Fitch Affirms Johnson & Johnson; Places Guidant Corp. On Watch Positive.

CHICAGO -- Fitch Ratings has affirmed Johnson & Johnson's (JNJ) long-term 'AAA' rating and the company's 'F1+' short-term rating following the announcement that JNJ will acquire medical device manufacturer Guidant Corp. for an estimated net acquisition cost of $23.9 billion, based upon Guidant's approximately 334 million fully diluted shares outstanding (at of the close of business Dec. 15, 2004), net of estimated cash on hand at the time of closing. The Rating Outlook is Stable. The ratings were initiated by Fitch as a service to users of its ratings and are based on public information.

Under terms of the proposed transaction, approximately $10 billion of the acquisition price will be in cash with approximately $14 billion funded through JNJ stock. Fitch affirms JNJ's ratings noting the large equity component of the transaction and citing JNJ's substantial current cash balance (approximately $13 billion at Sept. 30, 2004) and superior free cash flow. JNJ generated approximately $7.2 billion in free cash flow (net cash from operating activities less capital expenditures and dividends) for the last 12 months ended Sept. 30, 2004 and Fitch notes that JNJ will continue to generate additional free cash flow between now and the expected close of the transaction on July 1, 2005 to fund the transaction. Further, JNJ possess substantial debt capacity to incur additional borrowings to fund the transaction if JNJ's financing strategy changes to include some degree of debt funding.

Fitch has placed Guidant Corp.'s 'A-' senior unsecured debt and 'F2' rated commercial paper on Rating Watch Positive to reflect the pending acquisition of the higher rated JNJ.

The proposed transaction will provide JNJ access to the rapidly expanding cardiac rhythm management market where Guidant is an industry leader as well as provide potential technological and manufacturing synergies in the companies' respective coronary stent business (assuming no material anti-trust concessions).

JNJ's credit profile is exceptional with net cash from operating activities for the last 12 months ended Sept. 30, 2004 of $12.2 billion (as noted, free cash flow was $7.2 billion) and a modest debt burden of approximately $3.4 billion at Sept. 30, 2004. JNJ's financial strength is derived from a variety of sources including 1) the stable, cash generating nature of its consumer products segment 2) a history of successful, accretive acquisitions 3) a deep portfolio of high-margined, branded pharmaceuticals 4) market leading, high-margined franchises in medical devices and 5) a conservative financial structure.