Johnson & Johnson's CEO Hosts Annual Meeting of Shareholders (Transcript)

Johnson & Johnson (JNJ)

Annual Meeting of Shareholders

April 25, 2013 10:00 a.m. ET

Executives

Alex Gorsky – Chairman and CEO

Doug Chia – Corporate Secretary and Assistant General Counsel

Analysts

Justin Danhof – National Center for Public Policy Research

Sister Barbara Aires – Sisters of Charity

Alka Chandna – People for the Ethical Treatment of Animals

Presentation

Alex Gorsky

Well, good morning ladies and gentlemen. I guess needless to say, I’m Alex Gorsky, Chief Executive Officer and Chairman of Johnson & Johnson. And I’ve got to tell you it's my distinct pleasure to welcome all of you to our annual shareholders’ meeting.

We’re pleased that so many of you could be with us here this morning as we report to you on the status of our business. Now as is our tradition, we’re very happy to present each of you this morning with a gift package containing some of the recently introduced consumer products, and we've also included some gift certificates that will enable you to try some of the other products from other families of the company as well. And once again, the bags are environmentally-friendly made entirely from recycled plastic bottles.

Now in addition to the bags, we provide a copy of the meeting agenda and the rules of order. Now we’re really pleased to be here in New Brunswick, the home of Johnson & Johnson from the very beginning, some 127 years ago. Now we haven’t been in the Hyatt hotel because it hasn't been here for quite that long. And I really like to thank the management and the staff, their hospitality, their graciousness. They just do a great job and I think you will agree that they have another great shot this year. Let’s give them a big round of applause.

I want to also thank another very special group of people, all the people in the back of the room were behind-the-scenes who rest assured have been working very hard for the last several weeks to make this meeting possible. They're the reason that we can get up here and do the things that we do. There's too many to name but for the entire staff at J&J who make this meeting. Please join me in giving them a big round of applause. For us it takes a lot of them to make us look good.

Now given the size of the audience today and for safety purposes, they always want to make sure that I give the safety directions. I’d like to ask each of you to take a moment and to identify the exit nearest to you. Now it's also important that we start the meeting by acknowledging a few special guests who are among the many shareholders with us here this morning, and those are members of the Johnson family and the McNeil family. Their presence remind us, now particularly for me personally is I got a chance before the meeting to walk around and shake hands and connect many of them, of the immense contributions their families have made to the history, the legacy, the tradition here at Johnson & Johnson. It’s very good to have you with us. Let’s give them a round of applause.

Also I want to take a moment to recognize three other special groups. First, I’d like to introduce you to members of the executive committee and the management committee. Now I am going to ask each of them to stand. As I call their names would you please hold your applause until I have announced all of them and I've got them all introduced? Now our executive committee includes: Dominic Caruso, our Vice President, Finance and Chief Financial Officer; Peter Fasolo, Vice President, Global Human Resources; Sandy Peterson, Group Worldwide Chairman; Dr. Paul Stoffels, Chief Scientific Officer and Worldwide Chairman Pharmaceuticals; and Michael Ullmann, Vice President, General Counsel.

Our management committee also includes: Chuck Austin, Vice President, our Global Supply Chain; Joaquin Duato, Worldwide Chairman, Pharmaceuticals; Karen Licitra Worldwide Chairman, Global Medical Solutions Group, Michel Orsinger, Worldwide Chairman, Global Orthopedics Group; Gary Pruden Worldwide Chairman, Global Surgery Group; Michael Sneed, Vice President, Global Corporate Affairs; and Jesse Wu, Worldwide Chairman, Consumer. Please join me in giving them a big round of applause.

You know what, I think you have to go to a special program, what, tonight or tomorrow about picking the best team and I think everyone here knows it’s all about having the right team around you. And this team of professionals, leaders, there's no way I could do my job without them and they -- the leaders – who work for them as well. So a very warm heartfelt thanks for all that you do for our organization.

Now all of these EC and MC members are really dedicated seasoned leaders that have worked across sectors, across geographies. They’ve got track records of delivering performance, which is very important. What’s also critical in Johnson & Johnson is developing people and adhering to our Credo principles and really setting the example for the rest of the organization in everything that they do.

And now the next very special group that we want to recognize are the retirees of Johnson & Johnson. So please stand for a moment here in the ballroom and not overflow rooms. Your loyalty to Johnson & Johnson for so many years, your enthusiasm, look at all of them, your engagement, let’s give them a big round of applause.

What we're going to be talking a lot today about what we did over the past year obviously is only because of all the things that they've done for so many years for this great company that we were able to achieve and have a conversation about so many of the great accomplishments. But they’ve done quite a bit to build this great company. You definitely got our appreciation and gratitude and we thank you for taking time for being with us here today.

Now finally, there's another group of employees I’d like to introduce and they are the participants in our international development programs. Now these programs have been designed to develop our leaders for the future in senior functional and general management roles throughout the organization. And for 2013 in these programs we've got participants I think from over 30 countries worldwide. You probably learn about 40 languages if you just spend a little bit of time up here in this corner of the room.

Now following completion of their assignments, these talented leaders are going to assume new or enhanced roles within Johnson & Johnson or our companies around the world. I mean in a phrase, they are our future. So I’d like to ask all the participating employees to stand. Let’s give them a big round of applause.

As you can imagine, we do have an overflow crowd in here today, and many of our guests are viewing this in video screens and other rooms throughout the hotel. We want to welcome you as well as the shareholders who are viewing the meeting through our Internet webcast this morning. Now for those of you who are in the main ballroom if for any reason you’ve got to leave during the course of the meeting we ask that you do so through the attended doors at the rear of the room. And with that, we’ll go ahead and get started with our meeting.

So joining me today to help conduct the business portion of the meeting is Doug Chia, our corporate secretary. So I’ll now call this meeting to order and Doug, do we have a quorum?

Doug Chia

Thank you, Mr. Chairman. I am pleased to announce that we do have a quorum of shareholders present at this meeting in person or by proxy, representing more than 2 billion 295 million shares. That is in excess of 82% of the outstanding shares entitled to vote at this meeting. In accordance with the laws of the State of New Jersey there is available here today electronic list of all shareholders of record entitled to vote at this meeting. This list along with copies of the proxy statement for this meeting, the latest annual report and the minutes from last year's annual meeting of shareholders are located right outside this room. These materials will remain available after the meeting for shareholders who wish to review them.

Please note that this morning’s presentations may contain forward-looking statements as defined by the federal securities laws. Our Form 10-K for 2012, which is available outside this room and online contains a list of factors that could cause the company's actual results to differ materially from the company's expectations. The company does not undertake to update any forward-looking statements as a result of new information or future events or developments. In addition, today's presentations may also refer to certain non-GAAP financial measures. Tables reconciling these non-GAAP measures to the most comparable GAAP financial measures can be found in our quarterly earnings releases or on the investor relations section of our website at jnj.com.

Also, during the course of today's presentation, we will discuss a number of products and compounds developed in collaboration with strategic partners or licensed from other companies. This slide is an acknowledgment of those relationships.

Alex Gorsky

I am always pleased that the corporate secretary gets to conduct that part of the meeting. So thank you, Doug. And now will you please report on the items of business?

Doug Chia

The first item of business is the election of directors to serve on the Board of Directors until the next annual meeting. There are 12 nominees for the Board of Directors named in the proxy statement for this meeting. Under our bylaws the election of its director nominee in today's election requires the affirmative vote of a majority of the votes cast excluding abstentions. All voting reports are preliminary based on the latest available information at 9:30 this morning. Final results will be published in an upcoming current report on Form 8-K that will be filed with the Securities and Exchange Commission.

In accordance with the instructions of our shareholders of the more than 1,866,000,000 shares voted for the directors by proxy, not less than 1,000,000,624 shares – sorry 1,624,000,000 shares have been voted in favor of the election of each of the 12 nominees named in the proxy statement. The inspectors of election have informed me that the number of shares voted by the proxies in favor of each of the nominees named in the proxy statement represents a clear majority of the votes cast. Based on this latest information under the laws of the State of New Jersey and the company's bylaws, the 12 nominees named in the proxy statement have been elected to the Board of Directors of Johnson & Johnson.

