Results of Operations
Analysis of Consolidated Sales
For the first fiscal six months of 2008, worldwide sales were $32.6 billion, a total increase of 8.2% including an operational increase of 2.8% over 2007 first fiscal six months sales of $30.2 billion. Currency had a positive impact of 5.4% for the period.

Sales by U.S. companies were $16.7 billion in the first fiscal six months of 2008, which represented an increase of 2.4% over the same period last year. Sales by international companies were $15.9 billion, which represented a total increase of 15.0% including an operational increase of 3.4%, and a positive impact from currency of 11.6% over the first fiscal six months of 2007.

Sales by companies in Europe achieved total growth of 14.7%, including an operational growth of 1.6% and a positive impact from currency of 13.1%. Sales by companies in the Western Hemisphere, excluding the U.S., achieved total growth of 16.0% including operational growth of 4.7% and a positive impact from currency of 11.3%. Sales by companies in the Asia-Pacific, Africa region posted sales growth of 14.9%, with operational growth of 5.9% and a positive impact from currency of 9.0%.

For the fiscal second quarter of 2008, worldwide sales were $16.4 billion, a total increase of 8.7% and an operational increase of 3.1%, over 2007 fiscal second quarter sales of $15.1 billion. Currency fluctuations positively impacted sales by 5.6% for the period.

Sales by U.S. companies were $8.2 billion in the fiscal second quarter of 2008, which represented an increase of 2.1%. Sales by international companies were $8.2 billion, which represented a total increase of 16.2%, including an operational increase of 4.3%, and a positive impact from currency of 11.9% over the fiscal second quarter of 2007.

Analysis of Sales by Business Segments

Consumer
Consumer segment sales in the first fiscal six months of 2008 were $8.1 billion, an increase of 14.7% over the same period a year ago, with 8.3% of operational growth and a positive currency impact of 6.4%. U.S. Consumer segment sales increased by 10.1% while international sales achieved growth of 18.6%, an operational increase of 7.0%, with a positive currency impact of 11.6%.

Major Consumer Franchise Sales - First Fiscal Six Months

                                                                                            Operations
(Dollars in Millions)              June 29, 2008      July 1, 2007       Total Change         Change          Currency Change
OTC Pharm & Nutr                  $         2,999     $       2,463               21.8 %            15.7 %                 6.1 %
Skin Care                                   1,679             1,521               10.4               4.4                   6.0
Baby Care                                   1,105               934               18.3              10.1                   8.2
Women's Health                                965               884                9.2               1.5                   7.7
Oral Care                                     794               713               11.4               6.3                   5.1
Wound Care/Other                              558               545                2.4              (2.3 )                 4.7

Total                             $         8,100     $       7,060               14.7 %             8.3 %                 6.4 %

Consumer segment sales in the fiscal second quarter of 2008 were $4.0 billion, an increase of 13.2% over the same period a year ago with 6.8% of operational growth and a positive currency impact of 6.4%. U.S. Consumer segment sales increased by 8.5% while international sales achieved growth of 17.0%, an operational increase of 5.6%, with a positive currency impact of 11.4%.

Major Consumer Franchise Sales - Fiscal Second Quarter

                                                                                            Operations
(Dollars in Millions)              June 29, 2008      July 1, 2007       Total Change         Change          Currency Change
OTC Pharm & Nutr                  $         1,405     $       1,206               16.5 %            10.5 %                 6.0 %
Skin Care                                     839               757               10.8               4.7                   6.1
Baby Care                                     572               487               17.5               9.3                   8.2
Women's Health                                504               463                8.9               1.1                   7.8
Oral Care                                     408               354               15.3               9.7                   5.6
Wound Care/Other                              308               297                3.7              (0.8 )                 4.5

Total                             $         4,036     $       3,564               13.2 %             6.8 %                 6.4 %

The OTC Pharmaceuticals and Nutritionals franchise achieved operational growth of 10.5% over prior year fiscal second quarter. A major contributor was the successful launch of over-the-counter ZYRTEC† in the U.S. during the fiscal first quarter of 2008. Additional contributors to the growth were Adult TYLENOL† and SPLENDA† products.

