LEGAL PROCEEDINGS NEW ACCOUNTING PRONOUNCEMENTS ECONOMIC AND MARKET FACTORS COMMON STOCK MARKET PRICES 39 MANAGEMENT’S DISCUSSION AND ANALY SIS OF RESULT S OF OPERATIONS AND FINANCIAL CONDITION 2010 2009 ____________________ ____________________ High Low High Low First quarter $65.95 61.89 61.00 46.25 Second quarter 66.20 57.55 56.65 50.12 Third quarter 62.70 56.86 62.47 55.71 Fourth quarter 64.92 61.25 65.41 58.78 Year-end close $61.85 64.41 The Company’s Common Stock is listed on the New York Stock Exchange under the symbol JNJ. The composite market price ranges for Johnson & Johnson Common Stock during 2010 and 2009 were: The Company faces various worldwide health care changes that may continue to result in pricing pressures that include health care cost containment and government legislation relating to sales, promotions and reimbursement. The Company is exposed to fluctuations in currency exchange rates. A 1% change in the value of the U.S. Dollar as compared to all foreign currencies in which the Company had sales, income or expense in 2010 would have increased or decreased the translation of foreign sales by approximately $300 million and income by $65 million. Inflation rates continue to have an effect on worldwide economies and, consequently, on the way companies operate. The Company accounted for operations in Venezuela as highly inflation- ary in 2010, as the prior three-year cumulative inflation rate has sur- passed 100%. In the face of increasing costs, the Company strives to maintain its profit margins through cost reduction programs, productivity improvements and periodic price increases. The Company is aware that its products are used in an environment where, for more than a decade, policymakers, consumers and busi- nesses have expressed concerns about the rising cost of health care. In response to these concerns, the Company has a long-standing policy of pricing products responsibly. For the period 2000–2010, in the United States, the weighted average compound annual growth rate of the Company’s net price increases for health care products (prescription and over-the-counter drugs, hospital and professional products) was below the U.S. Consumer Price Index (CPI). See Note 21 to the Consolidated Financial Statements for further information regarding legal proceedings. The Company is also involved in a number of patent, trademark and other lawsuits, as well as investigations, incidental to its busi- ness. The ultimate legal and financial liability of the Company in respect to all claims, lawsuits and proceedings referred to above cannot be reasonably estimated. However, in the Company’s opin- ion, based on its examination of these matters, its experience to date, and discussions with counsel, the ultimate outcome of legal proceedings, net of liabilities already accrued in the Company’s balance sheet, is not expected to be material to the Company’s financial position, although the resolution in any reporting period of one or more of these matters could have a material impact on the Company’s results of operations and cash flows for that period. The Company is involved in numerous product liability cases in the United States, many of which concern alleged adverse reactions to drugs and medical devices. The damages claimed are substantial, and while the Company is confident of the adequacy of the warnings and instructions for use that accompany such products, it is not feasible to predict the ultimate outcome of litigation. However, the Company believes that in most cases product liability will be sub- stantially covered by existing amounts accrued in the Company’s balance sheet under its self-insurance program. Refer to Note 1 to the Consolidated Financial Statements for recently adopted accounting pronouncements and recently issued account- ing pronouncements not yet adopted as of January 2, 2011. Stock Based Compensation: The Company recognizes compensa- tion expense associated with the issuance of equity instruments to employees for their services. The fair value of each award is esti- mated on the date of grant using the Black-Scholes option valuation model and is expensed in the financial statements over the vesting period. The input assumptions used in determining fair value are the expected life, expected volatility, risk-free rate and the dividend yield. See Note 17 to the Consolidated Financial Statements for additional information. Employee Benefit Plans: The Company sponsors various retirement and pension plans, including defined benefit, defined contribution and termination indemnity plans, which cover most employees worldwide. These plans are based on assumptions for the discount rate, expected return on plan assets, expected salary increases and health care cost trend rates. See Note 10 to the Consolidated Finan- cial Statements for further details on these rates and the effect a rate change would have on the Company’s results of operations. The Company also operates in an environment which has become increasingly hostile to intellectual property rights. Generic drug firms have filed Abbreviated New Drug Applications (ANDAs) seeking to market generic forms of most of the Company’s key phar- maceutical products, prior to expiration of the applicable patents covering those products. In the event the Company is not successful in defending the patent claims challenged in ANDA filings, the generic firms will then introduce generic versions of the product at issue, resulting in the potential for substantial market share and revenue losses for that product. For further information see the discussion on “Litigation Against Filers of Abbreviated New Drug Applications” in Note 21 to the Consolidated Financial Statements. Changes in the behavior and spending patterns of purchasers of health care products and services, including delaying medical procedures, rationing prescription medications, reducing the frequency of physician visits and foregoing health care insurance coverage, as a result of the current global economic downturn, may continue to impact the Company’s businesses. Long-Lived and Intangible Assets: The Company assesses changes in economic conditions and makes assumptions regarding estimated future cash flows in evaluating the value of the Company’s property, plant and equipment, goodwill and intangible assets. As these assumptions and estimates may change over time, it may or may not be necessary for the Company to record impairment charges.