Alex Gorsky

Thank you, Doug. At Johnson & Johnson we remain committed to strong corporate governance and to ensuring that our independent directors are unrestricted in their ability to represent all of you to shareholders. So I’d like to introduce the independent directors you’ve just elected for 2013. I'm also going to ask each one of them to remain standing as I call their names and so please hold your applause until I've gone through and introduced all of them.

So from my left to your right, Dr. Mary Sue Coleman, President of the University of Michigan and the Professor of Biological Chemistry in the University's Medical School; Jim, Cullen, Retired President and Chief Operating Officer of Bell Atlantic; Ian Davis, Former Chairman and Worldwide Managing Director of McKinsey & Company; Dr. Michael Johns, Chancellor and Executive Vice President of Health Affairs Emeritus of Emory University and Professor at the Emory School of Medicine and Rollins School of Public Health; Dr. Susan Lindquist, member and former director of Whitehead Institute for biomedical research and professor of biology at the Massachusetts Institute of Technology; Anne Mulcahy, Former Chairman and Chief Executive Officer of the Xerox Corporation and the independent lead director of our board; Leo Mullin, Chief Executive Officer and Chairman of Delta Air Lines retired; Bill Perez, retired President and Chief Executive Officer of the William Wrigley Jr. Company; Chuck Prince, retired Chairman and Chief Executive Officer of Citigroup; Dr. Gene Washington, Vice Chancellor of Health Sciences, Dean of the David Geffen School of Medicine at UCLA and Chief Executive Officer of the UCLA Healthcare System; and Ronald Williams, former Chairman and Chief Executive Officer of Aetna. Please join me in a big round of applause for our independent directors. Now personally I’d also like to extend to them a very heartfelt and warm thanks particularly for their support and help during my first year in this role. So thank you very much again.

And we have two additional board proposals and three shareholder proposals to cover this morning each of which is described in the proxy statement for the meeting. So Doug, will you please continue?

Doug Chia

The next board proposal asks the shareholders to vote in an advisory manner to approve the executive compensation philosophy, policies and procedures described in the compensation discussion and analysis section of the 2013 proxy statement and the compensation of our named executive officers as disclosed in the 2013 proxy statement.

Alex Gorsky

Now thank you, Doug. A description of the board’s assessment of the performance and compensation of the named executive officers can be found in the proxy statement. Now it’s an advisory vote, results of this vote will not be binding on the board or the company. However, the board does understand the importance of receiving shareholder feedback on executive compensation. So Doug, please proceed with the final board proposal.

Doug Chia

The final board proposal asks the shareholders to ratify the appointment of PricewaterhouseCoopers LLP as the independent registered public accounting firm for Johnson & Johnson for fiscal year 2013. The affirmative vote of a majority of the votes cast at this meeting is required to approve this proposal.

Alex Gorsky

Now the next three items of business will be proposal submitted by certain of the company shareholders. Each proposal will be introduced by a shareholder proponent or a representative, and following the presentation of the shareholder proposals, the polls will remain open for five minutes. So if you wish to vote or to change your proxy vote. So Doug, please proceed with the first shareholder proposal.

Doug Chia

Thank you, Mr. Chairman. The first shareholder proposal resolves that the compensation committee adopt a policy requiring that senior executives retain a significant percentage of shares acquired through equity pay programs until reaching normal retirement age. The proposal appears on page 70 of the proxy statement and was submitted by Mr. Kenneth Steiner of Great Neck New York, a beneficial owner of 700 shares of Johnson & Johnson common stock. Ms. Claire Servo (ph) will introduce the proposal on behalf of Mr. Steiner.

Alex Gorsky

Now we welcome Ms. Servo to our shareholders meeting this morning. Please proceed.

Unidentified Participant

Good morning. As has been explained and has been asked by another shareholder who could not attend today to present this proposal on his behalf, proposal number four: executives to retain significant stock sponsored by Kenneth Steiner of Great Neck, New York resolve shareholders’ request that our executive pay committee adopt a positive requiring the senior executives retain a significant percentage of shares acquired through equity pay programs until reaching normal retirement age. For the purpose of this policy, normal retirement age shall be defined by the company’s qualified retirement plan, the largest number of plan participants. The shareholders recommend that the committee adopt a share retention percentage requirement of 25% of such shares.

The policy should prohibit hedging transactions for shares subject to this policy which are not sales that reduce the risk of loss to or the executive. This policy shall supplement any other share ownership requirements that have been established for senior executives and should be implemented so as not to violate our company's existing contractual obligations or the terms of any compensation or benefit plan currently in effect. Requiring senior executives to hold a significant portion of stock obtained through executive pay plans would focus our executives on our company's long-term success. A conference for task force report on executive pay stayed that hold to retirement requirements give executives “an ever-growing incentive to focus on long term stock price performance”.

This proposal should also be evaluated in the context of our company's overall corporate governance as reported in 2012. GMI, the corporate library and independent investment research had rated our company D continuously since 2008 with “high governance risk” and also “very high concern” for executive pay, 27 million for our outgoing CEO William Weldon. Our outgoing CEO stood to collect 143 million in pension and deferred pay. Only three other CEOs of S&P 500 companies that filed proxies for 2011 had higher pension values. Only Howard Schultz of Starbucks had more than non-qualified deferred plan. More than 40% of the shares voted rejected our executive’s pay in 2012. Every member of our executive pay committee received 12% to 24% in negative votes and our executive pay committee was under the watchful eye of its chairman, Charles Prince whose sense of moderation in executive pay comes from his experience as the CEO of Citigroup. Please vote to protect shareholder value executives to retain significant stock proposal four. Thank you.

Alex Gorsky

Well, thank you for your comments Ms. Servo. While the board agrees that executives should own significant amounts of company stock to align their interests with those of you our shareholder, the board also believes the proposal is unnecessary, because we already accomplished the objective of the proposal by maintaining rigorous stock ownership guidelines and executive compensation program that really emphasizes long-term performance. We currently require our executives to hold a significant amount of company stock, for example, six times base salary in the case of myself, the CEO and three times base salary for other executive committee members and maintain those ownership levels for as long as they are executive officers of the company.

In addition, our executive compensation program emphasizes equity ownership by providing some 65% of our compensation to our executive officers in the form of equity awards. Thus we believe that our existing stock ownership requirements coupled with the compensation program that emphasizes long-term equity awards appropriately balances the need to align the executive interest with those of our shareholders. It’s therefore recommended that shareholders vote against this proposal. Doug, will you please proceed the second shareholder proposal?

Doug Chia

The second shareholder proposal resolves that the board create and implement a policy to systematically screen corporate political contributions and electioneering communications against candidates whose voting records are inconsistent with our corporate values and that the company report to shareholders quarterly regarding any contributions that raise an issue of incongruence with corporate values, stating the justification for any such exceptions. The proposal appears on page 72 of the proxy statement and was submitted by Northstar Asset Management Incorporated Funded Pension Plan of Boston Massachusetts, a beneficial owner of 168 shares of Johnson & Johnson common stock. We welcome back Ms. Claire Servo who will introduce the proposal on behalf of Northstar Asset Management.

Alex Gorsky

We welcome back Ms. Servo. Please proceed.

Unidentified Participant

Well, as I introduce, still Claire Servo, from Northstar Asset Management in Boston, Massachusetts, Northstar is the beneficial owner of nearly 30,000 shares of Johnson & Johnson stock. I am here to ask for your support of resolution number five. Our company needs a policy to ensure congruency between what we stand for and what our funds support. The Johnson & Johnson brand is one of our company's most significant global assets. Our values at Johnson & Johnson had been meticulously developed and marketed. Our public commitments to diversity, environmental stewardship and healthcare reform exemplify Johnson & Johnson's values and priorities. These values are the cornerstone of our business decisions and are the foundation of our success in the medical industry. Wide end of our political contributions apparently violate company values.

Johnson & Johnson's website states that, “we support the patient protection and affordable care act and believe it is appropriate for all healthcare industry stakeholders to play a role to ensure affordable and quality healthcare". Yet within the calendar year of 2012 Johnson & Johnson's political action committee, JJPAC contributed at least $85,000 to a total of over 25 candidates that voted against HR 3590, the patient protection and affordable care act. We are certain that there is an explanation for such behavior but on the face of it this is a direct violation of our business priorities. We do not seek to prohibit or restrict contributions. On the contrary, we want management to insist that political activity is congruent with our business values and priorities. Management claims that this proposal would restrict the company's ability to support political candidates.