The Skin Care franchise operational growth of 4.7% over prior year fiscal second quarter was attributable to strong performances from the AVEENO®, CLEAN & CLEAR®, and NEUTROGENA† product lines due to new product launches and strength in the core business. This growth was partially offset by lower sales of RoC† products and the discontinuation of EVIAN†, a line of facial refreshers marketed in Europe.

The Baby Care franchise operational growth of 9.3% over prior year fiscal second quarter was the result of strong sales performance by wipes, haircare, lotion and oil product lines primarily in emerging markets.

The Women's Health franchise operational growth was 1.1% over the prior year fiscal second quarter. International sales growth was partially offset by declines in the U.S. due to competition in the market place.

The Oral Care franchise operational growth of 9.7% was achieved by strong performance of LISTERINE† mouthwash and dissolvable whitening strips, launched in the third quarter of 2007, partially offset by sales declines of other products.

Pharmaceutical
Pharmaceutical segment sales in the first fiscal six months of 2008 were $12.7 billion, a total increase of 3.2% over the same period a year ago with an operational decline of 0.9% and an increase of 4.1% related to the positive impact of currency. The U.S. Pharmaceutical sales decreased by 0.4% over the same period a year ago. Total growth in international Pharmaceutical sales was 9.6%, which reflected an operational sales decline of 1.8% and an increase of 11.4% related to the positive impact of currency.

Major Pharmaceutical Product Revenues* - First Fiscal Six Months

                                                                                            Operations
(Dollars in Millions)              June 29, 2008       July 1, 2007      Total Change         Change           Currency Change

REMICADE®                         $         1,884     $        1,600              17.8 %            17.8 %                    - %
RISPERDALâ                                  1,521              1,715             (11.3 )           (14.1 )                  2.8
TOPAMAX®                                    1,323              1,188              11.4               9.3                    2.1
PROCRIT®/EPREX®                             1,281              1,575             (18.7 )           (23.2 )                  4.5
LEVAQUIN®/FLOXIN®                             847                843               0.5               0.2                    0.3
RISPERDALâ CONSTAâ                            652                539              21.0              12.0                    9.0
ACIPHEXâ/PARIETâ                              602                672             (10.4 )           (15.8 )                  5.4
CONCERTAâ                                     569                508              12.0               9.4                    2.6
DURAGESIC®/Fentanyl Transdermal               505                591             (14.6 )           (21.2 )                  6.6
Other                                       3,585              3,139              14.2               6.9                    7.3

Total                             $        12,769     $       12,370               3.2 %            (0.9 )%                 4.1 %

*Prior year amounts have been reclassified to conform to current presentation.

Pharmaceutical segment sales in the fiscal second quarter of 2008 were $6.3 billion, a total increase of 3.1% over the same period a year ago with an operational decline of 1.3% and an increase of 4.4% related to the positive impact of currency. U.S. Pharmaceutical sales decreased by 1.7% over the same period a year ago. Total growth in international Pharmaceutical sales was 11.3%, which reflected an operational sales decline of 0.6% and an increase of 11.9% related to the positive impact of currency.

Major Pharmaceutical Product Revenues* - Fiscal Second Quarter

                                                                                           Operations
(Dollars in Millions)              June 29, 2008      July 1, 2007      Total Change         Change           Currency Change

REMICADE®                         $           886     $         869               2.0 %             2.0 %                    - %
RISPERDALâ                                    712               848             (16.0 )           (18.9 )                  2.9
TOPAMAX®                                      677               578              17.1              14.8                    2.3
PROCRIT®/EPREX®                               652               758             (14.0 )           (18.8 )                  4.8
LEVAQUIN®/FLOXIN®                             351               364              (3.6 )            (3.9 )                  0.3
RISPERDALâ CONSTAâ                            343               278              23.4              14.2                    9.2
ACIPHEX®/PARIETâ                              325               336              (3.3 )            (8.6 )                  5.3
CONCERTAâ                                     279               256               9.0               6.3                    2.7
DURAGESIC®/Fentanyl Transdermal               272               288              (5.6 )           (13.5 )                  7.9
Other                                       1,843             1,574              17.1               9.9                    7.2

Total                             $         6,340     $       6,149               3.1 %            (1.3 )%                 4.4 %

*Prior year amounts have been reclassified to conform to current presentation.

