 27.55% 33.31% 23.17% 19.42% 25.30% Net Income (ttm): 8.94B 5.56B 4.85B 7.00B 2.15B EPS (ttm): 2.972 2.493 1.998 2.599 1.97 PE (ttm): 22.58 13.42 24.21 21.07 23.65 PEG (ttm): 1.79 6.75 1.85 1.80 2.10 PS (ttm): 4.12 3.27 3.89 2.49 3.75 MRK = Merck & Co Inc. NVS = Novartis AG PG = Procter & Gamble Co Industry = Major Drugs (Yahoo Finance, 2005) JNJ VS.

INDUSTRY LEADERS Statistic Industry Leader JNJ JNJ Rank Market Capitalization PFE 2 / 17 P/E Ratio (ttm) WYE 40.81 22.58 10 / 17 PEG Ratio (ttm, 5 yr expected) MRK 6.75 1.791.79 12 / 17 Revenue Growth (Qtrly YoY) NVD 11.01% 9 / 17 EPS Growth (Qtrly YoY) LLY 83.70% 16.49% 7 / 17 Long-Term Growth Rate (5 yr) SGP 21.0% 11.011.0 4 / 17 Return on Equity (ttm) GSK 53.04% 28.75% 6 / 17 Long-Term Debt/Equity (mrq) PBH 3.418 0.083 13 / 17 Dividend Yield (annual) MRK 4.54% 1.98% 10 / 17 (Yahoo Finance, 2005) DRUGMAKERS RANKED BY SALES Company Symbol Price Change Market Cap P/E Amgen Inc. AMGN 62.12 0.52% 76.87B 32.04 Genentech Inc.

DNA 72.70 -0.40% 76.80B 87.59 Applera Corporation Private - View Profile Serono SA SRA 15.84 -0.56% 9.22B N/A Genzyme Corp GENZ 64.47 0.73% 16.26B Chiron Corp CHIR 35.44 0.51% 6.64B Invitrogen Corp IVGN 76.86 -0.34% 3.99B 34.22 Teva Pharmaceutical Industries Ltd. TEVA 32.58 0.46% 19.72B 21.59 Mylan Laboratories Inc. MYL 16.01 -0.37% 4.31B 21.55 Alpharma Inc. ALO 11.21 0.36% N/A Watson Pharmaceuticals Inc. 29.49 -0.54% 3.25B 25.08 Ivax Corp IVX 18.28 -1.61% 4.81B 26.11 Barr Pharmaceuticals Inc. BRL 49.05 0.99% 5.06B 27.77 Perrigo Co PRGO 15.80 -2.71% 1.48B N/A KV N/A N/A N/A N/A Mayne Pharma (USA) Inc. Private - View Profile Sandoz Inc.

Private - View Profile Merck & Co Inc. MRK 33.46 -0.54% 73.72B 13.42 Johnson & Johnson Inc. JNJ 67.10 -0.33% 22.58 GlaxoSmithKline PLC GSK 49.51 -0.88% 27.29 Pfizer Inc. PFE 27.86 0.83% 22.74 Novartis AG NVS 48.38 -0.08% 24.21 Roche Holding AG RHHVF.PK 0.00% N/A N/A Bristol-Myers Squibb Co BMY 25.30 -0.35% 49.44B 25.53 AstraZeneca PLC AZN 42.81 0.14% 70.42B 17.55 Abbott Laboratories ABT 48.76 -0.73% 75.61B 23.53 (Yahoo Finance, 2005) Appendix D: Awards & Recognition Year Organization 2005 Women Engineer magazine Johnson & Johnson was recognized by Women Engineer magazine as one of the Top 50 Companies for Women Engineers.

2005 DiversityBusiness.com For the fourth year in a row, Johnson & Johnson was recognized by DiversityBusiness.com as one of America's top 50 businesses for multicultural business opportunities. In the election, America's leading women- and minority-owned businesses selected the FORTUNE 500 companies and government agencies that best promote multicultural business opportunities. 2005 FORTUNE Magazine Johnson & Johnson was ranked #30 in the 2005 Fortune 500 list of largest U.S. corporations published by FORTUNE magazine.

2005 FORTUNE Magazine Johnson & Johnson was the most admired pharmaceutical company in the annual FORTUNE magazine Most Admired Companies survey, and finished as the ninth most admired company overall. 2004 Universum Communications Johnson & Johnson was acknowledged by Universum Communications as the second most "ideal employer" for women in its annual Top 50 MBA Employers survey. 2004 Black Collegian Magazine Johnson & Johnson was ranked as the sixth most "ideal employer" in Black Collegian Magazine's annual Top 50 Diversity Employers survey.