We recognize that not all political spending can or will be aligned with all company goals but when alignments cannot be made the company should disclose their own rationale for those contributions. Apparent incongruence at this time of close surveillance of all corporate political activity is a major risk to the Johnson & Johnson brand. We request that management methodically incorporate company values into their decisions about which candidates or causes to support and disclose the rationale when incongruities exist. At Johnson & Johnson, our stated company values emphasize and underscore our broader commitments, and I quote, “we must be responsible to the communities in which we live and work and to the world community as well. We must be good citizens”. We insist that management reflect Johnson & Johnson's vision and values and electioneering contributions to avoid harm to the Johnson & Johnson brand. We ask you to vote yes for resolution five. Thank you.

Alex Gorsky

Thank you again for your comments, Ms. Servo. Now as the leader in the healthcare industry, Johnson & Johnson is committed to supporting the development of sound public policy in healthcare. Legal and regulatory environment for healthcare companies has undergone considerable changes in recent years. And that trend quite frankly is likely to continue into the future. And we seek to support candidates who recognize the importance of medical innovation and broad access to quality affordable healthcare, and we don't expect candidates receive contributions from our employee political action committee or from our company to agree at all times with our positions on policy issues.

The board believes that by adopting the policy recommending by this proposal would restrict our ability to make political contributions to support those whose positions are supportive of our legitimate business interests. Now extensive disclosure regarding our political contributions, including the policies and procedures that govern his contributions as well as an overall description of the board's oversight role can be found in the corporate governance section of our website at jnj.com. And the board believes these policies and procedures appropriately balance the concerns raised by this proposal with the need for the company to protect its business interests. It’s therefore recommended that shareholders vote against this proposal. Doug, please proceed with the third and final shareholder proposal.

Doug Chia

The third shareholder proposal requests that the board adopt a policy and amend the bylaws as necessary to require the chair of the Board of Directors to be an independent member of the board. This requirement would apply prospectively and compliance with this policy would be waived if no independent director were available and willing to serve as chair. The proposal appears on page 74 of the proxy statement and was submitted by the AFSCME Employees Pension Plan of Washington DC, a beneficial owner of 20,084 shares of Johnson & Johnson common stock and Hermes Fund Managers, a beneficial owner of 113,022 shares of Johnson & Johnson common stock. Mr. John Keenan of the AFSCME Employees Pension Plan will introduce the proposal.

Alex Gorsky

We welcome Mr. Keenan to our shareholder meeting this morning. Please proceed.

John Keenan

Thank you. Fellow shareholders and members of the board, my name is John Keenan. I’m representing the AFSCME Employees Pension Plan and co-filer Hermes equity ownership services. I hereby move item six, the shareholder proposal asking our company to adopt a policy that the chair of the board be an independent director. We believe an independent board chair plays better balance of power between the CEO and board and support strong independent board leadership and functioning. This proposal boils down to preventing an inherent conflict of interest. It’s the board’s job to monitor the CEO and the chair’s job is to run the board. The CEO is also the chair and he or she is effectively in charge of moderating his or her own performance.

We believe that independent board leadership would be constructive here at Johnson & Johnson. We have raised serious concerns over our board’s leadership structure under the former CEO and chair William Weldon as numerous drug recalls, product liability and litigation shareholder value both in terms of our company's reputation as evidenced by $2.1 billion in litigation expenses for 2012. And shareholders have expressed serious concerns over our company’s pay practices as evidenced by only 55% support for last year’s staff pay and only 16% in 2011. Now Mr. Weldon has left the board, but rather than use this as an opportunity to improve its corporate governance structure by appointing an independent chair, our company has reverted to a unitary leadership structure, making new CEO Alex Gorsky also the chair. Meaning Johnson & Johnson CEO is once again also board chair, making him effectively in charge of moderating his own performance.

We don't believe this serves shareholders well the last time around and we're disappointed our company did not take the opportunity to break what we consider to be a bad habit. Our company argues that by designating our new CEO as chairman, the board also sends an important signal toward employees and shareholders about who is accountable. We do not agree. Instead we think this sends a troubling signal to shareholders that the board is not accountable, nor will the CEO be accountable to the board because the CEO is the board chair. We recognize that an independent board chair presents culture shift to the US imperial CEO model. But this goes to the heart of corporate governance, who runs the board, most of the board’s role. Is it to work on behalf of stockholders or work on behalf of the CEO? We maintain that it should be the work on behalf of stockholders as the CEO’s job to do the same.

Having an independent chair prevents any blurring of these lines. This is about maintaining a proper system, checks and balances. Proxy advisor Glass Louis (ph) supports this proposal stating that an independent board chair is better able to oversee the executives of the company and so the pro-shareholder agenda, without the management conflicts that CEO or other executive insiders often face, leading to a more proactive and effective Board of Directors. We believe that independent board leadership will be in shareholders’ best interest and we urge shareholders to vote for this proposal. Thank you.

Alex Gorsky

Thank you for your comments Mr. Keenan. Now the board believes it’s important to maintain the flexibility it currently has to tailor its leadership structure to best fit the company specific circumstances, culture and short and long-term challenges, and its stewardship over how board leadership structure is solely the purview of the board. Now the board is composed of directors with diverse backgrounds, experiences, perspectives, placing them in a strong position to evaluate the pros and cons of the various types of leadership structures and they ultimately decide which one will serve the best interest of our stakeholders as they are defined in our Credo.

Now it’s incumbent upon the board to decide on what it believes will be the most effective based on its judgment and experience, apply specifically to the company and its particular circumstances. The board recognizes the importance to have in place and build upon a strong counterbalancing structure to ensure that it functions in appropriately independent manner. So at the same time they decide to designate me as the chairman. The board took steps to enhance its governance structure by expanding the duties of the lead director. In addition, each of the board's five main committees are comprised entirely of independent directors. The board's nominating and corporate governance committee will continue to periodically review its leadership structure in a serious and open-minded fashion to ensure it’s still appropriate for company. It’s therefore recommended that shareholders vote against this proposal.

And the polls will now remain open for five more minutes. There's no need for anyone who has already voted his or her proxy to do anything. However, if you wish to turn in your proxy now or change your proxy vote, please stand or raise your hand and our representatives will escort you to lobby where there’s going to be personnel to assist you. And we’re going to report on the voting results for each management shareholder proposals later in the meeting. So this concludes the business portion of the meeting. At this time I'll hereby adjourn it. Thank you very much Doug.

So now let’s continue with the review of the company's performance in the first quarter of this year. Our first-quarter financial results were announced last week and I think we’re off to a good start in 2013. We delivered solid first-quarter results led by the success of our recently launched pharmaceutical products and the addition of Synthes to our orthopaedics business. Of note is the growth in our over-the-counter medicines business as we continued to make progress in returning a reliable supply of high-quality products to our customers.

Our first-quarter sales were $17.5 billion, up 9.8% on an operational basis. Excluding special items, net earnings on adjusted basis were $4.1 billion and adjusted earnings per share were $1.44, up 8% and 5.1% respectively versus the first quarter of 2012. Our investments to advance our pipelines and expand our global presence, along with the outstanding efforts of our talented people, will enable us to continue delivering sustainable growth and meaningful innovations to patients and customers around the world.

So in recognition of the continued support that you, our shareholders, have given us, our strong financial position and our confidence in Johnson & Johnson's ability to deliver outstanding results now and in the future, the Board of Directors has voted to increase the quarterly dividend for the 51st consecutive year, payable on June 11 to shareholders of record on May 28 by 8.2% from $0.61 per share to $0.66 per share.

So now let’s move ahead. But before we discuss some of the specifics, some of the challenges or opportunities, the solutions, the great things we’re doing, let’s set the stage, by taking a quick look in healthcare from a global perspective.

[Video Presentation]

Thank you. Now if you are watching that, I hope you will agree the number one challenge facing the United States and every country in the world today and tomorrow is healthcare. That's just not my view. But that's what I hear from government officials, political, business leaders, healthcare professionals around the world. Consider for a moment, the rapidly changing demographics of an aging population, a growing middle-class, the persistence of chronic disease, and you get a sense, you can see the scale, the complexity and the challenges magnify. It's my belief that even though healthcare is our greatest challenge, it’s also the greatest hope for a better future for every individual, every family, every community and every country.