REMICADE® (infliximab), a biologic approved for the treatment of Crohn's disease, ankylosing spondylitis, psoriasis, psoriatic arthritis, ulcerative colitis and use in the treatment of rheumatoid arthritis, achieved operational growth of 2.0% over prior year fiscal second quarter. This growth was driven by market growth partially offset by a decrease in export sales due to customer production planning needs. Operational growth for the first fiscal six months of 2008 versus the same period a year ago was 17.8%, which the Company believes is more reflective of actual consumption in the first two fiscal quarters of 2008. REMICADE® is competing in a market which is experiencing increased competition due to new entrants and the expansion of indications for existing competitors.

TOPAMAX® (topiramate), which has been approved for adjunctive and monotherapy use in epilepsy, as well as for the prophylactic treatment of migraines, achieved strong operational growth of 14.8% as compared to prior year fiscal second quarter. The growth was primarily due to increases in the migraine category partially offset by generic competition in certain markets outside the U.S. The patent for TOPAMAX® (topiramate) in the U.S. will expire in September 2008. In July 2008, the U.S. Food and Drug Administration (FDA) granted pediatric exclusivity for TOPAMAX†, which extends market exclusivity in the U.S. until March 2009. The expiration of a product patent or loss of market exclusivity is likely to result in a significant reduction in sales. In the first fiscal six months of 2008, U.S. sales of TOPAMAX® were $1.1 billion.

PROCRIT† (Epoetin alfa)/EPREX† (Epoetin alfa) experienced an operational sales decline of 18.8%, as compared to prior year fiscal second quarter. The decline in PROCRIT† sales was due to the declining markets for Erythropoiesis Stimulating Agents (ESAs) in the U.S. Outside the U.S., new competition and label reviews have contributed to the lower sales results for EPREX†. Discussions with European regulators regarding potential changes to the label for ESAs, including EPREX†, are underway. The FDA issued an order requiring a labeling supplement making specific revisions to the label for ESAs, including PROCRIT†. The order requires this labeling supplement to be submitted to the FDA by August 14, 2008.

LEVAQUIN® (levofloxacin)/FLOXIN† experienced an operational decline of 3.9% over prior year fiscal second quarter, primarily due to the impact of generic competition in the category.

ACIPHEX†/PARIET†, a proton pump inhibitor, experienced an operational decline of 8.6% as compared to prior year fiscal second quarter, primarily due to increased generic competition in the category.

CONCERTA† (methylphenidate HCl), a product for the treatment of attention deficit hyperactivity disorder, achieved operational sales growth of 6.3% over the fiscal second quarter of 2007. The sales increase was due to market growth. Although the original CONCERTA† patent expired in 2004, the FDA has not approved any generic version that is substitutable for CONCERTA†. Two parties have filed Abbreviated New Drug Applications (ANDAs) for generic versions of CONCERTA†, which are pending and may be approved at any time.

DURAGESIC®/Fentanyl Transdermal (fentanyl transdermal system) experienced an operational sales decline of 13.5% over the fiscal second quarter of 2007 due to continued generic erosion.

In the fiscal second quarter of 2008, Other Pharmaceutical sales achieved operational growth of 9.9% versus the prior year. The biggest contributor to the increase was VELCADE†, a treatment for relapse multiple myeloma, which was co-developed with Millenium Pharmaceuticals.

Medical Devices and Diagnostics
Medical Devices and Diagnostics segment sales in the first fiscal six months of 2008 were $11.8 billion, an increase of 9.7% over the same period a year ago, with 3.6% of this change due to operational increases and the remaining 6.1% increase related to the positive impact of currency. The U.S. Medical Devices and Diagnostics sales increase was 2.1% and the growth in international Medical Devices and Diagnostics sales was 16.8%, which included operational increases of 5.0% and an increase of 11.8% related to the positive impact of currency.