2004 Harris Interactive® The Reputation Institute Johnson & Johnson was recognized for having the best corporate reputation in America for the sixth consecutive year, according to the annual corporate reputation survey conducted by Harris Interactive® and the Reputation Institute. 2004 Working Mother magazine Johnson & Johnson was honored as one of the top 10 Best Companies for Working Mothers by Working Mother magazine. The Company has been ranked in the Top 100 of this annual report since its inception 19 years ago.

2004 Great Place to Work Institute Johnson & Johnson S.p.A., Italy, was ranked as one of the 100 Best Places to Work in the EU, a list published by the Great Place to Work Institute. Results are based on responses to a survey of employees and an audit of workplace policies and practices. 2004 The Pennsylvania Department of Labor & Industry Centocor, Inc., was presented with the 2003 Governor's Award for Safety Excellence by the Pennsylvania Department of Labor & Industry.

The honor is given to five Pennsylvania companies annually who have met and exceeded safety standards of Work Safe PA. 2004 FORTUNE Magazine FORTUNE Magazine reported that Johnson & Johnson ranked fifth among the most desirable employers in the 2004 Universum survey of MBA candidates, moving up the ladder from 11th place in 2003. 2004 FORTUNE Magazine Johnson & Johnson was ranked #30 in the 2004 Fortune 500 list of largest U.S. corporations published by FORTUNE magazine. The company moved up from last year's rank of #34.

2004 Forbes Magazine Johnson & Johnson was ranked 16th in Forbes' April 2004 article on "power brands," an examination of the intangible assets of reputation, innovation, management and human capital. 2004 Business Week Magazine Johnson & Johnson was ranked 24th in the Business Week 50, an annual listing of the top-performing companies. 2004 Girls Incorporated Johnson & Johnson received the 2004 Corporate Vision Award from Girls, Inc., which recognized the company's on-going efforts to further opportunities, provide excellent products and support organizations that serve women and girls.

2004 FORTUNE Magazine Johnson & Johnson was named #7 on FORTUNE's 2004 Most Admired Companies list and ranked as the number one company in the annual survey's Pharmaceuticals category. 2004 Harris Interactive The Reputation Institute According to an annual corporate reputation survey conducted by Harris Interactive® and the Reputation Institute, Johnson & Johnson was acknowledged for having the best corporate reputation in America for the fifth consecutive year. 2003 U.S. Department of Health & Human Services The U.S.

Department of Health & Human Services awarded Johnson & Johnson Health & Wellness with Secretary Thompson's Innovations in Prevention Award. A nomination committee selected Johnson & Johnson as a candidate for the award based on the company's dedication to the development of company-wide health and wellness initiatives. 2003 The Health Project Johnson & Johnson Health & Wellness, an outgrowth of Johnson & Johnson's LIVE FOR LIFE® program, received The Health Project's C. Everett Koop National Health Award.

The award, which involves rigorous program evaluation of health improvement and medical care cost savings, is considered the most prestigious award for health promotion programs. 2003 The Caring Institute Johnson & Johnson was honored with the National Corporate Caring Award by the Caring Institute. Johnson & Johnson was selected out of a pool of hundreds of companies to be honored as the most caring corporation in America.

2003 Working Mother magazine Johnson & Johnson was ranked as one of the 100 Best Companies for Working Mothers by Working Mother http://www.jnj.com/exit_warning.jsp;jsessionid=BW0MRBTPNHL5YCQPCCFSZOYKB2IIQNSC?url=http%3A%2F%2Fwww.workingmother.com American Association for the Advancement of Science Johnson & Johnson earned top honors in a ranking of biopharmaceutical employers. An independent research firm commissioned by the journal Science conducted the ranking.

Johnson & Johnson was described as research-driven, with a clear vision of where the firm is heading and a culture of respect for employees. 2003 Chief Executive Magazine Johnson & Johnson tied for first place in Chief Executive's annual ranking of the Top 20 Companies for Leaders. Click here to view the published article which highlights the leadership development efforts being lead by Chairman of the Board and Chief Executive Officer William C. Weldon.

2003 National Minority Supplier Development Council Johnson & Johnson was named the "National Corporation of the Year" by the New Jersey - Pennsylvania - Delaware Minority Supplier Development Council, a regional affiliate of the National Minority Supplier Development Council. Corporations were judged on their company's corporate commitment to supplier diversity, the amount and quality of services provided to minority business enterprises (MBEs) and the overall results of these efforts.

2003 Pharmaceutical Executive Magazine Pharmaceutical Executive Magazine's fourth annual Pharmaceutical Executive 50 list ranked Johnson & Johnson as the sixth largest pharmaceutical company in the world.