At Johnson & Johnson, we have the opportunity to work at the very center of this challenge, across the broadest base of any company in global healthcare, from pharmaceuticals to medical devices and diagnostics, to consumer products, this broad-base gives us a very unique perspective on this great challenge. But it also gives us a very unique and special responsibility to live up to our purpose of caring for every person for the world, one person at a time, and our Credo. Our credo is what it guides us.

And we touch the lives of over 1 billion people every day who are using our products and services. Think of that for a moment. 1 billion people around the world every day and I'm incredibly proud of all that we do. I am very pleased with what we have achieved, but ladies and gentlemen, shareholders, I'm far from satisfied. The leaders I introduced to you earlier were not satisfied. But no company is better positioned to lead the way in meeting the challenges and the opportunities in the future in healthcare. We can, we must, we will. You’ve got my personal commitment.

So in spite of the many challenges around the globe and our markets, meaningful innovation, the breadth of our businesses and the extraordinary achievements of our people around the world drove solid business results for the enterprise. And 2012 I think you’ll agree was an important year for Johnson & Johnson. We delivered on our financial commitments and we advanced our near-term priorities. We also strengthened our focus on the future by investing in innovation and expanding our global businesses.

Here are our financial highlights for 2012 versus 2011. As you can see, 2012 sales increased 3.4%, 6.1% operational reflected the outstanding progress of our newly launched pharmaceutical products, the addition of Synthes and strong growth in emerging markets. Now excluding the net impact of Synthes, operational growth was 3%. But with our continued focus on financial discipline, our adjusted earnings were $14.3 billion, up 3.4% and adjusted EPS was $5.10, up 2%.

We also generated significant free cash flow of approximately $12.5 billion. Our leadership positions in healthcare, our breadth and focus in managing for the long-term and of course, our talented people are the basis of our strong business which has yielded 29 consecutive years of earnings increases and now 51 consecutive years of dividend increases, making us one of only six companies in the S&P 100 to achieve that record. And we're only one of four industrial companies with a AAA credit rating. Approximately 70% of our sales come from products that are number one or number two market share position and our commitment to investing in R&D is also paying off with about a quarter of our sales coming from products that had been launched in just over the past five years.

Now solid shareholder return is our hallmark at Johnson & Johnson and in 2012 we produced total shareholder return of just under 11%. And that exceeded Dow Jones Index and although a nice return trailed the other indices we compare to. For 2013 we’re off to a good start. In the first quarter, we saw a 17.2% return, and we are leading all indices to which we compare. While early results are encouraging, we remain vigilant and extremely focused on our goals.

Now as I took on this role, I announced a clear set of near-term priorities and over the past year we've made strong progress in advancing against these priorities. Our work to establish and restore reliable supply of our OTC products in the market has been paramount. Key products like children's Tylenol, children's Motrin, others have returned to the shelves and we’re committed to continue investing in our OTC products. We also made significant strides in integrating Synthes into the organization, solidifying our leadership position in worldwide orthopaedics. And very importantly we continue building on our strong momentum in pharmaceuticals, including REMICADE, ZYTIGA, Invega, Sustenna, INCIVO, to just name a few.

But we also focused and strengthened our purpose for the future, investing more than $7.5 billion in R&D to drive innovation, launching enterprise initiatives to improve our efficiency models and our quality standards, and expanding our presence in strategic global markets with the introduction of new products designed specifically for different regions and customers around the world.

Now here are the results by segment which reflected our broad base of leadership in healthcare. Pharmaceuticals generated $25.4 billion or 38% of our total sales. Medical devices and diagnostics, our largest segment, generated $27.4 billion or 41% of our total, and our consumer segment generated $14.4 billion in revenue or 21% of our total.

Now moving to the segment highlights, I’ll start with pharmaceuticals. You know by any measure, any measure, we transformed our pharmaceutical business, demonstrated first and foremost by the impact we’re having in addressing unmet medical need among patients. And with our strong business results, we made significant investments in advancements in our pipeline to fuel future growth and we’re leading the industry with a remarkable 10 new molecular entity approvals between 2009 and 2012. And just recently Forbes announced that InnoThink Center ranked Johnson & Johnson the most productive pharmaceutical company. Remarkable by any measure.

Now our progress has continued into this year as the FDA has approved our first diabetes medicine, Invokana, just last month. And just this month we announced the FDA granted third breakthrough designation for ibrutinib, an oral anticancer compound that we’re developing in collaboration with Pharmacyclics for B cell malignancies. Our recently approved products are accelerating our growth, this strong launch execution program. We've implemented to ensure greater access and reimbursement for patients around the world.

In Europe, the Middle East, Africa, Japan, we are sales leaders in growth. In the United States, we hold the leadership position in total sales of new products launched since 2009. At the same time we haven't lost our focus on unmet medical need keeping the patient at the very center of everything that we do. At times we develop a product just because it's the right thing to do. It may not have a large business impact but it can have a sweeping patient impact.

Sirturo which received FDA approval at the end of December is our most recent example of this type of breakthrough. It's the first therapy with a novel mechanism of action against tuberculosis that the FDA's approved in more than 40 years, and nearly half of all tuberculosis patients in developing countries don't respond to a second regimen after a first one has failed and the cost of managing drug-resistant TB is staggering and it puts a huge strain on local communities.

Unfortunately as many of you may have read in the news, the prevalence of TB is on the rise and in over 40 years there had not been any new treatment options until -- until now. A team of researchers led by Dr. Koen Andries, developed Sirturo at Janssen, new first in class drug indicated for multi-drug-resistant TB. So let's hear from the team that developed Sirturo.

[Video Presentation]

What an incredible story! When you hear Paul Stoffels say we must do it, it really embodies what we’re about. Now members of the Sirturo discovery team are here today. Will you please stand? Let’s give them a big round of applause. Great scientists, great leaders making a difference for patients around the world. Now our caring means, we have an obligation to ensure the patients in need have access to these new treatments as well. So in collaboration with the TB Alliance and world health authorities, we’re going to deliver on that promise. And I want to recommend Dr. Paul Stoffels, Joaquin Duato, our worldwide chairman of pharmaceuticals and their teams for their vision, leadership in fundamentally transforming our business. Thank you, Paul and Joaquin.

Now our MD&D business is number one worldwide and generated $27.4 billion last year, which was up 8.7% operationally driven primarily by the inclusion of Synthes. While overall market growth has clearly slowed, we are building on our market leadership position holding number one or number two positions in over 80% of them. And very importantly, we’re continuing to invest for long-term sustainable growth and completed our largest acquisition in history with Synthes.

Now Synthes has immediately helped us further expand our global presence with strong double-digit growth in emerging markets. The merger of DePuy and Synthes formed the world's largest most comprehensive broadest orthopedics and neurologics organization in the world and the leadership team is a strong combination of talent from both organizations. As you can imagine, joining two companies of that size, that scale is no easy task. Their customer and sales integration is proceeding as planned, and we know that their future synergy opportunities, the supply chain, manufacturing and R&D. So I’d like to recognize Michel Orsinger and his leadership team at DePuy Synthes for their great work they're doing and we’re very proud to have them in the Johnson & Johnson family.

In addition to Michel, our experience, talented leadership team, Gary Pruden who leads our Global Surgery Group, Karen Licitra in the Global Medical Solutions are really shaping the industry's future by making smart, decisive and disciplined portfolio choices to further increase our competitiveness and bring innovative new products and solutions to patients and healthcare providers around the world. Thank you, Michel, Gary and Karen. Please join me in giving them a round of applause.

Now as we look to the future we’re adapting our businesses to this changing and evolving marketplace, and we’re advancing new products in our pipeline. Here is an example of how our products of DePuy Synthes are helping patients. 15 years ago, a young man named Richard Lee Norris lost his face in a terrible accident. He shut himself away from the world, lived his recluse. Until last year, when a team of very skilled surgeons at the University of Maryland performed a grueling 36-hour procedure giving Richard a new face and giving him back his life. Let’s hear the story.