Major Medical Devices and Diagnostics Franchise Sales* - First Fiscal Six Months

                                                                                             Operations
(Dollars in Millions)              June 29, 2008       July 1, 2007       Total Change         Change          Currency Change
DEPUY®                            $         2,542     $        2,292               10.9 %             6.1 %                 4.8 %
ETHICON ENDO-SURGERY®                       2,127              1,848               15.1               8.3                   6.8
ETHICON®                                    1,965              1,778               10.5               3.5                   7.0
CORDIS®                                     1,687              1,780               (5.2 )           (11.0 )                 5.8
Diabetes Care                               1,289              1,145               12.6               6.2                   6.4
Vision Care                                 1,246              1,066               16.9              10.0                   6.9
ORTHO-CLINICAL DIAGNOSTICS®                   919                829               10.9               5.5                   5.4

Total                             $        11,775     $       10,738                9.7 %             3.6 %                 6.1 %

*Prior year amounts have been reclassified to conform to current presentation.

Medical Devices and Diagnostics segment sales in the fiscal second quarter of 2008 were $6.1 billion, an increase of 12.1% over the same period a year ago, with 5.7% of this change due to operational growth and the remaining 6.4% increase related to the positive impact of currency. The U.S. Medical Devices and Diagnostics sales increase was 4.0% and the growth in international Medical Devices and Diagnostics sales was 19.7%, which included operational growth of 7.3% and an increase of 12.4% related to the positive impact of currency.

Major Medical Devices and Diagnostics Franchise Sales* - Fiscal Second Quarter

                                                                                            Operations
(Dollars in Millions)              June 29, 2008      July 1, 2007       Total Change         Change          Currency Change
DEPUY®                            $         1,289     $       1,135               13.6 %             8.5 %                 5.1 %
ETHICON ENDO-SURGERY®                       1,124               957               17.5              10.4                   7.1
ETHICON®                                    1,020               904               12.8               5.7                   7.1
CORDIS®                                       852               852                  -              (6.4 )                 6.4
Diabetes Care                                 674               596               13.1               6.7                   6.4
Vision Care                                   639               553               15.6               8.4                   7.2
ORTHO-CLINICAL DIAGNOSTICS®                   476               421               13.1               7.4                   5.7

Total                             $         6,074     $       5,418               12.1 %             5.7 %                 6.4 %

*Prior year amounts have been reclassified to conform to current presentation.

The DePuy franchise's operational growth of 8.5% over the same period a year ago was primarily due to DePuy's orthopaedic joint reconstruction products including the hip and knee product lines and strong performance in the Mitek sports medicine products.

The Ethicon franchise achieved operational growth of 5.7% from the same period in the prior year resulting from solid growth in Hemostasis, sutures, and mesh product lines.

The Cordis franchise experienced an operational sales decline of 6.4% over the fiscal second quarter of 2007. This decline was caused by loss of market share for the CYPHER® Sirolimus-eluting Coronary Stent due to market entry of a new competitor in the U.S. These results were partially offset by strong growth of the Biosense Webster business.

The Diabetes Care franchise achieved operational growth of 6.7% over the fiscal second quarter of 2007 reflecting the continued success of the ONETOUCH† ULTRA† product lines and the growth of the Animas business.

The Vision Care franchise achieved operational sales growth of 8.4%. ACUVUE® OASYS™, 1-DAY ACUVUE®MOISTTM, and ACUVUE® ADVANCETM for Astigmatism were the major contributors to this growth.

The Ortho-Clinical Diagnostics franchise achieved operational growth of 7.4% with the Immunohematology product line being the major contributor.