[Video Presentation]

What a courageous young man! But if you like to hear more about Richard and his story, he is going to be interviewed by Ann Curry on an episode of NBC's dateline airing in the next few weeks. We’re also thrilled to have with us here today the lead surgeon of Richard surgical team at the University of Maryland Medical Center, Dr. Eduardo Rodriguez. Dr. Rodriguez, please stand.

We say all the time in medical device group that our products don't come alive until they’re put into the hands of a surgeon. Dr. Rodriguez, that's remarkable. Thank you again very much.

Now Johnson & Johnson helps surgeons to transform lives in the operating room. And our consumer products make a difference in the daily lives of consumers around the world. Now on the past year our consumer business generated $14.4 billion in sales. As I stated earlier, we are absolutely committed to returning our consumer business to growth, starting first by restoring a reliable supply of our McNeil over the counter products to the market. Now we continue to operate in accordance with the consent decree. Importantly we've achieved our commitments to date under our remediation work plan, which has been approved by the FDA and we’re going to return a consistent supply of additional products to the market over the course of 2013. The work to bring our plants back fully online is progressing. And until then we’re going to make very disciplined and prudent approach to our production volumes and our product portfolio.

But we are also going to make targeted investments in marketing and commercial support to ensure our brands regain leadership positions over time. Now to do that we are also investing in growing and expanding our consumer business in emerging markets with market-specific brands like Dr. Mom, Hot and Cold products in Russia, the acquisition of popular all-natural (inaudible) for baby in China and by leveraging our strong iconic brands like Johnson's Baby. Sandy Peterson who brings 25 years of diverse global healthcare experience to Johnson & Johnson assumed her role as group worldwide chairman late last year and is focusing on returning our consumer segment to sustained growth together working with Jesse Wu, our worldwide chairman of our consumer group and his leadership team. Thank you, Sandy and Jesse.

So creating new products, new delivery systems is one of the many ways we’re helping consumers live healthier lives. Nicorette QuickMist which we sell outside the United States is a great example of innovation fulfilling a critical need. Worldwide over 1 billion people still use tobacco and on average every 6 seconds another person dies from the effects of smoking or second-hand smoke. Knowing the dangers of smoking in many cases just isn't enough to get them to stop smoking. Addiction can be more powerful than any rational thought. Still, what if there was a product to help people quit by satisfying their nicotine craving in just a single pub of mist. What if? Let's ask Martin Hall.

[Video Presentation]

Well, congratulations Martin. I think he’s pretty proud of that new car. Diverse habits, habits, behaviors are just some of the global market dynamics, driving some of the change and adding complexity to this challenge. And of course, there is enormous uncertainty in the global economy and the global healthcare environment overall. But we simply have to reinvent the way we think about healthcare and break the zero-sum thinking. So let’s envision for a moment. Just a world where creativity and innovation help remake our options for a better tomorrow. We don't just need new medicines or products. We think we need new philosophies, new approaches and new mindset and patients, they must stay first and foremost in all of our discussions.

Now traditionally we recognize that in any country economic growth – well, it tends to demand greater access to better quality health care. What's also true is a better quality healthcare tends to drive economic growth. So finding a clear path forward in reforming healthcare is absolutely critical to addressing the rising demands being placed on the system and that we read about every day in the newspaper. And we can’t allow the uncertainties before us to impact the care of patients and you know, at Johnson & Johnson we’re eager to work with others to find the solution, and not with just other health care companies, but universities, governments, NGOs, communities. It’s going to take a lot of new and different kind of partnerships but the most fundamental obligation is to expand access to care for people everywhere.

Now this is core to most health care reform efforts but it’s also essential. Next, we think it's about investing in the health of developing countries and to do that we’re going to need private and public solutions that improve care in every corner of the world. These include increasing training for medical personnel, establishing care and wellness programs in places like sub-Saharan Africa to help control the spread of disease. We've also got to make sure that we have systems that reward innovation, to help bend the cost curve in healthcare. So what does that look like? Bending the healthcare cost curve is going to require things like new science and technology that lead to new medications, new procedures that measurably decrease overall cost to assist them. And we think we should start on wellness and prevention, stopping disease before it even starts.

Another great example and one that our researchers are working on all the time is personalized medicine. Doctors can treat more effectively and improve outcomes for patients at reduced cost to the overall system. We also think we can make a big difference in moving the site of care, maybe from the hospital to the outpatient clinic or to an environment more appropriate for particular market, for instance, it might even be in our homes. And for those who are hospitalized we’re developing products that will shorten procedures and overall length of stays, and we think that can have an impact on reducing hospital readmission rates as well. Now we believe that these are the types of advancements are going to be rewarded in the new global healthcare economy.

So with that as a bit of a context, the next question becomes, how is Johnson & Johnson going to compete? What will we do to make a difference, to deliver value and to drive growth? Now our strategic framework is our roadmap and it focuses on us to be leaders in this evolving, rapidly changing healthcare environment. It starts as it should with our Credo. It’s the very foundation of who we are as a company. Our business, our culture is the very essence of our heart and soul. This year we are very proud to celebrate the 70 th anniversary of our Credo. A management philosophy drafted by General Robert Wood Johnson as he was about to take this great company for public.

Now the General, he was a visionary who talked about things like sustainability long before it was cool to be great. At this time I'm compelled to mention the passing of another former Johnson & Johnson CEO Credo champion, inspirational leader James Burke. Jim’s legacy reminds us that the simple set of beliefs defined in our Credo can guide our company through the challenges and complexity of these or anytime. I’d like to acknowledge Jim’s wife Didi who is with us here today. Jim was loved and admired worldwide. He set a high bar for all of us to follow, a true Credo champion. Thank you.

So with our credo as our foundation, our aspiration is that by caring for the world one person at a time, we can help billions of people live longer, healthier and happier lives. Now that’s an important source of inspiration for our scientists and our business people, and in fact, all of our employees around the world. And our four strategic principles are important today as they’ve ever been. But they’re evolving to remain relevant, remaining broadly based in healthcare, focusing on areas where we can have breadth, depth, scale, size but at the same time being selective, disciplined, decisive about our portfolio, managing for the long-term, while never losing focus on delivering on our short-term goals and priorities, maintaining and retaining a decentralized management approach, while standardizing areas that make us more efficient and help ensure quality, and at the core relying on our talented people and values.

And our four growth drivers are how we put our strategic framework in action. Excelling in each one of these is absolutely vital to our success. And the first one that I want to spend a few minutes on is innovation. Now realizing advancements in healthcare must start with identifying the unmet medical needs with patients, and we create value in three core ways. First, through our distinct model of innovation. Next, by taking a lifecycle long-term approach to building market-leading platforms, products and brands, and third, by engaging in broad partnerships with patients, customers, payers to provide solutions and unique offerings that improve access and outcomes.

Now our distinct model of innovation has two key elements and it begins with accessing the very best science and then leveraging with our own specialized capabilities to develop differentiated products. And we executed roughly 100 alliances, licensing and acquisitions, collaborations and strategic partnerships across the enterprise last year, and we established four regional innovation centers. And these innovation centers are going to help us strengthen our future pipeline and they are going to be instrumental in helping us unearth future products and solutions that ultimately are going to drive growth. So it’s skilled committed scientists in our labs, we’re leveraging our internal capabilities and exploring new approaches that potentially lead to innovative treatments. Things like infectious disease, more effective skincare products, new ways to restore mobility among many others.

So now I’d like to take a closer look at just one great example -- our Janssen labs in California.

[Video Presentation]

Let’s give them a big round of applause. I’ve had a visit Diego about 18 months ago when this concept was just getting started and we are now well on our way making great progress and by the way it doesn’t hurt to say it’s in La Jolla, California, to spur that innovation alive.

As you know, innovation in healthcare is driven by passion and commitment but along with a certain stubbornness and a staunch refusal to accept that, well, that’s just impossible. I think Dr. Paul Johnson expressed the best when we said, the patients are waiting. It's this kind of commitment to finding solutions to make up other people’s lives better. It lives in all of us at Johnson & Johnson. Now the EVARREST Fibrin Sealant Patch exemplifies how we are leveraging opportunities across our innovation -- across our enterprise as we create value through innovation for patients. As any surgeon knows, bleeding is a potential complication in any surgical procedure and it can really pose a significant risk to patients as well as surgeons. And severe uncontrolled bleeding can raise mortality rates from 1% to as high as 20% in a procedure.

But by manually compressing a patch to a bleeding wounded surface for three minutes, the EVARREST patch mimics the last stud of blood clot formulation in a natural physiological reaction. The biologic components react to form a fibrin clot which then integrate into the patch to stop the bleeding. Later as natural healing begins, the product is completely reabsorbed back into the body. In clinical studies, EVARREST patch was 98% effective in stopping bleeding and maintaining haemostasis compared to the current standard of care. Our lifecycle approach considers the needs of the patient as we build out platform approaches with brands to endure and products that can grow and ultimately lead in the marketplace.

So let’s take a closer look at our global reach and local focused approach. As the world has changed so is the geographical distribution of our business, employees, our products and sales. You know, today 56% of Johnson & Johnson sales and revenue come from outside the United States, and that was about 40% just a decade ago. And the broader emerging markets now make up about a quarter, 25% of our sales. Listerine, what a great flagship brand, an example of how with our science and deep insights in customer needs around the world, we continue to expand market share by adding product benefits and professional recommendations.

For example, just last year in Asia, we launched Listerine green tea tailored to local tastes. We also had the introduction of Listerine Essential developed for emerging middle-class consumers in Latin America and other formulations designed to meet specific regional commands. Now to meet the need – the wider needs of emerging markets, the ability to capitalize on our broad base of offerings and critical mass, we believe positions us well with customers as well as with governments. And we’re expanding and investing our presence in global markets. In some cases, we leverage our portfolio, and we selectively acquired products to tailor the needs of specific populations. Our regional companies have optimized their infrastructure and are continuing to invest to support dozens of institutes around the world, designed to train healthcare providers on safe and effective use of our products.

So now let’s move to our third growth driver – excellence in execution. In order for us to effectively compete in a fast-paced evolving healthcare market, we must have excellence in execution and over the past three years, we've been implementing fundamental changes across our supply chain at the enterprise segment and business unit levels. We’re standardizing our approach to quality, safety and reporting. It's absolutely essential that we do what we say we are going to do. We must deliver on our commitments.

Our productivity in the pharmaceuticals group leads the industry and our model for executing launch plans is best in class. A great example of this is our recent platform approach to the treatment of a disease. Now this approach isn’t easy. Just ask our leaders. But it requires multiple operating companies working seamlessly together to offer a comprehensive suite of solutions to patients and professionals. Now diabetes is a global crisis that no population can ignore and the unmet needs are considerable. It's one of the most common non-communicable diseases globally and affects the body's ability to metabolize glucose.

With our broad breadth of offerings, we're making a difference in helping people better manage their diabetes from wellness and prevention programs offered at the Human Performance Institute to the no-calorie sweetener Splenda, with insulin pumps from Animas and with our once daily breakthrough medication Invokana, we're building a comprehensive platform to help patients better manage their diabetes.

I now want to turn to leading with a purpose. I am incredibly privileged to be working alongside the people at Johnson & Johnson. Together there are nearly 128,000 of us with wide-ranging capabilities and responsibilities united by a common purpose. At Johnson & Johnson, we’re committed to caring for the world one person at a time. And through our 127-year history we've been known for our immediate relief and ongoing recovery efforts around the world when tragedy strikes. And just last week when the city in Boston should have been celebrating the successful conclusion of one of the world's greatest sporting events, The Boston Marathon, they were instead focused on treating many injured and caring for those who lost loved ones and it was truly a national tragedy.

But just minutes after this terrible event, Johnson and Johnson employees of our Massachusetts-based, Houston-based company jumped into action immediately providing equipment, instrumentation to the for trauma centers in the city of Austin. As more than 150 injured patients arrived, the hospital emergency and operating rooms took on the atmosphere of military field hospital, stabilizing the severely injured and moving onto the next victim. But I'm very proud to say that our DePuy Synthes trauma team worked round-the-clock for several days to do whatever was necessary to help the doctors, nurses and patients. And it’s a true honor for me to introduce to you Art Larry, our regional manager of DePuy Synthes and his trauma team who show that caring really means. Please stand. Let’s give them a big hand of applause.

Now let me share with you another example of our Credo in action. Last October, as many of you remember who live here on the tri-state area, hurricane Sandy roared through here, causing destructions, blowing down trees and some people said like one of every six trees was blown over in this area, wreaked havoc on homes and businesses, the partnering with the American Red Cross saved the children. AmeriCares is another disaster assistance programs. Johnson & Johnson provided a lot of important aid and relief. We provided more than 20,000 first aid kids that were used by first responders. We also provided the blankets to families who were just dislocating their shelters. And we were there with millions of dollars in products and funding responding to the governor's call to provide as much immediate relief as we could.

But most importantly, Johnson & Johnson employees were there in their own communities. Immediately without hesitation on the front lines of response wherever, however they could help out they were doing. In fact, great story remained – a couple days after the storm, we were closed for five days due to the power outage and people having trouble getting here. And by day two I was able to make it into the corporate headquarters and our skeleton team of about few maintenance people, security people were working and had beards, hadn’t shaved in a couple days and they took it upon themselves, they didn’t ask for permission. They didn’t wait for somebody to tell them what to do. They cleaned out our company store and took it to the local shelter for people, this is how they distributed. They got generators and fuel, took it to Robert Wood Johnson, the local New Brunswick Police Department. They did what should be done, nobody was asking or telling them to do so. And to me that really exemplifies the great effort of our employees and kind of things that they do every day.

So whether it's what we were able to do in Boston with emergency medical care to here locally with hurricane Sandy, or to medical services being provided by a ship anchored somewhere now right off the coast of West Africa, Johnson & Johnson is there.

[Video Presentation]

Now I'm so inspired by the doctors and nurses that give so much of themselves for this mission. In just the last five months as it was stationed off the shores of Togo, medical teams removed 282 tumors, corrected 34 cleft palates and restored the sight of nearly 800 patients who were blind and cataracts. In 2012 we were among the largest corporate donors contributing nearly $1 billion in cash and products to 600 programs in 50 countries. From our earliest days Johnson & Johnson's advanced to health and wellbeing of mothers, women and children and families around the world. We remain at the forefront of efforts to improve the lives of women and children and continue to make progress toward our five-year comprehensive pledge to the United Nations Millennium development goals.

Two years into this commitment, we made real progress with programs making childbirth safer, reducing mother to child HIV transmission and other programs, including reaching mothers with life-saving health information through something as simple as their mobile phones. The mobile alliance for maternal action, or project MAMA is another example of bringing health care to people in underserved regions. MAMA uses mobile technology to share information to address both the concerns of expectant and new mothers around the world. To date MAMA has reached more than 100 organizations in 40 countries.

Now for over 125 years we've been a company that cares. And as we bring this meeting to a close, it’s my pleasure to tell you about a very special effort that celebrates our long and remarkable history. I am proud to announce the beginning – we’re beginning a new multi-phase journey to share and celebrate the legacy of healthcare innovation. We create – we’re committed to create a best in class museum worthy of our past, transforming the only remaining building from our original campus in 1907 and we’re going to launch an online experience that will enable us to engage, educate, excite employees and customers from New Jersey all the way to New Zealand.

And I am also pleased to let you in on some breaking news. Now just in time for Mother's Day, guys I hope you all got out there and get your cards, yes ready. Our new corporate campaign will air several national television outlets. The campaign title For All You Love, and it does a beautiful job of bringing to life our commitment to caring. And now here it is the premier For All You Love.

[Video Presentation]

So stay tuned and you will be hearing more about that. But on behalf of all of us at Johnson & Johnson, you have our commitment that we will further dedicate ourselves each and every day to our responsibilities defined in the Credo, to the doctors, nurses and patients, the mothers and fathers, all who use our products, to the employees who are the core of the Johnson & Johnson family, to the communities where we live, and to you, our shareholders who place your trust in us. I firmly believe there is no other company better positioned than Johnson & Johnson to achieve the goals that we set. And we know that people around the world put their trust and their faith in Johnson & Johnson and look to us for products if they can depend on. They look to us to provide new solutions and develop new medical breakthroughs. They look to us to provide high quality products and maintain our strong reputation and they look to us to help that next generation of grandparents stay mobile and engaged, the next generation of babies to grow up loved, healthy, ready to achieve their full potential regardless of where they are going.