Cost of Products Sold and Selling, Marketing and Administrative Expenses Consolidated costs of products sold for the first fiscal six months of 2008 decreased to 28.7% from 29.0% of sales as compared to the same period a year ago. The cost of products sold for the fiscal second quarter of 2008 increased to 28.9% from 28.8% of sales in the same period a year ago. The increase in the fiscal second quarter was primarily due to the change in the mix of businesses, with stronger sales growth in the Consumer business and slower sales growth in the Pharmaceutical business.

Consolidated selling, marketing and administrative expenses for the first fiscal six months of 2008 increased to 32.6% from 32.5% as compared to the same period a year ago. Consolidated selling, marketing and administrative expenses for the fiscal second quarter of 2008 increased to 33.5% from 33.3% of sales in the same period a year ago. Increases in the quarterly and six month periods were primarily due to the change in the mix of businesses and increased promotional expenses associated with new product launches in the Medical Devices and Diagnostics business. The increase was partially offset by the impact of restructuring initiatives and cost containment efforts primarily in the Pharmaceutical business and lower integration costs in the Consumer business.

Research & Development
Research activities represent a significant part of the Company's business. These expenditures relate to the development of new products, improvement of existing products, technical support of products and compliance with governmental regulations for the protection of the consumer. Worldwide costs of research activities, for the first fiscal six months of 2008 were $3.6 billion, an increase of 2.6% over the same period a year ago. Research and development spending in the fiscal second quarter of 2008 was $1.9 billion, an increase of 1.6% over the fiscal second quarter of 2007. As a percent to sales, the level of research and development spending decreased for both the fiscal second quarter and the first fiscal six months of 2008 as compared to the same period a year ago. The decreases as a percent to sales in the quarterly and six month periods were primarily due to changes to the mix of businesses.

In-Process Research & Development(IPR&D) In the fiscal second quarter and the first fiscal six months of 2008, the Company had $40 million of IPR&D charges with no tax benefit associated with the acquisition of Amic AB.

In the fiscal second quarter of 2007, the Company had no IPR&D charges. IPR&D charges of $807 million before and after tax were recorded during the first fiscal six months of 2007 related to the acquisitions of Conor Medsystems Inc.

Other (Income) Expense, Net
Other (income) expense, net is the account where the Company records gains and losses related to the sale and write-down of certain equity securities of the Johnson & Johnson Development Corporation, gains and losses on the disposal of fixed assets, currency gains and losses, minority interests, litigation settlements, as well as royalty income. As a percent to sales, other (income) expense, net for the fiscal second quarter of 2008 was similar to the fiscal second quarter of 2007. The unfavorable change in other (income) expense, net for the first fiscal six months of 2008 as compared to the same period a year ago was $192 million. This was primarily due to the net gain of $175 million before tax related to the divestiture of certain brands recorded in the fiscal first quarter of 2007.

OPERATING PROFIT BY SEGMENT
Consumer Segment
Operating profit for the Consumer segment as a percent to sales in the first fiscal six months of 2008 was 17.4% versus 17.6% over the same period a year ago. This decrease was primarily due to the net gain of $175 million before tax related to the divestitures of certain brands recorded in the fiscal first quarter of 2007. Operating profit as a percent to sales in the fiscal second quarter of 2008 was 16.9% versus 13.5% over the same period a year ago. The increase in the fiscal second quarter was due to cost synergies, lower integration costs related to the acquisition of the Consumer Healthcare Business of Pfizer Inc. and other cost containment initiatives.

Pharmaceutical Segment
Operating profit for the Pharmaceutical segment as a percent to sales in the first fiscal six months of 2008 was 35.3% versus 35.7% over the same period a year ago. Operating profit as a percent to sales in the fiscal second quarter of 2008 was 33.8% versus 34.7% over the same period a year ago. For both periods in 2008, operating profit margin declined, as compared to the same periods a year ago. This was due to the change in product mix, primarily the RISPERDAL† oral loss of exclusivity outside the U.S. during 2008.

Medical Devices and Diagnostics Segment
Operating profit for the Medical Devices and Diagnostics segment as a percent to sales in the first fiscal six months of 2008 was 29.7% versus 20.8% over the . . .