So on behalf of our dedicated employees, the 275 different operating companies in over 60 countries, I'd like to thank you for putting your faith and trust in your ongoing support in us. I firmly believe that at Johnson & Johnson we've only begun to tap into our tremendous potential. Thank you very much.

Okay. Well, this closes the formal portion of the program. But before we move into the Q&A I’d like to report on the preliminary voting results for the items of business that were presented at the very beginning of the meeting. The polls are now closed and other than the election of directors which we previously reported on, let me go through the current voting results.

So the advisory vote on executive compensation, approximately 94% of shares voted were cast in favour. Approximately 6% of the shares voted were cast against. The ratification of independent public accounting firm. Approximately 99% of the shares voted were cast in favour. Approximately 1% of the shares voted were cast against. Shareholder proposal for executives to retain significant stock. Approximately 28% of the shares voted were cast in favour. Approximately 72% of the shares voted were cast against. Shareholder proposal on political contributions and corporate values. Approximately 6% of the shares voted were cast in favour. Approximately 94% of the shares were cast against. Shareholder proposal on independent board chairman. Approximately 26% of the shares voted were cast in favour. Approximately 74% of the shares voted were cast against.

Now these preliminary voting results will be posted on our corporate blog later today. The final voting results will be disclosed in an SEC filing. So we’ll now move onto our Q&A session. So in an effort to address as many of you as possible in the next 20 minutes, each question will be given a maximum of two minutes. And I’d like to ask this as we've already devoted time here to the topics discussed in shareholder proposal that you try to raise other issues during this part of the Q&A session. And for those of you that are not able to ask your question now please give us your question, your contact information to attendance outside the ballroom and you’ve got my commitment you’ll receive a quick personal response.

Question-and-Answer Session

Alex Gorsky

So our first question comes from Mr. John Froddy in the main ballroom.

Unidentified Participant

Thank you, Mr. Gorsky, board, director, shareholders. I don't feel too well today but I'll give it my best. The audience here today is filled with many great inspiring hard-working people who have dedicated their lives to Johnson & Johnson and the community. I really admire that. However what I don't admire is that the Credo in my opinion has largely been absent over the past decade. Johnson & Johnson used to be a very honorable and reputable American icon, in the news has been stories about bribes, kickbacks, fandom recalls, downplayed drug risks, and I feel this type of culture needs to change. As I’ve spoken in the past my life and many others has been ruined by the drug Levaquin. I have been suffering in pain for over seven years. I worked hard earning my MBA degree and my career has come to an end.

There are so many hard-working professional people who have incurred immense pain, enormous medical bills and broken homes. The vast majority of people suffering never received a dime in compensation for their injuries. Many go on to lead very difficult and challenging lives and this didn't have to happen. The FDA reports that many of the clinical trials for Levaquin were significantly flawed. The FDA has received over 20,000 individual safety reports for the drug Levaquin and according to the FDA, Levaquin is linked to over 1000 deaths (ph). I can't think of anything that is more cowardly than to knowingly and needlessly endanger the lives of more -- millions of people. To me that's the ultimate and cowardly behavior and in my opinion it was done without conscience. The Star-Ledger editorial board published an article called Johnson & Johnson: big companies show small morals and within that article states that if these same acts were committed by an individual, that person will likely find himself in prison. And last year Mr. Gorsky you said that mistakes were made. And yes, mistakes were made, but they were calculated business decisions and they were repeated. There were only mistakes in my opinion, because you were caught in the act.

In closing, I'd like to say to the shareholders please say a prayer for all those people who are suffering tremendous health problems that they really need your support and to you Mr. Gorsky, I wish you the best moving forward. I just wish you and your predecessor could follow your doctrine of caring for the world one patient at a time by actually visiting some of the homes of these people who have used your products that are suffering terribly and maybe then you would understand what leadership and courage is all about. I thank you for your time and I will see you next year.

Alex Gorsky

Mr. Froddy. Thank you very much for your comments. And we certainly understand and appreciate your concerns and you've got our commitment as exemplified today absolutely to our Credo and upholding a strong standards and as you know we continue to believe that Levaquin when used appropriately provides a very important alternative for physicians – it’s over 20 year track record, and we continue to monitor the safety use as well as the side effects. But we thank you very much for your comments today and I look forward to speaking with you for a few moments at the conclusion of today’s meeting. Thank you. Yes, question number one.

Unidentified Participant

Mr. Chairman, Justin Danhof representing the National Center for Public Policy Research has a question regarding medical device tax.

Justin Danhof – National Center for Public Policy Research

Good morning. My name is Justin Danhof and I am representing the National Center for Public Policy Research. We’re free-market think tank and a company shareholder. I appreciate the opportunity to speak with you. Mr. Gorsky, at last year’s shareholder meeting I thanked both you and Mr. Weldon for standing up to the organized rates evaders from color of change that shot to have the company sever its ties with the American Legislative Exchange Council known as ALEC. However in June of last year you caved to that pressure and ended your partnership with ALEC by resigning from its private enterprise board.

Since Johnson & Johnson's decision to leave ALEC gave corporate clout to a group of radicals who demonized conservatives and free-market policies. I'm hoping you can briefly explain your rationale for that decision and I urge you to reconsider. I also want to get your opinion on the proposal to repeal Omnicare’s (ph) medical device tax, a tax which has been reported could cost the company between $200 million and $250 million just this year. This is a tax that is bad for the economy, is already killing jobs and is bad for healthcare consumers and is personal (ph) prices and crush the innovations such as innovation that built Richard’s face that we talked about earlier. Currently lawmakers from both sides of the political aisle local support revoking the tax. They just differ on the way to do so. My organization has offered a proposal that calls for repealing the tax fully and replacing much of the revenue that would be lost by ending the subsidies for the wind industry.

Our analysis shows that eliminating the wind production tax credit by not renewing it when it expires at the end of this year, could replace over 60% of the lost revenue if the medical device tax is repealed. So therefore we are formally proposing this to Congress to repeal the medical device tax and replace the lost revenue with the wind subsidies. I thank you for your time. I look forward to your thoughts on ALEC and your thoughts on our proposal about the medical device tax.

Alex Gorsky

Well, thank you for your question. Regarding ALEC, we as the leadership team and frankly I made the decision that ALEC was no longer consistent with the principles in our Credo and overall stakeholders. Regarding question number two, we continue to work on healthcare reform. We've been supportive of it from the very beginning. We think healthcare reform is important, number one, we need to make sure that we better provide care for uninsured or underinsured consumers and patients. Number two, we think it should be done in the mix of public and private partnerships. Number three, we think it needs to be done in a way that continues to award innovation, and that we try to remove disparities in care.

Now regarding the medical device tax, we’re working with other trade organizations. We think that there are definitely components of it that should be reconsidered. We want to make sure that going forward that it does not stifle innovation, that it does not end up having a negative impact on employment in this country. But we appreciate your comments and your questions. Thank you.

Let’s go to overflow room number four. Joseph Cusimano.

Unidentified Participant

Hello Mr. Gorsky. My name is Joe Cusimano. I have been a stockholder for about 40 years in your company. I have a question though, since medical devices are a significant portion of your sales, why are you considering selling OCD?

Alex Gorsky

Okay. Well, thank you very much for your question. As I mentioned during the course of my discussion, one of the things that we’re committed to is making sure that – while we believe that our broad diverse platform of health care options is very important in this environment, there’s also incumbent upon us to be decisive and disciplined and very focused about where and where we can best invest for the future of the organization and our business. As we conducted our portfolio review, we looked at a number of different factors regarding OCD we made the decision that we should consider other strategic options. We remain very interested in the area of diagnostics, particularly molecular diagnostics. And we’re not certain of what the outcome of this review will be but we want to make sure that through the course of this that our employees are lookout for, and that the business remains strong during this period. And we think that ultimately we’ll make the right decision for both the businesses as well as the people in the organization. Thank you. Number two.

Unidentified Participant

Mr. Chairman, we have Sister Barbara Aires and she would like to discuss medicine patent pool and also pediatric formulations.

Alex Gorsky

Hello Sister Barbara and welcome.

Sister Barbara Aires – Sisters of Charity

Hello. Thank you. I represent the Sisters of Charity and a number of members of the Interfaith Center on Corporate Responsibility. We have had many wonderful dialogues with your company and appreciate much of the work coming out of Janssen. Dr. Stoffels, I greeted him earlier. Very proud of your work with TB, also noticed in the survey of the 15 largest pharmaceuticals, you came out second in the access to medicines survey worldwide, which we think is wonderful. I am concerned about your participation in the medicine patent pool and that it's a growing concern that your second line medications and where you are in pediatric formulations. We're getting all kinds of information from people worldwide looking for Johnson & Johnson to be stronger in this field. I know you have reservations about that and I'm interested to know as are my colleagues our discussion is still going on, where do you think you may enter and in your work in the underserved in the developing world. We also are looking to see how you evaluate the impacts, not just on your clinics, but are you participating in their communities related to the development of infrastructure to provide these medicines? Thank you.

Alex Gorsky

Well, thank you for your thoughtful question as always Sister Barbara. And on the first part of your question regarding the patent pool, I think this was discussed at the meeting last year. After a very thoughtful and comprehensive review of the options available to us to ensure the patients in need, they cannot afford access to certain of more medications, be it for HIV, hepatitis C or tuberculosis, can get access. We think that's in the best interest of those patients to ensure the safe and effective and consistent use of those products to provide it through more than nine different generic manufacturers that we’re working with, particularly in the emerging and developing markets. We also have a program in place where in many of these markets we’re not enforcing the patents for several of our compounds. And it’s our hope, our aspiration that through these programs we can get them the access that they need at a cost that’s appropriate and reasonable for that particular environment.

Paul Stoffels, I know also has a center of excellence that’s focused on the pediatric issues that you raise, that’s something we’re very committed to. We’re working very hard in that area but we’d be more than happy to have you come up and talk with Paul following the meeting to give you greater details in some of those areas. But thank you very much for your question and again for attending the meeting. Next question. Number one.

Unidentified Participant

Mr. Chairman, Philip Burman, portfolio manager and shareholder has some general positive comments.

Unidentified Participant

Good morning Alex. Philip Burman, portfolio manager and shareholder. Some comments and questions together. Within just one year under our new chairman and CEO Johnson & Johnson stock is back on track, advancing once again assuming its stock market leadership position once again in its peer group and in relation to all stocks in general. Now question with parts. Can you give us the essential elements of your specific five-year business plan? For example, are you personally in favor of restructuring Johnson & Johnson into separate companies via spin-offs? Will you be concentrating on small or large future acquisitions? What will be your targeted preferred percent of sales mix for the pharmaceuticals, medical devices and consumer divisions? And what will be your preferred attained target prices for splitting the stock in the future? Lastly, will we be looking towards transferring more consumer products manufacturing overseas to reduce our cost structure further?

Alex Gorsky

Well, thank you, Mr. Burman. Now I’ve got my list on those things right here that I just happened to – no, but in all seriousness, we’ve got hopefully through the program today, you got an idea that we remain a strong believer in our diversified portfolio across healthcare. We think that in this emerging healthcare environment having physicians and medical devices and diagnostics, pharmaceuticals, consumers give us great capabilities, scientifically that we can leverage as well as a great presence commercially where we can better engage with large customers and patients. So we think that's a real source of strength, and by the way we’re continuing to drive excellence in execution within each one of the segments as well.

Now regarding our growth for future plans, as I mentioned we think it’s going to be driven by our internal scientific teams. They have done a wonderful job of spurring growth. We also realize we’re going to have to source exogenous sources as well to ensure that we have a good blend of inside and outside approach to driving innovation going into the future. Regarding all your other questions, we’ll be happy to talk to you afterwards but our real focus is on driving and making a real difference for patients around the world. If we do that consistent with all of our Credo stakeholders we think the rest will take care of itself. Thank you very much.

A question from overflow room number one. Mr. Robert Cantor please.

Unidentified Participant

First, I want to congratulate you in this meeting. It’s a much big improvement over last year. I looked at the cash flow and I see that the company bought back $12 billion in stock. Costco had extra money and their board said this extra money is stockholders and they gave back a special dividend, which was about 7% of their selling price. The beneficiaries of a buyback, the biggest one are option holders, because it reduces the amount of stock that’s for sale, so as you raise it your supply is down. It raises the earnings-per-share which raises also the value of the stock. Current federal tax laws checks qualified dividends, which J&J’s are and long-term capital gains at the same dollar amount. Many of the stockholders are in lower income maybe the 15% bracket and their qualified dividends won't even be tax-free money to them.

I would like to see buybacks just limited to the amount of money – amount of shares that are given out.

Alex Gorsky

You’ve got about 30 seconds left, so could you get to specific question please?

Unidentified Participant

The question is, I would like to receive a reduction in buybacks that equal the amount of stocks issued to match these options and stock shares given to the upper management?

Alex Gorsky

Thank you very much for your comments. The bulk of the share buyback that you mentioned were actually due to the Synthes transaction that we completed this year. We think if we look overall at what we return to shareholders in the form of dividends, stock buybacks and other means that over 75% of our free cash flow over the 10 year has been returned to the shareholder. But we appreciate your comments and we will continue to review that as we consider our strategy going forward.

Next question. Okay. We have one from overflow room number two. Alka Chandna.

Alka Chandna – People for the Ethical Treatment of Animals

Good morning Mr. Chairman and fellow shareholders. Thank you for this opportunity to speak before you. My name is Dr. Alka Chandna and I am here on behalf of People for the Ethical Treatment of Animals, PETA and our more than 3 million members and supporters. At least two Johnson & Johnson companies, Ethicon Endo-Surgery in the US and Ethicon Institute for Surgical Education in India, currently use healthy animals in lethal demonstrations to train personnel in the use of laparoscopic surgical equipment. Even as the company uses non-animal stimulators for this very purpose at other facilities. According to federal reports last year in the US along, J&J’s companies experimented on 1221 animals, including dogs, rabbits, sheep, goats and pigs. All of these animals were used in painful experiments.

The use of animals in medical device training goes against the prevailing medical scientific and corporate consensus, which holds that animal used should be eliminated in favor of non-animal methods whenever and wherever possible and against our company’s principles as stated in its commitment to ethical animal care and use. It surely defies logic that our company would choose to use cruel, invasive and demonstratively inferior training methods in one J&J –

Alex Gorsky

Ms. Chandna, I am sorry, we have 30 seconds left. Is there a question that you would like to present so that I can ensure that I respond?

Alka Chandna – People for the Ethical Treatment of Animals

Thank you, Chairman. I appreciate that. Yes, I wanted to ask in light of the fact that it is illegal in Great Britain and the Netherlands to use animals in such training, and in fact, the American College of Surgeons does not endorse this method, what are J&J’s plans for phasing out the use of animals in medical device training, replacing the use of animals with sophisticated non-animal training methods consistently throughout the corporation and its subsidiaries and in particular, I'd be interested if you would have a timeline and I thank you so much for your time and attention.

Alex Gorsky

Okay. Thank you very much for your question and your concern. Throughout Johnson & Johnson we follow all the appropriate rules and regulations concerning the use of animals in all of our testing and all of our training. We try to limit that to those areas where we think is absolutely essential to ensure the safe and effective use of our products. In the cases that you mentioned we feel that doing so – and again following all the prescribed procedures is in the best interest of health but we’re continually looking for ways to improve our procedures to obviously minimize our use in those areas. And I know that we work in conjunction with your organization and others and we remain committed to working with you to do our very best going forward. Thank you very much. Any other questions? One more question in overflow room number three. Ms. Lorraine Gracie.

Unidentified Participant

Good afternoon. I know everybody here is worried about their dividends and the stock increasing and so am I. But how about our younger Americans who are struggling to find jobs while our companies are transplanting their services overseas? I would like to see Johnson & Johnson have a program where they hire people in this country and help our unemployment for our younger people who are desperate for jobs. Thank you.

Alex Gorsky

Well, thank you very much for your comments. And as a global company, we do have a global presence existing around the world. We continuously review it to be as effective and efficient as we can be. And that being said, we don't expect there to be significant changes going forward in our current policy or current rates of employment. But we'll certainly keep your comments in mind. Thank you very much.

Well, what I would do now is invite everyone attending us to join us outside in the lobby today or go downstairs in the Brunswick ballroom for light refreshments. And that concludes today's meeting. Thank you very much.

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